Help SMEs get practical about solving the productivity puzzle

Alison Rose
Businesses don’t run on theory; they are focused on the inherently practica

As we gear up for Brexit, the UK’s flagging productivity performance is continually in the fore of media headlines and economic analysis.

Following a further fall in productivity in the first quarter of 2018, policy experts and economists were quick to update their models and offer opinion over blame. However, this economic self-deprecation doesn’t actually make any difference. So what could?

It isn’t that British SMEs don’t have the drive and ambition. Nor is it that other countries, such as Germany, the G7’s most productive, are naturally better at enterprise. Britain has an impressive history and vibrant culture when it comes to entrepreneurialism. And yet the productivity puzzle persists.

Part of the problem may be the academic language of productivity which not only leaves businesses cold, but can feel meaningless, especially for SMEs. In theory, productivity is a simple equation: output divided by input. But businesses don’t run on theory; they are focused on the inherently practical.

At NatWest, we recently spoke to 2,000 SME leaders about their current business priorities. Raising productivity came at the bottom of the list, with only one in five placing it top.

It’s clear that there is a persistent disconnect between diagnosing the productivity gap as an economic contagion at the macro level, and the treatment which has to start with businesses – especially SMEs – on the ground.

We need to get better at focusing on the treatment side of things by coming up with a more practical perspective. Most business leaders I speak to understand the general problem, but what our data shows is that they don’t always see how it applies to them and what they could be doing.

This is where advisers and lenders of all shapes and sizes can step in, building partnerships of real value to SMEs. Excellent work is also underway by organisations like Be the Business, which are providing inspiration and tools to improve productivity.

But it also means understanding our customers’ businesses and their needs.

Most SME leaders are time-poor and have a vast range of roles and responsibilities – from finance director to the shop floor – and if we don’t make tangible suggestions, focus quickly returns to the day job. As I have learned, the key is to help businesses ask themselves two practical questions. First, can we cut out waste to become more efficient? And what are the steps we can take to become a better business?

This moves the conversation on from the theory of productivity to broader strategies that get to the heart of helping the majority of SMEs.

Discussions about productivity often centre on manufacturing. We talk about investing in technology and machinery to improve efficiency, so checking that the right tools are being used to produce and sell products is an obvious first step.

But for most businesses, their capacity to change, improve and innovate is interwoven with the performance and attitude of their people.

Innovation is not confined to the laboratory. It includes investing in staff, not just in terms of skills and development, but also their enthusiasm and satisfaction. Creating the right workplace culture and organisational structure, providing decent, tailored benefits packages, and focusing on employee health and wellbeing has the ability to improve individual performance, retain talent, and create value.

It is these intangible or knowledge-based assets, often inseparable from the people who work in SMEs themselves, which can add billions to the UK economy.

Getting better at business is made up of small steps, not silver bullets. It’s the people who run SMEs who know this best, so we’ve teamed up with business leaders across the country to create a Productivity Blueprint to outline straightforward, practical steps they can take to do more with less – helping them prioritise productivity and, ultimately, improve business performance. So, let’s put an end the real productivity gap by sharing what businesses can actually do.

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