The UK productivity gap in the service sector: do management practices matter?

Purpose – This paper aims to contribute to the debate on the drivers of the productivity gap that exists between the UK and its major international competitors. Design/methodology/approach – From the macro perspective the paper explores the quantitative evidence on the productivity differentials and how they are measured. From the micro perspective, the article explores the quantitative evidence on the role of management practices claimed to be a key determinant in promoting firm competitiveness and in bridging the UK gap. Findings – This study suggests that management practices are an ambiguous driver of firm productivity and higher firm performance. On the methodological side, qualitative and subjective measures of either management practices or firm performance are often used. This makes the results not comparable across studies, across firms or even within firms over time. Productivity and profitability are often and erroneously interchangeably used while productivity is only one element of firm performance. On the other hand, management practices are multi-dimensional constructs that generally do not demonstrate a straightforward relationship with productivity variables. To assume that they are the only driver of higher productivity may be misleading. Moreover, there is evidence of an inverse causal relationship between management practices and firm performance. This calls into question most empirical results of the extant literature based on the unidirectional assumption of direct causality between management practices and firm performance. Research limitations/implications – These and other issues suggest that more research is needed to deepen the understanding of the UK productivity gap and more quantitative evidence should be provided on the way in which management practices contribute to the UK competitiveness. Their impact is not easily measurable due to their complexity and their complementary nature and this is a fertile ground for further research. Originality/value – This paper brings together the evidence on the UK productivity gap and its main drivers, provided by the economics, management and performance measurement literature. This issue scores very highly in the agenda of policy makers and academics and has important implications for practitioners interested in evaluating the impact of managerial best practices.

Exporting and productivity in business services:evidence from the United States

Does exporting make firms more productive, or do more productive firms choose to become exporters? Given the amount of resources devoted by governments to supporting exporters, this is an important question. There are reasons to expect exporting to boost productivity, both through the exposure to foreign competition which exporting brings, and through ‘learning by exporting’. However, the broad thrust of previous research is that more productive firms self-select into export markets, with relatively little evidence that exporting leads to higher productivity thereafter. This paper considers the link between exporting and productivity for a sample of firms in US business services. We find that larger, more productive firms are more likely to become exporters, but that these factors do not necessarily influence the extent of exporting. This conforms with previous literature that there is a self-selection effect into exporting. We then test for the effect of exporting on productivity levels after allowing for this selection effect. We model both the relationship between exporting and productivity, and a simultaneous relationship between export intensity and productivity after allowing for selection bias. In both cases we find a clear association, indicating that productivity is positively linked both to exporting and to increased exposure to international markets.

To be(long) or not to be(long):social identification in organizational contexts

In the past few years, ideas of Social Identity Theory and Self-Categorization Theory have been successfully applied to the organizational domain. In this article, the authors provide an overview of these recent developments and present a concept of social identification in organizational contexts, based on these theories. The assumptions of this framework are that (a) social identification in organizational contexts is a multifaceted concept consisting of different dimensions and foci (or targets), (b) higher levels of identification are related to higher productivity and more positive work-related attitudes, and (c) identification is a very flexible concept that is linked to the situational context. The authors present the results of a series of field and laboratory studies in which the proposed relationships are analyzed and, in the main, confirmed. Copyright © 2006 Heldref Publications.

The impact of foreign direct investment on labour productivity in the Chinese electronics industry

Foreign direct investment (FDI) may have a positive impact on labour productivity in recipient industries through direct introduction of capital, technology and management skills and indirectly through spillover effects on domestic firms. This study uses a model intended to examine the overall effects of inward FDI in the Chinese electronics industry. Official data are used for 41 sub-sectors of the industry in 1996 and 1997 having differing levels of FDI. Labour productivity is modelled as dependent on the degree of foreign presence in the industry and other variables, namely capital intensity, human capital and firm size for scale factors. The econometric results suggest that foreign presence in the industry is associated with higher labour productivity. © 2001 Elsevier Science Ltd.

Technology flows, outsourcing and productivity:an analysis of UK trade and FDI

By engaging in trade and foreign direct investment (FDI) with foreign partners, a country can access the R&D and related knowledge stocks of other countries (by accident or by design) and so benefit from those stocks of knowledge at a cost lower than that which would be incurred by developing the knowledge internally. This should lead to beneficial ‘spillover’ effects on the productivity of domestic firms. However, the literature on technology spillovers from trade and FDI is ambiguous in its findings. This may in part be because of the assumption in much of the work that trade and FDI flows are homogeneous in their determinants and thus in their effects. We develop a taxonomy of trade and FDI determinants based on R&D intensity and unit labour cost differentials, and test for the presence of spillovers from inward investment and imports on an extensive sample of UK manufacturing plants. We find that both trade and FDI have measurable spillover effects, but the size of these effects varies depending on the technological and labour cost differentials between the UK and its trading partners. There is therefore an identifiable link between the determinants and effects of trade and FDI which the previous literature has not explored. We also find that absorptive capacity matters for spillovers from FDI, but not from trade. Overall, these findings suggest that the productivity effects of FDI are largely restricted to plants with high absorptive capacity, while the productivity effects of imports occur largely among higher-technology plants regardless of their absorptive capacity.

The impact of Islamic banking on the cost efficiency and productivity change of Malaysian commercial banks

This study employs stochastic frontier analysis to analyze Malaysian commercial banks during 1996-2002, and particularly focuses on determining the impact of Islamic banking on performance. We derive both net and gross efficiency estimates, thereby demonstrating that differences in operating characteristics explain much of the difference in costs between Malaysian banks. We also decompose productivity change into efficiency, technical, and scale change using a generalised Malmquist productivity index. On average, Malaysian banks experience moderate scale economies and annual productivity change of 2.68 percent, with the latter driven primarily by technical change, which has declined over time. Our gross efficiency estimates suggest that Islamic banking is associated with higher input requirements. However, our productivity estimates indicate that full-fledged Islamic banks have overcome some of these cost disadvantages with rapid technical change, although this is not the case for conventional banks operating Islamic windows. Merged banks are found to have higher input usage and lower productivity change, suggesting that bank mergers have not contributed positively to bank performance. Finally, our results suggest that while the East Asian financial crisis had a short-term cost-reducing effect in 1998, the crisis triggered a more lasting negative impact by increasing the volume of non-performing loans.

Moving from HRM to knowledge productivity:a study of whether and how organizations become learning organizations

Practitioners and academics are in broad agreement that, above all, organizations need to be able to learn, to innovate and to question existing ways of working. This thesis develops a model to take into account, firstly, what determines whether or not organizations endorse practices designed to facilitate learning. Secondly, the model evaluates the impact of such practices upon organizational outcomes, measured in terms of products and technological innovation. Researchers have noted that organizations that are committed to producing innovation show great resilience in dealing with adverse business conditions (e.g. Pavitt, 1991; Leonard Barton, 1998). In effect, such organizations bear many of the characteristics associated with the achievement of ‘learning organization’ status (Garvin, 1993; Pedler, Burgoyne & Boydell, 1999; Senge, 1990). Seven studies are presented to support this theoretical framework. The first empirical study explores the antecedents to effective learning. The three following studies present data to suggest that people management practices are highly significant in determining whether or not organizations are able to produce sustained innovation. The thesis goes on to explore the relationship between organizational-level job satisfaction, learning and innovation, and provides evidence to suggest that there is a strong, positive relationship between these variables. The final two chapters analyze learning and innovation within two similar manufacturing organizations. One manifests relatively low levels of innovation whilst the other is generally considered to be outstandingly innovative. I present the comparative framework for exploring the different approaches to learning manifested by the two organizations. The thesis concludes by assessing the extent to which the theoretical model presented in the second chapter is borne out by the findings of the study. Whilst this is a relatively new field of inquiry, findings reveal that organizations have a much stronger chance of producing sustained innovation where they manage people proactively where people process themselves to be satisfied at work. Few studies to date have presented empirical evidence to substantiate theoretical endorsements to engage in higher order learning, so this research makes an important contribution to existing literature in this field.

The impact of Islamic banking on the cost efficiency and productivity change of Malaysian commercial banks

This study employs Stochastic Frontier Analysis (SFA) to analyse Malaysian commercial banks during 1996–2002, and particularly focuses on determining the impact of Islamic banking on performance. We derive both net and gross efficiency estimates, thereby demonstrating that differences in operating characteristics explain much of the difference in costs between Malaysian banks. We also decompose productivity change into efficiency, technical, and scale change using a generalized Malmquist productivity index. On average, Malaysian banks experience moderate scale economies and annual productivity change of 2.68%, with the latter driven primarily by Technical Change (TC), which has declined over time. Our gross efficiency estimates suggest that Islamic banking is associated with higher input requirements. However, our productivity estimates indicate that full-fledged Islamic banks have overcome some of these cost disadvantages with rapid TC, although this is not the case for conventional banks operating Islamic windows. Merged banks are found to have higher input usage and lower productivity change, suggesting that bank mergers have not contributed positively to bank performance. Finally, our results suggest that while the East Asian financial crisis had a short-term costreducing effect in 1998, the crisis triggered a long-lasting negative impact by increasing the volume of nonperforming loans.

The efficiency and productivity of Malaysian banks:an output distance function approach

This study employs stochastic frontier analysis to analyze Malaysian commercial banks during 1996-2002, and particularly focuses on determining the impact of Islamic banking on performance. We derive both net and gross efficiency estimates, thereby demonstrating that differences in operating characteristics explain much of the difference in outputs between Malaysian banks. We also decompose productivity change into efficiency, technical, and scale change using a generalised Malmquist productivity index. On average, Malaysian banks experience mild decreasing return to scale and annual productivity change of 2.37 percent, with the latter driven primarily by technical change, which has declined over time. Our gross efficiency estimates suggest that Islamic banking is associated with higher input requirements. In addition, our productivity estimates indicate that the potential for full-fledged Islamic banks and conventional banks with Islamic banking operations to overcome the output disadvantages associated with Islamic banking are relatively limited. Merged banks are found to have higher input usage and lower productivity change, suggesting that bank mergers have not contributed positively to bank performance. Finally, our results suggest that while the East Asian financial crisis had an interim output-increasing effect in 1998, the crisis prompted a continuing negative impact on the output performance by increasing the volume of non-performing loans.

Costs and efficiency of higher education institutions in England:a DEA analysis

As student numbers in higher education in the UK have expanded during recent years, it has become increasingly important to understand its cost structure. This study applies Data Envelopment Analysis (DEA) to higher education institutions in England to assess their cost structure, efficiency and productivity. The paper complements an earlier study that used parametric methods to analyse the same panel data. Interestingly, DEA provides estimates of subject-specific unit costs that are in the same ballpark as those provided by the parametric methods. The paper then extends the previous analysis and finds that further student number increases of the order of 20–27% are feasible through exploiting operating and scale efficiency gains and also adjusting student mix. Finally the paper uses a Malmquist index approach to assess productivity change in the UK higher education. The results reveal that for a majority of institutions productivity has actually decreased during the study period.

High-growth firms and productivity:evidence from the United Kingdom

Abstract There is considerable evidence that high-growth firms (HGFs) contribute significantly to employment and economic growth. However, the literature so far does not adequately explore the link between HGFs and productivity. This paper investigates the empirical link between total factor productivity (TFP) growth and HGFs, defined in terms of sales growth, in the United Kingdom over the period 2001-2010, by examining two related research questions. Firstly, does higher TFP growth lead to HGF status and secondly, does HGF experience help firms achieve faster TFP growth? Our findings reveal that firms in both the manufacturing and services sectors are more likely to become HGFs when they exhibit higher TFP growth. In addition, firms that have had HGF experience tend to enjoy faster TFP growth following the high-growth episodes. Policy implications are drawn based on the self-reinforcing process of the high-growth phenomenon that is revealed by our results. © 2014 The Author(s).

Wage inequality and productivity growth:motivating sticks and crippling carrots

Wage inequality is a particular focus of attention not only in public debates over the need for social regulation to support equity, but those over the implications of social regulation for productive performance. The present paper employs panel techniques to examine the comparative historical relationship between wage inequality and hourly labour productivity growth in the manufacturing sectors of nine advanced industrialised nations over the period 1970-1995. The results show that whilst greater inequality in the top half of the wage distribution is associated with greater productivity growth, greater inequality in the bottom half is associated with lower productivity growth. It appears that whilst wage inequality in the top half of the distribution productively motivates higher earners, wage inequality in the bottom half of the distribution is detrimental for productivity performance. The latter result is most likely attributable to the weak incentives to reorganise production where extremely low pay is feasible.