The productivity gap in the UK is bad, and it is getting worse. This now needs the partnership of the century between government and business.
Fairbairn made her comments at the launch of a new CBI report, From Ostrich to Magpie, which addresses the poor level of productivity in the UK and suggest some remedies – primarily associated with greatly expanded use of hi-tech tools and services – that could turn the situation around.
The report’s launch this week is something of a public pre-emptive shot across the bows of the Government, which has both the Budget and a new White Paper on Industrial Strategy coming up over the next few weeks.
The latter, in Fairbairn’s view, represents a big opportunity for the Government to take positive steps to help businesses boost their levels of productivity by providing financial support and incentives for businesses to look adopt new technologies that can help boost productivity:
We have already had extensive conversations on what should be in the Industrial Strategy paper, and we are hopeful.
Have you tried the tried and tested?
To be fair to the CBI, its call is not even for adoption of the 'latest fashion' technologies. It suggests that businesses seek out five technologies that are already established and have a proven track record, such as CRM, ERP, Cyber-security, cloud services, machine automation and mobile services.
This where the title of report stems from, the fact that more firms need to become 'magpies'– with a propensity to pick up things – rather than ostriches that simply bury their heads in the sand and hope that problems will pass them by. Fairbairn says:
We need more firms to become magpies about using technology. These are the biggest driver of productivity and there is a low take up. But it really matters, not just for the firms but also for peoples’ lives.
As the report shows, UK industry is now a binary beast when it comes to productivity. While the majority of companies are poor at delivering productivity, there is a small coterie of large, efficient businesses that deliver productivity levels amongst the highest in the world. Fairbairn is therefore calling on the Government to take some direct action to generate cross pollination, particularly from the latter group to the much, much larger former group.
The CBI report cites a McKinsey Global Institute estimate that at least 55% of labour productivity growth will come from firm adopting existing best practices, with only 45% coming from new innovations. It also notes that those countries with more uniform levels of productivity across all industries, also have more stable salary structures, with Denmark being out in the lead on both counts. Denmark is now something of the touchstone country here, against which all others are measured, as Fairbairn observes:
The UK is a decade behind Denmark in productivity.
And 'TripAdvisor' says…
The report’s author, CBI Innovation Director Tom Thackray, also outlined the steps the CBI is suggesting the Government takes to get productivity on the rise again. Most important of these is the idea of setting up a productivity tools guide based on the well-established model of TripAdvisor. This, as he explained, is a service the CBI plans to run itself:
We will be seeking tenders to set this up. The idea is to get the businesses that are using technology successfully can put up reports on what they are doing, and how to do it, that other businesses can refer for support and ideas. The issue here is that while innovation is important, making good use of existing innovations is more important.
He also indicated that it will be peer-reviewed to ensure that no spurious or competitive bad reviews get put up, as sometimes happens in similar consumer-oriented services.
The other recommendations for the Government include making diffusion – the process of making proven technologies more widely available to businesses – should be made a high priority and central theme in the coming industrial strategy, and that it should promote pilot projects that push such diffusion out, especially to the SMB community where productivity growth is stuck.
When it comes to Government-led initiatives, of course, such pilot projects can become bogs where new developments are left to rot and sink, but Thackray sees this as an unlikely prospect, particularly if there is funding for them. This may well be possible if the CBI’s other recommendation for using, post-Brexit, the country’s contribution to the EU Development Fund as the funding source for the promotional efforts can be established. He did, however, acknowledge that it was still something of an open question as to whether that funding would be available in practice.
The reasons lying behind the static nature of productivity in the UK run deep and are long term, as the CBI report makes clear. It has, for example, a far greater share of low productivity businesses than either France or Germany., though ironically the UK also has some of the most productive companies in Europe. These only employ 5% of the working population, however, whole 69% are in below-median businesses.
The report also shows that the proportion of UK companies adopting cloud delivery of applications and services is some 30% below Europe’s best performers, and is an under-performance that has existing for some time.
One chart highlights one of the dichotomies of the UK’s position. This shows the UK’s relative position compared to the other members of the G7 Group of countries, and shows us coming sixth at embedding and exploiting training, and fifth at securing appropriate finance and allocating internally sourced capital, operating against strong competition and accessing high quality management. These are all business 101 basics and Fairbairn acknowledged that education – across the board – is a major stumbling block and contributor to poor productivity in the UK.
At the other end of the scale, when it comes to integrating with global value chains, collaborating externally to access information and absorb best practices, and operating in a mobile labour market to access relevant skills, we rank at number one. Quite what the well-defended borders of a post-Brexit UK will do to those rankings is an open question.
Yet the irony here is that the UK’s relatively poor performance as an exporter – especially of `things’ rather than financial services - is also contributing to the poor productivity here.
Fairbairn also recommended that many businesses could help themselves to improve their productivity by benchmarking their operations against industry norms, and suggested that there are a number of sources of benchmarking systems, from large scale global business services down to local Chambers of Commerce
There are some good suggestions here, and you’d can’t say that the CBI does not have its heart in the right place. The UK’s productivity levels are little short of a joke in many cases, and the nation's collective inability to shift them upwards – over decades – says much about the UK Government of the day and business management that is not that respectful.
In the end there does seem to be much standing in the way of this being too much more than a fond dream. The poor business management referred to is endemic in UK business and has been a subject of discussion and poor jokes since I first started out working some [redacted for author's modesty] years ago. And if education has not improved either then there is not too much hope to be found in that direction.
Then there is that huge Heffalump in not just the room, but the whole country. As no one yet knows what Brexit will actually mean – except Brexit of course – there is still no way of knowing its final impact. But it seems safe to suggest that that things like the Industrial Strategy are not likely to be high up the list of priorities, while funding it will be even lower down that list. There are some obvious roles that could be played by vendors here, with good dollops of kudos attached. But without a tax-break or two to go with it one suspects there might not be too many takers.
It is hard to see that these proposals will be eventually found anywhere but in some long grass somewhere, with the CBI at least claiming the brownie points for having suggested it. One sincerely hopes, prays and makes sacrifice of old boiler suits to the great steam engine in the sky, that one is wrong. But right now one fears the gods may be too busy watching other events play out.