How can the UK improve management skills to boost the productivity of firms?

Management capability has a significant impact on productivity. This has been a point of study for quite some time, with extensive evidence from researchers like Nick Bloom , John Van Reenen and Erik Brynjolfsson . But management skills don’t feature as highly in UK policy as they should. Be the Business ’ G7 Productive Business Index demonstrates that the UK rates its abilities in leadership and management highly but commits far less to developing it, ranking sixth or seventh on all questions regarding investment in management capabilities. For example, only one third (33%) of UK businesses have improved their skills in this area over last 12 months, compared to over half (54%) of US businesses.

The Chartered Management Institute found that, in a world in which average UK management capability was equal to Germany across recent decades, UK GDP has the potential to be over ￡127 billion higher.

How could this improvement in the UK management skills be achieved? The Chartered Management Institute’s Management and UK 2030 report cites The Productivity Agenda multiple times for its research into the productivity of firms and management practices. Here are some of the elements of productivity that are linked to management quality.

Technology and innovation

Improving management skills is crucial, particularly for technology-intensive businesses. New digital technologies in data analytics, robotics and AI are still in their early days of deployment, and there appears to be a time lag in the adoption of these new innovations. To harness the productivity-enhancing potential of these technologies, there is a need for complementary investments in worker skills, management competencies and other organisational improvements.

However, organisational change remains a significant challenge. Policy interventions aimed at transferring the necessary know-how and management practices between firms could help overcome this hurdle, especially in industries reliant on complex software and data.

Improving levels of innovation, and the adoption of new technologies and management best practices by UK firms operating ‘behind the frontier’ ('frontier firms' are the leading, most productive businesses) provides a focus for policy intervention to support long-term productivity growth. This will require a shift in policy thinking, however, as much current policy focuses support on leading-edge innovation, most often undertaken by 'frontier firms'.

Firm size and ownership

The issue of management quality and ambition in many UK firms poses a significant challenge. Evidence suggests that management quality in the UK lags behind international standards. UK-owned businesses also tend to lag behind their foreign counterparts in implementing effective management strategies. More granular analysis by the Office for National Statistics suggests that specific practices, such as continuous improvement, monitoring key performance indicators, performance-based incentives, and training, significantly impact productivity.

Additionally, small firm size and family ownership correlate with lower adoption of productivity-enhancing management practices. Smaller firms often grapple with day-to-day operations or focus solely on survival, leading to short-term thinking. This hinders strategic long-term investment, as decision-making may prioritise short-term projects over sustained growth.

However, qualitative analysis reveals factors which characterise high performing small and medium-sized enterprises (SMEs), including inspirational leadership, effective people management, data-driven operational management processes, strategic investments, and product, market and tactical innovation. Few of these factors are sector-specific.

Public sector management practices

Modern management techniques are vital for improving public sector performance by ensuring more efficient coordination, strategic decision-making, and optimal resource utilisation. Cross-national research has shown that modern management techniques, such as the use of performance management practices (goal setting, incentives, monitoring), can be successfully applied in hospitals and schools.

Performance management serves four main purposes:

• First, it helps define clear tasks, goals, and objectives and facilitates communication within the organisation.
• Second, it enables policymakers and public administrators to communicate the use of public funds transparently by measuring performance against these goals.
• Third, it allows public sector organisations to learn and improve their performance over time.
• Finally, performance measurement can serve as a basis for evaluating and rewarding public servants and ensuring that their incentives are aligned with societal interests.

Find out more

• Read Chapter 1 of The Productivity Agenda , The UK’s productivity challenge: people, firms, and places, by Bart van Ark and Mary O'MAHONY ( King's Business School ).
• Read Chapter 3 of The Productivity Agenda , The changing landscape of firm-level productivity – anatomy and policy implications, by Stephen Roper ( Enterprise Research Centre (UK) / 英国华威大学 - 华威商学院 ).
• Read Chapter 8 of The Productivity Agenda , Public Sector Productivity – managing the Baumol cost disease, by Bart van Ark , Joel Hoskins and Dr Nina M. J?rden ( Bennett Institute for Public Policy ).
• Read Management and UK 2030 by the Chartered Management Institute .
• Read the G7 Productive Business Index by Be the Business .
• Read Management in America by Nick Bloom , Erik Brynjolfsson , Lucia Foster , Ron Jarmin , Itay Saporta and John Van Reenen .
• Read Strategic Productivity for the Leadership Team , by Kate Penney and Jim Pendrill .
• Listen to What makes firms productive? Lessons learned from across G7 economies , an episode of Productivity Puzzles featuring Anthony Impey MBE , Hannah Barlow and Barry Leahey MBE .

The Productivity Institute??

The Productivity Institute is a UK-wide research organisation exploring what productivity means for business, for workers and for communities - how it is measured and how it truly contributes to increased living standards and well-being. It is funded by the ESRC: Economic and Social Research Council .