'WE'RE just not a high-performance economy. We don't want it enough,' says Rebecca Harding, lead researcher on a ground-breaking study of UK productivity by the Work Foundation.
The report, The Missing Link: From Productivity to Performance , was sponsored and led by business and takes a novel line on a problem that has dogged the UK for well over a century, defying the best efforts of countless panels, task forces, commissions of inquiry and academics. UK productivity lags behind that of the US, France and Germany by 15-25 per cent depending on the measure used, a gap that makes everyone in the country pounds 6,000 worse off, according to a Treasury calculation.
Why has the gap been so persistent? Part of the reason, suggests the report, lies in the different language economists and companies use to frame the issue. Economists tend to attribute productivity differences to quantitative factors such as capital investment and workforce skills, both areas in which the UK trails. That may be true as far as it goes, but it's not very far. Unlike markets, which evolve blindly, companies are entities that make choices about organisation and strategy. So they need to be looked at through a lens that tries to identify why they don't make the choices that lead to higher productivity, and what actions they could take to do so.
Fundamentally, the report found that companies simply don't see productivity as a useful measure. High performance is seen as a much more useful way of approaching issues of underperformance, say the researchers, who have constructed an ambitious 'high-performance index' to measure the difference between good and poor performers and indicate where the latter need to raise their game.
The Work Foundation identified five areas that companies need to manage to drive high performance and business success: customers and markets, shareholders and governance, stakeholders, people, and innovation and creativity. Measuring companies across these broad areas, says Harding, yielded some startlingly consistent results.
At top level, as Harding suggests, the UK is too attached to the status quo to be a high-performance economy. The gap is as much one of creativity and innovation as productivity, with performance undermined by risk- aversion and low skills. Unlike in other countries, the institutional framework is fragmented, so that partnership is rare.
And having exhausted the market reforms of the 1980s, too many companies are still trying to improve performance by making people work harder rather than smarter, with swiftly diminishing returns.
However, the findings at firm level also provide important pointers to what it takes to move forward. First and most significant, top performance is holistic. Not only are high performers consistently superior over all five areas than the laggards, they manage the interdependencies between them better, so that the total is more than the sum of its parts.
Focusing disproportionately on just one of the areas, such as shareholder value, is likely to damage performance. By the same token, ramping up capital investment is not the answer. 'This disposes of one-dimensional management fads and silver bullets,' says Harding. Instead, 'high performance requires an integrated approach, optimising strategy and delivery rather than "cherry-picking" objectives.'
In turn, the key to delivering the synergies is people. The report says: 'Managing the spaces in between can only be achieved by a workforce that sees the big picture and is enabled and motivated to act, with middle managers able to translate strategy into workforce goals.'
Also necessary (and often lacking) are ambition and adaptability. Aspiration provides the will and stamina to adapt, and adaptability is needed to ride the shocks. Depressingly, just 43 per cent of the sample had an explicit growth goal. The evolving organisation is held together by a common purpose focused on growth and risk-taking, well summed up by Will Hutton as 'organisational vocation'.
The benefits of high performance for productivity are strikingly large. The Work Foundation model shows that companies in the top half of the index are 42 per cent more productive than the bottom quartile. The average UK firm is 25 per cent off the productivity pace of the top performers. Every 1 per cent improvement across the five areas is reflected in a 0.7 per cent productivity gain.
The implications of the work are clear and in some respects common sense. When it comes down to it, productivity is not about economists' measures of quantities of capital and labour, but qualitatively how well they are combined and managed.
The biggest intangible is management, and there is no 'solution' to underperformance and low productivity that does not engage with the reality of the UK's woefully undereducated and untrained management cadre.
In turn, enlightened holistic management needs a supportive governance framework that doesn't put the shareholder cart before the company horse. Shareholder value, like productivity, is the result of high performance, not the cause of it.
The Observer, 16 November 2003