Scotland faces economy conundrum over job creation and productivity
High-profile business influencers share insights for resolutions
- Scotland outperforms UK average in productivity growth, but the country’s economy has only grown at around half the UK average rate
- Output per head is higher in Scotland than in other UK nations and regions, except London and South East England
- While technology and digital transformation become key enablers for improved productivity, business leaders must keep humans in the loop – reconstructing work, retraining people and re-arranging the organisation
- Scotland needs more businesses of scale that are competitively positioned across international markets, as well as support in the development of their leadership skills and confidence to enter and succeed in export markets
Scotland’s businesses need to collaborate further with educators and policymakers to develop the vital skills required to harness productivity for regional growth, according to Deloitte’s latest Power Up report.
Power Up: UK-Wide Growth explores how improved productivity can be unlocked across the UK’s regions and nations.
Deloitte reviewed nearly 20 years of Office for National Statistics (ONS) productivity data and 36 years of employment data dissecting it by nation, region and by sector. The firm then consulted with more than 50 business leaders, educators, local government officials and other influential figures in Scotland, Wales, Northern Ireland and the eight English regions outside London to assess how this potential could be unlocked.
It found that while Scotland has outperformed the UK average in productivity growth over the last 10 years, closing a previous gap, the growth rate has declined across the UK as a whole since the financial crash. Slowing productivity across certain sectors and lower levels of investment in high productivity sectors are contributing factors to this decline.
However, Scotland, like the rest of the UK, has rapidly created jobs over the last eight years, with unemployment down from 8.8% in 2010 to 3.8% in the period July to September this year.
The analysis also shows that for a number of sectors, including information/communication and professional services, productivity and employment growth have not been mutually exclusive, demonstrating that it is possible to increase both in tandem.
The Power Up report shows that Scotland’s output per head was higher than the average of all other UK regions and nations, except for London and the South East. However, low growth in Scotland remains a concern. In May this year, the independent Scottish Fiscal Commission forecast economic expansion of below 1% a year for the next five years, reflecting weak growth in population and productivity, while this year’s second quarter estimate for Scotland’s GDP showed that Scotland’s economy has grown at only half the UK average rate, although this has recently picked up.
Stephen Williams, senior partner for Deloitte in Scotland, said: “Combining in-depth analysis, with the insights of high-profile business leaders across Scotland’s key sectors, has allowed our Power Up report to identify how the Scottish business landscape is evolving, and to demonstrate why we must start to think and plan differently to ensure future, sustainable growth.
“There are clear signs that Scotland’s businesses, educators and policymakers must collaborate to shape the skills that will be essential for driving productivity and economic growth. In addition, businesses will need to increase investment in upskilling their talent pools in the face of advancing technology, AI and robotic capabilities. Underpinning this is the inherent need for leading connectivity infrastructures and associated investment.
“Our research has also highlighted that Scotland needs more businesses of scale that are competitively positioned across international markets. This will require greater vision from Scotland’s private companies, as well as support in the development of their leadership skills and confidence to enter and succeed in export markets.”
He added: “The report also highlighted that with digital strategies and technology innovation continuing to influence productivity gains in the short term, Scotland’s business leaders will need to be open and agile to truly transformational opportunities.
“Scotland’s established track record in innovation and entrepreneurialism stands businesses in good stead to meet the challenges ahead.”
As a result of the Power Up report, key themes, aspirations and challenges that became apparent as key to driving growth were:
Technology and workforce skills: Technology and digital transformation initiatives are proven enablers of productivity improvement, with a leveraging of advanced technologies to do the same things better. Many of the business leaders Deloitte interviewed said they were therefore looking to capitalise on new AI-based software, robotics and workplace connectivity tools that will help to re-design work and lift productivity.
Adoption of these tools has accelerated – affecting strategy, talent, business models and the way companies are organised. Against this backdrop, there is a predicted demand for skills beyond technology and digital, such as cognitive abilities and complex problem-solving and social skills.
This raises two challenges for Scotland’s business leaders:
- In order to maximise the value of these technologies and minimise adverse impacts on the workforce, organisations must keep humans in the loop – reconstructing work, retraining people and re-arranging the organisation; and
- Business and educators need to agree on the future skills and personal attributes that Scotland’s workforce will require in the face of relentless technology change.
Scaling-up and going international: Large organisations are invariably international in their outlook and reach, and productivity is imperative for sustaining competitiveness in global markets. Beyond a large public sector, financial services and oil and gas, Scotland’s business community is comprised mainly of private organisations, the majority of them SMEs. The challenge for Scotland therefore is to support more organisations in scaling up and building international markets.
Relevant leadership skills and strategic thinking are crucial to building organisations of scale. The make-up of Scotland’s business community suggests that these are in scarce supply. Some of the business leaders that Deloitte consulted pointed to factors such as insufficient investment in people development, an income tax environment that might dis-incentivise leadership talent in Scotland, and a failure to help businesses access international markets with confidence.
Building international businesses is a key priority for Fintech Scotland in its ambition to be a top five global hub. Success in this regard will require organisations to be open to learning together and collaborating at an international level.
Industry 4.0: With its roots firmly in manufacturing, Industry 4.0 has both expanded the possibilities of digital transformation and increased its importance to an organisation as it combines and connects digital and physical technologies.
Professor Graeme Roy of Fraser of Allander Institute, said: “The ability to create something that has an impact and a change for an exceptionally low cost and without any infrastructure; this is where the fourth industrial revolution might go, making transformational change with nothing.”
In a future where much innovation may be low-cost and location agnostic, Scotland should distinguish itself as a premium location, aiming to attract activities that require disruptive R&D, such as high-value manufacturing. Contrast this with the renewables sector, where high-value components are manufactured elsewhere and simply assembled in Scotland.
Pioneering technologies developed in Scotland should receive co-ordinated support from government bodies. These bodies could focus on a core group of potential champions, rather than spreading their support too widely across a number of entities that are developing similar technologies.