Productivity has returned to the center of business strategy because it is one of the few reliable ways to expand margins, fund reinvestment, support wages, and sustain growth at the same time. The IMF notes that productivity growth comes from two broad sources: improvements within firms and better allocation of capital and labor across the economy. The OECD likewise emphasizes that one of the defining features of the global productivity problem is not weak performance at the frontier alone, but the widening gap between frontier firms and laggards. [1]
For executives, bankers, and policymakers, the implication is clear: the strongest companies are not simply cutting costs. They are building systems that raise output, improve decision speed, upgrade talent, and channel resources toward the most productive opportunities. McKinsey’s 2025 research argues that a relatively small number of standout firms generated the majority of productivity growth through bold strategic moves, top-line growth, and portfolio shifts more than through incremental efficiency alone. Firms with the strongest productivity gains also recorded stronger wage and profit growth. [2]
This is why the “productivity premium” matters. It is not a narrow operations metric. It is a strategic advantage created by better management, better technology adoption, stronger people systems, and more disciplined resource allocation. McKinsey’s research on human capital finds that companies that combine people development with strong performance management show greater resilience and lower attrition, while the World Bank argues that productive growth is tied to innovation, managerial skills, and firms’ ability to leverage linkages and capabilities rather than expansion at any cost. BCG’s research similarly finds that superior current performance and future advantage are increasingly associated with capabilities such as people advantage, agility, innovation, modern data platforms, and embedded AI. [3]
The global productivity debate is often framed at the macroeconomic level, but its business relevance is immediate. The OECD’s productivity indicators continue to show weak long-term productivity momentum across many economies, while the World Bank describes the last decade before the pandemic as a period of broad-based productivity slowdown. The IMF adds that productivity has accounted for more than half of the decline in global growth, with annual productivity growth in advanced economies falling from 1.4 percent in 1995–2000 to 0.4 percent after the pandemic, and emerging market economies dropping from 2.5 percent in 2001–07 to 0.8 percent. [4]
That matters because many of the older growth levers are less dependable. Demand is more uneven, capital is more selective, and scaling through labor expansion alone is often costly and slow. In that environment, productivity becomes the mechanism that allows firms to produce more value from existing resources. Harvard Business Review notes that sustained growth is among the hardest things companies attempt, and that only a minority of firms manage it consistently over time. [5]
For GBAF readers, the business implication is straightforward. Companies that can raise productivity intelligently become better credit risks, better long-term investment candidates, and more resilient operators. For bankers, this shifts attention toward the quality of a borrower’s operating model, capability base, and reinvestment discipline. For policymakers, it reinforces the importance of business dynamism, skills, competition, and technology diffusion rather than headline growth alone. The OECD notes that business entry, growth, exit, and labor reallocation are crucial to productivity and long-term growth, while the IMF argues that resource allocation reforms and productivity-enhancing measures are central to reviving medium-term growth. [6]
What High-Performing Companies Do Differently
They pursue bold productivity moves, not just incremental savings
One of the clearest findings from recent McKinsey research is that productivity growth is not evenly distributed. A relatively small number of firms create most of it. In the United States sample McKinsey studied, 44 standout firms, or 5 percent of the sample, accounted for nearly 80 percent of positive productivity growth from 2011 to 2019. More importantly, the research argues that these gains came more from bold strategic moves, top-line growth, and portfolio shifts than from gradual efficiency improvements alone. [2]
This is a crucial distinction for leadership teams. Many productivity programs are still designed as margin defense exercises. High-performing companies treat productivity as a growth capability. They do not ask only, “Where can we cut?” They ask, “Where can we create more value per dollar, per employee, per process, and per customer interaction?” That strategic posture is what turns productivity from an internal KPI into a competitive advantage. [7]
They combine people development with performance discipline
McKinsey’s research on 1,800 large companies across 15 countries found that firms that both develop human capital and manage performance well enjoy a long-term edge. These “People + Performance Winners” are more likely to generate consistent earnings, retain talent more effectively, and achieve top-tier profitability. McKinsey also reports that stronger human-capital builders had attrition rates about five percentage points lower than peers and were more likely to become large-scale superstars. [8]
This finding is especially important because it challenges the idea that productivity is primarily a technology or cost discipline. High-performing companies tend to use management practices, incentives, skills development, and bottom-up innovation to activate human capital. In other words, talent is not just an input to productivity; in many firms it is the mechanism that determines whether technology, process redesign, and capital actually translate into value. [9]
They build future-oriented capabilities, not one-off transformation projects
BCG’s research finds that superior performance and future advantage correlate with a recognizable set of capabilities: aligned leadership, people advantage, agility and resilience, innovation culture, flexible data and technology platforms, and embedded AI. McKinsey’s more recent research on operating models points in a similar direction, arguing that performance is shaped by an integrated system of choices across structure, governance, processes, technology, leadership, rewards, and talent. [10]
The lesson is that sustainable productivity does not come from isolated initiatives. It comes from a coherent operating system. Companies that modernize one layer while leaving decision rights, incentives, or skills unchanged often fail to capture the full benefit of investment. That is why productivity leaders tend to redesign workflows, management routines, and capability models at the same time rather than relying on tools alone. [11]
They close the gap between frontier and lagging performance
The OECD has repeatedly highlighted a widening divergence between frontier firms and laggards. The World Bank makes a similar point in its work on technology adoption, noting a large technological divide across firms and emphasizing that capable, technologically sophisticated firms are also more resilient in the face of shocks. It also notes that many firms remain far from the technology frontier, which means the biggest productivity opportunity is often diffusion and upgrading, not invention alone. [12]
That matters for both large enterprises and midsize firms. Productivity leadership is not only about creating breakthrough innovation at the frontier. It is also about raising the median performance of the organization by improving management quality, process design, technology usage, and capital allocation. The OECD’s latest productivity work also shows that large firms generally have higher labor productivity than smaller companies in most OECD countries, but gaps vary by sector and are not destiny. In services especially, size is not the sole determinant of productivity performance. [13]
A Practical Framework for Productivity-Led Sustainable Growth
The capability engine
The first engine is capability. Firms need the combination of technology, management quality, skills, and innovation that improves performance within the business. The IMF explicitly identifies better technology, improved management practices, and innovative processes as core drivers of within-firm productivity gains. The World Bank similarly argues that technology upgrading and better firm capabilities are central to improving productivity and generating higher-quality jobs. [14]
For boards and executive teams, this means productivity should be treated as a capability-building agenda, not a temporary efficiency program. Investments in automation, analytics, skills, and process redesign should be evaluated by their ability to improve throughput, raise quality, reduce friction, and create scalable capacity. [15]
The allocation engine
The second engine is allocation. Productivity growth depends not only on how efficiently each unit works, but also on whether talent, capital, and management attention are flowing to the right activities. The IMF stresses that allocative efficiency determines whether resources move toward the most innovative and efficient companies. McKinsey’s “power of one” research similarly finds that productivity gains are often driven by portfolio shifts and strategic moves rather than internal optimization alone. [16]
This is where many companies underperform. They may improve local processes while continuing to fund low-return products, slow-moving functions, or duplicated structures. High-performing firms are more willing to reallocate resources, simplify portfolios, and back businesses with stronger productivity potential. For lenders and investors, this is also a critical evaluation lens: the quality of management reallocation often says more about future performance than static efficiency ratios do. [17]
The operating system engine
The third engine is the operating system. McKinsey’s research on operating models argues that leaders need an integrated design across 12 elements, including value agenda, governance, leadership, processes, technology, rewards, and talent. The firm’s case examples show that intentionally designed operating models can improve efficiency, resilience, customer outcomes, and speed to market. [18]
In practice, this means productivity leaders make work easier to execute. They clarify decision rights, reduce organizational drag, align incentives with outcomes, and use technology to simplify rather than complicate workflows. McKinsey summarizes the measurable outcomes as clarity, speed, skills, and commitment. Those four outcomes provide a useful test for any executive productivity program: if a transformation does not improve at least two or three of them, it is unlikely to create a durable productivity premium. [18]
Actionable Recommendations
Build a value-based productivity scorecard
Track productivity as value creation, not only cost reduction. In addition to unit cost, measure revenue per employee, profit per employee, cycle time, decision latency, customer outcomes, talent retention, and return on invested capital. This aligns with the IMF’s distinction between within-firm productivity and allocative efficiency, and with McKinsey’s evidence that the most productive firms also showed stronger wage and profit growth. [16]
Reallocate capital and talent more frequently
Make capital allocation and talent deployment more dynamic. Productivity leaders tend to shift resources toward higher-value opportunities rather than protect legacy structures. McKinsey’s standout-firm research and the IMF’s work on resource allocation both support the view that reallocation is a central component of sustainable productivity growth. [7]
Pair technology investments with workflow redesign
Do not treat AI, automation, or digitization as standalone tools. The World Bank’s work on technology adoption shows that capability gaps across firms remain wide, and McKinsey’s operating-model research shows that technology creates more impact when linked to processes, governance, talent, and decision-making. [19]
Treat human capital as a productivity asset
Companies that invest in skills, mobility, and performance systems are more likely to convert workforce capability into earnings resilience and lower attrition. That is not a soft benefit; it is part of the productivity premium. McKinsey’s “People + Performance” work provides strong support for this approach. [8]
Simplify the operating model around speed and accountability
Review spans, governance forums, reporting lines, and incentives to remove avoidable friction. McKinsey’s operating-model research suggests that high-performing organizations are defined less by one ideal structure and more by the coherence of the full system around value creation, speed, and execution. [18]
Back diffusion, not only frontier innovation
For banks, investors, and policymakers, one of the most important opportunities is helping more firms adopt proven tools, practices, and technologies. The OECD and World Bank both emphasize that the productivity challenge is often the gap between frontier and lagging firms, not the absence of innovation altogether. [20]
FAQ
What is the productivity premium?
The productivity premium is the strategic advantage a company gains when higher productivity leads not only to lower costs, but also to stronger profits, better wages, faster reinvestment, and more resilient growth. McKinsey’s research shows that firms with the highest productivity growth also recorded stronger wage and profit growth. [2]
How is productivity different from cost cutting?
Cost cutting reduces inputs. Productivity improves the ratio between outputs and inputs. The IMF explains that productivity growth comes from better technology, improved management practices, innovative processes, and better allocation of resources, not only spending reductions. [21]
Why do only a few firms drive most productivity growth?
Because productivity gains are often concentrated in firms that make bold strategic moves, shift portfolios, and scale capabilities faster than peers. McKinsey found that a small share of standout firms generated most positive productivity growth in its sample. [2]
Can midsize and smaller firms improve productivity too?
Yes. The OECD notes that large firms often have higher labor productivity overall, but sector differences matter and smaller firms can outperform in some business services segments. The larger opportunity is usually better management, technology adoption, and diffusion of proven practices. [22]
What role does human capital play in productivity growth?
A major one. McKinsey’s research finds that companies combining people development with strong performance management achieve greater resilience, lower attrition, and stronger long-term profitability. [8]
How do technology and AI fit into sustainable growth?
Technology and AI matter when they improve workflows, decisions, and business models rather than add complexity. The World Bank highlights the productivity gains available from technology upgrading, while BCG points to data platforms and embedded AI as capabilities associated with future advantage. [23]
What should boards and CEOs measure first?
Start with a mix of operating and strategic metrics: revenue per employee, margin per business line, cycle time, capital productivity, customer outcomes, attrition, and speed of resource reallocation. These metrics better reflect whether productivity is becoming a source of sustainable growth rather than a one-time initiative. [15]
[1][14][15][16][21] ELIMINATING THE PRODUCTIVITY DRAG
https://www.imf.org/-/media/files/publications/fandd/article/2024/09/li-productivity.pdf
[2][7][17] How standout companies grow national productivity | McKinsey
[3][8][9] Managing human capital: Performance through people | McKinsey
[4][24] OECD Compendium of Productivity Indicators 2025 | OECD
[5] Create a System to Grow Consistently
https://hbr.org/2024/03/create-a-system-to-grow-consistently
[6] OECD Insights on Productivity and Business Dynamics: United Kingdom
[10][27] The New Blueprint for Corporate Performance | BCG
https://www.bcg.com/publications/2023/the-new-blueprint-for-corporate-performance
[11][18] How to create an effective operating model | McKinsey
[12][20] The best versus the rest: The global productivity slowdown, divergence across firms and the role of public policy: The Global Forum on Productivity at 10 | OECD
[13][22] Productivity in SMEs and large firms: OECD Compendium of Productivity Indicators 2025 | OECD
[19][23] Technology Adoption by Firms in Developing Countries
[25] The World Bank Productivity Project
https://www.worldbank.org/en/topic/competitiveness/brief/the-world-bank-productivity-project
[26] Europe’s Productivity Weakness: Firm-Level Roots and Remedies
