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Wednesday, November 17th, 2021

Is low productivity built-in to UK small businesses?

If there was any sense to Brexit then perhaps forcing UK business to address its woeful productivity was it. Particularly in the SME sector our productivity is far worse than that of our competitors and there is a school of thought that says ready access to cheap labour contributed to this (although opinions vary of course – these are economists. In particular, countries such as France and Germany have had the same access to labour without it depressing their productivity in the same way).

Be that as it may, many UK businesses are now facing labour shortages and wage increases. The news bulletins are full of interviews with under-pressure business owners, most of them saying:

  • I cannot get the staff so I am limiting capacity and turnover
  • I have had to raise wages to get or keep people and I can’t pass that on in prices
  • I am paying higher wages but that doesn’t translate into more productivity

The gist of these opinions (from albeit a tiny and edited sample) is that a) paying people more doesn’t increase productivity it just increases costs and inflation and b) the likely outcome of labour shortages will be reduced production not increased productivity.

I am not surprised by this. From my own experience advising business owners, productivity is not something that many business owners try to improve – or even measure. It is seen as peripheral to the main event; winning more business and then hiring more people to service it – and who could argue with that focus if the result is steadily increasing net profit? The fact that if the business was in the US it would be making more money and growing faster is irrelevant if your business is in Dagenham. The problems of inequality, low wages and creaking infrastructure belong to government, not to business owners.

Furthermore, improving productivity is tough. It requires levels of management and leadership way beyond that required to run some more Facebook ads and then recruit someone through Indeed to fill the boxes. It requires analysis, planning, negotiation, coaching, vision, communication…in fact all the things that are anathema to your average entrepreneur who thrives on doing and on crises. This leads me to wonder if the very culture and business environment that makes it easy to create new businesses in the UK has the seeds of low productivity built into it.

To finish this post on a less philosophical (and gloomy) note, here is an ebook to help business owners improve productivity.

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