According to a recent report in the Financial Times, annual growth in British productivity has slumped in the last decade from around 2 per cent to a little above zero. With Brexit looming, a group of business leaders is launching a campaign to get SMEs match fit to compete in the global economy once we leave the EU.
The campaign to improve productivity is being led by Charlie Mayfield, chairman of the John Lewis Partnership. He said, “getting our businesses to improve their performance to the same level as our international competitors is the biggest challenge we face as a country.”
But do UK SMEs realise they actually have a productivity problem? According to research we carried out for our report on The Culture Economy, 75 per cent of 500 SME senior decision-makers interviewed were either quite satisfied or very satisfied with business productivity. Only 6 per cent of the survey population were dissatisfied.
The sums don’t add up. Research carried out by leading UK merchant bankers, the Close Brothers Group, on the Power of Productivity found that of 1,400 UK, French and German decision-makers, one in 20 SMEs aren’t even aware of what productivity means.
SMEs make up 99.9 per cent of the UK’s businesses. They are vital to the total economic output of the UK, which currently lags behind the G7 in terms of productivity by 16 per cent. One of the biggest revelations to come out of research being carried out on UK productivity, such as that by ourselves at breathe and the Close Brothers Group, is that SMEs in the UK lack understanding about what productivity is and how to measure it.
What is productivity?
Productivity is an economic measure of output per unit of input. It‘s the measure of the efficiency of a person, a machine or a factory system. Simply put, it refers to the amount of work produced by a worker or the amount of work by the number of hours worked.
In the context of the wider economy, productivity is GDP (the value of all goods and services) over a given time, divided by the total number of hours worked by all workers in the economy over the same period.
Since 2008, the UK’s productivity has flatlined.
How are businesses measuring productivity?
In our research, we found that 22 per cent of respondents don’t measure productivity at all. Forty-seven per cent of those surveyed based their productivity measurement on money in versus money out; eighteen per cent measured productivity by production volume over a set period and another 18 per cent worked out productivity statistics by revenue and headcount. Sixteen per cent of influential SME decision-makers use productivity figures supplied by their finance team.
Our research shows that consistency in measuring productivity is also a problem.
Productivity crisis not recognised by UK’s SMEs
It is a worrying state of affairs when a large proportion of the UK’s SMEs perceive the UK’s productivity crisis as something they have no control over. The Telegraph reported earlier this year that there is no solution in sight for the UK’s productivity crisis as small businesses say it is not a priority.
Our research also confirmed a worrying trend that UK SMEs are by and large happy with their current productivity levels (75 per cent are satisfied or very satisfied with productivity levels).
This percentage is further supported by employees’ views on how engaged, involved and focused they felt on a typical day in their job. breathe interviewed over two thousand UK adults and found that 76 per cent of respondents were quite or very engaged, involved and focused at work.
Why is productivity important?
Productivity is an important concept in economics. It is crucial in determining a standard of living. Increased productivity equates to a rise in supply, a drop in real prices and an increase in wages. An increase in a country’s productivity can lift people out of poverty.
According to social policy research charity, the Joseph Rowntree Foundation, to get families to a decent living standard, we must solve the UK’s productivity puzzle. We need higher UK productivity to deliver decent living standards.
Workplace culture and productivity
We leave you with one thought, shared by eminent economist and Nobel Prize winner, Paul Krugman, who describes the importance of productivity as thus, “Productivity isn’t everything, but in the long run it is almost everything.” As we edge closer to leaving the EU, UK SMEs need to understand more than ever the intricacies of productivity and how to improve it if they want to survive in a post-Brexit world.
With poor workplace culture costing the UK economy £23.6 billion every year, SMEs should take heed. In challenging and uncertain times, small businesses need to find ways to achieve a competitive advantage. Improving productivity is not only good for business, it is good for employees and the country. Addressing company culture is one positive way SMEs can improve their productivity levels.
A recent report by the University of Gloucestershire found that there is still a great deal to be done to convince SMEs of the importance of improving productivity and its potential for growth and profitability. There are many SMEs out there in the business world recognising the positive benefits of great company culture on productivity and growth. More SMEs need to follow suit.
The key is in supporting SMEs to grow their understanding of productivity, how to measure it and how to improve it. Better management and growing positive company culture is the answer.