January 17, 2018
Is the U.K. Sleepwalking Towards an Economic Productivity Crisis?
“Economic productivity in the U.K. will see only weak growth in the next five years.”
This was the assessment issued by the government’s economic watchdog, the Office for Budget Responsibility (OBR), in October 2017. This followed recent research by the Office for National Statistics
(ONS) which revealed that U.K. productivity had continued to drop in the past three months following a significant fall in Q1. This troubling theme can’t be ignored and goes to show how far the U.K. has fallen when compared to its G7 peers.
Productivity is about achieving the maximum output, in the form of product or services, from a given set of inputs, such as capital assets or labour. Yet many believe the answer is to simply throw more labour at an intrinsically inefficient production process in a vain attempt to increase output in the short term; ultimately this will not work and will only decrease overall productivity and most importantly, profitability.
Not only will this trend be a disaster for the U.K. economy post-Brexit, but it will also be a tactic that will prove disastrous for individual firms. The labour pool will diminish when immigration rules come into force and the resulting cost of domestic labour will rise. U.K. manufacturers are literally sleepwalking into a productivity crisis!
Amongst the confusion surrounding Brexit, a lot of organisations have allowed these fundamental principles to take a backseat. Instead, they are spending more time concerning themselves with macroeconomic indicators, such as GDP or net migration, and losing sight of their overall business objectives.
Brexit will impact each industry, and indeed individual organisations, in a multitude of ways. Because of this, firms must be prepared to move ahead with the realities of the future: the U.K. will leave the EU and firms must prepare for this accordingly.
Reversing this productivity downturn will be a challenge, particularly as firms struggle to access skilled labour from overseas. To address this, technology and the data that a lot of organisations already generate will be key. In manufacturing, for example, automatically collecting information from across production lines to identify inefficiencies in near real time can help find routes to more efficient ways of operating. However, many manufacturers still rely on inefficient and costly processes, including managing information solely via pen and paper
If used effectively, data from a plant—as well as the wider supply chain—can provide strategic operational insights to help drive continuous transformation in quality, processes, and overall operations, and therefore far greater levels of productivity within the organisation. For many often governed by legacy practices, it’s difficult to imagine that this same information they’ve held all along is able to unlock dramatic improvements in yield, compliance, and resource utilisation. Leveraging information technology on the shop floor is a way to change this, and will help get productivity back on the right track.