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Is HR equipped to solve the UK’s poor productivity? Seasoned HR professional Dr Hugh Billot believes so, but not without going back to some human resource management basics.
So-called experts keep talking about the productivity puzzle, but no one seems able to solve it.
Collectively, HR appears to be in the doldrums if you view its contribution to a range of key macroeconomic measures. UK productivity measured by GDP increased by 2.7% per year on average between 1949 and 2007. From 2008 to 2021 it increased by 0.9% per year and from 2022 to 2025 it is forecast to increase by only 0.4% each year.
Output per hour by UK workers has made no gains this century. The UK’s decline has been quite dramatic and leaves us uncompetitive compared to many advanced countries. In fact, productivity growth in the years since the financial crisis has been weaker than at any time since the Industrial Revolution.
My career in HR began in the 1960s and right through to the 1980s, it was tough. Working life was often confrontational and hugely demanding. But despite this, we took great pride in achieving results and continuous improvement in organisational performance.
HR needs to focus on improving performance and productivity and not be overly distracted by the “softer” sides of people management. I propose five approaches that will help.
1. Measure and manage
My first solution is to have in place the appropriate key performance indicators which impact the organisation daily, weekly, monthly, annually. That’s not to say we should concentrate on technical HR measures like employee turnover, sickness rates, or time to hire.
I would suggest measures such as employment cost per hour, basic pay, overtime pay, sick pay, bonuses, employer’s national insurance contributions and pension costs all divided by hours worked.
Others would include sales revenue per employee (total sales less value of returns divided by the number of full-time equivalent employees) and where possible, physical output per employee.
Profit per employee and total cost to the organisation per employee would be two more. If you cannot measure you cannot improve. HR professionals should be able to work these out with their senior colleagues. Trends should be constantly reviewed, and investigations carried out if the trend moves in the same direction for three consecutive months.
These important measures are rarely shared in case studies and are hard to find in the HR press and one must question whether they are in general use.
All the raw data should be available in monthly management accounts and HR can make the simple calculations and use in a way most likely to enhance organisational performance such as year-to-date trends, comparisons with the previous year, or forecasts for the coming year.
Each trend line should have a commentary relating to HR actions to secure improvements. These performance trends can easily be shared among all employees and used to engender a greater understanding of the organisation and the direction of travel.
Further, these measures could also be obtained from competitors’ published accounts so you can see how the organisation measures up.
2. Productivity bargaining
Other than in the recent rail and postal workers’ pay disputes, you rarely hear of productivity bargaining. In both these cases, management is attempting productivity bargaining to eradicate restrictive practices and make savings to afford sensible pay increases for employees
Employees – and often employers – are often seduced by ‘cost-of-living’ pay rises in the expectation that employees remain in the organisation and that increased costs are passed on to customers potentially leading to a wage-price spiral.
The constant push by lobbying bodies on these softer matters has created a form of initiative overload which has undone, in part, the focus on improved performance”
HR practitioners need to lead organisations in this regular use of productivity bargaining which was so successful in improving organisational efficiency in the 60s, 70s, and 80s.
So, what is productivity bargaining for those who have not heard of it or have not been involved with it? In simple terms, it is a process, often through a form of collective bargaining, where an organisation and its employees come to an agreement whereby the workforce agrees to changes which improve productivity in return for an increase in pay, benefits or both.
There cannot be many organisations that would not like to see change taking place. Indeed, we often read about the importance of managing change and the concept of “continuous change” in successful organisations.
If organisations grasp the productivity bargaining approach and it works, whether through trade union agreements or with no unions involved, they should achieve measurable improvements in performance with real benefits for employees.
The National Institute of Economics and Social Research has calculated that had productivity since the financial crisis kept growing at 2%, workers in the UK would be £5,000 per year better off on average.
3. Human resource management
Human resource management (HRM), as a distinctive approach to managing people, established itself in the 80s and 90s. It may have replaced ‘productivity bargaining’ (as one part) in its attempt to be a strategic and comprehensive approach to the management of human resources at every stage of the process in an organisation.
In its pure sense, HRM recognises that organisations exist to deliver value to their customers best achieved through long-term approaches to the management of people by treating them as assets and not variable costs. Michael Armstrong’s book Human Resource Management, Strategy and Action describes this well.
In essence, HRM is a business-oriented philosophy concerning the management of people, and, in particular, how managers and workers pursue more closely related goals in order to achieve a competitive advantage for the business. In effect, HRM is adopted to improve organisational performance, or in fact to assist in the development of high performance.
It is that belief which was intended to persuade organisations to implement change programmes aimed at making employees more productive and organisations more efficient. However, the theory does not appear to be working in practice, as the macro measures of UK performance are going downhill.
Is the HRM philosophy wrong or is it just misunderstood? Do HR practitioners fully understand HRM and practice it or have they been blown off course by other initiatives? While HRM is in its truest sense a complex ideology requiring top management engagement and involvement. There are ‘hard’ and ‘soft’ sides to HRM.
Organisational performance may be poor because practitioners have become too engrossed with ‘softer’ issues such as gender equality, gender pay gap reporting, ethnic diversity, mental health, inclusivity, social mobility and so on.
While I accept softer issues are important, they should not be at the expense of actions continuously taken to improve organisational performance.
I also suspect that the constant push by lobbying bodies on these softer matters has created a form of initiative overload which has undone, in part, the focus on improved performance.
HR practitioners need to apply the HRM ideology in full, focusing on working with the top management team to continuously improve employee performance enabling a proportion of the gains to help ensure broader HRM approaches.
4. Benchmarking
In my opinion, first-class HR practitioners will have gained knowledge and skills through a combination of formal qualifications, learning from others with greater knowledge and experience, learning from experience itself, attending development programmes and benchmarking.
Organisations wanting to boost productivity need to ensure that both HR practitioners and line managers are trained in selection techniques to get the right people in place”
Anecdotal knowledge tells me that benchmarking is not used as often as it should be. Benchmarking is the process of measuring the performance of a company’s products, services, or processes against those of another business considered to be the best.
The point of benchmarking is to identify internal opportunities for improvement. You need to do some research to find the best in your industry. Professional journals may have case studies which highlight very successful organisations. Other sources of good information include university research, newspaper articles and award winners, but do not forget books.
I recall reading Peters and Waterman’s book In Search of Excellence – Lessons from America’s Best-Run Companies and then visiting six of them and noting many potential improvements for my organisation.
Benchmarking can be even more effective if you can take a cross-mix of employees on a visit, so truth and trust prevail. HR should use benchmarking on a regular basis to generate more productivity improvements.
5. Effective employee selection
Not all HR practitioners and line managers have received training in selection skills, maybe because they think it is a pretty easy job. But there is enough evidence today of poor selection. Interviewees who would be great appointments often turn away from organisations because of poor treatment at interviews. Employers lose good candidates because the selection process is too slow and interviewers fail to “sell” the organisation.
We also know that poor selection can lead to organisational damage including demotivation, damaging work ethic and the loss of good employees. My fifth approach is that organisations wanting to boost productivity need to ensure that both HR practitioners and line managers are trained in selection techniques to get the right people in place.
After a year of employee shortages, organisations need to invest in effective workforce planning.
Conclusion
I believe the HR profession needs to stop talking about a productivity puzzle – it needs to fix it from a human asset perspective. Clearly, there are challenges ahead as the labour market looks difficult.
Last year we recorded the highest number of days lost to industrial action since 1989. Employee engagement is often struggling, large numbers of people are considering quitting, employees are refusing to return to the workplace after the privilege of working from home during the pandemic.
These challenges can be overcome with HR practitioners focusing on improving performance by taking account of my suggestions. Poor productivity has caused a prolonged weakness in real wages and the only true and sustainable fix is to improve both.
HR practitioners should be up to leading change to improve productivity but they may need further education, training and new experiences to provide them with the knowledge and skills to do this. Not just because UK productivity is so bad, but because as found in The State of HR survey earlier this year, more than 60% of HR practitioners entered work post-2000.
Sadly, the closest the respondents came to concerns about productivity was the mere 15% of HR practitioners who stated that their role was ‘saving my organisation money/improving efficiency’.
Hard work lies ahead. There is much to be done and if HR practitioners get it right, their contribution will help make life better for all.
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