Monday 15 October 2018 1:58 pm

Think like a small business to solve the productivity puzzle


Economists, some might argue, have a knack for making the vital sound dull, for making the immediate seem remote and abstract.

There’s perhaps no better example of this than the much-discussed “productivity puzzle”.

This “puzzle” often sounds a bit like one of those educational computer games you might try to occupy a particularly precocious five-year-old with, just to get some peace and quiet.

Read more: Action on productivity must take centre stage

But for the UK’s small businesses, nothing could be more significant – in the long run, at least.

In short, the puzzle is this: for the past decade, productivity growth has been basically zero in Britain. That means, for all that we are putting in, we’re barely getting any more out than we did 10 years ago.

From sluggish GDP growth to perennially disappointing wage rises, poor productivity growth is at the root of the problem.

What’s most strange – and most frustrating – about this problem is that the UK is home to some of the world’s most innovative, forward-facing firms. In fact, we have more than our fair share of companies pushing the boundaries of what can be achieved.

Many of these highly productive firms are the large, glamorous type. So when we think of raising our economic game, it’s understandable that our first thought is to look at companies with cavernous R&D budgets.

Much of the debate – and politicians’ attention – follows this line of thinking.

But this distorts the picture – we’re missing the fact that these exciting new processes aren’t diffusing across the economy, raising our game across the board.

Balancing out the shiny but small group of high-performing firms, the UK has a “long tail” of low-productivity organisations. It’s here that we should be looking to make a difference.

In the information age, of LinkedIn and Ted Talks, it seems like it should be easier than ever to enable best practice to percolate through the business ecosystem. But this would be falling in to the trap we’ve been in for too long: we’re not seeing the problem from small firms’ perspective.

As underlined in the Institute of Directors’ report, Lifting the Long Tail, for SMEs often the focus is more on “doing the same with less” (efficiency) than “doing more with the same” (productivity). With eye-watering business costs, particularly in the capital, this is a completely understandable mentality.

Running a small firm is perhaps the most challenging, time-consuming vocation out there. Nonetheless, we shouldn’t shy away from seeking to instil a “productivity mindset” across our business community, and supporting directors to work more “on” their organisation, not just “in” it.

But even when that mindset is in place, we can’t just push out a version of what best practice is and hope that it will grow on its own. Because for firms, it’s not simply matter of whether or not to adopt the latest new thing. There are distinct hurdles to introducing new processes that we need to consider.

To assist businesses with diagnosing, we must start by revamping our business support network.

The support infrastructure we currently have – like growth hubs and local enterprise partnerships – is used by only six per cent of our SME members. Clearly, there’s room to improve.

Of course, the UK is renowned for a vibrant advisory sector. This is not about competing with it, but enabling it – local enterprise partnerships should act as a gateway to the diversity of schemes available through private institutions, social enterprises, universities, and business groups.

Then there’s the challenge to actually implement and absorb these new processes. For this, we need to embed the right skills into enterprises, particularly among directors.

That means improving informal mentoring networks, and bolstering the connections between organisations like Be The Business and industry, to share expertise.

Moreover, we must look to widen our skills system, ensuring that new directors can manage and capitalise on new ideas as well as creating them.

But none of this matters if the bottom line says no. So we also need a new “productivity allowance”, an additional tax relief for productivity-enhancing tech like data analytics and cloud-computing, targeted at SMEs.

This would make it abundantly clear to even the busiest of directors what it is we want to promote and why they should invest in their firm’s productivity.

Which brings us back to the key point – any policies we use must work from businesses’ perspective.

We’ve long talked about the “productivity puzzle”. It’s now time to move the discussion out of the ivory tower, and into the office.

Read more: UK productivity is still lower than it was before the financial crisis