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Large firms underinvesting in raising productivity say leading economists

Published by Orgvue 

London, 10th July, 2019: A new report has revealed that 86% of Britain’s largest businesses are worried about raising their productivity* with two-fifths (39%) calling their productivity ‘very concerning’, but that they are investing just 0.25% of turnover in measures to improve it. That’s half the amount firms are spending on their telecoms services**.  

The report by the Centre for Economics and Business Research (CEBR) and analytics firm, Orgvue has also uncovered a spray and pray approach to driving productivity caused by a lack of insight into the performance of their most vital asset – human capital.

Whilst most businesses are searching for the silver bullet in new technologies and automation, the analysis has discovered a vital link between business’ understanding of their people and overall productivity. In fact, if large companies in the UK were to collectively improve their insight into their human capital we would see the UK’s GDP increase by £10.4 billion, a 0.5% improvement.   

The research – which heard from 400 business leaders in the UK and US with more than 1,000 employees – shows that a third of organizations are investing less than £10,000 annually in understanding whether their people are in the right place, doing the right thing so it’s hardly surprising that slow productivity growth is plaguing the economy.

Kay Neufeld, Head of Macroeconomics, CEBR said:People are both the largest cost and biggest value creator for almost all organizations. Our analysis has shown that whilst businesses clearly understand overall productivity, when it comes to profit per worker there is a significant informational deficit. In fact, there is a clear correlation between organizations that are most productive and have both macro and micro insight into employee productivity or profit per worker. It is our hypothesis that businesses equipped with this information can identify challenges and introduce measures to address them rather than making sweeping changes by investing in the next business buzzword.”

As official Government data shows that Britain is achieving growth of only a quarter the level seen a decade ago, the data also showed that four out of five (79%) big businesses have made efforts to improve productivity despite low overall investment.

Of those investing in improving productivity, 31% have bought in new technology, with 29% reporting that their firm is investing in technology to accelerate automation of repetitive tasks. 39% are working to improve business processes and decision making, and 35% of companies are investing in new ways to improve employee wellbeing[1] .          

Rupert Morison, CEO of Orgvue said: “It’s easy to get blinded by the latest new technology, like AI, but businesses are missing a trick by not investing in an accurate understanding of their greatest asset – their people.”

“The reality is that most large companies don’t know enough about their employees or what they do, so it’s hardly surprising that there’s this much potential upside in getting a greater insight into what’s going on with your human capital. For organizations that are investing in their future, getting better information on people and what they’re working on improves productivity by making sure the right people are in the right place at the right time to deliver the operating plan. It’s making sure people are clear about their roles, have the competencies for the job and can make a difference that inspires them, not a Friday beer fridge and a pool table,” Morrison concluded.

*Profit per worker
**Data from ONS’ annual business service (2016) shows that firms are investing 0.5% of turnover into telecoms services

Report methodology
The report was carried out by the Centre for Economics and Business Research in June 2019 for Orgvue.

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