How working smarter, not harder, could boost our economy by £560 billion

We all aspire to being more productive: to getting more done in less time, and at less cost. When it comes to business, the company that can deliver products or services most efficiently is more likely to grow, outlast its competitors, and provide a decent return on investors’ capital.

Similarly, countries with the most productive citizens will see real rises in wages and living standards, as their wealth and economic power grows relative to other nations. In the long run, productivity is the key determinant of success or failure, both personal and national.

There are really only two ways to improve productivity: either work harder, which in corporate or national terms means more people working more hours; or work smarter, producing more with the same or less effort. The problem in Britain, since the economic recession of 2008, is that we appear to be doing neither.

The UK’s ‘productivity puzzle’

Economists, politicians and business leaders are increasingly concerned about the UK’s ‘productivity puzzle’: how it is that our economy, which has outperformed other developed nations in most respects, lags behind in terms of productive work.

The numbers are pretty shocking, particularly for a country that still takes pride in its work ethic: the latest data from the ONS shows that all G7 nations except Japan are considerably more productive. Our hourly output is over 30 per cent below that of France, Germany and the US, and over 20 per cent below the G7 average – the largest shortfall since records began in 1991. Longer working hours in the UK mean that the actual output per worker is not quite so far off some of our competitors, but the average French worker still produces as much in four days as a Brit manages in five. Americans, who work longer hours, are over 40 per cent more productive: they could take Thursday and Friday off and still match UK performance.

In theory, if UK workers were to match the productivity of their French and German counterparts, the economy would benefit to the tune of about £600 billion. GDP per capita would be nearly £38 000, rather than £28 500 as it is today. The wealth might not be evenly spread, but it’s safe to say that most of us would be a lot better off.

Of course, it’s not that straightforward. GDP is notoriously difficult to calculate, and much of the data is little more than educated guesswork. Methods of measurement change over time, not everything counts towards the total, and the measure is skewed against a mature, service-dominated economy like the UK’s. The real puzzle is why UK performance has nosedived since the recession. Until 2008, productivity growth in the UK averaged between 2-3 per cent per year. It slowed almost everywhere after the financial crisis, but recovered quickly in other G7 nations.

The UK, on the other hand, has taken seven years to reach its pre-recession level. The gap between current productivity and the pre-crisis trend– where we’d be if things had carried on as they were – was estimated at 15 per cent in 2015.

What’s the problem?

It’s not that UK workers are particularly lazy. They’re held back by a number of factors, including:

  • Skills shortages in many key industries, and a poor record of matching workers’ skills to jobs.
  • Poor infrastructure - the IMF ranks Britain’s infrastructure below most major industrial competitors; and investment is the lowest in the G20.
  • Outdated technology - a combination of cheap workers, lack of confidence and difficulty obtaining credit has squeezed capital investment. Companies have held on to employees rather than improve equipment and processes.
  • Rigid structures and poor communication - many companies fail to engage their workforce in process improvements, and thus lose out on the expertise and creativity of the bulk of their staff.
  • Increased regulation and red tape - financial services, in particular, have seen increased regulation since 2008. The sector has also focused on less risky activities since the recession, but these yield lower returns.
  • Even though by European standards the UK has relatively good internet connectivity, coverage is patchy. Around 2.4m premises (half in the countryside) can’t get speeds over 10Mbps, the threshold Ofcom says is an “acceptable user experience”. Without decent connectivity many of the productivity benefits of cloud services cannot be delivered.

The UK economy has done well in spite of these shortcomings, because its people are cheap. Excluding the former Eastern Bloc states, the only EU countries with lower hourly wage rates are Greece and Portugal. Labour supply has grown strongly and there has been a disproportionate growth in low productivity jobs. If Britain is to remain prosperous, however, its future cannot be a low skill, low wage economy. The focus must be on increasing skills and productivity.

New Technologies, New Solutions

The last five years have witnessed a massive change in the availability of information and corresponding changes to our habits, which ought to allow for much greater efficiencies. In particular, ownership of smartphones and tablets has taken off thanks to the development of better touch screens, lighter and longer lasting batteries, and faster transfer rates. High-speed connections from almost anywhere are made possible by nationwide 3G and 4G coverage, ubiquitous wireless networks, and widespread availability of fibre-optic fixed lines.

There has been an explosion in social media usage; news and ideas spread much further, faster; and people with particular interests or requirements can be reached far more easily. Better connectivity and virtualisation have also dramatically increased what can be achieved using the flexibility and cost efficiencies of cloud computing.

It’s now possible to access a shared pool of resources without the need to buy hardware or software up front. Costs of ownership are reduced, and maintenance and upgrades are simpler. Cloud computing also provides firms with flexibility and rapid scalability, enabling them to adjust to changing requirements; and collaboration and remote working is much more effective, since resources can be readily accessed and information is easily shared and backed up.

Looking to the future

The data from other industrialised nations suggests that big improvements in our productivity are within reach, and research suggests that it should pick up strongly in the next five years. A report by Oxford Economics, commissioned by the International Festival of Business, predicts that overall UK productivity will increase by 10.7 per cent between 2015 and 2020 (compared to about 3.2 per cent in the last five years). Manufacturing productivity is expected to rise by 15.5 per cent. The reward for these improvements is anticipated as a 12.4 per cent rise in real disposable incomes, the creation of 1.3 million new jobs, and a 35 per cent increase in the value of exports.

These gains will be driven by greater adoption of new technologies, and wider dissemination of best practice. Some sectors have made great strides already: the automotive industry has improved productivity by 30 per cent since 2008. However, companies which fail to unlock the capabilities of their workforce, whether through improved training, better use of technology, more flexible work practices or smarter processes, are destined to fall by the wayside.

This is particularly prominent as international competition grows, and new technologies make it easier for new entrants to establish themselves and reach out to customers. Nonetheless, for those prepared to rethink the way they do things, the potential rewards are huge.

Tips to improve business productivity in 2016

Use the Cloud

Cloud hosting provides secure, managed software services, data and other virtualised computing resources. This presents enormous benefits in terms of scalability, control, and reduced costs.

Limit multitasking to improve output

Many of us wear several hats at work. We’re doing more, but getting less done. It takes time to adjust to new ideas and the brain can’t effectively switch between tasks. We make more mistakes which take time to fix, and retain much less of what we learn. British firms need to organise technology and departments so that employees can dedicate themselves to their primary tasks, and reduce invasive distractions.

Manage smart devices and social media

New tech has vastly increased our potential for work, but it also provides a host of ways to waste time. Companies should ensure employees are engaged constructively, but this isn’t a matter of banning technology. Studies show that the most productive employees are allowed regular breaks, in which they can do their own thing, including online shopping or checking friends’ status updates. Furthermore, some staff (e.g. salespeople) can increase business with skilled use of social media. If necessary, software applications can be used to monitor or limit the time spent on particular sites or apps.

Harness the creativity of all employees

Technology enables productivity growth - people deliver it. The people who actually do the work are often the ones who best understand the issues. If all employees are focused on solving problems and making continuous improvements, and managers value and promote their ideas, the business will make huge gains at comparatively little cost.

Jack Bedell-Pearce, managing director, 4D

Image source: Shutterstock/woaiss