UK: UNLOCKING BUSINESS'S POTENTIAL. - The amount of real progress on the export front is still open to doubt, argues Robert Heller, and companies continue to hold out against the changes most likely to bring success.

by Robert Heller.
Last Updated: 31 Aug 2010

The amount of real progress on the export front is still open to doubt, argues Robert Heller, and companies continue to hold out against the changes most likely to bring success.

The periodic false dawns for the British economy have inevitably involved disappointments over supposed managerial renaissance. So the current export-led growth - if it's real - offers the hope that Britain's management has finally broken through the performance barriers.

If the top of the tree is taken as the criterion, the hope has been too long delayed. In 1987, Britain housed 59 of the world's largest 341 companies outside the US (not including the Anglo-Dutch). By 1993, the UK contingent had dwindled to 41. Excluding the US and Japan, British members of Fortune's Global 500 had pole position in only two industries, mining and aerospace.

The prize pair are RTZ and British Aerospace, which has regularly visited the sick-list. In motors and electronics/computers, respectively the spearheads of the old and the new industrial worlds, Britain has three lone entries in the 500: GEC (21st in its sector worldwide) and Lucas and GKN (35 and 42). Even SmithKline Beecham and Glaxo in drugs were followers behind the Swiss.

Small wonder that launching export-led expansion has been difficult. Has it materialised even now? Last year's strong growth in gross domestic product wasn't actually led by exports. An alert correspondent to the Financial Times spotted that while net trade produced a quarter of that surge, consumption retained its customary lead, accounting for a third of the rise.

The 15% year-to-year gain in export volume (ex-oil and other erratics) tells a stronger story. But that can't be separated from the general rise in world trade or the impact of devaluation. Improved UK competitiveness overseas probably mirrors movements in sterling much more than corporate efficiency. That irritating truth, though, doesn't reduce the importance of organic competitive advantage.

In fact, revaluation may be a stronger force for efficiency and effectiveness than devaluation. Even before the Barings disaster, the D-mark had been soaring against the pound (and other currencies). But 1994's labour costs in German manufacturing fell by more than 6%: engineering achieved a 10% rise in productivity. Plainly, this degree of improvement can only have resulted from major advances in methods, management and manpower utilisation - all requiring energy and self-criticism. Devaluation, though, cuts costs automatically, and easily breeds complacency, a long-run symptom of the British disease.

Cost-cutting, moreover, is by no means the only route to competitive prowess. The Department of Trade and Industry doesn't even headline what the Japanese call 'costdown' in its checklist for would-be winners. Based on a survey of 121 UK-based victors, conducted with the CBI, the checklist majors on (1) leadership by visionary enthusiastic champions (2) unlocking the potential of people (3) knowing your customers (4) constantly introducing new, differentiated products and services (5) exceeding customer expectations.

Under this last heading, the winners, of course, delight the customer as they 'continuously reduce customer costs'. In 'unlocking people potential', too, they 'measure and benchmark performance against direct competitors and other companies in other sectors': presumably, having done so, winners then work on matching or exceeding the lowest costs. But the question-mark hangs over the 'soft' elements rather than the hard.

Apart from innovative visionaries (doubtless in short supply in any economy), many of the DTI/CBI's other priorities for victorious competition come under an umbrella that's easier to unfurl: 'empowerment.' It's the prevailing management idea: that the key to collective success lies in allowing every individual the fullest possible expression of his or her ability to contribute. According to an Industrial Society survey, the gospel is hot: over half the 580 managers it questioned hope to empower employees soon.

Put that the other way round, though, and clearly well over half the sample are not empowering their employees now. Yet the case for empowerment has been fully aired for many years. At the most basic level, so every study shows, productivity and competitive prowess rise when shop-floor workers have more control over their output. What explains the anti-competitive resistance to this fundamental reform with its almost certain pay-off?

Middle management has good (or bad) reason to resist: its jobs may go (one in three of the Society's respondents reported this disappearance). But senior managers are also dragging their feet: that's implied by another finding, which is that almost one in three of the companies lifting their empowerment levels only did so after a new chief executive arrived. New brooms customarily seek to sweep clean; and new arrivals, presumably younger and probably more eager for change, are more sympathetic to the idea that competitiveness has cultural roots.

This suggests strongly that boards should ordain instant change unless the old brooms are also visionary enthusiasts who really know customers, truly use people potential and continuously drive for innovatory products, services and processes. Any other kind of chief executive is a latent Leeson.

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