Business experts

Expert opinion: The answer to the poor UK productivity puzzle?

Written by Rob Perks.

Rob PerksAs Britain gets closer to leaving the EU, it is worth looking again at that thorny issue of poor productivity amongst British firms and the fact that many foreign-owned firms in the UK are more productive.

In the summer, the Office for National Statistics said they make up one in four large businesses in the UK.

They employ millions of people and, embarrassingly for top British businesses, the largest ones are about twice as productive as domestically-owned equivalents.

The comparison gets worse when medium-sized businesses are assessed. The foreign-owned ones are about three times as productive as similar-sized UK rivals.

Analysis by the Bank of England last year found that foreign-owned companies were not only a source of well-paid, productive jobs but also a source of expertise that rubbed off on British-owned firms.

One word that sums up their approach would be “process,” while another would be “structure”. Both come under the heading of management.

An ONS study cited research that found a positive link between “structured management practices” and the performance of firms. Family-owned businesses, which make up 64 percent of manufacturing firms in the UK, performed especially badly.

Lacking any structure, their productivity was 20 percent lower than their German counterparts.

Why does the UK perform so badly? The authors argued that third and fourth generation “dynastic” firms were more likely to be obsessed with their reputation and doing things the way they had always done them. They refused to adopt new methods and one effect was to run away from managing “underperforming workers.”

While boardroom directors are often, even in British-owned firms, expected to have a management qualification, even an MBA, from a recognised business school, middle managers are almost totally neglected. Many are left to flounder and must make decisions with little training.

The government is now considering measuring the quality as well as quantity of work. This week the Department for Business, Energy and Industrial Strategy will convene a meeting to discuss how to measure the government’s industrial strategy.

Rob Perks is the CEO of Inspire, which is launching a new service to support senior and middle management to gain expertise and share best practice with other firms more effectively. An announcement will be made in the new year.