Whilst the very low rate of productivity growth in the UK since 2010 is quite rightly a cause for concern, one unintended consequence is that more people are in employment than might have been the case if productivity was higher. This of course has some real benefit to the individuals concerned and for wider society.
In accepting that UK productivity is lower than most other leading economies, and that this is a reason why our unemployment rate is lower, we do need to consider other factors. This is particularly the case when trying to draw comparison between countries with differences in the relative size of their manufacturing and service sectors, simply because productivity comparisons are much easier when we look at manufacturing. As an example, if one car plant employs 500 workers to produce 100 cars a week whilst another needs 600 to achieve the same output, it is fairly easy to conclude that the former has employees which are nearly 20% more productive. So far, so good, but measuring productivity in the service sector is much more difficult.
Firstly we have some difficulty identifying a starting point because in the service sector, the qualitative element of any output produced is at least as important as the quantitative element. Let’s take an example: a sales person working in a business to business environment. Should that employee’s productivity be measured by the number of customers contacted, the total revenue generated, the average revenue per customer, the profitability of sales made or the total number of satisfied customers identified by a post-sale survey? The fact is that different businesses are likely to use different metrics, and so the basis of any comparison is flawed before we start any meaningful analysis.
Even assuming we can get some consistency in terms of agreeing a basis of measurement, the service sector has further challenges in creating productivity gains. Given that productivity is defined as the number of inputs required to generate one unit of output, a manufacturer will normally have more inputs (labour, plant and machinery) at its disposal than a service sector business, and therefore a greater ability to substitute inputs and generate productivity gains.
In the service sector, the main input is labour and any reduction in the number of people employed to provide a service will often have a damaging effect on output. This lever is therefore unavailable to achieve productivity gains. It would be wrong however to assume that productivity improvements in the service sector are not possible. Whilst machines cannot simply replace people, employees can be made more productive by being better trained. Furthermore, investment in new technology for example robotics, can help to ensure that employees spend more time engaging with customers and less time undertaking tasks that add little value.
As indicated at the start of this article, there has been a huge focus on the comparative lack of productivity growth in the UK over recent years. We should however remember that the service sector, where productivity gains are more difficult to achieve, represents nearly 80% of UK GDP, which is the largest proportion of all G7 countries.
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.