The UK’s productivity problem is well documented. Sluggish growth, regional inequality, an obsession with short-termism over long-term investment, among many other factors, have all meant the UK now lags behind many of its peers in output per-hour worked.
Therefore, it’s no surprise that our major political parties are vying to find the answer in an election year. In the Spring Budget, the Chancellor focused his productivity efforts on the public sector, announcing a £4.2bn programme to improve productivity, including £3.4bn for the NHS to replace “outdated IT systems” and accelerate new technologies.
In the same month, Rachel Reeves has created a new taskforce with senior City of London figures aimed at drumming up billions of pounds in private investment to “create good jobs and spread productivity in every part of the country.”
When it comes to productivity, the big investments matter, but so do lots of small actions taken consistently over a long period of time. While our political parties rightly seek out new investment and business expertise, one of the key ingredients to higher productivity is high-quality management. This hasn’t been overlooked by Reeves, who referenced our weaker management capability as one factor behind anaemic growth in her recent Mais Lecture. The question is how can we follow through on addressing it?
Good management takes lots of small actions and performs them well, and our reality is that policymakers tend to lean much harder into shifting big boulders rather than small grains of sand. But the smaller grains of sand matter. The big boulders of quality infrastructure and public investment can only be set in place by improved management cultures that foster positive working structures, skills, training, better processes and working environments.
The Resolution Foundation highlights the challenge in the UK, citing bad management as “an area in which Britain stands out” for all the wrong reasons. “Only a small proportion of UK firms are as well managed as the best 25 percent of US firms”, the report says. Management quality explains around half of the productivity gap between the UK and the US, according to comprehensive data and analysis from John van Reenen and Nicholas Bloom.
What explains the difference in management practices, and what can be done about it? New Chartered Management Institute (CMI) analysis suggests three critical components behind improved management capability: markets, institutions, and culture. Global market competition and access is a crucial driver of management quality. It encourages improved performance and enables diffusion of learning across supply chains, through international investment and highly skilled migration. The US and European single markets are a crucial driver of management performance across those geographies.
A strong institutional logic behind improved performance is paramount. Great business education, strong regional policy and human capital development, and industrial strategy that ties skills to innovation and growth are all examples here. South Korea’s fast-paced development in the second half of the last century, for instance, rested on this logic.
Strong cultures of improvement and long-term focus also drive improved management performance. The countries that combine the right market logic, underpinned by supportive institutions and a culture of continuously improved management performance are the critical factors.
The UK sits behind the leading pack of industrial nations. Countries in this range see an output gap with the leading group. In the case of the UK, that means the equivalent of around £127 billion lost output if we conduct a thought experiment where the management gap had been magically closed with Germany over recent decades. Employers in the US are 10 per cent more likely to demand that those entering management positions have proven management skills.
CMI has analysed the opportunity zone for improving management. It is within the range of employers that already have above-average productivity but haven’t yet arrived in the top 10 per cent. They are most likely to employ between fifty and a thousand people and are clustered in high value manufacturing and services – the products and services most likely to be globally traded. They would have also seen growth over five or more years.
There are practical steps that can be taken. Firstly, management capability needs to be embedded in all future growth strategies, including within green transition plans. Secondly, the UK needs to maintain some current policies, such as high-level management apprenticeships that have been shown to improve productivity. The international competitiveness of our business schools across all regions is vital and that means international learners having visas to attend them.
Finally, government itself needs to lead the way by driving up management quality across the civil service and public services. Investing in proven, formally accredited management should be a prerequisite of doing business with government. In so doing, the winners of the next election would also improve public service outcomes, as the mantra over the coming years will inevitably be about doing more and better with less.
The good news is that none of this demands enormous resources as fiscal pressures mount. The effects will be seen within the lifespan of a single parliament. Get the sands blowing in the right direction and the boulders will move more quickly too.
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