By Max Clarke
Managing human capital is considered the most important factor in improving productivity, according to a survey released today by the Economist Intelligence Unit.
Some 85% of the 350 companies surveyed believe this is either “crucial” or “important” to their business effectiveness. But the challenges in getting more from employees differ by region, reflecting the experience of companies during the recent financial crisis.
Respondents in Europe cite a lack of engagement and motivation as the biggest obstacle to human-capital productivity, followed by poor performance management. This probably reflects the fact that European companies were encouraged to retain staff during the downturn, even though they sat idle for lack of business. North American companies feel more overstretched and lacking in investment in staffing, no doubt reflecting the fact that they were quick to make deep cuts to staffing levels during the recent recession.
The survey was conducted for a new Economist Intelligence Unit report Gearing for growth: Future drivers of corporate productivity, which is sponsored by Ricoh. Other key findings of the research are as follows:
Companies are optimistic that they can further increase productivity. Two thirds (67%) of companies polled for this report expect to see productivity increases in the next 12 months, either in terms of greater output or more or improved products and services. Executives see two functional areas– operations (58%) and sales (33%)–as likely to see the greatest productivity increases in the next year. North American companies are less optimistic about productivity gains in terms of improved products or services in the coming year: 59% cite this as likely, compared to 72% in both Asia-Pacific and Europe.
Functional training is seen as a key tool for improving productivity. Training ranks highly as an efficient tool for improving productivity, particularly training for specific functions. While 67% of those that have introduced management training programmes see these as effective tools, the number rises to 79% when respondents are asked about functional training. The latter also tops the list of human-capital initiatives that executives will introduce in the next 12 months that are expected to have the biggest impact on productivity.
Companies have yet to fully capitalise on the productivity potential of technology. Using the best available technology is only the third-most important factor in raising productivity, after human capital and good strategic decisions, with 69% ranking this as either crucial or important. Meanwhile, nearly half (49%) of respondents believe they are not getting the most out of technology. This is especially so for European firms (58%, vs 41% in North America). Lack of investment in new technology also emerges as a concern, with 36% overall believing this is hampering productivity.
There is scepticism about the productivity impact of green practices. While leading companies say they find engaging employees on sustainability initiatives is a powerful motivating tool, the survey respondents appear less certain. Only 32% of those that have introduced green practices say they have had a positive effect on productivity, while half say these practices have no impact on productivity and 17% say they have a negative impact.
Corporate strategy is seen as key to productivity gains but companies worry about making the best decisions. Making the right strategic choices ranked second (77%) behind managing human capital more effectively in terms of the primary levers for productivity improvements. But there is concern that common strategies are not always beneficial for productivity. For instance, in the past 12 months 76% of respondents have engaged in cost cutting and labour force reduction. Yet focusing too closely on cost cutting and not making the most of existing resources is also cited most commonly among the top three strategic problems negatively affecting productivity (by 36% of respondents). Respondents’ second most commonly cited strategic problem is an over-emphasis on top-line growth, cited by 30% (rising to 43% among Asian companies).