When it comes to productivity the UK lags behind its European rivals. What are the key derailers holding our businesses back and how can they start getting back on course?
Cutting the time it takes to order a cake is a positive for anyone with a sweet tooth. For Yvonne Lam, co-founder of London-based online cake concierge MY BAKER, it has also resulted in significant productivity gains and expansion.
“We connect customers and their wedding or birthday cake requests with independent bakers,” she explains. “The bakers quote the price to make the cake and the customer chooses the best option. Until recently we were carrying out this process manually, sending emails and making phone calls.”
It took an hour to process an order, a length of time Lam found frustrating. “There was too much time and focus around ordering,” she explains. “We decided to invest in a new digital platform which has, through the click of a button, automated the whole process and cut the order time down to 10 seconds. It has led to more orders and given us time to create new revenue streams such as cookery classes.”
According to the Office for National Statistics figures UK labour productivity, output per hour, rose 0.6% in 2017. That is lower than eurozone growth of 1% and Germany of 1.5%.
Indeed, the average German worker will have produced more by the end of Thursday than a UK worker would in a full week.
The UK figure is also far behind the long-term trend of 2% growth per year achieved pre-2008. Its failure to recover that previous rate has created a ‘productivity puzzle’.
A raft of studies has been launched to come up with solutions, including recent research from NatWest and the Centre for Economics and Business Research. It found that UK SMEs could add up to £57bn a year to the UK economy if they were as productive as German SMEs.
The research added that only a minority of SMEs had the strategies to improve productivity. These include investing in workplace culture such as mentorship schemes, rewards for good performance, career development and investing in research and development and new technology.
Paul Winter, CEO of strategic consultants LiveStrategy, agrees with the findings. “We have been slow to adopt changes such as flexible and home working, and not understood the importance of training or innovation and technology,” he says. “There is a lack of management acumen among our SMEs extending to not identifying new technology, products, services or packaging.”
Malcolm Prowle, professor of performance management at the University of Gloucestershire, also believes a lack of leadership skills could be holding SMEs back. “A lot of owners don’t have the confidence to make changes or develop strategy. They might invest in new technology but there’s no point if they don’t know how to use it effectively,” he says.
“SMEs can be helped by more focus on management training and cutting the amount of red tape they have to deal with. Some say to me that they’re too busy with day-to-day tasks to focus on productivity strategy.”
They say they can’t relate to the ONS measurement of productivity in terms of labour output and machines, he says, so they don’t develop a long-term strategy for it. They need to see a link between their profit, sales and growth. They need to see that new products, new ways of working and technology will help their bottom line.”
SMEs should focus on becoming more efficient rather than more productive, says Professor Mark Hart, deputy director of the Enterprise Research Centre, which focuses its research on SME growth, innovation and productivity.
“How do they cut down on time wasted and improve management skills? What new technology or systems such as CRM and cloud accounting can help make them more efficient?” asks Hart. “Leaders also need to get a deeper understanding of their finances, such as cash flow and invoicing to reduce late payments. We need to be more financially literate.”
“We’ve increased our focus on minimising errors and introduced collective bonuses for performance”
Chris Blade, CEO, Cumbria Crystal
Winter believes more support should come from government. “There has been a tendency to ignore productivity and focus on achieving full employment instead. Germany took the opposite approach,” he says. “It’s why we have so many low-paid workers without the technology and machinery they need to perform better. The government should provide huge tax breaks for SMEs to help them invest in new technology and ensure better national broadband coverage.”
In June, the government launched a new £8m fund to boost SME productivity by improving technologies and management practices. In 2017 it backed the launch of Be the Business, which is helping businesses benchmark their current level of productivity with their peers, access advice and utilise smart management training.
Chris Blade, CEO of Cumbria Crystal, the last producer of completely handblown English crystal, has tackled its productivity challenges via a course called Productivity through People run by Lancaster University Management School and supported by Be the Business. Through the course it worked with companies such as BAE Systems, Siemens and Rolls-Royce, and benchmarked its performance and operations with peers.
“Since the scheme, we’ve improved staff training through NVQ courses and given them more power to use their knowledge and skills to make autonomous decisions,” says Blade. “We’ve increased our focus on minimising errors and introduced collective bonuses for performance.”
He also ensures that staff have a deeper understanding about company strategy and performance. “We put our weekly financial figures up on a big whiteboard, so staff feel empowered and engaged,” he says. “We’ve also innovated with new glass barrier technology and new services such as public glass-blowing classes.”
Such measures have helped boost margins and hiked turnover by 90%.
Manufacturing firm PP Control & Automation have had similar success through a system called Route 6. It encourages staff to save 6% of their time on a project. “We found that the 6% target resonated strongly with staff,” says chief information officer Ian Knight.
“Staff identify an area they can improve and if they carry it out and it’s approved by management, they get a reward such as a bottle of wine. One worker identified a more efficient way to produce cables by minimising changeovers and maximising machine throughput. It made the process quicker. We’ve run the Route 6 scheme for four years, removing the barriers to improvement and overall boosted productivity by 20%.”
Employee engagement is key for David Brudö, CEO and co-founder of personal development app Remente, and stress can be a distraction. “We regularly meditate together in the office for 10 minutes after our daily morning meeting. We sit in silence and focus on our breathing. It helps people to recover, energise, focus and be more productive,” he says.
“It’s just one of the tools we use to combine well-being and performance alongside goal setting and better time management. We ensure that staff know exactly what their daily tasks are and how that fits into company strategy. People need to have direction rather than going to work and not understanding how they’re contributing.”
Remente has also implemented a ‘results-oriented workplace environment’ scheme. “As long as you achieve results you’re free to manage your time in a way that works for you,” says Brudö. “Work-life balance is important and allowing our employees to work from home or leave early to pick up their kids has reduced stress. We’re giving staff tools to ensure their minds are performing at their best and boosting performance.”
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