Aerospace is a great British success story. While the UK economy has struggled to achieve any productivity growth since the global financial crisis, this is not true for the UK aerospace sector.
Productivity per worker in the UK aerospace industry has increased by 50% between 2009 and 2016, while at the same time direct sector employment has grown by 14,000 people1. Productivity in the UK aerospace sector is now 40% higher than the wider UK manufacturing sector and is the highest in Europe – UK aerospace productivity is 20% higher than the aerospace sectors in both France and Germany2.
However, this story is not shared by all companies in the aerospace sector. Recent survey data from ONS covering all manufacturing sectors in the UK, highlighted by The Economist3, showed a strong correlation between a company’s ownership structure and its level of productivity. Family-owned and managed businesses perform worse than all other categories of business governance in terms of productivity, whereas non-family-owned and managed businesses and multinationals performed almost 50% better.
The question then is: what are the qualities of these ownership models that are driving the difference, and what can be done address them? Without further investigation it is difficult to be certain. One explanation is that family businesses are usually motivated by very different things – stability, lifestyle, continuity of family ownership etc. Many family owned business perform highly specialised roles and may lack the funding required, or the competitive or investor pressure to innovate and expand.
Another factor highlighted in the ONS data concerns scale. For all firms, irrespective of ownership and governance model, productivity increases with the size of the firm. This points to other potential root-causes of low productivity performance – economies of scale, ability to reinvest and undertake R&D, etc.
Unfortunately, data on company ownership and productivity cannot be isolated for aerospace. However, it is possible to contrast productivity by enterprise size within the UK aerospace sector. This shows that productivity at small and medium-sized enterprises (SMEs) is less than half of the sector average.
Some of this productivity gap could be explained by the dynamics of family ownership as above, but scale and nature of activity that goes with it will also have a major influence. This points back to a problem previously highlighted by the ATI, that UK industry including aerospace has a structural ‘missing middle’, a lack of mid-size companies that are expanding, competitive and challenging the innovation frontier4.
Sir Charlie Mayfield’s 2016 productivity review calls on businesses to strive to be better. It identifies leadership, management, measurement, innovation, digitalisation and governance as essential areas for improvement. For family owned and small businesses, these are challenging topics to embrace.
ATI is supporting small aerospace businesses to invest in technological innovation. In the past year, ATI has committed £8m of grant funding to the National Aerospace Technology and Exploitation Programme (NATEP). It is also funding over 100 SMEs through larger collaborative projects and plans are in place to launch more funding competitions targeting innovative small and medium companies.
However, other aerospace supply chain productivity improvement programmes focused on leadership and management capabilities are needed. Sharing in Growth (SiG) and 21st Century Supply Chains (SC21) aimed precisely at these issues but have now exhausted their funding commitments. The continuation of these initiatives is essential to the addressing the UK’s productivity challenges in advanced manufacturing.
Peter Willis, the ATI’s Senior Economist, said:
These statistics all highlight the importance of investing in supply chains to help improve productivity. The ATI will continue to encourage technical-innovative SMEs to participate in the UK Aerospace R&T Programme, whether as partners in strategic projects or in the NATEP programme.
1 ATI Analysis of ONS – Annual Business Survey and National Accounts Data 2016
2 ATI Analysis of Eurostat – Structural Business Statistics Data 2015
3 Economist – Family-owned firms hold part of the answer to the productivity puzzle – December 2017
4 ATI – Raising Ambition for UK Industrial Strategy Lessons from Innovation in Aerospace – November 2016