Managing Productivity in Welsh Firms: Interim Report

 This report is part of the Hodge Research Project and draws on an analysis of the results of a survey of a broad range of businesses in Wales. It seeks to provide a better understanding of how firms’ management practices affect the productivity puzzle whereby Wales lags other countries.To this end the report gathers new evidence on management practices against the background of a low productivity economy. It finds a wide range of managerial skills, but many firms in Wales exhibit poor strategic planning and limited management information systems for measuring and controlling performance.Strategic management and leadership is found to be relatively difficult for many small firms where owner managers spend most of their time reacting to adverse events or opportunities. Relatively few firms articulate strategic goals and communicate them to staff.  To some extent, this is a corollary of small size and limited managerial “bandwith”.While many firms in Wales consider productivity to be an important factor in shaping their overall performance, they often fail to identify and measure its various aspects so are not well placed to implement improvements.Leadership and management deficiencies are coupled with low levels of intangible capital investment, especially relating to investment in software, intellectual property, and other forms of recorded knowledge. Such under-investment is likely to be a major factor hindering productivity gains and the growth of businesses. Underinvestment can be caused by lack of finance but also by lack of knowledge about the possibilities.There was a clear stratification among the firms interviewed.  Firms that had survived longer, and firms that were larger, both tended to have more productivity measures than younger and smaller firms.  They also tended to have tighter managerial control, for example, in that senior management teams met more often and regularly monitored financial accounts and key performance indicators (KPIs).  In a number of sectors, it is important for firms to get over a size threshold that enables them to employ more specialist managers.Firms engaged in exporting tended to use more state-of-the-art management practices like lean production techniques and standard costing or other forms of benchmarking than firms with a purely domestic market.  This seemed to indicate the benefit of competition in sharpening managerial performance but could also reflect degrees of managerial ambition. Go-getting firms tend to be the ones looking for sales opportunities elsewhere.Asked about innovation, a number of firms said they had been stimulated by demands or suggestions from customers or suppliers. Future productivity performance will be partly determined by the types of supply-chains and networks in which firms in Wales are engaged. We recommend that policymakers pay renewed attention to stimulating such links.