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Middle 60 per cent of UK firms identified as “make or break” for improving UK productivity

A new report, “Raising UK competitiveness:Inside the mindsets of leaders of firms”, has called for a change of focus from the “long-tail” of less productive firms to the 60 per cent of British businesses that are neither the highest performers nor the least productive laggards.

The report concludes that better understanding the mindsets and actions of business leaders and targeting them with appropriate support, referred to by economists as the “diffusion” of good business practices, will be crucial to closing the UK’s long-standing productivity gap.

The report found that:

  • There is a “majority middle” of UK businesses who have the highest potential for making gains through better adoption of management practices and technology
  • Majority of business leaders (55 per cent) are not confident that they are focusing in the right areas. Be the Business identified a lack of performance measurement and use of external advice as leading to widespread failure to improve performance
  • Too few businesses measure their productivity or compare themselves against other firms. Only 58 per cent of firms invested in measuring their performance in the past two years. These firms are less likely to identify where performance improvements can be made
  • SMEs look to where they feel most comfortable for improvement advice. Almost a third (29 per cent) of SMEs don’t look externally for support, relying instead on internal expertise. SMEs are less likely to turn to trade bodies (20 per cent), while only 14 per cent look to other businesses in their industry or region for advice on how to improve
  • Management training is now the biggest investment priority for small businesses. As a tighter labour market feeds through into small business behaviour, 85 per cent of small firms expect to invest in management skills in the next two years (up from 55 per cent over the past two years).

Be the Business CEO, Tony Danker, said: “Conventional thinking would suggest that business success would be diffused across our economy over time. But that has failed to happen in Britain for the past decade. The report illustrates that while most of our businesses are keen on improving and growing their business, too few are good at adopting the successful practices of the most productive and competitive firms.

“Some 60 per cent of our businesses are neither leaders nor laggards, but are modest growth businesses who could unlock far more capital and capability to grow. These are the make or break businesses whose success will determine whether we have a productivity recovery and whether we compete successfully as a country in the coming years.”

Business improvement

The report makes the following recommendations for businesses leaders:

  • Gain better self-awareness. Measure your performance to understand where your real issues lie, and which are your priorities to address
  • Invest in the key areas of improvement prioritised by purposeful improvers. Make sure that strengthening your business planning and strategy, employee motivation and engagement, and leadership and management skills are priorities in your firm’s business plan every year
  • Connect with others to learn and improve. While many firms connect with others for exposure to new ideas, there is far less real collaboration with peers and experts and far less connecting to help drive business improvement

The report makes the following recommendations for the business support ecosystem:

  • Be far more relevant to SMEs and stay customer focused. Start by walking in the shoes of SMEs on the “demand side” of your services. Use the language they use and try to understand their issues from the inside, using your knowledge to illuminate their blind spots and broaden their perspectives
  • Help firms gain self-awareness. Firms’ performance will benefit from more interventions that build the self-awareness of business leaders and allow them to measure, connect with others, and boost their own continuous improvement and management skills
  • Ensure programmes blend peers and experts. Peer-based networks are the most successful way to drive up adoption. Much diffusion activity by experts is not yet “customer credible”. Successful adoption by firms is inspired by seeing “people like me doing things I can do”, whereas much of today’s diffusion activities are from “people unlike me, doing things I can neither trust nor relate to”.

Business secretary Greg Clark commented: “Productivity is one of the key economic challenges of our time which is why we helped establish Be the Business, to raise the productivity and boost the earning power of SMEs across the UK.

“I’m hugely encouraged to see the successes of Be the Business initiatives, like the Mentoring for Growth and the Productivity Through People programmes, which are combining the best academic thinking with business expertise to make our SMEs more productive.”

Moving the needle

The UK has experienced longstanding productivity underperformance since the financial crisis. The latest Office for National Statistics (ONS) flash estimate show productivity fell by 0.2 per cent in Q4 of 2018, compared to the same period a year earlier.

The report launch coincides with the launch of a major strategic partnership between Lloyds Banking Group and Be the Business. The two organisations will work together to support Lloyds Banking Group’s clients and the leaders of businesses across the country to improve their management and technology practices, thereby improving the performance of firms nationwide.

David Oldfield, group director & CEO, commercial banking, Lloyds Banking Group, added: “The UK’s productivity challenge has been well documented, and this research highlights the need for businesses to have access to sound, expert advice and assistance so they can upskill their workforces and invest for future success. We’re committed to helping British businesses prosper, whether they’re focused on the UK or international markets.

“As part of this, we’ve already pledged to lend £18bn to UK businesses in 2019 and, in partnership with Be the Business’s Productivity through People programme, are launching a new productivity initiative. Piloting in the West Midlands it will help SMEs fund apprenticeships to build skills for the future. By working together, the UK’s business community will become more productive and, ultimately, even more competitive.”

To download the full report, please visit our research homepage.

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