Productivity is often discussed in isolation, as though it can be improved by a business through focus alone. In reality, it is a reflection of how well – or how poorly – the wider system around businesses is functioning.
Improving productivity needs to start with the system itself. It is about removing the barriers that prevent businesses from operating efficiently in the first place. Speed matters. Certainty matters. Confidence matters.
One of the most common issues I hear from directors is the impact of slow decision-making. Contracts take too long to agree. Planning approvals are delayed. Public sector processes move at a pace that simply does not match the reality of running a business. Meanwhile, costs continue. Staff still need to be paid. Cash flow tightens. In some cases, those delays are the difference between survival and failure. If we are serious about productivity, we cannot ignore that.
There is also a broader issue around mindset and understanding.
Many company directors have never had any formal training in how to run a business. Anyone can become a director, but that does not mean they are equipped with the knowledge to make strategic decisions about investment, productivity or long-term growth. If the people leading businesses do not fully understand productivity, it is unrealistic to expect it to be prioritised.
At the same time, we need to look at the wider economic environment we have created. There is a growing trend of short-term thinking, not just in policy but within business itself. The rise of private equity is one example. Investment models that focus on five-year returns inevitably drive behaviour that prioritises short-term gains over long-term value creation.
That mirrors the challenge we see in government. Short electoral cycles encourage short-term decisions. The result is a system that struggles to support the kind of sustained investment that productivity improvement requires.
Layered on top of this are structural challenges that are particularly relevant in Wales. Infrastructure is one of them. Digital connectivity remains inconsistent, particularly in more rural areas. With remote working and digital business models now increasingly common, that is not a minor issue. It limits where businesses can operate, where people can work and how the economy can grow.
There are also cultural factors to consider. Some of these are historical and deeply embedded. Attitudes towards risk, towards work, and towards long-term ambition do not change overnight. But they do influence behaviour, and ultimately, they influence productivity.
None of this means that productivity is unimportant – quite the opposite. It is critical to long-term economic success. But if we want to improve it, we need to start from where businesses actually are, not where we would like them to be.
That means focusing on the fundamentals.
It means creating an environment where decisions can be made quickly and with confidence. It means improving infrastructure so that businesses and individuals can operate effectively wherever they are. It means supporting directors to develop the skills they need to lead their businesses well. And it means recognising that productivity is not a standalone objective, but the outcome of a system that is working properly.
If we want to have an honest conversation about productivity in Wales, we also need to recognise a simple truth. Many businesses are not thinking about productivity at all.
They are thinking about survival.
In my role, I work with businesses at some of their most challenging moments. I see the pressures they are under day to day. Rising costs, uncertain markets, delays in decision-making, cash flow constraints. In that environment, the idea that business owners are stepping back to consider their contribution to national productivity is, frankly, unrealistic.
The majority of businesses in Wales are SMEs, and many of those are micro businesses. Their focus is understandably on keeping the business going. They are managing wages, overheads and contracts. They are making cautious decisions because the outlook is uncertain. Productivity, as a concept, is often not even on their radar.
And yet we continue to talk about it as though it should be.
There is a clear disconnect between how productivity is discussed at a strategic level and how it is experienced on the ground. Policymakers talk about long-term growth, investment and output per worker. Business owners are dealing with whether a contract will be signed on time, whether a planning decision will come through, or whether they can afford to invest at all.
Until we address those underlying issues, productivity will remain something we talk about, rather than something we achieve.
