The power of productivity

Pro-productivity policies for businesses and policymakers.

Collaborating with business leaders and policy stakeholders, the Royal Society of Edinburgh and Charlotte Street Partners explore critical insights into the UK’s productivity challenge. This report captures discussions from a roundtable event chaired by Professor Graeme Roy, featuring contributions from Professor Bart van Ark, The Productivity Institute’s Managing Director. The report presents actionable strategies for businesses and policymakers.

The power of productivity report (4MB, PDF)

Defining productivity

Productivity is often misunderstood as merely “doing more with less.” It’s about optimising resources to produce better outcomes for firms, employees, and society. From GDP per hour worked to business innovation, productivity affects multiple levels—from macroeconomic growth to everyday business strategies.

Professor van Ark notes that we need to change the narrative around productivity and focus on the real meaning:

This definition captures the multifaceted nature of the concept.

What’s the current state of the UK’s productivity?

It is well known that the UK’s productivity is far from desirable levels, but where do we currently sit? Compared to other countries in the OECD, the UK’s productivity is relatively low. However, we are not the only economy facing slow productivity growth. Many countries, including Germany, France, and the United States, are facing a slowdown, albeit not at the same rate as the UK.

Understanding and improving productivity is central to economic growth, innovation, and living standards. But what does it mean? This report unpacks the true nature of productivity and its impact on businesses, society, and the economy.

Productivity in Scotland

The UK’s productivity growth has been lagging, particularly compared to other OECD nations. However, there are compounding regional disparities in Scotland. Chronic underinvestment, knowledge gaps, and fragmented institutions are key barriers holding back progress, and we need to address them.

Key drivers of productivity for businesses

The Productivity Institute suggests five key drivers for productivity:

• Innovation and digital
• Worker skills and wellbeing
• Leadership and management
• Marketing and communication
• Access to finance.

While all these drivers are essential, effective leadership and management emerged as the most pressing issue, especially for smaller firms in Scotland.

Strategies for closing the productivity gap

Top-performing firms must help raise productivity across the business ecosystem by sharing innovations and best practices with mid-range firms. The government must balance healthy collaboration and competition to drive growth.

What can Scotland learn from other parts of the UK?

We look at successful strategies for fostering innovation and economic growth in regions like Southeast England and apply these lessons to Scotland’s unique challenges.

Recommendations for policymakers

The report outlines actionable policy suggestions for creating a more productive economy, including:

• Science and innovation policies should better balance technological progress with knowledge diffusion and stronger absorptive capacity of firms and ecosystems.
• Help foster a culture of knowledge diffusion by promoting, expanding and facilitating peer-to-peer knowledge-sharing groups within Scottish businesses and beyond.
• Investment in infrastructure, such as transport, local amenities and housing to attract business and people to areas requiring a boost in productivity.
• Expand leadership and management training programmes in Scotland.
• To address regional inequality, investment in up-skilling and training programmes complemented by the local economy for regions to attract new businesses to areas with a low-skilled population. This must be done strategically, working with the private sector to ensure employment opportunities within the region.

Advice for business leaders

• The five key business drivers of productivity (Innovation and digital, worker skills and wellbeing, leadership and management, marketing and communication, and access to finance) continuously compete for the managers’ attention. It is critical for business leaders to use different lenses on productivity across functions in the boardroom, understand possible trade-offs, and leverage the complementaries. Prioritising productivity-enhancing initiatives requires a systematic and strategic approach to removing organisational bottlenecks.
• The “production function” of the firms has changed from what it was in the past (workers and machines) and now depends heavily on software, data, digital skills and computing power. Business innovation-related intangibles (organisational, marketing & brand, business training) have also become more important complementary drivers of growth.

Next steps and engagement

The RSE invites businesses, policymakers, and public bodies to engage with the findings and help shape the future of Scotland’s economy. Contact us to share your thoughts and contribute to the ongoing dialogue, email Stephanie Webb, Policy Advice Officer (swebb@therse.org.uk) with any enquiries about this advice paper or offering your expertise to engage further.

Download the full report

The power of productivity report (4MB, PDF)