The tyranny of ROI is killing UK productivity

by Matthew Elson, CEO, SHE Software

Britain’s weak productivity remains an irksome story for long-term observers of the country’s economic performance, and as we enter the start of a new year this enduring problem might well be at odds with the upbeat narrative espoused by proponents of Brexit.  It is presently unclear what impact our exit from the EU will have on productivity as the issue is more systemic and profound than might be easily remedied by this new tide of events. The promise of a new ‘old world’ order for the UK – where China, and our old friends within the Commonwealth, will yield a bonanza for our national income – is confounded by the fact that the average Briton has to work more hours than the EU-15 average to achieve the same income.

The abiding truth is that productivity does matter and we continue to be unstuck by our poor performance. The importance of this issue is that unless we make more, and work more efficiently, we cannot expect to pay ourselves more. Overall, productivity has also a dreadful impact on living standards. Even the present ‘no running narrative May government’ would seem to agree with this. In his speech to the Conservative party conference last year, the Chancellor, Philip Hammond, said: “If we raised our productivity by just 1% every year, within a decade we would add £250bn to the size of our economy, or £9,000 for every household in Britain.”

It is also true that business must be charged with putting its own house in order. We need to commit to improving the quality of the training we offer to UK managers and to move away from the tyranny of our ROI mentality which has become an Anglo-Saxon obsession. Return on investment is of course vitally important, but it has a tendency to lose wider and more dispersed benefits if there is a failure to carefully assess a broader investment picture. As previously mentioned, Brexit could draw the UK away from international best practice on productivity and further harm another area of long-standing weakness – the cultivation of well-balanced and confident managers who can see beyond the tyranny of a pure financial case based on easily identifiable and quantifiable savings.  UK management too frequently lacks the skills and confidence to support many of the longer-term, dispersed-value investment decisions.

We have much to learn from countries like Germany and France where there is a well-established cadre of professionals who are committed to working in industry and capable of making bolder, strategic commitments. In the UK such talent all too frequently bleeds away into the financial services community, or the civil service.  What is ultimately lost in all of this in terms of productivity is the all-important blend of art and scientific skills in our management community. This powerful intermingling of capabilities produces the vision and insight to support the higher level of investment required to drive productivity growth.

Investment in technology is an excellent case in point. With the advent of software as a service (SaaS), technology becomes more easily embedded throughout organisations and as such more frequently and reliably produces a myriad of small improvements which, in aggregate, may make a much bigger difference to performance which could all too easily be lost when set within a rigidly applied ROI framework. At SHE Software we see these issues reflected in our customer requirements. It is clear that health and safety solutions software can improve the defensibility of claims, improve compliance and avoid duplication. We make it easier to address issues by drawing on a powerful body of aggregate information, helping employees to more easily become part of a positive ‘compliance culture’ meaning having things under control – whether operations, quality or health and safety. We find that if one gets this right, it soon spreads. Having things under control eliminates hidden costs: redundant actions, rework, management intervention and reporting. In short, much better productivity!

As we begin 2017, while the government and industry must keep a keen eye trained on our disengagement from the EU, I believe another eye should be focused on the issue of the UK’s failing productivity. The business community has an important role to play by offering more of the stronger, more imaginative leadership required to respond to the challenges and opportunities presented by Brexit while addressing this age-old weakness in our economy.

About the author

Matthew Elson possesses extensive executive experience in large and small businesses, including as CEO of ESR Technology and as MD of Atkins Management Consulting division.  He began his career as an engineer before spending six years at McKinsey as a management consultant.  Matthew has an MBA from INSEAD and a First-class honours degree in Engineering, Economics and Management from Oxford University. Mr Elson acquired the East Kilbride-based SHE Software in 2011.