'What are the biggest handicaps holding back growth in the Scottish economy?
High on my list is the lack of leaders able to set and communicate a sense of direction for an organisation and to inspire all those who work in it.
Few things could be more powerful as unleashing leadership potential within Scotland, and this must be a priority in 2010 and beyond.
For years commentators have trotted out the same observation about the Scottish economy:- our companies don’t invest enough money in research and design; they are not innovative enough; too few people decide to set up a business; too few of our promising young companies grow into medium or large enterprises.
Let’s take a step back and try to understand the underlying causes. On research and design, why do so many companies have such low confidence in themselves and the future that they are unwilling to invest? On innovation, why are so many companies stuck in the ways they have always operated? Why are they so reluctant to change? Why do few people decide to take the plunge to set up their own business? Why do few of our promising young companies, often with world-leading technology, fail to grow to become large enterprises, and provide high levels of employment?
The common thread to all of these is the quality of leadership.
The lack of leaders with high aspirations, able to lead their organisation to reach their full potential, cuts across virtually all of Scotland’s economic challenges. It inhibits investment, innovation and enterprise. It is the thing holding back many companies and our economy from reaching their full potential.
For years the Scottish economy has underperformed the rest of the UK by about 0.5% a year. Not a lot in any single year, but over time it mounts up. Economists, who diagnose the drivers of productivity that largely drive this problem, highlight the importance of skills, investment, innovation levels and the amount of enterprise and competition in an economy. While these factors explain some of the discrepancy in productivity levels between the UK and overseas countries such as the US, Germany and France and also between Scotland and the rest of the UK, they don’t explain all of the gap. There is something else going on. It’s what the economists call “total factor productivity”, or how the elements like skills and investments are combined. Again that brings me back to leadership. It’s a failure of leadership in the Scottish economy that results in us failing to take advantage of the assets we have.
Of particular concern is the gap between the skills we have in Scotland – at least as measured by formal qualifications – and our productivity levels. Qualifications are not a perfect measure of skills, as many higher education institutions are now acknowledging as they focus more on employability.
Nevertheless, the gap remains worrying. We simply don’t use the skills of our people to their full potential. Too much of the talent in our organisations fails to be utilised to the full. If, as I would argue, one of the principal roles of a leader is to get the most out of the resources they have, then our leaders are failing to get the most from our biggest asset, Scotland’s people.
But all is not bleak. I have been enormously encouraged and excited by some of the companies from across Scotland that I have met over the last year – companies that are doing fantastic things, growing in spite of the recession, often with no more than average technology. What these companies do have are leaders with ambition, vision and a willingness to constantly seek a better way of doing something, a better product or service, or a new market.
Ritchie’s Forfar started out as a village blacksmith in 1870. In 2005, the leadership team set itself ambitious targets to double the firm’s agricultural engineering business. That led to the leaders thinking about their business in a completely different way and has allowed them to consider new products and markets, recently expanding into China.
Clydebank-based S3 Interactive is another example of a company which is constantly innovating in a rapidly developing new market. This has allowed it to expand out of its core business of recycling old mobile phones and into new areas such as repairs, refurbishing and exporting mobiles for re-use, and dismantling and recycling components. They have also recently taken that business model and applied it to other products such as digital receivers, iPods and MP3 players, becoming a real innovator and a company growing out of the green economy.
What both companies have benefited from is an ambitious and forward-thinking leadership team, which in turn has helped to create a very engaged and committed workforce. However, for every company that has excited me there has been one that frustrates me. Often with truly outstanding technology, there are too many organisations that are operating at a level well below what they are capable of, too many organisations that lack the ambition (to quote the old Army recruiting slogan) to be “everything they could be”.
What I have witnessed in Scotland is no different from my experience throughout my business career. The most successful companies in sector after sector are often not those who have “comparative advantage” in the traditional sense. They are those with highly effective organisations – high-performance organisations. The starting point in creating any high-performance organisation is leadership.
The challenge facing many of our companies is what I would describe as “satisfactory underperformance”. Underperformance because the company is operating at a level below its full potential; satisfactory because the leaders are satisfied with that state, or are unable to see the latent potential or are not motivated to go after it. It’s OK.
That observation of many of our companies could be extended to the Scottish economy. Scotland’s performance for too long could be described as satisfactory underperformance. In my view however it’s not satisfactory. It’s not OK. We need to tackle the root causes of the underperformance. Only then can we achieve our full potential as an economy.
By leadership I don’t mean that we should focus on the high-profile charismatic personalities that people often equate with leadership. I don’t mean to knock them – they can have a real impact in inspiring people to go the extra mile. Too often, though, organisations that depend on such an individual prosper when he or she is in charge, but slip back when they move on or retire.
We need something much more sustainable – a culture of leadership in our businesses. A culture that encourages and nurtures leaders who:
- Have high aspirations for their organisation;
- Can identify a sense of purpose;
- Can communicate and sell that aspiration and purpose to their entire staff;
- Have a sense of urgency;
- Are willing to try new things;
- Above all, can inspire people to operate at their full personal potential.
Businesses can seek support to develop their leadership skills from a range of sources. These include Scottish Enterprise but also the Institute of Directors, universities and private consultants. Training programmes and support are only one side of the story, however. Most of all, what Scotland needs is for our business leaders to step forward and start to lead their organisations to achieve their full potential.'