Monthly Archives

March 2019

Pictures of graphs and pie charts

Local Industrial Strategies and the need for economic assessments

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The UK Government is implementing its (national) Industrial Strategy (after consultation, this was announced in November 2017) by recognising the importance of ‘places’, specifically through Local Industrial Strategies (LIS). In December 2018, BEIS stated “… The entire country will be able to benefit from developing a local Industrial Strategy… We will work in partnership with places to develop Local Industrial Strategies that will be long-term plans based on clear evidence and aligned to the national modern Industrial Strategy… (it) will build on unique local strengths to ensure every community, and the country, reaches their economic potential and creates high quality good jobs” (BEIS, 2018, emphasis added to original).[1]

As with the national strategy, improving productivity is at the centre of the development of a LIS. But to know what drives productivity at a local level, indeed how different local economic partnerships (LEPs) rank on this metric, needs more information. Hence in January this year, BEIS put out a tender for work to be done between now and the end of May that provides baseline information that can made available to LEPs while they develop a LIS.

PIN is well-placed to help deliver on this need, given its access to firm-level data sources made available by the ONS via the Secure Data Service.[2]

This allows LEPs to consider how well firms in their area do on a wide range of metrics all associated with productivity, such as:

• R&D and innovation
• Exporting
• The importance of foreign-owned and outward FDI firms
• Absorptive capacity in LEPs
• Firm-level estimates of (labour and total factor) productivity

The rest of this ‘blog’ is just a few examples of the range of information available, based on these ONS data sources. This will give the reader a flavour of the richness of the data sets.[3]

Figure 1: Labour productivity (£’000 per worker) in 2016 in each LEP for selected sectors

(a) Advanced manufacturing

(b) Digital

(c) Biologics

The above show some contrasting differences across LEPs, and labour productivity has the advantage of being easy to calculate and relatively easy to comprehend; it has the disadvantage of being potentially misleading, especially if comparisons are undertaken across very different sectors (in terms of their capital- and intermediate-input intensity). That is, labour productivity will be higher when firms use relatively greater amounts of plant (e.g., chemicals) and/or intermediate inputs (such as motor vehicles, which is heavily reliant on – often overseas – supply-chains providing much of the semi-finished goods and services that ultimately combine to produce the final product). Similarly, labour intensive industries de facto have low labour productivity. In contrast total factor productivity (TFP) measures the extent to which a firm efficiently produces output relative to all factors of production (labour, capital and intermediate inputs), taking into account changes in technology over time. What is most important in productivity terms is the role of efficiency and technical progress (both captured by TFP), and less so whether a firm increases output-per-worker through outsourcing and/or substituting capital for labour (i.e., automation).

So what does TFP look like? Figure 2 provides two examples, showing that the London LEP has the highest productivity in most all parts of the distribution; and in advanced manufacturing the Tees Valley LEP does well.

Figure 2: Distribution of ln TFP for LEPs and sectors

(a) Advanced manufacturing

(b) Digital

How about some key drivers of longer-term productivity? Figure 3 shows the value of the R&D stock, perhaps not surprisingly showing it is generally concentrated in the south and south-east of England

Figure 3: R&D stocks in 2016 in each LEP for certain sectors

(a) Advanced manufacturing

(b) Digital

(c) Logistics

Figure 4: Percentage of sales exported in each LEP

(a) Advanced manufacturing

(b) Digital

(c) Logistics

Figure 5: Innovation activity in each LEP for 8 sectors aggregated (Advanced Manufacturing to Biologics)

(a) % product innovating

(b) % process innovating

(c) % ‘blue-skies’ innovating

Figure 4 shows a more diverse pattern in terms of exporting intensity (the proportion of goods and services exported abroad), while Figure 5 shows the dominance of the central LEPs (including Oxfordshire and Cambridge & Peterborough) in terms of product innovations and ‘blue-skies’ innovations (the latter are new to market – for product – and new to the industry – for process).

Presumably the work that will be done for BEIS will capture similar information to that produced here, helping LEPs develop their own, unique LIS which is based on local understanding of the productivity issues they face.

Professor Richard Harris
Professor of Economics
Durham University Business School

[1] Source:
[3] This work contains statistical data from ONS which is Crown copyright and reproduced with the permission of the controller of HMSO and Queen’s Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates

Productivity: It isn’t just what economists say it is…

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Productivity and the UK’s problem with it compared to other economies is becoming a favourite subject for politicians, economists and commentators. But there’s little evidence of it becoming a hot topic in boardrooms or a key focus of management and workforce meetings in the workplace.

Although Productivity issues for UK manufacturing were highlighted by Make UK (previously EEF), in their 2018 report “Unpacking the puzzle: Getting UK Manufacturing Productivity back on track”, there remains a limited amount of information from UK manufacturers themselves about how productivity is discussed and assessed within firms, and the factors that contribute to productivity success and failure.

We are addressing this deficit in a project that explores the productivity realities in UK manufacturers: “Unlocking the productivity narrative in manufacturing organisations”  This is a collaborative project with colleagues at the Universities of Aston (Professor Ben Clegg), Bristol (Professor Palie Smart) and York (Professor Peter Ball), funded by the ESRC via the Productivity Insights Network We are examining what (if any) ‘productivity narratives’ are shaping ideas in UK manufacturers at workforce, management and boardroom levels today.

What do UK manufacturers really think about productivity? Do employees understand what productivity means and how they might affect it? Are people within manufacturing firms actually talking about in their boardrooms and shop floors? And, if they are, are they talking about the same thing as the economists and politicians? These are the questions we are seeking answers to.

We also want to give a voice to manufacturing companies – to let them tell us not just what they think about productivity but their experiences of it. What has helped or hindered? Where do the future challenges lie and what support is needed to address these?

All of our team are founding members of the EPSRC Manufacturing Futures group and have spent years working with UK manufacturers to improve their operations.  Much of the focus that we have seen over the last 20-plus years has been around efficiency – reducing waste by using approaches such as lean, six sigma, re-engineering – rather than productivity. Efficiency and productivity are often confused – but they are not the same.  This was highlighted by Mankins, in his 2017 Harvard Business Review article “Great companies obsess over productivity, not efficiency” , which suggests that in the current economic climate, it is not enough to focus on shrinking the input (and doing the same with less). He argues:

“At a time when so many companies are starved for growth, senior leaders must bring a productivity mindset to their business and remove organizational obstacles to workforce productivity. This view differs substantially from the relentless focus on efficiency that has characterized management thinking for most of the last three decades, but it is absolutely essential if companies are going to spur innovation and reignite profitable growth.”

This limited information about how productivity is viewed and discussed within the firm constrains our understanding about what is really happening in firms and, in turn, limits how we might improve productivity success.

We have the opportunity to explore these issues and address this lack of firm-level perspective by asking employees to tell us their views. We are finding out how different levels of the firm hierarchy perceive productivity and view their role in its improvement. The voices of those actually doing the work are key, something emphasised recently in Jonathan Boys’ blog about the CIPD Winter 2018 Labour Market Outlook report, where he highlights the variation in awareness and perception of productivity, and calls for us to “continue research into firms attitudes and awareness  of the issue”

So what are we doing in our project to make this happen?

We are speaking to employees from the shop floor to the boardroom in four key UK manufacturing sectors: food & drink, automotive, aerospace and pharmaceuticals, hearing what they really think about productivity – how is it viewed, does it matter and what factors influence its success and failure?  As part of this, we are giving manufacturers the opportunity to:

• Highlight their key concerns to policymakers.

• Suggest what is needed to identify future challenges.

• Discover what other companies are doing to improve productivity.

• Learn about what support is available to support productivity.

• Participate in forums for industry and Government to inform Government policy

We are also engaging with a number of stakeholders from industry and economic development organisations such as Make UK, Be The Business, CBI, IET and Scottish Enterprise, and hosting a series of round table workshops bringing together industry and policymakers.

By the end of the project, we want to provide a much-needed firm-level perspective about how productivity is viewed and measured, the factors that drive, constrain and enable it, and the future challenges that UK manufacturers face.

We will share our findings with industry and policymakers with the aim of influencing the productivity conversation by recommending how we can more accurately reflect productivity in UK manufacturing, leading to a broader consideration of productivity and alternative measurement metrics. We also want to highlight the challenges faced by companies and the improvements needed to the support provision

If you are interested in finding out more about the project, or in sharing your views with our team, please contact us.

Professor Jillian MacBryde and Dr Helen Mullen
The University of Strathclyde