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Why is productivity so important?

Productivity image showing bar chart with successive growth

Productivity isn’t everything, but, in the long run, it is almost everything, A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”  Paul Krugman.

As a provider of strategic business support services, Exemplas has delivered productivity improvement and business growth programmes to SME businesses over many years, but we are often asked, why is productivity always on the agenda for all political parties? To answer this question, we have to first cover off what is productivity and what can it impact?

What is Productivity?

Productivity is a measure of how efficiently and effectively a nation, region, sector, or individual firm uses all its resources to produce goods and/or services. Those resources can be:

Time | People | Talent | Knowledge |Information | Systems |Finance | Energy | Land | Buildings | Equipment | Space | Materials.

Productivity increases if you get more out of using your current resources, or the same, or more using less resources, by being more efficient.

Stronger productivity growth leads to stronger GDP growth, which increases people’s incomes and overall living standards.

Different types of Productivity

Typically, when commentators refer to productivity, it is labour market productivity that they are referring to.

  • Labour productivity is output per hour, or per worker or per job, but productivity can be measured in a number of other ways, such as:
  • Material productivity which measures output per unit of material used.
  • Capital productivity which looks at how effective your investment in capital resource is, and of course,
  • Multi factor productivity which can include all of these, plus technology, energy, talent, and managerial productivity.

Why is productivity a key issue that attracts significant economic and political attention?

Productivity is high on the agendas for government at local and national level and all UK political partners because it is a key driver of economic growth, living standards, and well-being.

Commentators frequently refer to a ‘Productivity Puzzle’, in the UK, to describe the sluggish comparative growth in UK productivity since the last economic crisis of 2008/09. This in turn has translated into a corresponding slowing of economic growth, living standards and wages during this time.

Aside from obvious external events like the pandemic, a range of factors including under-investment by businesses and access to capital, uneven business digital adoption, lack of widespread business innovation, a ‘long tail’ of non-productive companies and skills gaps in the labour force, have been cited as contributing to this ‘Productivity Puzzle’.

Driving economic growth.

To drive economic growth the UK government commissions a number of business support programmes aiming to increase business productivity, growth and innovation. Amongst these are the Innovate UK EDGE service aimed at high-growth, innovating businesses and funding for business support devolved through the Shared Prosperity Fund to local government.

At Exemplas we are at the forefront of delivering a number of market-leading programmes which help to tackle the productivity puzzle at a national, pan-regional and local level and facilitate economic development. Examples of these include:

  • Our productivity offer – a unique university developed and validated diagnostic which enables firms to understand the drivers of productivity in their business. Reviewing 30 different productivity measures within each business and prioritising them in order of impact. An Exemplas productivity expert will then advise the business and support them in developing robust, measurable Productivity Improvement Plans.
  • A unique growth offer – again a university developed and validated in-depth growth diagnostic. Businesses will work with a skilled Exemplas Business Adviser to plan and execute growth and innovation plans.
  • A business innovation offer (Innovate UK EDGE) which helps leading fast-growing and scale up SME businesses to commercialise and internationalise and become investment ready.

Exemplas a “partner of choice” in developing and implementing business support programmes. We help to advise SMEs how they can innovate, grow, and improve their productivity. We measure our impact, through our innovative diagnostic tools developed in partnership with Leeds Beckett University.