Advancing the Debate (#PIN2019)

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In March, we were delighted to bring together a diverse audience of policymakers, businesses, academics and many others who have a desire to address the UK’s productivity puzzle. We are very grateful to our host Lord Jim O’Neill and keynote speakers; Professor Sir Paul Collier, Murray Sherwin and Professor Jennifer Rubin, for leading an action packed day of discussions around all of aspects of UK productivity now and into the future. In this short overview blog, you can access some of the talks from the conference as well as hearing about next steps. You can also check out the full conference brochure by clicking on the photo below and get a sense of live commentary on the conference Twitter wall.

In a return to his native Sheffield, Professor Sir Paul Collier kicked off the conference with a bang with a rousing keynote speech entitled “Restoring Convergence: Productivity and Prosperity in Britain’s Regions”. You can watch Sir Paul’s talk in its entirety below.

Keynote speaker: Sir Paul Collier, Professor of Economics and Public Policy at the Blavatnik School of Government, University of Oxford. Sir Paul’s research covers fragile states; restoring growth in African economies, the implications of group psychology for development; migration and refugees, which are the subject of his two most recent books; urbanization in poor countries, a program which has just won challenge funding from the Foreign Office; and the crisis in modern capitalism, which is the subject of his most recent book, The Future of Capitalism, published in October. Sir Paul received a knighthood in 2014 for services to promoting research and policy change in Africa and has been listed as one of the hundred most influential public thinkers in five of the past ten years.

Our first panel discussion of the day looked at “Productivity in Place” and was chaired by our own Advisory Board Chair, Lord Jim O’Neill. Professor Sir Paul Collier stayed on stage and was joined by Dame Kate Barker (Industrial Strategy Commission), Dr Joaquim Oliveira Martins (OECD) and Paul Swinney (Centre for Cities). Panellists discussed a wide range of topics such as:

• The opportunities to work in partnership through local industrial strategies to create more prosperous and productive communities.
• How the UK’s Shared Prosperity Fund will tackle inequality by raising productivity.
• The focus on place based growth can address regional imbalance between London (and its hinterland) and elsewhere.
• Alternative perspectives on the regional productivity agenda and the wellbeing of places and their populations.
• Lessons and best practice from places that have successfully addressed the challenges of regional inequality and low productivity.

Panel 1 at PIN2019 featuring Lord Jim O'Neill, Dame Kate Barker and Dr Joaquim Oliveira-Martins in the photo

Following a lively panel Q & A with the audience, a short break allowed attendees to digest and further discuss some of themes covered so far. Indeed, one of the primary aims of the PIN conference was to create these sorts of discussions and connections in the room.  Professor Tim Vorley, Co-director of PIN, picked up on the theme of creating connections and multi-disciplinary working to break down silos, by announcing the second round of the #pieceofthepuzzle campaign.  Have you got an innovative idea related to UK productivity? We’d like to hear from you. Tim also provided an update on the regional events that PIN is running in order to test and refine our insights. All of our evidence reviews to date can be found in the upcoming “Productivity Perspectives”; a book written by our team of thematic experts which will be published by Edward Elgar in Summer 2019. You can watch Tim Vorley’s 15 minute update below.

We were delighted to have a number of international guests at #PIN2019, sharing learning from their own national contexts as well as global research. None travelled further than our second keynote speaker, Chair of the New Zealand Productivity Commission, Murray Sherwin. The New Zealand Productivity Commission has been looking into the country’s own productivity issues for around 10 years and Murray shared from this rich experience.

Keynote Speaker: Murray Sherwin, Chair, New Zealand Productivity Commission. Murray is an economist with over 40 years of experience in a wide variety of public policy roles. He has been Chair of the New Zealand Productivity Commission since it commenced operations in April 2011. The Commission – an independent Crown entity – conducts in-depth inquiry reports on topics selected by the Government, carries out productivity- related research, and promotes understanding of productivity issues. Murray’s previous appointments include: Chief Executive and Director General of the Ministry of Agriculture and Forestry; Deputy Governor of the Reserve Bank of New Zealand; member of the Board of Executive Directors of the World Bank; and member of the Prime Minister’s Advisory Group.

Next to the stage was our panel of experts looking at the nitty gritty of “Productivity in Practice”. Chaired by Andrew Paterson, Deputy Director, Local Growth Analysis (BEIS), the panel lineup included Dr Melissa Carson (Be the Business), Dr Douglas Dawson (Liberty Industries Group) and Sonali Parekh (Federation of Small Businesses). The panel discussed a wide range of issues through short inputs and discussion with the audience, including:

• Whether a lack of skills is responsible for poor productivity performance in UK firms.
• The extent to which small businesses or particular sectors are the reason for poor productivity in the UK.
• The extent to which under investment by UK companies explains poor productivity growth.
• Weak leadership and poor management meaning businesses do not have clear strategies for business growth.
• The importance of supply chains in promoting productivity of particular sectors and places.
• The extent to which innovation and knowledge based capital will be the future driver of productivity in firms.

We caught up with Sonali Parekh after her panel discussion to ask what she felt were the key issues around productivity. Watch below to hear what she had to say.

Our final keynote speech of the day was from Professor Jennifer Rubin, Executive Chair of the ESRC. Professor Rubin spoke on “Widening the Lens on UK Productivity”, including the valuable place that social sciences has in the debate and the wide range of initiatives supported by ESRC in this space including the Centre for Economic Performance, What Works Centre for Local Economic Growth, What Works Wellbeing evidence programme and the Skills Employment Survey.

Professor Rubin also spoke about vital the role of social sciences research in supporting the foundations of the UK’s Industrial Strategy and it’s associated ‘Grand Challenges’.

Professor Jennifer Rubin

The final panel of the day looked to the future of UK productivity, with the topic ‘Productivity Prospects’. Chaired by Nesta’s Head of Innovation, Jen Rae, who welcomed Murray Sherwin back to the stage alongside a fantastic array of experts: Professor Julia Black (LSE), Shamus Rae (KPMG), Armando García Schmidt (Bertelsmann Foundation)

• What we should be focusing on in terms of stimulating both future productivity growth and societal wellbeing.
• Implications of automation and AI on the future of work.
• Corporate philanthropy: 19th century growth was influenced by philanthropy of industrialists through educational institutions etc., how could we rejuvenate that spirit?
• What governments aren’t doing or need to do differently to unlock the productivity puzzle.
• Financial services regulation: what are the rules of the game in which our economy works? How do we move forward?
• Thoughts on the regulatory context behind the swing towards property and asset holding for wealth creation, rather than more productive routes (a debate led by Sir Paul Collier) – can we and should we changes this situation?

To close the conference, Professor Philip McCann, PIN Co-director, shared our gratitude to all those who joined us and continue to work alongside us to help advance the debate on UK productivity.

While delegates continued their conversations, we pulled a few aside to tell us why they think productivity is so important. With about a minute’s notice, we think Andrew Williams came up with a fantastic summary! We’ll leave you with Andrew’s thoughts:

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

Puzzle Cube

Getting People In Place To Sustain Productivity Improvements

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The productivity puzzle is often couched in complex statistics, endogenous and exogenous variables, and the variety of policy levers that might or might not impact on our national wealth. It is at least clear that there is no simple silver bullet. The Productivity Insights Network is gathering new insights on the different components of the puzzle.

At City-REDI, we successfully bid for small project funding to revisit a programme which had tested different ways to engage employers in the productivity debate and ways to improve management skills and workplace practices. The UK Futures Programme (UKFP) was run by the UK Commission for Employment and Skills (UKCES) from 2014 until its closure in 2016. The UKFP tested innovative ideas with industry to test ‘what works’ in addressing workforce development and productivity challenges. UKCES co-invested £4.4m over two years in 32 projects across five so-called ‘productivity challenges’, each focussed on a specific labour market problem hampering productivity and growth, including Progression pathways in the retail and hospitality sectors and Developing leadership and entrepreneurial skills in small firms through anchor institutions.

A short-term evaluation, published in 2016, identified a series of policy implications arising from the UKFP, but small project funding from the Productivity Insights Network offered an opportunity to explore whether the projects had sustained success over the longer-term and if so, how and why.

Our evaluation study comprised interviews with ten project leads, taken from the Retail & Hospitality and Local Anchor Institutions challenges and further interviews with beneficiary or partner employers in five of those projects. Interviews were conducted between October 2018 and January 2019.

Sustained activity, in some form, was found in nine of the ten projects examined. This was not at the same scale or intensity as during the funding period, but:

• some courses remained available;

• tool-kits developed during UKFP were available and marketed to a greater or lesser extent; and

• learning was being transferred to other programmes.

People and relationships were at the core of sustained activity. We found high levels of staff churn in the Retail & Hospitality sectors which impacted on continuity of learning. More sustained staffing within local anchor institutions enabled products or ideas to take root. The evaluation pointed to the importance of different types of people:

Project Champion – the strategic lead, usually the idea generator within a business or intermediary organisation;

Project Manager – the operational lead, usually funded by the UK Futures Programme and usually no longer in place when funding ended;

Managers at all levels in a business are critical in the sustainability of a product or idea by ensuring it is embedded in firm strategy, ethos and practice;

Project Pioneers – ‘testing’ was a fundamental requirement of all projects in the UK Futures Programme. In most projects ‘Project Pioneers’ were involved in the early testing or early adoption of a product or service and who sometimes were also used to help with wider dissemination of changes in practice.

Not all four needed to be in place for sustained activity, but it was clear that each group played an important role and weaknesses were apparent in the absence of any one of these groups of actors.

For example, in one case a Project Champion maintained an ambition and ability to apply for other funding even though there was not a Project Manager in place after the initial funding ended to enable continuous development in the meantime. In another case, while new improved recruitment practices were still in place, turnover of Managers and Pioneers led to questions as to how embedded the change was: Had it impacted on organisational culture? Did new Managers really understand the purpose of the practices introduced?

People also played a fundamental role in the initial engagement of employers. Trusted local anchor institutions adopted a relational approach to engagement of individual businesses. Small employers were persuaded to consider their leadership skills by larger firms. Project Champions could galvanise employers where there was a mutual benefit – for a sector, for a local area, or in a supply chain relationship. Pre-existing local relationships and reputations were critical in initial and sustained engagement.

But relationships also needed funding. Without the funding for a Project Manager to maintain networks, even pre-existing relationships are not necessarily strong enough to tackle the complex issues surrounding productivity improvements on a sustained basis.

Some of these issues may seem difficult to tackle from a policy perspective. Whilst many of the features of the UK Futures Programme seemed to be well received, the end of funding left many projects unable to make further progress. A potential solution to this is to be more realistic in the time it takes to address these problems. None of the projects examined had initial funding for more than 18 months. Longer-term funding for a Project Manager, dependent on achievement of goals detailed in a logic chain demonstrating potential for impact on enhanced workplace productivity, could have enabled some of these projects to develop further – for instance by sharing staff and enabling progression across firms, keeping skilled and talented staff within a sector, etc.

The longer-term evaluation of  the UKFP as a whole, leads us to suggest that a series of place-based rolling reflective learning projects, with ongoing evaluation and dissemination and involving organizations with aligned goals might be one way of helping address productivity deficiencies. These projects need to be supported strategically by a trusted Project Champion (in a respected intermediary/ employer organization) working alongside advocates in senior positions in beneficiary organizations who can provide employer leadership. While this does not preclude staff churn, it may provide some insurance and reduce the unknowns in the productivity equations.

Professor Anne Green, City-REDI, University of Birmingham
Carol Stanfield, Carol Stanfield Consulting
George Bramley, City-REDI, University of Birmingham

The meaning, measurement and importance of productivity to UK firms

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Summary of research from the CIPD Winter 2018 Labour Market Outlook

In 2014 the CIPD surveyed human resources leaders on the meaning, measurement and importance of productivity. This culminated in the report Productivity: Getting the best out of people. Since this time UK productivity has barely moved. We therefore revisited the questions to explore how far employers have internalised the national productivity challenge.

Business awareness of productivity

Respondents were asked if productivity is a term often used when discussing performance, and half do so. However, while productivity is a term familiar to employers in most manufacturing and production firms (71%), the term is used by just 18% of Education employers. In part this is because productivity is a term more commonly used in business: it is often used by 57% of private sector employers, compared with 36% of public sector employers and just 16% of voluntary sector employers.

Productivity measurement

Businesses employ numerous measurements and KPIs from financial ratios to measures of customer satisfaction. Measuring productivity is easier for some than others and we find large differences by industry. It is much easier to measure the value of a car that is openly traded in the market than a teacher’s lesson. This probably explains why only 51% of education sector organisations measure productivity compared with 72% in manufacturing and production.

Businesses that use the term productivity often when discussing performance are much more likely to also have measurements for productivity.

Is productivity a priority?

Improving productivity is a middle-ranking priority for employers. However, objectives that are more common, such as managing costs or improving quality of service, are likely to improve an organisation’s productivity.

The proportion of employers that said improving productivity was a priority varied by sector, with 41% of private sector employers prioritising it compared with 28% in the public sector and just 10% in the voluntary sector – which is not surprising, as voluntary sector employers are less likely to use the term in the first place.

Perhaps businesses are not prioritising productivity because they do not perceive it to be a weakness. When asked what their productivity performance was relative to their peers, 88% believed their organisation to be average or above. Taking out the ‘don’t knows’ (5%) leaves just 7% of employers who believe their organisation to be below average. Few employers believing they are below average could be a recipe for inertia.

The importance of people management

In 2018 the Office for National Statistics published the results of a survey of 25,000 businesses in Great Britain looking at structured management practices and productivity. The study reinforced earlier findings on the link between management practice and productivity and noted:

‘Among the four broad management practices categories, we find that practices relating to continuous improvement and employment management – such as those relating to promotions, performance reviews, training and managing underperformance – were most correlated with productivity.’

The ONS research suggests that increasing the quality of structured management practices, particularly those relating to the management and development of people, could boost firm-level productivity and help tackle the long tail of underperforming businesses in the UK.

High-performance working practices and productivity

 Given the ONS research we also looked at the prevalence of key formal people management and development practices, also known as high-performance working (HPW) practices, and their links to firms’ attitudes to and awareness of productivity.

Naturally some practices, such as having an equal opportunities policy (70%), are more prevalent than others, such as Investors in People accreditation (17%). But, for every single HPW practice considered, organisations that said they have HPW practices in place were more likely to say they are measuring their productivity.


Many employers live and breathe the language of productivity, but many do not. There is a strong call to action here. The challenge is to convince employers and employees that productivity isn’t a distant academic concept, but something within their reach. To do this we must continue research into firms attitudes and awareness of the issue. What are the barriers real or perceived to the firms in which productivity is not a priority, and that neither measure nor use the term? We must then trial real interventions in businesses. The finding that management practices and, in particular, people management practices, may hold the key gives businesses of all sizes and industries a place from which to start. One example of such an intervention is The CIPD’s People Skills Two project. Building on a successful pilot in 2017, the project is putting HR consultants into small businesses to improve the capability to develop good people management practices. With robust evaluation, projects like this develop our knowledge of how to tackle the productivity challenge.

Jonathan Boys
Labour Market Economist at the CIPD

Stop button on board a bus

Real Journey Time, Real City Size, and the disappearing productivity puzzle.

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For a year we’ve been tracking most of the buses and trams in The West Midlands; the UK city region centred on Birmingham. We do it by polling the live departure screens that you see at bus stops, even at stops where they aren’t installed.

So far we’ve recorded 40 million bus departures, a total of 16GB of data. And we’ve written tools to explore it in seconds.
You can try for yourself at You can see how long every bus took to connect any two bus stops anywhere in The West Midlands, and calculate averages over tens of thousands of bus journeys at specific times, to see how bus journey times change over the course of a typical day.

But why?

Agglomeration: Big cities are more productive.
We’ve mostly done this work because of the following graph.

Many economists argue that larger cities are more productive than smaller cities, and become ever more productive as they grow due to something called agglomeration benefits.

There are many other factors that contribute to productivity, but this simple law seems to hold well in economies like The USA, Germany, France, and The Netherlands. For example, Lyon, the second largest city in France, is more productive than Marseille, the third largest city, which is in turn more productive than Lille.

Almost uniquely among large developed countries, this pattern does not hold in the UK. The UK’s large cities see no significant benefit to productivity from size, especially when we exclude the capital.

The result is that our biggest non-capital cities, Manchester and Birmingham, are significantly less productive than almost all similar-sized cities in Europe, and less productive than much smaller cities such as Edinburgh, Oxford, and Bristol.

Public transport and city size.
One notable difference between the UK’s large cities and those in similar countries is how little public transport infrastructure they have.

While France’s second, third, and fourth cities have 8 Metro lines between them (four in Lyon, two each in Marseille and Lille) the UK’s equivalents have none.

Manchester and Lyon have similar-sized tramway systems, with about 100 stations each, but Marseille (3 lines) and Lille (2 lines) have substantially more than Birmingham (1 line) and Leeds (0 lines).

Is it possible that poor public transport in the UK’s large cities makes their effective size smaller, and thus sacrifices the agglomeration benefits we would expect from their population?

Our Real Journey Time data lets us ask this question.

Real journey time, and journey time variability.
There is an important difference between bus public transport and fixed infrastructure public transport: reliability. I have used our Real Journey Time tool to calculate the worst-case (95th percentile) journey time on public transport on two routes into Birmingham. This is the time that a public transport user must leave for their journey to ensure that they are only late for work or a meeting once a month.

The first journey is a bus from the South of the city, Stirchley to Birmingham. This 3.5 mile journey takes about 20 minutes between 6am and 7am, and about 40 minutes between 8am and 9am.

The second journey is a tram from West Bromwich to Birmingham. This 8.5 mile journey takes 30 minutes regardless of when it is taken, as the tram route is almost completely segregated from traffic.

While the tram is substantially quicker at all times than the bus, the reliability of its timing, even during the most congested periods, provides an additional large benefit to users.

We think that people generate the most agglomeration benefits for a city when they travel at peak times, to get to and from work, meetings, and social events. Our tool shows us that at the times when people need to travel in order to generate these benefits, buses are extremely slow. And since buses are by far the largest mode of public transport in Birmingham this is likely to have significantly higher impact on Birmingham than in Lyon where the largest mode of public transport is the metro, which delivers reliable journey times no matter the time of day.

Our hypothesis is that Birmingham’s reliance on buses makes its effective population much smaller than its real population. This reduces its productivity by sacrificing agglomeration benefits. For the past six months, using our Real Journey Time tool, we’ve worked with The Productivity Insights Network to quantify that.

At peak times, Birmingham is a small city.
The technique is quite simple. We pick 30 minutes as the travel time by bus that marks the boundary of the Birmingham agglomeration. This doesn’t include walking at either end of a journey, or waiting time, so this figure may well mean a 50 minute total journey.

We then use our real journey time to examine how far from central Birmingham that allowed journey time would let a person live.

For example, by examining six months of journeys on the buses we calculate that at off-peak times a person 5 miles from Birmingham in West Bromwich is part of the Birmingham agglomeration. At peak times, this is no longer the case and the outer boundary of the Birmingham agglomeration is reduced in size to just 3.5 miles away in Smethwick.

Making use of our data on trams we can also imagine a Birmingham where major bus routes are replaced by trams and enjoy fast and reliable journey durations, even at peak times. This then includes people as far away as Bilston, 9 miles away.

By repeating this process for bus route into Birmingham from every direction we create a boundary of the effective size of Birmingham at different times of the day. By summing the population living within each boundary we calculate the real size of Birmingham under three conditions. By bus at peak time, by bus at off-peak time, and in an imaginary future where all buses travelled as quickly and reliably as trams (simulated tram).

At this point you might see why we picked 30 minutes as our travel time. Allowing 30 minutes of travel time using fixed infrastructure such as a tram gives Birmingham a population of about 1.7 million people. Which is very close to its population as defined by the OECD of about 1.9 million.

But at peak time Birmingham’s effective population is just 0.9m, less than half the population that the OECD use.

Birmingham’s effective size might explain most of its productivity gap.
This is where things get very interesting. If we consider that Birmingham has a population of 1.9 million, and we assume that agglomeration benefits should work in the UK to the same extent that they work in France, Birmingham has a 33% productivity shortfall. This underperformance of the UK’s large cities is part of the productivity puzzle that UK economists have been desperately trying to solve.

But once you understand that Birmingham’s real size is much smaller, below 1 million people, the productivity shortfall reduces to just 9% and is no longer significant.

Our hypothesis is that by relying on buses that get caught in congestion at peak times for public transport, Birmingham sacrifices significant size and thus agglomeration benefits to cities like Lyon, which rely on trams and metros. This is based on our calculations that a whole-city tramway system for Birmingham would deliver an effective size roughly equal to the OECD-defined population.

This difference seems to explain a significant proportion of the productivity gap between UK large cities and their European equivalents.

So what should we do?
The good news is that Birmingham’s current plans for transport investment are aimed at increasing its effective size at peak times.

• Using our Real Journey Time tool, TfWM are targeting investment in bus lanes and bus priority measures to improve journey speed and journey reliability on existing bus routes.

• Seven sprint bus routes are being planned, with bus priority measures hopefully delivering journey time reliability similar to a tram.

• Two tram extensions (to Wolverhampton Train station and Edgbaston) are under construction, with two more (to Dudley and Birmingham Airport) under study.

• Station re-openings at places like Moseley and Kings Heath will offer reliable journeys by rail to new areas of the city.

The prize for achieving this is large. If bus journey times became as reliable at peak time as they are off peak the effective population of Birmingham would increase from 0.9m to 1.3m. If we assume that agglomeration benefits in the UK are as significant as in France, this would lead to an increase in GDP/capita of 7%.

What’s next?
We have a reached a good point to share our work, but this is just the beginning.

• We are continuing to improve our codebase to ensure that it can handle up to 200 million stored bus and tram departure times.

• We are looking to incorporate trains into our tool, which will boost Birmingham’s effective size, though not by much.

• We are continuing to work with The Data Science Campus at The Office for National Statistics and Transport for The West Midlands on strengthening our methodology for calculating travel isochrones.

• We have already expanded our service to another UK city and continue to search for more, the sole requirement is an open bus departure API that reports a unique ID for each bus.

• We are working to bring our technique to a French city, probably Lyon or Lille, in order to check that the increased amount of fixed public transport infrastructure does make their effective size larger than Birmingham’s.

How was this work made possible.
The project was delivered by Open Transport North, working with The Open Data Institute Leeds.
This work was inspired by a Birmingham City Council hack event run by Deft 153 held in 2016 at Innovation Birmingham and made possible by the Transport for The West Midlands API, which almost uniquely allows the tracking of individual vehicles.

Development has been funded and supported by Transport for The West Midlands, working with The West Midlands Bus Alliance, including National Express. Funding for the development of a method for estimating the economic impact from increased bus journey times was provided by The Productivity Insights Network (an Economic and Social Research Council investment) with specific guidance provided by Professor Iain Docherty of The University of Glasgow.

Additional support and inspiration has been provided by The Office for National Statistics Open Data Campus, Transport API, The Open Data Institute, and Nesta.

Tom Forth
Head of Data at the Open Data Institute Leeds
This work was undertaken with Daniel Billingsley and Neil McClure

Read about our other funded projects

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Open Innovation, Experimental Entrepreneurship and Productivity

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Paul Romer, the co-recipient of the 2018 Nobel Memorial Prize in Economic Sciences, argues that economic growth and productivity concerns the nature, formation and commercialisation of ideas. Of course, this a dynamic process, and in recent years significant changes have occurred within economies, industries and places with regard to the generation, sourcing and exploitation of ideas, and the innovations these result in. Such changes are likely to be impacting on productivity and productivity growth at a number of levels. As a means of going someway to addressing these issues, I am currently engaged in a study within which I have interviewed more than 120 individuals – to date – in the field of innovation and entrepreneurship in the UK, Germany, the US, China, and Japan. This includes entrepreneurs, venture capitalists, the operators of incubators, accelerators, co-working spaces, universities, policymakers, as well as representatives of large corporates such as Honeywell, Cisco, Accenture, Bayer, and Snapchat.

There are a myriad of issues that have come to light from the work, but perhaps two of the most notable in the context of productivity are the widespread emergence of open innovation practices and what I term ‘experimental entrepreneurship’, both of which are interrelated. First, it is clear that open innovation practices have become prevalent across many industries, especially technology-based sectors. Firms, particularly large corporates, are increasing looking for the latest ideas outside of their corporate boundaries. Alongside traditional joint ventures and collaborations, firms are becoming more and more engaged in a range of new practices from corporate acceleration to open access innovation centres, innovation scouting, innovation competitions and the like. In essence, these mainstay innovation players are moving part of the burden, costs, and to some extent the risk, of innovation to start-up firms, new entrepreneurs, and purely aspirational entrepreneurs, rather than within the safety net of the corporation itself.

These changes are having a potentially profound and complex impact on the relationship between innovation and productivity. For example, the costs, investments, and inputs required to innovate are shifting. In particular, firms are having to invest more and more resources into the networks and relationships that are required to access ideas. Building and maintaining relationships is expensive. There are tangible costs in the form of events – innovation theatre – and the contracting of intermediaries – innovation scouts – as well as huge intangible investment in terms of the time required by firms to generate and sustain the social capital and network capital they need to develop their own innovation ecosystems.

Alongside these inputs, the research undertaken to date indicates that many of the external relationships developed by firms do not result in fruitful outcomes, in terms of innovations that lead to productivity improvements. A lack of compatibility and alignment between internal and external forces, as well as internal resistance, means that many funded ideas and innovations are never implemented. This begins to suggest that despite its undoubted capacity to combine and unleash new ideas, open innovation is not always a practice that leads to efficiency within the innovation process or results in productivity gains.

Partly as a result of open innovation and an unstable macroeconomic climate in recent years, we are witnessing the emergence of a phenomenon that can perhaps be best described as ‘experimental entrepreneurship’. Fundamentally, more and more individuals are experimenting with the idea of becoming entrepreneurs, especially technology entrepreneurs. This goes beyond the usual upturn we see in the numbers of self-employed workers during a crisis, to something that is becoming more embedded and sustained.

Within the technology sectors more individuals across all age groups are taking time to consider if they can develop an idea into a commercially viable innovation and business. The rapid growth, especially in big cities, of co-working spaces and incubators attests to this development. Generally, this can be seen as healthy economic sign, and all cities and regions, large or small, will require this innovation infrastructure if they are to become or remain productive places. It also indicates a role for public policy, and whilst acknowledging the positives of competition, there often appears to be considerable redundancy in terms of the overlap of ideas across experimental entrepreneurs. Many seem to be doing the same thing, all with their own funding streams. For example, within what can be called the ‘App Economy’ there is potentially excessive competition due to low entry costs.

It is noticeable that in areas such as biotechnology and life sciences we do not see anything like the same kind of experimental entrepreneurship. However, there is considerable activity in the area of social innovation among these entrepreneurial groups. Such activity has the potential to have significant positive impacts on productivity, but there appears to be little research that has sought to understand this.

Finally, the current study concludes that the time and external finance many of these experimental entrepreneurs spend is by far from wasted, especially in the long-term. However, the bottom line impact on contemporary productivity is less clear, but perhaps this does not matter to any great degree, and as the urban sociologist and planner Jane Jacobs noted in the 1960s when discussing the economic development of cities, ‘cities are indeed inefficient…the largest and most rapidly growing at any given time are apt to be the least efficient. Cities are economically valuable because they are inefficient’. This appears particularly relevant in the contemporary context and suggests interesting routes for examining the relationship between productivity and efficiency, especially institutional efficiency, with regard to innovation processes.

Robert Huggins
School of Geography and Planning
Cardiff University, UK.
January 2019

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Productivity Policy Review

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We tend to think about productivity as a long-term issue.  We often review its performance against the long-term trend and we consider underpinning factors that inherently take some time to influence.  How should this translate into policy formulation, and what have been the recent trends in policy?

To complement the evidence reviews on different thematic areas of interest to the Productivity Insights Network, we have conducted a review of policy changes in relation to productivity.  The review focused on policies and the policy narrative over the period from 1997 to present, and as well as looking at specific policy areas relating to business support, innovation, skills and regional/local economic development.

The review found that the policy focus on productivity has waxed and waned, with three periods identified:

• The policy narrative was explicit in the 2000s with the five drivers framework (investment, innovation, skills, enterprise and competition) used as a device for policy formulation and review, both nationally and regionally.

• There was a hiatus in productivity as an overarching policy objective from around 2010 until 2015. This reflected the focus on other issues, notably dealing with public finances.

• An explicit productivity framework re-emerged from 2015 culminating in the recent Industrial Strategy, which established the five foundations framework (ideas, people, infrastructure, business environment and places). This has strong alignment to the aforementioned five drivers.

These periods align with significant changes in the political and economic landscape, notably changes in government and the immediate aftermath of the financial crisis of 2008-09.  The review also found that there has been constant churn in the policy and institutional landscape, both between different administrations and throughout successive governments’ times in office.  In many cases it was the nomenclature that changed with rebranding or repackaging of existing programmes or policies.  Other changes marked a shift in targeting or focus to reflect the issue of the day.  There were three aspects where policy developments have been longstanding and have crossed government administrations:

• The gradual shift towards a new form of industrial policy-making and ultimately Industrial Strategy, which began in 2009 and has continued to the present.

• The increased emphasis on a demand-led skills agenda, highlighted initially in the Leitch Review of 2006.

• The changing nature of innovation policy, with more consideration of societal challenges and the use of demand-pull, as well as supply-push, policies, identified in the TSB’s (now Innovate UK) first strategy in 2008.

Churn in policy has been commented on by others (e.g. see Norris and Adam, 2017), including its relationship with short-term policy cycles, and ministerial changes whereby ministers want to make their own mark.  Resolving the productivity puzzle is a long-term challenge, and such policy churn may in and of itself be damaging to these endeavours.  Greater stability would result in more certainty and allow institutions to mature and develop.

The role of regional/local institutions has similarly changed over the period, especially in England.  Some issues are persistent challenges, though political, economic and technological contexts have evolved.  Regional institutions and devolved administrations were critical in the 2000s and were specifically tasked with improving drivers of productivity.  The current context places greater importance on the local scale through various structures and initiatives including Local Enterprise Partnerships, combined authorities, Local Industrial Strategies and City Deals.  Arrangements and tools have altered, though those adopted previously may provide lessons and insights to inform current developments.

National policy and strategic documentation is important in framing local responses, because it informs how local strategy is developed, structured and delivered.  This is important for productivity, because of the importance of breaking down silos and integrating different issues.  In terms of these institutional and policy-framing issues, we highlight three sets of points:

• Regional Economic Strategies (RESs) were 5-10 year strategies and their priorities had to align with Public Service Agreement targets and the five drivers of productivity. Whilst the strategic development matured over time, this requirement for alignment may have driven a focus on silos.  Prior to the abolition of the regional development agencies, there was the intent to develop Integrated Regional Strategies so that economic priorities were integrated with spatial planning.  In developing and delivering Local Industrial Strategies are there lessons from the RESs, in particular so that they are integrated and can genuinely focus on long-term issues?  And how can funding, and alignment with statutory obligations and planning help?

• How can the local-regional-national interface in delivering the Industrial Strategy work most effectively? There remain debates about the appropriate geographical level for intervention, and our policy review identified how different aspects of policy had been variously regionalised, localised and/or centralised.  Other spatial configurations exist, such as pan-regional working on issues like research and innovation, access to finance, and transport.  This raises issues around the joining-up of policies and programmes to make the most of synergies and avoid duplication.

• Regional Development Agencies were quasi-autonomous institutions, and so they were independent and could consider longer-term priorities that were outside of political cycles. However, it also left them open to criticism as they lacked democratic accountability.  How can LEPs, and local and combined authorities strike the right balance between these factors?

These sets of points highlight three important principles for strategic development, which need to be set nationally and locally.  These are having a long-term outlook, integrating key factors that influence productivity, and having appropriate institutional arrangements.  These three principles are clearly interconnected.  Our policy review suggests that this combination of principles has been lacking in the last 20 years.

Jonathan Cook, Dan Hardy and Imogen Sprackling

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SMEs and the Productivity Puzzle

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The new report published by the Business, Energy and Industrial Strategy Committee focuses on the potential of small business to make a bigger impact on UK productivity. Small businesses – SMEs – represent 99.3% of the UK economy and have, understandably, become the focus of the productivity debate. Unlocking the productivity puzzle demands better understanding of this highly heterogenous group of businesses, and in turn how low productivity might be addressed.

The wide-ranging variations in productivity of UK businesses have given rise to the now infamous long productivity tail, shown in Figure 1. The tail is complex, and while there are examples of more productive businesses of different sizes and in different sectors across the UK the evidence shows that smaller businesses tend to be less productive on average than their larger counterparts.

At the same time, research by the Centre for Cities contends that this is in fact the ‘wrong tail’, and that the cause or cure to the productivity puzzle is unlikely to reside in the long tail, and instead the emphasis should be on exporting, or tradeable businesses. While conclusions drawn from the research differ as to the cause and consequences of the long tail, focusing on small business has the potential to have a meaningful impact on the long tail, and represents an opportunity for more experimental approaches towards the productivity puzzle.

Figure 1: The UK’s productivity distribution (ONS, 2017)

From Policy to Practice

The UK is an attractive place to start a business and has a generally strong business environment. Government policy relating to aspects of business (e.g. export, finance, employment), as well as to different policy areas ranging from transport to energy, and planning to science have undoubtedly contributed to this. While the ongoing work of Productivity Insights Network aims to rethink the experimental approach of Government policy from silos to the system, the BEIS report also highlights the need to consider the support available to SMEs to help them become more productive.

Despite productivity being a political priority, there are not many small businesses that think in terms of productivity. Instead, the focus tends to be on profitability, if they have their sights set beyond their immediate survival. As the BEIS report notes, there is a need to raise the ambition of entrepreneurs to grow and scale their businesses. Another related aspect raised in the BEIS report, that was announced by the Chancellor, Philip Hammond, in the 2018 Budget committed to support leadership, business development and technology adoption for SMEs.

The BEIS report references the nature of and need for business support. However, the What Works Centre for Local Economic Growth found that of 23 evaluations on business advice that met the minimum standards 14 had a positive effect on at least one business outcome, 5 had no effect, and 4 had mixed findings. The evidence from this systematic review offers guidance on how to develop programmes and improve policy effectiveness, while also emphasising the need for clearer objectives against which to assess and evaluate success and value for money.

This is likely to become more pertinent in the preparation of Local Industrial Strategies, which aim to increase regional economic productivity. In order to redress the spatial variations in regional productivity, SME policy typically pursues locally-led approaches to improve growth and productivity. If Local Industrial Strategies are to be effective, they do need to be local in more than name – they will require the requisite autonomy and resources to design and deliver local solutions appropriate to the sectoral and firm profiles of those localities. Moreover, these solutions need to meet the challenges of the small businesses that they seek to support on their own terms if they are to improve both the businesses and ultimately the place where they are based. This means adopting strategies that are sensitive to the diverse needs of firms of different sizes and that incentivise growth across a spectrum of dimensions.

In many respects the BEIS report, and those aspects that relate most prominently to the productivity of small business as oppose to the performance, are not radical. This is for the most part reassuring. However, the next challenge in unlocking the productivity puzzle is developing and implementing effective local responses through the Local Industrial Strategies that are accepted and empowered by Central Government. Achieving this will demand the creation of new governance institutions that are accountable and able to deliver, but given the plateau in productivity more experimental and creative solutions are required if we are to meaningfully address the productivity puzzle…

Tim Vorley and Jen Nelles


Productivity in SMEs: Management Practices or Effective Leadership?

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As the UK has started to grapple with the challenge of stagnant productivity growth over the past decade, increased attention has turned to questions of how to raise productivity in the small and medium enterprise (SME) sector. This is one important element of the work of the Productivity Insights Network. SMEs are highly diverse and, while they account for three-fifths of UK private sector employment and just over half of UK business turnover, the range includes both ‘frontier’ performers and low productivity laggards.

A recent McKinsey Global Institute report provides a very comprehensive national-level analysis, highlighting both issues of changing demand patterns and patterns of business investment and innovation, as well as ‘deep dives’ into a number of key global business sectors. But the McKinsey analysis focuses very much on the significance of the big corporates and has relatively little to say about the importance of innovation and productivity in the small business sector. This is odd given the numerical importance of SMEs and the contribution of SMEs to the economy.

Influential recent research has focused on the importance of effective management practice as a driver of productivity. A recent survey conducted by the UK Office for National Statistics, covering 25,000 UK enterprises of all sizes across manufacturing and services, computes a management practices score (normalised as an index between 0 and 1) from reported use of a range of practices in four key areas of use: continuous improvement (lean) techniques, key performance indicators, management targets and employee performance. The key finding is that an improvement in the score of 0.1 in a given business is associated with a 9.6% improvement in labour productivity. However larger firms, and foreign-owned firms are much more likely to report higher use of management practices that smaller, and family-owned ones.

I want to highlight two particular issues relating productivity improvement in SMEs, in the particular context of small (below 50 employees) rather than medium sized businesses. The first concerns the importance of successful SME leadership. The second concerns the ‘mediation chain’ through which business practice translates into better productivity.

On the first of these, my own experience is that SMEs vary enormously in their attitudes to innovation and growth, and in the leadership capacity of their owner-managers. This is something that UK policy officials and statisticians in BEIS and ONS are beginning to recognise and investigate, and is central to the recent UK Industrial Strategy. Evaluation of hands-on working with SME owner-managers suggests that productivity improvement may be as much to do with the personal skills, attributes and mind-set of the business leader. It is only through improvements in leadership skill that SMEs are able to introduce effectively those changes in management practice, as seen in the ONS analysis, that lead to better productivity. We can’t assume, in the absence of any improved ability on the part of the business owner, that ‘box ticking’ a range of good management practices alone will enhance productivity.

On the second issue, my own recent research undertaken with my colleague Dr Meng Song at Cardiff Business School suggests the following. For the smallest of SMEs, it is the need to innovate, often to take advantage of emerging international market opportunities, that leads to productivity improvement. Yet in the recent sample of UK micro-businesses analysed, only 11% of micro-businesses (under 10 employees) have brought to the market new product, service or process innovation in the last three years, and only 17% derived any sales from exporting. However, the data suggest that it is the self-imposed discipline of selling internationally that necessitates innovation and leads to improved productivity. So management and leadership advice and support that promotes innovation and encourages exporting is most likely to yield better productivity for these businesses.

Both of these issues offer pointers towards why there is such a diversity of performance across the SME sector. They also suggest that the design of appropriate support for productivity enhancement in small businesses is challenging. It needs to be targeted carefully towards business owner-managers who have both an appreciation of the market opportunities they face, and a realistic appreciation of how and why their own management and leadership practices need to adapt to address those opportunities.

Andrew Henley