What’s Wrong with UK Plc (and what we can do about it)

28 June 2016 -

A focus on short-term profitability is putting the future success of UK businesses at risk

Jermaine Haughton

British businesses are abandoning strategies aimed at long-term success in order to focus on short-term efficiency savings in their operations, according to a report from think tank Tomorrow's Company, UK Business: What’s wrong? What’s next?.

The study, found that the pressure to cut prices for customers and clients while making greater returns to shareholders is contributing to a range of problems, from low employee motivation to poor quality control.

For managers, a major problem emanating from the pressure from employers to produce short-term financial outcomes is low employee engagement, morale and productivity - the report found that only 49% of people would be likely to recommend their company as an employer to others.

More worryingly, Kenexa’s Employee Engagement Index (EEI) gave the UK the lowest score among a group of the world's largest economies.

And with low employee engagement comes poor company performance and productivity, suggesting that companies cannot expect an upturn in results unless they find ways to help more British people enjoy their work.

This is not helped by the stagnation of real wage growth, the report found, which has been declining for the last 40 years; averaging 2.9% in the 1970s and 1980s, 1.5% in the 1990s. 1.2% in the 2000s, and -0.1% so far in the 2010s.

Employees, who who believe they are cash poor, are more likely to show distrust towards their bosses and business community, as a whole.

The 2016 Edelman Trust Barometer highlighted an increasing trust gap, where those with lower incomes have lower trust of institutions and business, and while this may not have a direct impact on businesses, it can lead government to heighten their scrutiny of UK businesses, and make ‘ill-thought out knee-jerk’ regulations, the report concluded.

The pressure to deliver short-term outcomes has also led to a decline in long-term investment, as spending on in fixed assets (excluding construction) has fallen from 11% in 1997 to 8% in 2014.

Therefore it is not a surprise that labour productivity is 15% below the G7 average, 24% below the US, 22% below Germany, and 21% below France.

Unipart chief executive John Neill said: “The number one strategic challenge facing business and the UK is growth. We need to grow the economy and to do so; we need to have enterprises and businesses that create growth opportunities both domestically and globally. This means we have to be competitive and innovative, both of which derive from improved productivity.

“As the report shows, our current track record is not good. It has to change to avoid leaving a dreadful legacy to our children and grandchildren.”

Three steps for a brighter future

To help re-focus businesses on the long-term future of their organisations, the report proposed a three step approach for re-thinking how we manage.

1. Employers must express and promote a purpose beyond profit and a set of values that are lived through behaviours of all employees to create a self-reinforcing workplace culture.
2. By aiming to be better at customer satisfaction, employee engagement and supplier relations, UK leaders should embody greater collaborative and reciprocal relationships with key stakeholders. The report advises managers to avoid looking for a short-term trade-off between profit and interest of stakeholders, but instead help each other achieve common goals.
3. Employers must be visionaries by taking a more meticulous long-term approach to growth that embraces risk, and invests in slow-burning endeavours, leadership training and disruptive innovation.

The report found that, in practice, leaders can achieve these principles by:

• Increasing spending on areas that drive long-term value rather than returning cash to shareholders.
• Spend time and money on employee engagement and well-being programmes and initiatives.
• Reward and recognise values and behaviours, as well as outcomes.
• Align executive pay with the remuneration of all employees so that it supports the company’s purpose, values, relationships and investment horizon.