Sarah Glendinning

Sarah Glendinning, regional director for the CBI

We need more magpies

Sarah Glendinning, regional director for the CBI, says businesses need support to adapt rather than stick with what they know to help the North East economy to thrive.

A New Year represents the opportunity to both reflect and look forward. An opportunity to take stock but also make plans.  Brexit has obviously dominated the headlines in 2017, but we must not lose sight of what opportunities lie ahead in the national agenda for 2018

The world is moving at such a fast pace that it can feel out of control, but there are constants. Businesses need clarity and certainty, but they are also pragmatic and while Brexit uncertainty looms, every day companies are planning for the worst but hoping for the best. Many we work with are looking at what they can control, what they can directly influence.

One area lies within the Government’s Industrial Strategy. Nine in ten firms see a modern Industrial Strategy as vital to improving standards in the face of Brexit uncertainty and a sombre economic outlook. This is a route to raising living standards in every corner of the country.

Productivity and growth through local industrial strategy is critical and working as a region we can maximise the opportunities the announcement of the white paper represents – an announcement where focus on five foundations - the five priority areas of People, Ideas (Innovation), Business Environment, Infrastructure and Place – are at the heart of improving productivity.

The white paper includes a clear vision of what we want the UK economy to look like in 2030, focusing on research and innovation, and sets out an approach to tackle this lacklustre productivity performance.

This year the CBI set out to research the reasons for the variation in productivity across businesses in the UK and ways of tackling the problem.

What the research has shown is that we need to move more businesses from being “Ostriches” to becoming “Magpies”. Magpie companies have the skill and the will to find and adopt readily available technologies and management best practices – proven to lift productivity and pay. Ostriches stick with what they know.

The latest in cutting-edge technologies always catch the eye – and the headlines. Three technologies in particular - Artificial Intelligence (AI), the Internet of Things and Blockchain - are not just on the business fringes anymore, but shifting rapidly into the business mainstream over the next five years.

But building a successful business is not always about the next big thing in technology. If we are to truly get to grips with tackling inequality and our deep-seated low productivity problems in the UK, then we need more businesses adopting the tried and trusted technologies of today, not just looking to tomorrow.

This dark cloud of low productivity does not hang over all firms. The high-fliers of UK business are more competitive than those of many other countries. But the UK has a greater share of firms at the lower end of the productivity scale than France and Germany, employing over two-thirds of the workforce.

Many UK Businesses suffer from a failure to adopt that leads to big disparities in productivity and pay. Low take up of readily available technologies and management best practices is driving the UK’s productivity problem. 

Best practice must reach a greater range of businesses, improving productivity through the adoption of technologies and ideas that are proven. This is what we mean by the “diffusion of innovation”

More firms behaving like magpies, following what successful firms already do, and fewer behaving like ostriches sticking with what they know, would help to close the productivity gap between the best and the rest of UK businesses. Closing this gap could add over £100bn to the economy and reduce the difference between the highest and lowest earners in the UK.

The UK has a great record and strong reputation for cutting-edge innovation with renowned excellence in science and research, and an improving landscape for commercialising ideas. The highest performing businesses champion innovation through outstanding R&D, collaboration and leadership.

But this is only part of the battle. Once innovations are created they are not being taken up as quickly as they should be across the economy. While support for UK innovation is improving, the blind spot is the diffusion of innovation.

For example, the UK lags European counterparts - in 2015 the proportion of UK firms adopting cloud computing was nearly 30% below the EU’s best performers. The proportion of businesses with website, internet trading capabilities, CRM and ERP systems in the UK today is still below levels in Denmark in 2009.

And, a crucial component of productivity is adoption of effective management and leadership styles. This is crucial as it enables firms to take up new technology and make the most of their investments.

Identifying the key areas to improve diffusion of adoption offers a golden opportunity to raise the UK’s competitiveness.

Working together, government and business can create more magpies and fewer ostriches. Creating world-class innovation is only part of the battle, however. For innovations to realise their full potential, we must get many more businesses lifting their heads and taking up the technologies and ideas that are right under their noses.

This should be made a national priority, starting with the industrial strategy and putting innovation, and the diffusion of innovations, at its heart. The North East stands ready to take on this challenge in 2018.