“Productivity is being stifled by chronic underinvestment, exacerbated by current unprecedented uncertainty and reflected in sluggish wage growth”. This not-too-positive statement was recently made by Mike Cherry, the president of the Federation for Small Businesses, but how true is it? And how much of an impact is reduced productivity really having on UK businesses?
Some have pinned the decline on banks, blaming the reduction in lending to small businesses, viewed by many as the powerhouse of the economy. Others have cited the skills crisis that Britain finds itself in the grip of as the leading cause of productivity decline. Other factors also play a part, such as the consistent rise in temporary contracts across the UK, which has meant that less on-the-job training is being provided, further contributing to the skills crisis. As with many things, the cause is a combination of many contributing factors.
Regardless, according to new data from the Office for National Statistics (ONS), the productivity of UK workers (measured by output per hour) has dropped back to pre-financial crisis level. Britain is still dragging behind the rest of the G7, with the average British worker producing around a third less than their German equivalent.
To put it another way, in the time it takes a British worker to produce £1 of value, a German worker produces £1.35.
Experts believe that if the average fall in productivity of 0.5% each quarter continues, then low productivity will likely cause long-running changes to average living standards, as well as having a lasting impact on UK businesses.
What impact is this causing on UK businesses?
In practical terms, it goes without saying that reduced worker productivity impacts profits directly, but there are several ways this affects businesses.
Low productivity levels can cause a business to stagnate, ticking over where it should be in a period of growth and expansion. Due to productivity problems, businesses lose out on vital opportunities for growth. If a business is forecasting minimal growth then expansion makes little sense, but by solving the productivity problem businesses gain the option to embrace more opportunities. It affects businesses of all sizes, and this hindering of growth can could mean the difference between a new hire or launching a new service or product.
More often than not, this also impacts workers’ skills development. If the business has less capital to invest in its own employees, training becomes a low priority, resulting in the business missing out on the chance to boost their staff’s expertise and therefore their work output.
Lastly, low productivity and bad staff retention go hand-in-hand. Underperforming workers may result in a rehire, or poorly motivated staff may leave of their own accord and, with new starters needing an initial training period, working hours are lost and recruitment costs rise. Thus, a viscous cycle of low productivity, insufficient skills, bad staff retention and low business growth forecasts begins.
How can this be remedied?
As well as standard methods like recognising an employee’s achievements there are a few things that can boost productivity. For example, research has indicated that enforcing regular breaks across the day has a significant impact on motivation for many workers. The idea being that these workers find it much easier to focus knowing that a break is in their future regardless, rather than drumming away at a task that seems unending from their perspective.
Performance reviews are another tried and tested way to monitor the progress (and performance) of employees, and help to motivate them in their work moving forward. As long as feasible, realistic targets are set this can be a very beneficial way to measure exactly how everyone is working, and allow you to make changes if they’re needed. For the more ambitious, sales driven employees an ambitious target can be a way to draw out their top level of performance – so long as they’re sufficiently supported by those around them.
Upskilling your staff also has many well documented benefits, not least of which is a boost in their productivity in the workplace. A study by the Federation of Small Businesses found that just 43% of British SME’s are currently investing in training or upskilling their staff. With training, not only will employees be able to handle more specialist or complex tasks, they will no longer be using time to ‘figure out’ how to complete tasks they’ve never completed. Upskilling also reduces the error rate across different tasks, further improving productivity as well as making room for more work.
Upskilling also plays an enormous part in helping employees to feel engaged with their work, which is a large part of the productivity problem to begin with. When an employee is trusted with more complex tasks and more responsibility, they are naturally more engaged with the work they are doing. But in order for staff to feel this way, there needs to be room for expansion of their skills.
The government has responded to the Skills Crisis, particularly with Apprenticeship reform. By removing the age cap from Apprenticeships and allowing them to be undertaken by existing workers, businesses have a wealth of options for improving productivity and increasing their businesses’ skill base.
This also allows new employees to see the potential for growth within the company, making your business a much more attractive prospect to work for. There are no recruitment fees for taking on an Apprentice, making them an even more attractive option compared to new hires. Last, but not least, thanks to the recently implemented Apprenticeship Levy, the cost of upskilling staff is largely subsidised by the government.
For more information hiring, upskilling your staff with IT and Digital Apprenticeships, or the Apprenticeship Levy, contact our team on 020 7426 9835.