The Power of Productivity
and UK Prosperity
by Ross Harling
f like me you run a business, we face more new challenges every day, and an increasingly
uncertain future. The good news is that by 2022 the size of the UK economy, or Gross
Domestic Product (GDP), will edge back to where it was in pre-Covid 2019. The bad news is
that Britain’s national Productivity score is still in decline.
Now that the 2021 Treasury spending review is clear, financial experts calculate that a
combination of tax increases, inflation and imminent interest rate rises, signifies no real wage
growth for another 3-4 years. This means that after a decade of austerity since the 2008
banking crisis, followed by two years of Covid pandemic setbacks, the UK standard of living
will not have increased for a record 16 years!
For UK business owners and shareholders, profits might not necessarily increase, or even
shrink. Held back by the combination of higher national insurance, corporation, and dividend
taxes, along with more costly and cautious bank lending. At the same time, and despite more
taxpayer funding, the declining level of health, social and public services seem irreversible
without significant performance and productivity improvements.
Why is the decline in UK productivity so important?
Economists, governments and global
organisations like the IMF, World Bank, and
the OECD, repeatedly stress the importance
of ‘productivity’. Often its assumed to be an
alternative term for other business
measures like profitability, efficiency, or
operating margin, but that is not the case.
Productivity is the main engine for
economic growth and regulates the
financial health of the country. It underpins
rises in living standards as well as the
competitiveness of commercial businesses.
Productivity is also a key score used by investors and banks for comparing economic health,
growth potential and competitive ability. Higher productivity also allows for wage increases
that don’t drive up inflation and, in a virtuous cycle, eventually raises the standard of living
enjoyed by all citizens, whether employees or not.
Calculating a basic productivity score for country or industry league tables uses the ratio of
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the gross value of goods or services produced over time compared with the number of
resources, particularly working hours, needed to produce them.
However, there are more precise methods for different industry sectors such as Construction,
Retail, Public, and Knowledge Services. Knowing the best way to measure the productivity
score for your company or department means you can check for tangible improvements when
making targeted changes. For example, upgrading business processes, technologies,
employee skills or the working environment.
Is the UK’s ‘Productivity Problem’ permanent?
Britain’s infamous ‘productivity problem’ has been with us for so long that we might assume
mere mortals can’t change it. However, that is simply not true. There is a broad range of well-
proven methods, from investing in advanced technologies, such as robotics and AI, to low, or
even zero, cost techniques. Hence, any organization, including startups, mature companies,
and public services, can raise productivity levels should it be determined to do so. But it
requires a different, more comprehensive approach to avoid the pitfalls and unforeseen
consequences of narrow-minded drives for efficiency or digitalization at any cost.
Indeed, if since 2008 Britain had focused more on productivity, rather than just sustaining its
financial size, we would now be in the ‘Top 5’ of the most productive countries in the world.
Not at 13th
position in the productivity league table between the pocket-sized workforces of
Austria and Iceland.
Using the latest 2021 OECD data, Britain’s productivity is now 24% lower than the average of
the ‘Top 5’ and a massive 32% behind the current leader, the small but hyper-productive
Norway. Back in 2015, then Chancellor George Osborne pointed out that a 20% increase would
be worth an extra £21,000 a year per household.
Despite the scant focus in his budget, the present Chancellor, Rishi Sunak, also stressed its
importance in the summer’s Government strategy document “Build Back Better”:
“In the long run, productivity gains are the fundamental source of improvements in
prosperity. Productivity is closely linked to incomes and living standards and supports
employment. Improvements in productivity free up money to invest in jobs and
support our ability to spend on public services.”
What’s more, the multiplier effect of tiny rises in productivity can be life-changing for everyone.
As economist Duncan Weldon* pointed out, even a 1% rise across the UK economy has an
impact:
“(1%) could reduce the annual government deficit by around £8 billion, add £250 a
year to the average wage packet and increase annual profits across the nation by
almost £3.5 billion.” (*Stoddart Review)
Such a modest change in a country’s productivity scores can influence currency exchange
rates, major decisions by investors, and those companies seeking overseas expansion. Many
years past, I worked with global energy companies helping to decide multi-billion£

investments in oil refineries and chains of new petrol stations. We did this by looking for early
signs of growth in a country’s productivity, and thus wage levels. In those less environmentally
aware times, increases in wages correlated directly with a population’s choice of personal
transport from bicycles to fossil-fuel consuming buses, motorcycles and eventually cars.
Can businesses alone change the national situation?
‘Every company targets bigger profits; great ones make higher productivity their
purpose’. Setting a target of adding 10% to our current scores within the next 2 years would
put Britain far closer to the productivity ballpark of our two nearest pre- and post-Brexit
competitors, France, and Germany.
Aside from raising the bottom line of every business, it would add a massive £200 billion a
year to our national output, cut debt and potentially prevent more hastily conceived taxes for
modest improvements in national Health and Social Care.
Furthermore, the scheduled 2022-23 rises in Corporation and Dividend taxes, which will hit
small to medium firms and their shareholders hardest, are avoidable if a combination of better
wages, extra consumer spending power and business profits boosts HMRC tax revenues to
much higher levels.
Raising productivity also has environmental and social benefits.
There are valuable social and environmental benefits from raising productivity. More efficient
use of materials and resources causes far less environmental damage as well as lowering costs.
With an innovative approach, productivity improvement projects can accelerate progress to
increasing sustainability and reducing environmental impact, as potential benefits and savings
could offset the costs of sustainable transition and carbon taxes.
When it comes to motivating the workforce to share goals, research shows that clear
communications about the widespread benefits of small productivity improvements, can
increase staff involvement, and reduce resistance to change.
As for the overall ‘Happiness and Well-being’ of the population, detailed studies* now shows
that citizens of high productivity countries also have superior ‘satisfaction with life’ scores.
*European Social Survey
With increased profits and lower costs, companies can increase the pace of innovation as well
as raise workforce skills and wages. Higher productivity also gives businesses, large and small,
added resilience and extra capabilities to compete more effectively on price, quality, and
customer service.
Unleashing the Power of Productivity in your organization
When planning productivity improvements, five factors differentiate these from routine
change projects:

• Measure: An objective and clear starting point is vital. Remeasure often. Correct any back
slips
• Share: Make productivity benefits clear to motivate coworkers, e.g., describe how the
‘virtuous cycle’ works
• DIY: find internal champions. Insist any outside advisers share know-how by ‘doing with’
not ‘doing to’
• Diagnose: analyse the interactions of people, processes, technology, and culture to find
the real inhibitors
• Fusion: check all linkages between internal work processes to avoid blockages and
unintended consequences, e.g., improving one part whilst unknowingly breaking others.
Often change projects stall and then fail because the benefits are vague, sometimes illusory.
However, productivity benefits are tangible and are checkable regularly as a by-product of
routine financial reports. However, from the outset leaders and senior managers need to select
the reliable and repeatable set of measures that best suit their type of organisation.
Start by asking these four questions:
1. Do we know the current productivity score of our organisation?
2. And how best to measure it regularly and reliably?
3. Do we check the average score for our industry sector?
4. And that of our key competitors in the UK and overseas?
Raising Productivity is not an SEP! (Someone Else’s Problem)
We could dwell on the many causes for the UK’s historical underperformance. And, how
government might accelerate their productivity-positive, but very long-term infrastructure
programs for rail, roads, runways, and better broadband.
However, raising productivity scores is fast becoming a critical survival factor that UK
businesses cannot leave to someone else. Evidence and experience show this is something
organisations can undoubtedly improve for themselves when leadership has the necessary
determination and invests in the right people, knowledge, and capabilities. As Steve Jobs said:
“You cannot mandate productivity; you must provide the tools”
Given such a poor historical record, it might seem overly ambitious to set goals for 10%
productivity rise in the next 24 months. However, recollecting Duncan Weldon’s analysis of a
1% improvement, anything short of 10% would hardly count as a failure. And, as with the
planet-threatening challenges of climate change, we have reached an important turning point
where stretch goals are necessary.
I’ll end with the starting point: As Peter Drucker, an originator of modern management thinking
said: “If you cannot measure it, you cannot improve it”. Productivity measurement is the
key, especially when your first steps could lead to results in a month or so.
For free slide pack of ‘The Power of Productivity and the Virtuous Cycle’ send business email to
ross.harling@dx.company ©2021Ross Harling All Rights Reserved
Ross Harling, an economist by training, has been a digital technology executive and strategic adviser in a long career. He has worked
with organisations around the world to raise performance and productivity levels. Author of ‘ChangeAbility- how winning organisations
are continuously transforming themselves’ as well as an award-winning inventor of sustainable environmental products, Ross is also an
EU Expert Evaluator for innovative technologies and new business models.