Economic uncertainty hampering business productivity

Friday 28 September 2012

Business

Continued uncertainty within business could help to explain lower productivity rates, it has been suggested.

Julian Hammond, managing director of clean technology company Blackthorn, said it is very difficult for companies to plan ahead with sufficient confidence in the current environment.

He said that companies and other organisations operate most efficiently when they make plans covering at least the short and medium term.

"In the case of a small manufacturing company, plans ought to determine factors such as the level of stocks, product development, premises, training and marketing," Mr Hammond told the Financial Times.

"However, in order to make plans it is necessary for decision makers to have a view on the global economic outlook, which is likely to have a significant effect on the demand for their company’s products or services."

He claimed that, at present, it is "nigh on impossible" to make predictions of this sort with any degree of confidence.

To compound the problem, the consequences of making assumptions that turn out to be over-optimistic are "more severe" than they were before the credit bubble burst, Mr Hammond claimed.

He said that most companies are now "extremely cautious" in their planning, and in many cases are taking every day as it comes.

"The negative consequences of this approach include last-minute procurement, patching up of fixed assets, small-batch production and other missed opportunities to benefit from economies of scale," Mr Hammond said.

It is difficult for companies to pass the increased costs of this operational inefficiency on to their customers, so the outcome is lower labour productivity, he told the news provider.

Posted by Dan Smith