A recent survey undertaken by the Resolution Foundation and the CIPD, has revealed that the majority of the companies surveyed aim to minimise the effect of the new National Living Wage (NLW) by increasing productivity.
The report, based on a survey of more than 1,000 employers followed by in-depth interviews, showed that the ways in which employers expect to respond to the NLW varies greatly between small and large employers, and across different sectors of the economy.
Over half (54 per cent) of employers expected the NLW to have some impact on their labour costs. It also suggests that employers are far more likely to absorb the cost of the increase than pass it on to consumers through higher prices.
The report highlighted a desire by organisations to raise productivity, with 32 percent of large employers expecting it to be part of their response. However, there was considerable uncertainty about how to raise productivity and small firms were more pessimistic about their ability to do this.
Amongst organisations with less than 250 employees, the proportion expecting to absorb the cost through lower profits (26 per cent) was higher than the proportion expecting to offset costs through higher productivity (25 per cent). Many argued that improving productivity was not viable, with one business summarising concerns by saying, “we’ve done all this before. I don’t think I can get any more out of the staff again”.
Mark Beatson, Chief Economist at the CIPD, said: “Our reports suggest there is uncertainty among employers on how they are going to make sure this step up in pay isn’t one that threatens jobs or the business. Large employers appear to have more options available to them when deciding how to respond. Small and medium sized businesses are more likely to absorb the cost through lower profits, at least in the short term.
“Many employers say they intend to manage the cost through increased productivity, but we often find a gap between good intentions and reality, due to a lack of knowledge about how productivity can be improved and other pressures on management which mean they never quite get round to changing the way the business operates.”
Surprisingly when asked about their 10 “coping strategies” not one of the employers interviewed mentioned a plan to review their cost base as a whole.
Whilst most of us are used to being told in our domestic environment to undertake cost reviews on a virtually hourly basis, it never ceases to amaze me that a large number of businesses are happy to accept costs as a “given”. Furthermore if there is someone assigned with managing these costs within an organisation there is an acceptance that the prices obtained are the best they can get.
Adding Business Cost Reviews to the mix
At PES Business we work hard to identify those areas of client’s spend that are either of the highest value, operationally challenging or considered to be of the most risk to their organisation. We understand that some things are more important to your organisation than others so we work with you to ensure we are clear on your priorities and requirements from our work.
We then take this knowledge and apply it to your existing supply base and our own market intelligence to benchmark and define what the “future state” could look like. We only work with reputable suppliers so we put them through a rigorous “fit and proper” test to ensure that if appointed they will help to enhance your reputation and customer satisfaction levels.
We ensure that a concise plan detailing when savings can be made, how future savings / efficiency can be identified and how resource can be allocated to deliver this. We ensure that a plan can easily be communicated to all key personnel ensuring that “buy in” is across the organisation. We also ensure that a concise plan detailing when savings are to be made, how future savings / efficiency can be identified and how resource can be allocated to deliver this.
A danger of continually focusing on productivity is that a happy workplace can quickly descend from a team-working environment into a disaffected and disassociated band of disgruntled employees. Asking employees to do more to negate the additional cost of the NLW by working harder can be missing the point.
Surely all businesses are obliged to ensure that the increases in the NLW provide an opportunity to have an holistic look at the efficiency of the business and see that value is produced for every penny spent on whatever cost line. The introduction of the NLW has the opportunity to increase productivity as a by-product of a happy workforce with increased standard of living.
