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Productivity on the agenda for MSBs

13 July 2016 | By Ben Hargreaves

The CBI's MSB Summit highlighted the huge importance of medium-sized businesses to the British economy – and why improving their productivity is now vital

The sector represents just two per cent of the country’s firms but is responsible for one in six jobs.

A new CBI report, Lifting the Trophy, compiled with the ScaleUp Institute, Aston Business School, and Lloyds Banking Group, found that a small number of high-growth, entrepreneurial firms generated a disproportionately large productivity gain between 2010 and 2013.

And productivity was a hot topic at the latest CBI MSB summit, held in London on 8 July. In the aftermath of the EU referendum, such firms are expected to be just as crucial at a time of considerable political and economic uncertainty. But we will need many more of them, delegates to the summit heard.

The high growth pioneers – or “scale-ups”, as they are known – are the exception rather than the rule. In fact, the productivity of British business has remained broadly stagnant since 2008 when the crisis began.

“Businesses must take a strong lead in productivity. Since the recession it has been stubbornly flat,” said John Lewis Partnership chairman Sir Charlie Mayfield.

As author of the government-commissioned Productivity Review, Mayfield led peers from BAE Systems, GlaxoSmithKline and Nestlé in urging British businesses to embrace the challenge of increasing productivity.

The rationale is clear – an improvement among the worst performing 75 per cent of firms could generate £130bn GVA for the economy, they said. This would clearly help Britain withstand the trials of uncertain times.

BAE Systems already enjoys productivity twice the national average, which chairman Sir Roger Carr argued made it well-placed to assist other firms in becoming more productive.

Routes to growth

So what could help firms become winners?

Boosting exports is just one avenue. Firms also need to accelerate research and development programmes, and invest in new technology and digital networks to make business more streamlined. 

But as panellists made clear at the summit, the most important investment is in people. Companies with strong values, a culture of leadership, a vision for the future, and an ability to communicate this to their employees are more likely to boost productivity.

John Roberts, founder and chief executive of AO, an online retailer specialising in household appliances, said productivity is based on “creating an inspiring environment for employees where they learn”.

Simplicity is key, he explained. “Perfection is attained when there’s nothing left to take away – not when there’s nothing left to add.”

But he emphasised that effective engagement relies on having a big picture – and making sure your people know they are a part of it.

However, skills remain a problem for many businesses. On this front, speakers highlighted that apprenticeship programmes are proving enormously beneficial – although there were concerns over how the forthcoming Apprenticeship Levy will operate. 

Lloyds Bank, for example, is supporting the Manufacturing Technology Centre in Coventry, where the engineering sector is developing fresh apprentices with experience of technologies so advanced they have yet to be used in industry – as well as traditional engineering skills. The bank itself plans to employ as many as 5,000 apprentices by 2017.

High quality apprenticeships can be the lifeblood of the business. Renishaw, one of Britain’s leading engineering companies, retains 90 per cent of its apprenticeship intake. When skills shortages are bedevilling the manufacturing sector, this is critical to the company’s future performance, said Brian Marsh, the company's group health & safety manager.

Adapting to a new era

As we move into the Brexit era, the landscape for international trade will be transformed – and scoping out new markets will be of the utmost importance.

RSK Environmental Consultants received a Queen’s Award for exporting thanks to opening up markets beyond the EU, in India and other countries outside Europe, for example. But the firm had to negotiate these new territories carefully, said board director Garry Charnock. Sometimes that meant agreeing new payment terms or insisting on a proportion of payment up front. At other times, the company hit the acquisition trail overseas to expand.

Government couldn’t always provide the answers, Charnock added – but the company's willingness to operate outside its comfort zone meant RSK is now one of the world’s leading environmental firms.

And all businesses must work harder and think innovatively to become more productive. Sir Charlie and his colleagues are welcoming engagement with CBI members in terms of how best to do this as part of their Productivity Review. Companies are invited to feedback on its work right now at: www.howgoodisyourbusinessreally.co.uk

As CBI director-general Carolyn Fairbairn said, it is time for business leaders to roll up their sleeves, get stuck into the challenges ahead and seize the opportunities.

“I am impressed by how people are getting on with it. The world has changed,” she said. “And we are changing with it.”