Why HR is the key to improving productivity

Productivity exercises economists and business leaders alike. But the answer to improving it isn’t better tools or processes, or even more effort – it all starts with HR

Why HR is the key to improving productivity

The principal irony in the ongoing conversation about productivity in the UK is that if you were to consume even half the articles, news reports, panel debates and tweets on the topic, you’d have no time to get anything else done.

By now, we all know that the UK’s performance is lagging that of other developed economies – the so-called ‘productivity gap’ – even if we’re not so sure why – the ‘productivity puzzle’. But where we can’t claim to have even scratched the surface is in doing something about it.

Our confusion starts at a macro level. “We normally think of productivity as the amount each person produces for each hour they work – so it’s a measure of individual efficiency, and increasing that efficiency is often summed up in the phrase ‘working smarter, not harder’,” says Ian Brinkley, acting chief economist at the CIPD. “And productivity is important because it is the most powerful driver of GDP [gross domestic product], which represents the total financial value of all goods and services produced over a specific time period, one of the primary indicators used to gauge the health of a country’s economy.”

GDP determines our material progress, which means productivity is a measure of how efficient we are at producing wealth. So the fact that productivity in the UK has hardly grown since the 2008-09 recession, compared with the historic average of around 2 per cent, explains why the government and economists are so concerned. And the country trails behind all but one of the other G7 nations (the world’s largest advanced economies). 

You could drive up GDP by having more workers working longer hours, but both these resources are finite. We are not far off ‘full employment’ and our ability to import labour is being curtailed by Brexit, while forcing people to work longer hours risks creating busy fools or burnout. 

In this way, productivity is not a perfect tool: applied indiscriminately, it can lead to perverse outcomes. You could double the productivity of teachers by doubling class sizes, or hospitals by halving the number of medical staff. The sweet spot is to raise productivity while sustaining quality.

Brinkley (along with many others) ascribes the problem to poor-quality managers. The lack of focus on vocational training means that “managerial and technical competencies have long been a weak area in the UK”, he says. The digital era has only made the problem more pronounced. For him, the way to increase productivity is to improve the quality of the workforce through education and training, to invest more per worker (in new technology and automation) and, “most important and least understood, to better organise and manage people at work, bringing together new technology and a better trained workforce in ways that make them more productive”.

This is where the macro productivity issues meets local problems head on. Though the reasons for poor output are hugely nuanced in individual companies and teams, tackling them through targeted interventions would do much to improve the country’s productivity deficit as a whole. But the first hurdle is getting businesses to acknowledge they have a problem – a blind spot that Brinkley ascribes to naivety: “Ask most managers about the productivity of their organisation and they judge themselves better than the competition. But they tend to be measuring things like sales, market share or even gut feeling, so they overestimate how productive they are. And if you ask workers, most equate higher productivity with working harder; the number who are actually working more efficiently is very small.”

One initiative aiming to address these issues is Productivity through People (PtP), which gives companies access to resources and research from their peers, through a mix of classroom learning and masterclasses, site visits, mentoring and networking. 

Many businesses still lack dedicated people-management resources, and their managers are so busy firefighting that they don’t have the time to step back and look at how they could do things differently. Which is why Jenny Cridland, head of HR transformation at BAE Systems and programme lead at PtP, describes the course as “a mini MBA”.

Citing research and case studies showing that management practice and leadership capability are linked to productivity increases, Cridland says “a central tenet of this programme is that by using your people and your leadership capabilities you can make great things happen. If we can develop in managers the skills and belief that engaging people and unlocking their ideas is a fundamental part of the manager’s role, we can make significant improvements in productivity.

“One of the first things we tell delegates is to talk to their people about their strategy and vision and why their job is an important part of that. Often this brings them up short, because they don’t have a strategy.” So helping them develop one means “they suddenly have something to talk to their people about”.

The search for evidence of these ideas in action takes us to a corner of the Lake District even mid-winter drizzle cannot spoil. Chris Blade, managing director of Cumbria Crystal, the only surviving producer of completely hand-blown and hand-cut luxury English crystal in the UK, recently graduated from the PtP course run by Lancaster University. He was brought into the business just over two years ago to turn it around. “I had a burning platform: we needed to reduce our reliance on the majority shareholder, who was basically keeping us afloat, within two years,” he says.

It was a tall order. The British glass-making industry is in decline as a result of international competition, so skilled people are at a premium and there is poor understanding among customers of the quality/price trade-off. Cumbria Crystal featured in Downton Abbey, but while it had a core of highly skilled artisans – it takes 15 years to train a glass blower – many of the 22 staff were the second or even third generation of their families to work for the company and highly resistant to change. 

Nevertheless, over the past two years Blade has almost doubled turnover and more than tripled gross margins, from less than 13 per cent to 43 per cent. 

At its core, Blade’s work meant building deeper connections with his people. An advocate of ‘management by walking about’, he started to ensure he gave lots of personal feedback, praise and acknowledgement. Perhaps more significant has been the introduction of a collective bonus based on turnover and margin improvement over a six-month period. He describes his staff as “unbelievably skilled and massively underpaid” and wanted to do something that would benefit them as well as the business. 

“It’s a significant bonus – they all get the same and it represents 5-8 per cent of their salary – but it also incentivises them to work together to resolve problems in the manufacturing and production process,” says Blade. “In the past, they would typically focus only on their part of the job; now they help each other to get it right first time, which minimises costly ‘re-dos’, waste and people sending back glass because there is a tiny flaw we didn’t spot.”

As part of this incentive, he challenged every member of staff to find a way to improve productivity, margins or efficiency by 1 per cent every month. Responses have included the introduction of rubber table tops to reduce scratches on glass and improved lighting to aid inspection.

In a sense, Blade has picked the low-hanging fruit – but a three-fold increase in productivity over two years is impressive by anyone’s standards, particularly as it’s been driven by staff making small, continuous improvements. “If we can achieve what we have, with our very scant resources, then others in the same or an even better position can certainly do the same,” he says. 

The idea certainly resonates with James Pickles, operations director (and de facto managing director) of TPG Engineering, a Cheshire-based specialist fabricator of heat exchangers and thermal solutions for oil and gas refineries. Last year, parent company TP Group invested £2m in the division for new machinery, and Pickles was hired to ensure the firm harnessed the benefits by inculcating a culture of continuous improvement to make operations more efficient and the company ‘a good place to work’. “The way to get that culture into the business is through engaging people,” says Pickles.

He identifies the challenge, which he believes to be common across manufacturing sites with a long history (TPG Engineering is 70 years old), as constantly changing leadership and ownership. This typically means that vision, best practice and communications fall through the cracks. “You need processes and systems to achieve culture and behaviour change, and we want to create something here that will outlast any changes in leadership,” he says.

Pickles has conceived a 12-month development programme for the management team. He’s also stepped up communications with the shopfloor, including regular reviews and a monthly site presentation. “It’s about involving people in the vision and giving them a line of sight,” he says, adding that training is on the agenda for everyone this year “because it helps to improve the business and it’s a great way to build engagement”.

Pickles acknowledges that many people don’t really understand what ‘productivity’ means in relation to their own job. “In fact, I think people may even be switched off by the word, because we are constantly being bashed about it. I prefer to talk to the workforce in terms of employee engagement and other ingredients. But essentially, we look at it in terms of utilisation of capacity in tandem with our delivery performance. So, for example, if the number of indirect hours [those not booked to a particular piece of work] are falling and delivery is improving, that indicates that our productivity is improving too. But we’ve also started to use those ‘surplus’ hours on training people.”

And while the new machinery has provided a great platform for building productivity at the company, the real value comes from harnessing people power, says Pickles: “You can have the best machine in the world, but the real value comes from people seeing why they are there and why they need to do a good job. When they are engaged they work harder to find solutions.”

Paul Wenham, managing director of Tewkesbury-based Geometric Manufacturing and fellow PtP devotee, adds: “If you pursue 10 opportunities to increase your productivity by 1 per cent you get the same benefit as improving one thing by 10 per cent, and if you go for the ones that require the least investment first – like recognising your people – that can deliver rewards that allow you to tackle the ones that need more investment.” 

What such companies also demonstrate is that job losses are not the natural corollary of growing productivity – and Cridland believes this is an important message that leaders need to get across to their staff: “Joint effort leads to more business, which benefits everyone.” 

Even a larger company like BAE Systems works hard at driving down costs and improving efficiency, whether through investment in technology, improving processes or boosting employee engagement. “From an HR perspective, the emphasis tends to be on developing our leaders and managers to give them the skills and knowledge they need to get the best from their teams, and measuring engagement through surveys,” says Cridland.

A productivity increase of 10 percentile points by the end of 2019 will equate to £130bn of added value in the economy, she adds. And that is a prize no one could argue isn’t worth chasing. “The potential is huge,” says Cridland. “If you have hundreds of Chris Blades challenging their organisations and people to improve by 1 per cent, suddenly productivity is interesting doable and relevant for every business.” 

When we look at productivity it may be valuable to keep in mind that well-worn phrase: ‘Look after the pennies and the pounds take care of themselves.’ It seems that a happy, engaged and well-motivated workforce at local level is a key factor in pushing up the efficiency with which we create wealth overall. Which is a pretty compelling business case to make to any CEO.   

Does technology help productivity?

“Productivity is in danger of becoming the curse of the modern day workplace,” wrote Dave Coplin, then chief envisioning officer at Microsoft, in his 2013 book Business Reimagined. “We spend our working days locked to a single period of time and a single physical location, batting communications back and forward in a sort of nightmarish game of ping pong. Success is defined by the number of individual processes we complete, not the outcomes of the organisation.”

Now owner of his own consultancy, The Envisioners, Coplin feels the technology that was meant to liberate us has ended up enslaving us. Email is a prime culprit. “Clearing the inbox has become a proxy for real work,” he maintains, adding that we “fill in the nooks and crannies of dead time” with messages or social media, leaving ourselves no time for the deep thinking that’s required to be creative and innovative.

Organisations use technology to become more efficient, when they should instead be using it to become more effective, says Coplin. As he points out, you can be really efficient and deliver poor outcomes. “We need to learn how to use technology to extend our reach, rather than replace it,” he says, arguing that over-reliance on it makes us lazy thinkers. Organisations should use it to free people up to do more of what the technology can’t do – that is, be thoughtful, creative and innovative, and use judgement and empathy.

Whether they’re a service business or a manufacturing firm, organisations and their people can benefit from the ability technology affords to ‘democratise’ data, disperse learning, flatten hierarchies and involve employees in problem-solving – with commensurate rises in engagement, says Coplin. “At long last, those insights that have been hidden for so long can be turned into a rich source of innovation. But most people have better technology at home than they do at work.”