Managing Productivity in Welsh Firms: Final Report

 This Hodge Research Project Report on productivity gathers new evidence on management practices against the background of a low productivity economy. Section 1 sets the scene. Seventy-four companies were interviewed to assess factors like: (1) the types of objectives firms set; (2) the strategies they use to achieve these objectives; (3) the performance measures they utilise; (4) the measurement techniques and management practices they employ; and (5) whether they foster innovation.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 also involvement in networking activity.  Various other studies have identified poor management practices as a key reason for underperformance. Most firms, in Wales, are concentrated towards the lower end of the profitability and productivity range. Key headline findings from the survey were: i) the majority of firms measure labour productivity (76%), but only 24% measure the productivity of IT; ii) only 37% of firms have a strategic plan in place, iii) leadership is regarded as important in terms of improving performance (86%) and driving innovation (80%); but iv) the majority of firms (75%) do not have staff reward schemes in place to promote innovation; and v) the key barriers to improved productivity were: management capacity; skills; regulatory bureaucracy; and access to information.  The survey identified some strategic limitations in innovation capacity and provides evidence of an ‘innovation paradox’ in Wales: i.e. despite being in receipt of significant public funding to support innovation, there is little evidence of improved performance.  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 and investment in intangible assets.In Section 2, reflections from the interviewers provide some additional insights into a number of areas:  i) sectoral issues, where manufacturing firms measure more productivity KPIs than other sectors;  ii) stability of firm ownership;  iii) the link between scale of operation and improvements in management performance;  iv) characteristics of managers in frontier firms; v) the lack of technical skills; and vi) areas of performance where business support systems are most needed.Section 3 analyses the networks in which firms participate and the business support services with which they engage. The involvement in networks and other collaborative activities is shown to help firms develop new products, processes and organisational methods resulting in productivity growth. The term ‘open innovation’ has been coined to describe these relationships.In Section 4 we present some new quantitative results on statistically significant relationships between firm characteristics and measures of firm success - firms that have more measures of productivity also tend to score highly on controlling performance and setting strategy.  The analysis found that size and age of firms are both significantly associated with the measurement of productivity.  Also, a significant association is found between firms that export and those that use innovative techniques of management control - like lean production.Section 5 summarises our policy recommendations in relation to Managerial Capacity, Skills Training, Networking, Regional Support Services and the Digital Deficit.  First, it addresses the challenges for firms in making improvements in their management standards and developing the types of skills that raise productivity.   It then highlights the relationship between rates of innovation and productivity performance and the need for effective networks to address these challenges. Second, it looks at the role of public policy in facilitating productivity gains through regional policies that enhance business support systems and the ways in which the proposed policy changes in Wales can be most efficiently administered. Finally, it outlines the requirement for the business community to develop more digitally mature strategies and to assess the potential impact of Artificial Intelligence.