“If you think you are really good, you won’t try to do any better.” Ian Knight is explaining the philosophy behind his company’s pursuit of productivity growth – something that has eluded so many British businesses in recent years. “We never quite get to where we want to be. The finish line is always moving.”
In a bright, clean factory in Walsall, Knight, a “black belt” in the ultra-efficient production method six sigma, stands under a sign reading: “Embrace, enjoy and drive change.” State of the art machinery measures, cuts, strips and crimps cables. All around, Knight’s colleagues are assembling the complex control panels that PP Electrical Systems sells to other manufacturers, to be attached to their own products such as machine tools and food processing equipment.
The approach has worked for PP Electrical Systems. It has survived the West Midlands region’s protracted industrial decline, as well as the global financial crisis. Turnover is growing, as is the workforce, now up to 200, but Knight and his colleagues know that only by raising productivity ever further will the manufacturer stay competitive and thrive.
Despite solid economic growth since the downturn, Britain has struggled to get more out of each hour worked – a problem that has become known as the ‘productivity puzzle’.
It is something the chancellor, George Osborne, knows he must tackle if the economic recovery is to get on to a firmer footing and translate into improving living standards. So among the cuts, giveaways and pennies on or off a pint in Wednesday’s budget, productivity will be a key focus.
Osborne has his work cut out. The latest official figures last week may have shown productivity, measured as output per hour, picking up in the opening months of this year, but the remarkable absence of productivity growth in the seven years since 2007 has left output per hour about 15% below where it would have been if pre-crisis trends had continued.
Experts are divided over the cause of these lost years. Theories include the fact companies kept themselves effectively overstaffed by retaining workers during the recession; that many have relied on bringing in cheap labour rather than making production more efficient; that investment in new machinery, training and innovation has suffered from tight access to loans.
Whatever the true combination of factors at work, the UK’s poor record has left it playing catch up with most other industrialised nations.
UK productivity lags G7
At PP Electrical Services, the productivity gap has become obvious as it goes after new markets. The manufacturer wants to more than double turnover from £18m to £40m within five years and cracking Germany is key to that, says managing director Tony Hague. But even after revamping production processes and investing in automation and training, the company still has some way to go.
“It’s like we have won the Premier League and are thinking we are quite good and then going into the Champions League and facing Bayern Munich,” Hague says. “We recognise the fact that to be competitive we need to raise our productivity by 15 to 20%.”
But he is optimistic. “It’s about people, process and automation,” says Hague. “There is nothing that we do here that is rocket science.”
What that means on the factory floor is workers schooled in a culture of “continuous improvement”. Big TV screens and an “appreciation station” in the canteen celebrate those who have found ways to cut waste along the production line. Rather seek big leaps in productivity, workers at PP Electrical Systems target gains of 6% at a time and are awarded badges proclaiming “Route 6%, I’m on it.” Knight, whose black belt allows him to lead much of the company’s in-house training, holds up an example of how staff suggestion sheets have helped: After waiting 40 minutes to ask a supervisor what tool to use, one worker recommended that assembly plans list the appropriate tools.
Hague admits staff were apprehensive when the factory embarked on its productivity drive with the help of a big Japanese client 14 years ago. “When we started standing over people with stopwatches and video recorders, they would say: ‘What are you doing that for? You are trying to catch me out.’ But if you go for a half hour walk to find a tool, that’s not your fault,” Hague says.
“We had to explain to people it was about the process, not about them. We are not asking them to work harder. We are looking to make their job better. Once people see that and see the benefit to them, they become poacher turned gamekeeper.”
The challenge for the government is to use shrinking budgets to help more companies raise their productivity.
Alison Phillips, who spent more than 20 years in manufacturing management and now advises companies for the government-backed Business Growth Service says productivity fixes do not have to be costly.
“In all companies you can make changes,” she says. One problem she often identifies is managing directors working on the factory floor rather than stepping back to think about how to raise efficiency and win new clients. “If you see an MD who is getting their hands dirty and making their own product, they are not running the business,” Phillips says.
Another manufacturer, Nigel Stevenson in Derby, is hoping for six-figure gains from relatively simple changes. His sign making company, NCS Fabrications, wants to straighten out an inefficient production line, the result of new machines having been added wherever space was available.
“Parts are travelling a few hundred yards down and back up … which wastes time and also hurts the quality,” says Stevenson.
On annual turnover of about £3.5m, the family-run company estimates it wastes about £250,000 and is getting help from the Business Growth Service to cut that. “If we get lean processes in place we could save £100,000,” Stevenson says.
Simple fixes are all well and good for the manufacturing sector. Indeed, recent research by manufacturers’ organisation EEF claimed the sector, at just 10% of the economy, was poised to deliver 40% of Britain’s productivity gains over the next decade “with the right policies in place”.
But the vast majority of the UK economy is made up of the service sector, companies like banks, restaurants and retailers, with far less tangible and less uniform means of production. Improving their productivity is a key challenge for policymakers and businesses themselves.
It can be done, says Sarah Windrum, whose company sells technology systems to traditional businesses. “People get turned off by the word productivity,” says Windrum, director of Warwickshire-based Emerald Business Communications. “But it’s not just about money, it’s about using technology to provide a better service.”
She cites the example of a skip hire company that now uses text messages to tell regular customers about waiting times.
What about those companies not dealing in equipment or goods, but entirely reliant on people? Here too, productivity gains can be made, says Alistair Cox, chief executive at Hays recruitment company. He believes training and technology are crucial. “Productivity is a very simple statistic in my business: Amount of fees a consultant books in a month,” Cox says.
As the downturn hit in 2008, Hays increased spending on training and on its technology systems so that they now trawl social networks, automating something previously done by recruiters.
“It means freeing up more time for them to speak to people and being a consultant not an administrator,” Cox says. But it does not mean replacing people with machines, he insists. “We have 10% more employees in the UK than a year ago and they are more productive.”
At PP Electrical Systems, Hague is also keen to emphasise that investments in raising productivity have enable the manufacturer to hire more people. “I look at the West Midlands and I can see that what were factory sites are now housing estates and Tesco superstores. Without us investing in change we would have become the site of the next supermarket.”
Productivity black belts – what is six sigma?
Developed by international telecoms company Motorola in the 1980s, six sigma is a collection of techniques for improving production processes.
Companies use it to raise quality and efficiency by spotting and removing causes of defects, and here measuring is the key, whether it is measuring defects, waste or results.
Continuous improvement is another cornerstone, meaning workers at all levels of a company constantly look for ways to help raise high-quality output, in other words – productivity. Businesses such as PP Electrical Systems that have embraced six sigma say it is as much about work culture as specific tools and processes. They use in-house experts with professional qualifications to champion the strategy.
With reference to martial arts, those trained in the basics can call themselves yellow belts. Green belts are another notch up and black belts are the experts that lead a company’s six sigma initiatives.
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