Manufacturing vs the Rest!

In UK productivity, Uncategorized on December 6, 2010 by Tim Aikens

On the BBC website there is an article today (06/12/10) entitled ‘UK manufacturing powers ahead’.  It talks about how well UK manufacturing is doing, the surge in both confidence and orders. The CBI Director General elect talks about substantial productivity gains over the last 10 years  –  is this rhetoric or reality?  I thought I would check .

Looking at the ONS website and doing some quick numbers, it looks like UK manufacturing productivity has grown some 33% from Q1 2001 to Q2 2010.  That is indeed impressive.  Sadly manufacturing only accounts for 13% of the UK economy.  The comparative figure for the whole economy (including manufacturing) is a little over 7%.  Strip out manufacturing and that leaves a meagre gain of 3.2% for the rest of the economy.  It would be great to have manufacturing as the engine of growth for the UK, but it simply is not big enough.  If the UK wants to grow out of this recession then service sector productivity has to surge in the same way that manufacturing productivity did during the industrial revolution.

This is where we have a problem.  By definition service sector means people.  Take away the people you will gain labour productivity but you also take away the service.  How do you give great service with an ever shrinking number of people?  One answer has been to relocate service centres overseas.  Lower wages mean you can afford more people, but that then takes the whole business out of the UK.  Some financial services can be so complex you really need someone to help.  So perhaps it is unrealistic to expect the service sector to enjoy the same level of productivity as manufacturing – or is that just a ‘cop out’?

I think the answer in the short term is probably both.  People want service.  Many service businesses focus on ‘people’ in their commercials.  However, the UK is probably so far behind other countries that we will continue to lose service business overseas if there is not a big effortto improve.  I have no magic wand. If the answer was that simple, it would have been done a long time ago.  Some progress has been made, but not much.

In the medium to longer term, I think the answer to increasing service sector productivity lies in the services themselves and not in the people.  In a number of sectors the services on offer are often complex, riddled with options, small print, and sneaky tricks to get you to buy things you don’t want (like travel insurance EVERY time you buy an air ticket on line!).  If the service sector made their products simpler, more easy to understand and generally more user friendly they would require less service to deliver.  I see more people using the self checkout at supermarkets.  This has been a step change, yet the systems are still fragile and need a lot of help.  If they can be made much more robust, then they will become the norm and supermarket labour productivity will rise (but shelves still need restocking).

I would be interested in other folks ideas on how to raise service sector productivity – it is where UK plc needs to apply some pressure!


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