Scotland’s weak productivity will remain a problem unless recommended solutions are properly applied, according to new research.
A report Productivity – the Micro Dimension by the Royal Society of Edinburgh and the network group Prosper identifies persistent underlying issues among the “long-tail” of underperforming companies.
These include a “narrow focus” on day-to-day operations with “limited strategic thinking”, a hesitancy to innovate, and a reluctance to adopt new digital technologies.
Current financial pressures, such as the rise in National insurance contributions. are seen as another barrier.
“The UK is distinctive in having a particularly long tail of low productivity companies which drags
down the overall average,” says the report.
“This morphs into the view that large British companies are excellent but are let down by their smaller counterparts, unlike in competitor countries like Germany.”
It adds: “Many SMEs attempt to address their own challenges without consulting with knowledge-sharing networks in part as they are unsure where to go.
“It was felt that some traditional business networking events were often a waste of time as they seemed to be a place to ‘promote’ your business rather than sharing challenges and coming up with solutions.
“Many have also cited difficulties accessing grants due to high eligibility thresholds (e.g., cybersecurity requirements). There was also a feeling that there is more support for start-ups in Scotland but little support for businesses who wish to scale.”
The authors note that in the past 20 years most of the strategies for economic development have broadly tackled the same questions – how to boost innovation, commercialise research & development from universities, and grow businesses of scale.
However, the report concludes: “Many agree with the solutions that have been raised so far – but we still haven’t moved the dial on productivity, leading to the question of how we execute these solutions.”
The report showcases ‘Peer Works’ – Prosper’s peer-to-peer learning network – as a cost-effective model for driving change among SME leaders to share organisational problems and exchange learnings on productivity enhancing solutions.
Independent evaluation shows that nearly half of participating businesses have taken productivity-enhancing actions, bringing both financial and other benefits such as increased staff retention.
The inquiry found that even when productivity growth is achieved it does not necessarily translate into jobs growth. The Office for National Statistics found a weakening link between them.
“This is particularly true for Scotland, where the productivity-to-jobs link is the weakest of any UK region,” says the report. “A 1% productivity increase is associated with only a 0.087% increase in employment.
“Only a small number of firms achieve both employment and productivity growth, referred to as ‘productivity heroes’. Analysis for 2021-22 of 1.22m firms with employees across the UK, shows only 36,000 productivity heroes. This means that achieving productivity growth will not create many jobs but can help to boost earnings.”
Dr Poonam Malik, the RSE’s vice president for economy and enterprise, said: “Addressing the clear and urgent need to boost productivity to increase economic growth has been a focus for the RSE.”
She said “practical solutions” are required for Scotland to thrive.
“To be successful, we have to create an environment where greater strategic thinking, braver innovation, technological and AI solutions applied for business transformations and knowledge sharing to address common challenges become normalised among the middle layer of companies.”
Clare Reid, director of policy and public affairs at Prosper, said: “This report confirms without doubt that understanding and influencing the factors that impact on productivity at an organisational level is vital alongside investment in structural change if we are to shift the dial on Scotland’s productivity.
Productivity – the Micro Dimension
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