Productivity is widely acknowledged as a fundamental pillar of economic growth. But in certain countries, it remains stubbornly unattainable. UK productivity remains persistently low and has fallen further this year. Germany is highly productive, even though German employees enjoy some of the shortest working hours in the world. Assessing why these disparities occur and how best to overcome them could make a meaningful difference to countries trying to piece together the productivity puzzle.​

MANAGEMENT

The financial crisis hit productivity hard and it has taken years for businesses to rebound. Today however, many countries in Europe are seeing the productivity needle heading upwards and their economies are benefiting. The UK is a notable exception to this positive trend. For while the country’s employment numbers are comparatively strong, productivity remains dismally low, and is falling. The latest national statistics show that output per hour in the UK fell by 0.1 per cent in the second quarter of this year, following an even greater drop of 0.5 per cent in the first quarter. The biggest half-year drop since 2012, that puts overall UK productivity 35 per cent below that of Germany and 30 per cent below the US. Out of the G7 nations, only Japan and Canada fare worse. 

“It’s not so much a gathering storm, more a full-on cyclone. We are in a mess,” says Martin McCourt, former CEO of bagless vacuum pioneer Dyson and now chairman of household appliance group Glen Dimplex. “It’s not impossible to fix but productivity is a complicated problem – rather like trying to find the end of a ball of wool.” 

Skills gap

With a 40-year career in manufacturing around the world, McCourt thinks he knows where he would start the unravelling process: with a much stronger focus on education, particularly science, technology, engineering and mathematics (STEM).

“I’d go hell for leather on the skills gap. Businesses have got into the habit of topping up skills with migrants because we don’t produce enough skilled people of our own. What’s needed is a much closer alignment between education and employers. We’ve got 40,000 STEM jobs we can’t fill on one side, and a massive glut of graduates with 2.2s in some rather nebulous subjects on the other,” he says. 

Rather than what he describes as an “obsession with grades”, McCourt suggests schoolchildren and students should be made to realise that if they want to do a particular job, such as web design or a medicine, they have to study the right subjects. 

“We need to get kids better acquainted with the link between the options they take and what they can do with them in terms of jobs. Raise awareness that some subjects open a lot more doors than others,” he says. 

Who cares?

Productivity matters on a national scale because it is the chief measure of competitiveness, and of the scope for raising living standards. It measures how effective an economy is at turning inputs – such as labour, capital and technology – into outputs – goods and services to be sold. 

“The key to it is leverage. A man with a shovel cannot compete with a man with a JCB, however hard he works,” says Peter Folkman, honorary professor at Manchester Business School. “The UK has been very successful in the service industries, but most of those jobs are leveraged on labour not capital. Napoleon was right, there are too many shopkeepers. 

“This is something that the Swiss manage very well – they are among the highest per capita exporters of manufactured goods in the world,” he adds. 

 

 

 MANAGEMENT

Cultivating

growth

Cultivating growth

Artificial intelligence is really just an extension of a process which began with the steam engine and the spinning jenny in the Industrial Revolution”​

Motivation is the key to productivity. It’s not just about having an exciting job to do, it’s about why people come to work in the first place”​

Smarter, not harder

Germany is also widely acknowledged as a leader in the productivity stakes and the statistics bear this out. A typical German worker will produce in around 3.5 days what it takes their UK counterpart five days to make. As a result, Germany manages to clock up the shortest working hours in the world and still deliver economic growth. According to the OECD, in 2015 German employees worked an average of 1,371 hours annually compared with 1,482 in France and 1,674 in the UK. In other words, the most productive economies work smarter, not harder.

“In my experience, successful German companies like BMW have a much greater proportion of really talented and well-educated people, right down to the shop floor,” says Lawrence Hutter, managing director for corporate performance improvement, Europe at consultants Alvarez & Marsal.

“They have trade unions that want to help, rather than confront, the management. They have a very clear skills strategy and an embedded system of apprenticeships. In the UK, short-termism dominates and there is a them-and-us character to union relationships. It makes long-term investment and strategy very difficult.”

 
Improving the trend

In Sweden, the link between productivity and working hours has been closely studied. Ranking 12th in the OECD productivity tables, three places above the UK, the country recently put care home workers in Gothenburg on a six-hour rather than an eight-hour working day. The two-year experiment resulted in 10 per cent less sick leave and a 50 per cent increase in workers’ perceived health. Carers also spent more time engaged in valuable social activities with patients but there was a downside: a 22 per cent increase in gross costs.

However, if productivity – good, bad or indifferent – manifests itself most visibly at a national level, that does not mean it is an abstract problem for politicians to address. 

“Every business needs to address maximising productivity, and the place to start is with your team,” says Marta Krupinska, co-founder of online money transfer group Azimo. “Motivation is the key to productivity. It’s not just about having an exciting job to do, it’s about why people come to work in the first place.”

With offices in London and Krakow and a good deal of flexible and remote working, Krupinska suggests that her team are united by Azimo’s stated purpose – to change the world one transaction at a time. “We have a mission, so we are missionaries, not mercenaries. One of our guys came here from an online fashion retailer and he took a £20,000 pay cut to do so. I asked him why on earth he would do that, and he said, ‘Marta, the world doesn’t need another pair of jeans’.” 

Busyness cult

According to Krupinska, many legacy organisations compound the productivity challenge. “They have ingrained cultures and unwritten rules about what marks a high-status individual from a more lowly one. There is a big problem with presenteeism and people working below their capacity. There is a cult of busyness: it doesn’t add any value but it is aspirational, because the people who are valued tend to be those who are not very available,” she says. 

The answer may lie in treating staff more like individuals, rather than like machines or ‘rational actors’, driven by the desire to maximise their utility. As Krupinska explains: “It’s not about everyone holding hands and hoping it will be OK. But it is about being flexible and treating your people as human beings. That allows them to enjoy their jobs, and creates the space for those serendipitous moments which lead to new ideas.” 

One of the complexities of studying relative productivity is that there is no single ‘right’ way to do it. The business-friendly, low-tax, US model, with its relatively relaxed labour laws certainly results in a highly productive economy. France by contrast is a high-tax economy with restrictive rules on hiring and firing – but it is also pretty productive, ranking third in the G7 table just behind Germany and the US.  

Sweden recently put care home workers in Gothenburg on a six-hour rather than eight-hour working day. The two-year experiment resulted in 10 per cent less sick leave”​

Taking ownership

Some ownership models seem inherently more productive, too. It is no secret that the famed backbone of German industry, the Mittelstand companies, are predominantly family owned, for example. But there are robust alternatives too, says James Bodha, COO of marketing business Thunderhead, based in London but with offices – and many customers – in the US. 

“You have to drive accountability. Private equity businesses are very successful at driving performance because if you can’t deliver you won’t last long,” he says.

There is another big beast on the horizon, which might boost productivity on a global basis, according to Bob de Caux, chief product officer at predictive analytics outfit Logical Glue. “Artificial intelligence (AI) and machine learning really do have ‘paradigm shift’ potential when it comes to productivity,” he says. 

Logical Glue helps financial services firms to automate decision making based on their accumulated data, but does so in such a way that managers – and regulators – can see not only what decision has been made, but also why. “It’s interpretive and linguistic, designed for lay users,” says de Caux. 

Robots to the rescue

AI is controversial, amid frequent suggestions that robots may soon take over the world. But de Caux thinks otherwise.

“AI is really just an extension of a process which began with the steam engine and the spinning jenny in the Industrial Revolution. There are a large number of jobs presently which don’t have a high productivity potential and could easily be automated, freeing up people to do more, higher value work,” he says. 

Sceptics warn that it could achieve the opposite effect, meaning that fewer and fewer people will have any productive role at all. De Caux is optimistic, however. 

“There will be big opportunities for skilled professionals, like data scientists, and the UK is in a strong position because it has well-curated data sets across a number of different industries. We perhaps can’t see all the new opportunities yet, but they will come,” he suggests.

Whether AI increases productivity or just leads to a surge in unemployment will become ever more apparent over the coming decade. But today’s key productivity drivers already seem clear: skill, motivation and investment in capital – and they are unlikely to change, whatever the external environment 

Back to articles

Germany manages to clock up the shortest working hours in the world and still deliver economic growth. According to the OECD, in 2015 German employees worked an average of 1,371 hours annually compared with 1,482 in France and 1,674 in the UK”​

The financial crisis hit productivity hard and it has taken years for businesses to rebound. Today however, many countries in Europe are seeing the productivity needle heading upwards and their economies are benefiting. The UK is a notable exception to this positive trend. For while the country’s employment numbers are comparatively strong, productivity remains dismally low, and is falling. The latest national statistics show that output per hour in the UK fell by 0.1 per cent in the second quarter of this year, following an even greater drop of 0.5 per cent in the first quarter. The biggest half-year drop since 2012, that puts overall UK productivity 35 per cent below that of Germany and 30 per cent below the US. Out of the G7 nations, only Japan and Canada fare worse. 

“It’s not so much a gathering storm, more a full-on cyclone. We are in a mess,” says Martin McCourt, former CEO of bagless vacuum pioneer Dyson and now chairman of household appliance group Glen Dimplex. “It’s not impossible to fix but productivity is a complicated problem – rather like trying to find the end of a ball of wool.” 

Skills gap

With a 40-year career in manufacturing around the world, McCourt thinks he knows where he would start the unravelling process: with a much stronger focus on education, particularly science, technology, engineering and mathematics (STEM).

“I’d go hell for leather on the skills gap. Businesses have got into the habit of topping up skills with migrants because we don’t produce enough skilled people of our own. What’s needed is a much closer alignment between education and employers. We’ve got 40,000 STEM jobs we can’t fill on one side, and a massive glut of graduates with 2.2s in some rather nebulous subjects on the other,” he says. 

Rather than what he describes as an “obsession with grades”, McCourt suggests schoolchildren and students should be made to realise that if they want to do a particular job, such as web design or a medicine, they have to study the right subjects. 

“We need to get kids better acquainted with the link between the options they take and what they can do with them in terms of jobs. Raise awareness that some subjects open a lot more doors than others,” he says. 

Who cares?

Productivity matters on a national scale because it is the chief measure of competitiveness, and of the scope for raising living standards. It measures how effective an economy is at turning inputs – such as labour, capital and technology – into outputs – goods and services to be sold. 

“The key to it is leverage. A man with a shovel cannot compete with a man with a JCB, however hard he works,” says Peter Folkman, honorary professor at Manchester Business School. “The UK has been very successful in the service industries, but most of those jobs are leveraged on labour not capital. Napoleon was right, there are too many shopkeepers. 

“This is something that the Swiss manage very well – they are among the highest per capita exporters of manufactured goods in the world,” he adds. 

Productivity is widely acknowledged as a fundamental pillar of economic growth. But in certain countries, it remains stubbornly unattainable. UK productivity remains persistently low and has fallen further this year. Germany is highly productive, even though German employees enjoy some of the shortest working hours in the world. Assessing why these disparities occur and how best to overcome them could make a meaningful difference to countries trying to piece together the productivity puzzle.​

Smarter, not harder

Germany is also widely acknowledged as a leader in the productivity stakes and the statistics bear this out. A typical German worker will produce in around 3.5 days what it takes their UK counterpart five days to make. As a result, Germany manages to clock up the shortest working hours in the world and still deliver economic growth. According to the OECD, in 2015 German employees worked an average of 1,371 hours annually compared with 1,482 in France and 1,674 in the UK. In other words, the most productive economies work smarter, not harder.

“In my experience, successful German companies like BMW have a much greater proportion of really talented and well-educated people, right down to the shop floor,” says Lawrence Hutter, managing director for corporate performance improvement, Europe at consultants Alvarez & Marsal.

“They have trade unions that want to help, rather than confront, the management. They have a very clear skills strategy and an embedded system of apprenticeships. In the UK, short-termism dominates and there is a them-and-us character to union relationships. It makes long-term investment and strategy very difficult.”

Germany manages to clock up the shortest working hours in the world and still deliver economic growth. According to the OECD, in 2015 German employees worked an average of 1,371 hours annually compared with 1,482 in France and 1,674 in the UK”​

Improving the trend

In Sweden, the link between productivity and working hours has been closely studied. Ranking 12th in the OECD productivity tables, three places above the UK, the country recently put care home workers in Gothenburg on a six-hour rather than an eight-hour working day. The two-year experiment resulted in 10 per cent less sick leave and a 50 per cent increase in workers’ perceived health. Carers also spent more time engaged in valuable social activities with patients but there was a downside: a 22 per cent increase in gross costs.

However, if productivity – good, bad or indifferent – manifests itself most visibly at a national level, that does not mean it is an abstract problem for politicians to address. 

“Every business needs to address maximising productivity, and the place to start is with your team,” says Marta Krupinska, co-founder of online money transfer group Azimo. “Motivation is the key to productivity. It’s not just about having an exciting job to do, it’s about why people come to work in the first place.”

With offices in London and Krakow and a good deal of flexible and remote working, Krupinska suggests that her team are united by Azimo’s stated purpose – to change the world one transaction at a time. “We have a mission, so we are missionaries, not mercenaries. One of our guys came here from an online fashion retailer and he took a £20,000 pay cut to do so. I asked him why on earth he would do that, and he said, ‘Marta, the world doesn’t need another pair of jeans’.” 

Busyness cult

According to Krupinska, many legacy organisations compound the productivity challenge. “They have ingrained cultures and unwritten rules about what marks a high-status individual from a more lowly one. There is a big problem with presenteeism and people working below their capacity. There is a cult of busyness: it doesn’t add any value but it is aspirational, because the people who are valued tend to be those who are not very available,” she says. 

The answer may lie in treating staff more like individuals, rather than like machines or ‘rational actors’, driven by the desire to maximise their utility. As Krupinska explains: “It’s not about everyone holding hands and hoping it will be OK. But it is about being flexible and treating your people as human beings. That allows them to enjoy their jobs, and creates the space for those serendipitous moments which lead to new ideas.” 

One of the complexities of studying relative productivity is that there is no single ‘right’ way to do it. The business-friendly, low-tax, US model, with its relatively relaxed labour laws certainly results in a highly productive economy. France by contrast is a high-tax economy with restrictive rules on hiring and firing – but it is also pretty productive, ranking third in the G7 table just behind Germany and the US. 

Sweden recently put care home workers in Gothenburg on a six-hour rather than eight-hour working day. The two-year experiment resulted in 10 per cent less sick leave”​

Taking ownership

Some ownership models seem inherently more productive, too. It is no secret that the famed backbone of German industry, the Mittelstand companies, are predominantly family owned, for example. But there are robust alternatives too, says James Bodha, COO of marketing business Thunderhead, based in London but with offices – and many customers – in the US. 

“You have to drive accountability. Private equity businesses are very successful at driving performance because if you can’t deliver you won’t last long,” he says.

There is another big beast on the horizon, which might boost productivity on a global basis, according to Bob de Caux, chief product officer at predictive analytics outfit Logical Glue. “Artificial intelligence (AI) and machine learning really do have ‘paradigm shift’ potential when it comes to productivity,” he says. 

Logical Glue helps financial services firms to automate decision making based on their accumulated data, but does so in such a way that managers – and regulators – can see not only what decision has been made, but also why. “It’s interpretive and linguistic, designed for lay users,” says de Caux. 

Artificial intelligence is really just an extension of a process which began with the steam engine and the spinning jenny in the Industrial Revolution”​

Robots to the rescue

AI is controversial, amid frequent suggestions that robots may soon take over the world. But de Caux thinks otherwise.

“AI is really just an extension of a process which began with the steam engine and the spinning jenny in the Industrial Revolution. There are a large number of jobs presently which don’t have a high productivity potential and could easily be automated, freeing up people to do more, higher value work,” he says. 

Sceptics warn that it could achieve the opposite effect, meaning that fewer and fewer people will have any productive role at all. De Caux is optimistic, however. 

“There will be big opportunities for skilled professionals, like data scientists, and the UK is in a strong position because it has well-curated data sets across a number of different industries. We perhaps can’t see all the new opportunities yet, but they will come,” he suggests.

Whether AI increases productivity or just leads to a surge in unemployment will become ever more apparent over the coming decade. But today’s key productivity drivers already seem clear: skill, motivation and investment in capital – and they are unlikely to change, whatever the external environment 

Back to articles

Motivation is the key to productivity. It’s not just about having an exciting job to do, it’s about why people come to work in the first place”​

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Bridgepoint  |  The Point  |  November 2017  |  Issue 32