Sharper management is urgently needed to boost productivity in the UK, says Kevin Parry
Writing previously in this magazine, Sir Howard Davies, director of the London School of Economics (LSE), outlined a hypothesis to explain Britain’s poor productivity record compared with that of other developed nations. British managers, he argued, are the culprits: they are simply not as good as their American or German counterparts.
I think Davies is on to something. For the past six years, I have been chief executive of a global consulting business with a 60-year record of improving productivity for large organizations around the world. During my time at the firm, I have observed assignments for all types of organizations. Whether it was a hospital in South Africa, a gold mine in Peru, a food manufacturer in America or an Australian bank, they all had one thing in common: management failed to unlock the latent productivity potential.
By this I mean the opportunity to use all the resources available to them more efficiently and productively. The resources clearly include people – after all, it is the one resource common to every organization – but there are also others, such as plant, machinery, information technology, capital resources, premises and so on. Anyone who has ever worked in one will acknowledge that most large organizations create waste on a significant scale. It is not just physical waste which, by definition, is easy to spot and deal with, but also the unseen waste – coming from deficient management, poor working practices, skills gaps, duplication and other activities that add no value, and similar, less-tangible inefficiencies.
An overall productivity improvement in macroeconomic terms must begin with thousands of small steps in those organizations that create economic wealth. So how bad is the status quo, and what does it cost?
The economic cost is colossal. National economies are losing billions of dollars each year. The figures presented in our report are conservatively calculated, using national or OECD (Organisation for Economic Co-operation and Development) statistics and our own proprietary data collected from thousands of individual consulting engagements undertaken around the world. To put these in some kind of context, the cost of wasted labour in the UK is approximately $27 billion more than is currently spent running the entire British National Health Service for a year ($131 billion in 2004/2005).
Six barriers to better performance
Our report identifies six barriers that block better performance. Two of these, namely poor management and inadequate workforce supervision, do so significantly, and they are on the rise. (See chart) Where we differ from the LSE is that our research provides clear evidence that these two factors are not just problems for UK organizations but all countries. It also shows that, on average, 22% of all working time is unproductive and therefore wasted. Wasted time is defined as that spent by any employee on activities that add no value. Here are just three of many:
»a poorly-designed production workflow process in a manufacturing plant might lead to bottlenecks or other delays leaving workers and machines standing idle;
»management lacks the right information, at the right time and in the right form, to plan work efficiently and to anticipate and prepare for problems before they occur. This applies equally to a telephone call centre as much as to a coal mine;
»lack of coordination and management of sales teams leads to the same customers being called upon by multiple representatives of the same organization on the same day.
It is well established that some contribution to high labour productivity performance comes from higher spending on capital equipment, notably ICT (Information and Communications Technologies) investment, which partly explains America and France’s lead on the UK. That there is a link between management quality and company productivity is less well-established but appears to be gaining wider acceptance. The US uses its capital and labour more efficiently, and so has a 12% lead over the original 15 members of the European Union in terms of “total factor productivity” – the measure economists use that takes into account all factors of production, including labour.
What, then, can be done? First, the problem must be recognized and acted upon by those in a position to effect change. That includes, certainly, senior executives in large organizations, but also those who can exert pressure on them to act, namely institutional shareholders and regulators, who can open up markets to greater competition.
Second, the perception that productivity improvement is only achievable through investment in, and more intensive use of, ICT or other technologies needs to be challenged more vocally. Third, improving management skills and performance is not just for companies.
Governments too should tackle this problem, starting at formative stages of education. A shortage of appropriately-qualified, skilled people entering the workplace was the number one issue for more than 800 senior executives in 11 countries in a recent poll. This goes beyond basic literacy and numeracy. People with strong management skills in areas such as problem-solving, creativity, communication and team-leading are likely to make better citizens as well as better, higher wealth-creating employees.
Individual managers can make a start by standing back and reviewing where and why waste occurs in their area of responsibility. This is the essence of what I referred to earlier as “thousands of small steps”. More than half of the systems for management we encounter in organizations are inappropriate for their intended purpose. By “system” I mean an orderly process for planning, managing, monitoring and measuring work. That statistic alone indicates the scale of the problem, but also the opportunity for improvement. I believe that most people want to do a good day’s work and feel proud of what they have achieved. It is down to management to facilitate that. If they are able to do so, the potential rewards are there for everyone to enjoy in terms of higher living standards.
CV Kevin Parry
Kevin Parry is chief executive of Management Consulting Group and chairman of Proudfoot Consulting. He was previously with KPMG London, where he ran the firm’s Information, Communications and Entertainment practice.