Understanding Productivity Practices
34 Pages Posted: 22 Aug 2019
Date Written: August 19, 2019
The productivity puzzle: The UK’s lacklustre productivity is a challenge at a national and regional level. The South West appears to have a higher density of firms at this lower end “peak” of the productivity distribution and a thinner distribution than other regions in the UK. Average firm-level productivity is seen as an important determinant in the spatial differences in labour productivity between regions. Hence, it is important to take a firm-level perspective.
Measurement challenges: Approaches to measuring productivity are controversial. To understand productivity growth, a range of factors must be considered. These include regional differences, ecosystems, market competition, inward investment, sector-specific strengths and the implications of wider regime elements, such as taxes, leading to complex questions about appropriate ways to model and measure productivity. At the firm level, prior research suggests that firms only have a partial understanding of productivity and many experience difficulties in measuring it. Specifically, capacity and capability are lacking for analysing productivity performance data, and few firms could describe how productivity matters for wages.
Management practices: There is some evidence that good management practices may have a positive effect on firm-level productivity. Management practices are broadly "what an organisation's managers do: how they plan, deliver and utilise the firm's assets, both human and capital. Characteristics of effective management practices found in high productivity businesses relate to employee decision-making and effort, good strategic leadership, skills development and behaviours associated with growth such as exporting, innovating and continuous improvement. Moreover, the ability of managers to embrace and adapt to new technology, engage in innovation, and address processes and elements appears to be important.
External support: Support services might benefit firms, increasing the ‘diffusion’ of best practice, equipping businesses with the necessary tools to become more productive. However, barriers to uptake of support services include doubts over the benefits and value of support versus the cost, relationship failure due to the lack of trust in the support and concerns that the assistance will not be appropriate. The concept of business ecosystems is relevant to understand beneficial systemic conditions found in such ecosystems, relating to networks of entrepreneurs, leadership, finance, talent, knowledge and support services.
Keywords: productivity, management practices, local industrial strategy, review report
JEL Classification: M00
Suggested Citation: Suggested Citation