Overcoming the UK Productivity “Chasm”
Over the last twelve months, the UK saw annual productivity fall at its fastest pace in five years, according to the Office for National Statistics. Outside of London and the South East, the Chief Economist for the Institute of Directors has cited “a chasm in productivity”. While the media may put this down to the political turmoil around Brexit and a General Election, there is a longer term (and arguably, more worrying) cause for concern.
As a nation, particularly in regional areas, we're not investing in technology. Since the Industrial Revolution in the 18th century, Britain has often been at the forefront of inventions that are designed to improve our quality of life, drive efficiency or reduce the costs of goods for consumers. However, in recent decades there has been a paradigm shift that is having a detrimental effect on outputs and putting the UK further and further behind the rest of the world.
The Federation of Small Businesses says over half of the UK’s private sector turnover comes from small businesses. These businesses are facing rising costs and soaring business rates; one thing the Government is currently doing to help smaller businesses invest, grow and succeed is to offer a rebate of up to 60% on any capital spent on technical innovation R&D.
A report last year from the Centre for Economics and Business Research (CEBR) and Concentra Analytics revealed that just 29% of UK businesses with 1000+ employees invested in technology to automate repetitive tasks. So why aren't businesses in the UK doing more? Put simply, many are unaware of the benefits; do not recognise that the reward of updating their legacy technology outweighs the risks; or are just unwilling to change.
Not only do we need UK businesses to invest in technology, we need them to invest in custom technology. The businesses that are leading industry in technology terms do not need to "keep up" - as they're already ahead of the competition.
Startups have an advantage against bigger players in industries like banking, where the incumbents are saddled with so much legacy technology that to modernise is the equivalent of turning an oil tanker. The startup challenger banks we've seen launch in the UK in the last few years, from Monzo and Starling to Chip, are examples of businesses that have based their entire business model on smart, bespoke technology and have seen phenomenal growth as a result. Just this week we have seen Revolut valued at £5.5 billion - making it the UK’s most valuable fintech startup.
In other industries, SMEs that invest now in bespoke technology and have the dynamic leadership willing to embrace change and invest now, have an advantage over the bigger players because they can reconfigure their business around these tech platforms in a way that a large organisation can’t. Combined with experience and industry knowledge, these smaller businesses are the ones that are really well placed to compete, or even become disruptors themselves.
Putting systems in place to feed back and measure the success of the custom tech that has been built will provide further opportunities to streamline and improve based on a constant cycle of testing, analysis and action based on the outcomes.
It’s time that the UK followed Revolut’s example, focusing on encouraging custom built technological solutions for all industries. If we don’t, we might find ourselves slipping down the productivity scale again.