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What are the problems with current productivity solutions?

Author: ICAEW Insights

Published: 10 Oct 2022

There’s no shortage of schemes to remedy the UK’s productivity woes – but why aren’t they having more of a collective effect?

In the past few years, we have seen a host of different national and local initiatives to lift the UK’s ailing productivity.

In January last year, for example, an update to the government’s Research and Development Roadmap signalled a commitment to “do more” to channel world-class UK research into productivity gains for homegrown businesses. Two months later, the Help to Grow: Digital scheme provided SMEs with discounts of up to 50% on approved software products to stimulate grassroots outputs. That scheme was expanded in July.

Meanwhile, the Welsh SMART Digital Accelerator scheme and Sheffield’s Business Productivity Programme are helping manufacturers and SMEs to get future-fit through automation. But amid such developments, UK productivity as a whole remains concerningly flat. Why are all these various schemes not working in concert to turn things around?

Missing backbone

“Many of the UK’s programmes are too small, too short term – in other words, there’s a lot of churn – and too fragmented,” explains Bart van Ark, Professor of Productivity Studies at Alliance Manchester Business School and Managing Director of the Productivity Institute.

He has worked in this field in both the Netherlands and US previously. In the early stages of evaluating the UK’s issues, he says two fantastic things stood out: “Firstly, there’s so much brain power here, in terms of the number of relevant research groups and the huge amount of great thinking that’s going on about what needs to be done. Secondly, there are so many initiatives – whether at regional or city level, or among Local Enterprise Partnerships. But they lack a clear diagnosis of the issue, a focus on solutions and a joined-up approach.”

Van Ark, a key factor here – which is difficult to change in the short term – is the UK’s institutional governance structure. “It’s relatively centralised – so policy schemes are typically devised in Westminster or Whitehall, then disseminated around the country with little thought of how to embed them into regional or local structures.”

It’s crucial to implement these initiatives in an appropriate, geographical context and provide the groups that are organising them with the required autonomy – including fiscally – to take the right actions in the right places, he points out. “But that sort of backbone to productivity-related policies is largely missing in the UK.”

Political instability

Van Ark also highlights persistent productivity gaps that are leaving key regions and cities adrift. London and the South East are well ahead of the rest of the country and have been for decades. At the same time, second-tier cities – such as Leeds, Manchester, Birmingham and Glasgow – are well behind not only London, but second-tier cities in other parts of Europe, too.

The result? “About 40% of the UK population lives in places with significant productivity shortfalls,” he says. “This is a very UK-specific problem. Other countries have relatively stable, local regional institutions that have allowed them to tackle productivity issues in a much more sustained and consistent way. Those bodies are not troubled by the sort of continuous policy churn that affects the UK.”

As such, Van Ark believes that we need to depoliticise the UK’s equivalent institutions. Putting them at some distance from politics would help to preserve continuity, he explains.

“There’s also a human capital side to this. Intermediate level skills in engineering and digital technology are often overlooked in the education system,” he says. “There are problems with engaging further education providers in regional business ecosystems. A lack of apprenticeships has been a problem for decades. And while it’s very easy to set up a business, there’s no national framework to train people to be good managers.”

Driving engagement

There are about 2.4 million accidental managers in the UK, according to Laura Ashley-Timms, author, speaker and co-creator of the STAR® Manager programme. “That’s out of around 3.4 million in total – so, a really high percentage. These are individuals who’ve been promoted largely because of achievements in areas such as revenue generation or technical skills – not because they’re necessarily good with people.”

That prevalence of accidental managers has spawned widespread employee disengagement – a notorious output suppressant. As such, Ashley-Timms believes that one of the main problems with current productivity solutions is the lack of an appropriate strategy.

“We need a national conversation about how to rehumanise management,” she says. “How do we scale the capabilities of managers so they’ll be confident about having better-quality conversations that will drive engagement? In addressing retention issues and the Great Resignation, improved engagement would also significantly improve productivity.”

Ashley-Timms has played a key part in helping to start that conversation. In 2020, the Department for Business, Energy and Industrial Strategy (BEIS) – in partnership with Innovate UK and Nesta’s Innovation Growth Lab – undertook a series of randomised controlled trials on business interventions designed to boost productivity.

One that emerged as particularly effective was STAR® Manager, developed by Ashley-Timms’s consultancy Notion, which led to managers in the 14 sectors studied increasing the time they spent coaching others by 70%. The outcome: substantial gains in innovation, collaboration, engagement, performance – and productivity.

“If we don’t address this at the individual level of how to create better people managers,” Ashley-Timms says, “then none of the country’s productivity initiatives are going to have any effect. Technology alone is not going to drive productivity. What will drive it is engagement – and building inclusive cultures where people feel valued, can bring their whole selves to work and are excited about contributing and implementing ideas.”

Honest benchmarks

ICAEW Managing Director, Reputation and Influence, Iain Wright says: “The composition of the UK economy does not help to drive productivity improvements. We are a nation of small businesses, predominantly in services, so we lack the economies of scale that would readily enable us to boost productivity. There are also opportunity costs of seeking out solutions: many business owners and managers have their heads down trying to win and deliver on contracts, as well as ensuring they generate enough cash to pay wages and other bills.”

That said, Wright is reluctant to put productivity growth in the ‘too difficult’ box. He believes it is essential if we are to raise living standards in the long run.

In 2018, he points out, the government’s Business Productivity Review undertook “excellent” analysis of the characteristics of high-productivity businesses. It found that such companies conduct honest benchmarking – assessing where they sit in relation to peers and competitors and making plans to address shortfalls. They embrace new methods of management and technology as means for driving improvements.

They also join business networks, assessing what their sectoral or local ecosystems are thinking and doing in order to adapt to external events, or identify how their markets are changing. Finally, high-productivity businesses use trusted advisers to help them consider not only how to improve – but how to minimise the risk of failure.

“The Business Productivity Review highlighted the accountant as the most trusted business advisor,” says Wright. “It is clear that our profession has a strong role to play in boosting productivity by serving as that trusted voice, as well as providing the ability to convene and benchmark. If the UK is to pull out of its productivity slump, it will need to harness the power and potential of chartered accountants.”