The UK’s productivity puzzle has politicians, economists and commentators scratching their heads. While the economic recovery has been marked by rising employment, productivity growth has not followed. In fact, had productivity continued to rise at the pre-recession rate, it would be 14 per cent higher than it is now.
What makes the situation puzzling is that, although we have continued to invest in improving our human capital and our tools, the rate of productivity growth is showing few signs of life. A closer look and we can see that total factor productivity (TFP)—the measure of how good we are at turning tools and workers into goods and services that consumers buy—has been taking a hit since the recession.
TFP covers factors such as the deployment of innovation and technology, how effective the market is at separating the wheat from the chaff, and how organisations are managed and led. The latter matters greatly to us at UKCES—how productive people are in work depends on their level of skills, but also on how those skills are used.
Research by the Department for Business, Innovation and Skills has found a clear link between management and leadership skills and productivity: developing best-practice management can improve the performance of an organisation by 23%; a one-point improvement (on a five-point scale) in management practices can have the same effect as increasing the labour force by 25%, or capital investment by 65%.
Defining what good management and leadership looks like is not always straightforward, however. Between December 2014 and April 2015, the UKCES commissioned Ipsos MORI to investigate some of these issues through a survey of over 100 ‘Captains of Industry’, followed up by 20 additional in-depth interviews. Captains are executive board-level directors and chairs from the top 500 industrial companies by turnover and top 100 financial companies by capital employed.
Management and leadership skills were generally viewed as two sides of the same coin by the Captains, and they were seen to consist of two key elements:
- A commercial skills set, including strategic management, financial acumen, and the ability to identify more broadly what a business must do to be competitive and grow; and,
- Softer, people management and interpersonal skills, such as influencing, motivating, team leadership and communication.
Good managers are not necessarily good leaders. To be either you certainly need a combination of commercial and people skills. But, while management skills are described as being more tangible and easy to teach, leadership skills include an additional set of personal qualities, which some Captains described as being difficult to impart.
In addition to seeing beyond the day-to-day operational challenges of a business, good leaders tend to display a range of more specialist softer skills, including the ability to influence others, emotional intelligence, self-awareness and good judgement. Leaders also have the respect of their peers and staff, and actively set the values of their organisation. “Good management is doing things right; good leadership is doing the right thing,” noted one Captain.
Effective management and leadership is, then, no mean feat. Even agreeing its definition can prove challenging, as what constitutes good management and leadership for one employer may not be a perfect fit for another.
In the UK we have some great businesses, but we know that there are also too many with weak management and leadership practices. Our economic recovery cannot rely on getting people into work alone, we also must make the most of the skills and talents of the workforce. All employers in the UK should shift into the extra gear on management and leadership.
In our next blog post we’ll explore how Captains have been developing management and leadership skills in their companies.