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Fit for the Future

Alec DalyA presentation to the World Productivity Congress, Edinburgh, October 1999

by Alec Daly, Deputy Director General of the Confederation of British Industry and Chairman of the National Manufacturing Council of the Confederation of British Industry.

One of the problems involved in raising the level of debate about competitiveness and productivity in the UK was to establish some attention-getting headlines. To do this, we decided to compare the UK with the country that is generally regarded as the most productive in the world - the US. We computed what it would mean if UK manufacturing companies could manage to achieve the average productivity levels of their US counterparts. We also looked at what might be achieved if the same could happen across all sectors of industry.

If we in the UK could achieve average US productivity levels of manufacturing practice, we would add £60bn to the GDP, and if we managed to do it across all sectors, it would be worth £300bn.

If these numbers don't capture the attention, and make people - whether in business or government - sit up and take notice then what will! After all this is equivalent to:

  • seven times what we spend on health,
  • eight times what we spend on education,
  • thirteen times our defence budget, and
  • 66 times that which we spend on transport.

Productivity measurement can be a fiscal minefield. What should be measured? Output per hour worked? Capital productivity? Sectoral productivity? Total factor productivity? Labour productivity? Or service sector productivity?

We looked at all of these and came to the conclusion - perhaps the obvious one - that no matter what is measured, there is a productivity gap between the UK and the best of the world. This represents a real challenge for the United Kingdom.

The National Manufacturing Council of the CBI consists of about 40 companies - from the very large through medium sized to small. The very largest has about 150,000 employees and our smallest member on the Council is a company of 25 employees. We refresh these companies every couple of years in order to get a truly representative cross section of UK manufacturing involved in the process. When we first began to look at the factors which we thought were preventing the UK from being a truly world class manufacturing nation, we discussed the 'normal' things such as : · the regulatory framework,; · the absence of clusters (we know America has very strong methods of clustering small companies round large companies to reduce supply chain and logistics); · the short-termism of the investment community; · labour force skills; · the fact that we are very good at inventing and not very good at exploiting.

It is east to convince oneself that any one, or a combination of a number of them, is responsible for our poor performance. We could have blamed the government for our exchange rate problems, or interest rates, or for not spending on transport infrastructure; we could have blamed academia for not being nearly as close to industry as it should be; or the media who always present an outmoded and negative view of manufacturing industry (all those mess ages of dark satanic mils!). Such an entertaining but fruitless parlour game was cut short by one of our members pointing out that one particular company on the Council was world class, was operating in Britain, has British management, and is dealing with all of these 'problems'.

So why is this company world class and most are not? How it is that Nissan can come to the UK, go to a part of the country that had no history of the automotive industry and in very little time produce a car plant that rivals the very best in the world.

We concluded that there were too many excuses and that UK manufacturing had to stop attributing blame and get on with the job oh helping itself, of accepting the ultimate responsibility. If good - and indeed, best - practice exists within the UK - then we need to learn from it and share it.

In doing so, we need to establish a change culture in the UK. This is a very ambitious objective. Because of the figures I mentioned earlier - the £60bn and the £300bn - we have the interest of government who have backed us to the tune of £15m. UK industry is matching that.

How does the Fit for the Future campaign work?

Fit for the Future is not a methodology. There are many improvement and change methodologies out there in the UK and in the rest of the world. There are outstanding initiatives. There are model companies. There are best practice clubs. For the very large number of small and medium-sized enterprises in this country the situation is extremely confusing. So Fit for the Future is trying to act as an 'umbrella' for a range of information sources and initiatives, and as a kind of translator, guide and mentor to make it relevant and interesting for these SMEs. It is a campaign designed to add value to, not compete with other initiatives. £5m of the £15m made available by government has been given to the sector initiatives. The trade association of the automotive industry - The Society of Motor Manufacturers and Traders - for example, has an outstanding initiative called The Industry Forum set up by all the major manufacturers. They have master engineers from Japan helping our first, second and third tier suppliers to become better at what they do. They go into these companies and they teach British engineers and British technicians Japanese best practice in terms of shop floor layout, changeover times, quality levels and so on. Something like 400 companies have already been involved in this initiative and the programme is accelerating.

This programme is aimed at creating step change improvements in supply chain performance with targets to reduce floor area requirements by 70%, raise labour productivity by 40%, to improve change over times by a factor of 4, and to raise delivery schedule adherence from 86% to 96%.

Of course, 96% will soon not be good enough and 100% will be sought!

The construction industry in this country, and I suspect in many countries, has been regarded as fairly backward and not really ready, as a sector, to embrace best practice. However, that is changing very rapidly. Indeed, the construction sector now has an initiative running which, over the next five years, has set itself targets through Fit for the Future to ensure the transfer of best practice for major projects. They are aiming at similar challenging performance targets for completion ahead of schedule, safety records of zero accidents, and the elimination of waste.

The Society of British Aerospace Companies has a similar initiative, as does The Institute of Grocers and Distributors - the 'movement' has reached the service and retail sectors.

There are examples of excellence from which we can learn. Significant change has to take place in the supply chain - and BT, based on their insistence that every supplier to them has to use E-commerce, is running a massive programme to spread best practice through its supply chain. They are quite happy to tell other companies how it is being done.

As well as these sector-based initiatives and programmes, we have regional programmes. I'll take just one example from the North East of England. 'The North East Challenge' involves a group of businessmen who are working with the Newcastle Business School. Seven hundred companies are now involved, and the group has set itself specific targets for the companies to achieve individually, a regional target for the creation of new jobs (20,000), and a target of an increased share of world trade to that part of the UK. Interestingly, the group has also set itself another objective: to make sure that every school in the North East achieves specific National Vocational Targets for its pupils. The group has taken this upon itself as its contribution towards the next generation, who will help to further increase our productivity and to make the UK a better place in which to live and work. It is supporting schools by the provision of computers and software and by advice and assistance and has created an extremely successful initiative.

We have a number of partners in the Fit for the Future campaign : the Marketing Council for example. They became partners with us and are helping us broadcast our message about Fit for the Future to the community. We also have champions - individuals who have the need or the desire to help other companies. Often these are retired businessmen who are willing to share their knowledge, expertise and experience. (The Americans call such people grey panthers.) Through such approaches we identify good practice - and we record it in the form of case studies and on our Website.

Now interestingly in a recent poll conducted by IBM, the London Business School and the CBI, 70% of UK companies thought they were world class or could be world class.

The actual number of world class companies in this country is 3%!

That is not something we should be particularly ashamed of because the actual number of world class companies in any country is around 3%. Our problem is - and it's a problem that seems to be more severe here than in other developed countries - is that we have a longer tale of underperforming companies than other countries.

Fit for the Future is designed to rid us of our complacency. . To help us in this we have created an Index of Complacency. We have ways of measuring this, and we now have 1,200 companies from all over the world on our database - Japanese, American, German, French, etc. as well as UK companies. The bottom axis shows the extent to which companies are achieving world class levels, and the vertical axis shows if they are becoming increasingly complacent. How did we measure complacency? We asked. We asked companies where they thought they were on the world class scale? If they thought they needed to change? If they have change programmes going. World class companies are not satisfied, and they tend to have a number of change programmes going on. There is a direct correlation between complacency and performance which perhaps shouldn't surprise us.

World class companies are humble companies, anxious to learn and anxious to improve.

Everybody knows that the transfer of best practice isn't the only way forward. We know that companies must continue to innovate on their own, to create their own unique attraction for the market and nothing we are doing should do anything but help that process. What we do know, however, is that the transfer of best practice is a very powerful tool, and one that companies ignore at their peril. Companies do - and always will - move at different speeds. However, none achieves a level where they cannot learn from another. Now I have long been an admirer of GE and Jack Welsh. GE is probably the most admired company in the world, and Jack Welsh is possibly the most admired CEO. Jack Welsh is giving Fit for the Future his personal support. He knows that companies that can learn, share that learning and act quickly on it have a fundamental and sustainable competitive advantage. He believes that! We believe that! Visit our web-site, participate in our events and get...

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