The UK’s Productivity Challenge 2024: what it means for companies
Rain Newton-Smith, CBI Chief Executive, responded to the Prime minister’s speech at the Labour Party Conference 2024 “After more than a decade of lost productivity, its only through the public and private sectors working together that we can build a stronger economy that improves living standards, empowers communities and helps the country compete on the world stage.”
Is he right? And what does it mean in practice for company managers and leaders?
Concern with the ‘British disease’ of poor productivity and an economy based on low wages and low skills has hit the headlines at regular intervals since the 1930s, though seemingly without reaching lasting solutions. The 2008 financial crisis, amplified by the challenges brought about by Brexit, are just the most recent stimuli for reviving this long-standing anxiety. Now in 2024, the absence of the term improving productivity is notable.
Governments are generally at a loss in understanding what to do about the problem. Former Conservative Chancellor Philip Hammond argued that “In the real world, it takes a German worker four days to produce what we make in five; which means, in turn, that too many British workers work longer hours for lower pay than their counterparts.” Yet his budget resorted to simple headline solutions – such as roadbuilding to reduce the time employees spend in traffic jams – which, whilst arguably useful in their own right, fail to get close to the root of the problem.
So what are the facts – and why should they concern business?
Firstly, we know from evidence and experience that the way we design jobs and organisations makes a real difference, both to business performance and to employee well-being. Successive studies found that companies which allow employees high levels of trust and discretion over how they work, enable them to work in self-organised teams, and to contribute frequently to innovation and improvement, are more productive (+20-60%), show a much lower rate of personnel turnover, and experience a lower rate of absence due to illness compared with traditionally organised businesses. They are also more resilient against shocks and an increasingly volatile business environment – as evidence from the COVID pandemic has repeatedly shown.
Bringing the evidence more up to date, the 2019 European Company Survey of 20,000 workplaces offers a clear message:
The small green circle represents companies that are systematically using working practices based on trust and empowerment – and as you can see, they score particularly well on both performance and employee well-being. The ‘Command and Control’ companies represented by the purple circle score badly on both axes. The blue circle represents the ‘long tail’ of those on the way to building enabling workplace cultures – faring better than their ‘Command and Control’ counterparts but still with a considerable distance to travel.
And here’s the challenge. Only around 10% of UK companies are in the green circle – and it’s clear that if we could just double this percentage, it would have an enormous impact on productivity as well as workforce health and well-being.
Unpacking this alarmingly low percentage, other research points to:
- a widening gap in the UK labour market between the number of workers with qualifications at various levels and the number of jobs that require those qualifications;
- 35 – 45% of workers with qualifications that are not fully utilised in their current jobs but which would be of economic value if they could be put to better use in more demanding roles;
- the tendency for UK employers to require lower educational qualifications for otherwise similar jobs than their counterparts in many other developed countries.
How can companies close the gap?
The levers available to help companies achieve the sought-after synergy between high performance and employee well-being are well understood – both through research evidence and through the practical experiences of companies in that top 10%. In short, as our own international research shows, it means focusing on those specific workplace practices which enable employees “to develop and use their competencies and creative potential to the fullest extent, thereby enhancing the company’s capacity for innovation and competitiveness while enhancing quality of working life.”
We’ve developed a unique portfolio of resources and practical support to help companies close the gap. The Workplace Innovation Diagnostic® identifies specific opportunities for transforming workplace practices, organisational structures, and leadership roles and behaviours, while our suite of development programmes provides change leaders with the knowledge, skills and practical support they need to deliver sustainable transformation. Our Fresh Thinking Labs platform also enables business leaders and managers to share good practices and address tricky problems together. Of course we also offer bespoke support from our highly experienced team to match the precise needs of your organisation – and you as a business leader.
