Rethinking Productivity

When the auto industry faced severe shortages of semiconductor chips during the COVID-19 pandemic, Toyota fared better than most competitors. While many automakers delayed launches or shuttered plants, Toyota exceeded its 2021 sales targets and even unseated GM as the top seller in the United States despite facing the same headwinds. Its production system, long praised for efficiency, had also built in safeguards: stronger supplier visibility, diversified sourcing, and strategic buffer stocks. Though shortages later caught up, Toyota rebounded to record output by 2024.

The traditional view of productivity as relentless efficiency is crumbling. The past five years have shown how brittle even the most optimized operations can be under volatility with fractured supply chains, spiking lead times, soaring energy costs, and scarce skilled labour. Manufacturers that focused solely on cutting costs struggled, while those with built-in flexibility to absorb shocks, reallocate resources, and restart with minimal friction proved resilient by design.

Our recent analysis of the top 300 global manufacturers by revenue across three industries—aerospace and defense, industrial equipment, and automotive and mobility—revealed a striking pattern. The most resilient companies are no longer the ones that treat productivity as a cost-cutting exercise. They are the ones that see it as a value-creation strategy that spans knowledge, capital, operations, and technology. These companies invest not only in doing things faster or cheaper, but in building the capabilities to adapt, scale, and recover. Their productivity model isn’t static. It evolves with them to deliver ongoing productivity improvements, higher revenue, and profitability.

A quarter of companies in our sample have clearly struck this balance, effectively leveraging both human capital and physical assets to drive profitability. On average, these “productivity pacesetters” are 4.7x more productive overall than their least productive peers—a result driven by being 5x more productive in their use of talent and 4.5x more productive in their use of assets.

The payoff: durable, adaptable growth

Companies that embrace the value-driven approach to productivity are structurally better equipped for disruption, recovery, and durable performance. Our analysis shows that pacesetters benefit in three reinforcing ways: they generate stronger financial outcomes, maintain operational stability in the face of volatility, and accelerate recovery when conditions improve.

On average, pacesetters achieve 1.5x more revenue per employee and a 1.4x stronger revenue-to-asset ratio compared to their less productive peers, the “foundational operators.” And their ability to scale without proportionally increasing cost or capital intensity results in higher returns: six percentage points stronger return on invested capital (ROIC) and 12–13 percentage points higher total shareholder return. This isn’t just operational efficiency; it’s a structural advantage that compounds over time: while the average earnings before interest and taxes (EBIT) per employee difference between pacesetters and foundational operators was modest in 2015 (US$36,480 vs. US$24,263), by 2024, it had ballooned to nearly US$70,000 (US$71,247 vs. US$3,286). That trajectory underscores how the advantage is not only durable but expanding year after year. 

Pacesetters are also better able to absorb impact and maintain performance when disruption hits, whether in the form of global shocks or local volatility. During the height of COVID-19, for instance, their productivity declined by just 14 per cent, compared to a 22 per cent drop for the foundational operators. And they recovered faster: In 2021 alone, pacesetters’ productivity gains exceeded those of others by 33 percentage points, highlighting their adaptability and long-term competitiveness (see Figure 1).

Take Caterpillar, a productivity pacesetter in our study. In 2020, as industrial demand cratered, revenues fell 22 per cent. Yet the company stayed profitable, maintained its dividend, and generated over US$6 billion in operating cash flow—thanks to years of diversifying its portfolio, strengthening liquidity, and investing in digital tools for supply chain visibility. When markets recovered in 2021, Caterpillar doubled net income and generated more than US$7 billion in cash flow, proving that cost and productivity are not about shaving budgets, but about establishing a resilient future for one’s businesses.

Figure 1: Productivity pacesetters demonstrate superior resistance and resilience in the face of economic turbulence

So, what drives value-driven productivity? The shift from cost alone to cost and productivity is not a matter of tweaking processes or cutting deeper. It demands a structural reset across systems, organizational design, and leadership behaviours that redefines how value is created and scaled. Our research shows that pacesetters activate the following five reinforcing levers. Together, these levers form a new productivity model that enables companies to deliver durable performance, even under pressure.

BUILD A RESILIENT FOUNDATION: Leading productivity starts with treating technology as core infrastructure, not a support function. Pacesetters are building digital cores that integrate across engineering, production, supply chain, and enterprise functions—and, increasingly, into how products themselves are conceived and developed. These modular, AI-native architectures enable not only real-time visibility and autonomous decision-making but also more modular product platforms and software-defined systems that reduce engineering complexity and accelerate response to change.

Between 2021 and 2024, the pacesetters spent 21.5 per cent more of their revenue on IT than the least productive group—and over 36 per cent more on technologies like AI and cloud. But it’s not just about spending more. These leaders use technology in smarter ways. Instead of layering new tools onto outdated systems, they’re shifting to modern, AI-powered platforms that learn from day-to-day operations, adjust production flows, and help teams make faster, better decisions across the business.

Technology in this context is no longer a fixed infrastructure. It’s a living capability, and the foundation for industrial resilience. Take CNH Industrial, the global equipment and agricultural machinery manufacturer. In collaboration with Accenture and Microsoft, the company has invested to enhance its digital capabilities and develop “smart” connected products and services for faster innovation and greater operational efficiency within its “digital factory” model. The program is an integral part of CNH’s digital transformation, which is designed not just to reduce costs but to help the company grow topline revenue, while building a single, connected view of the product and enhancing productivity and sustainability for its customers.

INVEST IN PEOPLE AS A CORE PRODUCTIVITY ASSET: In manufacturing, automation may drive scale, but people drive the adaptability to achieve scale. As operations become more digitized, the productivity bottleneck has shifted from tools to talent. And for good reason: On the modern shop floor, workers are expected to interact with AI agents, interpret machine data, and troubleshoot automated systems—often with limited training.

Three-quarters of manufacturers now prioritize upskilling to close labour and capability gaps. Yet 67 per cent of frontline employees say current training programs fall short, failing to match the speed and specificity of technological change. Too often, programs are generic, disconnected from daily operations, or delivered too late to be useful.

What sets the pacesetters apart isn’t just that they invest more in training—it’s how they do it. First, they tailor upskilling to specific roles and technologies, focusing on the capabilities each job actually needs. Second, they embed learning into daily plant operations through job shadowing, digital tools, and bite-sized modules that workers can access during shifts. Finally, they build continuous learning into their culture, helping teams stay agile and grow with the increasing use of AI and other emerging technologies.

“The lesson from today’s manufacturing pacesetters is clear: Productivity is no longer about squeezing more output from the same resources. It’s about building the resilience, design simplicity, and adaptability to thrive in volatility while creating long-term value.”

At Schneider Electric’s smart factory in Lexington, Kentucky, digital transformation isn’t just about automation, it’s about enabling people to work smarter. As the plant modernized its operations, it introduced mobile access to real-time equipment diagnostics and performance data. Maintenance technicians now use tablets on the shop floor to instantly view machine schematics, sensor readings, and repair histories by scanning equipment barcodes. Instead of flipping through manuals or logging into fixed terminals, workers can diagnose and resolve issues on the spot. These tools, reinforced by structured training and peer support, have made digital adoption seamless, contributing to enhanced operational insight, reducing equipment downtime by 20 per cent, and eliminating paperwork by 90 per cent.

Productivity gains for Schneider haven’t come from pushing people harder, but by giving them the tools, skills, and confidence to lead change from the ground up.

TRANSFORM SUPPORT FUNCTIONS INTO AGILITY ENGINES: In many manufacturing companies, core operations have evolved, but the enabling functions around them haven’t kept up. Finance, procurement, HR, and compliance still rely on fragmented systems, manual workarounds, and complex approval chains. The result: delayed decisions, duplicated efforts, and hidden costs.

Pacesetters take a different approach. They treat enabling functions not as overhead to manage but as levers to unlock speed, consistency, and enterprise-wide coordination. They digitize workflows, eliminate unnecessary handoffs, and connect these teams directly to operational priorities. When done right, the result is more than just back-office efficiency, it’s enterprise agility.

That often starts with shared digital platforms but goes further. Finance teams adopt rolling forecasts tied to plant performance. Procurement integrates real-time supplier risk data into planning. HR moves beyond compliance to workforce analytics, aligning skills with capacity shifts. When these functions are aligned and simplified, the rest of the organization moves faster.

The data makes the case clear. Pacesetters grew their selling, general, and administrative (SG&A) spend at just a 2.6 per cent compound annual growth rate (CAGR) from 2015 to 2024—the slowest among all cohorts. Yet they delivered the highest SG&A elasticity: generating 1.2 per cent revenue growth for every 1 per cent increase in SG&A. The foundational operators, by comparison, spent more (3 per cent CAGR) and achieved only 1 per cent revenue growth per point of spend.

ABB, a global industrial technology company, offers a compelling example. Between 2019 and 2023, it became a more agile and efficient organization by adopting its decentralized operating model, the ABB Way, which promotes accountability, transparency, and speed. By shifting operating decisions to its divisions—a model now deeply embedded across the organization—ABB delivered strong financial results: an 18.1 per cent operational EBITA (earnings before interest, taxes, depreciation, and amortization) margin, a 22.9 per cent ROCE (return on capital employed), and a 100 per cent free cash flow conversion to net income in fiscal year 2024.

For manufacturers, the lesson is clear: scaling productivity isn’t just about smarter factories, it’s also about removing the drag from the back office.

REDESIGN OPERATIONS FOR RESPONSIVENESS: In another recent survey, we found that 85 per cent of industrial leaders view external unpredictability—from geopolitical volatility to extreme weather, supplier instability, and fragmented demand patterns—as their top operational challenge. That level of disruption exposes the limits of how most manufacturing operations were designed to work: optimized for throughput, not adaptability.

That rigidity often traces back to the product itself. Highly customized, part-heavy designs make it harder to reconfigure lines or source alternatives when disruption strikes. Pacesetters counter this by designing products with modular sub-systems and standardized components—allowing production to flex without costly redesigns. This helps them move away from long-cycle planning models and rigid production schedules toward digital systems that can flex, reallocate, and recover in real time.

For these companies, the productivity payoff is measurable. Our research found that manufacturers that operate with more responsive, digitally enabled systems report 2–3x higher maturity scores and outperform peers on both EBIT margin and total shareholder return. These companies aren’t more productive because they run tighter. They’re more productive because they can keep moving when others stall.

Dow’s Digital Manufacturing Acceleration program shows what this looks like in practice. Rolled out across more than 80 global plants, the program replaced manual, paper-based workflows with real-time digital tools, allowing faster diagnostics, predictive maintenance, and coordinated execution. The result: reduced maintenance effort and frontline teams spending less time chasing tasks and more time improving how the work gets done.

INCLUDE CUSTOMERS IN THE PRODUCTIVITY EQUATION: The most important metrics for manufacturing companies are often those measured within their four walls: throughput, cycle times, asset utilization, and more. But for pacesetters, the measure is not just how efficiently the factory runs but how effectively the business delivers value to the customer.

That focus does not stop at customer service improvements. It requires realigning the entire operating model—from product design to field service—around usage, not just output. Pacesetters break down silos between commercial, engineering, and operations teams, and they use customer data to shape how they configure, service, and continuously improve products—learning where variety truly adds value and where it only adds complexity and cost. The result is less rework, shorter lead times, and fewer mismatches between what’s made and what customers need.

Atlas Copco, for example, redesigned its compressed air services business to focus on real-time performance rather than scheduled maintenance, sharply reducing failures. By drawing on real-time data from installed systems, the company shifted to condition-based servicing that improved customer uptime and cut unexpected costs. Service contracts now drive a growing share of order volume. In the process, Atlas boosted customer value, captured direct customer feedback, and embedded the customer’s voice into how the business runs.

In today’s market, operational excellence means very little if it’s disconnected from customer impact. Pacesetters close that loop, making sure that what drives efficiency also drives relevance.

The new meaning of productivity

The lesson from today’s manufacturing pacesetters is clear: Productivity is no longer about squeezing more output from the same resources. It’s about building the resilience, design simplicity, and adaptability to thrive in volatility while creating long-term value. That requires activating five reinforcing levers: building a resilient technology foundation, investing in people as a core productivity asset, rewiring support functions for speed and coordination, redesigning operations for responsiveness, and embedding customers into the productivity equation.

Companies that pull these levers in concert don’t just recover faster from disruption—they compound their advantage over time. The real question for leaders, then, is not whether to pursue productivity, but whether they are prepared to redefine it as a strategy for resilience, scale, and enduring growth.