Why People Are Key To Improving Productivity In Your Business

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Our World In Data based on World Bank & Maddison

World GDP over the last two millennia

As a species, we seem to have figured out how to become rich. Call it Capitalism, Globalization, Neoliberalism, or whatever you like, there’s no denying that over the last few of hundred years, humanity has found a way to dramatically improve our standard of living. But this process doesn’t happen by accident – it’s driven by the innovations and ideas of business leaders, the investments they make in technology and the efforts of the people who help them grow.

As even the laziest student of the Industrial Revolution knows, technological innovation has been central to this. Modern entrepreneurs are no different. Avin Rabheru, founder & CEO at Housekeep is one of a growing breed of entrepreneur using tech to disrupt an established industry. “We handle a very high volume of small transactions so it’s been important for us to automate as much of the communication and workflow as possible – manual handling would be highly unprofitable,” Rabheru says. Using the sort of platform that’s increasingly common to workers and consumers of the gig economy, Housekeep lets customers manage and contact their cleaner online, while housekeepers can set their availability, areas and job information through an app. “Our obsession with constant automation means we’ve scaled customer volumes 100 times, while keeping our customer service team to just 10 people”, explains Rabheru. “We take this lean approach across our entire business, whether using cloud software for accounting or using a flexible, shared office space.”

Charles Skinner, chief executive of Restore PLC, which is an Aim-listed support services company, has invested in tech to improve productivity. “Improving IT systems tends to move productivity forward once the system is made to work effectively,” Skinner explains. “Whether it’s operational such as vehicle tracking, routing, and speed of equipment in areas like scanning or administrative such as more efficient credit control, telesales data and CRM databases, IT is continually meaning we spend less time on performing our functions.” However, he cautions against being an early adopter and has found that it often costs more and takes longer than IT suppliers will claim. For Skinner though, increasing productivity has also come through improved management structure: “As we grow and integrate new businesses into our existing ones, we drive down management cost, generate route-based savings, generate more revenues from each site and reduce sales costs as a percentage of new revenue.”

Under the leadership of CEO Celia Francis, Rated People has gone from six software releases a year to six a day. Francis explains that the online marketplace, which connects homeowners with local tradespeople, has had to undergo many changes over a period of time to achieve this: “These range from technical to cultural changes. So moving to hosting your service in ‘the cloud’ to deciding to move faster as a team by taking a few more risks and being willing to fix things quickly if they break. Most of all it takes the creativity of an entire team of very bright creative individuals working closely together and measuring productivity every day so that everyone can see what is working and what is not working.”

Natasha Guerra, Managing Director of the co-working space Runway East, says “we’ve considerably improved productivity by giving people responsibility for their own progress and a way to measure it. We do this through OKRs (Objectives and Key Results) for everyone on the team – from the most senior to the most junior. Each of my team members’ quarterly goals are big, but they’re made up of lots of small OKRs which they should hit as they build towards their final goal”, she says. “The most crucial part of this is that everyone sets their own goals and OKRs – yes, I encourage people to be ambitious, but if you want people to take responsibility, it’s got to be for their own goals, not your own.” Emma Sexton, Founder of the design agency MYWW says “understanding that human beings are not productive between the hours of 9am and 5pm on a Monday through to Friday, and always in the same working environment” has been key to creating a highly productive yet lean team. “After 5 years in business we still have no permanent office and all employees are measured on results based objectives rather than hours.”

All these businesses are different and are necessarily structured differently and able to employ technology to increase productivity to varying degrees, but all rely on people to deliver success. Robots still have some way to go before supplanting the smarts of human beings.

And ultimately, it’s entrepreneurs and business leaders driving these productivity-enhancing changes: Management matters. An article in Harvard Business Review details evidence from an extensive survey of 35,000 US manufacturing plants, looking at three core levers of good management: monitoring, targets, and incentives. The one-fifth of plants using three-quarters or more of the performance-oriented management techniques had dramatically better performance than their competitors. They were far more productive, innovative, and profitable.

In fact: “Every 10% increase in a plant’s management index was associated with an impressive 14% increase in labor productivity, meaning the higher value added per worker. And it wasn’t just that already successful firms were more likely to be well-run; plants that switched to performance-oriented practices tended to become significantly more productive, suggesting that better management was driving better performance. Companies with higher management scores were also more likely to expand and less likely to go out of business.”

Management techniques explained 18% of the difference, while R&D accounts for 17%; employee skills 11%; and IT spending 8%. The authors conclude: “It turns out that good management is not necessarily so obvious. It’s relatively rare and incredibly valuable. It shapes the fates of companies, their workers, and entire economies. And we need more of it.”

What we find in the US is also true for the world. As Andy Haldane, Chief Economist at the Bank of England, explained in a speech: “There is a statistically significant link between the quality of firms’ management processes and practices and their productivity. And the effect is large. A one standard deviation improvement in the quality of management raises productivity by, on average, around 10%. This suggests potentially high returns to policies which improve the quality of management within companies.”

What those productivity improving policies are isn’t clear. There is a lot that could be written about the so-called “productivity puzzle”, but at least we can take solace that on net enough businesses are getting it right to create a chart like the one above. Rabheru, Skinner, Guerra, Guerra and Sexton and the millions of the world’s other entrepreneurs and business leaders are critical to this continuing.

Philip Salter is founder of The Entrepreneurs Network.



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