Employers must invest in productivity to cope with National Living Wage, warns CIPD

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TeamThe UK’s poor productivity in recent years could be due to the attitudes of its businesses in relation to investment, new research from the CIPD suggests.

The report from the professional body for HR and people development revealed that, despite two years of growth, a fifth (21%) of companies are still stuck in survival mode and aren’t making the necessary investments in people or equipment that would boost their productivity.

Mark Beaston, the CIPD’s chief economist, is calling for businesses to break through the ‘ambition ceiling’ that is preventing their growth. He said:

“The recession has cast a long shadow over many British businesses and residual fears about a future downturn have left many organisations with a ‘glass half empty’ mindset, which has held them back from investing, despite improved economic conditions.

“We need these businesses to recognise the current opportunities for growth, innovation and investment, to raise their sights and break through their ‘ambition ceiling’. Unless they can do this, it’s questionable how many companies will be able to absorb the planned National Living Wage without an adverse impact on employment levels.”

The CIPD’s report, Investing in Productivity, found a clear link between an organisation’s mindset and its relative productivity. It breaks down the nearly 1,000 organisations surveyed into five distinct mindsets based on respondents’ experience over the last two years.

Balanced investors – A quarter (25%) said that they have ‘continued to invest in equipment, technology and people and have increased their productivity significantly’ over the last two years. This group is most likely to have increased investment on the previous two years. Over half (53%) have increased expenditure on capital equipment, 43 percent increased expenditure on learning and development (L&D) and 72 percent had increased their output in the previous 12 months.

Survivors – 21 percent of organisations felt that their business had been ‘in survival mode for a long time and had not been able to invest in major improvements to the business’. This group is most likely to have reduced investment in the previous two years – 22 percent reduced expenditure on capital equipment and 30% reduced expenditure on L&D.

Cost cutters – 19 percent said that they are ‘a leaner business now because they took cost out during the recession and the productivity of their workers has improved as a result’. This group is most likely to have maintained a stable level of investment.

People-focused investors – 16 percent said that their business ‘has continued to invest in its people, but they need to invest more in equipment and technology to see real productivity improvements’.

Capital-focused investors – 13% said that their business has’ continued to invest in equipment and technology but they haven’t invested enough in staff to maximise the value of this investment’.

When asked about their future plans and productivity potential:

  • 55 percent of organisations expect to produce more goods and services in the coming year, 32 percent expect to produce the same and eight percent expect to produce less.
  • 34 percent of organisations consider themselves high performers that don’t see the need for major change and lots of investment.
  • A further third (33 percent) fall into the category of intending to make up lost ground, with 17 percent saying that they will now be able to make the investments in equipment and technology they haven’t been able to do in the last few years’ and 16 percent saying that they will now be able to make the investments in people that they haven’t been able to in recent years.
  • However, a fifth (20 percent) thought they wouldn’t be in a position to improve existing poor performance because they lacked the finance to invest (reported by 16 percent) or the skills and ambition to improve (reported by four percent).

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