Evidence suggests that many UK businesses are barely managing when compared to foreign-owned businesses of equivalent size operating in the UK.
At the moment it is easy to blame everything on the uncertainty surrounding the outcome of the UK’s negotiations to leave the EU, especially as political positions remain entrenched and seemingly irreconcilable with just 40 or so days to go before the deadline.
As the most recent productivity figures from the ONS (Office for National Statistics) showed, productivity and output per hour fell to their weakest in two years at the end of 2018, prompting FSB (Federation of Small Businesses) Chairman, Mike Cherry, to opine: “”Productivity data demonstrates exactly what a prolonged period of uncertainty does to an economy. Small business confidence has dropped to its lowest point since the financial crash, with four in ten firms expecting their performance to worsen.”
Of course, Brexit has prompted more businesses to divert their attention to do such things as stockpiling raw materials or components to mitigate any potential supply chain disruption, and of course, investors have been holding onto their money during this period of uncertainty.
It has also been suggested that another inhibitor to SME growth and scaling up has been what is known as the Seven-year Rule, whereby tax breaks for investors, made through tax-efficient venture capital trusts or via the enterprise investment scheme (EIS), are only accessible to companies for seven years after they make their first sale. This, it is argued, makes it harder for SMEs to access the finance they need to scale up.
Is business barely managing a “British Disease”?
However, in this context I would argue Brexit is a distraction and a convenient excuse for poor productivity and that the answer lies in the way UK businesses value, or actually don’t value, their people. This is backed up by plenty of research from many sources.
According to the Guardian business and economics opinion writer Philip Inman there is a significant difference in productivity between the way foreign-owned businesses in the UK and UK-owned ones are run.
According to ONS figures foreign-owned businesses make up one in four of large UK-based businesses and are twice as productive as their domestically-owned equivalents. When it comes to medium-sized companies the foreign owned ones are about three times as productive.
Why should that be?
There is, argues Inman, plenty of evidence that the foreign-owned UK businesses pay attention to two things that affect productivity: processes and structure. The ONS has found that there is a positive link between attention to these two and productivity.
Other researchers have argued that UK businesses do not value or pay enough attention to good middle-tier management, especially in family-owned firms that have been running for more than three generations.
Middle managers often have little management training or support and this leads to a lack of confidence among both senior managers and workers that their ideas are valued and suggestions acted upon.
UK businesses of all sizes clearly need to pay more attention to their people skills and competence, their processes and structure, especially once they find themselves cast adrift on post-Brexit competitive waters.