Public sector must kickstart productivity to deliver lifeline for UK economy

• Report by The Productivity Institute unveils urgent recommendations to raise public sector productivity through focusing on outcomes and identifying bottlenecks for improvement

Public sector productivity holds a vital key to reversing the UK’s worsening economic outlook, yet there are concerns it has limited scope to perform that role in the light of budget pressures which would harm the quality of services in the longer term, according to a new report published by The Productivity Institute, based at Alliance Manchester Business School.

The warning from Bart van Ark, professor of productivity studies at the University of Manchester and managing director of The Productivity Institute, comes amid fears that some organisations may have reached their limits to improve productivity through budget efficiency gains and budget cuts.

The report, Making Public Sector Productivity Practical, outlines urgent recommendations for policy makers and public sector managers by focusing its endeavours to raise productivity on outcomes and identifying the key bottlenecks for improvement.

The public sector accounts for about a fifth of UK GDP, so any improvements to its productivity levels significantly impacts the society more widely by improving the quality of services for everyone, and by providing more effective foundations for private enterprise and economy-wide productivity growth. These outcomes will ultimately help to reduce tax burdens and support fiscal responsibility.

The report finds there is untapped potential for improving productivity measurement and performance by better allocating resources.

For example, a more agile workforce – one that is outcome driven, open to new technology and flexible to change – tends to generate greater employee satisfaction and higher morale.

Frontline workers – such as those in healthcare, social care or education – usually have the most knowledge about service delivery processes and should be involved in the design and implementation of an adaptive business design.

Professor van Ark said: “The public sector should not be regarded as a burden on economy-wide growth. Its services should contribute to the creation of jobs and higher wages by improving the conditions for private businesses to invest in skills, innovation, and infrastructure.

“While tighter spending controls have helped to improve productivity across the sector in the last decade, there is a real concern that these types of gains are unsustainable without broader intervention to improve service delivery. We must support public sector organisations in creating robust strategies to boost output and quality, to identify bottlenecks, implement real-time measurement and cultivate a culture of continuous innovation and collaboration.

“To do so, the Government must prioritise providing public sector organisations with flexible multi-year budgets and devolved decision-making, while shoring up long-term funding stability. Only then can we facilitate real change.” 

The report’s recommendations:

The report recommends organisations create a robust strategy using the three key drivers of public sector productivity: adaptive business design, digital transformation, and building an agile workforce, and offers three recommendations that help to raise productivity:

1. Systematically identify the major bottlenecks within an organisation and use an iterative approach to solve the most important constraints.
2. Ensuring a solid real-time measurement system is in place to help management to understand how their organisation is performing – and how it can improve productivity by removing key constraints.
3. Cultivating a culture of continuous innovation and collaboration.

The productivity puzzle

Since 2010, there has been a slowdown in productivity across the UK, often called the ‘productivity puzzle.’ Still the ONS reported that public sector productivity increased by an average of 0.7 percent. Raising annual productivity growth from its recent 0.5 percent growth to 1 percent per year through greater output and quality would deliver about £ 1.8 billion in additional GDP annually.