The financial services productivity puzzle

What is productivity in financial services and how is it measured?
by Paul Golden


Professional development is recognised by economists, analysts and banks as perhaps the single most important contributor to increased productivity in the financial services sector.

In 1994, Nobel Prize-winning economist Paul Krugman stated that a country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.

But many major economies are struggling in this regard.

America’s Department of Labor reports that US productivity dropped in the third quarter of 2019, based on a 2.4% increase in hours worked and a 2.1% increase in output, while an October 2019 report from the Canadian CD Howe Institute suggests that streamlining the regulation of financial advice would boost Canada’s productivity.

Data from the UK Office for National Statistics indicates that nationwide labour productivity as measured by output per hour across all sectors of the economy decreased by 0.2% in the first three months of 2019 compared to the same period in 2018, the third consecutive quarter in which productivity has fallen. A PwC report published in December 2019 also makes the case for increasing regional productivity in the UK to help boost the economy. It points out regional productivity gaps are large, such as output per job is around 40% above the average in London, but approximately 16% below the national average in Yorkshire and the Humber. By closing this gap, it reports it could increase the UK gross domestic product by £83bn.


It’s no surprise then that governments and businesses have become increasingly preoccupied with productivity rates. But how is productivity measured when moving from a national to a business level, and from one sector to another?

Anjalika Bardalai, chief economist at financial services sector membership body TheCityUK, says that the main metrics used to measure productivity in the financial services sector are output per hour and output per worker.

“These metrics are not specific to financial services – they are the standard measures of productivity used across the economy, in the UK and elsewhere,” she says. “The output part of the productivity calculation is commonly captured by gross value added, a macroeconomic term that refers to the value of all goods and services produced in the sector. Dividing this figure by the number of workers or hours worked provides a measure of productivity.”

For example, if the hourly value of all goods and services produced in a sector was £1bn and this output was produced by two million workers, hourly productivity would be £500 per hour.

Australian financial advisory firm Collins SBA has improved productivity by reducing the working day to five hours, providing employees complete their work responsibilities. The company admits that not all staff are able to get everything done in this time, but it says few work the 38 hours specified in their contracts and that sick leave has fallen by 12%.

On the other side of the Tasman Sea, New Zealand-based estate planning services provider Perpetual Guardian introduced a permanent four-day week following a trial in 2018. Almost 80% of staff have opted for the shorter working week and the company says productivity has risen significantly. According to a white paper documenting the progress of 240 Perpetual Guardian employees before and after the eight-week trial, 88% of employees felt more committed to their role post-trial, versus 68% in 2017. In terms of work-life balance, satisfaction went up from 54% in 2017 to 78% in 2018, and stress levels were down to 38% from 45%.


Closer calculation

The measurement of productivity in any business is the ratio of total outputs versus the inputs used in the production of the goods or services and, at its very basic level, measuring productivity in the banking sector is aligned to this principle, says Matt Elliott, chief people officer at Bank of Ireland UK.

However, a paper published by Australia’s Productivity Commission in 2016 suggests that measurement of output in financial services is distorted by the accounting of sales revenue, in that much of the output is interest income derived from margins on the assets held on the balance sheet.

The paper states that as much as two-thirds of the sector’s output is estimated and therefore both the level and rate of growth of productivity in the financial services sector may be overstated.

John Garvey, global financial services leader for PwC, says that financial services companies tend to measure business outcomes – for example, how many credit applications are completed every day – rather than the productivity of individual staff members.

This is primarily because few companies time-track their employees, he explains, adding that “to really understand worker productivity you have to gather data around what they spend their time on”.


Enhancing productivity

As noted in our July 2019 print edition special report on mental health, sick leave “has an inevitable impact on productivity and puts greater pressure on those who are left to cover” for absent employees. In addition, the 2017 UK government-commissioned Thriving at work report on workplace mental health estimates that presenteeism – people coming to work when they are not well – costs the UK up to £26bn in lost productivity.

Workers are 13% more productive when they are happy, according to research published in October 2019 by Saïd Business School, University of Oxford, in collaboration with BT. Matt Elliott says Bank of Ireland UK recognises the link between employee wellbeing and productivity and has introduced flexible ways of working.

“Almost four out of five staff believe this has had a positive impact on their lives, with an average 4.6 hours commuting time saved per week,” he says. “We recently refreshed our wellbeing offering, focusing on mental, financial and physical wellbeing, and are rolling out a range of supports across these areas.”

Staff wellbeing is also an area of focus for Ulster Bank, says head of human resources, Derval McDonagh. “By giving our people access to the resources they need to build skills for now and the future, we enhance general wellbeing, productivity levels and an increase of output,” she says.

Ulster Bank has an internal leadership programme called Determined to Lead and a dedicated capability team called The Academy, which helps with learning, professional qualifications and innovation. An ‘intrapreneurship’ programme, Startup, gives staff the opportunity to pitch ideas and develop their entrepreneurial skills inside the bank, which has also adopted flexible work practices.

To capture the impact of these initiatives, staff are surveyed twice a year across several categories including productivity and improvement.

All these initiatives, which can be summed up as making people feel better at or about work, benefit the employer as well as the employee. How much exactly is a question of how the sums are calculated – are we adding up all the pieces of the productivity puzzle or forcing them to fit? It is clear that the financial services sector has much to gain from taking a holistic view of its output.

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Published: 12 Dec 2019
  • Operations
  • The Review
  • work-life balance
  • wellbeing
  • Productivity
  • New Zealand
  • mental health
  • GDP
  • flexible working
  • Australia

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