August 31, 2001
Newspaper Lists Most-Improved Producers
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USA Today has conducted a review of the country's 100 largest companies and found that AutoNation, PepsiCo, and Duke Energy played leading roles in advancing the United States' productivity gains in the past five years.
Productivity growth - usually defined as getting more output from every hour worked - has been identified as the key to sustaining the economy, controlling inflation, raising living standards, and even reducing Social Security's long-run funding shortfall.
Government data show American workers' productivity has been growing at an annual rate of 2 percent since 1995, double the annual gains of the previous two decades and double those of Europe.
USA Today called on professors at the Massachusetts Institute of Technology Sloan School of Management and leading business schools in Israel and Germany to identify the large companies that boosted productivity the most from 1996-2000.
The paper says the results show for the first time which Fortune 100 companies saw the best year-to-year gains per worker.
Unlike government reports on productivity, the formula also takes into account the dollars companies invested in capital assets, such as plants, equipment and technology.
Making tough choices
Some of the biggest gains resulted from management decisions that look obvious in hindsight, USA Today reports. But they were wrenching at the time, such as AutoNation's conclusion that its used-car superstores were a flop and PepsiCo's decision to spin off its long-nurtured Taco Bell, Pizza Hut and KFC restaurants.
"We built the restaurants into a 25,000-chain giant," says Indra Nooyi, chief financial officer of PepsiCo. "There was tremendous pride in them. We went through a whole year of detailed analysis."
When PepsiCo spun off the restaurants and its bottling operation, the number of workers it employed plunged 74 percent from 486,000 to 124,000 from 1996 to 2000. Assets dropped 25 percent. It became much smaller, focusing on snack food, like Fritos, and beverages.
PepsiCo's revenue also dropped, but only 35 percent, from $31.6 billion to $20.4 billion. Therefore, it was producing far more revenue for each worker and asset dollar, sending productivity soaring at an annual rate of 33 percent.
The study does not say which companies are the most productive - it only lists those that had the most improvement in productivity from 1996 to 2000. USA Today compares it to showing which baseball players improved their batting averages the most, not the ones with the best averages. Therefore, many companies with reputations for being productivity trailblazers, such as Wal-Mart and Intel, are relatively low in the rankings because they had less room to improve.
Also, the study examines only the largest companies. There is little doubt, USA Today notes, that small companies have been the engine behind U.S. productivity gains.
The study underscores a controversy inherent to any productivity formula when applied to individual companies. Productivity formulas are typically applied to the economies of nations, rendering the quirks of specific companies insignificant. Productivity gains at companies can be due to mergers or layoffs, not always to working smarter or more efficiently.
Good examples are energy companies, which dominate the top of the USA TODAY productivity list. Most got a big boost in revenue without adding workers or assets - and therefore got a boost in productivity - because of higher oil, gas and electricity prices.
To view the USA Today story, click here