The slow adoption of existing technologies and management practices is fueling the U.K.’s deep-seated productivity problems, creating disparities in productivity and pay among businesses, CBI, the U.K.’s leading business group, finds.
Since the Prime Minister challenged U.K. business to invest more in innovation, the CBI set out the single most effective route to achieving just that: the diffusion of technology. CBI said the government should build the ecosystem that will encourage greater investment, and that British businesses should act to make the most of these opportunities.
“In too many areas of diffusion, we struggle against our international competitors, with more workers being employed by less productive firms here than in France and Germany, while by some markers we are almost a decade behind the Danes,” said CBI Director-General Carolyn Fairbairn. “Ultimately, getting better at diffusion of key technologies and innovation is one of the missing links in solving the U.K.’s productivity puzzle and should be made a national priority.”
In a new report, From ostrich to magpie, the CBI argues that by encouraging more businesses to behave like ‘magpies’—picking the best tried and tested technologies available—rather than like ‘ostriches,’ who are more stuck in their ways, then the U.K. could reduce inequality between firms’ productivity and people’s pay. This could add over £100bn to the U.K. economy and support a 5% reduction in income inequality.
Firms that fail to take up existing technologies and better management practices often struggle to embed new skills, export or allocate finance towards innovation. The CBI argues that for the first time, the Government should prioritise diffusion, ensuring that proven technologies—like cloud, mobile technology, e-purchasing and cyber security—can reach more businesses through the new Industrial Strategy.
“The new Industrial Strategy is the perfect opportunity to address this blind spot in public policy,” Fairbairn said. “It must allocate funds to support businesses to adopt these readily available practices and technologies. Firms, supported by the CBI, with then provide the leadership to make sure best practice spreads to all regions and communities across the U.K.”
The U.K.’s best performers are highly innovative, with adoption of proven technologies leading to investment in cutting-edge technologies, the CBI stated. But the struggles of many firms mean that the U.K. compares unfavourably against international rivals in some areas:
The high-fliers of U.K. business are more competitive than those of many other countries – but these only employ 5% of the workforce. The U.K. has a greater share of firms at the lower end of the productivity scale (69%) than France (65%) and Germany (60%), employing over two-thirds of the workforce
In 2015, the proportion of U.K. firms adopting cloud computing was nearly 30 percentage points below Europe’s best performers.
The proportion of businesses with e-purchasing, Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems in the U.K. today is still below levels in Denmark in 2009
The U.K. has larger differences in management quality between its top and bottom firms than any other G7 country; management quality scores of the best performing U.K. firms are 1.7 times higher than those of the worst performing firms
The U.K.’s top 100 exporters account for half of the country’s export value. In Germany, the top 100 account for just 38%.
Management practices, including leadership, are key to productivity in themselves. They account for 10-15 percent of the productivity gap between the U.K. and the United States. Access to leadership and management skills helps firms to innovate. For example, leadership development builds the desire and vision to improve adoption. Digital strategies help build the capability to do so.
Firms that have been successful at adopting innovations—the Magpies of industry—share several important characteristics. Some of the characteristics centre around the market and industry conditions within which firms operate, from a firm’s exposure to international competition to the local and national policy environment affecting adoption. Availability of knowledge and capital is also key and is in turn driven by external collaboration and effective internal allocation of capital.
CBI’s analysis showed that the U.K. leads G7 countries in three areas: integration with global value chains; collaborating externally to access information; and operating in a mobile labour market. The UK’s relative performance is weak, however, in five areas, including exposure to strong competition, prioritising training and development, and securing finance for adoption of technologies.
CBI said government and business must act with a sense of urgency to:
Make improving adoption of tested technologies and ideas a national priority by making it a central theme in the industrial strategy;
Set up innovation diffusion pilots for Local Enterprise Partnerships to test different types of on-the-ground support;
Link future Local Enterprise Partnership (LEP) funding to improving adoption of tested technologies, including that allocated by the Shared Prosperity Fund;
Run a campaign on the ‘Five technologies all companies could adopt;’ and
Innovate UK should create a ‘TripAdvisor-style’ e-platform for assessing technology and business support—a one stop shop.
“There is an emerging consensus among businesses, policy makers, and academics that a key focus of U.K.’s industrial strategy needs to be on the digital technologies that will power the economy over the next decade,” said Siemens UK CEO Juergen Maier. “This report correctly points out that by prioritising tech diffusion we can boost productivity and support better wage growth. This work complements the recent MadeSmarter Review which covers sets out clear recommendations on how the U.K. should take a stronger lead in this fourth industrial revolution.”