UK productivity lags behind G7 peers due to “complacency”

A business survey found that UK companies are more complacent about improving productivity than their G7 counterparts.

Be the Business, a government-backed charity that surveyed more than 4,000 G7 leaders in the business world, found a huge gap between the confidence and actual capabilities of UK small and medium sized companies.

The G7 Productive Business Index, which will be released on March 28, showed that UK companies lag behind all other developed countries except Japan due to a lack in investment and improvements in areas like management and leadership and technology adoption.

UK productivity is a concern to policymakers and leaders of business for many years. According to the Office for National Statistics (ONS), the output per hour of work in the first three months of 2019 was only 0.6 percent above the pre-pandemic average. This trend of UK product growth has continued since 2008. Confidence is a powerful thing. The report also said that “we [the UK] have a good sense of complacency”. It praised UK business leaders for their “talents, determination, and sheer hard work”.

The UK companies were ranked lowest in the G7 for investment in HR systems, processes and HR systems, as well as in efficiency improvements. US businesses, who topped the overall index, scored highest in confidence, leadership, and operational efficiency.

In the US, 42 percent of business leaders plan to invest more in initiatives that measure business and staff performance over the next year. This compares to 26 percent in the UK.

Poor management has been blamed by economists for some of the UK’s productivity decline. Some business leaders overlook areas as simple as performance appraisals and setting targets.

“So much of it is about changing behaviour.” Anthony Impey is the chief executive officer of Be the Business. He asked: “How do you get managers, leaders and business leaders to think of their business as continuous improvement?”

The charity was created in response to the 2017 UK government review on the productivity challenge. It encourages the spread of good practices.

The report also brought attention to the funding gap. Some 63 percent of UK small business leaders claimed that their companies excelled at implementing ideas quickly, but only 38 percent said they had the funding to bring those ideas to market. This compares to 56 percent of their US counterparts.

Impey is of the opinion that current debt and equity financing options are not suitable for medium-sized business, as opposed to start-ups and larger groups. He stated that “capital is hard to come by and it comes with conditions, and quite a bit of risk attached to them”, such as personal guarantees.

Be the Business calculated that a 1% annual increase in productivity for smaller UK companies over a period of five years could add £94bn (£94m) to the UK economy.

The group wants company leaders to take “small but meaningful action” such as dedicating an hour per month to work on improvements or seeking more external advice. The group also wants to see more collaboration between large and small businesses and better support, vision and action by the government.

The G7 Index is based on interviews conducted with over 1,000 senior decision-makers at UK companies with between 249 and 249 workers, as well as 500 leaders from each of the six other countries. The non-UK sample was weighted in order to ensure that the UK business samples were comparable.