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Productivity is key to continuing the recovery...

Author: Oliver Jobson

The UK and the world’s economic recovery has so far been driven by smart monetary policy, but future economic growth in the UK is dependant on eliminating our growing productivity gap. If we fail to act we risk stagnating as a low-skilled, low-productivity economy.

Picture illustrating the need to measure the return you get from training investment

Back in February of this year, the media once again reported on the issue of the UK productivity gap. It was previously raised as an issue towards the end of 2013, but the gap has continued to grow. The output per hour worked in the UK is now 21% below the average for the G7 group of countries - this is the widest that the gap has been for over 20 years. The picture worsens if you consider the output per worker, where the gap becomes even wider, rising to 25%.

The crux of the issue isn’t unemployment, where levels in the UK are strong. Nor is it about how long we spend tethered to our desks (we Brits work some of the longest hours in Europe). The issue is about the effectiveness of the UK workforce; in order to improve UK productivity we need to focus on raising the output of each working person in the UK. To do this we need to invest in our people, and we need to engage our workforce so that they make the most of their potential.

The relative success of the UK’s economic recovery has also compounded the issue of low productivity by strengthening the pound. Sterling has continued to rise against the Dollar and the Euro over the last 18 months, making UK exports less competitive in overseas markets, which in turn has a direct effect on the bottom line. The rise in the value of the pound is only in single figures. The increased benefits that we would witness, from closing the productivity gap, would far outweigh any disadvantage UK exporters might currently face.

“A low skill, low productivity economy – you can’t go there. We can’t decide to go down market, we have to compete on value added and innovation, and we have to have the most comprehensive productivity improvement.” - John Neill, Chairman and Chief Executive of Unipart Group, discussing productivity in thisismoney.co.uk.

The Global Competitiveness Report, released this month by the World Economic Forum, warns that we may not be able to sustain the economic recovery which we have so far witnessed. The WEF recognise that the recovery has been driven predominantly by good monetary policy, but in the future it will rely on the development of the capability of our workforce and it’s ability to innovate. If we are to see continued growth in the UK then we must invest in the capability and the efficiency of our workforce. Under-investment will result in the UK graduating towards a low-skilled, low-productivity economy, which would be poorly placed to compete. It would have a grave impact on our economy, on civil society, and on our quality of life.

Productivity Principle #1: Take the long term view

Peter Thiel, cofounder of PayPal, recently talked in detail about the pressures that companies are under to maximise profits and shareholder value for their next quarter results. Adding to this, Accelerating Change and the market disruption that it brings is also making it harder and harder to develop stable, long term business plans.

There is reducing incentive for business’ to push against the urgent and instead think about the long term view. It can be hard to look in to the future and ask ‘what must we have in order to deliver our mission for the next 15 to 25 years?’. One result of this behaviour is that, we, our economy and society are not focussed on developing a competitive workforce. It's also worth mentioning that such a lack of vision and strong leadership can be felt; it directly impacts upon employee engagement levels.

As previously mentioned, organisations can’t create detailed, 25-year plans anymore - we know all too well that they will quickly become obsolete. What they can do is to make sure that they understand the fundamentals that need to be in place. Taking this long term view encourages an eye on what is happening outside of an organisation, as well as inside. This is something that Unipart has been able to do very well; to truly understand the market place and the sources of competitive advantage, and then to take the right measures to ensure that we are developing excellence in all of those areas. It is dangerous to stand still: you will be overtaken, and you will lose your source of competitive advantage.

One of the ways Unipart took advantage of this knowledge was by opening one of the first corporate universities in Europe. Through this unique facility we are able to train our staff and develop the skills we need them to have. Our training is adapted and delivered in a way that best suits the requirements of our workforce. This ensures high ROI from our investment in training, but crucially, that we can continue to develop what we know to be ‘best practice’ and instil it throughout our workforce and at all levels.

As technology becomes ever more advanced and cheaper, people will continue to be one of the key differentiators, perhaps increasingly so - and this applies to services, as well as in manufacturing. Our focus must be on developing skills and leadership that promotes efficient, effective and innovative ways of working. If we can do this, then we can start to close our productivity gap, and the benefits of doing so will reach far wider than just the bottom line.

The Unipart Way: performance improvement that sustains

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