Over the years, I have spent a considerable amount of time thinking about why some businesses seem to make steady progress while others, despite having capable people, reasonable resources and genuine commercial opportunities, struggle to move beyond a certain point. There are many explanations for this, and I have encountered enough of them to know that no single answer can adequately describe the difficulties of building an enterprise. But one question has increasingly occupied my thoughts: how much of what we call productivity is actually determined by the people working in a business, and how much is determined by the organisation we have built around them?
It is a question I have had to ask myself more seriously while reflecting on my experiences across different enterprises, particularly our restaurant operations under Whitefern Hotels Group. The hospitality business has a way of exposing organisational weaknesses that might remain unnoticed for considerably longer in other industries. There are customers to serve, standards to maintain, people working in different roles and numerous activities that must come together within a relatively short period. When something does not work as expected, the consequences are often immediate. But understanding why it did not work can be considerably more complicated.
There have been periods when we were more occupied with growing the business and increasing revenue than with allowing our operational systems to mature. There have also been occasions when procedures were introduced, responsibilities were explained and expectations were communicated, yet people continued working according to methods they were already accustomed to. At the time, these appeared to be different problems. Looking back, I am beginning to think they were connected by something we had not sufficiently appreciated: establishing a system and developing an organisation capable of following that system consistently are two very different undertakings.
I do not write this to suggest that every difficulty was avoidable, or that the decisions we made were necessarily unreasonable at the time. Businesses operate under commercial pressures, and entrepreneurs frequently have to make choices before they possess all the information or resources they would ideally like. But I have also come to recognise that some of the difficulties we encounter are consequences of the priorities we establish ourselves. If growth becomes the immediate objective, we may postpone the quieter organisational work that makes growth sustainable. And when the consequences eventually appear, we may find ourselves questioning the performance of people who were never given the conditions necessary to perform as well as they could.
That possibility has made me reconsider what productivity actually means to an enterprise builder.
The difference between working and producing
In economics, productivity is commonly understood through the relationship between output and the inputs used to produce it. Labour productivity, for instance, measures output relative to labour employed or hours worked. At a broader level, economists examine how efficiently combinations of labour, capital and other resources contribute to production. These measures are useful because they help us understand how economies and enterprises generate more value from the resources available to them.
But when we move from economic measurement into the everyday life of an enterprise, the question becomes less straightforward.
A person may spend an entire working day occupied with tasks and still produce relatively little of lasting value. Another may complete fewer visible activities but make decisions that improve the performance of an entire team. A restaurant can employ hardworking people who remain busy throughout service, yet experience delays, inconsistencies and avoidable waste because the different parts of the operation are not working together effectively.
None of this necessarily tells us that the people involved lack ability or commitment.
It may tell us that the organisation has not developed the coordination required to convert their efforts into productive results.
I have become increasingly conscious of this distinction because, as entrepreneurs, we tend to notice activity very easily. We see people arriving at work, moving between responsibilities, responding to instructions and dealing with immediate problems. We also notice when somebody appears less occupied than others. What is considerably harder to observe is whether the organisation itself is using everyone’s time and capabilities intelligently.
In a poorly organised environment, capable people can spend substantial portions of their day compensating for weaknesses elsewhere. They may wait for decisions, repeat work because instructions were unclear, correct mistakes that could have been prevented or find themselves performing tasks that should have been completed at an earlier stage. Their effort is real, and so is the cost of employing them, but the productive value generated from that effort may remain disappointing.
When we evaluate their performance without considering these conditions, we risk measuring the consequences of our organisational limitations as though they were deficiencies in individual capability.
This does not mean that every employee performs equally well or that competence and personal responsibility are unimportant. They matter enormously. But I have become less convinced that recruiting better people, by itself, is an adequate response to persistent productivity problems.
A highly capable recruit entering an inefficient organisation may eventually begin performing below the standard we expected. Their qualifications have not disappeared, nor has their previous experience. What has changed is the environment within which those capabilities are being exercised.
If that environment remains unchanged, replacing the individual may produce little more than another expensive recruitment exercise.
When growth arrives before the organisation is ready
One of the more uncomfortable aspects of reflecting on our restaurant business is recognising how easily commercial growth can become the dominant measure of progress.
There is an understandable excitement when a business begins attracting customers, generating revenue and presenting opportunities for expansion. Particularly during the early stages, these developments provide reassurance that the underlying idea has commercial potential. They also create momentum, and momentum can be difficult to interrupt when there are opportunities that appear worth pursuing.
I have experienced that attraction to growth. When an enterprise is developing, there is always another commercial objective that seems to deserve immediate attention. Revenue must improve, costs must be managed, customers must be retained and opportunities must be evaluated before they disappear. The organisational work required to support these ambitions can appear less urgent because its benefits are not always visible in the same reporting period.
It is easier to measure additional revenue than the value of a procedure that has finally become reliable.
Looking back at certain periods within our restaurant operations, I can recognise that we were not always patient enough to allow systems to stabilise before placing additional demands on the organisation. We were focused on growing the business, which was a legitimate commercial objective, but the attention given to organisational development did not always keep pace with that ambition.
I find this difficult to reduce to a simple judgment about whether we should have grown more slowly. There are circumstances in which delaying an opportunity carries its own costs, and an enterprise cannot always wait for every process to reach an ideal standard before moving forward. But there is a difference between accepting that some systems will mature during growth and repeatedly assuming that they will somehow mature without being given the time, resources and attention they require.
The second assumption is more dangerous because it can remain hidden behind encouraging commercial numbers.
Revenue may continue increasing while operational complexity grows even faster. The organisation may require more intervention, more supervision and more effort simply to maintain the same standard of performance. Additional sales can create the impression of progress even when the enterprise is becoming less efficient at converting its resources into value.
This is where the distinction between growth and productivity becomes particularly important.
A business can grow because it employs more people, operates for longer hours, adds capacity or commits additional capital. That growth may be commercially worthwhile, but it does not necessarily mean the organisation has become more productive. Productivity improvement requires us to examine what the business can achieve relative to the resources it consumes, and whether its ability to coordinate those resources is becoming stronger.
I sometimes wonder whether entrepreneurs, myself included, give sufficient attention to this distinction when we are occupied with the immediate demands of building a business.
We celebrate expansion because it is visible. The less visible question is whether the organisation has developed the capabilities necessary to sustain what has been added.
A procedure is not yet a system
There is another experience from the restaurant business that has made me reconsider my understanding of organisational discipline.
We have introduced procedures and operational expectations with the intention of improving consistency. Yet introducing them did not always produce the results we anticipated. People would understand the instructions, agree with the approach and then, during the ordinary pressures of work, continue using methods with which they were already familiar.
It would be easy to interpret this simply as an unwillingness to follow instructions. I am less comfortable with that explanation now because it overlooks the difference between communicating a requirement and changing an established working habit.
People do not arrive at work without habits. They bring ways of approaching tasks, responding to pressure, solving problems and interpreting responsibilities. Some of those habits may have served them well in earlier environments. Others may have developed because nobody had previously provided a consistent alternative.
When a new procedure is introduced, the organisation is not merely communicating information. It is asking people to change behaviour that may have become automatic.
And changing behaviour requires considerably more than agreement.
This is something I find particularly interesting from the perspective of behavioural economics. We often assume that people will adopt a better process once its advantages have been explained. But behaviour is influenced by familiarity, effort, incentives, social expectations and the immediate circumstances in which decisions are made.
A familiar method may continue to feel easier even when a new method is objectively more effective. Under pressure, people are especially likely to return to established routines because those routines require less conscious effort. If the organisation does not provide repeated practice, feedback and reinforcement, the original instructions can gradually lose their influence over everyday behaviour.
I have come to believe that we sometimes underestimate the amount of work required to make a system part of an organisation’s normal functioning.
We prepare a procedure, communicate it and expect implementation to follow. When the results disappoint us, we may respond by repeating the instruction more firmly or introducing additional controls. But the underlying difficulty may be that we never allowed people sufficient time to practise the new method until it became familiar.
I have occasionally thought about the precision associated with military training in this context. What interests me is not the hierarchy or rigidity of military institutions, but the importance they place on repetition, clarity and the ability to perform reliably under demanding circumstances. Procedures are not expected to become dependable simply because they have been explained once. They are practised, reinforced and tested until the required response becomes consistent.
Businesses are different institutions and require room for initiative, judgment and adaptation. Nevertheless, there is something worth understanding about the discipline involved in turning an intended standard into a dependable capability.
In our own experience, when sufficient attention has been given to training, adaptation and consistent implementation, the results have been markedly different.
That observation has changed how I think about systems. I no longer regard the introduction of a procedure as evidence that the organisation has acquired the corresponding capability. The capability exists only when people can apply it reliably in the circumstances for which it was designed.
And even then, we must remain willing to examine whether the procedure itself is appropriate.
Sometimes employees depart from an established method because they have not been adequately trained. At other times, the method may be impractical, unnecessarily complicated or poorly suited to the actual conditions of work. An organisation that treats every departure from procedure as an individual failure may lose valuable information about weaknesses in its own design.
The challenge is to distinguish between these possibilities without abandoning the need for consistency. That requires patience, observation and a willingness to question decisions made by management as well as those made by employees.
What the economics of small businesses does not fully explain
In my recent writing for the Economics section of The Aaran Journal, I examined why otherwise viable small enterprises often struggle to become medium-sized businesses. The question interests me because viability and scalability are not the same thing. A business may have customers, generate revenue and provide a livelihood while remaining unable to develop the financial and organisational capacity required for substantial expansion.
There are important economic reasons for this. Access to capital, financing costs, market conditions, working-capital requirements and the risks associated with expansion can all restrict the growth of otherwise promising enterprises. These constraints are real, and I do not believe we should dismiss them by suggesting that entrepreneurs merely need to become more ambitious.
But economic constraints do not explain every instance of limited growth.
There is another question that deserves examination: how prepared is the enterprise itself to become larger?
An organisation may obtain additional capital without developing the ability to use it productively. It may recruit more people without creating the systems needed to coordinate them. It may enter new markets while remaining dependent on the founder to resolve ordinary operational questions.
In such circumstances, additional resources can increase the scale of existing weaknesses rather than eliminate them.
This is particularly important because entrepreneurs sometimes interpret growth constraints primarily as shortages of money, people or opportunity. Those shortages may be genuine, but they can coexist with limitations in the organisation’s own capabilities.
I have been thinking about how these two explanations interact.
An enterprise with weak systems may generate lower returns from the capital it employs. Those lower returns can make further investment more difficult to justify or finance. Inadequate investment may then prevent the enterprise from developing the capabilities required to improve productivity.
The business becomes caught in a cycle in which financial limitations and organisational weaknesses reinforce one another.
Breaking that cycle requires more than a single intervention. Additional capital may be necessary, but so may better management, clearer responsibilities, more effective training and greater discipline in how resources are allocated.
This is one reason I am reluctant to separate discussions about productivity from discussions about enterprise development. The two are closely connected, even though we often examine them through different lenses.
What do we actually want from the businesses we build?
There is a more personal question beneath all of this, and I suspect it is one that entrepreneurs do not always ask themselves with sufficient seriousness.
What are we trying to build?
A business can serve many legitimate purposes. It can provide an income, support a family, create employment, satisfy an entrepreneurial ambition or generate returns on invested capital. Not every business needs to become a large corporation, and I do not consider remaining small an indication of failure.
There are well-run small enterprises that provide considerable value to their owners, employees and communities. Their scale may reflect a deliberate choice rather than an inability to grow.
But there is a contradiction when someone dreams of building a substantial enterprise while continuing to approach it primarily as a source of immediate personal income.
I have been reflecting on this distinction alongside another recent essay in the Ideas section, where the discussion concerned the importance of building enduring enterprises rather than treating businesses simply as instruments for generating money.
The difference is not that profit becomes unimportant. Without economic viability, an enterprise cannot sustain its responsibilities or invest in its future. But profit can be approached either as something to extract as quickly as possible or as part of the resources through which the organisation develops greater capabilities.
Those approaches can lead to very different decisions.
An entrepreneur who sees the business mainly as a source of immediate financial returns may be reluctant to invest in systems whose benefits will emerge gradually. Training may appear expensive. Experienced management may seem unnecessary. Delegation may feel like an avoidable loss of control. Retained earnings may be viewed primarily as money that could otherwise be taken out of the business.
Yet the same entrepreneur may continue expressing ambitions for significant expansion.
I do not think ambition alone resolves that contradiction.
Building something enduring requires drive and passion, certainly, but it also requires a willingness to make decisions whose rewards may not be immediate. It requires accepting that some of the most important investments in an enterprise will not produce visible results within the next month or quarter.
And perhaps most difficult of all, it requires recognising that the organisation must eventually become capable of functioning beyond the founder’s personal involvement.
That is not always an easy ambition to reconcile with the experience of being the person who started the business.
The founder’s own habits
I have often thought about how the qualities that help someone establish a business can become less useful as the enterprise develops.
During the early stages, the founder’s direct involvement can be essential. Resources are limited, responsibilities overlap and many decisions cannot reasonably be delegated because the organisation has not yet developed the necessary experience or structure.
The founder may negotiate with suppliers, examine costs, manage people, resolve operational difficulties and make decisions that would ordinarily belong to several different functions within a larger organisation.
There is nothing inherently wrong with this. In many cases, it is how a business survives its earliest years.
But the difficulty arises when the organisation grows while the founder’s relationship with it remains largely unchanged.
The business may employ more people and generate considerably more revenue, yet important decisions continue to move through the same individual. Employees learn that seeking approval is safer than exercising judgment. Managers may become accustomed to referring problems upwards rather than resolving them within their responsibilities.
Over time, the organisation can develop around the founder’s availability rather than around a dependable system of decision-making.
I have to examine my own tendencies here.
When you have been closely involved in building something, there is a certain reassurance in understanding every important detail. You know the reasoning behind earlier decisions, the difficulties that have been encountered and the standards you want the organisation to maintain.
It can feel responsible to remain involved. And sometimes it is responsible.
But I am increasingly aware that involvement can also become a habit, particularly when the founder has spent years being the person to whom difficult questions are brought.
There is a behavioural dimension to this as well. We tend to value control over outcomes that matter to us, and the prospect of relinquishing that control can feel uncomfortable even when doing so is necessary for growth. We may also place greater confidence in our own judgment simply because it is familiar.
I do not believe these tendencies are unusual among entrepreneurs. But recognising that they are understandable does not mean they are always helpful.
If I want an enterprise to become more capable, I must also be willing to allow other people to develop capabilities that may eventually make my involvement in certain decisions unnecessary.
That requires trust, but trust cannot be expected to appear without preparation.
People need clear responsibilities, appropriate authority, access to information and opportunities to develop judgment. They also need to know that taking responsibility does not mean being abandoned when a difficult decision arises.
Delegation without organisational support can become another way of transferring problems rather than solving them.
The objective should not be to make the founder absent. It should be to make the organisation less dependent on the founder’s presence for its ordinary functioning.
I am still learning what that distinction demands in practice.
The patience we rarely include in our plans
Entrepreneurs speak frequently about ambition, perseverance and the willingness to take risks. I understand why these qualities receive so much attention. Without them, many enterprises would never be established.
But I have been wondering whether we give enough importance to patience. Not patience in the sense of waiting for circumstances to improve, but the discipline to allow capabilities to develop properly.
A system requires time to be understood, tested and refined. People require time to learn new responsibilities and become comfortable exercising judgment. Organisational relationships require repeated experience before they become dependable.
These processes cannot always be accelerated simply because the founder has decided that the business must grow faster. I think this is one of the lessons I continue to draw from our restaurant operations.
When growth and revenue receive most of our attention, it becomes easy to regard organisational development as something that can be completed alongside everything else. We introduce a process, expect people to adopt it and move quickly to the next commercial objective.
But systems do not mature according to the speed of our ambitions. They mature through use, correction and repetition.
The same is true of people. We may identify potential in an employee, provide an opportunity and expect that person to become capable of handling greater responsibility within a relatively short period. Sometimes this happens. At other times, the development requires considerably more support than we anticipated.
If we abandon the effort too early, we may conclude that the person lacked the necessary ability when the real difficulty was that we had not created a sufficient process for developing it.
There is a cost to patience, of course. Training requires resources. Supervision consumes management time. Allowing a system to stabilise may mean postponing certain opportunities.
But impatience also has a cost, and that cost can be more difficult to identify because it appears across different parts of the business.
Repeated mistakes, inconsistent service, employee turnover, avoidable waste and continued dependence on senior management may each be treated as separate operational problems. Yet some may share a common origin in the organisation’s failure to invest sufficiently in developing dependable capabilities.
I do not want to suggest that patience should become an excuse for indecision or poor performance. There are occasions when changes must be made quickly, and an enterprise cannot afford to continue supporting an ineffective approach indefinitely.
The challenge is knowing when a problem requires more time and when it requires a different decision. That judgment is part of enterprise-building too.
The productivity of management
We often examine productivity by looking at employees, departments or operational processes. I wonder whether we examine the productivity of management with the same seriousness.
A management decision can influence the work of dozens of people. An unclear instruction can create confusion across an entire operation. A delayed approval can leave resources underutilised. An unsuitable process can require employees to spend additional time completing tasks that should have been straightforward.
These consequences may appear in measures of employee performance, even though their origins lie elsewhere. This is why I increasingly believe that management productivity cannot be measured only by how many decisions are made, meetings are attended or problems are resolved.
It must also be examined through the conditions management creates for everyone else. Does a decision make the organisation more capable of functioning effectively? Does a new procedure reduce uncertainty? Does a manager help people develop judgment, or does every problem continue to require the manager’s intervention?
These are difficult questions because their answers are not always immediately visible in financial reports. They also require those of us responsible for building enterprises to accept that our own decisions can influence productivity far beyond the tasks we personally perform.
I find that both encouraging and uncomfortable. Encouraging because it means better organisational design can create value without requiring every employee to work harder. Uncomfortable because it means we cannot always explain disappointing productivity by pointing towards the people carrying out the work.
We must also examine the conditions under which we have asked them to perform.
When an enterprise begins to outgrow its founder
I have always been interested in building enterprises that can endure, and over time that ambition has become more closely connected with the idea of institution-building.
An institution is not simply a large business. Size alone does not guarantee durability, and revenue does not necessarily indicate whether an organisation has developed the capabilities required to survive changes in leadership, ownership, markets or circumstances.
For me, the idea of an enduring enterprise involves something more demanding: an organisation capable of preserving its purpose and productive capacity even as the individuals responsible for it change.
That ambition creates a difficult question for the founder. If the enterprise is expected to endure beyond the person who established it, at what point must that person begin surrendering the centrality they have occupied throughout its development?
I do not think there is a universal answer. Different businesses require different governance structures, and founders can continue making valuable contributions long after an organisation has developed professional management and independent capabilities.
But I do believe that the willingness to let go must begin before the founder is ready to withdraw from active involvement.
It begins when responsibilities are transferred meaningfully rather than nominally. It develops when managers are allowed to exercise judgment within clear boundaries. It becomes stronger when the organisation learns to identify and correct problems without waiting for the founder to intervene.
And perhaps it becomes most visible when the founder discovers that something has been handled well without their involvement. That experience can be satisfying, but I suspect it can also be unsettling.
After spending years being closely associated with the decisions and achievements of an enterprise, becoming less necessary to its everyday functioning may feel like a loss of importance.
Yet from the perspective of institution-building, it may be evidence of progress. I am beginning to think that one of the more difficult transitions in an entrepreneur’s life is learning to distinguish personal indispensability from organisational success.
The two can coexist during the early stages of a business. They cannot remain permanently dependent on one another if the ambition is to create something that endures.
What I am still trying to understand
As I reflect on these experiences, I find myself returning to the original question of productivity with a different perspective.
I once tended to think about productivity primarily through the performance of people and the efficiency of operations. Those remain important considerations, but they no longer seem sufficient.
I now see productivity as something that emerges from the relationship between people, capital, systems, management and the habits an organisation develops over time.
It is influenced by the opportunities employees are given to learn, the clarity with which responsibilities are defined and the consistency with which decisions are made. It is also influenced by the patience of the people building the enterprise and their willingness to invest in capabilities whose value may take time to become visible.
Our experience at Whitefern Hotels Group has made some of these questions more immediate for me. I can recognise periods when commercial growth received greater attention than the development of the systems needed to sustain it. I can also recognise that introducing procedures without providing sufficient training and reinforcement did not always produce the consistency we expected.
These are not observations I make to assign responsibility to one person or another. They are part of understanding how organisations develop and how the decisions we make as founders influence that development.
I also do not want to romanticise the process. Building systems can be frustrating. Training people requires patience that is not always easy to maintain when commercial pressures are mounting. Delegating responsibilities can produce mistakes, and allowing others to develop judgment means accepting that they will not always approach decisions exactly as we would.
But the alternative may be an enterprise that becomes increasingly dependent on a small number of individuals as it grows. That is not the kind of growth I want to pursue.
I have been writing recently about the economic difficulties facing small businesses and the importance of developing enterprises that can endure. This reflection on productivity sits somewhere between those two discussions, because it concerns what must happen inside an organisation if the ambition to grow is to become something more than an aspiration.
There is nothing wrong with building a modest business that provides a good livelihood. But if our ambition is to build something substantially larger, we must also be prepared to create an organisation whose capabilities eventually extend beyond our own.
I am conscious that this is easier to recognise in principle than to accomplish in practice. It requires ambition and determination, but also restraint. It requires the confidence to pursue opportunities and the patience to recognise when the organisation is not yet ready for them. It requires investing in people while accepting that their development will not always follow the timetable we have imagined.
And it requires the willingness to examine our own habits with the same seriousness with which we examine the performance of others.
Perhaps the question I need to keep asking myself is not simply whether the enterprises I am involved in are becoming larger or more profitable, but whether they are becoming better at producing value without requiring a corresponding increase in my personal involvement.
I do not yet have a complete answer to that question, and I suspect the answer will continue changing as the businesses develop.
What I do know is that I have become less willing to interpret productivity problems solely through the performance of individual employees. I have seen enough to understand that capable people can produce disappointing results when the organisation around them is not sufficiently developed, just as people with relatively modest starting capabilities can achieve considerably more when they are given effective systems, training and the opportunity to grow.
That understanding has also made me more conscious of my responsibilities as an enterprise builder.
It is one thing to dream of creating a business that becomes much larger than it is today. It is another to develop the patience, organisational discipline and willingness to relinquish control that such an ambition may eventually demand. I am still learning how to reconcile those two things.
And perhaps that is why productivity has become a more personal subject for me than I once expected. The question is no longer confined to what the people working in an enterprise are capable of producing. It also concerns what kind of enterprise I am capable of building, and whether I am prepared to change the way I work so that the organisation can eventually achieve more than I could ever accomplish through my own efforts.
I would like to believe that the answer is yes. But I also know that believing in the importance of something and developing the discipline to practise it consistently are not quite the same thing.
That is something I intend to keep examining as the journey continues.