In the final part of our Measuring Productivity Blog Series, Professors Brian Morgan and Nick Clifton examine how companies in Wales view and manage their own productivity and how productivity is affected by firms’ management practices.
A recent report published by Cardiff Metropolitan University’s Creative Leadership and Enterprise Centre (CLEC) gathers new evidence on management practices in Wales and reveals that an underlying cause of the productivity gap between Wales and other regions relates to firm level management.
Managing Productivity in Welsh Firms examines how companies in Wales view and manage their own productivity and how productivity is affected by firms’ management practices. Drawing on the findings of face-to-face interviews with seventy-four companies from a variety of sectors, the research sought to understand how productivity in Welsh companies is related to:
- the types of objectives firms set;
- the strategies they use to achieve these objectives;
- the performance measures they utilise;
- the measurement techniques and management practices they employ; and
- whether they foster innovation.
Previous studies have identified poor management practices as a key reason for underperformance. The survey reveals that whilst three quarters of firms measure labour productivity, only a quarter measure the productivity of IT. Over a third (37%) of firms reported that they had a strategic plan in place. Leadership is regarded as important in terms of improving performance (86%) and driving innovation (80%). However, three quarters of firms do not have staff reward schemes in place to promote innovation. Firms report that the key barriers to improved productivity were management capacity; skills; regulatory bureaucracy; and access to information.
The key drivers of productivity were found to be correlated with factors like levels of investment in human capital – particularly work-based skills and managerial skills; investment in innovation and in upgrading information systems and other technology; and involvement in networking activity. The survey identified some strategic limitations in innovation capacity and provides evidence of an ‘innovation paradox’ in Wales – despite being in receipt of significant public funding to support innovation there is a lack of absorptive capacity to make good use of such funding. Addressing these issues will require enhanced business support in terms of management and leadership development.
In line with previous research, the report demonstrates a close link between more structured management practices and improved productivity. However, within a significant number of firms, management appears to have an ad-hoc approach to controlling the strategic direction of the business. Measuring how the business is functioning in terms of basic financial and output indicators is the first step towards better management. However, introducing a more general approach, like the Balanced Scorecard, would help to identify a broader set of KPIs that could improve things further. In addition to financial metrics, managers should also be assessing factors such as employee engagement; employment reviews and the proportion of turnover spent on training or R&D.
The lack of a strong strategic orientation among a number of businesses in the study highlights the need for more effective leadership. Previous research has shown that the channels for improving productivity are at their most effective when employees have more autonomy to decide how to do their jobs, more supportive line management, more meaningful appraisals, and when their views (and those of their colleagues) are heard. Improving employee engagement is therefore an important leading indicator of upgrades in firm performance. However, firms cannot expect their employees to be engaged if their managers are not. Consequently, leadership skills development programmes should have a focus on employee engagement. Targeted initiatives to improve the skills of SME owner-managers and other key staff could have a positive impact at both the level of the individual firm, as well as the wider locality within which they are applied.
Key findings and recommendations from the report including links to related articles are available here.
The report was produced by the Hodge Project Research Team at Cardiff Metropolitan University as part of a wider programme of research funded by the Hodge Foundation which seeks to identify the best measures and policy options for triggering transformational change in the Welsh economy. Please contact the research team for further information.
|Brian Morgan is Professor of Entrepreneurship at Cardiff Metropolitan University, and Director of its Creative Leadership and Enterprise Centre (CLEC). |
Nick Clifton is Professor of Economic Geography and Regional Development at the School of Management, Cardiff Metropolitan University.