3 minute read
Dial it up! The productivity puzzle
by CMI_
Many economists believe the pandemic will inevitably raise productivity
Time to widen the lens a bit. The creation of the Oxford-AstraZeneca COVID vaccine has demonstrated that it is possible to design, test, manufacture and roll out an innovative and complex product on a global scale, deploying people from across the world, at speed and scale – all under pandemic conditions.
So is it possible that the past 12 months may prove to be a catalyst for an improvement in UK and international corporate performance and productivity?
The Bank of England’s chief economist Andy Haldane thinks so. He has gone public with his view that the effects of the pandemic may hold the key to reviving productivity growth, creating a positive productivity shock.
In a recent Bloomberg conversation with Stephanie Flanders, Haldane observed that businesses and their employees have had to become “digitally match-fit” and that huge amounts of “unpaid, unproductive time” (aka commuting) has been redeployed. “If we are canny, it could be a positive,” he said.
Haldane is not the only economist to think like this. The shift to remote working “has got to improve productivity because we’re getting the same amount of output without commuting, without office buildings and without all the goods and services associated with that,” says the US economist Robert Gordon of Northwestern University.
Meanwhile, Lord O’Neill, vice-chair of the Northern Powerhouse Partnership, has noted that, now companies have been forced to think and act outside of the box, the UK “might get a productivity boost as a result”.
Companies around the world are waking up to the opportunity of a productivity uplift. One survey of global firms by the World Economic Forum last year found that more than 80 per cent of employers intended to accelerate plans to digitise their processes and provide more opportunities for remote work, while half planned to accelerate the automation of production tasks.
Another survey of 500 global firms by Capgemini found that employee productivity grew at nearly two-thirds of organisations during the third quarter of 2020. This was attributed to “less commuting time, flexible work schedules and the adoption of effective virtual collaboration tools”.
In the UK, many businesses start from a position nearer the back than the front of the class. The lack of so-called “diffusion” of best practice has been cited as one reason for the UK’s lower productivity rates than competitor nations. Companies don’t have the ability to assimilate and take on board the lessons and knowhow of the best, and then to incorporate this knowledge into their own practices. That requires time, training and commitment. The Help to Grow programme unveiled by Rishi Sunak in his Budget is one response to this, and CMI is on the advisory committee.
The performance gap between well-managed and poorly-managed companies may yet widen. “In highly productive organisations, employees have capitalised on new technologies to stay connected with customers and co-workers during this time. We estimate that the best organisations have seen productive time increase by five per cent or more,” say Bain & Company’s Eric Garton and Michael Mankins in the Harvard Business Review. On the other hand, working from home “only made matters worse” for companies that were struggling before the pandemic, as “poor collaboration and inefficient practices have reduced productive time by two to three per cent for most organisations”. There’s a fear that support measures taken by governments may just have created legions of so-called ‘zombie’ firms.
Ultimately, achieving a post-COVID step-change in performance throws down a gauntlet to the managers of Britain’s businesses about how they invest and adopt new technologies and working practices. Having the leadership capability and the ambition to improve is what matters.
It’s too early for the lessons from the likes of Chase Plastics and Genius Foods to show up in any economic statistics. But, as Next’s Lord Wolfson has written: “Some good has come from the upheaval. It is remarkable what can be learned from shutting down your entire operation and slowly, department by department, store by store, warehouse by warehouse, bringing it back to life. It’s all the more challenging and informative with much of the endeavour being managed by hundreds of our colleagues sitting in their spare bedrooms, kitchens and conservatories! We have learned how we can work more effectively. Lessons which, if we are careful to preserve them, will stand us in good stead for years to come.”
