Poor productivity continues to cost billions

Jul 10 2006 by Brian Amble Print This Article

British companies are wasting the equivalent of 36 days per worker, per year in lost productivity at an estimated cost of some £70bn, with poor communication, poor supervision and poor planning largely to blame.

Figures from a study by Proudfoot Consulting have found that although UK enjoyed a greater improvement in business productivity than Germany and France in 2005, the real picture for the economy is not quite as rosy.

Because measured over the three year period between 2003 and 2005, UK companies had more unproductive labour time than those in any other nation or region studied except Asia.

The research benchmarked organisational performance against a notional maximum practical labour efficiency of 85 per cent.

It calculated that British firms achieved less than two-thirds of maximum efficiency between 2003 and 2005, with more than a third (36.6 per cent) of working hours being wasted.

Using average wages in manufacturing, Proudfoot estimates the cost of this poor labour productivity at around £70bn, or six per cent of GDP

On the plus side, however, unproductive labour time in UK companies fell by 8.4 per cent between 2003 and 2005.

Last year, despite longer working hours, UK companies are shown to have performed significantly better than those in France and marginally better than those in Germany, a finding counter to official productivity statistics.

Revised data for 2004 continues to show the UK's productivity performance, on a GDP per worker basis, lower than that of France and the USA, similar to that of Germany, and above that of Japan. UK GDP per worker was behind that of the average of all other G7 countries.

The USA continues to be the productivity leader with productivity 27 per cent above that of the UK.

Globally, the study found that productivity increased by 6.4 per cent in 2005, with firms in Asia, Germany and Brazil leading the way.

"It would be easy to view the global productivity increase as cause for celebration in company boardrooms around the world," said Simon Glynn, chief operating officer of Proudfoot Consulting.

"But our report shows there is clear and considerable scope for further productivity improvement. It also shows that executives tend to overestimate efficiency improvement in their companies."

Underlining this, the report found that almost a quarter of executives worldwide and a third in the UK have no plans to address these operating inefficiencies. Moreover, those in the UK that do set targets are less ambitious than those in competitor economies.

Yet one finding that does come as a surprise is that there is no evidence to support the view that the USA enjoys a productivity advantage over Europe. In fact, the report suggests that companies in both have similar levels of unproductive time measured over three years.

"No company can achieve 100 per cent labour efficiency all of the time but experience shows that 85 per cent is a realistic upper threshold," Simon Glynn added.

"To achieve this, a business needs firm chief executive support and a mix of clear, consistent strategy, management ability, work systems, technology use, people supervision, motivation and commitment. The challenge for the many now is to mirror the few that have so far managed to achieve this level of performance."