Leadership and Productivity – Some Thoughts and Provocations!

1. Leadership and Productivity – Some Thoughts and Provocations! Ewart Keep ESRC Centre on Skills, Knowledge & Organisational Performance, Cardiff University

2. Apologies • The author does not pretend to be an expert on leadership. He does know something about management, skills and productivity. • In 15 minutes joined up argument at any level of detail is impossible. What you will get are some issues, questions and outrageous statements!

3. Is better leadership the answer to Scotland’s productivity woes? • The short answer is – as leadership is framed in the popular literature - not really. • The longer answer goes something like this…..

4. Leadership is…..? • Leadership is defined by the context in which it is deployed (the leader of a polar expedition might not make a great FTSE 100 CEO). • It is very hard to define or measure the impact of an individual’s leadership except quite a way after the event – see Sir Fred Goodwin’s career!

5. Leadership as style or as strategic choice? The chief problem with UK/US debates about leadership is that they often fixate on how the leader leads (personal style – leader as ‘rock star’), not on what strategic choices they make, why s/he makes them, how they then deliver them, and what consequences subsequently flow from these choices (for the organisation but also the wider economy and society).

6. To put it another way….. Do we really believe that countries such as Germany, Norway, Denmark, Sweden, Finland have higher productivity than the UK/Scottish average because their managers: • Have greater emotional intelligence • Are more personable • Are more ‘followable’? General Custer was quite charismatic, but……

7. Instead, let’s pose the question: Why do the strategic choices of Scottish/UK managers seem to be less optimal in respect to productivity outcomes than those taken by their counterparts in some other OECD countries?

8. Common reasons for weak productivity: • Low levels of capital investment • Low levels of R&D (and broader innovation) • Low value added strategies (restricted GVA) • Low skills of workforce (20% of gap?) • Total factor productivity (mystery category, but it may have something to do with how people are managed, work organisation, job design, employee motivation and the use of ICT) More or less charismatic leadership won’t get you very far in improving 1-4 and may not over-ride wider structural problems with 5.

9. So………….? The key question is: why do managers, especially senior managers in other countries seem, on average, to make different choices about these factors from those made in Scotland.

10. Two hypotheses: • It is about management and leadership skills. • It is about the incentive structures that managers in the UK face It could be one, it could be both (it could be neither, but not for the purposes of this presentation!).

11. Management and leadership skills • UK produces more MBAs than the rest of Europe combined. • We define who is a manager differently – we have a lot more proportionally than other countries. Given an HE system x2+ bigger than Germany’s it is hard to see how else their ‘management’ population can be better qualified than the UK’s.

12. What’s the answer? • It isn’t clear what qualifications, courses or experiences make a good manager (and different sorts of learning may be needed for different types/levels of manager). • Except for the USA, MBAs are not the main route (in Germany an engineering doctorate might be, or a law degree). • MBAs were designed to meet the specific skill needs of 1950s/60s large US corporations and consultancies.

13. Lack of skills or bad incentives? Perhaps the problem is not skills per se, but rather the incentives that managers face in the UK. One example is Mergers and Acquisitions. The UK economy is more dependent upon M&A as a key strategic management move than any other (including US). Between 1985 and 2007 the volume of M&A activity in the UK expanded 20-fold! Research tells us that most mergers fail to add value. So why are they so popular? • Organic growth is slower, the stock market wants quick returns • The risks of M&S failure often do not fall on senior management • There is a large industry of banks and advisors who make lots of £s from M&A • M&A boosts senior management reward packages in the bidding company. If M&A trumps organic growth, then long-term investments (plant, R&D) become much less important.

14. UK strategic management moves (or how do we choose to compete): • M&A • Portfolio management • Financial engineering • Cost reduction • Competition on price • Investment overseas (has generally outweighed FDI) All impact on, how you conceive of ‘ambition’; and on which sectors/industries (and parts therein) you end up specialising in. It’s no surprise that GEC went under and Siemens sails on!

15. Why are people management skills in the UK often so poor? The answer could be incentives: • Very slack labour market and high unemployment • Easy recourse to EU migrant labour • Limited skill shortages • High levels of perceived job insecurity and ‘threat’ of redundancy (fear as motivator) • Weak or non-existent trade unions • Little formalised provision for employee voice and no notion of the employee as a stakeholder enshrined in law Managers act rationally in the face of the incentives and opportunities they perceive. People management was optional on the Warwick MBA!

16. Whatever happened to the workplace (and hence TFP)? 30 years ago, when productivity was mentioned in the UK, a key policy focus was on what happened in the workplace. Not any more (who remembers the CBI/TUC productivity commission of 2000?). As Back to the Floor and Undercover Boss demonstrate, many senior managers know next to nothing about how their services are delivered or goods produced. The workplace is a foreign country to them (and to UK policy makers)!

17. Where next……? • The old excuses don’t cut it. We used to blame our productivity woes on strong Trade Unions and restrictive practices. Then the excuse became poor workforce skills (hard to sustain now in Scotland). • Are the problems structural? How can we change incentives? Do we really want to (probably depends on who ‘we’ are)? • Do we want to help managers do bad things better, or do we want to help them to do better and different?