Increasing Productivity & the National Living Wage

Businesses are on the final countdown to the introduction of The National Living Wage (NLW) in April, which will see all UK workers aged over 25 being paid £7.20 per hour; a figure that will rise to £9 per hour by 2020.

93% of bosses think the implementation of the NLW is a good idea, according to research recently conducted by the Department for Business, Innovation and Skills. There is a “but” however. Many businesses are concerned about meeting the cost of this in the light of ongoing poor UK productivity, particularly in lower-paying sectors such as retail and hospitality. While 88% of business leaders believe that higher wages will deliver higher productivity, it would be unrealistic to think that higher pay in itself will deliver the scale of change needed.

Studies concur that the productivity of UK workers is low compared to their international rivals. In a group of the world’s richest nations, the UK has the second lowest productivity rate after Japan, and the Office of National Statistics cites workers in Italy and France as having a higher output per worker than their British counterparts [1].

Chancellor George Osborne has hung his hat on improving productivity as the key to making Britain the “richest of all major economies”. There are levers that the government can pull to increase productivity, for example, better transport infrastructure; the creation of more highly skilled and educated workers; and the wider availability of housing close to one’s place of work. But businesses themselves need to take an active role in how they tackle the productivity challenge.

What can businesses do to increase productivity?

Acoording to a survey by the Resolution Foundation and the CIPD, 3 in 10 organisations are currently planning to recoup some or all of the extra cost of the NLW by raising productivity. Conor D’Arcy, a policy analyst at the Resolution Foundation, said: “It’s encouraging that so many firms say that they’ll respond to the new higher wage floor by improving efficiency. But actually delivering this will prove challenging in many sectors, and it’s important that firms are given the necessary support to boost productivity.”

“The 100 Best Companies to work for in America outperformed their peers by 2-3%pa over 25 years.” London Business School.

4-year academic study by Professor Alex Edmans at London Business School demonstrated that the Fortune Best Companies to Work For outperformed their competitors within their relevant sectors by 2-3% per year over the period 1984-2009. Fortune’s list uses the Great Place to Work Model, and the organisations ranked as Best Companies are able to provide evidence of best-in-class leadership, culture and engagement practices.

Leadership, Culture and Engagement are the key to maximising organisational performance and productivity.

These factors are closely interrelated. Leaders who provide clarity of purpose and role-model behaviours of trust and fairness, will see this reflected in higher employee engagement. In a culture where employees are empowered and trusted to get the job done and deliver their own continuous improvements, engagement increases and leaders are free to concentrate on strategic priorities as opposed to operational fire-fighting.

  • Improve communication of purpose and strategy from your leaders. There is a clear link between employees’ grasp of purpose, plan and goals, and productivity. Great leaders not only need to have deep understanding of internal and external environments and the ability to create winning strategies based on this; they also need to be able to communicate strategy and purpose clearly, and with impact to their teams. If those you lead don’t understand what you believe in and what your big goals are, they’ll never be able to maximise their collective potential. The power of storytelling to deliver a memorable message and visualisation to paint an impactful picture of what success looks like, are both tried and tested techniques to help your message hit home. A carefully-planned, strong strategic narrative will not only inspire your audience but also set them on the right track to deliver.Managers also need the capability to clearly and confidently translate the message into everyday communication with their teams and in their prioritisation of activities. Also, when purpose and goals have been clearly communicated, leaders at every level of the business need to be able to step back and empower their employees to deliver.
  • Make improving workplace culture a priority. People thrive in an environment where their achievements are recognised and where they are empowered to take action. Conversely, in a blame culture, employees are reluctant to take action for fear of failure and retribution, and productivity suffers.

Case Study: An Award-Winning Culture – RHP, a housing association with a 10k+ property portfolio, have been on a 5 year trajectory to build an amazing workplace culture. This ground-breaking work has recently achieved full recognition at the CIPD Awards 2015, where the organisation was crowned Winner of the Employee Engagement category, as well as Overall Winner. As part of this work, their “Personal Promises” strategy gives employees the empowerment to solve problems without these issues needing to go up the management hierarchy. Amina Graham, RHP’s Executive Director of Corporate Services, says “Over the last 5 years, a focus on engagement has created highly engaged employees as well as highly satisfied customers. Customer satisfaction has risen from 88% to 97%; and employee engagement has reached 96%.” As a result of the work, RHP is able to commit to building 500 more affordable homes by 2018.

In great workplace cultures, qualities such as fairness, integrity and trust are highly apparent in the way that leaders and managers behave and in the way that everything gets done. Review whether your values are the right ones and whether they are merely given lip-service or actively role-modelled.

  • Increase engagement by putting people above process. The more rules that need to be followed and the greater the paperwork, the less productive employees are. In an increasingly complex and fast-moving world, businesses that outperform their rivals routinely strive to simplify and abandon processes which eat time without adding value.

It is well documented that employees with high stress levels are both less engaged and less productive. In a 2014 Towers Watson survey on stress, over half (53%) of workers identified inadequate resource to get the job done as the top cause of stress. While it is often not financially viable for businesses to simply hire more staff, they can improve resourcing issues by simplifying how things are done.

  • Enhance engagement and job satisfaction by making it easier for employees to focus on getting the job done. The digital revolution has enabled greater productivity in many ways but it is also responsible for increasing the distraction of email and social media. In May last year Sir Cary Cooper, Professor of Organisational Psychology and Health at Manchester Business School spoke out about the compulsion to check messages at work and at home, saying that this was making employees more stressed and less productive than international counterparts (see article here). He described the practice of dealing with work emails during leisure time as increasingly common-place, and is a notable advocate of replacing internal emails with face-to-face or telephone contact.

The internet abounds with companies who have banned emails sent outside regular working hours, including Volkwagen in Germany as early as 2012. There are also an increasing number of companies who have stopped email usage completely. There’s no simple answer, and employees seeking flexible work may appreciate the opportunity to catch up on correspondence outside standard working hours; but as digitisation becomes all pervasive, employers who respect employees’ leisure time and actively encourage more face-to-face interaction in the workplace will have happier, more productive employees.

Preparation for the National Living Wage has sparked a focus on productivity which will continue into the foreseeable future as businesses seek ways to improve performance, as well as call for external support to increase efficiency. Businesses who decide now to direct their focus on Culture, Engagement and Leadership will see a clear return on their investment with leaders who have the skill to energise and evolve and high-performing teams engaged to the organisation’s goals.

We’d love to speak to you about how particular focus can be put on these three areas in order to improve your employees’ productivity. You can get in touch with us here.

© Tim Pointer, Starboard, 2016

[1] Independent, Three charts that show how poor productivity is in the UK – but is it because we’re just lazy? July 2015