Catching Up With Uncle Sam

cover ART2 28/11/01 8:11 am Page 2
Catching up with Uncle Sam

The EEF final report on US and UK manufacturing productivity
THE VOICE OF
ENGINEERING
Part of the Manufacturing at the Crossroads series

Contents
Foreword 2
Introduction 4
Summary 6
1. Is there a productivity gap? 14
2. Structural reasons behind the productivity gap 18
3. Manufacturing investment 22
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: contents
4. The take up of lean manufacturing 28
5. Use of workplace initiatives 38
6. Attracting and retaining the right people 48
7. Encouraging innovation 54
8. Infrastructure, planning and burdens on business 56
9. Venture capital and productivity 58
Appendix 1. References 62
Appendix 2. Survey Questionnaire 64
Appendix 3. The sample 76
Part of the Manufacturing at the Crossroads series

December 2001
Foreword
The very tough climate that manufacturing has faced in recent years has served to place added emphasis on the need to
boost productivity and competitiveness. This report emphasises that there is more the government can and should do to help
manufacturers achieve these goals. At the same time there are issues firms can tackle for themselves. Improving
manufacturing productivity is as crucial for engineering companies as it is for the economy as a whole. The existence of a
productivity gap between our American counterparts and ourselves is partly due to structural factors but there are also things
we can learn from the way US firms operate.
Government action is urgently required if we are to make significant inroads into this productivity gap. Without such action
firms will not be able to maximise their productivity gains. The priorities for government are:
• stimulating manufacturing investment;
• encouraging greater uptake of lean manufacturing;
• delivering improvements in the infrastructure;
• reducing burdens on business;
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: foreword
• encouraging innovation, and
• tackling skills shortages.
This report also focuses on what we can learn from the way US manufacturers operate at home and abroad. It concentrates
on some of the issues that were raised in our interim report and draws on more evidence from an NOP Survey commissioned
by the EEF. The results show that many engineering companies in the UK have already embraced the productivity challenge
by adopting lean manufacturing techniques, new initiatives in the workplace and using innovative ways to attract the right
staff. However, the maximum gains from these approaches can only be fully exploited if they are underpinned by investment
in the latest capital equipment. The flood of new employment legislation under this government, coupled with other burdens
such as the climate change levy has also seriously impinged on firms’ ability to push for improvements in these areas.
In tandem with those firms being successful is a significant number, which has done less well, compared with both
domestically-owned and foreign-owned companies. This report puts forward a variety of reasons as to why these companies
have been unable to grasp the opportunities open to them. Most importantly it points to solutions and shows that if we are
serious about raising manufacturing productivity, employers, government and the workforce must act together to bring an
even more flexible approach to change within the workplace.
The EEF is prepared to play its part, with focus on developing firms’ lean skills and capabilities. We hope that this report will
be widely read, encouraging the government and workforce to play their part too.
Martin Temple
EEF Director-General
2
3
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: foreword
Introduction
In March, the EEF produced an interim report on US-UK manufacturing

productivity (‘Lessons from Uncle Sam’), based on in-depth interviews with
senior managers in manufacturing companies on both sides of the Atlantic.
It highlighted the importance of improved productivity for UK manufacturing
competitiveness and looked at reasons behind the productivity gap between US
and UK manufacturing. It emphasised a number of reasons for the gap and the
lessons that UK firms could learn from the experience of their US counterparts.
This final report has investigated further some of the issues raised in the main
findings of the interim report. In particular, a survey has been conducted of 352
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: introduction
EEF member companies by NOP to provide further evidence on barriers to
investment, the uptake of lean manufacturing, use of workplace initiatives and
issues surrounding firms’ ability to attract the right people. Details of the sample
are given in appendix 3. The report goes on to look at how employers and
government can work together, tackle the issues relevant to them and boost
productivity growth.
In following up the work on the interim report, the EEF also discussed the issues
raised widely with EEF member companies and committees, government,
academics, consultants and other experts in the productivity field to draw on
their experience and views. This report also draws on this work.
4
5
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: introduction
Summary
The productivity gap (chapter 1) 6. The structural issues of economies of scale and role of ICT
manufacturing can help to explain part of the productivity
1. There are many measures of productivity and the size of gap, but not all. There are other factors at play.
the gap between US and UK manufacturing varies
depending on which one is used. The often-quoted
Treasury estimate of the productivity gap with the US is Manufacturing investment (chapter 3)
45% but this refers to data on GDP per worker and
when the data is adjusted for hours worked the gap is 7. The under-performance of UK manufacturing investment
closer to 25%. relative to US manufacturing is a long-term problem over
the last thirty years. UK manufacturing investment has
2. EEF research for the interim report showed that, been volatile over the economic cycle but the level of
although some UK companies were more productive investment relative to the size of the manufacturing
than their US counterparts, in general a productivity gap sector has remained flat over the long-term.
does seem to exist between UK and US manufacturing.
However, the crucial issue for policy makers and 8. The EEF Productivity Survey shows that there has been
manufacturing is how to narrow the gap, rather than little improvement in manufacturing investment over the
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: summary
debating the exact size. In fact, even if there were no last twelve months and that firms are not planning to
productivity gap, boosting productivity in the UK would dramatically alter their investment performance over the
still be vital to improving manufacturing competitiveness coming twelve months. 40% of firms expect to keep
and overall living standards. capital and labour investment constant over the
coming year.
Structural reasons for the gap 9. Official data confirm that manufacturing investment has
(chapter 2) fallen further in recent years.
3. It is often forgotten in the productivity debate that there 10. A lack of manufacturing investment has undermined
are structural reasons as to why US manufacturing company performance and is expected to continue to do
might be more productive than in the UK. so over the next twelve months.
4. The US manufacturing sector is in a better position to 11. The economic climate of recent years has significantly
exploit economies of scale given that the sector itself is constrained manufacturing investment. The three key
much larger, the domestic market is much bigger and barriers to investment; lack of demand, uncertainty over
the economy is less open. The homogeneity of this large future demand and the exchange rate all undermine
domestic market means that US manufacturing industry current and future profitability. While these factors are
can benefit from higher volumes and fewer product difficult to tackle outside of tackling macroeconomic
variations. stability, it is crucial that their side effects on

manufacturing investment and competitiveness are
5. The performance of the US Information and addressed.
Communications Technology (ICT) manufacturing sector

in the second half of the 1990s was much stronger than 12. The factors holding back investment in manufacturing by
in the UK. Given that it makes up a larger share of the UK-owned firms are also undermining investment by
business sector, it will have had a larger impact on the US-owned firms.
overall productivity performance.
6
13. The EEF ‘Productivity Survey’ shows clearly the link • The key barriers to a better take up of lean
between investment and company performance. Firms manufacturing in the UK are attitudes to change
that have increased investment over the last twelve within the firm, lack of understanding of lean,
months are more likely to have seen strong growth in shortage of the right lean skills (at
productivity and profitability. management/supervisor/workforce levels) and
cultural issues.
14. If increased manufacturing productivity is a serious
economic goal of the government, it must try to break • US-owned firms are having greater success with lean
the long-term trend of under-investment in manufacturing than UK-owned firms because more
manufacturing and counteract the negative impact that of them are using the lean tools across the whole of
the economic climate of recent years has had on their organisation and with greater intensity.
investment and productivity.
• Large firms are using lean manufacturing to a greater
15. Chapter 7 shows that R&D has suffered a similar fate to extent and are achieving more success through lean.
manufacturing investment and emphasises the need for
an R&D tax credit for larger firms. • There is a clear link between the use of lean
manufacturing and higher productivity and

profitability.
Lean manufacturing (chapter 4)
Policy implications
16. The EEF Productivity Survey provides new evidence on
the extent of lean manufacturing in the UK and the 17. If we are to improve the uptake of lean manufacturing in
barriers to its uptake. It shows that many firms are the UK, a four-pronged policy response is needed to
applying lean manufacturing across the whole of their break down the barriers to lean manufacturing. This
business and reaping rewards in terms of improved should have particular focus on small firms but should
performance. Yet there is a significant proportion of also target larger firms that have not yet undertaken lean
firms that has not undertaken any lean manufacturing manufacturing.
and is therefore missing out on the benefits. There are a
number of reasons why some firms are not undertaking a) To tackle the issue of lack of understanding more
lean, but the key barriers can be removed if employers, information and increased awareness of lean
government and trade unions work together in manufacturing is required. The EEF is seeking
partnership. The key results show: partnership with and funding from the DTI to tackle
these issues at a regional level. The aim would be to
• The take up of lean manufacturing in the UK is very run a series of regional seminars, using case studies
much polarised with a third of firms pursuing it and lean experts, to raise awareness and
across the whole organisation, while just over 40% understanding of lean.
are not undertaking any lean manufacturing.
b) As well as raising awareness, it is crucial to increase
• Firms undertaking lean manufacturing do so for a firms’ ability to apply lean within their own company
number of reasons. The key goal is improving overall and enable lean to permeate throughout industry.
company performance in terms of productivity, Again, in partnership with and funded by the DTI, the
efficiency, profitability and lower costs. EEF seeks to apply the Industry Forum approach to
help firms that are outside current schemes. This
• Over 90% of firms undertaking lean manufacturing would involve lean experts going into individual
say it has been successful at achieving its goals. companies and teaching them how to implement
7
lean manufacturing in one aspect of their business, 20. The EEF Productivity Survey shows that UK
so that they have the skills and understanding to roll manufacturers are embracing new workplace practices,
it out across other parts of the business. although over 50% of firms say they have done so
moderately, minimally or not at all.
c) Raising awareness and understanding of lean
manufacturing is one part of the solution. But what is 21. Many firms in the UK use output monitoring, individual
also needed is a step change in the skill level of performance appraisal, employee involvement,
employees, from management through to the suggestions schemes and total quality processes.
workforce, so that a firm can apply lean with full However, incentive or profit-based pay is not used as
intensity across the whole of its business. widely. US-owned firms in the UK are making greater
use of all forms of workplace initiatives than their
EMTA have developed a set of World Class Business UK-owned counterparts.
Performance NVQs at level 2, 3 and 4, which focus
on lean manufacturing and Six Sigma. It is crucial 22. The key goals of firms introducing workplace initiatives
that they receive the appropriate funding from central are raising productivity and profitability, and increasing
government (on top of that already allotted for employee participation and satisfaction. Over 80% of
training) as they will directly address the lean skill firms implementing workplace initiatives find them
shortages apparent in the EEF Survey. successful at achieving these goals.
d) The Manufacturing Advisory Service (MAS) should 23. A greater proportion of large firms has been using such
also have a role to play in facilitating the spread of initiatives and have been doing so to a greater extent
lean manufacturing. This will involve ensuring that and for longer. As a result large firms are having more
Centres of Excellence have a significant lean content. success with such initiatives.
MAS must be able to inform firms about the benefits
of lean manufacturing and also act as a medium for 24. Attitudes to change (of both employees and
putting companies implementing lean in contact with management) are seen as by far the most important
others firms that have had success in this area barrier to the take up of workplace initiatives.
and/or the right lean experts.
25. The EEF Survey provides strong evidence of a link
between the use of workplace initiatives and improved
Workplace initiatives (chapter 5) productivity and profitability in UK manufacturing.
18. Workplace initiatives refer to a whole range of practices Policy implications

designed to offer employees greater incentives and
improve employee involvement and communication. 26. There is plenty of evidence both from the experience of
Chapter 5 raises a number of important issues in this area. the US and the impact of workplace initiatives in UK
manufacturing that they are linked with higher
19. The US experience in the 1990s provides convincing productivity and profitability. If UK manufacturing is to
evidence that new workplace practices have been a reap the benefits of greater use of workplace initiatives
contributing factor to productivity growth in its (taking a lead from US-owned firms) the most crucial
manufacturing sector. It is not the adoption of any single barrier to remove is attitudes to change within the firm.
practice that is crucial but the combination of a number of This will require a concerted effort from employers, the
them and the involvement of employees in decision making. workforce and government alike to break down these
barriers, particularly within small firms. Employees must
be made more aware that workplace initiatives can lead
8
to greater rewards (in return for higher productivity), Policy implications
improved job satisfaction and are not a threat to
employment. It is also important that employers are 34. The survey results suggest that firms can tackle some of
made more aware of the potential benefits to such the issues surrounding difficulties in attracting and
initiatives. We intend to explore these areas further. retaining skilled individuals. The example of US-owned
companies in the UK shows that offering more benefits
outside basic salary, such as better work/life balance,
Attracting and retaining the right bonuses, training and personal development, can help to
people (chapter 6) overcome some of these difficulties. However, action is
also required by government to address the other key
27. The EEF Productivity Survey looked closely at whether reason why firms fail in this area - skills shortages - which
firms’ ability to attract and retain the right people is means the right people are not available in many cases
undermining company performance. even if firms were to use other methods to attract them.
28. While many firms are successful in attracting and 35. In its recent report ‘Unlocking our Potential’ the EEF
retaining the right people, nearly a quarter struggle. highlighted how the government can take action to help
firms to raise their investment in the skills of their

29. Offering good basic salaries is the key method of workers. It proposes two key ways to address the skills
attracting and retaining skilled individuals in UK shortages:
manufacturing. A much lower proportion of firms is
offering bonuses, training, personal development, • Addressing the shortfall in modern apprenticeships
employee input and a better work/life balance as ways by bringing the funding paid to employers for those
to attract and retain skilled individuals. entering into advanced modern apprenticeships
between ages 19 and 24 into line with that paid for
30. Skills shortages in the wider economy are a significant 16-18 year old entrants.
reason for firms failing to attract the right employees
and this suggests that firms cannot get round all these • The government should extend the Individual
difficulties simply by offering more non-salary benefits. Learning Account (ILA) principle into the workplace
Improved training is also crucial factor in overcoming the for SMEs in the engineering sector.
barriers to firms attracting and retaining skilled
individuals. 36. Both these polices working together will help to reduce
the impact of skills shortages on company performance
31. The vast majority of firms that struggle to attract and and underpin the push for increased productivity.
retain skilled individuals regard this as one of the key
problems the company faces.
Infrastructure, planning and burdens
32. Smaller firms struggle more to attract and retain the on business (chapter 8)
right people because they suffer more from other firms
offering better salaries and skills shortages. Infrastructure
33. More US-owned firms offer their employees a better 37. A competitive transport system is crucial to sustained
work/life balance, bonuses, training and personal productivity improvements. It is essential that inputs and
development. As a result, they are less constrained by components are delivered at the right time, without
difficulties in attracting and retaining skilled individuals. delay and that firms can move goods easily to market. It
is crucial that the government concentrates on delivering
9
the planned increases in spending on the infrastructure 41. It is essential that the government increases its efforts
and that it meets the transport needs of the both to reduce the current burden of regulation and to
manufacturing industry. limit the impact on business of further measures.
Planning
Venture capital (chapter 9)
38. The EEF will respond to the Green Paper on planning
and it is vital that the government frees up the planning 42. Evidence from the US and Europe suggests that venture
process. The CBI document ‘Planning for productivity’ capital can play an important role in stimulating growth
produced earlier this year emphasises many of the in small businesses, job creation and exports. If venture
concerns of UK manufacturers, in particular that: capital is to play a greater role in the UK economy,
policies need to focus on the supply and demand side
• It is too slow, too often, on decisions that are vital for and this is the subject of ongoing EEF work.
a firm’s competitiveness.
• There are too many uncertainties surrounding

The way forward
decisions, which translate into higher risks and costs
for business. There is a serious lack of transparency
43. Success on all these fronts will be required if we are to
in the way local councils/statutory authorities operate.
improve productivity. However, the survey results do
show that the approach of US manufacturers is bearing
• There is a widespread feeling that the process
fruit in the UK.
reaches bad decisions, failing to balance social,
economic and environmental issues and local,
regional and national priorities.
The approach of US-owned firms
Burdens on business
44. The chart below from the EEF’s interim report shows
that US-owned firms in the UK tend to be more
39. The EEF has regularly warned of the damage done to
productive than domestically-owned firms. To some
industry by the increasing burden of regulation. It adds
extent this may be explained by the following factors:
to business costs, diverts management time away from
more productive uses such as increasing efficiency and
• US owned companies tend to be larger;
limits the flexibility of companies to respond rapidly to
changing circumstances.
• are concentrated in the more productive sectors;
40. This report has emphasised the need for firms to be able
• are not carrying the burden of head offices in the UK;
to concentrate on boosting productivity through
increasing the use of lean manufacturing, new initiatives
in the workplace and doing more to attract and retain the • those firms that look to operate abroad are the more
right people. The flood of new employment legislation successful ones and they tend to acquire the more
under the current government, coupled with other productive firms.
burdens such as the climate change levy impinges
seriously on firms’ ability to push for improvements in
these three areas. Continuous improvement is an
ongoing daily process and anything that hinders
managers ability to focus on it, reduces their scope to
make productivity improvements.
10
However, the EEF Productivity Survey also shows that
they tend to adopt a different approach to manufacturing
Chart S2: Average increase in productivity over
the last two years, % of firms by country of ownership
in the UK than domestically owned firms.
25 UK-owned US-owned
20
Chart S1: US-owned companies amongst the
most productive in UK, gross value added per
employee 1997, £ 15
60000
10
50000
5
40000
30000 0
Decrease 0% 0.1-4.9% 5-9.9% 10-14.9% 15-19.9% 20%+
20000
Average increase in productivity (last 2 years)
10000
Source: EEF/NOP Productivity Survey
0
All enterprises All foreign-owned US-owned 46. These results on productivity are also reflected by the
in UK enterprises enterprises
profitability performance of firms in the UK. Chart S3
Source: UK Production and Construction Inquiries shows that a higher proportion of US-owned firms are in
the high profitability bands. The results suggest that
average profitability in UK-owned firms over the last two
45. The results of the EEF Productivity Survey provide years was also below that in US-owned firms.
further evidence of the productivity gap between US-
owned manufacturers and domestically-owned firms in
the UK. The chart below shows that there is a higher
Chart S3: Average increase in profitability over
the last two years, % of firms by country of
proportion of US-owned firms in the higher productivity ownership
growth bands. The results suggest that the average 30 UK-owned US-owned
productivity increase in UK-owned firms over the last
two years was below that in US-owned firms. 25
20
15
10
0
ss
0%
4%
9%
4%
9%
9%
+
%
Lo
2.
4.
7.
9.
4.
15
1-
5-
7-
5-
-1
0.
2.
7.
10
Average increase in profitability (last 2 years)
11
47. These results show that US-owned firms are applying an
approach in the UK similar to what they use in the US and Chart S4: The issues for government and
employers
that it is achieving significant results in terms of higher
productivity and profitability. US-owned manufacturers in
the UK are gaining these advantages through: Employers Government
Increasing Improving
• greater application of lean manufacturing; uptake of lean understanding of
lean and lean skills levels
manufacturing
Breaking down
• greater use of new workplace initiatives; New approaches in attitudes to change
the workplace Sustained
increase in Tackling skills shortages
• using more than just salaries to attract and retain key Attracting and productivity Stimulating investment
employees. retaining the growth
right people Supporting innovation
48. As well as UK-owned firms learning from US-owned Breaking down Reducing burdens
on business
attitudes to change
ones it is clear that the government will have to make
Delivering infrastructure
progress on the issues relevant to it, to maximise the Raising investment improvements
productivity gains.
Undertaking innovation Freeing up the
planning process
The roles for government and employers

Source: EEF
49. It is clear that, if we want to boost productivity in the
UK, government and employers will have to tackle the
issues relevant to them. This will mean that employers 50. If both parties can make inroads in all these areas, we
focus on improving the understanding/uptake of lean can expect to see improvements in the productivity
manufacturing, adopting new approaches in the performance of UK manufacturing. Only with action on
workplace and using new methods to attract the right all these fronts can we seriously expect to start to
staff. At the same time it is essential that the narrow the gap with our competitors and catch up with
government can deliver on stimulating more capital Uncle Sam.
investment, developing the infrastructure, improving the
uptake of lean manufacturing, addressing skills
shortages and encouraging more innovation.
12
13
1. Is there a productivity
gap?
Labour productivity is notoriously difficult to measure within
a particular country because it ultimately depends on some Chart 1: Britain’s relative labour productivity
position, 1999 (UK=100)
measure of the value or volume of output produced divided
by an estimate of the labour inputs used. As there is no 150 UK US
hard and fast rule as to how to measure the numerator or
the denominator, inevitably this means that there can be a 120
variety of different estimates at the economy and sectoral
level. Comparisons between countries are made even 90
harder by the different ways countries can estimate
productivity and the added complexity of comparing data in 60
a common currency. The plethora of economic research on
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: is there a productivity gap?
the issue serves to back up just how difficult it is to 30
estimate productivity and compare levels and trends
between countries. 0
GDP per capita GDP per hour Market output
worked per hour
What other research has found Source: O’Mahony, NIESR
The 1998 McKinsey report concluded that the UK lay at the

bottom of the G7 productivity league. The gap in terms of Other data from the US Bureau of Labour Statistics point to
market sector labour productivity measured in output per a sizeable productivity gap between the US and the UK. The
hour worked was estimated at close to 40% relative to the chart shows that in terms of real GDP per capita and real
US for the period 1994-96 (26% with France and Germany). GDP per employed person the gaps between the US and
UK are roughly 50% and 40% respectively.
The latest estimates by O’Mahony from NIESR put the gap
with the US at 48% in 1999 in terms of GDP per capita.
Adjusting for the US’s longer working hours and higher Chart 2: US labour productivity exceeds that in
UK, US productivity relative to UK =100
employment rates, the gap narrows to 26%. It rises to 33%
if estimated on a market output per hour basis (excluding US GDP per capita US GDP per employed person
160
government services, health and education), as shown in
140
the chart below.
120
100
80
60
40
20
0
1996 1997 1998
Source: US Bureau of Labor Statistics
14
All the above research points to a significant productivity A paper by Hooper for the OECD in 1996 draws similar
gap between the UK and US, although estimates of its size conclusions to the research of O’Mahony and estimated
vary between 20% and 50%. In its March 2001 report, HM that in the years 1980, 1985 and 1990 the productivity gaps
Treasury stated that “on the measure of output per worker, in manufacturing were 100%, 77% and 63% respectively.
US productivity is 45% greater than that of the UK”.
This refers to OECD data, which are not out of line with Chart 4 combines O’Mahony’s work with the latest data
other estimates but do not adjust for the difference in from the US BLS and shows how the productivity gap has
hours worked. varied over time. Economic research generally points to the
following trends in the post-war manufacturing productivity
It is too simplistic to refer to an exact economy-wide gap, which are illustrated in the chart.
productivity gap as its size varies depending on the measure
and time period used. So far, this analysis has only taken • Significant UK productivity growth between 1950 and
into account the gap at the economy wide level and the 1973, outstripping that of the US and leading to a
next section looks at data by sector. narrowing in the gap.
• Post 1973 productivity growth slowed in the main

Productivity by sector industrial countries, although more so in the UK than in
the US, leading to a widening of the productivity gap
Most research focuses on aggregate productivity but the again by 1979.
work by O’Mahony goes as far as sectoral analysis.
It suggests that the productivity gap in manufacturing was • During the 1980s and early 1990s the UK was able to
as high as 71% in 1996, but the long-term trend had been a outstrip the US again and the gap narrowed.
narrowing in the gap since 1950 (see chart below).
• This trend was reversed again in the second half of the
1990s as US productivity growth accelerated markedly
Chart 3: The manufacturing productivity gap, and the gap widened once more.
US output per hour relative to UK=100
300
Chart 4: The trend in manufacturing productivity

250 gap 1950-1999, US and UK output per hour in
manufacturing relative to UK 1950=100
200
1200 US
UK
150
1000
100
800
50
600
0 The productivity
400 gap
1950 1960 1973 1979 1989 1996
200
Source: O’Mahony, NIESR
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998
Source: O’Mahony, NIESR updated by EEF using BLS data
15
Does the manufacturing productivity Given this very small sample of data, clearly there is a risk
gap exist in reality? of drawing general conclusions about the size of the
productivity gap. Barnes and Haskel show that there is
As part of its work for the interim report, the EEF visited significant dispersion of productivity levels within
manufacturing plants on both sides of the Atlantic to see if manufacturing and engineering plants. Large variations in
there was evidence of the productivity gap apparent in productivity persist within manufacturing, with the best
economic research. Quite often information relating to the plants (at the 90th percentile) 5.5 times as productive as the
productivity of different plants was considered commercially worst (the 10th percentile) performing manufacturing plants,
sensitive but some companies were prepared to give us with an equivalent ratio of 4.5% for firms in the engineering
raw data to illustrate the productivity gap between plants in sector. This does mean that generalisations from such a
the UK and US. small sample could be misleading as it is not clear where
these plants lie on the productivity distribution. However,
Figures were collected on plants owned by the same through consultation with its member companies the EEF
company and that therefore operated in the same sector. has reduced the scope for the sample to be
Chart 5 shows that the gap between plants in the UK and unrepresentative.
US varied between a UK plant having an advantage of about

5%, to a US plant having an advantage of 140%. Given that economic research, macroeconomic data, the
The average of the plants shown is just over 30% and is report by HM Treasury and EEF findings all point to a
seen by EEF members as a fair reflection of the productivity significant productivity gap between UK and US
gap between UK and US manufacturing plants. manufacturing, it is important to look at why it exists.
There are many measures of the gap and it is dangerous to
draw conclusions from any one set of data. Nonetheless all
Chart 5: Productivity levels in US manufacturing research does point to a gap. Even if no gap existed,
plants relative to similar operations in the UK, improving productivity would still be fundamental to
sales per employee UK=100
competitiveness and improving living standards.
250 Irrespective of the size of the gap, it is still relevant to
examine what we can learn from the performance of US
200 manufacturing.
150 The following chapters look at what factors might explain

the existence of a gap and what has been driving
100 productivity growth in the US.
50
0
Plant Plant Plant Plant Plant Plant Plant Plant Plant Plant
1 2 3 4 5 6 7 8 9* 10
Source: EEF *cost per unit
16
17
2. Structural reasons behind
the productivity gap
There are a number of natural explanations as to why there Economies of scale at the plant level
might be a productivity gap between the US and UK and
these must be considered when trying to understand it. The benefits of the economies of scale were very much
They fall into two categories: issues of scale and the impact evident at the plant level, when the EEF visited companies
of Information and Communications Technology (ICT) for the work on the interim report. In some cases the only
manufacturers.
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: structural reasons behind the productivity gap
real difference between the US and the UK was the fact
that the US plants were producing on a much larger scale.
Issues of scale Plants in the same company often had very similar
approaches to all aspects of manufacturing, yet a significant
The US market productivity gap still existed. Under such circumstances the
impact of the economies of scale on productivity was clearly
The characteristics of the US market are different in a visible. Chart 6 below shows the same data as in chart 5 for
number of ways, which gives US manufacturing several productivity gaps at the plant level and has added the
advantages: relative size of the plants. It shows how US plants with a
higher level of productivity than UK plants tend to be much
• The US manufacturing sector produced $1.5 trillion worth larger. In addition, where the UK plant is the larger, the
of output in 1999 which amounts to £925bn (at 1999 productivity gap is much less prevalent.
market exchange rates) and is equivalent to over 6 times
the annual production of £150bn of UK manufacturing.
Chart 6: Productivity levels and plant sizes in US
manufacturing plants, latest year, UK=100,
• Not only is the manufacturing sector much larger but the productivity = sales per employee and size of plant =
size of the whole economy far exceeds that of the UK. total sales
In 2000 annual US GDP amounted to 7 times that in the 450 Productivity Size of plant
UK (converted at market exchange rates). 400
350
• US firms are less dependent on exports and have a less 300
open domestic market. Exports of US goods amount to
250
only 7% of GDP (11% for imports), while in the UK
200
goods exports amount to 19% of GDP (21% for
150
imports).
100
These three factors alone suggest that, all other things 50
remaining equal, US manufacturers are in a better position 0

Plant Plant Plant Plant Plant Plant Plant Plant Plant Plant
to achieve productivity improvements. The size of the 1 2 3 4 5 6 7 8 9* 10
sector and its domestic market mean that US
manufacturers will be able to exploit the economies of scale
*productivity is cost per unit and size is production
and boost productivity in a way that UK manufacturers
cannot. The size of the domestic market prevents UK Source: EEF
manufacturers from producing on a scale that matches that
of their US counterparts. In addition the US is a more closed
economy which suggests US manufacturers will not be
constrained to the same degree as UK manufacturers by
uncertainty about exchange rates or developments overseas
and they may also benefit from less competition from
imports in the domestic market.
18
The benefits of the economies of scale
Chart 7: UK manufacturing productivity by
employment size of firm, gross value added per
There are a number of reasons why the scale of US plants employee £, 1997
puts them in a better position to make efficiency gains and
70000
boost productivity. A plant producing 5 times as many units
as another can: 60000
50000
• have longer production runs;
40000
• achieve efficiencies in terms of better utilisation of
capital; 30000
20000
• spread costs and overheads over a larger number of
units; 10000
+
99
0 99
0 99
0 99
0 99
0 49
15 to 9
20 to 9
25 to 9
30 to 9
40 to 9
50 to 9
to 99
75 9
00
00 99
9
19
30 o 2
40 o 3
50 4
75 o 7
00 14
00 19
00 24
00 29
00 39
00 49
74
to
to
10 to
to
t
1
• buy inputs and move the finished product in bulk;

0
20
10
• take advantage of opportunities for specialisation within

Source: ONS Production and Construction Enquiry
the production process and split production into
subunits;
• split management functions to allow more focused

US firms benefit from fewer product
management and performance measurement.
variations
The benefits of the sheer size of the US economy and

Economies of scale also apparent in UK
manufacturing sector combined with a greater focus on the
manufacturing
domestic market create additional advantages beyond the
simple economies of scale highlighted above. The size of
The impact of the scale of production on productivity is
the large homogenised market means that US firms do not
apparent within UK manufacturing as well as in comparisons
need the greater number of product variations required by
between the US and UK. Chart 7 shows that productivity (in
their UK counterparts (who are supplying a number of
terms of gross value added per employee) in firms with
different markets and customers) to reach desired sales
4,000 to 4,999 employees is nearly 2.5 times that for firms
volumes. The examples highlighted below are typical of the
with 1 to 99 employees and that the correlation between
situation described by a number of the companies
size of firm and productivity is very close across the size
interviewed for the interim report.
distribution.
19
Within the ICT sector, the actual manufacture of ICT makes
Chart 8: How productivity, scale and variety of up a larger proportion of ICT employment and value added
production vary between US and UK
manufacturing companies, for US plants where (in the region of 30%) in the US, compared with the UK
UK=100 for productivity and scale, US=100 for where the numbers are closer to 25%.
product variations
log scale
The one area where the US ICT sector stands out relative to
10000 Productivity Scale Number of product variations the UK is its contribution to total business sector R&D,
particularly in the manufacturing part.
1000
Chart 9: Comparison of the ICT sectors in the US

and UK, % of ICT in total business sector 1997
100
40
US UK
10
35
30
1
Company A Company B 25
20
Source: EEF
15
10
In the examples above the plants in companies A and B in
5
the US are more productive and operate on a larger scale
0
than their UK counterparts, yet the comparable plants in the Employment Value added R&D Trade
UK produce hundreds more variations of the product to
meet the demands of their wide customer base. In the UK Source: OECD
productivity is therefore constrained by the requirement for
more changeover time to alter machine settings. More
capital equipment is also required to produce the different Not only does the US have a larger ICT manufacturing
variations. sector larger, it has also benefited from much stronger
growth in recent years, as the chart below shows. This is
not only a reflection of the greater appetite in the US for
The role of ICT manufacturers such equipment by businesses and households but also the
leap in productivity achieved by ICT firms.
Research from the OECD suggests that the US ICT sector
(including ICT manufacturing and services) is larger than that
in the UK, relative to the size of the business sector.
However, the difference in size is quite small in terms of
value added and trade and UK ICT employment actually
makes up a larger share of total employment in the
business sector.
20
Chart 10: Growth in hi-tech industries, output of
electrical and optical equipment in UK, electronic and
other electrical equipment in US, constant prices
1990=100
500 US
UK
400
300
200
100
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Source: Bureau of Economic Analysis, National Statistics
The size and strength of the ICT manufacturing sector in the

US has had a role in the strong productivity performance of
US manufacturing. The UK has also benefited from a high
intensity of ICT, especially relative to other European
countries (although actual ICT manufacturing makes up a
smaller share of ICT than many of our competitor countries).
The issues attached to the economies of scale and

manufacture of ICT do suggest that the ‘real’ productivity
gap is not as wide as economic research has suggested. At
the same time, these factors cannot explain away the entire
productivity gap. There is an optimum size to many
manufacturing plants which in some sectors can be
achieved in both the US and UK. Also, economies of scale
do not really explain why the productivity gap has varied
across time (as the US economy has always been so large)
or why the US has made significant productivity gains in
recent years.
21
3. Manufacturing investment
The interim report highlighted that US manufacturing capital Manufacturing investment weak and
intensity far outstrips that in the UK, as shown in the chart volatile
below. Three key reasons were put forward to explain this
investment gap: Manufacturing investment as a share of manufacturing GVA
(see chart 12) has been fairly volatile, demonstrating its
• Sterling has tended to be more volatile than the dollar cyclical nature. What is also apparent is that over the last 30
(on a trade-weighted basis) and, given that the UK is a years, the underlying trend in investment has been virtually
more open economy and manufacturers more flat. In constant prices, the trend appears to be slightly
dependent on exports, this has undermined upwards, but in current prices, the trend has in fact been
manufacturing investment in the UK. downwards. There are reasons for looking at the data in
both ways, but taking both sets together tells us that a low
• A perception amongst manufacturing managers on both
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: manufacturing investment
(but volatile) level of manufacturing investment has been
sides of the Atlantic that US managers are less risk inherent in the UK economy over the last thirty years.
averse and more willing to undertake investment. UK
managers were considered more cautious and stricter
on applying payback periods/hurdle rates. Chart 12: Manufacturing investment as
proportion of manufacturing GVA, % at current
and constant prices
• US manufacturers had been able to break into the 16 Constant prices
virtuous circle of higher investment, higher productivity Linear (constant prices)
Current prices
and higher profitability. In contrast, the UK was trapped 15 Linear (current prices)
in a vicious circle of lower investment, productivity and
profitability. 14
13
Chart 11: US manufacturing capital intensity far
outstrips that in the UK, capital per hour worked,
UK=100 12
250 Manufacturing Engineering 11
200 10
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
150 Source: National Statistics/EEF calculations
100
Most firms have not increased

50 investment
0 With the poor performance of UK manufacturing investment
1973 1979 1989 1995
over the long term in mind, the EEF Productivity Survey
looks further at recent trends in investment and more
Source: O’Mahony, NIESR importantly at the reasons for this. The chart below shows
that, over the past twelve months, only a small net balance
of firms has increased investment in capital and labour. The
largest proportion of firms said that investment remained
flat and this must be put in context of the low levels of
investment in manufacturing seen in recent years.
22
Official data also show that manufacturing investment has
performed poorly in recent years, showing that the situation Chart 14: Trends in investment over the next
twelve months, % of all respondents
has been deteriorating further in recent years.
45 Labour
40 Capital
Chart 13: Trends in investment over the last
twelve months, % of all respondents 35
30
35 Labour
25
Capital
30
20
25 15
10
20
5
15
0
Significant Slight Stayed Slight Significnat Balance
10 increase increase same decrease decrease
5
0
Significant Slight Stayed Slight Significant Balance
increase increase same decrease decrease
Capital equipment is the key area that firms have either

Source: EEF/NOP Productivity Survey spent on or are planning to do so. Much smaller proportions
of firms mention training and IT. Where firms are in a
position to invest, it is likely to feed through into more
The picture for the next twelve months is broadly similar. spending on capital equipment, training and IT.
On balance firms expect to increase investment in capital
and labour and at a slightly higher rate than over the last
twelve months. However, 40% of companies expect to Chart 15: In what areas have firms increased
investment, % of firms that increased
keep investment constant over the next twelve months. investment/plan to increase investment
While it is encouraging that some employers are planning to
80 Planned
increase investment, given the poor performance in recent
years, there is nothing to suggest that there is about to be 70 Actual
the required step change in manufacturing investment. 60
50
40
30
20
10
0
Capital Training IT Buildings Vehicles
equipment (ex. IT)
23
Lack of investment has hindered The views of external financiers regarding engineering/
company performance manufacturing and the availability of external finance also

seem to be contributing to the weak trend in investment.
A lack of investment has hindered the performance of just

over half of firms (that have cut investment) in the last
Chart 17: The key barriers to investment, % of all
twelve months and little is expected to change in the respondents mentioning each factor
coming year. Encouraging firms to invest will be crucial in
30 US-owned
turning around the fortunes of UK manufacturers.
UK-owned
25
Chart 16: The extent performance has been 20

hindered by lack of investment, % of firms that cut
investment over past 12 mths/plan to cut investment 15
over next 12 mths
10
50 Past Next
5
40
0
rs
ty
te
ce
ce
ce
st
s
te
tio
ew
de
in
co
ra
an
an
an
ra
ta
la
or
vi
ge
fin
fin
fin
30
g
is
er
le
rin
d/
s
an
eg
rd
nc
er
of
al
al
an
tu
ch
hu
rn
rn
tl
ci
U
st
em
ac
en
an
te
te
Ex
k/
Co
uf
Ex
In
ac
fin
D
nm
an
yb
al
er
M
Pa
20
rn
ov
te
G
Ex
10
0
Significantly Slightly No real effect There are some interesting trends when the picture on
investment constraints is examined by size of firm. Lack of
demand/orders seems to be hitting investment by the very
small (1-49 employees) and small/medium sized (50-249)
firms the most. However, uncertainty about demand is the
The results by company size suggest that small firms have key barrier to investment in the medium/large firm band
been hindered more by an inability to investment, but that it (250-499). The exchange rate is by far the greatest barrier to
is a significant issue for both small and large firms. investment by the very large firms (500+), while similar
proportions of all sizebands mention cost of finance.
Barriers to investment
Chart 17 below shows what manufacturers believe are the

key barriers to investment. Three interrelated factors were
each mentioned by nearly 20% of firms: lack of
demand/orders, uncertainty over future demand and the
level of the exchange rate. These factors show how the
current economic climate in engineering and manufacturing
is holding back investment and undermining future
competitiveness. Despite low interest rates, the cost of
finance is still an issue for a substantial number of firms.
24
Chart 18: The barriers to investment by size of Chart 19: The barriers to investment by
firm, % of firms responding in each employment ownership of firm, % of firms responding by
size band country of ownership
30 500+ 30 US-owned
250-499
25 25 UK-owned
50-249
20 1-49 20
15 15
10
10
5
5
0
0
rs
ty
te
ce
ce
ce
st
s
te
tio
ew
de
in
co
ra
an
an
an
ra
Demand/orders Uncertainty Exchange rate Cost of finance
ta
la
or
vi
ge
fin
fin
fin
g
is
er
le
rin
d/
s
an
eg
rd
nc
er
of
al
al
an
tu
ch
hu
rn
rn
tl
ci
U
st
em
ac
en
an
te
te
Ex
k/
Co
uf
Ex
In
ac
fin
D
nm
an
yb
al
er
M
Pa
rn
ov
te
G
Ex
Economic climate undermining

investment by US firms too
Investment drives productivity and
Just how the current economic climate in the UK is also profitability
undermining investment by foreign firms is highlighted
opposite. A substantially higher proportion of US-owned Increased investment is linked to higher productivity and
companies cites uncertainty over demand and the exchange profitability. The chart shows that the proportion of firms
rate as key barriers to investment. Five percent of that reported an average increase in productivity of greater
US-owned manufacturing also cite government legislation than 10% and profitability above 7.5% over the last two
as a barrier to investment, compared with only 1% of years is much higher for firms that have significantly
UK-owned firms. increased investment over the last twelve months.
The proportion of firms with higher productivity and
profitability is much lower for those that have slashed
investment and even for those that have kept it constant.
25
5. The economic climate of recent years has significantly
Chart 20: Investment drives productivity and undermined manufacturing investment. The three key
profitability, % of firms that stated the following
happened to capital investment on average over the barriers to investment are lack of demand, uncertainty
last 12 months over future demand and the exchange rate. While these
factors are difficult to tackle themselves outside of
50 Profitability>7.5%
tackling macroeconomic stability, it is crucial that their
Productivity>10%
side effects on manufacturing investment and
40
competitiveness are addressed.
30
6. The factors that are undermining investment in
manufacturing by UK-owned firms are also undermining
20
investment by US-owned firms.
10
7. The EEF Productivity Survey shows a clear link between
investment and company performance. Those firms that
0
Significant No change Significant have increased investment over the last twelve months
increase in cap x in cap x decline in cap x
are the ones that are more likely to have seen strong
growth in productivity and profitability.
8. If increased manufacturing productivity is a serious

economic goal of the government, it must first try to
counteract the negative impact that the economic
Summary of investment issues climate of recent years has had on investment and
productivity.
1. The under-performance of UK manufacturing investment
relative to US manufacturing is a long-term problem that
has been inherent in the UK economy over the last thirty
years. UK manufacturing investment has been volatile
over the economic cycle but the level of investment
relative to the size of the manufacturing sector has
remained flat over the long-term.
2. The EEF Productivity Survey shows that there has been

little improvement in manufacturing investment over the
last twelve months but firms are not planning to
dramatically alter their investment performance over the
coming twelve months. 40% of firms expect to keep
capital and labour investment constant over the
coming year.
3. Official data on manufacturing also show that the

situation has deteriorated in recent years.
4. A lack of manufacturing investment has undermined

company performance and it is expected to continue to
do so over the next twelve months.
26
27
4. The take up of lean
manufacturing
The EEF’s interim report highlighted a greater uptake and • Overproduction – producing too much or too soon,
more intense use of lean manufacturing as one reason for resulting in poor flow of information or goods and
the better productivity performance of US manufacturers in excess inventory.
recent years. This chapter looks at the results of the
EEF/NOP Survey to get a better understanding of the • Defects – frequent errors in paperwork, product quality
uptake and constraints on use of lean in the UK. It goes on problems or poor delivery performance.
to put forward policy proposals aimed at improving its
uptake in the UK. • Unnecessary inventory – excessive storage and delay of
information or products, resulting in excessive cost and
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: the take up of lean manufacturing
poor customer service.
What does lean manufacturing entail?
• Inappropriate processing – going about work processes
Lean thinking focuses on reducing ‘muda’ (Japanese for using the wrong set of tools, procedures or systems,
waste) through a systematic attack on waste, both within a often when a simpler approach may be more effective.
company and along the supply chains. Lean production
methods were pioneered by Toyota in Japan and the key • Excessive transportation – excessive movement of
text on the subject - ‘Lean Thinking’ (Womack and Jones) - people, information or goods resulting in wasted time,
breaks the essence of the approach into five key principles effort and cost.
which can be applied to any company:
• Waiting – long periods of inactivity for people,
1. Specify what does and does not create value from the information or goods, resulting in poor flow and long
customer’s perspective and not from the perspective of lead times.
individual firms, functions and departments.
• Unnecessary motion – poor workplace organisation,
2. Identify all the steps necessary to design, order and resulting in poor ergonomics e.g. excessive bending or
produce the product across the whole value stream to stretching and frequently lost items.
highlight non value adding waste.
3. Make those actions that create value flow without How lean are UK manufacturers?
interruption, detours, backflows, waiting or scrap.
For a firm to implement lean manufacturing, it must use a
4. Only make what is pulled by the customer. whole range of different techniques and can encompass a
wide variety of manufacturing practices. The EEF interim
5. Strive for perfection by continually removing successive report showed that while many UK manufacturers are
layers of waste as they are uncovered. familiar with some parts of lean manufacturing, they do not
pursue it with the same intensity and depth as our key
Implementing lean manufacturing entails a systematic competitors. In addition, US firms were getting more from
attack on waste and the factors underlying poor quality and lean manufacturing through applying it across every aspect
fundamental management problems. This means reducing of their business.
waste in all aspects of the manufacturing process (and the
supply chain) and there are seven wastes identified in the
Toyota Production System:
28
Polarised uptake of lean Box 1: Summary of key lean manufacturing tools
The results of the EEF’s Productivity Survey provide further Cells - Cellular manufacturing – grouping together all the facilities
evidence on this subject. The chart below suggests that UK required to make a product (or closely related group of products)
to reduce transport, waiting and process times.
manufacturing has some way to go before it fully embraces
lean manufacturing. The uptake of lean manufacturing is
CI - Continuous improvement/Kaizen – focuses activity into the
polarised between those that are undertaking it intensively continual pursuit of improvements in quality, cost, design and
and those doing very little. A third of companies said that delivery. Requires a defined system for identifying
they were doing it across the whole of their organisation improvements, carrying them out and feeding back results.
and another 12% across their manufacturing and/or supply

Kanban – Japanese word for ‘signal’ or ‘ticket’. Essential
functions only. However, over 40% of firms stated that they
concept is that you build only what is required, in the quantity
were doing no lean manufacturing and did not plan to. that is required and only when it is required.
Only 10% said they planned to but had not yet undertaken
any form of lean manufacturing. Process mapping – detailed mapping of the order fulfilment
process, including product flows and information flows.
Chart 21: Polarised uptake of lean manufacturing, Single piece flow – where products proceed, one complete
% of respondents undertaking/planning to undertake product at a time, through various operations in design, order
any form of lean manufacturing taking and production, without interruptions, backflows or scrap.
45
SMED – Single Minute Exchange of Dies – eliminating the
40 delays in change over times on machines.
35
Step Change/Kaikaku – radical improvement of an activity to
30
eliminate waste, through a step change as opposed to the
25 incremental improvement of kaizen.
20
Supplier development – actively developing links with suppliers
15 and working closely with them for mutual benefit.
10
Supply base reduction – taking supplier development further to
5
actually reduce the number of suppliers.
0
Whole Manufacturing Parts of None Planned
organisation and/or supply business
TPM - Total productive maintenance – TPM consists of a range
functions of techniques aimed at improving the reliability, consistency and
capacity of machinery by undertaking maintenance regimes.

Value and the 7 wastes – Value is a capability provided to a
customer at the right time at an appropriate price, as defined in
each case by the customer. The 7 wastes are overproduction,
waiting, unnecessary transport of materials, over processing,
Uptake of lean tools can be improved inventories, unnecessary movement and defective parts.
5s and visual management – linked techniques that aim to

A firm undertaking lean manufacturing can be using a reduce the ‘clutter’ and inefficiency of typical production and
variety of different tools. The box opposite summarises office environment.
some of the main ones used and chart 22 shows their
uptake across the survey sample.
29
Chart 22: Uptake of lean manufacturing tools; Table 1: The extent of use of lean manufacturing
% of respondents undertaking tools; % of total respondents
50 Tool Significant Moderate Minimal

45 extent extent extent
40 Cellular manufacturing 15.9 14.8 6.0
35 Continuous improvement 20.2 18.5 5.1
30 Kanban 10.5 10.5 9.1
25 Process mapping 6.5 13.6 6.0
20 Single piece flow 8.0 5.4 6.8
15 SMED 6.3 6.8 6.5
10 Step change 4.3 6.5 3.7
5 Supplier development 11.6 18.2 7.4
0 Supply base reduction 12.8 16.2 5.1
CI
lls
d.
an
5s
ng
ED
ge
ev
te
re
flo
Ce
TP
TPM 11.1 13.9 5.4

nb
pi
an
rd
SM
as
ap
se
Ka
ch
e
w
lie
ec
m
ba
pp
/7
ep
pi
Value and 7 wastes 9.4 10.8 6.5

s
ue
ly
Su
es
St
le
pp
l
Va
oc
ng
Su
Pr
Si
5s/visual management 11.9 10.2 6.5
Source: EEF/NOP Productivity Survey Source: EEF/NOP Productivity Survey
Chart 22 demonstrates that the spread of lean

It is encouraging that of those firms that are doing lean
manufacturing across UK firms still has some way to go.
manufacturing, over 40% have been doing so for more than
The most commonly used tool - Continuous Improvement -
three years. This suggests that some firms have had the
is only employed by just over 40% of firms that undertake
opportunity to build up experience of implementing lean
lean manufacturing, while just over a third of firms use
tools. Only 23% of firms that have undertaken lean have
Supplier Development, Manufacturing Cells and Supply
introduced it in the last twelve months.
Base Reduction. For firms to be getting the most out of
lean manufacturing, they need to use a package of four or
five of these tools and it is clear that this is not the case for
Chart 23: When did you introduce lean
the vast majority of UK manufacturers. manufacturing, % of respondents that undertake
each form aggregated
25
Lean tools can be used more

intensively 20
The following table supports the view that the intensity of 15
use of lean manufacturing seems to be lacking in UK

manufacturing. Using each individual tool with maximum 10
intensity across the business is also crucial to extracting the

full benefits from lean manufacturing. Table 1 shows that 5
the proportion of firms using the key lean tools is small and
that substantially fewer are using them intensively. 0
< 6 mths 6-12 mths 1-2 yrs 2-3 yrs 3-5 yrs >5 yrs
ago ago ago ago ago
30
Lean and competitiveness Chart 25: Lean manufacturers have regular
process reviews; % of firms undertaking lean
For companies pursuing lean manufacturing, the primary manufacturing that have process reviews…..
motivation is to boost overall company performance in
50
terms of increased efficiency, productivity, profitability and
lower costs. Over 70% of firms cited it as the reason for
40
undertaking lean manufacturing. A quarter of firms stated
that they had implemented lean manufacturing in response
30
to competitive pressures and just over 15% that it was in
response to pressure from customers. All other reasons

20
were cited by less than 5% of the firms.
10
Chart 24: The reasons for undertaking lean

manufacturing; % of firms undertaking lean stating 0
goal to be… Daily Weekly Monthly Quarterly Annual Ad-hoc Board
meetings
80
70
60
50
40
30 Lean has wide ranging results

20
10
Chart 26 below shows the results firms have achieved
0
through lean manufacturing. Nearly a quarter mentioned that
it brought higher productivity and lower manufacturing
ce
ge
e
ity
r
al
ne
ur
iri
ur
iv
an
an
al
sp
s
rv
qu
es
es
rm
ch
/o
costs, while increased competitiveness and reduced

Su
m
pr
pr
g/
or
ve
rfo
a
in
Te
st
e
er
o
pe
iv
ur
pr
ve
om
downtime were both mentioned by 15% of firms.

tit
ct
Im
e
In
pe
s
st
tru
ea
Cu
m
s
cr
Other important benefits included improved delivery,

Re
Co
In
teamwork and lower inventory. The wide range of results

mentioned shows that firms can gain a variety of different
benefits from lean manufacturing and to some extent these
will depend on the tools used.
Lean incorporates regular reviews
Chart 25 demonstrates that regular process reviews go

hand in hand with lean manufacturing. Monitoring
performance on a regular basis allows companies to pursue
and measure progress towards continuous improvement.
31
Chart 26: What results does lean manufacturing Chart 27: Lean manufacturing has been
bring? % of firms undertaking lean manufacturing successful; % of firms undertaking lean
(aggregated) manufacturing that say it has been…..
25 80
70
20
60
15 50
40
10
30
5 20
10
0
ce
0
k
te
e
ity
y
y
s
n
s
or
ilit
er
es
or
im
st
ai
as
an
iv
ch
w
liv
co
nt
ab
en
nt
ct
w
rm
am
Very successful Fairly Not very Not at all

ve
de
w
fit
du
ly
iv
er
of
rfo
in
do
pp
tit
ro
te
w
ro
ed
successful successful successful

n
pe
rp
er
Lo
pe
Su
rp
io
ed
d
ov
w
ce
m
at
he
he
ov
ee
pr
Lo
Co
in
du
ig
Im
ig
pr
oy
im
H
Re
H
Im
pl
El

Em

Barriers to lean
Lean is successful in achieving its The EEF Productivity Survey confirms that companies using
goals lean manufacturing are achieving significant results in terms
of improved company performance. This begs the question
Of those firms that have introduced lean manufacturing, as to why more firms are not going lean if there are clear
over 90% say that it has either been very or fairly benefits from undertaking it. The next chart shows what
successful in achieving its goals. Given the importance of firms that had experience of lean manufacturing said were
these goals, this result suggests that lean manufacturing the main barriers to its uptake. Attitudes to change within
has been a powerful formula for improving company the firm (both from employees and employers) were
performance and productivity. considered to be the key barrier. A quarter of firms cited a
lack of understanding. Similarly, just over a quarter of
employers said it was due to a lack of lean skills (at the
management/supervisor/workforce level), while 14% of
companies also mentioned cultural issues.
32
Chart 28: The barriers to lean manufacturing; Chart 29: US firms lead the way in lean
% of firms already undertaking lean manufacturing manufacturing in the UK, % of respondents
undertaking/planning to undertake any form of lean
45
manufacturing
40
50
35
EU-owned
30
US-owned
40
25
UK-owned
20
30
15
10
20
5
0
10
ge
lls
ills
ills
en
ue
in
tim
ki
an
sk
sk
nd
m
ss
ts
ch
nt
st
ta
ce
or
li
en
ve
ce
rs
ra
is
to
or
em
rv
de
ltu
in
ffi
kf
0
es
pe
su
0
un
or
Cu
d
ag
ud
te
Su
W
In
an
of
la
tit
Re

At
ck
La

functions
US firms are the benchmark A comparison of what lean tools are being used by
ownership of firms also reveals interesting results. Chart 30
US-owned firms in the UK seem to be showing UK-owned below shows that a greater proportion of US-owned firms
firms the way on lean manufacturing. As the chart below are using every lean tool that was considered and they are
shows, much higher proportions of US-owned firms are clearly leading the way in lean use in the UK. A greater
undertaking lean, whereas there is a much higher proportion proportion of EU-owned manufacturers is also using virtually
of UK-owned firms that do no lean manufacturing. There is all the lean tools.
also a higher proportion of EU owned firms that are
pursuing lean across the whole organisation, while a
substantially lower proportion have done no lean
manufacturing.
33
Chart 30: Uptake of lean manufacturing tools by Chart 31: US firms are having more success with
ownership of firm; % of firms by ownership lean, % of firms undertaking lean manufacturing
undertaking each tool that say it has been…..
80 UK-owned US-owned EU-owned
70 EU-owned US-owned UK-owned
70
60
60
50
50
40
40
30
30
20
20
10
0 10
0 0 0 0
CI
lls
d.
an
5s
ng
ED
ge
ev
0
te
re
flo
Ce
TP
nb
pi
an
rd
SM
as
ap
se
Ka
ch
e
w
lie
Very Fairly Not very Not at all

ec
m
ba
pp
/7
ep
pi
s
ue
ly
successful successful successful successful

Su
es
St
le
pp
l
Va
oc
ng
Su
Pr
Si
Source: EEF/NOP Productivity Survey Source: EEF/NOP Productivity Survey
The fact that US firms are applying lean manufacturing to a Size also matters
greater extent means they are also reaping greater benefits.
Chart 31 below shows that over half of US-owned firms Large firms seem to be having more success with lean
said that lean manufacturing has been very successful, manufacturing than small firms. The chart below shows that
compared with just over a fifth of UK-owned firms. a much higher proportion of large firms is applying lean
No US-owned firms say that they have found lean manufacturing across the whole of the organisation and far
manufacturing unsuccessful, compared with 6% of more small companies do none.
UK-owned firms. EU owned firms also seem to be having
more success with lean than UK-owned firms, although
they too lag behind US-owned firms.
34
Chart 32: Large firms lead the way in lean Chart 33a: Average level of productivity
manufacturing in the UK, % of respondents (last 2 years) % of all firms doing no lean/4+ lean
undertaking/planning to undertake any form of lean initiatives
manufacturing by employment size
20 No lean 4+ tools
80 18
1-49 500+
70 16
14
60
12
50
10
40 8
6
30
4
20
2
10 0
e
0%
9%
9%
9%
9%
+
0
as
%
0
re
4.
9.
4.
9.
20
1-
5-
-1
-1
ec

0.
10
15
D

functions
Chart 33b: Average level of profitability
(last 2 years) % of all firms doing no lean/4+ lean
initiatives
20 No lean 4+ tools
18
When use of all the different lean tools is considered by 16
size, it is also apparent that substantially higher proportions 14
of large firms are using the lean tools than is the case for 12
small firms. The intensity of use of lean manufacturing is 10
also greater for large firms relative to small firms. Just over 8
half of large firms that have undertaken lean manufacturing 6
state that they have found it very successful, compared 4
with only a quarter of small firms. 2
0
ss
0%
4%
9%
4%
9%
9%
+
%
Lo
2.
4.
7.
9.
4.
15
Lean boosts productivity and

1-
5-
7-
5-
-1
0.
2.
7.
10
profitability Source: EEF/NOP Productivity Survey
Greater use of lean manufacturing also correlates with

higher productivity and profitability. The two charts below
Summary of the results on lean
show that those firms that are using four or more of the key
manufacturing
lean tools have tended to have the largest increases in
productivity and profitability. The average productivity
It is clear from these survey results that:
increase over the last two years of those using 4 or more
lean tools is 11%, while that for those doing no lean
• The take up of lean manufacturing is very much
manufacturing is 7%. Similarly, the equivalent numbers for
polarised with a third of firms pursuing lean across the
profitability are 8% and 6%.
whole of their business and just over 40% of firms not
undertaking lean manufacturing.
35
• There is scope for improved uptake of all the main lean Secondly, to tackle the problems of fully implementing lean
tools and some of the firms using lean can improve by manufacturing. Firms may have a basic understanding of
doing so more intensively. lean manufacturing and may even have experimented with
it in their company but still struggle to roll it out fully across
• Those firms that are undertaking lean manufacturing do the business and apply it intensively.
so for a number of reasons with the key goal of improving
the overall performance of the company in terms of Thirdly, if we are to use lean manufacturing to its full
productivity, efficiency, profitability and lower costs. intensity and to gain its maximum benefit, we need to
tackle the lack of lean skills at all levels within
• Lean manufacturing leads to regular process reviews. manufacturing. This is one of the most crucial elements
because it is relatively easy to understand and implement
• Over 90% of firms undertaking lean manufacturing say it some aspects of lean but it is much harder to pursue it in
has been successful at achieving its goals. detail across the whole business. This requires people
within the company that have the expertise to follow lean
• The main barriers to the uptake of lean manufacturing are through.
- attitudes to change,
- lack of understanding, Continuous improvement is such that firms are never able
- lean skills (at management/supervisor/workforce levels), to rest on their laurels after having completed lean
- cultural issues. manufacturing, as there is no end to the journey. Success
requires a company to possess:
• Large firms are using lean manufacturing to a greater
extent and are achieving more success through lean. • a lean champion or team of lean champions with the
in-depth knowledge and the skills to push it through.
• US-owned firms are having greater success with lean
manufacturing than UK-owned firms because more are • management that relates lean to the company’s strategic
using the lean tools across the whole of their goals, understands its potential and co-ordinates its
organisation and to a greater extent. implementation.
• There is a clear link between lean manufacturing and • supervisors with the skills and understanding to explain
higher productivity and profitability. what its aims are, the reasons for going lean and the
best way to implement it.
How to encourage a greater take up of • a workforce that understands lean manufacturing and
lean manufacturing contributes to the effort to eradicate waste. Also that
understands it is not a threat to jobs but can offer
If we are serious about narrowing the productivity gap greater security.
between UK manufacturers and our key competitors, then
encouraging a better take up of lean manufacturing must The following flow chart shows the key bottlenecks in the
form part of the solution. lean learning process and the type of response needed to
keep firms on the lean track.
Our results suggest that we need to overcome three key
barriers to the uptake of lean manufacturing. Firstly, the lack
of understanding amongst UK manufacturers about what
exactly lean manufacturing is and the benefits it can bring.
36
2. As well as raising awareness, it is crucial to give firms a
Chart 34: The lean learning process better understanding of lean manufacturing. Again, in
partnership with and funded by the DTI, the EEF intends
to use the Industry Forum approach to help firms that
Breaking down the barriers to lean
are outside current schemes. This would involve lean
experts going into individual companies and teaching
Firm does not know Firm understands about
about lean them how to implement lean manufacturing in one
lean manufacturing but
manufacturing and needs to implement it aspect of their business, so that they have the skills to
what the benefits are. across the whole be able to roll it out across other parts of the business.
company.
3. Raising awareness and understanding of lean

Provide more
information through Industry Forum Approach, manufacturing is one part of the problem. But what is
seminars/ more information on how
also needed is a step change in the skill level of all
conferences and to implement, contact with
increasing awareness. companies that have gone employees, management through to the workforce, so
lean, and obtain lean skills. that a firm can apply lean with full intensity across the
whole of its business.
EMTA have developed a set of World Class Business
Experience flows back Performance NVQs at level 2, 3 and 4, which focus on
Firm underway
to other firms directly or lean manufacturing and Six Sigma. They will be ready for
implementing lean
through word of mouth.
manufacturing but use in 2002 and it is crucial that they receive the
Firm proficient at lean needs more people at
appropriate funding from central government (on top of
manufacturing and all levels with the
reaps productivity and right skills to go further. that already allotted for training) as they will directly
profitability gains. address the lean skill shortages that are apparent in the
EEF Survey. Only when the lean abilities of people at all
Lean training at all
levels within firms - levels within a company are raised can we expect to see
NVQ levels 2-4, Industry it gaining the full benefits of lean.
Forum Approach.
Source: EEF
4. The Manufacturing Advisory Service (MAS) should also
have a role to play in facilitating the spread of lean
manufacturing. This will involve ensuring that Centres of
Excellence have a significant lean content. MAS must be
The policy response
able to inform firms about the benefits of lean
manufacturing and also act as a medium for putting
A four-pronged policy response is needed to break down
companies that are implementing lean in contact with
these barriers to lean manufacturing, involving both
others that have been successful in this area.
employers and government. It should have particular focus
on small firms but also target large firms that have not
Lean manufacturing has been successful across the globe
undertaken lean manufacturing.
and in many companies, yet UK manufacturing has failed to
exploit its full benefits. This four-pronged policy response
1. To tackle the issue of lack of understanding more
would start to change this situation and move us towards
information and increased awareness of lean
being on a par with our competitors.
manufacturing is required. The EEF is seeking
partnership with and funding from the DTI to tackle
these issues at a regional level. The aim would be to run
a series of regional seminars, using case studies and
lean experts, to raise awareness of lean.
37
5. Use of workplace
initiatives
The interim report made several key points on the different Other research from Black and Lynch (1997) also supports
approaches to reward, communication and performance in these findings. Using data from a nationally representative
US and UK manufacturing. Namely that; sample of manufacturing businesses for 1988-93, they
investigated the impact of workplace practices, information
• The higher productivity of US manufacturing employees technology and human capital investments on productivity.
means that they also earn more per hour and that US The results show that workplace practices do matter. What
firms have been able to break into the virtuous circle of is crucial is not so much whether or not an employer adopts
higher productivity and earnings. a particular work practice but rather how that work practice
is actually implemented within the establishment. The
• US firms also make greater use of performance/profit example is cited of how simply adopting a TQM system has
related pay and seem to get payback in terms of the an insignificant or negative impact on productivity unless the
incentives it gives employees. proportion of workers involved in regular decision making
catching up with uncle sam: the EEF final report US and UK manufacturing productivity: use of workplace initiatives
within the plant is also high. Participation of employees in
• US firms benefit from a better two way flow of decision making improves productivity both in unionised and
information between employees and management and non-unionised plants.
this makes them better at achieving change.
Their findings also suggest that establishment practices that
encourage workers to think and interact to improve the
What does economic research from production process are strongly associated with increased
the US tell us? firm productivity. The higher the average educational level of
production workers within a plant, the more likely the plant
There have been a number of pieces of research in the US has performed better than average over the period. In
looking at the impact of workplace organisation and Human addition, they found that the proportion of managerial
Resource Management (HRM) practices and the impact on workers who use computers has no impact on labour
company performance. Huselid from Rutgers University productivity but that computer use by non-managerial
looked at a sample of nearly 1,000 firms and the relationship workers does increase plant productivity
between High Performance Work Practices (HPWP) and
firm performance. HPWP include comprehensive Black and Lynch construct a base case from their data. This
recruitment and selection procedures, incentive is a non-union multi establishment plant, with profit sharing
compensation, performance management systems, for managers but no profit sharing for non-managers, no
extensive employee involvement and training. The aim was TQM, no benchmarking, 1% of employees meeting
to test whether the theoretical link between HRM and regularly about work issues, 10% of non managerial
company performance existed in practice in US firms. workers using computers and 1% of employees in self
The work focused on the relationship between HRM managed teams. They then alter some of the characteristics
systems rather than individual HRM practices. to investigate the impact on labour productivity.
Huselid concluded that his study provided broad evidence to The chart below shows some of their results of which the
support the hypothesis that the use of HPWP improves firm key ones are:
performance. The study covers a wide range of industries
and firm sizes and there is considerable support for the • raising the percentage of non-managerial workers using
notion that investment in such practices is associated with computers from 10 to 50% increases labour productivity
lower employee turnover, greater productivity and stronger by almost 5 percentage points.
corporate financial performance.
38
• introducing HPWP (50% of non-managers using Firms that re-engineer their workplaces to incorporate high
computers, 50% of workers meeting to discuss performance practices also experience higher productivity.
workplace issues regularly, profit sharing for Increasing the voice of employees and the percentage of
non-managers, 30% of workers in self managed teams, workers meeting regularly in groups both boost productivity
TQM and bench marking) has large and positive effects (especially in unionised plants). However, although
on productivity. increasing the usage of profit sharing or stock options is
associated with higher productivity, it can result in lower
• trade union presence can have both a negative and regular pay for workers. The chart below shows what
positive impact. Where there is no employee HPWP firms in the US were using by 1996.
involvement, productivity falls, yet if the union facilitates
employee participation it can boost productivity
Chart 36: Incidence of workplace practices, % of
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: use of workplace initiatives
significantly.
companies 1996
Black and Lynch emphasise how these results highlight the

Reengineering
synergies of workplace practices.
Regular employee
meetings
Self-managed teams
Chart 35: Synergies from HPWP, % change in
productivity from base case Profit sharing
Frontline workers
Union, no employee use computers
involvement Skills up
Increase computer Skills down

usage
0 10 20 30 40 50 60
HPWP non-union
Source: Black and Lynch 2000

HPWP union
-20 -15 -10 -5 0 5 10 15 20
Source: Black and Lynch 1997

Watson Wyatt surveyed more than 400 US and Canadian
based companies in 1999 and asked a wide range of
questions about how organisations carry out their human
Further work by Black and Lynch looks at panel data for 700 resources practices, including pay, developing people,
manufacturing and non-manufacturing establishments communications and staffing. The results from the US show
between 1993 and 1996. They concluded that over the that, one year after the survey was conducted, there was a
period US manufacturing employers had actively engaged in clear correlation between effective people practices and
workplace reorganisation and that these changes in shareholder value. The chart below shows that the higher
workplace practices, along with increased diffusion of the companies score on the human capital index (HCI), the
computers, played a significant role in the rise in greater the total returns to shareholders.
manufacturing productivity. While manufacturing firms

enjoyed the benefits of these technological and managerial
innovations, workers also appeared to be sharing in the
gains in terms of higher wages. Again they found a positive
and significant relationship between the proportion of non-
managers using computers and productivity.
39
Chart 37: Human capital and shareholder returns,
Summary of the US experience
total returns to shareholders (end 1999)
80
Drawing on the result from all these studies of human
resource management in the US, there are a number of key
70
themes that emerge from the US experience in the 1990s.
60
50
• High performance work practices such as recruitment
40 and selection procedures, incentive compensation,
30 performance management systems, employee
20 involvement and training have been instrumental in
boosting productivity.
10
0
• It is not the adoption of any single practice that matters but
-10
Low HCI companies Medium HCI companies High HCI companies
the combination of a number of them and the involvement
of employees in decision making that is crucial.
Source: Watson Wyatt Human Capital Index (North American
Survey)
• Use of computers by non-managers, tied in with HPWP,
helps to boost productivity.
Results of the European Survey report (2000) showed

• Firms that invest the most in human capital get the
similar results and proved that the link between HCI and
highest return for shareholders.
company performance is not just a North American
phenomenon. Watson Wyatt emphasises some of the key
Other research by Bresbahan, Brynjolfsson and Hitt shows
points of both surveys as being:
that for 400 US large firms (just over half from
manufacturing), the cluster of complementary changes
• The use of shares as employee remuneration is
involving IT, workplace organisation and services offered
increasingly common in North America and is just
have led to a significant increase in the demand for skilled
beginning to take off in Europe. In both continents it is
labour. An important lesson here for the UK is that not only
linked to higher shareholder value.
is change in itself important but just as crucial is equipping
people with the skills for the new challenges it will bring.
• Excellent recruiting adds value in both studies.
Recruiting is the key issue in North America but in
Europe it is one of a number of important issues.
What has been the UK’s experience?
• 360-degree feedback needs to be integrated with other
One of the more recent UK studies by Michie and Sheehan
leadership programmes and on its own can lead to a
investigates the relationships between firms’ use of flexible
loss of value.
work practices, human resource systems and industrial
relations with corporate performance. Based on a survey of
• In the North American study the average employee
260 manufacturers, the results show that short-term
turnover rate was almost 25%, while in the European
contracts, a lack of employer commitment to job security
study the rate was almost half the level.
and low levels of training are negatively correlated to good
corporate performance. In contrast, ‘high commitment
• Employee focus and communications integrity are critical
organisations or transformed workplaces’ are positively
factors associated with creating shareholder value in
correlated with good corporate performance. The results
both Europe and North America.
also show a link between high commitment HRM systems
40
and innovation and that the correlation between Output monitoring and individual
performance and work practices is strongest where appraisal most common
complementarities amongst practices are greatest.
When the initiatives that UK manufacturers use are

The EEF/NOP Productivity Survey provides new evidence on examined in more detail (see box 2) it can be seen that the
how far UK manufacturers are using techniques to majority of firms are using output monitoring and individual
encourage employees to contribute more effectively performance appraisal. Other key findings are:
towards organisational goals. Overall chart 38 shows that
80% of manufacturing firms are using these techniques • Employee involvement techniques are also used by just
more than minimally for management and 70% for the under half of firms and suggestion schemes by just over
workforce and only 8-9% of firms are not using such 40% of firms.
techniques at all. These results in themselves are

encouraging as they suggest that UK manufacturers have • Incentives (at the team or individual level) are used by
made progress in altering the shape of the workplace. less than a third of companies.
However, just over half of firms that say they have only
done so moderately, minimally or not at all for management • A quarter of firms offer profit-related pay and 15% of
and this rises to over 70% of firms for the workforce. firms employee share ownership.
The US experience shows that firms must pursue the
practices most suitable to them with intensity across the • Policy deployment (which ensures that all initiatives
whole of the workplace and for all employees if they are to relate to the key objectives of the organisation) is used
achieve the maximum benefits. by less that a quarter of firms.
Chart 38: To what extent do you use initiatives Chart 39: The initiatives that UK manufacturers
to encourage employees to contribute more use, % of respondents
effectively towards organisational goals? % of
respondents 70
60
50
Management
50
Workforce
40 40
30
30
20
20 10
0
on pr.
ng
nt
Te tal es
nc lity
vi ncy es
Po -rel ives
oy dep pay
br r.
g
Pr inc ed
en
e
fin
10
ns me
To em
In ete ntiv
pl ut m . ap
am n
gg inv ori
al bas
sh ym
Te ow
ie
qu
t
ed
en
it
e
Em tp erf
lo
v
at
sc
e
ol
ar
O al p
co m i
it
tio
du
du
y
a
Su ee
of
ee
0
Em lic
p
es
vi
m
u
oy
di
di
In
pl
Entirely Significnatly Moderately Minimally Not at all

ill/
Sk

41
US research suggests that manufacturing firms there are
Box 2: Summary of initiatives used to encourage making greater use of bonus plans and profit sharing
employees to contribute more effectively to the
firms’ goals schemes. Data from the Manufacturing Institute in the US
show more than half of firms offer bonus plans to their
Individual performance appraisals – employee performance is employees, with one-third providing pay for performance
assessed and discussed on an individual basis. benefits. ‘Black and Lynch 2000’ (see above) show that in
1996 over 40% of manufacturing firms were offering profit
Individual incentive schemes - bonuses or other financial
sharing schemes to their employees.
compensation tied to short-term or long-term individual
performance.
Team incentive schemes - bonuses or other financial US firms are doing more
compensation tied to short-term or long-term work group,
permanent team or temporary team performance.
When the results of the EEF Productivity Survey are broken
down by nationality of ownership, they become particularly
Employee involvement schemes - schemes that allow employee
involvement in decision-making, at all levels e.g. employee striking. The chart below shows that on every type of
attitude surveys, job enrichment or redesign, Quality circles, performance/human resource initiative, a substantially lower
employee participation groups, quality of work life programmes proportion of UK-owned firms is using them compared to
and self-managing work teams. US-owned firms in the UK. The survey results also show
that US-owned firms are pursuing these initiatives to a
Output monitoring - assessing performance through outputs e.g.
much greater extent. A greater proportion of EU-owned
productivity per hour etc.
firms is using many of these initiatives and EU-owned
Profit-related pay - where some element of pay is linked to the companies are also pursuing them to a greater extent than
overall profitability of the company. UK-owned firms. Just how important these results are
depends on how successful these initiatives are at
Total Quality Processes - processes that aim to improve the
achieving their goals and whether they are linked to
quality of products/services being delivered by involving the
improved productivity and/or profitability.
whole organisation in making process improvements. Can
involve statistical process control, group problem solving
processes etc.
Chart 40: US firms lead the way in using workplace
Employee share ownership schemes - enables employees to
initiatives, % of US/UK/EU owned respondents
buy their employer’s shares, giving them an ownership stake in
90
the corporation. EU-owned
80
Skill/competency-based schemes - pay levels are based on how 70 US-owned

many skills employees have or how many jobs they potentially 60
UK-owned
can do, not on the job they are currently holding.
50
40
Suggestion schemes - a programme where individual employees
can make suggestions on improving work or the work 30
environment. 20
10
Policy deployment - focuses resources on the critical initiatives 0
necessary to accomplish the business objectives of the firm.
on pr.
nt
Te tal q es
nc ves
Pr l inc ed
Em olic late s
oy dep pay
br r.
g
en
co m in alit
re tive
am ne
gg inv orin
fin
ns me
To em
t m . ap
as
sh ym
ti
Te ow
ie
u
The key objectives of the organisation are translated into specific

en
du y b
n
it
e
Em tp erf
lo
v
sc
e
ol
ar
p
projects and deployed down to the implementation level of the

te
al
it-
a
u
tio
pe
du
y
a
Su ee
of
ee
es
m
vi
vi
u
oy
firm. Resources are unified and aligned and progress is

di
di
O
P
pl
In
In
pl
ill/
measured (against specific targets) towards the key objectives.

Sk
42
The EEF Survey results also show that just over a third of Workplace initiatives and
companies introduced these initiatives within the last three competitiveness
years, suggesting that they are still relatively new to the
firm. However, over 60% of firms introduced the measures The key reason behind the decision to implement workplace
they are using over three years ago, suggesting they have initiatives has been to boost competitiveness, in terms of
had ample opportunity to get the most from these initiatives. increased efficiency, productivity and profitability. This was
mentioned by nearly two thirds of firms using such
Large firms making the most of initiatives. The second most commonly cited reason for
initiatives introducing these measures was to create team spirit and
motivate staff (mentioned by 30% of firms). The chart
Nearly a quarter of small firms say they are not using below shows the key factors behind firms’ decision to
initiatives to encourage people to contribute more introduce new workplace practices and that the other
effectively to the organisation’s goals at all for their important reasons were the beliefs of individuals within the
workforce and 16% for management. Almost all of the company, and competitive and customer pressure.
larger firms state that they are doing something on these
fronts. The chart below shows that on virtually every type of
workplace initiative, a much higher proportion of larger firms Chart 42: The key reasons why firms introduce
workplace initiatives, % of firms using such
are undertaking them than is the case for small firms. The initiatives
results also show that larger firms tend to use the initiatives 70
to a greater extent and have been using them for longer
60
than smaller firms. As a result, larger firms have more
success in achieving their goals through such initiatives. 50
40
Chart 41: Large firms lead the way in using 30

workplace initiatives, % of firms by employment
size 20
100 10
500+
90
0
80 1-49
en e
ls
t/m ss
f.
nt
n
iv as
or
at
ur
ur
io
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ta
e
at
tit re
iv
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ss
ss
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/c
ul
70
ot
ic
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ve
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om
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sp
tit
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Sp
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50
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em
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ag
an
40
M
30
20
10
0
on pr.
ng
nt
Te tal q s
m ince ty
vi ncy es
Pr inc ed
es
ee ploy y
br r.
g
en
e
am ne
fin
i
ns me
p
To em
tiv
t m ap
gg inv ori
al bas
ua
m
i
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ie
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en
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ill/
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43
The goals Chart 44: Firms do review initiatives regularly, %
of firms using workplace initiatives
The main goal of introducing new workplace initiatives is to 50
boost company performance in terms of productivity and 45
profitability. The other two key goals mentioned by over a
40
fifth of firms were employee participation and employee
35
satisfaction.
30
25
20
Chart 43: Firms’ goals when introducing
workplace initiatives, % of firms using such 15
initiatives
10
50 5
45 0
Monthly Quarterly Biannually Annually Every Less Do not
40 2 yrs often review
35
30
25
20
Workplace initiatives are successful
15
10 Firms using workplace practices find that they do contribute

5 to achieving their goals. Chart 45 below shows that over
0
80% of companies implementing these initiatives find them
y
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either very or fairly successful at achieving their goals.

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Given that these goals are set in terms of productivity and

tr
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profitability and employee involvement, this is a significant

Cu
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finding. Only 15% of firms using these techniques found

cr
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them either not very or not at all successful.

Chart 45: New workplace initiatives are proving

successful, % of firms using initiatives
Of those firms that are undertaking workplace initiatives,
60
just under half of them review them on a monthly basis.
Regular review of such initiatives is fundamental to
50
achieving goals and a high proportion reviews them
monthly. The right frameworks appear to be in place in 40
many companies. However, a quarter of firms review the
initiatives either annually or less frequently, suggesting there 30
is substantial room to improve review procedures and to

20
exploit the maximum benefit from these workplace
initiatives. 10
0
44
Barriers to workplace initiatives Despite such high proportions of firms using these methods
of communication, UK-owned firms are still doing less so
The EEF/NOP survey also investigated the barriers to the than US-owned firms. On virtually every method of
take up of such initiatives. Chart 46 below shows that the communication, a substantially higher proportions of
major barrier to the introduction of new workplace practices US-owned firms uses each method of communication.
is attitudes to change within the company (both of
employees and management), which was cited by just less
Chart 47: How firms communicate organisational
than half of companies. Insufficient management time and goals to employees, % of respondents
lack of understanding of the benefits were also mentioned
90
by nearly 15% of respondents. If workforce/senior
80
management/supervisor skills are taken together they were
70
mentioned by 15% of firms and suggest that skills of all
60
employees are a constraint.
50
40
Chart 46: The barriers to the introduction of 30

workplace initiatives, % of respondents 20
10
50
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g
ts
gs
gs
gs
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Workplace initiatives do boost

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One of the most important findings from the EEF

Source: EEF/NOP Productivity Survey Productivity Survey is that use of workplace initiatives
correlates closely with productivity. Chart 48 below shows
that a much higher proportion of firms that use workplace
Companies are also using a variety of different methods of initiatives entirely is in the higher productivity growth
communicating organisational goals to employees. Most brackets compared with those that only use them minimally.
common is through briefing managers/supervisors, followed A rough calculation suggests that firms using these
by through line managers. The majority of firms use all-staff initiatives entirely averaged productivity increases of 10%
meetings, bulletin boards, adhoc staff meetings and board over the last two years, compared with 5% for those using
announcements. These results imply that firms are making them minimally.
use of the communication channels open to them.
However, given that attitudes to change are seen as the key
barrier to introducing workplace practices, they may not be
using these channels effectively.
45
Chart 48: Average increase in productivity (last 2
Summary of the key issues on
years), % of firms that use workplace initiatives workplace initiatives
entirely/minimally
1. The US experience in the 1990s provides convincing
20 Entirely Minimally
evidence that new workplace practices (recruitment and
18
selection procedures, incentive compensation,
16
performance management systems, employee
14
involvement and training) have been a contributing factor
12
to productivity growth in the US manufacturing sector.
10
It is not the adoption of any single practice that is crucial
8
but the combination of a number of them and the
6
involvement of employees in decision making.
4
2 2. The EEF Productivity Survey shows that UK

0
manufacturers are embracing new workplace practices,
Decrease 0% 0.1-4.9% 5-9.9% 10-14.9% 15-19.9% 20%+
although over half of firms say they have done so
moderately, minimally or not at all.
3. Many firms in the UK use output monitoring, individual

performance appraisal, employee involvement,
The same picture emerges on links with profitability.
suggestion schemes and total quality processes,
The chart below shows a much higher proportion of firms
although incentive or profit-based pay is not used as
that use workplace initiatives minimally in the lower
widely. US-owned firms in the UK are making greater
profitability brackets. The implied average profitability of
use of all forms of workplace initiatives than their UK-
those using such initiatives entirely is more than double that
owned counterparts.
who only use them minimally.
4. The two key reasons for firms introducing workplace

Chart 49: Average increase in profitability (last 2 initiatives are to boost competitiveness and to create
years), % of firms that use workplace initiatives team spirit and motivate staff. Likewise the key goals
entirely/minimally
are raising productivity and profitability and increasing
30 Entirely Minimally employee participation and satisfaction. Over 80% of
firms implementing workplace initiatives find them
25 successful at achieving these goals.
20
5. A greater proportion of large firms have been using such
15
initiatives and have been doing so to a greater extent
and for longer. As a result, large firms are having more
10 success with such initiatives.
5
6. Attitudes to change within the firm are by far the most
0 important barrier to the take up of workplace initiatives.
Loss 0% 0.1- 2.5- 7- 7.5- 10- 15%+
2.4% 4.9% 7.4% 9.9% 14.9%
7. The EEF Survey provides strong evidence of a link
between the use of workplace practices and improved
productivity and profitability in UK manufacturing.
46
Policy implications
There is plenty of evidence both from the experience of the

US and the impact of workplace practices in UK
manufacturing that they are linked with higher productivity
and profitability. If UK manufacturing is to reap the benefits
of greater use of workplace practices (taking a lead from
US-owned firms which already do so), the most crucial
barrier to remove is the attitudes to change within firms.
This will require a concerted effort from employers, the
workforce and government alike and emphasis on reducing
the barriers within smaller companies.
Employers must ensure that they communicate fully the

benefits of such practices for the company as whole and
individual employees. In particular, they must ensure that
employees are aware it can lead to greater rewards (in
return for higher productivity), improved job satisfaction and
that it is not a threat to employment. At the same time the
workforce must be made more aware of the benefits to
employees of such practices, helping to remove the fear
that change simply implies job cuts.
The government also has a role to play in ensuring that it

encourages employers and trade unions to adopt an
innovative approach to workplace practices and that it
believes it is an important path to higher productivity.
47
6. Attracting and retaining
the right people
When workforce skills are divided into three categories; Skills a problem for some firms
those with higher level qualifications (degree or above),
intermediate qualifications (vocational qualifications above Given the different spread of skills in UK manufacturing
high school but below degree) and those with low or no relative to the US, the EEF Productivity Survey tried to
skills, there are striking contrasts between the US and UK. gauge whether UK manufacturers are struggling to attract
The chart below shows that the US has a much greater and retain the right people and if so, the impact on company
proportion of workers qualified at the higher level than the performance. Chart 51 shows that nearly three quarters of
UK. The UK has improved its position since 1979, but there
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: attracting and retaining the right people
firms judge themselves very or fairly successful at attracting
has not been a substantial narrowing of the gap. skilled individuals. However, this leaves nearly a quarter of
firms not very or not at all successful at attracting the right
Although not shown in the chart, Germany leads the way in people, suggesting it is a problem for a substantial
terms of intermediate skills, reflecting the emphasis on craft proportion of firms. Once a firm has attracted the right
level qualifications and both the UK and US fall considerably person, it appears to be easier to retain them, with over
behind. In Britain intermediate skills are much more 90% of firms stating they are very or fairly successful.
prevalent in high technology sectors than sectors such as
textiles and clothing. Overall O’Mahony concludes that that
Britain’s workforce skills position falls behind the two Chart 51: How successful have you been in
countries with a large gap relative to Germany in
attracting/retaining skilled individuals? % of
respondents
intermediate skills and to the US in higher skills.
60 Retaining
50 Attracting
Chart 50: Skill proportions of the manufacturing
workforce, % 1993
40
Low Intermediate Higher
100 30
90
20
80
70
10
60
50 0
40 successful successful successful successful
30
20 Source: EEF/NOP Productivity Survey

10
0
UK US
Source: O’Mahony, NIESR
48
Salaries are the key tool development. EU-owned firms seem to be focusing more
on offering a better work/life balance and training.
The main way manufacturers seek to attract and retain the

right people is through offering good basic salaries, as
Chart 53: How firms attract and retain skilled
mentioned by nearly half of all firms. A quarter of firms offer employees, % of those successful in attracting and
a better work/life balance, bonuses and training. The vast retaining skilled individuals
majority of firms are not trying to attract and retain staff 60
EU-owned
through non-salary benefits such as better employee

50 US-owned
involvement, personal development, work environment and
better communication. 40 UK-owned
30
Chart 52: What are you doing to attract and
retain skilled individuals? % of respondents 20
50
10
40 0
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ic
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Despite nearly half of firms saying that they offer good

salaries to attract and retain staff, a third of companies that
struggle to do so suggest that it is because other sectors
pay better salaries. A similar proportion of companies also
suggest that it is simply because there is a skills shortage
US firms are more successful that they are unable to attract and retain the right people.
So it is clear that whatever firms can do themselves to
There are lessons that UK-owned manufacturers can learn
attract the right people, the government will also need to
from their US-owned counterparts. A substantially higher
tackle the issue of skills shortages at the same time.
proportion of US-owned firms (and EU-owned firms) claims
In addition, nearly 20% of firms say that they struggle
to be very successful at attracting and retaining skilled
because people have a poor perception of engineering/
individuals. Chart 53 shows that this is not because a higher
manufacturing.
proportion offers better salaries - in fact UK firms are
leading the way here - rather that more of them use other
methods to attract and retain staff. In particular, US-owned
firms seem to place substantially more emphasis on
work/life balance, bonuses, training and personal
49
Chart 54: What are the key reasons why you
US firms less constrained
struggle to attract and retain key staff? % of
firms that struggle to attract/retain staff The fact that US-owned manufacturers are doing more to
40 attract and retain skilled individuals means that a lower
35
proportion of them finds that failure to do so is having a
significant impact on their business. EU-owned firms
30
however, still seem to be finding that difficulties in attracting
25
and retaining skilled individuals are having a significant
20 impact on their business.
15
10
Chart 56: What impact do your difficulties in
5
attracting or retaining skilled individuals have on
company performance? % of respondents that
0 struggle to attract/retain staff by ownership
y
ge
t
en
en
Pa
ct
tio
tio
ta
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m
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45
oy
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EU-owned
sh
ag
pl
Pr
pe
an
ills
m
or
ne
Sk
40
Po
US-owned
rf.
U
Pe
35
UK-owned
Source: EEF/NOP Productivity Survey 30
25
20
Firms that struggle to attract and retain the right staff find
15
that it is one of the key problems they face. Nearly half of
them say that it the major problem or a significant issue for 10
their company. A further third say that it is a considerable 5
problem, but only one of a number of issues they face. 0 0

THE Major Significant Considerable Minor No real
problem problem problem effect effect
Chart 55: What impact do your difficulties in Source: EEF/NOP Productivity Survey
attracting or retaining skilled individuals have
on company performance? % of respondents
that struggle to attract/retain staff
40
Larger firms enjoy more success in attracting and retaining
the right people and therefore suffer less impact on
35
company performance. The chart below shows that a higher
30
proportion of small firms say that it is THE issue they face,
25 while a much higher proportion of large firms feel no real
20 effect on their business. The results suggest that smaller
firms struggle more because they suffer more from other
15
sectors offering better salaries (and performance
10
management initiatives) and skills shortages.
5
0
THE Major Significant Considerable Minor No real
50
4. Skills shortages are a significant reason for firms failing
Chart 57: What impact do your difficulties in to attract the right employees and this suggests that
attracting or retaining skilled individuals have on
company performance? % of respondents that firms cannot get round these difficulties simply by
struggle to attract/retain staff by employment size offering more non-salary benefits. It will require the
60
government to tackle skills shortages, through factors
500+ employees such as improved training to ensure that firms can over
50 1-49 employees come all the barriers to attracting and retaining skilled
individuals.
40
5. Smaller firms struggle more to attract and retain the

30
right people because they suffer more from other
20 sectors offering better salaries (and performance
management initiatives) and skills shortages.
10
6. The vast majority of firms that struggle to attract and

0 0
THE Major Significant Considerable Minor No real retain skilled individuals find that it is one of the key
problems the company faces.

7. More US-owned firms offer a better work/life balance,
bonuses, training and personal development. As a result
they are less constrained by difficulties in attracting and
retaining skilled individuals.
Summary of findings on retaining and
attracting the right people
Policy implications
1. The fact that UK firms have a lower proportion of high-
grade skilled employees appears to be constraining their
If manufacturing firms are to break down the barriers to
performance with a third of firms citing skill shortages as
them attracting the right people, they can clearly do more
a reason why they struggle to attract the right people.
themselves in terms of taking a more varied approach to
attracting and retaining the right people. However, no
2. While many firms are successful in attracting and
matter what actions firms take, skills shortages will still
retaining the right people, nearly a quarter struggle.
constrain their ability to attract the right people. It is
therefore crucial that the government attempts to tackle this
3. Offering good basic salaries is the key method of
issue head on.
attracting and retaining skilled individuals. A much lower
proportion of firms is offering good bonuses, training,
In its recent report ‘Unlocking our Potential’ the EEF
personal development, employee input and a better
highlighted how the government can take action to help
work/life balance as ways to attract and retain skilled
firms to raise their investment in the skills of their workers.
individuals. This suggests that more firms can offer such
It identified skills shortages as greatest in craft and skilled
benefits as ways to attract and retain staff and that this
operatives occupations. Across the board in engineering,
would also increase productivity (see chapter 5), leaving
but particularly in craft occupations, the key shortage is
employers more room to increase pay and further attract
technical and practical skills, followed by advanced IT and
more skilled employees.
software skills. It proposes two key ways to address the
skills shortages:
51
• Modern apprenticeships have made an important
contribution to educating and training people to
intermediate level and offer a vocational route to higher
education. Yet, there is still a significant shortfall
between the numbers of people on modern
apprenticeships and the numbers required by industry.
With this problem in mind the report suggests that this
shortfall could be addressed by bringing the funding paid
to employers for those entering into advanced modern
apprenticeships between ages 19 and 24 into line with
that paid to 16-18 year old entrants.
• The second proposal is aimed at tackling the UK’s

longstanding poor record on continuing development.
The report proposes that that the government extends
the Individual Learning Account (ILA) principle into the
workplace for SMEs in the engineering sector.
The government would contribute to the costs of
off-the-job training owned by the employee, provided
that this was done during working time. Employers
would receive a rebate on the National Insurance
contributions relating to the wages received by
employees while training off the job.
Both these polices working together will help to reduce the

impact of skills shortages on company performance and
underpin the push for increased productivity.
52
53
7. Encouraging innovation
The picture for overall investment (highlighted in chapter 3) The consideration given to an R&D tax credit by the
is reflected to a large degree in what has been happening to government is welcome but should not be seen as the only
expenditure on R&D (see chart below) in the US and UK. US way to improve the UK’s record on innovation. In its
business expenditure on R&D far outstrips that in the UK as representations to the Chancellor ahead of the 2001
a proportion of GDP and to make matters worse the share Pre-Budget report the EEF highlighted two crucial policy
is heading downwards in the UK but upwards in the US. areas for improving innovation in the UK.
Some of the driving forces behind this worrying disparity are Firstly, the interpretation of R&D for tax purposes must
also similar to those for investment in terms of the macro- include development activities such as investment in
economic environment, declining profitability and the software, manufacturing processes and technology
resultant lack of availability of internal finance. However, in demonstrators.
the US there is also an additional factor at play as large
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: encouraging innovation
firms can claim an incremental tax credit for R&D Secondly, the government needs to improve the supply of
expenditure. highly skilled research scientists and engineers into industry,
as it is also critical to increasing innovation levels. This can
be done through the following routes:
Chart 58: US business expenditure on R&D well
ahead of the UK, spending as a % of GDP
• The provision of matched funding from the government
2.2 to encourage R&D activity through universities in
medium to large sized companies.
2
• Building on existing partnerships between industry and

1.8
university science by establishing University Centres of
US
1.6 Excellence/Advanced Centres of Technology.
UK
1.4 • Improving the quality of teachers and lecturers by

waiving the fees of students and student teachers in
1.2
science and engineering subjects.
1
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 • Improving the quality of graduates and post-graduates
entering industry through the extension of the teaching
Source: DTI company scheme, providing four year funded PhD pilots
where the work is with medium and large companies
and extra funding for R&D post graduates studying
Evidence from the US suggests that the tax credit boosts engineering and science.
investment in R&D by lowering the cost to the firm. The UK
government seems to have acknowledged the role of the
tax credit in stimulating R&D in the US and is set to
introduce one in the UK. It is critical that it is not delayed
beyond the March Budget, that its administration is kept
simple and that its design provides incentives for increased
expenditure on R&D.
54
55
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: encouraging innovation
8. Infrastructure, planning
and burdens on business
Infrastructure • It is too slow, too often, on decisions that are vital for a
firm’s competitiveness. More than half of commercial
A competitive transport system is crucial to sustained planning applications (approximately 75,000) takes longer
productivity improvements. The increased dependence on than eight weeks to be decided and for major projects
methods such as just-in-time delivery and supply chain the proportion is 75%.
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: infrastructure, planning and burdens on business
management requires that inputs and components are
delivered at the right time and without delay. Similarly, if • There are too many uncertainties surrounding decisions
firms cannot move goods to market freely, they will lose which translate into higher risks and costs for business.
potential business to those firms that can, irrespective of There is a serious lack of transparency in the way local
how productive they are. councils/statutory authorities operate.
HM Treasury recognised in their March 2001 report on • There is widespread feeling that the process reaches
Productivity in the UK that “an effective infrastructure is bad decisions, failing to balance social, economic and
vital to ensuring that firms are able to operate efficiently, environmental issues and local, regional and national
without needlessly wasting resources”. The report priorities.
emphasised how the 2000 Spending Review announced
large increases in public sector net investment and in There is room for significant improvement at the local
particular on transport. authority level, given that in 2000/01 the top ten local
authorities determined close to 80% of their commercial
It is crucial that the government concentrates on delivering planning applications within eight weeks, while the bottom
these laudable aspirations and the planned increases in 20 determined less than 30%. The CBI emphasise that the
spending. At the same time the government must meet the goals should be for the system to deliver decisions that are
needs of the manufacturing industry and the EEF plans to more coherent, consistent and well justified, reached with
investigate further the priorities for manufacturing. minimum delay and through a more user-friendly process.
The EEF supports the ten-point action plan that focuses on
how to make the system achieve these goals. Namely;
Planning
• Making local plans more relevant to business.
UK planning regulations are important constraints on UK

manufacturing productivity, as outlined in the EEF interim • Ensuring regional and national economic priorities are
report. Business managers in the UK and US both felt that implemented effectively at the local level.
regulations in the UK are stricter and more bureaucratic than

those in the US. They can either prevent or significantly hold • Promoting more informed political participation in the
up UK firms attempts to extend their premises or move to process.
new ones.
• Reducing the decision making load on the system by
Given that extending premises is often part of improving the focusing on the significant and strategic developments.
layout/flow of production or raising efficiency, slow or

negative decisions impede increases in productivity. • Making planning obligations more transparent and fair.
The EEF will respond to the Green Paper on planning. It is • Introducing procedural deadlines and more effective
important that the government acts quickly and in ways that performance standards.
will free up the process. We support many of the issues

raised by the CBI in its document ‘Planning for productivity’, • Enhancing local authorities capabilities and resources
in particular of how the planning system fails its users: e.g. more funding for planning officers.
56
• Providing better incentives and penalties to improve This report has emphasised the need for firms to be able to
performance. concentrate on boosting productivity through increasing the
use of lean manufacturing, new initiatives in the workplace
• Making the planning system easier for businesses and doing more to attract and retain the right people. The
to use. flood of new employment legislation under the current
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: infrastructure, planning and burdens on business
government, coupled with other burdens such as the

• Improving local authorities’ and statutory bodies’ climate change levy impinges seriously on firms’ ability to
understanding of business needs, through push for improvements in these three areas. Continuous
education/training. improvement is an ongoing daily process and anything that
hinders managers ability to focus on it, reduces their ability
There can be little doubt that progress in all these areas is to make productivity improvements.
essential to reducing the constraints that the planning
process in the UK places on the potential for productivity It is essential that the government increases its efforts both
improvements both within manufacturing and the economy to reduce the current burden of regulation and to limit the
more widely. impact on business of further measures.
The rising burdens on UK

manufacturing
The EEF has regularly warned of the damage done to

industry by the increasing burden of regulation. It adds to
business costs, diverts management time away from more
productive uses such as increasing efficiency and limits the
flexibility of companies to respond rapidly to changing
circumstances.
The interim report highlighted how the rise in red tape,

particularly in terms of employment legislation, was seen to
be hindering the productivity performance of UK
manufacturers. Managers on both sides of the Atlantic
mentioned in the initial set of interviews how US companies
could gain an advantage over UK firms simply because they
were less constrained by red tape and employment
legislation. The added flexibility that US firms can achieve as
a result helps to underpin productivity.
57
9. Venture capital and
productivity
Venture capital is a type of finance targeted at firms in their In addition, in the same four-year period exports by venture
early and expansion stages and in need of capital to fund backed companies rose by an average of 40% per annum
product development or growth. These firms would and investment by 34%, compared with national averages
normally have insufficient collateral to access bank loans or of 8% and 7% respectively.
other traditional forms of finance.
Unlike loan financing - where there is a legal requirement to Chart 59: Venture capital boosts employment,
average annual increase in employment
pay interest and repay the capital regardless of success or 1993/4 – 1997/98
failure - venture capital investors channel funds to small and
25
expanding non-quoted companies in exchange for an equity
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: venture capital and productivity
share of the business. In addition, venture capital investors
20
provide experience, contacts and business advice when
required, which sets it apart from other sources of business
15
capital. These additional services can play a crucial role in
the survival of these businesses, at least in the short run.
10
This type of investment is not short term and can run for
5
between three to seven years. In return, the investor seeks
a rate of return on their investment that is higher than other
0
forms of asset classes and therefore require innovative
Venture Backed FTSE 250 FTSE 100 UK average
propositions that can maintain or seek a competitive
advantage in the market. Source: Pricewaterhouse Coopers
Venture capital companies add to Although directly comparable figures for the US are not
growth, employment and exports available, the pattern is clear. Venture capital funded firms
account for over 4m employees and $750bn of revenues
The UK venture capital industry is the largest and most (7.4% of GDP). European evidence is also consistent.
developed in Europe, accounting for about half of the total A recent European Venture Capital Association survey
European venture capital investment. However the United shows employment growth for venture backed companies
States is the most significant venture capital market in the increasing by an average of 15% per annum compared with
world, investing over $100bn (£69bn) last year, compared 2% in the top European companies and investment in plant
with £6.8bn in the UK. and capital equipment and R&D growing at 25% and 30%
annually respectively.
Evidence from the US, Europe and the UK shows that
venture capital backed firms create more jobs, export more
and make a significant contribution to public revenues Venture capital and productivity
compared with non-venture backed firms. Chart 59 (using
data from Pricewaterhouse Coopers) shows in the four Chart 60 shows that the strong performance in recent years
years to 1997/98, venture capital backed companies have in US productivity has coincided with strong growth in
added considerably to job creation in the UK. The number of venture capital in the US. To some extent this reflects the
people employed by venture backed companies increased rise in hi-tech start-ups. However, in contrast there has only
by an average of 24% per annum, compared with the been a modest improvement in the supply of venture capital
national growth rate of 1.3%. in the UK over the 1990s.
58
The US National Venture Capital Association point to the Although there are only limited statistics available on the
paramount role venture capital has had in nourishing the US take-up of VCTs and EIS, it seems they have been
economy, but also in new technical and innovation business moderately successful at increasing the supply of finance to
solutions which have led to productivity improvements. smaller companies, particularly those in hi-technology
sectors. And the new Regional Venture Capital Funds, due
to come on-stream in the next year, should also help to
Chart 60: Growth in venture capital investment, offset the trend towards larger deals.
excluding MBO/MBI activity, % GDP
While steps have been made to increase the supply of

1.2 UK Venture Capital US Venture Capital
venture capital, little has been done to encourage the take-
1.0 up of venture capital by firms, especially SMEs. Between

1997 and 1999, the vast majority of firms (61%) approached
0.8
banks for loan financing compared with only 1% seeking
venture capital finance (according to ESRC figures) despite
0.6
the proven benefits of this asset class.
0.4
There are a number of possible explanations for this. Firstly,
0.2 as venture capitalists tend to be involved, to some extent, in
the management of the investee company, owner-managers
0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 must accept that they will no longer have total autonomy in
the running of the business. This can put many managers
Sources: Bureau of Economic Analysis, National Statistics, BVCA, off seeking venture capital finance.
and NVCA
Secondly, there appears to be an information gap. It seems

that knowledge of venture capital, while improving slightly is
still weak, especially among smaller firms.
Supply and demand of venture capital
Finally, a good management structure with a coherent
The amount of private equity (including Management Buy business policy and a talented and skilled workforce are
Outs/Management Buy Ins - MBO/MBI - finance) invested essential if a firm wants to attract venture capital finance.
by BVCA members in 2000 increased almost 12-fold to Small firms may lack the expertise to attract venture capital
nearly £7 billion over the past decade, but much of this is finance. As recent research from the Bank of England
concentrated at the top end of the market in MBO/MBI stated; “While the availability of risk capital for technology-
finance. Therefore, this and previous governments have based small firms appears to have improved in recent years,
focussed on increasing the supply of venture capital into some firms still report difficulty in raising finance, perhaps
certain sectors – primarily to reduce this equity gap - because they are not always seen to be ‘investment ready’.”
through tax incentives such as the Enterprise Investment
Scheme (EIS) aimed at Business Angels, Venture Capital
Trusts (VCTs) and the Corporate Venturing Scheme.
59
The role of government • Corporate Venturing, which has given rise to a number
of successful companies in the US, has been slow to
There appears to be a consensus that there are market develop in the UK, with only 15% of companies
imperfections in the provision of venture capital to small considering it. Attempts to encourage it through
firms in particular and also between different sectors and corporation tax relief are to be welcomed but the
geographical regions. Consequently, there is a need for scheme is also bound up by a number of regulatory
public sector intervention. The government has already restrictions similar to those of VCTs and EIS. This is in
introduced a number of fiscal incentives to increase the addition to the lack of information and understanding of
supply of venture capital and are currently consulting on and corporate venturing.
implementing other measures to maximise the take up of
venture capital. These include helping businesses, and • The Treasury’s paper on ‘Productivity and Enterprise’
SMEs in particular, become ‘investment ready’ and also hints at CGT reforms, including further simplification
encouraging venture capital funds with a regional focus. of the tax, which would be welcome.
The Treasury is currently working on further plans to • It is crucial that companies become better informed of
stimulate the venture capital industry. These include access to external finance, other than loan financing, and
changes to the capital gains tax regime, reducing the become better prepared to take it on. The EEF awaits
effective rate on business assets to 20% after one year and the results of the Treasury’s consultation on improving
10% after two years. investment readiness.
There is also an on-going consultation on institutional

investment in venture capital and private equity. Investment
in venture capital funds by UK banks, pension funds and
insurance companies is a fraction of that in the US. One
explanation for this is the existence of the Minimum
Funding Requirement rule, which the Treasury is already
committed to abolishing.
Other possible policy areas
The government could further modify some of its existing

schemes. These might include:
• Further improvements to the VCT and EIS schemes.

They are currently complex and carry too many
restrictions. For example the gross assets test allowing
venture capital investment in firms with a gross assets
value of less than £15m is too rigid as investment in
many engineering companies with a large amount of
capital equipment is ruled out.
60
61
Appendix 1. References
Bank of England (February 2001), Financing of Technology Hueslid, Mark A, (1995), The impact of human resource
Based Small Firms. management practices on turnover, productivity and
corporate financial performance; Academy of Management
Black and Lynch, (Aug 1997), How to compete: the impact Journal.
of workplace practices and IT on productivity, NBER
Working Paper 6120. Michie and Sheehan (Sep 2000), Labour market flexibility,
human resource management and corporate performance,
Black and Lynch (Jan 2000), What’s driving the new British Academy of Management Conference
economy: the benefits of workplace innovation, NBER
Working Paper 7479. Pricewaterhouse Coopers (1999 Survey 2); The Economic
Impact of Venture Capital in the UK
Bresbahan, Brynjolfsson and Hitt (1999), IT, workplace
organisation and the demand for skilled labour: firm level Watson Wyatt (1999), Human Capital Index (N. American
evidence, NBER working paper 7136 Survey report 1999).
CBI (July 2001), Planning for productivity: A ten point action Womack and Jones (1996), Lean Thinking – Banish Waste
catching up with uncle sam: the EEF final report on US and UK manufacturing productivity: appendix 1
plan. and Create Wealth in Your Corporation.
62
63
Appendix 2. The EEF/NOP productivity
survey telephone questionnaire
IF CODED 5 OR 6 AT A2, GO TO A11.
Section one OTHERS CONTINUE
A3
I would like to begin by discussing your organisation’s views
of the ways in which organisations like yours can maximise Which of the following forms of ‘lean’ manufacturing do you
productivity. undertake?
READ OUT. CODE ALL THAT APPLY

A1
1 Cellular Manufacturing
I would like to begin by asking how you measure 2 Continuous Improvement / ‘Kaizen’
productivity internally? 3 Kanban
4 Process Mapping
PROBE TWICE. DO NOT READ OUT. CODE 5 Single Piece Flow
ALL THAT APPLY 6 SMED
7 Step Change/‘Kaikaku’
1 Output 8 Supplier Development
2 Output per head 9 Supply Base Reduction
3 Output per head per hour 10 Total Productive Maintenance
4 Customer satisfaction 11 Value and the 7 Wastes
5 Sales/turnover per head 12 5s/Visual Management
6 Profit per head 13 Other (specify)
7 Output per £ invested/Return on Investment X Don’t know
8 Piece work
9 Value added per head FOR ALL CODED AT A3
10 Other (specify)
X Don’t know
A4
A2 Would you say you conduct [coded at A3] to a …
Can I ask you whether or not you undertake, or plan to

READ OUT. CODE ONE ONLY
undertake, any form of ‘lean’ manufacturing?
1 Significant extent
PROMPT TO CLARIFY
2 Moderate extent
3 Minimal extent
1 Yes – across whole organisation
2 Yes – across manufacturing and supply functions only
3 Yes – across manufacturing or supply function only
FOR ALL CODED AT A3
4 Yes – across some, but not all, units of manufacturing or
supply
5 Planned but not yet undertaken GO TO A10
6 None GO TO A10
7 Other (specify)
X Don’t know GO TO A10
64
A6 A8
And when was [coded at A3] introduced? And how do you track the impact of the lean manufacturing
techniques you use?
CODE ONE ONLY
DO NOT READ OUT. PROBE ONCE. CODE
1 Less than 6 months ago ALL THAT APPLY
2 6-12 months ago
3 1-2 years ago 1 Weekly process reviews
4 2-3 years ago 2 Monthly process reviews
5 3-5 years ago 3 Quarterly process reviews
6 More than 5 years ago 4 Annual process reviews
X Don’t know 5 Ad-hoc process reviews
6 Reviewed at board meeting only
7 Other (specify)
A7 X Don’t know
What were the major factors behind your decision to FOR ALL CODED AT A3
implement lean manufacturing?
DO NOT READ OUT. PROMPT TO CLARIFY. A9

CODE ALL THAT APPLY
And what results did the introduction of [coded at A3] bring?
1 To increase performance
(efficiency/productivity/profitability) DO NOT READ OUT. PROMPT TO CLARIFY.
2 Pressure from customers CODE ALL THAT APPLY
3 Competitive pressures
4 Create team spirit /motivate staff 1 Higher productivity
5 Pressure from investors/owners 2 Higher profitability
6 Strong belief of a group of individuals within company 3 Lower manufacturing costs
7 Learned through experience with other companies 4 Improved delivery
8 Made aware of benefits at special event/conference 5 Lower inventory/stock levels
9 Other (specify) 6 Improve supply chain management
X Don’t know 7 Improved employee performance
8 Improved teamwork
9 Increase competitiveness/efficiency
10 Reduce downtime
11 Elimination of waste
12 Other (specify)
X Don’t know
65
A10
Section two
And how successful do you think your lean manufacturing
initiatives have been in achieving their goals? Would you say…
I would like to move on to talk about issues related to
READ OUT. CODE ONE ONLY performance management and employee commitment
within your organisation.
1 Very successful
2 Fairly successful
3 Not very successful B1
4 Not at all successful
X Don’t know To what extent does your organisation use initiatives to
encourage employees to contribute more effectively
towards the goals of your organisation? Thinking firstly for
ASK ALL management? And then for the workforce?
A11 READ OUT. CODE ALL THAT APPLY
What do you believe are the major barriers to the uptake of MANAGEMENT WORKFORCE
‘lean’ manufacturing? Entirely 1 1
Significantly 2 2
PROMPT TO CLARIFY. CODE ALL THAT Moderately 3 3
APPLY Minimally 4 4
Not at all 5 5
1 Lack of understanding of the potential benefits Don’t know X X
2 Lack of available internal funding to implement ‘lean’
manufacturing IF CODED 1-3 AT B1A OR B1B, CONTINUE.
3 Lack of available external funding to implement ‘lean’ OTHERS GO TO B11
manufacturing
4 Lack of senior management skills required to implement IF CODED 1-3 AT B1A OR B1B
‘lean’ manufacturing
5 Lack of supervisory skills required to implement ‘lean’
manufacturing
6 Lack of workforce skills required to implement ‘lean’
manufacturing
7 Lack of buy-in from owners/shareholders
8 Insufficient management time
9 Employee attitudes/resistance to change
10 Cost/amount of investment
11 Cultural issues
12 Other (specify)
X Don’t know
NOW GO TO SECTION TWO
66
B2 B4
Which of the following types of initiative do you use? And when was [coded at B2] introduced?
READ OUT. CODE ALL THAT APPLY CODE ONE ONLY
1 Individual performance appraisals 1 Less than 6 months ago

2 Individual incentive schemes 2 6-12 months ago
3 Team incentive schemes 3 1-2 years ago
4 Employee involvement schemes 4 2-3 years ago
3 Output monitoring 5 3-5 years ago
4 Profit-related pay 6 More than 5 years ago
5 Total Quality Process X Don’t know
6 Employee share ownership schemes
7 Skill/competency-based schemes
8 Suggestions schemes B6
9 Policy deployment
10 Other (specify) And what were the major factors behind your decision to
implement these initiatives?
FOR ALL CODED AT B2
DO NOT READ OUT. PROMPT TO CLARIFY.
CODE ALL THAT APPLY
B3
1 To increase performance
Would you say you use [ coded at B2 ] to a … (efficiency/productivity/profitability)
2 Pressure from customers
READ OUT. CODE ONE ONLY 3 Recommended by consultant
4 Pressure from head office/senior management team
1 Significant extent 5 Pressure from investors/owners
2 Moderate extent 6 Strong belief of a group of individuals within company
3 Minimal extent 7 Create team spirit/motivate staff
8 Made aware of benefits at special event/conference
FOR ALL CODED AT B2 9 Competitive pressures
10 Other (specify)
X Don’t know
67
B7 B10
What were your goals when introducing these initiatives? And how successful do think the introduction of [coded at
B2] has been in achieving its goals?
DO NOT READ OUT. PROMPT TO CLARIFY. Would you say …
CODE ALL THAT APPLY
1 Boosting productivity
2 Boosting profitability 1 Very successful
3 Increasing shareholder value 2 Fairly successful
4 Boosting employee participation 3 Not very successful
5 Boosting internal communication 4 Not at all successful
6 Boosting employee satisfaction X Don’t know
7 Increase competitiveness
8 Other (specify)
X Don’t know ASK ALL
B8 B11
And how do you track the impact of these initiatives? And what do you feel are the barriers to the introduction of
initiatives to encourage employees to contribute more
PROBE TWICE effectively towards organisational goals?
X Don’t know PROMPT TO CLARIFY. CODE ALL THAT

APPLY
B9 1 Lack of understanding of the potential benefits

2 Lack of available internal funding to implement ‘lean’
How often do you review these initiatives? manufacturing
3 Lack of available external funding to implement ‘lean’
CODE ONE ONLY manufacturing
4 Lack of senior management skills required to implement
1 Every 3 months ‘lean’ manufacturing
2 Every 6 months (biannually) 5 Lack of supervisory skills required to implement ‘lean’
3 Annually manufacturing
4 Every 2 years 6 Lack of workforce skills required to implement ‘lean’
5 Less often manufacturing
6 Do not review these initiatives 7 Lack of buy-in from owners/shareholders
X Don’t know 8 Insufficient management time
9 Employee attitudes/resistance to change
FOR ALL CODED AT B2 10 Cost/amount of investment
11 Cultural issues
12 Other (specify)
X Don’t know
68
ASK ALL
Section three
B12
I would like now to briefly discuss the ways in which you
How do you communicate organisational goals to attract and retain skilled individuals.
employees?
PROMPT TO CLARIFY. CODE ALL THAT C1

APPLY
How successful do you feel your organisation has been in
1 Regular all-staff meetings attracting and retaining skilled individuals? Thinking about
2 Regular managers/supervisors briefings attracting? And retaining?
3 Ad-hoc staff briefings
4 Newsletters READ OUT. CODE ONE ONLY
5 Electronic briefings (e.g. e-mail bulletins)
6 Bulletin boards (A) ATTRACTING (B) RETAINING

7 Through Line Managers Very successful 1 1
8 Board announcements Fairly successful 2 2
9 Other (specify) Not very successful 3 3
10 NO PROCEDURES IN PLACE Not at all successful 4 4
X Don’t know Don’t know X X
NOW GO TO SECTION THREE IF CODED 1 OR 2 AT C1A AND/OR C1B,

ANSWER C2-C3. IF CODED 3 OR 4 AT C1A
AND/OR C1B, ANSWER C4-C6. OTHERS GO
TO SECTION D
IF CODED 1 OR 2 AT C1A AND/OR C1B
69
C2 C4
What is your organisation doing to attract and retain skilled What do you believe are the key reasons why your
individuals? organisation struggles to attract or retain skilled staff?
PROMPT TO CLARIFY. CODE ALL THAT PROMPT TO CLARIFY. CODE ALL THAT
APPLY APPLY
1 Offering good basic salaries 1 People have a poor perception of engineering/

2 Offering good bonus packages manufacturing
3 Offering a wide range of training options 2 Other sectors pay better salaries
4 Offering clear opportunities for personal development 3 Other sectors tend to offer more attractive performance
5 Market leading organisation management initiatives
6 Offering significant employee input into organisational 4 General shortage of skills in the labour market
development 5 Other sectors are perceived to offer more prospects
7 Offering better work/life balance 6 Other sectors manage talent better
8 Other (specify) 7 Other (specify)
X Don’t know X Don’t know
IF CODED MORE THAN ONE AT C2, GO TO IF CODED MORE THAN ONE AT C4, GO TO
C3. IF CODED 3 OR 4 AT C1A C5. OTHERS GO TO C6
AND/OR C1B, ANSWER C4-C6. OTHERS GO
TO SECTION D IF CODED 3 OR 4 AT C1A AND/OR C1B
IF CODED 3 OR 4 AT C1A AND/OR C1B,

ANSWER C4-C6. OTHERS GO TO C6
SECTION D
What effect do you think your difficulties in attracting or
IF CODED 3 OR 4 AT C1A AND/OR C1B retaining skilled individuals has on company performance?
Would you say …
1 It is THE major problem we face as an organisation

2 Significant, but not the major issue we face
3 Considerable, but only one of a number of issues we face
4 Minor effect – there are more significant issues we face
5 No real effect
X Don’t know
70
D2
Section four
In what areas have you increased investment?
I would like to finish by covering briefly your investment PROBE FULLY

performance.
1 IT
2 Other capital equipment (e.g. manufacturing/production
D1 equipment/machinery)
3 Training
What has been the trend in capital and labour investment 4 Buildings
over the past 12 months in the UK (or last financial year if 5 Vehicles
easier)? 6 Other (specify)
X Don’t know
IF CODED 3 OR 4 AT D1A AND/OR D1B,
(A) CAPITAL (B) LABOUR ANSWER D3. OTHERS GO TO D4

INVESTMENT INVESTMENT
Significant increase 1 1 IF CODED 3 OR 4 AT D1A AND/OR D1B
Slight increase 2 2
Stayed same 3 3
Slight decrease 4 4 D3
Significant decrease 5 5
Don’t know X X To what extent do you feel your performance over the last
12 months has been hampered by an inability to invest?
IF CODED 1 OR 2 AT D1A AND/OR D1B, Would you say…
ANSWER D2. IF CODED 3 OR 4 AT D1A
AND/OR D1B, ANSWER D3. OTHERS GO READ OUT. CODE ONE ONLY
TO D4
1 Significantly
IF CODED 1 OR 2 AT D1A AND/OR D1B 2 Slightly
3 No real effect
X Don’t know
71
ASK ALL D6
To what extent do you feel your performance over the next

D4 12 months is likely to be hampered by an inability to invest?
Would you say…
What is the trend in capital and labour investment over the
next 12 months (or next financial year if easier) likely to be? READ OUT. CODE ONE ONLY
READ OUT. CODE ONE ONLY 1 Significantly

2 Slightly
CAPITAL LABOUR 3 No real effect
INVESTMENT INVESTMENT X Don’t know
Significant increase 1 1
Slight increase 2 2 ASK ALL
Stayed same 3 3
Slight decrease 4 4
Significant decrease 5 5 D7
Don’t know X X
What do feel are the major barriers to investment within
IF CODED 1 OR 2 AT D4A AND/OR D4B, your organisation? Please think about internal and market
ANSWER D5. IF CODED 3 OR 4 AT D4A issues.
AND/OR D4B, ANSWER D6. OTHERS GO
TO D7 PROBE FULLY. CODE ALL THAT APPLY
IF CODED 1 OR 2 AT D4A AND/OR D4B 1 Cost of finance

D5 2 Inability to meet payback periods/hurdle rates
3 Lack of external finance (general)
In what areas will you increase investment? 4 Lack of confidence on part of external finance
providers (due to downturn in manufacturing)
PROBE FULLY 5 Lack of confidence in organisation on part of external
finance providers
1 IT 6 Uncertainty over future demand/orders
2 Other capital equipment (e.g. manufacturing / 7 Lack of understanding of organisation/ sector on
production equipment / machinery) behalf of City/banks/other finance providers
3 Training 8 Lack of demand/ orders
4 Buildings 9 Exchange rate ($/Euro/£)
5 Vehicles 10 Other (specify)
6 Other (specify) X Don’t know
X Don’t know
IF CODED MORE THAN ONE AT D7,
IF CODED 3 OR 4 AT D4A AND/OR D4B, CONTINUE. OTHERS GO TO
ANSWER D6. OTHERS GO TO D7 CLASSIFICATION
IF CODED 3 OR 4 AT D4A AND/OR D4B IF CODED MORE THAN ONE AT D7
72
D8 CL2
And what do you believe is the single most important Where is your parent company headquartered?
barrier to investment within your organisation?
PROMPT TO CLARIFY IF NECESSARY
PRECODES FROM D7. CODE ONE ONLY
1 US/N. America
1 Cost of finance 2 Ireland
2 Inability to meet payback periods/hurdle rates 3 Western Europe
3 Lack of external finance (general) 4 Japan
4 Lack of confidence on part of external finance providers 5 Pacific Rim
(due to downturn in manufacturing) 6 Eastern Europe
5 Lack of confidence in organisation on part of external 7 Africa
finance providers 8 S. America
6 Uncertainty over longer-term demand 9 Australasia
7 Lack of understanding of organisation/sector on behalf of X Don’t know
City/banks/other finance providers

8 Other (specify) ASK ALL
X Don’t know
CL3
CLASSIFICATION
What has been your average increase in productivity over
And can I check a couple of company details. Firstly … the last two years in the UK?

CL1
1 Decrease
Is your company UK-owned? 2 0%
3 0.1% – 4.9%
1 Yes 4 5% – 9.9%
2 No 5 10% – 14.9%
X Don’t know 6 15% – 19.9%
7 20%+
IF CODED 2 ABOVE, CONTINUE. OTHERS X Don’t know
GO TO CL3
ASK ALL
IF CODED 2 AT CL1
73
CL4
What has been your average level of profitability over the

last two years (in the UK) (% net rate of return)?
1 Loss-making
2 0%
3 0.1% – 2.4%
4 2.5% – 4.9%
5 5% – 7.4%
6 7.5% – 9.9%
6 10% – 14.9%
7 15%+
X Don’t know
THANK AND CLOSE
That’s the end of the interview. On behalf of the EEF and

NOP Business, thank you very much indeed for your time
and assistance.
74
Appendix 3. The sample
The survey was conducted over the telephone, using the
questionnaire illustrated in appendix 2, independently by 3. Breakdown of sample by nationality of
ownership S. America
NOP. Three hundred and fifty two EEF member companies
1%
responded and the survey was conducted 2 - 10 August. Australasia E. Europe
4% 1%
More information on the sample is highlighted below.
W. Europe
11%
1. Breakdown of the sample by company size

(by numbers employed)
USA
16%
500+
250-499
12%
14%
UK
67%
1-49
28%
50-249
46%
2. Breakdown of sample by sector

Other manufacturing
Transport 2%
equipment
13%
Metals/metal
products
38%
Electrical/
optical
equipment
19%
Machinery and
equipment
28%
76
53
cover ART2 28/11/01 8:11 am Page 1
For more information on the EEF see our website on:
www.eef.org.uk
EEF regional and affiliated Associations
East Anglia Northern Ireland West Midlands
32 High Street 2 Greenwood Avenue St James’s House
Hadleigh Belfast BT4 3JL Frederick Road
Ipswich IP7 5AP Telephone 028 9059 5050 Edgbaston
Telephone 01473 827 894 Facsimile 028 9059 5059 Birmingham B15 1JJ
Facsimile 01473 824 218 Telephone 0121 456 2222
North West Facsimile 0121 454 6745
East Midlands Mount Pleasent
Barleythorpe Glazebrook Lane Yorkshire & Humberside
Oakham Glazebrook Fieldhead
Rutland LE15 7ED Warrington WA3 5BN Thorner
Telephone 01572 723 711 Telephone 0161 777 2500 Leeds LS14 3DN
Facsimile 01572 757 657 Facsimile 0161 777 2522 Telephone 0113 289 2671
Facsimile 0113 289 3170
ECIA Scottish Engineering
Broadway House 105 West George Street EMTA*
Tothill Street Glasgow G2 1QL (National Training Organisation for
London SW1H 9NS Telephone 0141 221 3181 Engineering Manufacture)
Telephone 0171 799 2000 Facsimile 0141 204 1202 EMTA House
Facsimile 0171 233 1930 14 Upton Road
Sheffield Watford
Lancashire Broomgrove Hertfordshire WD1 1EP
Heritage House 59 Clarkehouse Road Telephone 01923 238 441
48-50 Chorley New Road Sheffield S10 2LE Facsimile 01923 256 086
Bolton BL1 4AP Telephone 0114 268 0671
Telephone 01204 457 711 Facsimile 0114 266 4227
Facsimile 01204 457 745 Contacts
South
Mid-Anglian Station Road Stephen Radley, Chief Economist
54 High Street Hook Telephone 020 7654 1530
Sandy Hampshire RG27 9TL email: sradley@eef-fed.org.uk
Bedfordshire SG19 1AJ Telephone 01256 763 969
Telephone 01767 681 722 Facsimile 01256 768 530 Douglas Peedle, Deputy Chief
Facsimile 01767 691 773 Economist
Western Telephone 020 7654 1585
Northern Engineers’ House email: dpeedle@eef-fed.org.uk
Derwent House The Promenade
Town Centre: District 1 Clifton Down Shabab Qadar, Economist
Washington Bristol BS8 3NB Telephone 020 7654 1548
Tyne & Wear NE38 7SR Telephone 0117 973 1471 email: sqadar@eef-fed.org.uk
Telephone 0191 416 5656 Facsimile 0117 974 4288
Facsimile 0191 417 9392 Lee Hopley, Economist
Telephone 020 7654 1537
ISBN: 1-903461-20-0 email: lhopley@eef-fed.org.uk

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Catching up with Uncle Sam

Part of the Manufacturing at the Crossroads series

1. Is there a productivity gap? 14

2. Structural reasons behind the productivity gap 18

4. The take up of lean manufacturing 28

5. Use of workplace initiatives 38

6. Attracting and retaining the right people 48

8. Infrastructure, planning and burdens on business 56

9. Venture capital and productivity 58

Appendix 2. Survey Questionnaire 64

Appendix 3. The sample 76

Part of the Manufacturing at the Crossroads series

• stimulating manufacturing investment;

• encouraging greater uptake of lean manufacturing;

• delivering improvements in the infrastructure;

• reducing burdens on business;

• tackling skills shortages.

In March, the EEF produced an interim report on US-UK manufacturing

(chapter 2) fallen further in recent years.

variations. stability, it is crucial that their side effects on

5. The performance of the US Information and addressed.

Communications Technology (ICT) manufacturing sector

overall productivity performance.

manufacturing and higher productivity and

18. Workplace initiatives refer to a whole range of practices Policy implications

firms to raise their investment in the skills of their

• There are too many uncertainties surrounding

Source: EEF/NOP Productivity Survey

Average increase in profitability (last 2 years)

Source: EEF/NOP Productivity Survey

The roles for government and employers

What other research has found Source: O’Mahony, NIESR

The 1998 McKinsey report concluded that the UK lay at the

Source: US Bureau of Labor Statistics

• Post 1973 productivity growth slowed in the main

Chart 4: The trend in manufacturing productivity

Source: O’Mahony, NIESR updated by EEF using BLS data

US varied between a UK plant having an advantage of about

150 The following chapters look at what factors might explain

Source: EEF *cost per unit

UK (converted at market exchange rates). 400

These three factors alone suggest that, all other things 50

remaining equal, US manufacturers are in a better position 0

• buy inputs and move the finished product in bulk;

• take advantage of opportunities for specialisation within

• split management functions to allow more focused

The benefits of the sheer size of the US economy and

Chart 9: Comparison of the ICT sectors in the US

Source: Bureau of Economic Analysis, National Statistics

The size and strength of the ICT manufacturing sector in the

The issues attached to the economies of scale and

250 Manufacturing Engineering 11

150 Source: National Statistics/EEF calculations

Most firms have not increased

Capital equipment is the key area that firms have either

the required step change in manufacturing investment. 60

Source: EEF/NOP Productivity Survey

company performance manufacturing and the availability of external finance also

A lack of investment has hindered the performance of just

Chart 16: The extent performance has been 20

Chart 17 below shows what manufacturers believe are the