The Hodge Research project at Cardiff Met has undertaken a survey of a broad and diverse range of businesses in Wales seeking to find some answers to the ‘productivity puzzle’.
Welsh productivity has been below that in most other parts of the UK for a very long time. This report seeks to provide a better understanding of some of the more micro- elements of this productivity puzzle in Wales. This Interim Report was produced by the Hodge Project Research Team at Cardiff Metropolitan University, and made possible by support from The Hodge Foundation.
Cardiff Met Research
Last week’s Business Section of the Western Mail (27/11/19) had an interesting opening statement: “The Welsh economy will grow at one of the slowest rates of any part of the UK next year, with poor productivity remaining a major issue” (says a PwC report).
This was a timely reminder of an important economic problem that is undermining living standards. It was also well-timed because, at Cardiff Met, we have just completed a research project involving a survey of 74 companies to better understand the ‘productivity puzzle’ in Wales.
The report is part of the Hodge Research Project and draws on an analysis of the results of a survey of a broad range of businesses in Wales. It seeks to provide a better understanding of how firms’ management practices affect the productivity puzzle whereby Wales lags other countries.
Cardiff Met’s research has gathered new evidence on management practices in Wales against the background of our low productivity economy.
It finds a wide range of managerial skills being used in Welsh companies, but, rather worryingly, it also found that many firms exhibit poor strategic planning and have very rudimentary management systems in place to measure and control performance.
Strategic management and leadership is found to be relatively difficult for many small firms where owner-managers spend most of their time reacting to adverse events or opportunities. Relatively few firms articulate strategic goals and communicate them to staff. To some extent, this is a corollary of small size and limited managerial “bandwith”.
Whilst 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.
Productivity and Leadership Styles
There was a clear stratification among the firms interviewed for the research. Firms that had survived longer, and firms that were larger, tended to have tighter managerial control, for example, in that senior management teams met more often and regularly monitored financial accounts and key performance indicators (KPIs). In a number of sectors, it is important for firms to get over a size threshold that enables them to employ more specialist managers.
In the survey, firms engaged in exporting tended to use more state-of-the-art management practices like lean production techniques and other forms of benchmarking than firms with a purely domestic market.
This seemed to indicate the benefit of competition in sharpening managerial performance but could also reflect degrees of managerial ambition. Go-getting firms tend to be the ones looking for sales opportunities elsewhere.
In the run up to the general election, and with Brexit imminent, it is important that politicians pay attention to the underlying causes of poor productivity in the economy and work to address it by improving the level of managerial skills. This will become even more imperative for Welsh firms as we leave the EU because they will need to improve their management systems to take into account the tax changes and new trading arrangements induced by Brexit.
Hence the Hodge report recommends that Welsh Government policymakers should focus on:
- Providing management education and training for firms to address their productivity challenge and to improve management skill levels.
- Helping firms to benchmark effectively against frontier firms with regard to improving management practices and KPIs.
The 20Twenty Business Growth and Leadership Programme addresses these issues by upskilling senior management teams and fostering innovation and business growth in existing Welsh companies.
Strategic Management and the Productivity Gap
It is clear from our research that an underlying cause of the productivity gap between Wales and other regions relates to firm-level management.
Elements include the objectives firms set for themselves combined with the control strategies; performance measures; measurement techniques; and the means used to foster innovation. These issues represent significant challenges not only for the firms themselves, but also for those that aim to provide them with effective support.
It is an indication of the priority – or lack of – that some business leaders give to addressing strategic development.
Indeed, as the findings show, firms become more productive as they grow, which is likely to be due – amongst other issues – to limitations of management attention span and the need for the firm to hire specialist managers to improve performance in specific areas.
As the survey finds, the majority of leaders consider themselves to be at the helm with regard to factors concerning improving performance, driving innovation, and target setting. However, the lack of a strong strategic orientation in a number of businesses draws into question the efficiency of this leadership.
This is an acknowledged management issue that leadership initiatives at Cardiff Metropolitan University have sought to address in Wales for a number of years through the 20Twenty Leadership & Business Growth Programme.
The survey also finds that the more graduates and apprentices a firm has the more efficient it is, although this may be a signal more than cause and effect. Simply hiring graduates and apprentices many not necessarily make a firm more efficient, but efficient firms are not afraid to hire people who know more than the existing management, and understand the importance of building and maintaining know-how.
The importance of leadership was regarded as high by most firms in terms of improving performance (86% of firms), driving innovation (80%), and setting targets (80%)
The survey indicates that firms need to grow in a context of stability with regard to its ownership, leadership and management. A limited number of takeovers may be positive by introducing fresh resources, but if ownership or management changes more frequently, the firm is likely to go backwards.
The Hodge Project Research Team Consists of:
- Brian Morgan
Brian Morgan is Professor of Entrepreneurship at Cardiff Metropolitan University, and Director of its Creative Leadership and Enterprise Centre (CLEC).
- Gerald Holtham
Gerald Holtham is Hodge Professor of Regional Economy at Cardiff Metropolitan University. He is also honorary professor at Cardiff University’s Business School and a Fellow of the Learned Society of Wales.
- Selyf Morgan
Dr Selyf Morgan works as a researcher at CLEC on a range of economic development areas including food and agriculture, the construction industry, and urban development.
- Robert Huggins
Robert Huggins is Chair of Economic Geography and Director of Research and Innovation at Cardiff University’s School of Geography and Planning. His areas of research interest and expertise include regional economic development.
- Nick Clifton
Nick Clifton is Professor of Economic Geography and Regional Development, and Research Excellence Framework coordinator at the School of Management, Cardiff Metropolitan University.
- Jeff Davies
Jeff Davies is lecturer in finance and specialises in the analysis of company performance. He is an author of four books focused on economics and management.
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