Let’s talk productivity

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