Employee Productivity: Responding to the economic downturn

September 2, 2022

Peter Cheese, CEO of the Chartered Institute for Personnel Development (CIPD) sets out how organisations can look to improve their productivity, and how such benefits can bring about both short and long-term improvements.

We are in challenging times, demanding adaptability and resilience from organisations everywhere. When faced with falling demand and rising operating costs, the natural response can be to reduce the workforce, as pay and benefits make up anywhere from around 30 per cent to 70 per cent of costs.
Labour costs can also be reduced, without incurring redundancies, by reducing the hours people work, as well as hiring freezes and natural churn. However, the real-term decline in wages is driving upward pressure on pay and the voice of trade unions is increasing. The jobs market remains heated and businesses everywhere are complaining of staff shortages, so there are some difficult trade-offs to get right.
Businesses tend to lose staff reluctantly. It makes economic sense to maintain a match between the worker and their job so that the business can bounce back when the economy recovers.
The other side of the equation from labour costs is labour output. Increasing output over costs is the productivity challenge and becomes a stronger focus in harder economic circumstances. To get the most out of our people, there must be clarity of individual and team roles and objectives, ensuring alignment to critical business goals, and focusing managers’ attention on outputs, not just hours of input. For individuals to be engaged and to perform, they need to feel supported and that they have a voice, as well as having the resources – physical, psychological, social and organisational – to be effective. That also means investments in training and development must continue, but should be strongly evidenced in how those investments improve productivity and outcomes. We have to work smarter, not just harder.
Improving productivity is also the means by which organisations can improve wages – employees need to share in the benefits, which in turn recognises their contribution.
HR has a central role in understanding these dimensions of work and the interventions that will make the most difference. They need qualitative and quantitative data to understand how people are performing and where gaps in capability exist, as well as employee wellbeing. As with any business function, HR needs to be able to react to shorter-term demands but also think strategically and have the confidence to challenge.
Organisations that are able to rapidly change, adapt, and use external pressures to innovate in their business models and ways of working, are the ones who will survive and thrive. We must trust our people more, to empower them at every level so they can respond effectively. These are all fundamental drivers of motivation and engagement, which we know are central to performance, and require us all to move on from old command and control ways of thinking.