The Productivity Puzzle

In recent years, we have become accustomed to hearing from the media, business groups and numerous Chancellors that UK productivity falls short of other developed countries.  Recent data from the Office for National Statistics suggests output per hour worked in the UK was 15.9% below the average for the rest of the G7 advanced economies.  The UK’s “productivity puzzle” – the difference between post-downturn productivity performance and the pre-downturn trend – is 15.2%, double the average of 7.5% across the G7 Group.

What does this really mean and why is so much emphasis placed on productivity?

Productivity measures the output per worker over a period of time and is an important factor in determining the potential of a country’s economy to grow.  Traditionally, we think of productivity as a measure more associated with manufacturing or other blue collar industries.  However, it affects all sectors of the economy and research indicates that the stagnation of productivity in the UK is primarily explained by just four sectors: professional services; telecommunications and computing; banking and finance; and manufacturing.

So what is going wrong?

No one is entirely sure, and the likelihood is there are multiple reasons affecting different size/types of organisations in different ways.  Anecdotal evidence suggests that many organisations are still not securing enough, or the right kind of, work.  Research conducted by the Financial Times suggests there is still a reluctance to identify and tackle underperformers or reduce headcount to control costs.  The Economist estimates that poor management accounts for as much as 25% of the productivity gap.  Equally, employees are still not thinking about profit nor utilising IT as efficiently as they could.

What can organisations do?

It is a multi-faceted problem which requires a range of business solutions including business strategy planning, embracing technological advances, sound financial management and the way you manage your people.

The Productivity Wheel

One of the most effective ways of improving organisational productivity is through a coordinated approach to people management.  Very often Management value their people but are unable to join up the areas of HR expertise to have a tangible impact on their company’s performance.  In other words, to ensure individual effort on a daily basis aligns and converts into revenue and strong profit growth for the business.

Rather than just expecting employees to continue to increase effort, using the same work methods they have always used, many organisations will benefit from re-establishing or revisiting HR practices and going back and asking, “What are we trying to achieve?”  Taking back control of your company by setting clear goals and frameworks and being able to keep this on track with simple and consistent performance measurement will set the foundations for increasing productivity.

Developing your people and valuing their contribution, whilst caring for their wellbeing, will lead to them mirroring your investment and them truly caring about your organisation and being part of something that is more than just a ‘pay cheque’.

Is it a case of all or nothing?

No, each segment of our Productivity Wheel can be done in isolation.  Where you start and what area you tackle next will depend upon where your organisation is with its HR.  There is no order of priority, although ideally, you would start by establishing your business strategy before progressing clockwise.

In this edition, and over the coming months, we will expand on these segment titles through articles and case studies that will show the underlying HR that turns the theory into reality.

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