Report: Labor productivity not driving profit
San Jose, Calif. A report released Tuesday by Deloitte’s Center for the Edge found that, despite major improvement in labor productivity over the last four decades, many industries in the United States, including retail, have experienced alarming decreases in their return-on-assets.
Deloitte released its industry-specific findings in the 2009 “Shift Index,” a new economic indicator identifying three waves of disruption that are shaping today’s business landscape.
The 2009 Shift Index revealed that on an economy-wide level, U.S. companies’ ROA has plummeted 75% since 1965. Specifically, the index found that tier-one companies -- technology, telecommunications, media and automotive -- are experiencing increases in competitive intensity and declines in asset profitability. Retail, which falls in the index’s second tier, is suffering a decline in ROA while facing a high, but steady, level of competitive intensity.
“Executives understandably believe that productivity drives higher returns, but that assumption appears flawed,” said John Hagel, co-chairman of Deloitte’s Center for the Edge. “Looking across industries, there doesn’t seem to be any relationship between productivity improvement and increased asset profitability. Companies focus on automation and scale economics to squeeze continuing improvements in labor productivity, but these efforts yield diminishing returns over time. In part, this is because the cost savings are passed through to customers as competition intensifies. Given this performance paradox, firms need to re-evaluate how they create and retain value.”
The Shift Index also found, with variations across industries, that more than 75% of the work force is not passionate about the work they perform on a daily basis.
Specifically with regard to retail, the index found that the ROA in the retail sector has fallen 60% over the course of four-plus decades, from 6.6% to 3.1%, despite labor productivity increases that outpace nearly all other industries studied.