The Managing Partners’ Forum Productivity Summit hosted by Bryan Cave Leighton Paisner, included keynote presentations by Tim Vorley, professor of entrepreneurship at Sheffield University, and leader of research group the Productivity Insights Network; Tony Danker, CEO of business-led productivity task force Be the Business, and Managing Partners’ Forum founder and chief executive Richard Chaplin.
The productivity puzzle
Tim Vorley is a social scientist who together with Professor Philip McCann leads the Productivity Insights Network, an Economic and Social Research Council (ESRC) funded research network that aims to co-produce new solutions with business, government and policy makers to solve the UK’s productivity puzzle – why the UK’s productivity growth has failed to recover compared with other G7 economies. His presentation covered the macro-economics of the UK productivity puzzle.
Economies strive for productivity because it drives higher living standards, and innovation drives productivity. Andy Haldane, chief economist at the Bank of England recently quoted Nobel prize winning economist Paul Krugman, whose work linked productivity to living standards, alongside Dr Seuss’s innovation in the form of the fictional revolutionary house-cleaning machine DIRT (dynamic industrial renovating tractormajigger).
Productivity is determined by the relationship between inputs and outputs. This is straightforward in manufacturing industries but challenging for professional services.
Whereas law firms’ clients consider the outcome (of a case or deal) as the output, the firms consider their output to be the effort put into generating that outcome. Therefore they charge for their time – for the effort that goes into achieving that output. For law firms, hours are a proxy for both effort and outcome.
For years, the UK has fallen behind G7 economies in terms of recovering productivity growth. It was widely assumed would be redressed by technology and automation, but this has not been the case.
The Productivity Insights Network highlights three main factors underpinning the productivity puzzle – why the UK economy is not recovering at the same rate as its competitors: investment in equipment; education and training (human capital); and openness to trade and investment from abroad (which is particularly relevant post-Brexit).
Vorley explained that companies have invested too little in technology and skills and have held onto unproductive workers while the economic climate is perpetuating the unproductive ‘zombie’ companies.
Research by Centre for Cities suggests that not all businesses can or should be expected to contribute to UK productivity; instead we should be looking to higher-skill firms to trade beyond their regions to close the productivity gap.
Although economists see productivity as a macro endeavour, ultimately, it’s down to individual firms driving change, and in this respect professional services are lagging behind financial services. But the problem is a national one. The UK’s frontier firms have been pulling away from the rest at a reduced rate for nearly a decade.
Vorley believes that technology adoption, diffusion and innovation will help professional services improve productivity. However, firms tend to focus on profitability and efficiency and measure by resource utilisation rather than outputs. This is reflected in the dominant law firm model based on billable hours and recovery rates. Furthermore, most firms don’t report on a regional or office basis.
Research by Be the Business and others distil this down to five key factors:
Planning for the future
Vorley encourages Nextgen professional services firms to engage with the Industrial Strategy Challenge Fund, bringing together ideas, people and infrastructure. The Productivity Insights Network report, ‘Innovation in the Professional Services Sector’ examines the challenges and opportunities for insurance, legal and accounting firms. Its aim is to lose the silos and think more creatively about developing solutions with a real-world impact on UK productivity.
A business-led productivity movement
Tony Danker is CEO of Be the Business, which was set up in 2015 by Sir Charlie Mayfield, chairman of John Lewis plc, and the UK Commission for Employment and Skills, to create a business-led response to the UK’s slow recovery from the economic downturn.
Danker began by simplifying the UK’s unique productivity puzzle: although the UK has some of the world’s best performing businesses, we have more underperforming firms than the other G7 countries, and a bigger gap between the best and the rest.
Addressing this means identifying what it is about the structure or behaviour of UK businesses that means we don’t diffuse best practice.
Be the Business asked businesses with up to 250 employees, “Is your firm average or above in terms of productivity compared with your peers?” and 80% of respondents across every sector believed they were, indicating a startling level of denial among UK businesses.
Businesses benchmark their profitability against their competitors, but they are not so well informed about how their management practices, business processes or digital capability compare. In order to close the productivity gap, firms need to know whether they’ve got a problem, explained Danker.
Be the Business shares management and technology practices that drive up productivity: leadership, talent management, commercial excellence, planning for the future, operational efficiency and investment in technology/digital resources. Its platform is designed to show businesses what good looks like, help them learning from their peers and build a framework for improvement. It’s about people like me doing things I can do, added Danker.
The starting point is to identify potential quick wins for underperforming businesses in terms of management and digital practices. The Mayfield report concluded that improving productivity by just ten percentage points would boost the UK economy by £130bn.
The Industrial Strategy invests in high-growth sectors. But if we don’t drive up productivity in underperforming sectors UK productivity will still lag behind the rest of the G7.
Be the Business brings together the business community with banks, tech providers, professional services firms and professional associations.
It recognises that sharing and comparing – and borrowing, if necessary, to invest in technology – helps professional services firms increase their productivity and help their clients improve theirs. Danker highlighted two of its core activities.
The Be the Business diagnostic tool helps firms benchmark against best practice. It cannot yet benchmark firms into percentiles by sector, but it can indicate strengths and weaknesses. Every firm has a mixed scorecard, explains Danker. The aim is to identify opportunities for improvement and provide resources to get started.
A CBI report asked companies, “Are you an ostrich or a magpie? Do you bury your head in the sand, pretending that all the answers are within your business, or are you constantly looking at others?” Be the Business encourages firms to assess their productivity, share and emulate best practice and benchmark against their peers.
Finally, Danker emphasised that others have forged ahead while the UK has fallen behind. It will take a decade of productivity outperformance for UK SMEs to be competitive in a post-Brexit world.
Towards productivity partnership
The third keynote speaker, Managing Partners’ Forum founder Richard Chaplin encouraged law firms to leverage their management and employee engagement achievements to help UK businesses to close the productivity gap.
For professional services, productivity is a factor of tools (technology/automation) and engagement (culture). A global law firm deploys collaboration and project management tools to break down complex processes into constituent parts which allow disaggregated matter workflows, identify waste from duplicate activities and provide greater understanding into which tasks can be augmented or supplemented with technology.
Chaplin contends that it is highly improbable that artificial intelligence (AI) will replace people or processes in law firms because ultimately decision-making is about judgements: applying judgement to predictions. AI separates prediction from judgement by using data to make a prediction. That prediction is combined with human judgement, deciding what matters, before choosing what action to take. This is good news for professional services, whose clients buy into their judgement in the form of advice.
Breaking down decisions into constituent parts makes it clearer where the issues are when it comes to productivity, and which human activities will diminish and increase in value in the wake of effective, affordable machine prediction.
Chaplin highlighted employee engagement as another critical dimension to productivity that is hard to measure. Highly engaged employees who take regular breaks are more productive. So, an employee who is 90% engaged can finish early having achieved more than one who is less focused.
Social scientists investigating the link between productivity and employee engagement found that it is a strong two-way causal relationship i.e. people are more engaged if they work in a productive environment. And engagement is also about leadership. An amazing workplace doesn’t compensate for a bad boss.
Forbes found that 65% of Americans would be happier for their boss to be fired than to get a pay rise. Be the Business research indicates that many UK bosses suffer from unconscious bias, they don’t know how bad they are at management, they engage in group think and they hire too many consultants.
Although managers tend not to think of themselves as apprentices, a key goal of the government’s apprenticeship levy is to upskill managers.
Chaplin reiterated the need to share best practice, observing that professional services enjoy an average of 85% employee engagement which is three times that of most of their client organisations. Much of this is down to leadership style.
According to McKinsey three core leadership qualities drive employee engagement: mindfulness, selflessness and compassion.
Mindfulness – focus and attention management.
Selflessness – getting out of the way in order to unleash the flow of energy that others bring to work. It combines self-confidence with a service ethos.
Compassion – understanding other people’s perspectives and problems.
Professional services leaders tend to exhibit these qualities because they retain an advisory mindset, and this is the primary driver of high engagement. There is, therefore, a rich management agenda for professional services firms to explore in terms of advising other sectors, briefing government on policy options and responding to consultations.
This opportunity has inspired the Forum to create a new Productivity and Government Liaison Club that combines meetings in cities across the UK with a secure central hub.
“Our sector is highly productive and our expertise in achieving and sustaining employee engagement could be leveraged to help our clients,” explains Chaplin, adding that firms’ hard-won leadership expertise is at least as valuable to their clients as front-line services. Firms enjoy close relationships with their clients, who, according to Forum and FT research, consider a well-managed firm as an essential prerequisite when appointing an adviser.
Finally, Chaplin urged firms to communicate this strength to their clients and engage with them. To this end the Managing Partners’ Forum have produced the Productivity Partnership Pledge logo that will help firms reach out to their clients to suggest that they can help with employee engagement – and thereby their productivity and profitability. “Why is it that we have great management, but never sell those skills?” asked Chaplin, reminding firms to make it clear that they expect to be paid for this expertise. Productivity partnership enables firms to:
Help their clients (more);
Increase their revenues;
Enhance their leadership status; and
Boost UK productivity
Chaplin announced another opportunity to win: “If you’re already advising your clients on ways to increase their engagement and productivity, please consider entering your firm for our new MPF Awards category, best provision of management advice to clients.”
There then followed by a panel session chaired by Rosemary Nunn, where the keynote speakers were joined by Sandra Wallace, UK managing partner of DLA Piper and Ann Franke, CEO of the Chartered Management Institute.