The productivity puzzle

April 2024

Andrew Harding explains how management accountants can drive growth and help lift the UK out of the economic doldrums.

The UK’s weak rate of productivity growth since the 2008 financial crisis is one of the most pressing economic problems facing the country today. In fact, evidence from the World Bank shows that this post-crisis slowdown in productivity growth affected 70% of advanced economies in the world and is considered one of the most impactful economic conditions of the past two decades.

This problem is not insoluble. We are on the cusp of a significant increase in productive capacity, and management accountants equipped with the latest digital technology are going to be playing a central role.

Higher productivity creates value added growth, meaning an improvement the quality and volume of goods and services produced per worker. If the UK could remedy its poor productivity growth, we could look forward to real wage growth, higher profits and capital gains of businesses, more revenue for the public purse and improved living standards.

So, what has this got to do with accountants and finance professionals?

Accountants and finance teams are shifting from stewards of organisations to value creators. Driving value is key to growth. Value added growth triggers what is known as a virtuous cycle of growth within organisations and economies — better efficiencies and improved margins give scope for capital expenditure, investment and pay rises, which in turn help drive demand for more and better goods and services.

Until we start focusing effort and resources on generating this type of growth, the UK will remain trapped in the economic doldrums. The profession can do its bit to address this.

What the UK government could do

At AICPA & CIMA we have produced research on this topic, drawing on the considerable expertise of our membership. Last year, in our report Tackling the UK Productivity Puzzle, we presented 35 suggestions on how to improve UK productivity, including ideas to support the reskilling and upskilling of the workforce, and increase business investment in technology and R&D. These recommendations would be an excellent place for the UK government to start to address this very serious issue.

Drawing on this work we submitted policy suggestions for the March 2024 Budget. They included:

  • The introduction of a productivity strategy and the creation of a productivity commission similar to the ones in New Zealand and Australia. We need this to support the reskilling and upskilling of the workforce and increase business investment.
  • Action to reduce fiscal drag. AICPA & CIMA research into how tax policy affects productivity indicates that people being dragged into higher tax bands as a result of inflation has a negative effect.
  • More effective measurement of productivity in the public sector. AICPA & CIMA research in this area indicates that the private sector is currently doing more to measure its productivity than the public sector. It is a basic principle of management accounting that if something is to be improved it must first be measured.

How finance professionals will make a difference

Last year, CIMA signed a Memorandum of Understanding (MoU) with The Productivity Institute to enable cooperation on generating new insights into the problem of low productivity growth. We have been engaged in a dialogue on productivity issues and improvement opportunities.

Our recent report, The role of finance professionals in driving productivity, is based on research and practical insights generated by the two organisations. These include the experiences CIMA members have in enhancing the productivity of the organisations they work in, and how those efforts link with business partnering, agile transformations, collaboration and hybrid work practices.

Because of the unique, ‘whole system’ perspective and focus on value creation which finance teams have of our organisations, we are well placed to make a significant contribution to solving the productivity problem. Indeed, it is perhaps one of the most significant contribution management accountants can make to their organisations.

One reason to be hopeful is that right back to the invention of the spreadsheet our profession has a strong track record in adopting new productivity enhancing technologies. We are living through a period of remarkable digital innovation, and I believe that accountants are well placed to take advantage of these developments in ways which significantly enhance our productivity.

Management accountants who are equipped with the latest analytic technology, which will be enhanced further by the widespread adopting of artificial intelligence, will be able to add more value than ever before, and they will make a significant contribution to raising the overall productivity levels of their organisations. This will play a major part in creating a sustained period of value-added growth that helps raise living standards, delivers better public services and lifts the country out of the economic doldrums where we have been marooned for far too long.

  • Andrew Harding, Chief Executive – Management Accounting, AICPA & CIMA