If there is a creed of productivity, then Chris Mayne is a devout follower. In 2020, Mayne was appointed as the managing director of Forsberg Services, a precision systems maker, and he has since implemented various strategies to improve the business. Through digitization, clustering, scorecard implementation, upskilling, and leadership development, Mayne has led Forsberg Services and its 50 employees to achieve an annual turnover of over £12mn, compared to £6mn in 2020 when the group employed only 32 individuals.
Although Mayne doesn’t use the term “productivity” frequently, he understands its significance in the context of Forsberg Services. The company, which serves major defense manufacturers, focuses on creating tailor-made precision systems, making the conventional approach to productivity less applicable. Mayne, however, is at the forefront of the UK’s collective efforts to solve the mystery behind why British workers are less productive compared to their counterparts in countries like the US, Germany, and France.
The Office for National Statistics’ latest data reveals that the UK’s output per hour worked was just 0.6% higher than its 2019 average in the first quarter of 2023. This slow growth in productivity has been consistent since the financial crisis and falls below the trend observed between the early 1970s and 2008. Productivity might seem like an abstract concept, but its impact is tangible. Increased output leads to higher wages and a stronger economy. Unfortunately, the UK’s productivity has only grown by 0.4% per year since the financial crisis, which is less than half the rate of the 25 wealthiest OECD countries.
As a result, the UK has fallen behind competitors like France and Germany in terms of household income. Recognizing the significance of productivity in revitalizing economic growth, both major political parties are committed to addressing this issue. However, progress remains minimal. A recent survey conducted by Be the Business, a government-backed organization dedicated to promoting productivity in the UK, indicates that British companies have plenty of confidence but lack commitment when it comes to actions and investments aimed at improving productivity.
Among the G7 countries, UK businesses rank fourth in terms of confidence, but fall to fifth in business performance and sixth in capabilities. Compared to their Japanese counterparts, UK companies marginally invest in areas such as management, leadership, innovation, operational efficiency, and human resources processes. The report highlights that while confidence can be beneficial, it can also lead to complacency—a characteristic that the UK seems to possess.
This lack of progress in productivity improvement can be attributed to various factors that managers have limited control over, such as the overall investment climate, educational outcomes, skills gaps, planning regulations, political instability, and post-Brexit trading rules. The frequency of changes in prime ministers, chancellors, and business secretaries has caused disruptions, hindering stable progress.
Additionally, a relative lack of business investment contributes to lower output per worker. If UK business investment had matched the average of France, Germany, and the US since 2008, the country’s GDP would be nearly 4% higher today, resulting in higher average wages. The UK’s share of business investment in GDP has declined in comparison to other high-income OECD countries, indicating a recipe for relative decline. Smaller businesses face challenges accessing long-term capital, further impeding investment and growth.
To address these issues, the Resolution Foundation recommends stronger worker representation on larger company boards, stabilization of economic policy, pension reforms, and adjustments to tax incentives for capital and research investment. Bart van Ark, the managing director of the Productivity Institute, believes that many UK companies lack interest in making long-term investments, as they are satisfied with slow growth and serving local markets. This lack of interest is reflected in the stagnation observed in the steps taken by UK businesses to measure and improve productivity since the onset of the pandemic.
There have also been concerns about the quality of UK managers, with some attributing lagging productivity to their capabilities. However, Greg Thwaites from the Resolution Foundation argues that the long tail of lagging businesses in the UK doesn’t appear to be worse than in other countries. Furthermore, small business owners often work extensively in their businesses due to the stakes and pressures they face, leaving limited time for strategic planning and investment.
The lack of management training is also a contributing factor to the UK’s productivity challenges. The Chartered Management Institute found that fewer than one in five UK managers received any training before assuming their roles. Moreover, UK managers are not keen on seeking external advice, as evidenced by the decrease in the proportion of leaders seeking such advice between 2018 and 2020.
Overall, the UK’s struggle with productivity improvement persists despite various efforts and challenges faced by managers. To truly overcome these obstacles and improve productivity, it is crucial for businesses to invest in long-term strategies, seek external advice, and focus on training and development opportunities for managers. Only then can the UK achieve higher output per hour worked and ultimately foster a more prosperous economy.
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