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Working Smarter: Business productivity review

Greater Birmingham Chambers of Commerce

This blog post has been produced for the Greater Birmingham Chambers of Commerce as part of the ongoing Growth Through People campaign.

Growth Through People is a Chamber campaign aiming to help local firms boost productivity and grow through improved leadership and people management skills. This involves a month of up to 20 free events each year, including workshops and training sessions, along with thought leadership blog content such as this, GBCC podcasts and the publication of original research.

Interested readers can find out more here.

With productivity being the driver behind the Industrial Strategy and the buzz-word of the moment, the Government’s Business Productivity Review (BPR) is calling for evidence on improving the productivity and growth of small and medium size businesses. A particular focus is placed on businesses with lower productivity; the ‘long tail’ of firms underperforming against domestic and international benchmarks.

The BPR looks at decisions controlled by and taken within businesses, and how intervening with these may support growth and improve productivity for the ‘long tail’ of low productivity organisations - meaning heightened efficiency, profits and (ideally) pay for workers.

To this end, the government want to better understand the practices driving the performance of high and low productivity businesses, existing markets, and which interventions from the public and private sectors are effective in improving the practices that drive business productivity.

Productivity growth has slowed across developed countries since the 2007-08 financial crisis, but particularly in the UK, and both local and national stakeholders are keen to raise this rate of growth once again, particularly with the economic uncertainty surrounding Brexit.

Any country’s ability to raise living standards is largely predicated on its ability to raise productivity. In the UK, much of the latter will be determined by the performance of individual UK businesses.

The Office for National Statistics estimates that in 2016, output per hour worked in the UK was 16.3% below the average for the rest of the G7 advanced economies. To contextualise this: the Productivity Leadership Group estimated last year that if the UK had the same productivity distribution as Germany, this would add over £100bn to UK GVA.

Firms that are smaller, younger, and in the hotel and restaurant or distribution sectors (and located in Wales or the North East) are over-represented in the bottom 10% of the labour productivity distribution. However, the worst performing businesses in terms of productivity can be found in all regions, industries and size groups. In the West Midlands Combined Authority GVA per head is currently at £19,423 –nearly £3,500 less per resident than the national average.

The consultation document outlines characteristics commonly found in high productivity businesses, identifying many practices as relating back to good management and leadership. Supporting this, 2018 data from the ONS examining management practices in British production and services industries has shown a strong link between management practice score and labour productivity. On a 0-1 scale, a 0.1 increase in management score [1] was associated with a 9.6% increase in GVA per worker.

Recent research has found that British SMEs that used formal management practices had higher productivity than those that did not. For example, one standard deviation increase in management score was found to be associated with a 5% increase in the growth rate of firm productivity [2].

In response to the West Midlands productivity gap, The Greater Birmingham Chambers launched our Growth Through People in 2016. The campaign aims to improve firm-level and regional productivity through improved leadership and management skills.

98% of surveyed delegates at Growth Through People events in 2018 believed investment in leadership and people management skills boosted productivity, yet 32% did not have clear strategies in place on investing in these skills. 41% cited lack of staff time as a barrier to such investment. Interested readers can see here for our policy paper, posing subsequent recommendations to businesses and stakeholders.

To avoid re-stating the contents of the government’s consultation document, it summarises some fascinating research into and analysis of important firm-level practices, and I would recommend reading it to anyone interested in UK productivity, or boosting the output of their own firm. Questions touch upon macro-analysis of the UK’s productivity puzzle, but also experiences of important firm-level factors for productivity, barriers to adopting management best practice and how effective approaches could be better facilitated, along with technology and innovation adoption, diffusion and productivity, and the efficacy of business support and advice services in the UK.

It is my hope that this call for evidence will yield valuable responses from businesses across the country and drive some successful interventions that help boost firm-level and UK productivity.

See here for the full consultation document and to submit your response. The consultation closes 6th July 11:45pm.

Emily Stubbs is a Policy & Patron Advisor at the Greater Birmingham Chambers of Commerce specialising in employment & skills, innovation and technology. For more information contact Emily on E.Stubbs@Birmingham-Chamber.com

[1] The Management and Expectations Survey (MES) questionnaire consists of 12 categorical questions on quantitative and qualitative aspects of business’ management practices. Each question is accompanied by a list of options from which respondents chose options closest to the practices within their firms. For each question, scores were awarded to each option on a scale of 0 to 1, where 0 was the least and 1 the most structured management practice. An overall management score was derived as a simple average of a firm’s score on all individual questions. See here for details of these scores.

[2] Bryson et al (2018), The impact of management practices on SME performance