The UK has a productivity problem. Its GDP per hour worked in 2020 was only 55% that of Ireland, the EU leader, according to the Organisation for Economic Co-operation and Development.
Why is it so far behind? The government’s Levelling Up white paper of the same year pointed to the nation’s “long tail of low-productivity businesses and places”.
In his foreword, the prime minister wrote of the urgent need to “close the productivity gap”. He added, with atypical understatement, that this would be “no small task”.
One of the many difficulties of solving the problem is that “economic definitions of productivity, such as gross value added per employee, are too narrow”. So says Professor Mark Hart, deputy director of Aston Business School’s Enterprise Research Centre and a research associate at The Productivity Institute.
“When I talk to the SMEs I work with, we discuss how to do things better in their business to create more profit,” he says.
But even a goal as apparently straightforward as “doing things better to create more profit” may not be applicable in significant sections of the economy. Michael Mankins, global leader of organisation design, corporate strategy and transformation at Bain & Co, notes that “there aren’t very good measures of productivity for white-collar and knowledge workers”.
Closing the productivity gap
But he is clear about the key factor that can change the fortunes of a business and, in some cases, boost the wider economy: “The targeted deployment and leadership of great talent has the most impact on productivity.”
Mankins – who co-wrote the 2017 book Time, Talent, Energy: overcome organizational drag and unleash your team’s productive power – cites the tale of two operating systems as an example: iOS10 and Windows Vista. At Apple, 600 engineers took less than two years to get iOS10 up and running. At Microsoft, 10,000 engineers spent more than five years developing Vista, which won few fans when it was finally released.
The targeted deployment and leadership of great talent has the most impact on productivity
What Apple did was ask its best engineers to work together on a specific endeavour. The company’s leaders “pointed at the map, said to them: ‘Take that hill. How you do it is down to you,’ and rewarded their performance as a team,” Mankins explains.
Microsoft took the opposite approach by operating a so-called forced ranking – a controversial performance management system whereby employees are rated against each other and certain quotas of the workforce will always be classed as high, medium or low performers, even if everyone is equally productive.
“This meant that no engineer on an A [high] ranking wanted to work with people at the same level,” he says. “They knew that most people would be ranked and rewarded at less than A, however well they might perform.”
As this example illustrates, even at high-achieving hi-tech firms, not everyone is a star performer. Having studied about 600 companies of varying types, Mankins and his colleagues were “surprised to find that the proportion of high-quality talent they have doesn’t usually vary much. On average, it’s about 15% of the workforce. What really mattered was how that talent was trained, deployed and led.”
The importance of engagement
The training element could prove decisive for the UK economy, according to Hart. “We’re missing a trick in not nudging the tens of thousands of small companies that are lagging in productivity to be just a bit better,” he argues.
Firms often complain about skills shortages and a lack of suitable candidates in the recruitment market, but Hart says that the talent they require may already be in their business – if they’re prepared to invest in its development.
He cites the example of a company that “gave a young woman who was working in admin the chance to train as a welder. She became one of the most skilled on the team and is hugely loyal to the business.”
Having employees who feel highly engaged is also great for productivity, whether those people are considered star material or not. Research suggests that staff who feel ‘engaged’ are 44% more productive than those who are merely ‘satisfied’ with their jobs, according to Mankins, who adds that those who feel ‘inspired’ by their work beat the ‘engaged’ by another 55%.
We’re missing a trick in not nudging the tens of thousands of small companies that are lagging in productivity to be just a bit better
That naturally leads on to the question of where to find leaders and managers who can engender the highest possible levels of engagement in their teams.
Stuart Tootal, the founder of Matero Consulting and a former colonel in the British Army, believes that the Peter principle (the tendency for people rise to their “level of respective incompetence” in an organisation) is a relevant factor in business.
“One of the problems the commercial world has is that people are generally promoted for hitting the right numbers and for catching the selector’s eye, but that doesn’t mean they’ll be good when given wider responsibility for leading other people,” he says.
The British Army’s officer selection board uses three days of intensive testing to determine whether a candidate has the potential to become a leader after they have had another 18 months of training, he explains, adding: “Businesses can never replicate that, but they can apply what has been learnt from it.”
Tootal argues that, just as in the army, highly productive organisations work well across functions and their employees have the permission and psychological safety to constructively challenge their leaders.
Hart confirms that he has observed this dynamic in the successful SMEs he has worked with.
“In a good firm, there are no barriers,” he says. “The CEO doesn’t sit apart from the rest of the staff.”
How fintech firm Revolut approaches productivity
But even though, by definition, most of us are middling performers, there are some employers that want only star players on their teams. Fintech firm Revolut is one of them.
“We recruit from the top 3% of talent in the world,” says Alexandra Loi, its global head of HR. “We source people first by identifying companies that are leaders in the relevant field and second by measuring the candidate’s pace of progression and contribution to their field. We ask: are they achieving industry firsts? This ensures that we pick A players who can work together in a highly focused and productive team.”
Revolut’s reputation took a dent a few years ago when it was accused of unethical hiring practices, of having unachievable targets and of widespread burnout. The company rejected the accusations. Recently – without referencing the culture – its founder and CEO, Nick Storonsky, said that the company had made “every mistake possible” and learnt from them.
Revolut doesn’t pretend to be cuddly. “We are like a professional sports team. We hire, develop and retain elite athletes only and place them in the right spots to win,” Loi says. That also means working them hard.
The company notes: “People who consistently put in more smart hours greatly outperform their peers in the long run. We think about committed hours the same way as compound interest.”
What does it mean by smart and committed hours? It’s all about using time efficiently, prioritising what’s important and using the best tools to optimise output, Loi explains.
But could the company be as productive if it were not a tech business? “Yes, the fundamentals can be in place in any organisation,” she argues. “What makes the difference is Revolut’s inclusive culture that empowers people to succeed, combined with the talent and values that each of our A players espouse.”
A cynic might wonder if it’s realistic for a firm to function in the same way as an elite sports team. After all, even Apple – the first company to hit a market cap of $3tn (£2.45tn) – doesn’t expect everyone to hit the ball out of the park. Google is another high-performing enterprise that has a nuanced approach to hiring. Grades are not everything.
“Making a degree a prerequisite means losing a big talent opportunity,” Tootal notes. “What you need to select for is how people collaborate, communicate and lead, and how quickly they learn.”
That approach should encourage a change in how companies are led – which seems to be a significant barrier to productivity.
“Do we see cross-pollination, whereby people take good ideas with them when they go to a new employer? Not really,” Hart says. “The tone of a firm usually comes from the top.”
The UK has a productivity problem. Its GDP per hour worked in 2020 was only 55% that of Ireland, the EU leader, according to the Organisation for Economic Co-operation and Development.
Why is it so far behind? The government’s Levelling Up white paper of the same year pointed to the nation’s “long tail of low-productivity businesses and places”.
In his foreword, the prime minister wrote of the urgent need to “close the productivity gap”. He added, with atypical understatement, that this would be “no small task”.
