This morning saw the launch of ‘Be the Business’, the new movement from the UK’s Productivity Leadership Group (PLG). The breakfast event was glitzy and polished, hosted in the cool London base of Channel 4, rather than a standard conference venue.
An interesting element is that it is led by business, for business. Charlie Mayfield, Chair of John Lewis, who has been quietly encouraging and cajoling business leaders for the past two years to form the PLG, is careful to call it a ‘movement’ rather than an initiative or program. He talks about it with a real passion, and well he should.
The obligatory photo-call at the end of the launch of Be the Business, with its CEO designate Tony Danker (far left). Other business leaders involved so far in the PLG include the Chair, Sir Charlie Mayfield, as well as David Abraham, Tera Allas, Jeremy Anderson, Sir Roger Carr, Roger Connor, Ian Davis, Carolyn Fairbairn, Doug Gurr, Christopher Handscomb, Lady Barbara Judge, Dame Fiona Kendrick, Sir Richard Lambert, Prof Juergen Maier, Sir Mike Rake, Phil Smith and Nigel Whitehead.
Across sectors, regions and countries, a minority of firms are pulling ahead. This didn’t used to be the case. In previous decades, ‘catch-up’ was more dominant – firms and countries that had lower productivity performance seemed to be able to learn and borrow from the best, as Andy Haldane – also at the event – set out in his recent speech on productivity puzzles. It’s not just that productivity growth has slowed, but rather it has largely stalled in around three-quarters of firms, while the top quarter has shot ahead.
Why is our productivity slowing?
Arguments continue to rage around how best to interpret the ‘productivity puzzle’ – the slowing of growth that continues even into the most recent figures. Diane Coyle has just released an interesting working paper suggesting that there might be a significant and systematic under-measurement of digitally enabled gains – how do we factor in our GDP numbers the exponential growth in social media and other content, for example?
But why are behavioural scientists getting so interested? As we peel back the layers of analysis around productivity, we find at its core some familiar behavioural phenomena. As one of the speakers, Tera Allas (ex-BIS chief economist, now at McKinsey and a trustee to the PLG), noted alongside her graphs, managers show the same overconfidence that we see in every other field, with the vast majority thinking that they are better than average in management performance and productivity, just like the vast majority of drivers think they are better than average, and most of us think we’re better than average on any positive dimension. (Incidentally, though now so widely quoted, it’s worth reminding yourself how breathtakingly strong this effect is: even drivers who have been in several car crashes, or indeed the sub-group of these whom a court decided were definitely to blame for the crash, still show almost the same level of confidence that they are better drivers than average).
At the same time, even when people want to be or do better, we often don’t know how exactly to go about it. As John List says of parents, we all want to help our kids succeed, but often we don’t know ‘the production function’ (his words) to make this happen. Just as most parents or teachers haven’t had the opportunity to sit down with Carol Dweck to be coached on the right (“good effort!”) or the wrong (“smart kids!”) way to give feedback, few managers have had the opportunity to have Mike Norton, from Harvard, explain the latest research on what kinds of incentives increase productivity. Those managers would probably also be quite surprised at what this research shows – such as a small cash reward to spend on someone else being more effective than a traditional, and much more expensive cash bonus.
Be the business: what to do differently
So let’s do something about it – and of course trialling variations as we go. The basic idea behind Be the Business is to do three things. First, try to give firms and managers a more realistic sense of how they are doing relative to others. Managers – or you – can try this out on their app. Similar approaches work for issues from energy use, to prompt tax payment, to prescription of drugs, so there’s a pretty good chance that it could work for improving management.
Second, try providing some basic tips or knowledge about ‘what works’, such as how to give effective feedback to your employees. Again, we do this for doctors and teachers, but somehow when it comes to firms we think that classical economics works just fine and managers will read about Mike Norton’s latest research in HBR, or borrow from the practices of their more productive rivals. But as the numbers show us, this diffusion of effective practice is riven with frictions familiar to other areas of behavioural science.
And this needs to be tailored. To take an example to illustrate the importance of getting it right: one study found that providing material on the costs and benefits of exporting to firms improves attitudes to selling overseas among those that already export. But among non-exporters, providing this information had the opposite effect – worsening their negative perceptions of the benefits of exporting. Just providing more information is not enough, and can even backfire. Working out how to provide those basic tips on what works, and tailoring messages to different firms will be vital.
Third, I hope the PLG, or movement, will also be active in ‘de-shrouding’ (to borrow from David Laibson) who can give them good advice. Consumer markets are increasingly oiled through massive sharing of feedback by a host of Tripadviser-style platforms. But this disruptive and empowering shockwave has yet to really hit the B2B world. How does an SME find out which consultant, bank, accountant, web-designer or whatever is better than another? In such a world, even some of the businesses in the room today, when exposed to such feedback, will find themselves having to up their game as other firms become able to find small upstarts who can help them better.
At the heart of Be the Business is a view that businesses can – and should – learn from one another, and that sharing the expertise of high growth businesses can catalyse growth in others. This is not pure idealism. A trial published in December found that allocating firms in China to small groups which met monthly for a year led to significant improvements in revenues and profits, and being in a group with higher performing firms increased the impacts on growth. Analysis of the channels suggested that the sharing of information, as well as the creation of ongoing business partnerships, both contributed to the gains. If Be the Business can improve he ways businesses communicate and share expertise, we can hope to see similar gains.
But for today, credit to Charlie and the other CEOs at the launch this morning. They grasp the scale of the challenge – and the opportunity. Even very small movements in the long tail of low (UK) productivity to move it in the direction of that of Germany would add £100bn plus to UK GDP – numbers that make Brexit look like small fry.