Please don’t panic: HR magazine is not about to recommend you fire half your workforce and double the remaining half’s workload.
For so many of us, productivity is a loaded word. For employees, its connotations vary from the innocuous to a downright scary precursor to redundancy.
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The trouble is, it’s an important word. Ben Wilmott, head of public policy at the CIPD, argues that productivity is an “absolute prerequisite” for living standards. If employees are getting more work done, then firms can afford to pay them more.
Helpfully, it also makes companies more money.
The big picture
It is worth HR leaders listening, therefore, when economists argue that UK productivity is in a long, deepening crisis.
As John Van Reenen, head of the London School of Economics (LSE)’s productivity and innovation research unit, explains: “The UK has a double productivity problem. The first is that we have lower levels of productivity than our major competitors like the US, France and Germany.
“The second puzzle is the fact that since the last financial crisis, our productivity growth has been really abysmal – it has really, really slowed down.”
Since 2008, the UK has enjoyed an average of 0.4% productivity growth, less than half that of its competitors. And these nations now have such a lead that France, Germany and the US are now on average 17% – one sixth – more productive, according to statistics from the Organisation for Economic Co-operation and Development (OECD).
In other words, what these countries can produce in a working week, the UK is finishing up glumly at quarter to four on a Saturday afternoon.
While relatively simple to measure on a national level – a simple division of gross domestic product (GDP) – it is more complicated within organisations.
Gemma Dale, lecturer at Liverpool John Moores University, says: “It is useful as a measure, but we need to know exactly what it means for our organisations, and we need to measure it properly.”
Take someone in an HR role, for example. You could measure productivity by the number of cases they have worked through, the people they have helped, the policies they’ve written or any number of other metrics.
There is no single way of measuring productivity, so it can be intimidating knowing where to start. For the day-to-day context, beyond individual roles or functions, Dale suggests, productivity should be taken as an organisational average.
Investment
To increase productivity, you need to invest. Usually, in capital: machines and facilities, or software and other intangibles.
Van Reenen says that capital is the driver behind 80% of productivity growth. The remaining 20% is ascribed to skills or people development.
It is a simple enough formula for the big picture. However, since 2008, the level of business capital investment has been dismal. In 2021, the UK ranked 27th of the 38 OECD nations, ahead only of Greece, Poland and Luxembourg.
The problem, Van Reenen says, is that British companies are simply not investing in the future.
Skills
Skills are a particular problem. Despite their importance to productivity growth, spending on skills, in both public and private sectors, has plummeted.
Private organisations have cut their skills spend by a whopping 27% per trainee since 2011; public-sector cuts have likewise seen adult skills spending fall by 31% per trainee since 2003-2004, according to the Institute for Fiscal Studies.
Willmott says: “We have a particular problem around the apprenticeship levy, we have a real weakness still around careers advice and guidance, and we don’t have nearly enough high-quality, vocational educational routes into employment for young people.”
While the number of employees receiving training has stayed stable, on average these employees have had their training days reduced by a fifth (19%).
More than a quarter (26%) of UK employees are now underqualified for their role, according to OECD stats. Compare this with France (21%), or the US (17%), and it becomes obvious that there is a problem.
Sharon Benson, HR director of care provider Lloyds Pharmacy Clinical Homecare, says: “A lot of UK businesses just think about induction. Post induction, there’s rarely much training. I’m just not sure how much we’re invested in truly developing people.”
Securing productivity
HR is poised perfectly to make a transformative difference to productivity. Skills, for a start, are HR’s bread and butter.
Even straightforward capital investments – efforts to boost productivity through a new software system, for example – need considerable HR support to be pulled off well.
“That human element is the key thing – and it’s much harder to change [than capital],” says Van Reenen.
“I worked for three years in the NHS as advisor to the secretary of state, and there was this huge, multibillion-pound expenditure trying to get a single [unified] IT system [across all regions].
“Most of that money was lost. It wasn’t that the technology was faulty, it was that there was huge resistance to having a single digital model across the whole of the NHS.
“A lot of [productivity] is about changing the way that people work together and businesses are organised,” Van Reenen says.
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Wilmott is of the same opinion. He says: “Sometimes it gets forgotten, when we’re talking about innovation and technology, that it’s actually the people aspects of the business that are often critical to the effective optimisation of technology.”
People, and their skills, are vital to making productivity investment pay. It is the same for any new technology or change in the workplace; even Pythagoras would not be able to use a pocket calculator without training.
Wilmott adds: “Job design, training and development of workers, change management, people manager skills – all these things are really important to effectively adopting technology.”
HR’s role
HR’s involvement in productivity is about much more than being mere skill providers. In fact, productivity is linked to almost every strategic aspect of HR.
Dale says: “Who is recruited, how they are onboarded and trained, how well they are managed, their performance, their wellbeing – all these things can influence how productive people are. Productivity and people are interlinked.”
Process mapping and job design, for instance, can play a vital role, Benson argues.
For her, a key part of HR’s influence over productivity lies in its responsibility to shape the structures, processes and individual roles that make up a company.
“If you think about your organisation, you need to ask yourself how each role within that jigsaw delivers on its accountabilities. What was its performance, what are the key performance indicators?
“Make the synergy of each role clear, aligned, and find out where the dependencies are. If that person doesn’t deliver, what are the knock-on impacts on other functions? That’s really where you get to be more efficient, more effective and therefore more productive.”
Just as long as you don’t make the job so mind-numbingly boring that no one wants to do it, says Benson.
“So while making processes efficient, you have to look at job design too. Keep the job interesting and it might not be more efficient in the short term – but in the long term it creates more value, because the shelf life of the job is longer.”
Look at any other strategic area of HR, and the connection to productivity is constant.
Firms with high engagement scores, for instance, have repeatedly proved that companies with employees who are interested in their jobs will achieve higher productivity.
Gallup’s annual engagement study showed in 2023 an 18% difference in sales productivity, and a 23% difference in profitability between high- and low-engagement firms.
Wellbeing’s impact on productivity is likewise now well established, with burnout estimated by the World Economic Forum to cost around £250 billion annually.
Read more: Burnout affects a fifth of UK employees as long-term sick
HR’s responsibility in recruiting an organisation’s people can have a massive impact on productivity, as Satnam Sagoo, chief people officer at the Southern Health NHS Foundation Trust, states.
For her, a person’s values are a foundational part of their potential productivity at work: a values-based hiring approach is therefore crucial for building a high-productivity organisation.
She adds: “You can then add on the layers of skills around that core, but for me productivity lies in organisations recognising the kinds of people they need to bring in, and for what reason.”
This is part one of an article that was published in the January/February 2024 print issue.
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