Thoughts from our Advisory Board Chair, Lord Jim O’Neill

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I am delighted to Chair the International Advisory Board of the ESRC-funded Productivity Insights Network led by the University of Sheffield. This programme of research and engagement is an important initiative in changing the tone of the productivity debate. Raising productivity is arguably the central economic challenge in the UK, but to achieve this we need to better understand the drivers and inhibitors of productivity.

There are many different factors that influence productivity, ranging from skills, infrastructure, technology, migration, trade, and international investment as well as the regulatory and institutional environment. Each of these factors interact with each other in different ways to influence productivity growth. Over the next three years the Productivity Insights Network will unpack these factors, how they interact and play out spatially across the UK.

The complexity of the productivity puzzle is complicated further by the question of measuring productivity, especially in some knowledge-intensive sectors where information and communications technologies dominate. Yet, exactly how all of these factors and influences interact to drive productivity is not well understood. While we are able to measure productivity growth with a reasonably high degree of accuracy, we are still unsure about many of the mechanisms underpinning this growth.

Over recent years the role played by cities and regions in fostering productivity growth has also become a major focus of research and policy-thinking. International evidence suggests that the performance of countries depends crucially on the productivity growth of the country’s cities. Countries demonstrating productivity growth have typically seen strong growth in their core cities.

In the UK many of our great cities had been underperforming economically for decades, and only recently have some of these cities started to display an economic turnaround. Many of our great urban areas are very close to each other geographically, but this is not the case in terms of their connectivity, coordination and cooperation. These shortcomings have contributed to the underperformance of the UK economy, and overcoming these failures was central to the policy-agenda I led while I was at HM Treasury.

There have been some major institutional changes associated with the City-Region agenda which I spearheaded, all of which are aimed at helping cities to drive productivity growth. Achieving better local governance and decision-making capabilities is critical, both within and between our cities. There is a clear link between the devolution agenda and the productivity agenda, of which both portfolios were part of my ministerial brief.

The Productivity Insights Network puts these questions squarely on the table to advance insights on the productivity debate from a social science perspective. The UK still faces some of the largest interregional productivity variations in the industrialised world, with local area productivity differences akin to those across the whole of the Eurozone. The place-based framework adopted by the Productivity Insights Network provides a lens through which the productivity puzzle can be examined, interpreted and addressed.

Alongside the academic expertise the Productivity Insights Network is committed to engaging with government, the private sector, and civil society to diffuse evidence and insights about productivity. Serving as more than a focal point for advancing, connecting, integrating and synthesising ideas, there is a commitment to ensuring the research makes a difference by developing actionable insights with a view to raise productivity.

These are challenging times, and the Productivity Insights Network is an exciting initiative aimed at providing answers to some of our greatest societal challenges. I wish the network every success and I look forward to being part of these fascinating discussions over the coming years.

The Puzzling Productivity Problem

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By Dr Tom Buckley , Lecturer in International Business Strategy at the University of Sheffield

Do you have a problem? Maybe you do, maybe you don’t. Perhaps you had a problem last week, that you managed to solve and so is no longer a problem this week. You may not have a problem today but you may have a problem that needs resolving tomorrow. The United Kingdom has a productivity problem. It is a problem the UK has had for quite some time and, to be sure, solving this problem is critical to the long-term economic health and prosperity of the country. It will not be easy; make no mistake – it is a really big problem.

In its most recent analysis of UK productivity the Office for National Statistics estimated that in 2016, labour productivity in the UK economy was approximately 16.3% below the average level of other G7 Economies. Over the decade, 2008 and 2017 Labour Productivity[1] grew at an average rate of 0.51% per annum in France and 0.74% per annum in Germany; while in the UK average annual growth was 0.19% (The Conference Board: 2018). Addressing the productivity problem was at the heart of the UK Government’s Industrial Strategy, whose stated aim was to set a path in order to improve productivity not only through putting the UK at the vanguard of high-tech and digital industries, industries, that will define the fourth industrial revolution but also – and just as importantly – through pledging to address the ‘long tail of lower productivity firms.’

How the government’s industrial strategy can address the lower productivity of firms in this long tail, specifically in the low-wage retail and hospitality industries was one of the two central themes of a one-day conference organised by the Joseph Rowntree Foundation. The second, and by no means less important, theme addressed how raising productivity could help improve the pay and welfare of workers in these two sectors. The dual aspects of the conference thus helped focus delegate’s minds on the fact that productivity is, in itself, not a goal. Rather it is a route to a goal. To actual people, productivity is not real value added per employee over a quarter; it is about finding happiness and satisfaction in the workplace, a sense of fulfilment in the job they are doing, being engaged with the organisation that employs them, and having meaningful relationships with co-workers and managers.

Who better then to have as the keynote speaker Lord Mark Price, the former managing director of Waitrose and deputy chairman of the John Lewis Partnership and, more recently, a former government minister of trade and investment? The combination of Lord Price’s commercial and policy expertise informed an authoritative consideration of why workplace happiness matters. In so doing Lord Price made a compelling 21st century case for Adam Smith’s concept of enlightened self-interest. The key idea: happier employees improve all aspects of a company’s performance.

It was on this basis that the first panel, which included the Joseph Rowntree Foundation Chief Economist, Ashwin Kumar; the Chief Executive of the British Retail Consortium Helen Dickinson and the Deputy General of the TUC Paul Nowak considered the practical difficulties of cracking the UK’s Productivity Puzzle. Reflecting their backgrounds each speaker elected to emphasise different aspects of the puzzle – the need for the diffusion of best management practice; the need for collaboration; the need for flexibility in order to retain talent; the need for a holistic understanding of productivity (social and environmental productivity, not just fiscal productivity); and giving voice to the workforce. In so doing a clear vision of where efforts needed to be directed in order to improve productivity emerged. The starting point has to be organisations (whether in the public or private sector) that are structured to allow talent to emerge. This talent needs to be embedded in systems that allow it to flourish. This talent needs to be developed through training, retaining and if necessary retraining. Practises need to be established that encourage flexibility and incentivise commitment; and have the ability to affect how the organisation grows. If this sounds all too idealistic and blue-sky, that is not a reflection of this being an unachievable objective. Rather, it is a symptom of how much British companies need to do in order to make this state of affairs a reality.

That this state of affairs is not unrealistic, wishful, thinking for an ideal, but has in fact been achieved by a number of UK companies was illustrated in the panel following the lunch break which consisted of speakers form a range of companies from LUSH cosmetics to the bakers Greggs. Although I am far more familiar with one of these company’s products than the other (I will let you decide which) the forward thinking nature of both companies, demonstrated that there are in no fact no limits to what British businesses can achieve.

Business though does not exist in a vacuum and the final panel of the conference considered what the role of local and national government in driving performance in the retail and hospitality sectors should be. As demonstrated in the previous panel, there are some fantastic British businesses operating in the retail and hospitality sector. The UK government needs to support such companies. If Government is serious about addressing the ‘long tail of lower productivity firms,’ then Government needs to listen to what the needs of these companies are, and take appropriate action. To act effectively though, Government also must be self-aware; it has to know what it can do but equally what it cannot do. Through acknowledging its limitations, Government can achieve the appropriate balance between being proactive and reactive which is critical if policy is to have a meaningful role in stimulating productivity growth. As the Chief Economist of the Confederation of British Industry, Rain Newton Smith, eloquently stated it is about long term commitment to projects and people; supporting learning throughout a person’s working lives, providing them with high quality homes and giving companies access to the skills and labour retail and hospitality industry need in the future.

So how now to solve the UK’s productivity problem? If there was a single prevailing idea that emerged from the conference it is that this problem cannot be solved a single, direct solution from a single source. As with any problem; a problem shared is a problem halved. What is necessary if the UK is to final solve its productivity challenge is a concerted effort from a cross section of society. Only together, in partnership, with joined up thinking and a recognition of the mutual interdependence of all aspects of the UK’s society and economy, will the puzzle be solved.

[1] Real output per hour worked

Productivity: Why you really should care…

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News about the stagnant levels of productivity growth in the UK are increasingly common. Certainly, the Bank of England and the Government are preoccupied with the so-called ‘productivity puzzle’, with productivity slowdown in the UK more severe than in other advanced economies. At the same time, and despite these recurring headlines, very few businesses seem particularly concerned with the issues of productivity.

So what is productivity and why does it matter?

In simplest terms, productivity is a measure of the value produced per hour by the average worker – in essence, productivity reflects how smartly we work. Labour productivity is one of the most widely used measures of economic performance, with higher levels of productivity relating to higher levels of output per unit of labour. Productivity growth, therefore, is the ability to generate more output from the same levels of input. While productivity is not easy to measure, it is still the best overall index of living standards and prosperity.

The UK faces different problems to most other advanced economies because of its economic geography, with some of the widest variations in productivity between regions and cities any country globally. Perhaps predictably, levels of productivity are more than 70 per cent above the UK average in London whereas less than 200 miles away in Wales productivity is only 70 per cent of the UK average.

Analysis from the Office of National Statistics has previously found levels of productivity in Sheffield (South Yorkshire) to be the lowest of the 13 largest city regions in the UK, which is particularly interesting given the devolution of power as discussed in the previous issue. For Sheffield and the City region the challenge of raising levels of productivity is very real, and demands a targeted approach to address weak levels of productivity in the region. In short, we need to raise the productivity of the Sheffield City Region if it is to deliver growth as part of the Northern Powerhouse.

Making Sheffield smarter

Most SMEs are concerned with profitability and occasional business growth, and while not the same as productivity, the issues are related. The productivity puzzle is complex and multi-faceted, shaped by factors such as investment and technology to skills, work and wellbeing, although exactly how these factors affect productivity is still an open question. In the Sheffield City Region  making SMEs smarter is a particularly important piece of the puzzle in raising productivity.

SMEs tend to be less productive than their larger counter parts, although there is often scope to be more productive. The challenge is often in identifying what steps can made and then how to best go about implementing them. The starting points for many SMEs is a process of self-reflection, and can start with reviewing operational processes; ensuring that employee both are appropriately skilled and deployed; making sure that the technology and tools are right for the business; and that recognising the management and leadership team in setting the vision and ambition of the business.

It is often the case that many SMEs are so absorbed by doing business that they do not have the time to embark on the business planning to ensure their future competitiveness – but this is time well spent. The newly established national Productivity Insights Network, led by Sheffield University Management School is funded by the Economic and Social Research Council to change the tone of debate, by identifying robust insights and practical steps to working with partners from academia, industry, government and charities.

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How Business Schools Can Help Unlock the Productivity Puzzle!

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The question of weak global productivity is a story that continues to dominate the mainstream media. Yet businesses tend not to be overly concerned with issues of productivity, per se, instead being preoccupied with efficiency and profitability. That said, the conundrum of productivity growth remains of central concern to governments around the world—and this is particularly acute in the UK. The now infamous quip of Nobel Prize-winning economist Paul Krugman—“Productivity isn’t everything, but in the long term it is almost everything”—will forever haunt governments.

In academe, productivity was once the privileged domain of economics research, yet this multifaceted challenge has become the research fodder of business and management schools around the world. Since total factor productivity, or the efficiency measure for all inputs involved in a production process, has fallen short of adequately explaining dismal productivity growth, business schools working in fields from leadership and management practice to foreign direct investment, and from innovation to well-being, have the potential to offer real insights. Arguably, this expertise positions business schools at the heart of the productivity debate.

However, the productivity puzzle is more than an academic exercise and, like other research questions, will not be addressed in disciplinary silos. By its nature academic research is often about paradigm building, but to truly advance the productivity debate, those of us in positions to effect change need to challenge the status quo. The launch of the Productivity Insights Network in the U.K., the collaborative effort of nine universities and two private-sector businesses led by Sheffield University Management School, is a model designed to change the tone of the productivity debate in theory and practice. The emphasis is on co-producing new insights and identifying alternative approaches to increasing productivity—with partners from academia, industry, government, and nonprofit organizations—that are both robust and relevant.

AACSB’s Collective Vision, which identifies five distinct opportunities for change in business education, refers to business schools as co-creators of knowledge. By building on their teaching and research strengths to work with businesses and foster dialogues with governments, business schools have the capacity to positively impact the societies of which they are a part. Although many business schools profess to be impactful, how devoutly do they adhere to and deliver against their values? The business school of the future will be evaluated according not only to research and teaching excellence but to impact excellence, as well.

In many respects, business schools are uniquely placed to deliver on impact, not least due to their convening power. The breadth of expertise in business schools often means that they are home to a broad spectrum of interdisciplinary scholars, and can provide a forum to work with academics from different disciplines ranging from the arts and humanities to science and engineering. Moreover, business schools have the ability to serve as a platform to bring together stakeholders, given their strong corporate connections and links to government bodies. This shared space serves as a distinct strength for co-producing new insights that have impact for theory and practice—a process set to become an ever-more collective endeavour as the emphasis shifts from doing research on individuals, organizations, and societies to doing research with them.

For complex and multidimensional topics, like productivity, working in this way is imperative not only to better understand the issues and challenges but also to ensure that the research makes a difference. The wider societal value of business schools is unlikely to be the result of game-changing research from the ivory tower alone, but rather the product of collective game-changing, research-led impact. This principle defines the approach of the Productivity Insights Network, by breaking down siloed thinking and promoting collaboration to generate new perspective on an established issue. We don’t just need more insights; we need new insights.

As the Productivity Insights Network embarks on a new three-year program of work, my excitement as a management academic is as much about the new ways of working as it is about grappling with the productivity puzzle. Clearly business schools are well placed to push the frontiers of productivity research, but co-creating the research with academic, industry, government, and nonprofit partners is critical to our ultimate influence and impact. By adopting the strategy of a co-creation position, initiatives like the Productivity Insights Network are at the intersection of academia, industry, and politics, and if business schools are to lead such major social, economic, and political debates, there is arguably no other way of working.

Productivity debate needs a reboot, in theory and practice

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Ideas from many disciplines are needed to understand and address the UK’s distinctive problems, say the leaders of a new research network.

The Nobel prizewinning economist Paul Krugman famously quipped that “productivity isn’t everything, but in the long run it is almost everything”. In its simplest form, productivity is a measure of the value produced per hour by the average worker. This is still the best overall index of living standards and prosperity.

In essence, productivity reflects how smartly we work. This does not just depend on the behaviour of individual people or firms, but on the interactions between a firm and the broader market, and the technological, institutional and cultural settings in which it operates.

A wide range of data suggests that productivity growth across the industrialised economies has slowed since the mid-20th century. This slowdown was evident by the turn of the millennium, but became much more marked after the global financial crisis.

Alongside this general puzzle there are some specific concerns for the UK. Its productivity slowdown appears to be one of the most severe among the advanced economies. Different places show some of the largest productivity gaps in the industrialised world. For example, London has productivity levels of more than 70 per cent above the UK average, while productivity in Wales, less than 200 miles away, is only 70 per cent of the UK average. For many reasons, the benefits of productivity breakthroughs are not as evenly spread as they are in other countries.

The newly established Productivity Insights Network, led by the University of Sheffield and funded by the Economic and Social Research Council, will consider all of these issues and seek to throw light on them by incorporating a range of thinking and ideas from different fields of social science, not solely economics.

The network will tailor its work to the UK context, integrating analyses and ideas from a range of fields including psychology, sociology, organisational science, geography, labour relations and environmental sciences, as well as economics.

How we think about productivity has evolved over recent years. Between the mid-1950s and the mid-1980s our understanding was based on the assumption that efficient markets would maximise the technological drivers of productivity. For three decades, productivity research was focused on the establishment and maintenance of efficient markets, with little thought given to the drivers or inhibitors of technological change.

Thinking started to change in the 1980s. Ideas regarding the role played by scale, systems, networks and knowledge spillovers in driving innovation were emerging from studies in business and management. In political science and sociology, the role of institutions in fostering economic development became more central.

These ideas reshaped thinking about productivity, just as the global economy entered a period of rapid globalisation. Since then, the rise of the so-called weightless economy, based on ideas and information and driven by rapid advances in digital technologies, has transformed many industries, especially in services. This challenges how productivity is understood and measured, especially in a country such as the UK, where services dominate the economy.

The future may see further changes due to the rise of automation, artificial intelligence and big data, alongside the effects of increasing ageing and debt. How exactly these will affect productivity is still an open question.

On productivity, the UK faces different problems to most other advanced economies, primarily because of its economic geography. It is the size of the UK’s variations that mark it out and limit national productivity growth.

The productivity puzzle, of course, is more than an academic exercise. Truly advancing the debate requires a challenge to the status quo. The Productivity Insights Network aims to change the tone of debate in both theory and practice. The emphasis is on producing insights and identifying robust and relevant practical steps, working with partners from academia, industry, government and charities. The initiative has already attracted the attention of the Department for Business, Energy and Industrial Strategy and the Treasury.

Even more than promoting and conducting game-changing research, the network is committed to game-changing impact. It has an ambitious programme of engagement, based on translating and disseminating existing research as well as pursuing new interdisciplinary and applied insights. The involvement of a wide range of organisations will challenge the network to deliver results for a range of communities.

As the Productivity Insights Network embarks on its three-year programme of work, this model of working is a new approach to grappling with the productivity puzzle.

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