THE GREAT BRITISH PRODUCTIVITY SWINDLE – 3 Painful Truths – No 1. The Business

As a productivity expert, I was entertained by the Bank of England’s “Lessons on a Plate” entitled The Great Productivity Puzzle, which loosely touches on why the UK is losing its competitive edge against our G7 counterparts (and other nations including Japan and the USA).

As a business owner striving to build a successful and profitable company, do you really understand what productivity is, why it matters, and how your business needs to be measuring it?

I’ve worked extensively with SME owners in the UK, and see two key weaknesses inherent in the majority of organisations. Addressing them is paramount in growing productivity.

1. The business doesn’t provide adequate management systems to objectively manage its financial goals and objectives
2. The business lacks the correct Key Performance Indicators (KPI’s), so doesn’t (and cannot) measure or manage productivity

This three part series of Painful Truths explores the impact this has on businesses.

We’ll start on the ‘Why’!

Why productivity matters

The Great Productivity Puzzle summarises “With strong productivity growth, businesses are able to produce more output with fewer hours of work”.

What a revelation! Produce more stuff, deliver more services, pay less salary and wages, (or pay the same amount for more turnover), and put more £’s on the profit line. Wouldn’t every ambitious business owner this wish of their business? So why has British productivity nose-dived since 2008? In fact, productivity has grown by less than 1% in the last 9 years. We’re not getting any richer!

If you’re not measuring and managing your productivity, you probably find you have to pay more in wages to produce higher volumes, adding more cost, thereby reducing your profitability. And with the National Living Wage forecast to increase to £9 per hour by 2020, added to the cost of Auto-Enrolment Pension contributions, it’s not going to get any easier.

How do I grow my business productivity?

Ambitious business leaders want to know, on a regular basis, how their valuable resources are being managed, and how they’re performing, without getting into too much detail. Business leaders have higher strategic responsibilities to focus on, and don’t want to be stepping on the toes of their highly paid management team.

With a robust Management Control System (MCS) in place you’ll have access to the right information to determine whether your business is on track to achieve your financial goals and business objectives. A meaningful, systematized and user-friendly MCS is critical to optimising the productivity of your existing resources, without throwing more people (and money) at perceived problems.

Take care of the KPI’s and the £’s look after themselves

If your business doesn’t have a structured MCS then it’s unlikely your Key Performance Indicator’s (KPI’s) are working adequately for you, if they exist at all. In order to manage your business down the hierarchy, it’s necessary to check specific parameters at regular intervals, and avoid micro-managing. KPI’s provide these specific measures. These are non-financial indicators, which help you manage your operations before the financial results are available to you.

Whether you’re a sole trader, a micro business with a small team or you have a large work force; you have to know your numbers. Your KPI’s enable you to objectively monitor and manage the trends to ensure your valuable resources are consistently working to a standard that will keep you above your breakeven point, and make your business profitable. Profitability leads to sustainability, ensuring job security for your employees too, so it’s a win-win for everyone.

Setting standards of work also appears to be a thing of the past.  Employers don’t seem to give their employees any understanding of what is expected of them, in return for their days pay.  But that’s another story, which we’ll explore in part two of these Painful Truths.

In summary, to get your productivity kick started on an upward trend, make sure your Management Control Systems are designed with relevant and measurable indicators, use them consistently on a regular basis to analyse, review and continually improve your operations.  Your financial results will bear the fruits of your management diligence.