The final furlong for furlough: Creating value and valuing people
By Dr Ollie Jones, Principal Lecturer at Leeds Business School, Leeds Beckett University
The Government’s Covid-19 employment support scheme, commonly referred to as ‘furlough’, was wound up at the end of September. Before the scheme ended, it was estimated that there were still over 1.1 million jobs furloughed. Roughly half of these were in directly affected sectors like hospitality, but the remainder were in a wide range of sectors including manufacturing and business service sector. The Resolution Foundation has identified that the number of employees coming out of furlough had “slowed to a trickle” over the summer, suggesting that businesses are still considering the long-term future of the positions furloughed. Commentators such as the Institute for Government have raised concerns that the job support scheme has artificially maintained jobs which are not viable in the long term due to structural changes in the economy.
The job support scheme has allowed firms to maintain productivity by significantly decreasing their operating variable costs in line with demand, particularly in the case of those directly employed in production of goods/services. However, the capacity planning of indirect labour is typically less understood and undertaken. In our BEIS-Innovate UK funded intervention project in manufacturing SMEs, indirect labour productivity was found to be the largest unaddressed productivity impact factor.
Businesses which have continued to function and produce whilst some indirect labour colleagues have been on furlough, may have been able to produce a proportionate amount of sales value with reduced indirect labour input by dissolving latent design inefficiencies through force of necessity. This situation will have increased their labour productivity, placing those indirect labour roles in potential non-viable position, even if demand returns to pre-pandemic levels.
However, economists predict that overall productivity will continue to stagnate because economic shocks typically reduce a firm’s ability to assimilate and leverage both new technology and management practices. This aptitude factor coupled with a low levels of innovation diffusion across and within sectors is heavily cited as a key factor in the UK’s low productivity rating.
Therefore long term productivity growth for individual firms and the UK as a whole needs to have more emphasis on the top line in productivity, which considers the twin notions of value creation, and value capture. Value creation is linked to the value proposition; why any customer would choose or switch their allegiance and is typically a complex mix of products and services, even if the product has a degree of commodification. However, businesses also need a constructive value capture strategy; how to protect and enhance their margin, but value capture is not just about rising or maintaining prices, it is about considering how the created value is offered and different capture mechanisms. This can result in different business models, such as customisation services, rental rather than purchasing, warranty, service packages or design pricing.
Employees on furlough who through the pandemic pressure have been decoupled from the day-to-day value production, can be viewed as resource rather than an ‘unviable’ cost. They will have an insight into how value is currently created and help map, enhance and protect that value, particularly in the different post-pandemic commercial environment.
The winding down of the furlough scheme potentially provides a hopefully once in a lifetime opportunity for firms to increase their innovation capability in the shape of returning employees, which they can leverage to directly improve their productivity and sustainability via harness and adopt management practices and technology to aid and abet more value creation and value capture.
About the author
Principal lecturer in operations, enterprise and supply chain management at Leeds Business School, Dr Ollie Jones delivers consultancy services to businesses and is developing a productivity research and action agenda, examining how regional productivity can be increased by collaborations with the different agents and organisations within the economic eco-system.
For information about Leeds Business School visit leedsbeckett.ac.uk/lbs