What Small Businesses Can Learn from the UK Productivity Gap

There’s no getting around the fact that low productivity is a problem in the UK. The UK productivity gap is so pronounced, enduring and confounding that it earned its own moniker – ‘The productivity puzzle.’ The productivity gap is a mystery that even stumped Chancellor George Osborne, who, when asked about the reasons for the UK’s low productivity, stated, “Frankly, no one knows the whole answer.”

For workers, businesses and countries, closing the productivity gap is crucial for remaining competitive. When statistics show that it takes the average UK worker five hours to produce what a worker in Germany can make in 4 – despite a UK worker working nearly six more hours per week – there is an underlying issue. And figures show that this productivity gap is no small concern, as improving productivity by just 1% each year could add £9,000 per household to the economy over a decade.

But what is the UK productivity gap? What causes low productivity? And how can small businesses identify productivity gaps and improve productivity in their organisation?

What is the UK productivity gap?

The UK productivity gap refers to the fact that the productivity of UK workers lags behind the productivity of the country’s leading global competitors. Productivity in the UK has been especially stagnant since the economic crisis of 2008. Statistics show that:

• An hour worked in a G7 country produces 18% more than an hour worked in the UK.
• By GDP per hour worked, productivity in the US is 30% higher than in the UK.
• It takes a German worker less than 4 hours to produce what a UK worker produces in 5.

Why is the UK behind on productivity?

Some of the reasons why the UK is behind on productivity include a lower investment rate in infrastructure, technologies and R&D, and skills shortages and poor management. The UK also has relatively low levels of competition due to long-standing, inefficient monopolies and the concentration of markets.

Some have posited that the UK’s productivity puzzle could be solved by investing in new technology to drive productivity – a key insight for today’s SMEs. Additionally, small businesses can leverage on-demand training platforms to skill up the workforce, build agility, and use simple, drag-and-drop solutions to create powerful apps.

What happens when productivity decreases?

Lower productivity stunts economic growth. Instead of doing more with less, companies are doing less with more, leading to poor utilisation of resources and increased expenditures, amongst other things.

What is the UK’s productivity?

Based on GDP per hour worked in 2019, the UK ranked fourth out of the seven G7 countries, trailing France, the United States and Germany. Measuring for 2020 is difficult due to the pandemic, which had an asymmetric impact across industries and sectors, leading to Covid-related restrictions, furloughed employees and lower output-per-hour levels.

How to Identify Productivity Gaps in Your Small Business?

One way to address the UK productivity gap is by looking at companies on a micro-level rather than focusing solely on the bigger picture. Here are a few ways to see if there are any productivity gaps in your small business.

Run a gap analysis: Before you set about addressing productivity gaps in your small business, you’ll need to determine what areas need the most attention. Running a gap analysis will help you compare your business to others in the industry and benchmark your business’s current state against your organisational objectives. How is your business performing against your competitors in key areas? What are you doing differently, and is it working? Where can you improve productivity?

Evaluate the workforce’s skill sets: Optimising the workforce’s talents is one of the essential aspects of operating a small business. To evaluate the skills of your workforce, examine the KPIs of individual employees to see where they’re excelling and where they’re falling short. Are their skills being adequately utilised in their current role? Could they potentially provide expertise across functions and departments? What training would help them be more productive?

Check leadership and management processes: Skills gaps can be addressed through training platforms. Still, the workforce needs to be directed appropriately – and the team needs to be kept engaged and motivated. This can be difficult in the current climate, where remote working is becoming more common. Do an audit of the business’s leadership and management processes to ensure that employees are being given the support they need to be productive.

Assess workflows: Perhaps when evaluating the workforce’s skillsets, you considered the future of work and what roles and functions will be automated in the near future. For many businesses, the future is now. AI, tools and apps are already empowering companies to free up their reps and agents by automating repetitive tasks, which are a productivity killer. Look at your processes and workflows and see where you might be able to leverage technology to remove any bottlenecks.

Look at your tools and technologies: Many businesses face falling into the growing digital gap, and the time to digitise is now. Even if you don’t have the resources for a dedicated IT department, there are many solutions to support the needs of your business. From easy-to-use tools that allow you to create apps without any coding knowledge, to ready-made, out-of-the-box cloud solutions that let you integrate all your apps seamlessly, you can use digitisation to reduce the burden on the workforce.

Closing the productivity gap, one small business at a time

UK small businesses have some work to do if they want to be as productive as their US and EU peers. But the answers to the ‘Productivity Puzzle’ are clear. To drive productivity, today’s SMEs can leverage technologies, skill up the workforce and increase engagement. Closing the gap starts here.