Britain's productivity remains half that of foreign rivals. Industry should no longer tolerate the second-best performance of its domestic suppliers, says Robert Heller.
Managers are supposedly measured, motivated and driven by money.
Show them how to double productivity and sharply boost profits, and they will go for gold - or will they? Back in the 1960s, a US consultant caused a sensation with a report entitled Half-Time Britain. The nation's productivity, he reported, was half that of its best competitors.
Three decades on, management consultants McKinsey have produced a report which shows that in three industries - automotive, hotels and telecoms - Britain is still on half-time. Labour productivity in the automotive industry is 50% below Japan's. US hotel productivity is double Britain's and UK telecoms achieve only 55% of best-in-class performance. Many British companies remain reactive, un-co-ordinated and slow to meet the demands of their customers.
Plenty of specific evidence supports this broad picture. In the hotels sector, Ramon Pajares found gaping omissions from strategy down to furniture and fittings when he became managing director of the Savoy Group in 1994.
Even though the group had been under critical attack from Forte for years, the faults had persisted.
In the automotive sector, Ray Smith, a purchasing boss at Mercedez-Benz spending £200 million a year on British components, has explained why he only uses 60 of 2,400 potential suppliers. The sins of the other 2,340 are abysmal. They submit bids late, or not to specification, and have nobody who speaks German. Against this background, faults of disorganisation, lower quality and a slowness to adapt to customers' product plans are no surprise.
When it comes to supplying whole sub-assemblies, Mercedes finds French suppliers are ahead. This development has been signposted - indeed applied - for years. The parts supplier wins fatter contracts, establishes a closer relationship with the powerful customer, supplies a larger share of the car, and (potentially) ensures higher productivity. Why should the French, not to mention the Germans, see and seize this opportunity ahead of the Brits?
Internal studies pose the same troubling conundrum. I recently came across an important company whose factory epitomises third-time Britain, with machines down for two-thirds of the available time. You don't need an MBA to see that management might as well have burnt £50 notes.
The general picture from the McKinsey study, which shows overall UK labour productivity at 73% of the US level, is that of an economy working its capital almost as hard as the Americans do, but investing less. Capital intensity at 79 compares with 100 for the US, 126 for Germany and 112 for France. With exceptional reliance on part-time female workers, British managements apparently depend on low labour costs to offset low efficiency.
Those 2,340 auto component makers may offer a clue to the national mystery.
In an industry where car production actually halved (before the Japanese came to the rescue), it's amazing that so many have survived. Their survival suggests that companies preserved enough home market trade to pay the bills but not enough to finance the strategic investment and development needed to match the best in class.
Hard strategic choices are easily dodged if you follow perverse logic: you can argue what's the point of trebling output (by ending the two-thirds downtime), if you can't sell the extra that's produced? But superior managers apply superior reasoning. Trebling output must sharply reduce costs, enabling lower prices that can win new markets, while still generating the surplus needed to raise efficiency, quality and specifications. Yet, that logic requires unremitting effort to bring the entire company into line, to optimise its strengths and eliminate its weaknesses.
Smith of Mercedes puts his finger right on the button. Most suppliers would try to meet one or other of his criticisms but he says 'it's a matter of covering all of them in one proactive approach'. Many UK companies still run on what's been called the 'tubular bells' philosophy. Insular departments operate separately, competing with each other rather than with the real competition outside.
When Pajares swiftly and successfully reformed the Savoy group's hotels, he dismantled the tubular bells such as Claridges and the Savoy, which battled for the same market, and mobilised all 2,000 employees behind 300 improvement projects in one master plan. Reactive, insular, top-down managements will not revolutionise the entire business system from top to bottom - unless forced. But who or what will do the forcing?
Britain is still a soft market. Why raise productivity in food retailing to French levels (a third higher) when UK supermarket margins are double Carrefour's? Domestic suppliers can get away with second-best (or worse) performance because of excessive internal and external tolerance. Without more and sharper competition, best-in-class won't seem worth the effort.
Yet, without that effort, you won't get crucial competition. That's the vicious circle which needs to be broken.