How can small and medium enterprises solve the UK productivity puzzle?

Stroll, David Morris (2025) How can small and medium enterprises solve the UK productivity puzzle? PhD thesis, Birkbeck, University of London.

Abstract

The UK Productivity Puzzle first documented by the Bank of England in 2013 appears to have turned into stagnation, with ever-increasing prices, high and rising taxes, and no growth in real wages since 2008. The NIESR concluded their latest report on the UK economy by asking ‘whether the UK was stuck in a productivity doom loop. The OBR forecast for 2022-2027 expects a continuation of this low productivity trend with productivity growth of less than one percent (0.7%), which is half the G7 rate. More than seventy years ago, the UK experienced an even longer period of weaker productivity growth than its European neighbours. From 1948 to 1979 UK productivity also grew at half the rate of France, Germany, and Italy. Only during the 1980-2008 period did the UK match the productivity growth of the G7 countries. Increasing UK productivity is therefore a strategic challenge rather than a tactical one. As a practical matter, individual firms in the private sector should lead the way (provided an appropriate methodology can be set in place), but this cannot be left to the private sector alone. Sustained productivity growth is both a public good and a private good, which means that both government and private sector firms must provide productivity measures in addition to their statutory financial reports. This thesis makes two contributions to solving the UK Productivity Puzzle. The first is a Productivity Transformation Method, which supports management teams in fully understanding their growth drivers and their development of a growth strategy to drive revenue and profit growth. Firms can then identify what investments will be needed to drive growth. Many of these investments will be for intangible assets, human capital and innovation, none of which are well captured in firms statutory accounts. The second contributions is the development of Management Production Functions for the Manufacturing Operations and Marketing and Marketing and Sales functions within a firm. In macro-economics, the production function shows how inputs or labour and capital are turned into outputs which are then sold at market price. But in practice these new Management Productions Functions put managers, rather than economists in charge. They can now identify the elements and relationships and activities which describe how they organise their work and use the Seven Levers of Productivity Growth to take charge of and drive productivity and profitability within the firm. The Productivity Puzzle will only be solved one firm a time, and this case study explores the productivity transformation of a medium sized Manufacturing firm and its impact on revenue, productivity and profitability growth.

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