Week ending 23rd August 2013

The silly season continues.  Most of the business stories in the media are about the possibility of various football clubs paying vast sums of money for certain players.  However in the absence of meatier news to dissect the silly season does allow us time to ponder on matters that we would perhaps ignore at other times of the year.  There is one topic that most of us ignore most of the time.

Must try harder!

In last week’s TWb4TW I introduced you to the “productivity puzzle”.  This puzzle is that in spite of recent encouraging signs that economic growth is gaining some traction the fact is that on an output per worker basis UK companies require more staff to produce the same amount now than they did before the financial crisis.

But what is actually meant by “productivity” in this context?  In the boom years between 2000 and 2008 the economy was apparently able to produce more goods and services to meet the growth in demand, without price or wage inflation kicking in.  However much of this was achieved through cheap imports and cut-price foreign labour.  So whilst production and consumption of goods and services grew the actual “productive capability” of the UK economy did not, or at least not to the extent that it really needs to.

This is because we seem to think of productivity as being about “doing more” rather than “doing better”.  Ministers are telling us that we now have more people in work than ever before.  But is that really as good as it sounds?  I talk to businesses who, in spite of lower sales and profits than before the recession and not giving their employees a pay rise for three years tell me they are now “doing well”.  But is this kind of “doing well” what these businesses really need to be achieving?  We know that in the NHS, in spite of huge increases in spending and treating more patients than ever, productivity has been going backwards.

So do we just need to “try harder”, maybe get some “efficiency experts” in and tighten up those KPIs?  After all there are examples of high productivity companies out there; surely more of us could be like them?  Well in my experience it is worth looking at those companies, but it is not about what they do, it is about how they think.

A different way of thinking

Some years go I was lucky enough to spend some time at Toyota Manufacturing UK at their Burnaston plant near Derby.  I will always remember two statements from the then Operations Director when explaining how Toyota thought about productivity.

“Everyone at Toyota Manufacturing knows they have two jobs.  One is to make vehicles and the other is to find better ways of making vehicles.  The working day and the business processes are designed and structured to enable all our people to do these two jobs”.

“This way we can reduce the costs of making vehicles, enabling us to lower the price to customers who then buy more of our vehicles which lowers our costs even further”.

For me these two statements embody the principles required for achieving true productivity growth. These principles can be seen in the thinking of every “excellent” business I have been fortunate enough to have had contact with.  These organisations think first about how they can “do better” knowing that this is the route to achieve the sustainable capability to “do more”.  This “different thinking” is the key to the productivity puzzle.

Regrettably too few UK businesses think this way and even fewer areas of the public sector, where the primary purpose seems to be to exist rather than actually change anything.  This is in spite of the fact that research has proven consistently that businesses that achieve superior productivity growth are at least twice as profitable as the average.  Until the thinking changes I fear that the prospects for our economy achieving the level of true productivity growth we need to provide the standard of living we would all like in this country are remote.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.