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The relationship between Productivity and profitability

A long-term outlook is needed to ensure strong profitability as a UK energy company, says director of HR at SSE John Stewart.


To achieve this it’s helpful to talk in terms of productivity rather than just profitability: “We know the short-term view on profitability has stopped people in our sector actually looking at the size of the ageing workforce issue for example,” he says.

“The downside of profitability is it tends to look at things in a 12-month cycle,” he explains, adding that concentrating instead on ‘productivity’ also focuses minds on the people element to profitability.

Key initiatives in ensuring strong productivity at SSE include investing in training for young starters, performance-related pay, and an IT transformation project that is currently underway.

Though this might seem like an area with less obvious ramifications for productivity, SSE also talks about its CSR initiatives – such as its programme to hire long-term-unemployed individuals – in productivity-orientated terms.

This helps the company link its own prosperity to the health of the nation, says Stewart: “If the UK is successful and people are reasonably wealthy then they’re happy to buy products and services, so there’s a virtuous cycle,” he says.

Crucial to all of this activity, adds Stewart, is actually tracking and reporting on steps to improve productivity – not just when it comes to more tangible assets such as technology, but regarding the people element too.

To do this SSE recently compiled a report quantifying the value of its human capital, and connected it to the impact of training. “We wanted to show that building skills for the future is a really valuable investment rather than a cost,” says Stewart. “We wanted to show that if we spend a pound on a trainee, what does the economy see coming back from that?”

“We can also start to say: ‘If £1 gives £4.19 back, what would actually improve that?’ It’s starting to get us into: does retaining people for longer make it better? Does getting people into jobs more quickly make it better?”

So far the company has applied this reporting system to its apprenticeship programme and technical staff training programme, but hopes to soon roll human capital reporting out to other training programmes – and beyond.

“Next year it’ll be about understanding the impact of our social responsibility programmes, then going on to bulk training such as customer service,” says Stewart, adding that health and wellbeing and recruitment could also be measured.

So watch this (highly productive) space…