The Chancellor, in his Autumn Statement, has announced a National Productivity Investment Fund of £23bn to be spent on innovation and infrastructure over the next five years.
On listening to the Autumn Statement, it’s clear that the Chancellor is tinkering at the edges. His Autumn Statement misses key productivity issues. But at least he acknowledges that productivity is our nemesis. If we could get productivity to the same sort of level as in Germany, we’d have a fighting chance, even given Brexit! Without that, we’re on a slippery slope with no apparent run-out.
If we don’t address productivity, we’ll never return to a state where wages can rise and people can enjoy higher living standards. And just to put it in context, UK productivity lags behind the US and Germany by about 30 percentage points. We even lag behind France (by 20 points) and Italy (by 8 points). British workers work longer and earn less than their counterparts.
So if the Chancellor acknowledges this as a problem, why does he do so little about it?
There are several linked themes here. Productivity is doing more with fewer resources. To do this, capability must rise – we must be able to do more in the first place. We know we can’t just achieve this by working harder. Efficiency in what we do must rise too. To do more with less, we need lots of bright people to tell us how. But we’ve come to abhor experts – folk that have studied just this sort of thing for many years and who can address the problem, not just trot out a canned answer. And everything we are doing in business these days is getting more and more complex, interrelated and dependent.
True, productivity is also about innovation (into new methods and tools) and infrastructure (to enable business to function) but those two are substantially peripheral to the main issues. Whilst important, innovation and infrastructure are far from the whole story.
So whilst productivity is the overall descriptor, it’s a multi-facetted beast.
Antecedents of Productivity
Productivity depends on three things. Firstly, competencies and behaviours of our workers. Secondly, the effectiveness of the technology they use. And finally, the way in which they are organised. This last variable is what we generally refer to as ‘management’. Each of these variables can be changed by those that invest in and manage our companies. This means any weakened productivity is of our own making.
So how did things get this bad? As Fred Brooks wrote in his book The Mythical Man-Month, “one day at a time”. Brooks was describing how big software projects ended up late, to the surprise of all concerned. This probably applies to all long-term projects, economic or otherwise.
Now to the ‘why’.
The above reasoning tells us three things. The competencies and behaviours of our workers must rise, the function of the technology that they use must rise, and the effectiveness of management, in organising the workers and technology, must rise too. So if we know the problem, why are we incapable of addressing it?
There are four reasons.
UK’s Productivity Issues
The first is that our history of training managers is abysmal. The baby-boomers who got trained as soon as they moved into junior supervision – and trained again when they moved up the tree – are retiring. Today less than 20% of all managers are trained to do the management job. This theme is pivotal, as we’ll see.
The second is that compared with Germany and many other countries, people in the UK have a very short-term approach to business and industry. We have become accustomed to, and now expect, instant results. We want everything now – and we discount heavily any promise of even better returns by waiting longer. This short-termism is everywhere. It has created a society that lives on credit because credit allows us to get what we want now. It has created an unstable investment sector because investors expect to get their planned returns within a couple of years. Venture capitalists and angels expect to quickly sell their share and move on. The result of short-termism in companies is that managers are disinclined to invest in their people. Staff then don’t expect to stay with firms for long. Managers expect to hire the competencies now and pay low wages and high bonuses. If they can get away with it, they’ll just hire contractors, on high day rates, that can be dismissed in an instant. Neither party commits and neither invests.
The third is that everything that managers do today is much more complex than it was even a decade ago. As a society, we’re connected by high speed, high bandwidth links that allow anything from micro-blogs to full video to bombard us as events unfold. The employment environment is more complex and laws have been introduced to protect worker rights, in turn making management tricky. And supply chains have grown from the local to the global. Complexity in operations brings complexity in decision-making.
And that brings us to the fourth reason why productivity is down. That complexity demands analysis, the building of models and the exercising of those models to explore options. Decision-making and decision taking demand evaluation of those options.
Generation and evaluation of options in a complex world requires managers to have high skills, knowledge and understanding of their trade.
And as Hamlet said, ‘there’s the rub’.
Less than 20% of all managers have been trained to be a manager. Over 80% have been promoted and appointed to jobs that by definition, they don’t have the competence to do.
Many managers endeavour to overcome that lack of competence through two strategies. The first strategy is to follow best practice. Best practice is unlikely to be optimised for the manager’s company, but it avoids getting into the complexity. One can rely on someone else’s thoughts about the best way to do things. By encouraging a generation of managers to follow the herd, best practice is killing Britain. Secondly, and if that wasn’t enough, a few years ago Government suggested that every manager should have a coach. Non-management-qualified coaches now flood the land. If managers were well trained, coaching by generalists would be effective. It would exploit the manager’s expertise to achieve even greater things. As it is, the blind are leading the blind.
So what’s the answer?
Autumn Statement Misses Key Productivity Issues
Arguably, the weak link is management training. It’s managers who determine the technology to be used. It’s managers who invest in their people. So everything starts and ends there. Fix management training and there’s a chance. Just offering more investment in innovation and infrastructure on their own won’t recover productivity. Managers won’t know where to invest and how to exploit.
Managers must get trained – and if they won’t, they must select professionals that have the right management competencies to help them. In the end, we must return to the state existing in the 80s where supervisors and managers in our businesses and industry were sent to the local college as soon as they were appointed. Of course, unlike in the 80s, the scope for management training is huge so there should be no excuse that there’s no college near.
Investors must kick the habit of expecting return on investment in two to three years. German firms take a much longer view. And of course, those trained managers can argue for long-term strategies, cutting the link between performance and pay. A simple link between money and performance has been completely refuted. Management’s not that easy. Even some in the finance sector see the folly of huge bonuses that encourage the wrong worker behaviour.
Now, the complexity won’t go away, but with long-term horizons and better training, managers will be able to engage with the complexities and make better, optimised and relevant decisions. We need to dump ‘best practice’ and start managers thinking for themselves. And, thinking in their own context.
Unfortunately the Autumn Statement leaves that task to the managers themselves. That’s a bit like asking the ill to cure themselves without reference to doctors and a diagnosis!