As Britain walks closer to the EU’s exit door, it is worth considering the nation’s capacity to survive without, as the Bank of England governor, Mark Carney, would say, the kindness of strangers.
The strangers in this case are foreign investors and the foreign companies they own, which are based in the UK either to sell stuff to the domestic market or as part of a global network of suppliers.
As we know, the UK plays host to a large number of foreign companies. In the summer the Office for National Statistics (ONS) said they make up one in four large businesses in the UK (that is, firms with more than 250 employees). They also rank among the best known, whether that is Siemens and Nissan or JP Morgan and Nestlé.
They employ millions of people and, embarrassingly for top-flight British businesses, the largest ones are about twice as productive as domestically owned equivalents.
The comparison gets worse when medium-sized services businesses are assessed. The foreign-owned ones are about three times as productive as similar-sized UK rivals.
Analysis by the Bank of England last year pulled together much of the research into productivity, including that of an academic, Jonathan Haskel, who in September became a Threadneedle Street employee as a member of the interest-rate-setting monetary policy committee.
Haskel found that foreign-owned companies were not only a source of well-paid, productive jobs, they were also a source of expertise that rubbed off on British-owned firms. Think of Arsène Wenger’s Arsenal in the 1990s and the influence it had on the Premier League.
Without foreign companies in the mix, UK businesses stand to be hopelessly outclassed by firms located abroad that are better managed and better resourced.
Much of those resources are put to use in the most boring ways imaginable. One word that sums up their approach would be “process” and another would be “structure”. Both come under the heading of management.
The Japanese, Germans and Americans think about this more than most. The Toyota method of constant learning (via collaborative team-working) would be an anathema to most British firms. Likewise, few British managers adopt methods based on regular reading of the Harvard Business Review, where they would find the most up-to-date American critiques of outmoded business practices.
An ONS study cited research that found a positive link between “structured management practices” and the performance of firms. Family-owned businesses, which make up 64% of manufacturing firms in the UK, performed especially badly. Lacking any structure, their productivity was 20% lower than their German counterparts.
Why does the UK perform so badly? The authors argued that third- and fourth-generation “dynastic” firms were more likely to be obsessed with their reputation and doing things the way they had always done them. They refused to adopt new methods and one effect was to run away from managing “underperforming workers”.
John Van Reenen argues that competent managers are desperately undervalued in the UK. The MIT economics professor, who until recently headed the LSE’s Centre for Economic Performance, concedes that most studies that compare the skills and training of modern managers from one country with another can be difficult to decipher.
But one thing is sure, he says: “There is a bigger fraction of atrociously managed firms in the UK than the US.”
While boardroom directors are often, even in British-owned firms, expected to have a management qualification, even an MBA, from a recognised business school, middle managers are almost totally neglected. Section heads, department bosses, call them what you will, are left to flounder and must make decisions with little training and no structures or processes to rely on.
Several reports this year have documented how miserable workers feel about their managers. One last week found that nearly two-thirds of UK workers had experienced behaviour at work that would “probably result in widespread condemnation” from the public should it ever come to light. Sadly, three-quarters of the workers who responded to the Warwick Business School survey said reporting unethical behaviour was a waste of time. The company did nothing, they said.
The government is considering measuring the quality as well as quantity of work, in response to growing concern about the gig economy. But the malaise goes far beyond Deliveroo and Uber. It stretches into the deepest recesses of Britain’s business culture.
This week the Department for Business, Energy and Industrial Strategy will convene a meeting to discuss how to measure the government’s industrial strategy. Ministers should start by looking at management skills in UK companies. They are lamentable.
