Productivity is a term associated with strong economies, robust businesses and the efficiency gains of clever staff. If only businesses were efficient, then we would have fewer of them failing, more employment and better incomes for owners and workers alike.
According to The Xero Small Business Insights Special Report, Small Business Productivity: Industry and Regional Trends 2023, the most productive UK industry, construction (£54.30/hour), was around three times better performing than the least, education and training (£19.00/hour). Other industries with strong results include information media and telecommunications (£49.20/hour) and retail (£46.90/hour). The most productive region, London (£47.90/hour), had average productivity that was 53% higher than the least, North East (£31.20/hr).The data shows only three industries had higher productivity in the most recent two years, compared to the 2017-2019 period - hospitality (+2.5%, manufacturing (+2.8%), and information media and telecommunications (+7.1%).
Unfortunately, not all businesses get to the heady heights of maximum productivity. Not for lack of will, it’s hard to take a step back from the day to day pressures of running a business to look objectively at what can be done better. Or as the common saying says …”When you are up to your ass in alligators it's difficult to remember that your initial objective was to drain the swamp”.
So, what actually is productivity?
Productivity measures how efficiently a business turns inputs into outputs. The more productive you are, the better you are at turning resources like labour, capital or materials into products (or services) you can sell.
Three general areas of productivity:
People productivity:
How much work it takes to deliver products or services to customers. It’s commonly expressed as hours worked/dollars earned.
Financial productivity:
How good a business is at monetising its investments in assets such as machinery. It will often be measured as the return on capital invested.
Materials productivity:
How much a business spends on materials in order to generate sales. Materials can include things like inventory or energy.
Why productivity matters
Businesses with increased productivity get more from less. As a result, they have more potential to turn a profit, deal with inflation or slowdowns, and absorb price competition. After decades of continuous improvements, productivity gains are getting harder to come by. Small businesses have typically been thought to lag behind big businesses in productivity, but with the advent of many digital tools - access to productivity insights, tools and processes are now also available to smaller businesses.
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