Solving the Productivity Puzzle

Figures released by the Office for National Statistics reveal that the UK’s output per hour has declined in the third quarter of 2018. The news is likely to be unwelcome, if unsurprising for UK CEOs.

After Japan, the UK is the worst performing member of the G7 when it comes to productivity. Our output is far below the average for the rest of the group, with France and Germany surging out in front. Even in comparison to our own past performance, we’re lagging behind; before the financial crisis, our growth was increasing by an average of two per cent a year.

We’re in a very fragile position. Despite a high employment rate, our output is sluggish, and with a number of challenges on the horizon, it is time for UK business leaders to take a stand.


Harder, better, faster, stronger

For the UK economy to continue to flourish, we need to make a change. Workers can work longer and harder to increase output, but we know this can actually have the opposite effect; overstretched workers become exhausted, unmotivated and inefficient. So what else can we do?

The UK government has set out its Industrial Strategy, designed to ‘strengthen the foundations of productivity’, with initiatives centred around five pillars designed to create the right policy environment: Ideas, People, Infrastructure, Business environment and Places. But this alone will not be enough.

An economy can only ever be the sum of its parts – the organisations that drive it. By seeking out ways to become more efficient and agile, business leaders can future-proof their organisations in the face of a changing political, economic and technological environment – and this will also improve productivity and growth potential in the wider UK economy.


Processes or people?

Many organisations are looking to technology to improve efficiency and cut costs – but it comes with its own issues. What happens to any workers it replaces? What happens if it goes wrong? There’s no doubt that it can bring huge benefits, but it’s often an expensive investment, so employers need to ensure that the workforce is able to put new equipment to use effectively so that it generates return on investment.

As well as reviewing, streamlining or improving processes, CEOs must also consider their people strategies. With many organisations facing challenges, it can be hard to keep the workforce motivated, which has a knock-on effect on efficiency and productivity. So what can employers do?

The work-salary exchange is no longer enough – the majority of workers want to have more of a relationship with the organisation they work for. They want to know that the organisation cares about them. As a result, there’s been an increased focus on workplace health and many businesses are looking to offer innovative or unusual benefits that set them apart from other employers – we’ve seen the introduction of hyper-flexible working from the likes of PwC, and many companies introducing a four-day working week, all designed to improve motivation and productivity.

But what about other benefits? Surely with advantages for both organisations and their employees, work-based training should be a crucial piece of the puzzle. By investing in training, you are showing your employees that you can see and value their potential. You are giving them opportunities to grow and develop, opening up new roles and higher salaries – surely a motivating factor for many?

And of course, work-based training also allows organisations to build up the skills they need, both now and in the future. According to The Open University Business Barometer, three in five organisations are currently facing a skills shortage, so investing in training can help to close gaps and develop skills that aren’t readily available in the workforce, while boosting employee engagement.


Prioritising training

During the financial crisis, training was often de-prioritised as a result of more pressing concerns – unfortunately, this is one of the reasons we’re facing a skills shortage today. Even now, it can be difficult to find the money for training, and as a result the UK is still not investing enough in education and skills.

As a result, the UK government introduced the apprenticeship levy to encourage more investment in skills training, but it has not taken off as expected. Many employers feel the time commitment of developing an apprenticeship strategy far outweighs the potential benefits, but in reality, there is a huge opportunity.

Business leaders can develop the skills they need using money already set aside for that specific purpose, while investing in workers with potential, which has a knock-on effect on loyalty, retention and motivation. It’s a win-win – and from May 2019 funding will start to be absorbed, so it’s essential that organisations get return on their investment while they still can.


So at a difficult time when business leaders are looking for ways to protect their organisations and remain competitive, it is crucial that they look to increase efficiency as a way to boost productivity, rather than stretching their workforces.

By adopting new strategies, employers can instigate real change – and this change can help to drive the UK economy forward, leaving us in a stronger position and ready to face fresh challenges.


David Willett

The Open University

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