Left: Economic Growth Solutions managing director Martin Coats
Economic Growth Solutions managing director Martin Coats says increasing productivity is one of the key factors in helping the UK economy grow sustainably.
The UK Government has, for some years, targeted improved productivity and competitiveness performance. It’s productivity framework identiﬁes ﬁve drivers that interact to underlie long-term productivity performance: investment, innovation, skills, enterprise and competition. Policies that have been designed to increase productivity are often targeted at these drivers. However, to determine the success, the accurate measurement of productivity is vital.
Part of the UK’s recent poor labour productivity performance has been that low wage growth has increased the attractiveness of employment for companies. This was a major factor causing employment to hold up well during the downturn and to since pick up markedly. It has helped companies to hold onto workers, retaining their experience and knowledge.
Given the uncertain economic and political outlook, some businesses may also be trying to meet demand by taking on labour rather than commit to investment. The relatively low cost of labour relative to capital certainly supports employment over investment.
The UKs productivity puzzle is the unexplained disparity between the UK’s economic performance improving and its labour productivity per hour worked falling and is also a source of much debate and analysis. The mystery is a popular topic for media, politicians and economic commentators and it’s not difficult to see why.
Business Secretary Greg Clark launched the Government’s ambitious Industrial Strategy last November, setting out a long-term vision for how Britain can build on its economic strengths, address its productivity performance, embrace technological change and support businesses and workers.
An “industrial strategy” is traditionally understood as a set of government interventions that seek to support or develop specific industries – especially manufacturing. However, current usage of the term is much broader. Industrial strategy in recent times has been more about coordinating a wide range of economic policies to achieve objectives, which need not be purely economic. For example, an industrial strategy can have social and environmental aims.
It becomes clear, that at the whole economy level the UK faces a substantial productivity gap – both compared to competitors and its pre-crisis trend. However, the picture becomes less clear when looking at how different sectors of the economy have performed.
Official statistics indicate that the manufacturing sector’s productivity growth outperforms both that of the services sector and the economy, both before and after the recession. This suggests that manufacturing is not at the centre of the UK’s weak productivity performance.
Economic Growth Solutions (EGS), deliverer of the Manufacturing Growth Programme, supports the government’s long-term plan to boost the productivity and earning power of people throughout the UK and the Industrial Strategy moves us in the right direction.
Martin Coats, managing director at Economic Growth Solutions, says: “Increasing productivity is one of the key factors in helping the UK economy grow sustainably. The Manufacturing Growth Programme, delivered by EGS, has now supported over 2,000 ambitious manufacturing companies to make improvements, become more productive and ultimately to grow.
“We will be delivering productivity improvements to a further 1,200 companies over the coming months which will support the aims of the British Government”.
It is important that the economy focuses on both our existing and emerging strengths and invest in the technologies and capabilities that will generate opportunities domestically and across the world.
The government’s plan to make additional financial resources available to Local Enterprise Partnerships that demonstrate ambitious levels of reform is also a fantastic opportunity to identify, understand and remove barriers to growth for small and medium-sized enterprise (SME) manufacturers.
Recent Manufacturing Barometer surveys, delivered by SWMAS (part of the Excellin Group) in partnership with Economic Growth Solutions, focused on the term ‘productivity’ with the aim to delve deeper into the productivity puzzle and what it really means to manufacturers.
The Manufacturing Barometer is the largest survey conducted of SME manufacturers in the UK and asks senior decision makers for their views on factors influencing business performance and the future of the sector. Questioning more than 320 senior decision makers of SME manufacturing businesses across the country provides strong clues as to why manufacturers are bucking the trend and, more importantly, how they are doing it.
The overriding feeling from the report is one of optimism, with 70% of businesses expecting sales to increase over the next six months – the highest recorded since quarter two 2015.
They believe that economic growth will be achieved alongside increased employment, with 48% predicting a rise in staff numbers. Over half (56%) of the SMEs we surveyed expect to increase their investment in machinery and premises. By committing to investment, manufacturers are encouraging innovation in new product development and resource for more efficient processes.
Manufacturing has proved relatively buoyant in recent years despite economists’ warnings that the UKs productivity continues to lag behind its major trading partners such as the United States, France and Germany.
With the impact of Brexit further underlining the importance of efficiency, the government’s industrial strategy addressing the UKs “productivity puzzle” has increasingly looked to robotics and automation to boost productivity levels.
However, when asked in last quarter’s barometer survey how they would most like to improve productivity, most respondents said they are prioritising smarter working practices and better utilisation of existing equipment over new equipment or automation.
Dean Barnes, regional director of Economic Growth Solutions, adds “This barometer delved deeper into how manufacturers are tackling the productivity puzzle and it’s hugely positive to see that more respondents are planning to invest in machinery and premises, and around half are committed to recruiting staff.
“However, with well over two thirds of manufacturers reporting expected sales growth, it’s clear that unlocking the full potential of the existing workforce remains key to sustainable productivity gains. It is of paramount importance that businesses are able to access specialist help and advice to grow and improve, and fully realise this potential.”
Peter Bruch, managing director of Birmingham-based precision components manufacturer AE Aerospace, concludes: “We have focused on productivity improvements since our management buyout four years ago. The biggest difference has been the investment in our people and systems, the team understand what work they need to do, why and how it benefits them to improve what we do. The systems we have developed enable work to be planned on machines with people and available in the right place at the right time.”
Over the past 16 months, the Manufacturing Growth Programme has committed £2.6m of tailored manufacturing support to assist businesses in making vital improvements with a view to increase productivity and creating jobs.
Local manufacturing growth managers, who work with ambitious firms to help them overcome barriers to growth, can support management teams to introduce lean manufacturing, improve scheduling, put in better supply chain management controls and secure finance towards vital improvement projects.
This isn’t just a quick fix; you need to take a more holistic approach to improve your company. This includes building a high-performance team, encouraging innovation among your staff and identifying skills for the future.
The positive outlook from SME manufacturers, and their commitment to invest, bodes well for improved productivity. These same strategies could be just as effective in solving the issue in other sectors, helping to train and develop staff and improve business processes.
Get the balance right and we may just have found the elusive answer to the productivity puzzle.
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