New report shows poor productivity record 'costing British economy 111bn

New global study of labour productivity highlights continuing story of disorganisation, low ambition and underperformance by UK firmscompared to main economic rivals

October 8, 2002, London, UK. The nations poor productivity record is estimated to be depriving The Treasury of more than 111bn* in lost revenue and the UK is falling further behind its main economic rivals. These are some of the chief findings in a global study of labour productivity by Proudfoot Consulting released today.

Entitled 'Untapped Potential - the barriers to optimum corporate productivity, the study is thought to be unique since it is based on data from the micro-economic perspective of a single business unit or company. It comprises 1,357 analyses of companies in nine countries, plus an opinion poll of 2,700 chief executive officers.

The study reports that poor planning and inadequate management is still the key reason for the majority of time wasted in the workplace globally. In descending order of importance, the other reasons identified were: poor working morale; IT problems; poor communication; and inadequate qualifications. Taken together, all these factors account for the loss of 92 out of a total of 225 productive working days per company in 2002. The UK fares worse than average, with 110 days out of 225 lost, compared to France (97), Germany (83) and the USA (86). Commenting on his companys findings, chairman Kevin Parry said:

Alongside high and stable employment levels, productivity growth is viewed as an important driver of long-term economic performance. Yet this report shows many British firms are still only working at just over half their true capacity. This collective underachievement is not only costing shareholders and the nation dearly, its also adversely affecting our global economic competitiveness.

The factors that hold companies back from achieving their true potential are common across all countries. They can be addressed quickly and without major capital
investment, but chief executives often dont see productivity improvement as a priority,
and continue to set very low improvement thresholds for their businesses. More worryingly, three-quarters of British CEOs try to get by without external help. Unless this changes, Britains productivity gap is in danger of widening into a chasm."

This years findings again show that poor planning and controlling of work is still a major cause of lost productivity, and Britons are getting worse. In addition, IT problems increased from 7 to 10% as a cause of lost productivity in British firms compared to 2001. This indicates the rising dependency that companies place on IT systems for efficient operations, and could partly be explained by technical snags with enterprise resource planning and customer relationship management (ERP/CRM) software.

Conversely, poor working morale declined as a factor affecting productivity, perhaps as a result of the 'feel-good factor created by the combined effects of The World Cup, The Queens Golden Jubilee and a general sense of prosperity many workers are experiencing owing to reduced mortgage rates and the rising value of equity in their homes.

In a separate opinion poll, Proudfoot Consulting canvassed the views of 2,700 CEOs, including 300 from the UK. The overall picture is one of a declining rate of productivity growth. In the UK, when asked to predict the level by which productivity would increase during 2002, the average response was 3.4 percent. Commenting on this aspect of the report, Kevin Parry said:

This is an alarming and disappointingly small number, highlighting the low level of ambition evident in many British firms. Even when we asked the same question but allowed them to answer from the perspective of a best-case scenario, they could still only see improvements of around 10 percent. After carrying out more than 16,000 productivity improvement studies in the last 55 years, we know that the realistically achievable figure is more like 30 percent."    

Commenting on the study, Nicholas Crafts, professor of economic history at The London School of Economics, said:

This is a valuable project and the reports findings should be required reading for business leaders, government policymakers and large institutional shareholders. At the level of individual business, poor management is costing shareholders money in a big way. And in macroeconomic terms, a great deal of time could be released into the labour market to produce valuable input in public services, new business or elsewhere."

The TUCs chief economist Ian Brinkley has been involved in formulating joint CBI/TUC recommendations on productivity improvement to The Treasury Department. Adding his assessment to those of Professor Crafts, he said:

The picture painted by these findings fits in both with what the statistics are telling us and a wide range of evidence on the underlying causes of poor productivity performance in the workplace. The productivity gap with other advanced economies is a major economic problem but also represents a huge opportunity to catch up with the best in the world.

The big question for most organisations is not whether the people in charge are good leaders, but do they measure up as managers? These findings suggest poor management is a key reason why so many companies are failing to take the 'high road of high-value added, high investment, high productivity, and high-trust industrial relations."

Copies of the full report can be downloaded directly from the Proudfoot Consulting website from 7 Oct: www.proudfootconsulting.com

*Figure calculated by Professor Crafts from multiple sources -- see main report for full details.

For further information, please contact:

Andy Turner, Six Sigma PR Ltd:
Tel:    +44 (0)20 8946 6239
Mob:   +44 (0)77 1188 7234
email:     andyt@sixsigma-pr.co.uk

Andy Morrison, Six Sigma PR Ltd:
Tel:    +44 (0)20 8696 0944
Mob:   +44 (0)77 7154 8970
email:    andym@sixsigma-pr.co.uk

Ruth Lanham, Proudfoot Consulting:
Tel:    +44 (0)20 7832 3600
Mob:    +44 (0)79 4058 6123
email:    rlanham@proudfootconsulting.com

About Proudfoot Consulting:

Proudfoot Consulting is a specialist firm of consultants that implements change to achieve measurable and sustainable performance improvements at no net annualised cost to its clients. The firm was established in Chicago in 1946 by Alexander Proudfoot and is now part of the Management Consulting Group Plc, a group of consulting firms operating globally. For more information, visit www.proudfootconsulting.com