Solving the UK's productivity problem with innovation
PA’s Colm Reilly is interviewed on BBC Radio 4 Today Programme. Colm shares his views on the role of innovation in productivity in response to the publication of the Chancellor’s Productivity Plan.
The BBC explains that the Chancellor, George Osborne, hopes this plan will boost output per worker and in doing so improve Britain’s ability to grow in future.
Colm is asked to explain what Britain’s productivity problem is. Colm says: “It is useful to think of the productivity problem in two dimensions. There is the framework that the government is trying to fix; can we have the skills, can we have the infrastructure and can we have the capability. The second part, which isn’t being addressed properly, is why we as a country don’t innovate. Our companies don’t innovate and if companies are innovating they are creating huge productivity boons. Our analysis shows that 50 per cent of innovations in companies fail and this costs us around £65 billion a year.”
Colm is then asked if this is the same as investing in research and development? He responds: “No, I think we need to separate out research and development from innovation. Innovation is where you change business models, where you bring new products to market or you are finding different ways of working. Our research and development institutes appear to be working well, we’re doing the right things there. Innovation is not about research but about actually bringing a product into the hands of a consumer.”
Colm goes on to explain why there is an innovation problem. He is asked if this is about short termism as our large companies, our listed companies, work from quarter to quarter and need to be showing growing profits and so don’t invest in expensive capital or expensive machinery because they can invest in cheap labour instead. Colm responds: “This is the interesting thing about the research we’ve done. We talked to 150 companies in the UK and 50 per cent said that their efforts fail for avoidable reasons. These avoidable reasons are not related to technology or to infrastructure. They are instead related to things that happen within organisations such as lack of funding, lack of leadership from the top and the ability to see things through.”
So it is training of management we are talking about, rather than training of staff? “One way of looking at it is if we were sitting here ten years ago we would have been saying every company needs a Chief Information Officer or every company needs a Chief Security Officer. We are now in a world where we have to accept that every company probably needs the equivalent of a Chief Innovation Officer. Someone who can sit down with their operational colleagues and bring something to market, rather than just generating or thinking about an idea.”
How come British productivity is about 30 per cent lower than France, which has a much higher unemployment rate. It seems incongruous? “This is because we have had a push since the recession about generating employment and of course in France, there is the opposite problem as they have high levels of unemployment. Our issue is that we need to kick start developing new products, new services, changing our business models so that we can add significant value to the employment we have created. And that is our productivity chaos at the moment.”
The interviewer points out that the apprenticeships have been talked about by the Chancellor as a possible solution but that the real problem is that young people don’t want to study engineering or science but want to study media or the law and that there is going to be a continued problem with creating innovation because of this. Colm disagrees and explains: “What we are seeing in successful innovation, especially overseas, is that there is significant cross overs between the different disciplines of art, design, engineering and science. I don’t think it’s possible to limit innovation to just one particular function, it’s more a mindset. That is, it must be driven from the top of an organisation. Of the companies we surveyed, 70 per cent of those that do innovate were able to tell us that their return on investment and their profitability was well above that of the rest of their industry. That tells us that it is an imperative for business to follow their lead and it is a mindset that we need to address as opposed to anything else.”
You can listen to Colm’s interview in full here,15 minutes into the programme.