The Productivity Gap: Why the Best Firms Pull Away—and How to Catch Up

A Growing Divide in the Business Landscape

In today’s competitive economy, a stark divide is emerging—one that separates high-performing “frontier” firms from the rest. These top-tier organizations are not just outperforming their peers; they are pulling away at an accelerating pace. Their ability to consistently out-innovate, out-hire, and out-invest in intangible assets has led to a “winner-takes-most” dynamic. The result? A productivity gap that threatens to entrench inequality in performance, wages, and economic resilience—particularly for smaller firms and developing markets.

As Dawgen Global explores regional economic transformation across the Caribbean and other emerging markets, understanding and closing this gap has never been more critical. But what’s really behind it? And how can companies that lag begin to bridge the divide?

The Frontier Advantage: What Sets the Best Apart?

Research by the McKinsey Global Institute (MGI) reveals that in most economies, the top 20% of firms account for 80% or more of productivity gains over time. These “frontier firms” typically share a set of high-impact characteristics:

• Aggressive investment in intangible assets: Software, data systems, brand development, organizational capital, and R&D.

• Advanced digital adoption: From AI-powered analytics to automation and cloud platforms, these firms embrace digital transformation end-to-end.

• Superior management practices: Evidence-based decision-making, structured performance incentives, and agile processes dominate their operations.

• Talent concentration: They attract and retain top talent by offering better wages, dynamic work environments, and strong leadership cultures.

• Global and scalable business models: Many of these firms operate in multiple regions or digital marketplaces, enabling rapid scale and feedback loops.

In contrast, lagging firms—often SMEs or family-owned businesses—may lack the financial cushion, expertise, or incentives to adopt such practices.

Why the Gap Isn’t Closing

Despite the growing availability of technology and knowledge, the productivity gap remains stubbornly wide. Several structural barriers contribute to the persistence of this divide:

• Limited diffusion of best practices: High-performing strategies rarely make it beyond frontier firms.

• Access to finance: Smaller businesses often struggle to access the capital needed for transformation.

• Digital infrastructure gaps: Especially in developing economies, basic connectivity and systems integration remain inconsistent.

• Human capital constraints: A shortage of skilled workers and weak management training reduces operational sophistication.

• Regulatory hurdles and policy fragmentation: Fragmented support ecosystems can slow down or distort productivity investments.

How Firms Can Catch Up: High-Impact Moves for Smaller Players

Although the productivity gap seems daunting, it is far from unbridgeable. Dawgen Global believes that smaller firms can make strategic choices to accelerate their productivity journey by focusing on five core pillars:

1. Digitize with Purpose

Start small but smart. Firms should identify core business functions where automation or digital tools can reduce manual effort and enhance decision-making. Cloud-based accounting, CRM systems, and basic data analytics offer immediate ROI.

2. Invest in Intangible Assets

Beyond machines and buildings, firms must grow their “invisible capital”—branding, intellectual property, organizational structures, and employee know-how. Even low-cost steps like employee upskilling or process documentation can yield big gains.

3. Adopt High-Performance Management Practices

Implement structured goal-setting (e.g., OKRs), regular performance reviews, and transparent feedback mechanisms. These improve accountability and align effort with strategy—critical even for small teams.

4. Collaborate to Scale

Smaller firms can band together through clusters, industry associations, or digital platforms to gain collective bargaining power, share infrastructure, and attract shared services.

5. Tap into External Expertise

Partnering with advisors, consultants, or institutions like Dawgen Global can fast-track change. External audits, benchmarking, and coaching introduce new perspectives and discipline into transformation efforts.

🌎 A Regional Lens: The Caribbean Opportunity

The Caribbean region is uniquely positioned at a crossroads—rich in potential, culture, and natural resources, yet constrained by structural limitations that affect productivity at both firm and national levels. The core challenges—small domestic markets, high energy and logistics costs, limited access to finance, and a fragmented regional policy framework—have created conditions where many businesses operate at suboptimal efficiency.

However, these very constraints present a compelling opportunity for leapfrogging traditional development pathways. Rather than replicating slow, linear models of growth, Caribbean economies and firms can adopt smart, strategic interventions to close the productivity gap rapidly.

Key Leverage Points for Caribbean Firms and Policymakers:

1. Embracing Digital Transformation

Despite uneven digital infrastructure across the region, digital tools are becoming more accessible. Cloud-based accounting, e-commerce platforms, AI-powered chatbots, and remote work solutions can unlock new efficiencies. Governments must invest in broadband access, regulatory reforms, and digital literacy, while firms must commit to integrating technology into their core operations.

2. Strengthening Talent Ecosystems

Caribbean firms often face brain drain, limited upskilling resources, and outdated training models. A regional approach to talent development—through public-private skill academies, industry certification pathways, and internship pipelines linked to productive sectors—can build a workforce aligned with frontier firm capabilities.

3. Catalyzing Innovation and Intangible Investments

Innovation is not solely about high-tech R&D. For many SMEs, innovation can mean improving internal processes, developing stronger branding, or introducing customer-centric business models. Governments and development agencies should create innovation vouchers, IP protection frameworks, and funding mechanisms that support small firms investing in such intangibles.

4. Expanding Regional Trade and Integration

Many Caribbean firms are constrained by the scale of local demand. Regional integration—via the CARICOM Single Market and Economy (CSME) and digital trade infrastructure—can allow firms to scale across borders, specialize in niche offerings, and attract larger-scale investment.

5. Empowering Public-Private Partnerships (PPPs)

The future of productivity growth in the region hinges on meaningful collaboration. PPPs in infrastructure, education, energy, and digital transformation can distribute risk, crowd in private capital, and accelerate impact. Institutions like Dawgen Global can act as facilitators—bridging the expertise gap between firms and public sector bodies.

🔍 Dawgen Global’s Role in Regional Transformation

At Dawgen Global, we understand the regional nuances of doing business in the Caribbean—the cultural, regulatory, and market-specific challenges. That’s why our firm takes a multidisciplinary approach to productivity enhancement, delivering tailored services such as:

• Digital transformation roadmaps

• Operational and financial diagnostics

• Business process reengineering

• Talent and organizational development plans

• Virtual CFO and capital strategy advisory

We serve clients across the region not just as consultants, but as partners in sustainable growth—ensuring that even the smallest firm can adopt practices once limited to global giants.

🏁 Conclusion: Closing the Gap Is Everyone’s Business

The widening productivity gap is not simply a statistic—it is a lived reality across Caribbean boardrooms, factories, farms, and startups. When only a few firms thrive while others stagnate, the regional economy becomes vulnerable to shocks, and inequality becomes institutionalized.

But the story doesn’t have to end there.

With the right vision, intentional strategy, and collaborative execution, small and midsize firms can reinvent themselves to compete at higher productivity levels. Policymakers, financial institutions, educators, and consultants all have a role to play in ensuring that frontier firm practices are not hoarded by the few but diffused across the many.

At Dawgen Global, we firmly believe that “Productivity is a choice.”
It starts with asking the right questions and having the right partners to pursue the answers.

🔗 Discover More

At Dawgen Global we help you make Smarter and More Effective Decisions.

Next Step!