Unlocking the power of people can help solve UK productivity puzzle: £110 billion uplift from firms improving practices

New CBI research shows that the UK could add £110 billion to the UK economy by improving people management practices within British firms. This is equivalent to the value of the UK’s entire construction sector.

Great Job: Solving the productivity puzzle through the power of people, a new CBI report and toolkit supported by McKinsey & Company, reveals that UK companies know that effectively leading, engaging and developing their staff matters. Many firms are already doing this well.  The CBI and its members are stepping up and highlighting the practical actions business can take to collectively improve further.

Over the last decade, labour productivity growth is lower than at any time in the 20^th Century. The reasons for this are complex and deep-seated, but one factor is that UK business has not kept pace with international peers on people management. Indeed, the CBI report finds that UK businesses perform at or below the average for other companies in the EMEA region (Europe, Middle East and Africa) on nearly 80% of good people practice indicators.

Unlocking the power of its people could give the UK a much-needed productivity boost – and the change needed is well within reach. The CBI’s research shows that making even small improvements can yield sizeable productivity increases. Businesses that improve their management practices from the lowest levels to the UK median can increase their productivity by 19%.  Even more importantly, better people practices would lead to better jobs across the UK.

Carolyn Fairbairn, CBI Director-General, said:

“It’s no secret that UK productivity has been stubbornly flat since the financial crisis. If we want to breathe new life into the economy, then investing time, effort and resource in people is a great opportunity for business.

“Many are already doing this successfully, but it’s clear that firms should continue to up the game.  The size of the prize from improving the management practices could be a massive £110 billion injected into our economy.”

Great Job highlights the hurdles that can hold back a firm’s progress. These include a lack of awareness of what good looks like, difficulties in getting all parts of the business to pull in the same direction, and leaders underestimating the importance of their words and actions. The opportunities from overcoming these hurdles are significant. This report highlights the scale of the opportunity for UK firms’ performance if they adopt the habits of the most effective businesses at leading, engaging, and developing their people.

The key habits which can help firms improve their people management practices include: 

• Setting people management targets and placing them on a par with company commercial targets
• Making the Board accountable for these targets and communicating openly with employees and the public about their firm’s performance
• Linking a company’s reward strategy for line managers with their performance on people management.

Carolyn Fairbairn, CBI Director-General, said:

“Many firms understand the value of good people practices but struggle to put them into practice every day. Sometimes there is a group of senior managers who think they are managing staff better than they are. Leaders can underestimate the value of establishing good people practices as a priority right across their organisations.

“Improving productivity is not about people working harder or longer. It’s about ingraining the kind of management practices that raise performance across the business. Putting people management targets on an equal footing with commercial targets, for example, is a powerful means of concentrating minds.

“Technology advances are creating new ways to improve business performance. As vital as new tech and R&D are to improving productivity, firms should not lose sight of the human dimension. The reality is that many UK businesses have the chance to enhance their working and management practices to enable their people to perform at their very best.”

The habits of people-driven businesses

Great Job has identified a set of tangible changes that all firms can make to improve how they lead, engage and develop their people.

1. Make good people practice a shared business priority

Organisational transformations are more than four times more likely to succeed when leaders role-model the practices and behaviours that need to change.

2. Put people management on a par with commercial targets

All line managers should have people management objectives with Key Performance Indicators (KPIs), and these should be given equal weight to commercial objectives when assessing their performance.

3. Establish a shared purpose for the business and recognise people’s contribution towards it

Firms which have the highest employee engagement see absenteeism 41% lower and profits 22% higher than those with the lowest.

4. Put people’s skills and competencies at the heart of the recruitment process

Recruiting high performers has been found to generate 40% higher productivity in operational roles, 49% higher profit in management roles.

5. Provide high-quality on-the-job development & support

Businesses that develop their staff’s strengths have been found to reduce employee turnover by up to 72%.

6. Assess how your business is performing on people practices

25% of UK managers say their business improved its people practices because it compared them to other businesses.

7. Be open about how your business is performing on people practices

69% of the public believe that treating staff well is the primary way to improve business’ reputation. Therefore, businesses that talk publicly about how they develop and engage staff could see a boost to their reputations.

The hurdles holding business back

Survey data compiled by McKinsey & Company, alongside the CBI, shows that in many cases, businesses do not have effective ways to measure and benchmark their people management performance.

Great Job also found that leaders disagree about what’s stopping their business from adopting effective ways to lead, develop and engage their people. 35% of CEOs worry that good practices don’t fit with their organisation’s culture, compared to 25% of HR managers. Meanwhile, 24% of HR managers say that implementing good practices is too expensive, compared to just 14% of CEOs.

What business and government can do to help accelerate progress

Great Job recommends kick-starting a race to the top among businesses who are leading the way, increasing opportunities for businesses to benchmark their performance and learn from others, and promoting employee engagement by incentivising employees to have a shared stake in success.