Improvements in labor productivity have been the engine of economic growth. But in the past 15 years, productivity growth has faltered averaging just 1.4% annually. Companies have a starring role to play in this putative productivity improvement. Our research found striking variations in productivity among leading and lagging firms.

Not only are productivity disparities quite wide — they’re also getting wider. Our research shows that in manufacturing, the gap was 25% wider in 2019. Some analysts suggest this growing gap is the result of accelerated growth among leading firms coexisting with stagnation among the rest. That’s encouraging: It suggests that if those in the rear can match the leaders, the companies could restore productivity growth.

These productivity gaps also suggest that firms can raise their own ambitions. Doing more with less, or doing more with the same, shows up in corporate income statements as higher margins and stronger revenue growth. And in aggregate, those performance improvements lead to economy-wide changes in productivity.

Lessons from the Most Productive Firms

For business leaders looking to unlock performance, there’s something to be learned by observing the companies at the top of the productivity heap. These frontier firms are usually larger than others (though not always, as we discuss below). They are present across most sectors and geographies.

What they have in common is a playbook with the following three elements:

They capture value from digitization

From 2015 to 2022, our research finds a strong correlation between sectors’ productivity growth and their level of digitization. Other researchers have found a similar connection between firm productivity and digitization; frontier firms are better able to technologically innovate than their peers.

However, many firms investing in technology are not seeing its benefits. Research finds that firms typically realize only about 25% to 30% of the expected value of their digital transformations. Much of the shortfall comes from not properly updating the firm’s strategy and business model to take advantage of new digital strengths.

Frontier firms set bold business goals enabled by technology. They reconfigure their organizations to digitize their operations and capture the benefits of technology, rather than augment existing ways of working. And they drive accountability for results across the organization.

They invest in intangibles

Frontier firms go beyond technology investments and also place bets on complementary intangibles such as R&D, intellectual property, and the capabilities of their workforce. Our research finds that frontier firms invest 2.6x more in intangibles compared to other firms

For many of these firms, taking a long-term perspective is critical. These investments likely create a productivity J-curve, in which the early benefits of investments are small, but compound rapidly over time to create outsized long-term value.

They build a future-ready workforce.

Frontier firms also disproportionately secure the skilled talent they need to get the most out of technology, either by attracting top talent or by an in-house investment in employee skills.

Both frontline talent and tech-savvy executives are necessary to successfully navigate the reconfiguration of complex firms. Leaders are winning the talent war by recognizing the value of employee experience, investing in on-the-job training programs, and expanding policies that make it easier for parents and aging workers alike to stay in the labor force.

New Productivity Champions

The opportunity to apply these lessons is wide open to firms of all sizes and shapes. Many frontier firms— small, often privately held industrial-technology companies that are among the fastest growing and most profitable enterprises Recent data indicates that small and medium-size companies are less productive on average than large firms. But in some sectors where niche products or services can be offered at higher price points, small companies can be as productive as their bigger rivals. These data should give plenty of encouragement to business leaders looking to drive improvements in their business.

Ultimately, changes in firm strategy and management will have to deliver the gains in productivity needed to get back on the long-term trend and capture the $10 trillion prize. For business leaders, the productivity gap should be ample motivation to raise their own ambitions.