In the second half of 2017, the UK witnessed productivity growth not seen since before the recession. The rise of 0.9% in output per hour between July and September was followed by a further rise of 0.8% in the last quarter. Indeed, the last time we had even a single quarter this good was in 2011. This is leading some to ask whether we have finally cracked the productivity puzzle and can expect to see a steady rise in living standards from here.
Unfortunately not. We are still a long way from seeing a sustained recovery in our performance. The latest annual data from Germany shows it to be over 25% more productive than the UK, and a new report from McKinsey Global Institute declares that the UK has spent over a decade pacing behind our competitors Germany, France, Sweden, Italy and Spain. Of the seven countries McKinsey looked at only US productivity growth slowed more than UK.
That’s a significant gap, and while the recent improvement is welcome, two quarters of strong growth don’t make up for a decade in the wilderness. Britain now needs ten years of outperformance to catch up with our European neighbours.
Is poor management to blame?
We now know that there’s a direct correlation between the quality of management and the productivity of our firms. It’s not that UK bosses are bad, but the quality of management practices in the UK is variable.
On the one hand, we are home to some of the world’s most productive businesses of all sizes- the envy of the global economy – driven by best in class management. On the other, we have firms that significantly underperform when compared to their global competitors. Unfortunately the former are too few and the latter are too many.
In this negative assessment however lies the answer to how we progress. Improving the productivity of the country’s underperforming firms does not require the splitting of the atom. Be the Business has identified that some of the biggest gains can be made by improving management and leadership practices in businesses of all shapes and sizes.
What you can do
Business owners and managers should start by asking – am I doing everything I can to make my firm a productivity leader? It might appear hard to define what that means, but ultimately it’s about getting the best possible outcome from the resources available. If profitability is an indicator of business performance, think of productivity as an indicator of overall health.
Improving productivity is about finding ways to work smarter, not harder. It’s about understanding how your performance compares to other businesses, establishing what the most productive businesses do, and embedding these practices in your own firm.
Often the practices that drive productivity can seem modest in scale: developing the talents of staff; setting targets – and hitting them; and improving the efficiency of routine processes. But these low-risk, 1% changes can make a real difference to a business’s performance.
What’s at stake?
As we look ahead to a future outside the EU it’s more important than ever that the UK becomes a global leader in productivity. The prize on offer if we can crack this is a big one. Sir Charlie Mayfield’s review of business productivity found that a modest improvement in the performance of our lowest performing firms could unlock up to £130bn for the economy each year.
Government investment has a role to play in all of this but, ultimately, the keys to unlocking our productivity and competitiveness lie not in the hands of politicians, but in the hands of business leaders across the UK.
Tony Danker is CEO of Be the Business, a private-sector led, government backed organisation aiming to address the UK productivity crisis.
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