An interview with Stuart McIntyre, Senior Lecturer in Economics at the University of Strathclyde
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.
One of the most surprising findings from our research on management practice and productivity is that there are large variations in management practices between different teams within the same firm.
Different teams within the same firm can produce starkly different levels of productivity. So there is huge potential learning to be done when companies look introspectively and compare management practices across their whole body of staff – the most laggard of which can learn from the most productive.
Firms shouldn’t feel that they need to overhaul their operations and re–invent the wheel to improve their productivity. Productivity improvements are mostly about a sustained process of gradual improvement. Yes, occasionally a larger step-change occurs when there is an overhaul of a manufacturing process or introduction of a major new piece of software, but these are the exceptions rather than the rule.
For most firms, productivity improvements are gradual. Innovation and continual improvement need to become part of the company’s culture.
Understanding the effect that management practices have on labour productivity is often quantified in terms of rather crude metrics.
At a very basic level, it is about having a workforce whose skills match their jobs well. It’s about having an efficient working environment – whether that be through access to productivity-improving technologies and software, or a factory environment optimised to the tasks of workers.
This means ensuring that businesses are staying at the frontier of new developments by investing in themselves. It is also about taking a broader view of the needs and wellbeing of the workforce – recognising that a valued workforce is a more efficient workforce.
This is why there has been significant attention given to developing fair work practices among some of our leading companies, and investing in the health and wellbeing of the workforce. To see this, just look at the way that the companies which top the regular lists of ‘best places to work’ look after their employees.
Through the current pandemic we’ve seen many businesses step up to support their staff to adjust their work patterns in light of the restrictions that are in place.
It is important that business owners recognise that workers care about how they are managed and developed as well as how much they are paid. It is also about empowering staff to innovate – freeing them from constrained and overly hierarchical management styles and empowering them to identify and solve problems. Firms that get this right will have their pick of the workforce, and they will get the most out of each member of staff.
At a very basic level, it is about having a workforce whose skills match their jobs well. It’s about having an efficient working environment – whether that be through access to productivity-improving technologies and software, or a factory environment optimised to the tasks of workers.
Different countries have different business cultures – these are the product of decades, if not centuries, of divergent approaches to business.
There is no way to know whether imposing the approach in one country onto another will yield big improvements in productivity. We have seen that Foreign Direct Investment (FDI) tends to boost productivity by creating more productive jobs, and we should welcome and encourage businesses to learn from foreign business strategy in this way.
That said, it is important that we do not get too distracted by trying to emulate exactly what is done elsewhere. Productivity improvements for most businesses are not about completely overhauling how they operate, but about improvements at the margin, and gradual investments over time.
It is popular in policy circles to focus on the different approaches that particular countries take to doing things, but for most businesses, this debate is simply divorced from their day-to-day reality.
Firms shouldn’t feel that they need to overhaul their operations and re–invent the wheel to improve their productivity. Productivity improvements are mostly about a sustained process of gradual improvement.
Technology plays a crucial role in driving improvements in firm productivity, but it comes at a cost and it is not without disruption.
In some cases the innovation and shift change in the use of new technologies can come from external circumstances – as we are seeing at the moment as businesses adapt to the current pandemic. But introducing new technology can also be disruptive if not introduced carefully. It’s a balance.
In the current economic climate most businesses are still in survival mode, and while part of this is likely to involve changing the way they operate to meet physical distancing requirements and other societal adaptations, few firms will be undertaking investment that is not essential.
Once firms are back up and running and have a better understanding of their future demand, we may begin to see more investment in their own infrastructure.
To support the economy as a whole, the Government is likely to put in place measures to support companies investing internally – in particular around R&D. We’ve already seen some announcements about schemes that encourage businesses to collaborate with universities. This gives firms access to world-class research and opens up doors for a huge amount of collaboration.
It’s important to remember that new technologies can present challenges for workers, particularly those that have been in a company for some time. It is therefore crucial that those staff get the right support and time allowance to adapt to these new ways of working.
