When will HR solve the ‘productivity puzzle’?

Ten years on from the 2008 crisis, it’s high time HR tackles the persistent issue of low productivity. Five experts offer their advice for achieving real change in 2018

Governments and industry commentators have been talking about the UK’s so-called productivity ‘puzzle’ for so long – close to 10 years, since the 2008 financial crisis – that we’ve become almost immune to their warnings.

But the problem is startlingly severe. Before the financial crisis, UK productivity – as measured by gross domestic product (GDP), divided by the number of hours worked – was rising at a steady 2% annually. According to the Office for National Statistics (ONS), UK productivity grew by just 0.9% in Q4 2017 – the biggest increase for six years. If productivity had continued to rise at its pre-2008 rate, the UK would be 20% more productive than it is today. The UK lags behind many of its European counterparts, notably Germany and France, where productivity is 36% and 29% higher respectively than in the UK – meaning, in effect, that German and French workers achieve more in four working days than UK workers do in five.

A variety of causes have been blamed for productivity’s persistent sluggishness: most acute are organisations’ reluctance to invest in training and technology, and persistently low pay. Plus, employment growth has been concentrated in the lowest-paid and least productive sectors of the economy; output in the services sector (which accounts for 80% of all UK output) was up just 0.2% in the 12 months to Q2 2017, while output in the manufacturing sector (which accounts for only 10% of output) was up 1% over the same period.

“A lot of it’s because we didn’t want to invest, we didn’t want to pay more, and we’ve pursued this low-cost, low-skill model, which is bloody unproductive,” says Duncan Brown, head of HR consultancy at the Institute for Employment Studies. “Now that’s turning against us; interest rates are going up, which is exposing our inefficiencies to the capital markets, and government is forcing employers to invest in people through things such as the apprenticeship levy.”

External pressures are making the need for HR action on the productivity problem more pressing for 2018. Happily, says Brown, some of the solutions are straightforward – and are well within HR’s capabilities. “If we focused on evidence-based initiatives that are shown to have some impact, HR would have a lot bigger impact on productivity. For example, higher-paid jobs produce proportionally greater returns for employers, and the difference between a high-performing and average-performing employee is proportionally greater for more skilled jobs. Low pay is a route to low productivity.”

Other solutions require a bit more creative thinking and cultural change. David D’Souza, head of engagement and London at the CIPD, recommends HR get stuck into “anything that’s going to impact output per worker… Removing valueless work is a good start; it’s far too easy for organisations to get lost in a sea of emails and strategy documents, and lose sight of the product or customer they are supposed to be creating or serving. Technology is another clear lever ; HR needs to make sure people have the support they need to use technology to deliver effectively.”

Lucy Adams, CEO of Disruptive HR and former HR director at the BBC, says that getting culture right is key to unlocking productivity. “I’ve been in organisations with major cost-savings targets and it is a really miserable, dark place to be,” she says. “We fail to free up the frontline , to create an environment where people are able to challenge, to understand how they can make small changes, and be allowed to do that.

“If we are really going to get true productivity right, you need to have a very adult-to-adult relationship with your people – trust them to identify where savings can be made, where things can be done more efficiently, and give them space to do that.”

For Kathryn Kendall, chief people officer at Benefex, a radical shift in how we view the ‘working week’ is needed to crack the productivity puzzle. “I don’t believe people can be at maximum productivity for eight hours a day. If you look at the studies in Sweden where they have trialled condensed, six-hour working days, productivity soars because people are really focused on what they are doing.

“Ultimately, we have to completely change how we work,” she says. “We have to get to a point where the employee experience is essential – if you prioritise that, people will want to be at work, will want to do more for their employer, and deliver more. I think that’s when you really start to address productivity.”

Even if government and employers manage to make a dent in the systemic issues that are afflicting productivity, measurement problems will persist; in 2014, the Bank of England estimated that the failure of GDP to measure the economic contribution of new digital technologies accurately may account for up to a quarter of productivity’s shortfall. As Neil Collins writes in the Financial Times: “It’s simple to count cars from a factory… but in a service economy like Britain’s, measuring output is hard. Is a longer newspaper article more productive than a shorter one? What about making phone calls on the train? Search? Emails? Same-day delivery? All short-circuit problems which took hours or even days to solve in the pre-internet era.”

“I think we could do with a bit of a pause to go: ‘when we talk about productivity, what are we genuinely talking about?’” says Perry Timms, founder of PTHR and author of Transformational HR. “Is it the kilojoules of a human being, the outputs of a machine, the speed of a technical solution? I think it’s more complicated that what we are currently subscribing to.”

While Timms admits that redefining productivity as an economic measure isn’t a challenge for HR to take on, he says there is a need to HR teams to think more intelligently about what productivity measures in their organisations could look like. “I think it could be a more sophisticated scorecard, which has much richer factors in it – human, ecological, educational, societal ones. B Corporations are an example of that: when your company is evaluated, they look at your impact on your community, how local your supply chain is, and how you support education and people with difficulties. I think that is where people ought to be looking; the world is too complex for us to just look at a single measure now.”

This article is an extract from Ciphr’s free white paper, From evidence to automation: eight trends that’ll shape the HR profession in 2018. Download it here.