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August 2019

Factory (food manufacture) scene

Let’s talk productivity

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We have recently completed a Pioneer Project: “Unpicking the productivity narrative in manufacturing organisations”, a collaboration between The Universities of Strathclyde, Aston, York and Bristol.  The project was funded by the UK’s Economic and Social Research Council (ESRC) through the Productivity Insights Network (Reference ES/R007810/1), and set out to investigate if, and how, productivity is being talked about by workers in UK manufacturing companies.

We spoke to 40 employees from 19 UK manufacturing companies involved in the food & drink, aerospace, automotive and pharmaceutical sectors about their experiences of productivity, including how it was perceived and assessed, and the factors driving, constraining and enabling it.  We also talked to them about future challenges facing their organisations, the support they thought would help, and whether or not they felt a productivity problem existed.  We engaged throughout the project with stakeholders from industry, academia and the public sector including Make UK, Be The Business, CBI, EY, Scottish Life Sciences Association (SLA), Scottish Enterprise, Scottish Manufacturing Advisory Service (SMAS), Industry Strategy Council, The Scottish Council for Development and Industry (SCDI) and the Institute of Engineering and Technology (IET), sharing our thoughts and findings via presentations, social media, articles, blogs and academic conferences.

The findings contribute to the productivity puzzle debate by providing a much-needed real-life, company-level perspective about how productivity is perceived, discussed and experienced within UK manufacturing, and reveal a more complex picture than high-level statistics would indicate.  The key findings are as follows.

The productivity narrative within companies is diverse but overall we found a focus on efficiency rather than productivity.

Productivity comes in all shapes and sizes! How productivity is described varies within and across companies, as well as between companies and Government. The term productivity isn’t always used, and even where it is evident, there is little consensus except for being synonymous with metrics and/or efficiency. We also identified four different productivity narratives: (i) volume and output, (ii) meeting predetermined targets, (iii) efficiency and cost savings; and (iv) increasing output and value. However, conversations were dominated by a focus on efficiency and reducing inputs, with very little said about increasing business output and adding value – something that may have negative implications in the long term. Perhaps, this focus is unsurprising given that many of the companies have been through process improvement and cost cutting activities in recent years. However, whilst efficiency and productivity are related, they are not the same and, as we found out in this project, are often confused. More definitional alignment is required if policy makers are to use the correct levers to improve productivity.

There are a number of issues relating to productivity measurement, which have implications about comparability and consistency.

Common measures are in short supply. How productivity is assessed varies within companies, across companies, and between companies and Government.  Regional, national and sector reports using different productivity measures adds to the confusion. While earlier research has suggested that certain sectors are more productive than others, we would argue that it is not as simple as this and that we need to be careful drawing comparisons, and recognise that companies within sectors can vary hugely in the nature of their operations. This includes those involved in High Value Manufacturing (HVM), where companies compete on the basis of innovation, quality and brand, often leading to lower volume production but higher margins. Finally, there is also a wider issue of using labour productivity as a measure when looking at “the new economy” where apps and algorithms are adding value with very little direct labour. Such inconsistencies do not help with having a transparent conversation around productivity, nor in aligning the macro/micro measurements, therefore care needs to be taken with measurement and comparability. Further, a focus on productivity is not necessary helpful at the company level particularly if this creates an overt focus on what can be measured rather than what should.

There are a number of commonalities across companies and sectors about the factors that influence productivity.

There is a lot of agreement about the factors that enable and constrain productivity. Product and process design, the planning process, productivity culture, and good management are viewed as having a positive impact on productivity. On the other hand, slow legacy systems, large company size, many regulations about health and safety, slow changing organisations, customers changing requirements, waste within processes and bureaucracy are identified as productivity constraints. Whilst interventions and support can help address some of these, others are less easy to tackle.

The perception of a productivity problem is not widespread among respondents but there are recognised issues at the company and UK level. 

It is fair to say that the productivity headlines in the media do not resonate with many of the people we spoke to. The notion of a productivity problem is not very evident. However, some UK-level issues are mentioned (rising costs, remaining competitive, retaining manufacturing capabilities and workplace culture) as well as some company-related problems (automation and technology, skills, company culture, workforce engagement and company structural changes). We can see evidence of some of these being addressed by, for example, the Industrial Strategy and regional and sector support. However, issues around ownership, company structure and culture are less easy to address through intervention.

Our investigation found that the narratives around productivity within manufacturing companies are not necessarily comparable to those of the economists and politicians. The prevalent focus on efficiency and cost savings within companies, rather than adding value through innovation, is concerning and has implications for longer term sustainability including the locational stickiness of larger, foreign-owned companies. However, there are opportunities to promote a common understanding and language; create new ways of measuring and creating alignment; encourage a focus on innovation and value- added for the long term; and question the appropriateness of labour productivity in the new economy.

The economists might argue that “productivity isn’t everything, but, in the long run, it is almost everything” (Krugman, 1994). However, what we would not want to see is companies becoming too focused on productivity (or the wrong aspects of it) at the expense of looking to the longer term and investing in the future.

Pioneer Project team:
Professor Jillian MacBryde (University of Strathclyde)
Dr. Helen Mullen (University of Strathclyde)
Professor Peter Ball (University of York)
Professor Palie Smart (University of Bristol)
Professor Ben Clegg (Aston University)
Dr. Stella Despoudi (Aston University)
Dr. Donato Masi (Aston University)

Contact: Jillian.MacBryde@strath.ac.uk

Thoughts on the PIN special sessions in Cambridge

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By Dr Neha Prashar
Research Fellow, Enterprise Research Centre

I was very much delighted to be invited to attend a special session hosted by PIN as part of the Regional Science Association International – British and Irish Section (RSAI-BIS) 47th Annual conference, held at Downing College, University of Cambridge. The morning kicked off with a welcome from Professor Philip McCann (University of Sheffield), introducing the PIN team and highlighting the current and upcoming project calls before leading onto a day of productivity related sessions. For full findings from many of the projects outlined below, head over to the PIN publications page. By clicking on the title of each presentation below, you will be able to download their slide deck. Videos from the presentations are also linked to throughout.

The morning session focused on the theme of “Productivity, Inclusive Growth and Wellbeing”, where the first presenter, Dr Joanna Yarker (Affinity Health at Work), explained her fascinating work (with Professor Karina Nielsen and Hannah Evans) on “Returning to and thriving at work following mental ill-health absence.” Mental health is often stigmatised in the work culture and the project’s findings show that there is a need for multi-level interventions to enable successful worker integration back into employment from managers, colleagues and firm policy that would allow greater flexibility for worker’s with mental health issues. This includes potentially tailoring the help needed on an individual basis, which could be difficult to implement in smaller firms where resources may not be readily available, however the benefit of doing so could save nearly £5.2bn lost from sick days taken due to stress.

This presentation was followed by a crucial evaluation undertaken by Professor Anne Green (University of Birmingham, with Carol Stanfield and George Bramley) on the long-term impact of the “UK Futures Programme”; a £9 million programme to boost productivity, which ran between 2014-16 before it was abruptly finished when the UK commission for Employment and Skills (UKCES) shut down. The programme aimed to support employer collaborative solutions to the workforce development problems that were innovative. Results from the evaluation showed that the programme did add value to businesses through engaging with projects and activities, which would not have occurred otherwise. Some businesses actually went on after funding stopped to secure further funding to either carry on the programme or start others. The added benefit of cross-sector learning proved that the programme had a mostly positive impact all round – a result that would not have been known without this long-term analysis by Professor Green and her co-authors.

The session ended on the important concept of wellbeing and inclusive productivity growth, delivered by Professor Leaza McSorley (University of Sunderland) who begs the question “Why has productivity been so low since the recession and also long-term when compared with other countries, such as, France, Germany and the US?” We know productivity is a regional problem when looking at the UK and there is a clear correlation between well-being and productivity. Professor McSorley rightly argues that looking at inclusive productivity growth, rather than just productivity growth, is fundamental to the development of the economy and investment into quality childcare and “soft” infrastructure can increase well-being which could, in turn, increase productivity. This notion of “soft” infrastructure should be “essential” as they underpin long-term productivity in the UK. This insightful presentation ended the morning session on an essential point that it is not just about focusing on one indicator of growth but rather a battery of indicators and how it all fits together.

After a short break, the next session, “Regional Productivity Policy” focused on productivity differences across the UK and started with Ben Gardiner (Cambridge Econometrics) presenting a report compiled on performance, productivity, sectors and resilience among businesses for Core Cities UK, which accounts for around 25% of growth in the UK. Their interesting results found significant differences in productivity using a variety of metrics, and as suspected, London is doing significantly better than the other core cities. Ben’s presentation called for governments to focus industrial strategy on building better infrastructure to connect the core cities and pull resources beyond the M25.

Paul Swinney (Centre for Cities) followed on from Ben’s presentation, highlighting the disparities we see even within a single company. Distribution centres which require low skilled labour, tend to be in the north of the country while the headquarters would be in the south so why is this the case? Paul explains that this is because of the relative attributes’ cities have to offer. The south has more knowledge and high-skilled workers but is high in cost while the north have low-skilled workers but it is low cost and so it makes sense for businesses to set up in this way to be cost efficient. The key focus for national and local strategy should be to try and reverse this pattern and try and get businesses to locate outside of high-skilled areas. This is a problematic task that needs more attention in policy in order to close the North-South divide. The middle section of the day ended on an insightful presentation by Dr Nicola Headlam discussing the Northern Powerhouse. Nicola discussed the success and potential improvements needed to be made in and by the Northern Powerhouse in order to create an atmosphere to breed highly productive and successful firms in the North of England.

In the afternoon, Dr Tom Forth (ODI Leeds) gave an excellent presentation on “How big data, open algorithms, new institutions are improving the UK’s productivity policy.” Tom explained in detail his project on looking at the impact of bad infrastructure on productivity, focusing on commute time vs scheduled times of Birmingham buses and how big data can shape future investments into infrastructure. An interesting project where the major infrastructure differences between cities in the UK vs the rest of Europe is highlighted. Policy aimed towards improving infrastructure within cities is key to increasing productivity in all part of the UK but particularly in the North. The following panel discussion with Professor Iain Docherty (University of Stirling), Tom Forth and Emma Fletcher (SmithsonHill) further underlined the importance of accurate and available data needed to undertake important analysis. A move away from a centralised government to give local government more autonomy on where to spend their money could help in building better infrastructure.

The final session of the day focused on “Measurement and new approaches”, beginning with Dr Stef Garasto (Nesta) discussing the topics of skills mismatch and job accessibility. Using a variety of different data sources, Stef looked at the gap between skill demands and skill supply in different regions of the UK, as well as, a range of job accessibility measures focusing on the West Midlands Combined Authority (WMCA) area. Stef’s results suggest that larger areas show a greater diversity of skill supply and certain areas of WMCA are more accessible than others. However, this is with some caution as issues can arise depending on which measurement of skills mismatch or job accessibility is used. Stef highlights that it is important to move to absolute indicators of skill demand and supply to produce more robust and accurate measures.

Elena Magrini (Centre for Cities) followed on with her presentation on “Regional variations in skills and training – what they mean for places” and focused on the importance of skills as a factor in determining economic outcomes for people and places. Elena’s presentation reiterated findings from her colleague Paul Swinney’s earlier presentation – the classic chicken and egg problem -that areas with a higher concentration of low-skilled workers will attracted low-skilled jobs. However, Elena also pinpointed the importance of education, both in schools and adult training, in contributing to this cycle. By providing quality education that prepares young people for the labour market, provide adequate training for current workers and re-training for workers whose jobs are at high risk of disappearing in the future, you can break the low-skilled equilibrium and increase productivity in these areas.

To end the session, Dimitri Zenghelis (University of Cambridge) discussed the importance of correctly measuring elements of “The wealth economy.” Initially, focusing on natural and social capital but eventually have a comprehensive framework that improves the quality of metrics used to advise policy and have a better understanding of quality of life through statistics other than annual income. This fascinating project rightly puts into question the accuracy of current measures of growth and wealth with analysis, thus far, showing that trust is fundamental to economic wellbeing and economic growth and should be one of many factors considered when steering policy.

Overall, the Cambridge special sessions displayed crucial presentations and projects that I personally hope will shape future UK policies and programmes. In particular, the use of big data cannot be emphasised enough in understanding regional divides in productivity and not only helps to shape future policy but also help in improving and creating key metrics that are more accurate to current times.