Productivity at the core: How COOs deliver strategy

Every chief operating officer (COO) knows this simple truth: Delivering the company’s strategy isn’t just part of the job—it is the job. While there are many paths to achieving that goal, none can succeed for long without increased productivity, the foundation for financial performance and economic growth.

Since the 2008 global financial crisis, global productivity growth has largely declined around the world. Even before the crisis, advanced economies’ productivity growth receded from 2.2 percent annually between 1997 and 2002 to 1.6 percent between 2002 and 2007. It dropped further once the crisis receded, to under 1.0 percent in the decade between 2012 and 2022. This means that productivity growth declined across millions of businesses.

Yet recent McKinsey research on 8,300 large companies in the United States, the United Kingdom, and Germany also finds that just 2 percent of companies account for 63 percent of national productivity growth (Exhibit 1). That’s an extraordinary inspiration for companies to seek consistent, year-over-year productivity performance. In virtually every organization, the person most responsible for raising productivity is the person who oversees the company’s operations: the COO (see sidebar, “The role and title of the COO”).

Productivity, like so much else in operations, is a matter of strategic prioritization. COOs need to cultivate a culture and mindset of productivity across all operations functions, and COOs often need to make nuanced decisions—accepting losses in some areas to earn outsize gains in others. The goal of this article is to analyze those critical considerations, revealing six best practices that equip leaders to navigate the complexities of the productivity imperative with clarity and confidence.

Productivity: The strategic lever for business success

At its core, productivity measures how effectively inputs (generally, capital, labor, or operational expenses) are converted into outputs (products and services). Companies that operate more productively generate higher returns, which allows them to attract and reinvest capital, fueling a cycle of faster growth and even greater returns (Exhibit 2). A successful business creates economic profit, where the ROIC exceeds the cost of capital. High ROIC signals a business model with a clear competitive advantage.

For businesses, this translates to higher efficiency, reduced costs, and increased profit margins—gains that can then be reinvested in innovation, talent, and market expansion to drive sustained profitability and growth—both for companies and societies. Indeed, McKinsey Global Institute research projects that if advanced economies can regain their pre-2008 productivity growth rates, GDP per capita could increase by $1,500 to $8,000 by 2030.

Who can recharge companies’ productivity growth? While productivity strategies differ across industries, the COO plays a central role in turning strategic objectives into operational reality. Productivity is not only about cost cutting; it’s about how operational excellence can drive continuous improvement in revenue, cost, and capital efficiency—all drivers of ROIC. In doing so, COOs can reignite productivity as a strategic lever for sustained strategic advantage, innovation, growth, and resilience.

Unleashing productivity to drive ROIC

The operational levers a COO can pull to increase ROIC draw from three sources of productivity improvement: external spend (for materials and other inputs), labor, and assets (typically machinery and other long-lived equipment).

External-spend productivity: Increasing value from material and nonmaterial spend

Increasing external-spend productivity is crucial because the additional value directly improves an operation’s profitability. The familiar process of optimizing material usage, reducing waste, and controlling indirect spend helps businesses reduce input costs while maintaining or improving output quality and environmental performance. The greatest impact comes from a balance of discipline in the foundational practices of spend management and creativity in considering new, innovative paths to productivity.

Reduce direct costs. The first foundational principle of direct-cost optimization is simply to avoid overpaying. Activities typically include negotiating better rates and terms with existing suppliers, qualifying new vendors, optimizing sourcing strategies, and leveraging economies of scale with strategic suppliers. In tandem, the company can also reduce costs (as well as its carbon footprint), by adopting energy- or water-efficiency measures or by redesigning packaging. Specification optimization can yield substantial savings by, for example, reengineering products to require fewer or cheaper inputs.

Advanced capabilities can dramatically improve a company’s understanding of its entire supply networks, increasing cost transparency and strengthening operational resilience. Cleansheet and “should-cost” modeling can bring transparency to suppliers’ own cost bases—and potential improvement opportunities that generate more value for both sides in the supply relationship. Strategic sourcing capabilities dynamically reexamine existing supply chain structures and make-versus-buy decisions. Improved business continuity planning and dual-sourcing practices provide needed agility during periods of disruption.

Increase yield on inputs. Many companies start this effort by focusing on two powerful metrics: increasing “right first time” (RFT, referring to error-free production) and reducing “cost of poor quality” (COPQ). But as important as these indicators are, they alone cannot sustain improvement over time, as performance often plateaus (or even reverts should management’s attention waver). The highest-performing companies instead treat product quality and right-first-time as two elements of a consistent, enterprise-wide approach to continuous improvement.

Traditional lean management practices, for example, have long sought to reduce waste and improve efficiency to get the most out of raw materials, recognizing, for example, that any rework, defects, or scrapped products use more inputs for the same output. By fostering a culture of problem-solving and standardization, high performers optimize yield while embedding quality into every aspect of their operations. This mindset extends to the way top organizations apply technology: not as a keeping-up measure but as an innovative tool that, thoughtfully deployed, provides more ways to reliably produce to specification.

Reduce indirect costs. Top performers optimize all indirect spend that supports operations, covering everything from utilities to back-office support functions. As with direct costs, foundational approaches to indirect-cost reduction center first on price or rate reduction, such as by developing preferred vendor relationships. Usage reduction, in the indirect-costs context, is primarily driven by demand management, such as through zero-based budgeting and enforcement of spend policies. Specification optimization applies to indirect costs as well: Reexamining assumptions about office-space requirements or marketing practices can lead to entire new standards that better reflect real needs.

Labor productivity: Increasing output per hour of work

The second source of productivity comes from labor. By integrating productivity improvements into a broader operations strategy, companies can help ensure that they are making the most of human capabilities, with judicious investment in employee development and workplace optimization.

Boost direct and indirect labor productivity. Companies can enhance the efficiency of production workers by more rigorously defining standard work, rebalancing and streamlining workflows, improving performance management, strengthening employees’ problem-solving capabilities, and optimizing support functions to increase overall direct-labor output. In support roles, companies can minimize non-value-added tasks and redeploy employee time toward solving complex problems—with help from increasingly capable technologies, such as AI agents.

Elevate talent stability. Invest in advanced tools and practices that allow the COO and other senior leaders to understand the company’s talent metrics with the same breadth and depth as operational, quality, and safety metrics. Given increasingly urgent needs for strategic workforce planning, “talent stability”—a company’s ability to attract, retain, and especially engage their workers—has assumed strategic importance. Companies that invest in comprehensive development opportunities, such as online instruction, classroom training, and life-skill development, see significant improvements in employee engagement and retention.

Unilever illustrates how a more thoughtful, integrated approach to labor productivity can have dramatic results. At a factory facing serious production shortfalls, the company rolled out a new reward program that provided small financial incentives for meeting new production and morale targets while encouraging problem resolution. Absenteeism fell by about one-half, productivity improved by more than 10 percent, production waste fell by more than one-quarter, and revenue rose by more than 20 percent.

Recent McKinsey research shows that prioritizing talent investment over labor cost cutting more than doubles the likelihood of achieving outsize gains in productivity and total shareholder returns (Exhibit 3). By investing in workforce skills, leveraging technology, and optimizing workflows, businesses can attain higher output per employee while maintaining quality and fostering employee engagement.

Asset productivity: Increasing output per hour of machine time

COOs have long sought to squeeze more output from machinery and other assets, assessed through metrics such as overall equipment effectiveness (OEE). While it may never be possible to match asset capacity exactly to production demand, the highest-performing companies are relentless in their aim to improve OEE through targeted and continuous-improvement efforts.

The three variables that OEE measures on any machine—availability (the percentage of production time that the machine is operational), performance (its production speed compared with its theoretical maximum), and quality (how much of its output meets quality standards)—describe three opportunities. In each, the objective is to increase the value a machine generates without sacrificing product quality or machine performance. Conversely, since machines are typically designed to produce a particular quality at a particular rate, a decline in performance on any of these three variables has a real financial impact, as it absorbs capital without producing expected results.

Optimize availability. An asset’s availability is usually determined by planned production times and how effectively these times are utilized. “Total required availability” aligns supply with demand at the aggregate level and is also influenced by the ability to run assets continuously through shifts, including during lunches, breaks, and shift changes. Planned downtime is typically due to changeovers, such as from one product to another, with unplanned downtime due to breakdowns. These losses are typically addressed through tailored initiatives to compress changeovers, which can range from standard exercises, such as single-minute exchange of dies (SMED), to redefined standard work and improved performance management. Operations leaders can also find new approaches to increase asset reliability, including through refined preventive and predictive maintenance programs and enhanced root-cause problem-solving capabilities.

Increase performance. During run time, asset productivity is vulnerable to speed loss and minor stops. The former is typically addressed by setting asset speeds according to maximum validated standards. Minor stops, however, can be more elusive to solve, as they manifest as dozens or hundreds of micro stops that are individually small but collectively large. These types of losses are promising opportunities to address with the use of newer-technology sensors, data analytics, and AI to both characterize loss reasons and foster root-cause problem-solving.

Improve quality. From an asset perspective, a 10 percent finished scrap rate is equivalent to 10 percent lost capacity from a productivity perspective. When factoring in machine wear and maintenance, scrap’s impact is even worse than downtime, as the asset experienced the wear without delivering a shippable product. Ensuring all production meets specifications to eliminate rework and waste not only improves material and labor productivity but also increases the productivity of the asset. Additionally, if a product that fails quality assurance escapes the plant, it becomes a service or product problem for the customer, potentially harming revenue and, eventually, ROIC.

Technology as a catalyst for productivity gains

The tools and technologies driving productivity today are light-years ahead of what was available only a few years ago. We are firmly in the midst of the Fourth Industrial Revolution, arguably the most transformative era in production history. Each industrial revolution has introduced groundbreaking advancements that reshaped industries and societies: steam-powered, mechanized production; electrification-enabled mass production; and automated, streamlined processes. Now, the Fourth Industrial Revolution is unlocking the power of data, the Internet of Things (IoT), advanced robotics, and AI. Industry leaders that are effectively leveraging and scaling these technologies are driving unprecedented levels of efficiency, agility, and innovation—reshaping not only their industries but also economies on a global scale.

This revolution is not about incremental improvements; it represents a seismic shift in how businesses operate and create value. For example, predictive maintenance powered by IoT sensors and machine learning has transformed asset management. Companies like GE and Siemens use digital twins—virtual replicas of physical assets—to monitor performance in real time, predict failures, and optimize maintenance schedules. These innovations have significantly reduced unplanned downtime and maintenance costs while extending the lifespan of critical equipment.

Similarly, big data analytics is enabling manufacturers to optimize production processes with unparalleled precision. Procter & Gamble, for instance, has leveraged advanced analytics to enhance supply chain efficiency and reduce waste. By analyzing data from production lines, it has identified bottlenecks, improved throughput, and ensured consistent product quality.

Another hallmark of this revolution is the transformative use of robotics and automation. Companies like Amazon have deployed fleets of autonomous robots in their warehouses, dramatically increasing order fulfillment speed and accuracy. These robots work alongside human employees, augmenting their capabilities and allowing the workforce to focus on higher-value tasks.

The Fourth Industrial Revolution is not just a technological shift—it is a productivity revolution. By harnessing these advanced tools, businesses can open new frontiers of growth, redefine how value is created, and position themselves to thrive in an increasingly competitive and dynamic global economy. To fully realize this potential, the best organizations design for at-scale execution from day one, with COOs playing a critical role in identifying the right technologies to solve bottlenecks, drive productivity gains, and ensure seamless transitions from pilot phases to broader deployment without losing momentum.

Shaping the COO agenda: Delivering strategy

Execution is where strategy becomes reality, particularly in the form of ROIC. To succeed, COOs should embed operational excellence throughout the organization, from procurement and supply chain through to distribution and digital and analytics capabilities. The impact depends not on a particular tool or technology but on consistency and commitment: establishing clear accountability mechanisms, conducting regular performance reviews, and fostering a culture of continuous improvement.

For example, a mining company facing performance challenges rooted in a top-down culture made significant gains by empowering frontline teams to drive bottom-up innovation. Numerous small process improvements collectively increased production by over 10 percent annually for three consecutive years while reducing water usage by 7 percent—a critical achievement in a drought-prone region. Similarly, a payments business transformed its front and middle office by eliminating operational friction and building innovative capabilities. This effort not only improved customer experience but also delivered a $300 million revenue uplift and a 30 to 35 percent boost in productivity.

Examples such as this one underscore the transformative power of disciplined execution. By aligning productivity initiatives with strategic priorities and embedding operational excellence into the organization’s core, COOs can deliver tangible, lasting impact. A relentless focus on execution—supported by data, accountability, and a culture of improvement—can enable organizations to reach their full potential and achieve sustainable growth.

To consistently deliver such results, the most successful COOs embrace this challenge with a clear focus on six actions:

1. Remain consistently focused on delivering the business strategy. The most effective COOs understand that productivity is not an isolated goal—it is a means to deliver the organization’s strategy. They use simple, clear metrics to measure success, benchmarking the organizations’ performance against that of peers to ensure they stay competitive. And the insights they develop enable them to respond quickly and decisively as circumstances change, so that the business can maintain its strategy even under adversity.
2. Have a holistic and nuanced view of productivity. Top-performing COOs recognize that productivity is multifaceted. They understand all its elements—labor, capital, and resource efficiency—and know which types of productivity are most critical to deliver their business’s strategy. Equally important, they avoid bias, encouraging productivity improvements across all functions, not just the ones where they have prior experience or success. And they recognize that leading productivity improvement often requires making difficult decisions: achieving outsize improvements in one area may require accepting short-term losses in another.
3. Be relentless but not reckless. While COOs push hard for results, they must also uphold principles of safety, quality, and social responsibility. Productivity gains that compromise these principles are unsustainable and can erode the trust of employees, customers, and other stakeholders. The best COOs strike a balance, driving relentless execution without crossing critical boundaries.
4. Balance near-term pressures with a through-cycle mindset. COOs inevitably navigate the tension between delivering immediate results and building long-term resilience. This requires a disciplined approach to prioritization, ensuring that efforts are concentrated on areas that deliver the greatest value. For example, a COO in a commodity-driven business might prioritize cost efficiency, while one in a customer-centric organization might focus on service excellence. End-to-end planning across the value chain—from procurement to customer service—ensures that productivity improvements are integrated and sustainable.
5. Consistently look for new tools and enablers that yield a step change in productivity. The best COOs are relentless in their pursuit of innovation. They leverage cutting-edge tools such as digital and analytics, gen AI, and automation to unlock step-change improvements.
6. Collaborate across silos as a foundation for success. Achieving productivity success requires COOs to foster deep collaboration with stakeholders across the organization. Productivity is not achieved in isolation—it demands alignment across functions to ensure operational plans support the company’s strategic objectives. By aligning efforts across functions, COOs can foster the continuous improvement and accountability that sustained productivity growth requires—and that turns strategy into real returns.

For example, partnering with marketing and customer experience leaders ensures that operations are aligned with customer needs, balancing tailored offerings with streamlined production to deliver value while managing complexity. Collaboration with technology leaders enables the strategic deployment of digital tools, automation, and analytics to enhance efficiency and throughput. Engaging with human resources and finance ensures the development of organizational capabilities, effective talent management, and financially sound investments that support productivity goals.

The next horizon of productivity demands bold leadership, relentless focus, and a willingness to challenge the status quo. COOs often hear that “the time to act is now.” For the productivity mandate, the time to act is always. Those who consistently achieve step changes in productivity position their organizations to not only survive but also thrive in the face of uncertainty. The question is not whether productivity can be improved, but whether COOs are ready to lead the charge.