PRODUCTIVITY AND SMEs
Improving the productivity of businesses in the UK is seen as one of the most important economic challenges over the next decade although the overwhelming focus on Brexit has ensured that, in the last two years, it has been put very much on the backburner by the UK Government in taking this forward.
This is extremely worrying given the impact this could have with recent research from NatWest Bank showing that UK SMEs could add £57 billion a year to the economy if they were as productive as their counterparts in Germany. In fact, their research shows that whilst each German employee generates around £147k of output every year, UK employees generate less than half of that (£147k per year).
According to NatWest’s study, the main issue is that entrepreneurs in the UK are uncertain of what they need to do to improve productivity within their organisations. Whilst over two thirds of SMEs believe improving productivity is important, two-fifths don’t know what productivity actually means in practice, a situation which creates real barriers in identifying steps towards improvement.
More worryingly, Brexit and political uncertainty means that tackling productivity has fallen to the bottom key priorities for UK businesses.
So what can be done to ensure that UK businesses close the productivity gap?
As this column has pointed out on various occasions, focusing on the wellbeing of employees can help SMEs increase their performance and this is supported by the NatWest study. This is not just about free gym memberships but, more importantly, about ensuring that employees achieve a good work-life balance so that they can achieve maximum performance whilst in the SME.
Another way of boosting productivity is to reward employees with benefits that improve their skills and motivation. Whilst salary increases can be important, it is also critical to actually engage with employees to identify which benefits are most valued and which can ensure that the best employees are retained and new talent attracted to the business.
And according to the research, it’s small gestures that can have the biggest impact. For example, offering employees an extra day of annual leave outside of the legal minimum has the potential to increase productivity by £142,500 per employee.
Productivity can also be affected by the nature of the workplace culture of SMEs and whether people are working in an environment where they feel their ideas and contributions make a difference. This is particularly important for new businesses where creating the right environment can ensure the most appropriate people are recruited and, from the start, employees feel able to work together, collaborate and support the growth the business.
This can be done formally through mentoring schemes or more informally via social events and the effect can be transformational. For example, whilst team building exercises, mentorship or buddy schemes could increase productivity by £55,500 per employee annually, only 32 per cent of UK SMEs are implementing such programmes.
It’s also important that employees are supported in setting out long term career goals so that they feel part of the business going forward and that they can maximise their contribution to its development. This is not only about setting clear objectives but also about considering what training is needed to achieve their goals. This is particularly important for established employees who may feel threatened with changes in workplace practices and may need access to specific training, such as in improving digital skills.
Finally, SMEs need to ensure that they have the right equipment and technology to work as productively as possible. Most important of all is to ensure that the focus on purchasing equipment and technology is very much on giving the entrepreneur and other key staff the time to run and grow the business. Indeed, research has shown that a third of entrepreneurs would not have been able to start their firm at all without recent advances in technology such as the internet and, more relevantly, small businesses with a strong web presence grow twice as fast as those with minimal or no presence.
Therefore, the report from NatWest has demonstrated that relatively minor changes to workplace practices can have a big effect on productivity within the SME community and, as they make up the majority of businesses, on the UK economy. The question is how this message can be communicated effectively to entrepreneurs who may not be considering this as a key priority even though it would make their businesses more efficient and therefore more profitable.
Certainly, given that the focus of the UK Government seems to be very much on Brexit at the moment, a new approach by devolved administrations and city regions to business support focused on improving productivity through workforce development could be the solution to the productivity gap that the UK has been waiting for.