Productivity has become a pressing concern among economists across Europe in recent months as nations try to contain the impact of Covid-19. Previous economic crises have shown that businesses tend to scale back on investment and conserve cash in times of uncertainty. So how can business owners and managers boost productivity at a time when they are likely to be mindful of costs? In this special report on productivity, Soldo speaks with leading European economists and business specialists to find the solution.
Productivity has become a hot topic among economists across Europe in recent months as nations try to contain the impact of the Covid-19 pandemic.
Put simply, productivity measures the output of an employee’s work within a period of time. Strong productivity is crucial to economic growth because it allows a country to produce goods and services efficiently, which increases wages and helps determine standards of living.
The financial crisis of 2008 caused a slump in productivity, and many countries have been suffering from stagnant growth over the past decade. This is despite employment achieving record levels, particularly in the UK. The so-called productivity puzzle has mystified economists who are not able to reach a uniform conclusion on why productivity growth has plateaued.
The drivers of productivity are complex and difficult to measure, says Ben Willmott, Head of Public Policy at HR industry body the CIPD. However, he says evidence suggests boosting the quality of management in companies is one of the ways to increase labour productivity.
Evidence suggests boosting the quality of management in companies is one of the ways to increase labour productivity.
For example, data from the Office for National Statistics Management Practices Survey (2018) shows that organisations with more formal management practices in place had higher levels of labour productivity. It also showed that people management and development practices in particular such as performance management, training and progression were the management practices most correlated with productivity.
The pandemic has created another element to the debate about labour productivity because of the surge in people working from home due to the coronavirus crisis. Willmott says businesses which place high importance on training managers to manage and support people who are working remotely and equipping employees with the correct tools to work from home are more likely to benefit from a workforce that remains engaged and motivated.
“One of the keys to productivity improvements is how you manage and train your workforce,” says Willmott. “Good people management, in particular, is important. Regular one-to-one conversations between managers and employees are perhaps even more important now more people are working from home. It’s important managers carve out the time to have human conversations with the people they manage and recognise the challenges that they might face beyond just work including caring responsibilities or any anxiety they might be experiencing. Managers need to demonstrate empathy and to genuinely listen to the people they manage, providing flexibility and support where required.”
The Covid-19 pandemic is a pressing issue to economists concerned about the UK’s long-term economic growth, as previous financial crises have had a permanent or persistent scarring effect on a country’s output and productiveness.
Recessions affect productivity threefold, say economists. Firstly, a collapse in credit availability from banks holds back business investment. Secondly, asset prices fall, which can affect firms’ investment decisions. This is because a fall in property prices tightens their collateral constraint and credit conditions. Thirdly, workers are less likely to move companies when there is job market uncertainty, thereby diffusing the exchange of new ideas and technologies, and hindering resource reallocation.
One thing that’s already becoming clear is that the coronavirus pandemic will have a long-term impact on working culture in the UK. People are more likely to work from home, and some companies have already said they no longer plan to retain an office.
This is likely to have implications on productivity. From a positive perspective, many companies have said they have seen no change in the quality of their output, suggesting workers are able to be as productive working from home than they were in the office. Willmott says the CIPD ran a survey which suggested that people who work from home are no less productive – in fact they felt they were more innovative without the office distractions.
However, economists fear there has been a large fall in overall output per sector, as businesses scale back on investment and conserve cash to ensure they ride out the crisis. The danger is firms will find it difficult to spend again when economies start to return to some form of normality. It is important for businesses to invest in new technologies, resources and training to keep ahead of competitors and stay on top of market trends. Some firms have said they no longer intend to rent an office once their current lease expires, as the pandemic has shown that remote working can work just as well. Money saved here could be invested in strengthening the business’s resources.
Willmott believes Covid-19 will have a long-lasting impact on where and when people work, with many more employees working flexibly in different ways.
“It has been proven to organisations that people can work remotely and be productive and trusted. Longer-term, we will see more people working from home on a much more regular basis. It will be even more important for managers to find the time for conversations with their people if they have fewer informal interactions in the workplace,” says Willmott.
The CIPD expects there to be an increase in demand for remote and flexible working once lockdown measures are unwound. It anticipates employers will be much more likely to accept requests for flexible working than they would have been prior to the pandemic.
CIPD believes that it is very important that employers explore how to increase the flexibility available to people who can’t work from home because of the nature of their jobs, through practices such as annualised hours, flexi-time, compressed hours and term-time working.
The CIPD aims to help businesses manage the transition to a more flexible working environment while still keeping people motivated and connected. It has teamed up with internationally recognised experts from seven universities across the UK to translate cutting-edge evidence on workplace wellbeing and performance into practical tips and tools for businesses through a new PrOPEL hub. This will take both new and existing research evidence, cut through the academic jargon and turn it into practical lessons, toolkits and guides to help businesses of all sizes and sectors explore new ways of working.
The hub will focus on five key areas that are likely to be crucial for people professionals and line managers to deal with in the wake of the global coronavirus pandemic:
In addition, the CIPD has been conducting research into the HR support that small firms need to improve how they manage people to boost productivity. It has also developed, thanks to funding from JPMorgan Foundation, a free online course on the Future Learn platform to help owner managers of small firms to learn the basics of people management.
More than 30,000 learners have accessed the content over the last two years and demand is growing, with more than 15,000 learners having signed up for the most recent six-week course in July.
CIPD has also recently partnered with the Department for Business, Energy and Industrial Strategy on a campaign to give small firms access to free, one-to-one advice with an expert adviser to help them through the coronavirus pandemic and to prepare for long-term recovery.
Through the Recovery Advice for Business scheme, CIPD is encouraging its 15,000 CIPD-qualified independent HR consultants to provide an hour per month of free HR support to small firms via the Enterprise Nation platform.
CIPD hopes the initiative can, besides providing crucial support to help small firms survive, help to highlight to more owner managers why managing people is so crucial to business success and encourage more small business owners to consider continuing to pay to work with an HR consultant longer-term when their business is back on its feet.
“Small firms often struggle to manage and develop their people because owner managers typically have little expertise in this area and of course don’t have access to an in-house HR professional. We hope to help them get the basics of people management in place, for example, ensuring their people have written contracts and terms and conditions of employment, have clear and agreed written objectives and know how to recruit people without discrimination. Longer-term, we also think there needs to be better business support available for small firms on how to manage people properly at a local level, for example through Growth Hubs and Local Enterprise Partnerships ”
Too many businesses don’t invest nearly as much time and resources as they should in providing information, advice, guidance and training to managers to ensure they are equipped to manage people properly.
What can businesses do to help them become more productive at a time when they have to manage costs carefully?
One of the recommendations from the PrOPEL hub is that to help businesses recover from the Covid-19 crisis, they must embrace better management practice and efficient use of technologies. Firms who are already highly productive should concentrate on boosting innovation to make sure they stay competitive.
Overall, Willmott believes the key to businesses getting through the current crisis is to demonstrate that they genuinely care about their people and continue to focus on how they develop and manage their workforces. A healthy and motivated workforce is key to business resilience during the crisis as well as a stronger recovery when conditions allow.
“Managers need to listen to the people they manage and demonstrate empathy and provide clear objectives as well as constructive feedback and coaching support where required. They should also focus on supporting people’s wellbeing and aim to prevent and manage stress. Line managers are crucial to harmonious and productive employment relations. However, too many businesses don’t invest nearly as much time and resources as they should in providing information, advice, guidance and training to managers to ensure they are equipped to manage people properly.”
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