Mark Beatson, Chief Economist at CIPD (the professional body for HR and people development) outlines what needs to be done in order to boost productivity in the UK
The UK’s poor productivity was highlighted by the Chancellor as perhaps the biggest economic problem facing the government during its term of office. In July, the Treasury produced a 15 point plan for tackling the UK’s productivity gap. But that’s only the start of what will need to be a wide-ranging and sustained campaign across all layers of government if we are to see measurable progress made.
Although it’s critical to improving living standards over time, productivity is not a term widely used in day-to-day conversation. We may not always understand ‘profit’ or ‘revenue’ in the same way as an accountant does, but we have a pretty good idea of what is being measured. When it comes to productivity, the natural definition – output per unit of input – doesn’t appear to be widely understood.
Last year, one of CIPD’s regular quarterly surveys of employers 1 asked them whether ‘productivity’ was a term widely used in their business when talking about how to improve performance. Only two-thirds said it was and only two thirds – not always the same organisations – said they measured their productivity. We then asked these businesses to describe, in their own words, how they measure productivity. The understanding was mixed, to say the least. Some organisations did talk about measures which looked at value creation per unit of time or labour – such as how many hotel rooms were cleaned in a shift – but many conflated total output or sales with productivity, making no allowance for the time or effort being put into the process. Many talked blandly about KPIs, which is fine if the KPIs make sense in a business context. Some respondents clearly must have wished they had never ticked the box saying they measured productivity, my favourite quote being “I work for a utility company, for goodness’ sake.”
It’s not just businesses either. Health Secretary Jeremy Hunt created a stir at last month’s Conservative party conference 2 when he asked “… are we going to be a country that is prepared to work hard in the way that Asian economies are prepared to work hard, and in the way that Americans are prepared to work hard.” Much of the reaction to his remarks centred on the fact that, on average, employees in China and the USA work for more hours each year than British workers do, because of longer working days and less vacation time, with the conclusion being drawn – somewhat lazily – that we can only compete with China and America in the long term if we copy their working hours. Yes, we could become richer as a nation if we work longer each day or each year. But we can also become richer by raising the productivity of each hour worked. This can be done through working harder, or more intensely, although 9 in 10 UK employees already feel their job requires them to work very hard. But the way we will compete for long-term with other nations is by working smarter – changing how we work to make the best use of our skills and investing in the technology and systems that give people the tools they need to work more efficiently.
Research published by the CIPD on September 3 suggests that some employers lost some of their drive for improvement – for working smarter – during the recession. We found that 21% of UK employers belonged to a group we called ‘survivors’. They had been in survival mode for the last few years, focused on the short term, and had struggling to think about, let alone invest in, the long-term. We contrasted them with 25% of UK employers who we called ‘balanced investors’. These had continued to invest in both technology and people throughout and since the recession. Their fortunes could hardly be more different. Many survivors appear stuck in a vicious circle of falling investment and growth, which means they have fallen further behind over time. In contrast, balanced investors have expanded, creating opportunities and resources for more investment. Indeed, our research found that differences in what we called ‘mindset’ were the single biggest factor accounting for productivity differences across employers.
The government’s efforts to raise productivity, therefore, requires a change in mindset in some businesses. This won’t be easy. A growing economy helps, as well as access to financial support for investment and training. But it also needs an underlying shift in ambition and an enhanced sense of what is both possible and achievable. This isn’t just a question of willpower, of making a different choice. Organisations need both the vision, management and leadership capability to turn vision into reality. It will be a particular challenge for central and local government: our research found that 37% of employers in this sector were survivors and just 2% were balanced investors. How will they improve their productivity if the gains from doing the same with less (and less) start to run out?
CIPD (the professional body for HR and people development)