Labor productivity must increase, but how?

Higher labor productivity not only contributes to a healthy economy but also stronger business competitiveness. It also helps preserve our social security system and accelerate major societal transitions, such as the energy transition. In short, a lot is at stake. That explains the growing concern about stagnating productivity growth.

A major challenge

If you only look at economic growth figures, the problem may not be obvious. But beware: much of that growth is due to increased labor participation. And now we see that we’ve reached the limit in that area. After all, almost everyone who can work is already working. So future growth must come from elsewhere. Hence the focus on labor productivity: creating more value with fewer people, that’s the big challenge.

The government’s productivity agenda

Labor productivity is currently a hot topic in The Hague. Later this year, the government will launch a productivity agenda with proposals aimed at boosting productivity growth. Meanwhile, TNO experts are working on solutions, with particular attention to SMEs, where significant gains can still be achieved.

Digitalization, automation, and AI

What can a construction company or a local bakery do to improve productivity? That question is not easy to answer. There is no quick fix that works everywhere. Every entrepreneur must determine which options can help them do more with fewer people while also improving quality. One thing is clear: digitalization can make a big difference. Today, AI applications and robotics offer tremendous possibilities, and there are plenty of practical examples. So, it’s not as if entrepreneurs need to reinvent the wheel.

No more fear of unemployment

In the past, there were concerns about how technology and digitalization would affect the labor market, with fears of unemployment. ‘But in today’s tight labor market, that perception has shifted,’ says Thijmen van Bree, researcher and consultant on economic issues at TNO Vector.

A mismatch for SMEs

While leading companies actively use digitalization and automation, many SMEs still lag behind. Why? Goedele Geuskens, Senior Research Scientist at TNO Healthy Living & Work, explains: ‘Developing innovative solutions takes time and money. Large companies can make those investments more easily than SMEs. Moreover, many innovations are designed for front runners, resulting in solutions that don’t fit SME needs. So, there’s a mismatch.’

Another issue: many SMEs struggle to adopt innovations quickly and integrate them into daily operations. The abundance of information creates decision stress. Which innovation truly fits an SME’s situation? How can new technology be applied effectively? And how do you ensure employees have the right skills to use it?

Barriers to overcome

‘Innovation goes far beyond technology,’ Geuskens emphasizes. ‘It’s about combining technology, organization, and human capital in the right way. Increasingly, closer supply chain collaboration is needed to enable innovative working methods. Often, business models must be adapted to make innovation profitable. And all this while companies face labor shortages and high workloads—an extra challenge. These barriers aren’t unique to SMEs; large organizations, such as in healthcare, also struggle with rapid adoption of technological and social innovations.’

Limited innovation adoption

Steven Dhondt, Senior Scientist at TNO and Professor at KU Leuven in Workplace Innovation, adds: ‘The problem largely lies in limited innovation adoption. If SMEs implemented as many innovations as they did ten years ago, productivity would rise significantly. That’s why we’re working to improve adoption rates.’

Productivity and good work

Not every innovation is progressing. Geuskens warns: ‘When introducing new technology or collaboration models, don’t just look at productivity figures. That’s only part of the story. Unfortunately, there are examples where efficiency gains lead to worse working conditions—such as warehouses where robots do most of the work, leaving employees with monotonous tasks and no learning opportunities.’

Toward a strong learning and innovation culture

‘We know that developing innovations isn’t enough,’ Geuskens continues. ‘Both development and implementation require a strong learning and innovation culture—not only within organizations but across supply chains. Employees need clarity on the organization’s direction and space to experiment and develop future-proof skills.’

Other building blocks include development-oriented leadership, varied and challenging work, and collaborative reflection. Knowledge exchange with other organizations also helps—sometimes just a glimpse into another company’s practices can make a big difference.

Helping each other innovate

Is all this feasible for the average SME? ‘It’s a lot,’ Geuskens admits. ‘That’s why we focus on making adoption easier and speeding up innovation processes—for SMEs and larger organizations alike. Regional ecosystems that connect work, learning, and innovation are promising. They accelerate innovation and skills development.’

These ecosystems include SMEs, large companies, supply chain partners, technology providers, and educational institutions. They share knowledge, collaborate on innovative projects, and apply new methods in practice. Education partners ensure new skills are quickly integrated into curricula for current and future workers.

Inspiring front runners

‘As participants learn from each other, they advance in their innovation journey,’ says Geuskens. ‘Frontrunners inspire other SMEs to innovate by showing what’s possible. The leaders can truly make the difference.’

More flexible workforce

Beyond innovation and continuous learning, productivity also depends on labor mobility—across jobs and sectors. Employers can help by focusing less on diplomas and more on skills and potential. This makes workers more versatile and speeds up job matching, benefiting both employee well-being and organizational productivity.

Read more about the challenge the Netherlands faces with labor productivity.

Is your company working on innovations that improve productivity and job quality? Want to accelerate adoption with TNO experts? Contact us today.