BoE’s Haldane: Poor management to blame for poor productivity

22 March 2017 -

Bank of England chief economist says Britain needs to improve the quality of its managers if it is to be competitive on the global stage

Matt Scott

Poor productivity appears to be a perennial problem for UK Plc with a long line of politicians, economists, academics, business leaders and management thinkers all trying to solve the problem.

Andy Haldane, chief economist and executive director of monetary analysis and statistics at the Bank of England, is the latest to tackle this age-old problem in a speech given at the London School of Economics earlier this week.

“Productivity growth has consistently underperformed relative to expectations, since at least the global financial crisis,” he said. “This tale of productivity disappointment, in forecasting and in performance, has been extensively debated and analysed over recent years. Some have called it the “productivity puzzle”.

“With each year that passes, and as each new turning point in productivity has failed to materialise, this mystery has deepened. This has led some to conjecture that the world may have entered a new epoch of sub-par productivity growth, an era of secular stagnation.”

Haldane said that one of the reasons for the UK’s poor productivity is that it is the result of management failings, citing the work of two prominent economists as evidence.

“Nicholas Bloom and John Van Reenen have shown that weaknesses in management processes and practices go a long way towards explaining the long tail of low productivity manufacturing companies,” he said. “These poor practices are most pronounced in sectors where competition is weak and in family-owned firms where management control rests with the eldest son.

“Looked at quantitatively, there is a statistically significant link between the quality of firms’ management processes and practices and their productivity. And the effect is large. A one standard deviation improvement in the quality of management raises productivity by, on average, around 10%. This suggests potentially high returns to policies which improve the quality of management within companies.”

And CMI agrees. Petra Wilton, director of strategy and external affairs at CMI, said poor management is costing the British economy billions, and is a weight around the neck of UK Plc, preventing it from being a ‘globally competitive economic power’.

“Andy Haldane’s placement of blame on bad managers for the UK’s productivity crisis may seem harsh, but there is some truth in his assertion,” she said. “Poor management currently costs our economy £84bn each year, and Britain lags other countries when it comes to people skills. If we want to transform the UK into a globally competitive economic power capable of thriving post-Brexit, we must invest heavily in the main cause of our productivity crisis – poor management and leadership.

“Four out of five British bosses are 'accidental managers' who've never been trained, and only one in five companies invest in training their managers. As a result the UK currently has an estimated 2.4 million untrained managers, and not enough employers are investing in developing leadership and management skills.

“With Article 50 set to be triggered and the crucial Brexit negotiations to begin, it’s more important than ever that we fix the UK’s long-standing productivity puzzle. Investing in apprenticeships to boost management talent, as well as technical skills, is a vital part. We also need better home-grown leaders, and more of them, to close this productivity gap. Better people skills will also help to raise trust in business, create greater diversity and improve employee engagement - all of which, in turn, will also boost productivity.”

Haldane said that companies need to shine a light on the poor practices that are currently limiting their productivity so that they can then take remedial action to improve their management capabilities, and their productivity.

“The Mayfield Commission aims to create an app that enables companies to measure their productivity and benchmark themselves against other companies operating in similar sectors and regions,” he said. “By shining a light on companies’ relative performance, the aim is that this would serve as a catalyst for remedial action by company management. Indeed, the aim is to provide firms not only with a means of benchmarking themselves, but with tools to improve performance along identified areas.

“These online tools would be a mechanism for speeding-up the process of technological diffusion to the long tail.”