Unpacking the productivity puzzle: New research highlights the challenges for UK businesses

Press Releases

7 Sep 2016

A consortium of researchers has carried out an in-depth investigation into major business sectors in the UK, looking at ‘the productivity puzzle’.

The recent poor productivity performance of the UK economy has become a major concern for economists and policy-makers. Existing data on productivity differs from sector to sector, presenting a challenge to those trying to unpick the causes of the recent downturn.

The Institute for Employment Studies, SQW economic development consultancy, the Institute for Employment Research at the University of Warwick, and Cambridge Econometrics examined the creative, retail, manufacturing and food manufacturing sectors, plus digitisation and leadership and management as cross-sector issues for concern.

The consortium has published a set of reports on these topics, which unpack the characteristics of productivity for each sector, outlining the major challenges, looking to the future, identifying priorities for change and how employers and government can help. 

The four sector studies explored published research and data for existing knowledge on the factors impacting productivity in each specific sector.

The two cross-cutting reports investigated what we know of the role of management and leadership and digitisation as factors affecting UK productivity across sectors.

Penny Tamkin, director of employer research and consultancy at the Institute for Employment Studies, commented:

‘Each of the reports provides a deep dive into the collated evidence on productivity and what the future might hold to provide the evidence to support those attempting to bring about a step change in our performance.’

Michael Frearson, director at SQW economic development consultancy, said:

‘The set of six reports complements parallel work undertaken by the Productivity Leadership Group chaired by Sir Charlie Mayfield, announced in the Government’s July 2015 Productivity Plan.  The reports offer solutions for implementation by business leaders in key sectors of the economy, to strengthen business performance and foster growth.’

Key findings


New datasets created during this project indicate that the productivity of the UK’s creative industries varies considerably by sub-sector, but compares well overall with European countries. However, the sector’s productivity has been broadly flat since 2000, despite its highly qualified workforce, and has declined relative to the UK economy as a whole. This suggests that the sector is still challenged by the transformation of its business models by digital and internet technologies; by the predominance of micro-businesses; and by the inherent difficulties of managing the creative process in any standardised way.

Food and Drink

Defined by relatively low value-added but high-volume production and levels of international trading, food and drink manufacturing will depend on critical skills of strategic management, engineering and food technology to maintain competitive levels of productivity.


Labour productivity is higher in manufacturing than the UK average across all sectors but productivity fell markedly during the recession, and has struggled to recover to pre-recession levels. Reduced investment in R&D and issues regarding management and leadership, STEM and ICT skills are increasingly inhibitors to productivity growth.


The changing face of retail has shifted the productivity agenda in the sector with increasing emphasis on digital skills for online sales and for using ‘big data’ to target activity alongside the need to build a reliable and seamless logistics and supply-chain operation.


The adoption of basic digital technology is now nearly ubiquitous, but the adoption of more advanced applications is more variable – with larger businesses tending to lead the way. SMEs are particularly disadvantaged in using fast-moving technologies, citing lack of time and lack of priority. Meanwhile there are wider challenges of raising digital skills.

Management and Leadership

There is now considerable evidence that management and leadership are linked to firm-level productivity and that the UK is mid-level in terms of measures of management and leadership capability. Improving management skills is inhibited by lack of understanding of what good practice looks like and inability to accurately self-assess organisational management and leadership capability. This suggests greater attention needs to be placed on benchmarking practices and in networking with other firms.


Notes for the Editor

In 2015, the UK Commission for Employment and Skills (UKCES) commissioned a consortium of research organisations to prepare a series of papers investigating the current productivity challenges for UK businesses. The consortium, led by the Institute for Employment Studies and SQW, also included the Institute for Employment Research at the University of Warwick, and Cambridge Econometrics. The consortium was commissioned to prepare a series of strategic labour market intelligence reports on the challenges and opportunities for increasing productivity in four sectors and two cross-cutting themes.

The research consortium has now published six reports:

Understanding the future of productivity in the creative industries, Brighton R, Gibbon C, Brown S, SQW

Productivity in the Retail Sector: Challenges and Opportunities, Cox A, Hay G, Hogarth T, Brown G, Institute for Employment Studies

The future of productivity in manufacturing, Green A, Hogarth T, Kispeter E, Owen D, Institute for Employment Research, University of Warwick

The future of productivity in food and drink manufacturing, Hogarth T, Kispeter E, Institute for Employment Research, University of Warwick

State of Digitisation in UK Business, Mack-Smith D, Lewis J, Bradshaw M, SQW

The Relationship between UK Management and Leadership and Productivity, Tamkin P, Hicks B, Institute for Employment Studies

About Penny Tamkin

Penny Tamkin is director of employer research and consultancy at the Institute for Employment Studies. Penny has over 20 years’ experience of what helps people perform better at work and the contribution of management and leadership, human capital and learning and development. She has published and spoken widely on these subjects, conducted research and evaluation studies and worked with UK policy-makers and organisations of all sizes to develop new thinking, understanding and practice.

About Michal Frearson

Michael Frearson is a director at SQW where he leads on skills policy research, analysis and evaluation. He has 20 years' experience working with schools, further and higher education and work-based learning, mostly in public policy and professional practice research, development, training and evaluation roles.

About the Institute for Employment Studies

The Institute for Employment Studies is a leading independent, not-for-profit centre for research and evidence-based consultancy on employment, the labour market, and HR policy and practice.

Visit www.employment-studies.co.uk for more information

IES tweets from @EmploymtStudies

About SQW

SQW is a consultancy specialising in economic and social development, with expertise in a innovation, spatial development, education and skills, children young people and families, personalisation and service integration, and health and social care.

Visit www.sqw.co.uk for more information

SQW tweets from @SQW_uk

About the Institute for Employment Research, University of Warwick

The Institute for Employment Research is a leading international social science research centre. Its research is interdisciplinary and is relevant to policy makers, practitioners and academics.

Visit www2.warwick.ac.uk/fac/soc/ier for more information

IER tweets from @WarwickIER