The six-point plan to boost productivity in Wales

A six-point plan to boost Welsh firms’ productivity has been outlined in a new report.

Following an interim analysis earlier this year, a full report entitled Managing Productivity in Welsh Firms has been published by a Cardiff Metropolitan research team, supported by the Hodge Foundation, based on interviews with 74 firms across Wales, from start-ups to established enterprises.

The team, led by Professor Brian Morgan and including economist Gerry Holtham, said improvements in productivity were linked to investment in human capital, particularly work-based and managerial skills; innovation and upgrading information systems and other technology; and networking activity.

However, it found most Welsh firms are concentrated at the lower end of the profitability and productivity range. The research also shows that while just over three-quarters of firms measure labour productivity (76%), only 24% measure the productivity of IT and just 37% have a strategic plan in place. While leadership is regarded as important in terms of improving performance (86%) and driving innovation (80%), most firms (75%) don’t have staff reward schemes in place to promote innovation.

The report also identifies an “innovation paradox” in Wales, where despite significant public funding to support innovation, there is little evidence of improved performance.

The research highlights a lack of capacity to make good use of such funding. It said these issues require enhanced business support in terms of leadership development and investment in intangible assets.

Its six key recommendations include integrating the regional development strategies of the North Wales Growth Deal and City Deals for the Cardiff Capital Region and Swansea Bay City Region, with the Welsh Government’s new regional economic framework.

It calls for the creation of new at-arm’s-length regional structures, integrated with the Growth and City Deals, and for the Welsh Government’s three new chief regional officers to work with local authorities to deliver a unified and well-resourced delivery vehicle in each region.

It said these regional delivery structure “should deliver high-end business support services focused on raising productivity in Welsh firms”.

It adds: “With the delivery vehicle in place, a useful policy action would be to develop a database in each region of all firms above a certain size. This would help to identify potential growth firms with the capacity to raise their productivity.

“The database could also be used to develop a distribution of productivity chart in terms of GVA (gross value added) per firm. It would also help identify the challenge, ie the cluster of underperforming firms.”

It warns that trying to help all firms would be difficult and result in resources being spread too thinly.

Prof Morgan said: “Instead, the focus for policymakers should be less on trying to improve productivity in underperforming firms and more about improving the performance of firms further up the distribution who are already doing some things right and are reasonably productive.”

The report says these regional agencies should also improve university-business collaboration, and calls for the creation of smaller regional catapults based on the semiconductor model in Cardiff,

It also envisages using the UK Shared Prosperity Fund to boost university engagement with local firms and help develop innovative products.

Prof Morgan said: “The Hodge-funded research project shows a positive correlation between employee engagement and productivity, and therefore profitability. Increasing employee engagement is one of the best ways to improve productivity.”

Other recommendations:

Skill and training: Responses to specific training needs to be speeded up and systems of training credits harmonised. Given the importance of improving professional management in Welsh firms, the report says exclusion of Level 7 training provision should be lifted. It says a regionalised system of provision of higher-level skills should be explicitly integrated into regional policy based on international best practice such as the German dual system.

Encouraging effective networking: Business support services should be explicitly tasked to facilitate more effective collaborative activities for firms, encouraging sharing resources and joint working Trade associations should become more active in engaging with firms to address productivity and performance issues.

Consistency in government policy: The report says greater stability and focus is needed in government approach to industrial support, while a longer-term view should be taken on delivering public-sector business support services.

Future perspectives: It calls for the introduction of digital innovation as a core feature of business support in Wales. It recommends the promotion of current fiscal incentives such as R&D tax credits to improve investments in digital infrastructure, as well as championing those companies in Wales that have adopted a mature digital strategy and reaped significant gains in terms of their performance

Artificial intelligence: The report says AI should be integrated into the workforce and its role within human teams identified. It says AI is unlikely to replace people in breakthrough strategies, since novel questions will be needed to prompt fresh insights, but concludes that it can play a key role in how efficiently innovations are adopted.