Many Welsh businesses are under-achieving because of a failure to adopt performance-improving measures in their organisations, a study by leading academics at Cardiff Metropolitan University has found.
The Productivity Report, which used funding from the Hodge Foundation, found of those surveyed:
- 60pc are achieving a profit below the average ratio for their sector
- only 37pc have a strategic plan
- 75pc do not have a formal staff reward scheme in place to promote and encourage innovation.
The report comes as new ONS figures show that Wales is once again propping up the productivity league table and remains the least productive region in the UK.
The Productivity Report has been developed by Cardiff Met academics – Professors Brian Morgan and Gerry Holtham, and other members of the Hodge Research Project.
The study sought to provide a better understanding of how firms’ management practises affect productivity. Evidence for the report was gathered following interviews conducted with 74 companies across Wales.
One of the key findings was that many firms in Wales take a fairly ad-hoc approach to strategic planning, with only a few having a full strategic plan in place. These firms also tend to have limited management information systems available to them for measuring performance. Together these deficiencies help explain the productivity distribution in Wales which highlights the prevalence of underperforming firms.
As a result of the findings, the academics have produced a series of recommendations which they suggest could become part of an action plan for improving productivity among Welsh business:
- Managerial Capacity: How can management standards be improved in firms?
The research demonstrated a close link between more structured management practices and improved productivity. For example, a broad ‘Balanced Scorecard’ approach to measuring performance would help to identify a comprehensive set of KPIs that would assist in raising productivity. In addition, the lack of a strong strategic orientation in Welsh businesses highlights the need for more effective leadership of the business.
- Skills Training
When asked: what was the main restraint on growth, the most common answer was finding people with the right skills. Smaller firms which trained their workers via apprenticeships, often complained that, once trained, they were being poached. To overcome this problem, the training levy was introduced in the UK to incentivize firms to do their own training. However, in terms of higher apprenticeships, the Welsh system excludes vocational qualifications at level 7. This is counter-productive given the importance of improving professional management in Welsh companies.
- Encouraging Industry Solutions for Effective Networking
There are a number of trade associations and business clubs offering various services to their members such as providing business guidance and export assistance. However, there is an under-utilisation of these associations by Welsh firms and there is a lack of appreciation of the significant benefits of effective networking – such as joint working and the exchange of information. Business support services should explicitly facilitate more effective networking and collaborative activities to address productivity and performance issues.
- Consistency of Government Policy
There needs to be greater consistency in the Government’s approach to industrial support. Too many programmes are ended abruptly with no replacement being put in place. Evaluation and consistency are often absent. Policy inconsistency of this sort increases the uncertainty faced by businesses. It reduces investment and limits improvements in future productivity.
- Regional Delivery Structures
The Government needs to create a new arms-length regional structure and integrate it with the City Deals with the objective of raising GVA and productivity in Welsh firms. A database should be developed in each region of all firms above a certain threshold in terms of performance in order to identify potential growth firms with the capacity to raise their productivity. These agencies could also encourage inter-firm collaboration – and also business-university collaboration.
- The Digital Deficit and Artificial Intelligence (AI)
There seems to be a lack of recognition by many firms that investing in ICT, especially superfast broadband enabled services, is likely to improve their productivity. The public sector should continue to prioritise investments in broadband to reduce the Digital Deficit and encourage more investment by firms in digital technology and other forms of intangible capital. A future challenge for firms will be integrating AI into production processes in ways that can improve efficiency.
Professor Brian Morgan said: “While many firms in Wales consider productivity to be an important factor in shaping their overall performance, they often fail to identify and measure its various aspects so are not well placed to implement improvements.
“Our new productivity report provides key recommendations to help resolve the issues businesses face and help boost productivity in Wales. This is not about the macro problems which businesses cannot affect, such as the M4 relief road. But more about issues such as technological advancements and strategic planning that are under their control.
“It is clear that one underlying cause of the productivity gap in Wales relates to managerial skills. The potential benefits from raising productivity are significant, and the knock-on effect that this could have on Welsh living standards is huge. Therefore, improving management performance should be an important candidate for economic policy intervention in Wales over the next few years.”
Ian Price, Director of CBI Wales, said: “The Productivity Report is a vital piece of work that can help drive productivity here in Wales. However, while the recommendations are good, it is imperative that we engage with business leaders to help drive this forward.
“While there are some great organisations in Wales that are doing great work and help contribute to overall productivity, whether that’s within NHS Wales, in our education systems or in business, there is an urgent call for outstanding leadership to help drive change and this research further confirms the need for more leadership training.”
Professor Morgan continued “The Hodge funded research project shows a positive correlation between employee engagement and productivity (and therefore profitability). Increasing employee engagement is one of the best ways to improve productivity. To help implement the report’s recommendations, Welsh Businesses and the Government should create a new era of partnership to support the economy and create opportunities for business growth.”
Managing Productivity in Welsh Firms will be formally unveiled at the Productivity Summit on March 12, 2020 at Radisson Blu Hotel Cardiff. The event will facilitate debate on issues surrounding productivity and will include a number of keynote speakers, such as Stephen Phipson CBE, Chief Executive of Make UK; Caroline Thompson, Head of Partnerships for Alacrity Foundation; Mike Moran, CEO of Proton PLC; and Maireadh Pedersen, CEO of Quay Pharma.