SKILLS UTILISATION
Context
1. The Scottish Government's Economic Strategy outlines the vision for creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth. To measure the success of this aim the government has published strategic targets. Two of these targets relate to economic growth and productivity.
· To match the GDP growth rate of the small independent EU countries by 2017.
· To rank in the top quartile for productivity amongst our key trading partners in the OECD by 2017.
2. In the long term, economic growth is driven by productivity growth. There is compelling evidence to suggest that the four key ways to improve productivity are by increasing investment, skills, innovation and enterprise.
3. There are two targets in relation to skills that are relevant:
· Ensure a funding system for further and higher education through the Scottish Funding Council that is responsive to the needs of individuals, employers, and the wider economy; and
· Focus on working with employers and employees to increase the effective utilisation and demand for skills.
Introduction
4. There is strong evidence to suggest that there is a link between increasing skills and productivity. This is one of a number of reasons why there has been renewed government focus in recent years on widening participation to higher education and encouraging more people to gain qualifications.
5. However, it does not matter how skilled the population is unless there is demand from businesses for these new higher skills. Moreover, the firm needs to ensure that the jobs undertaken by workers makes efficient and effective use of their skills.
6. This is more likely to be achieved by ensuring that decision makers in firms (i.e. the managers and executives) have the skills and knowledge to make the best use of the improved supply of quality labour. However, there is also evidence to suggest that for effective skill utilisation it is necessary to consider a range of measures including job re-design, complimentary HR policies and capital investment.
Low Skill Equilibrium
7. Past research has highlighted concerns that Britain was trapped in a low skills equilibrium. Finegold & Soskice (1988) argued that manager's decisions to adopt a 'low road' to work organisations is perfectly rational given the short term financial markets, adversarial industrial relations and poor skills in the labour market. Hence, institutions within British society reinforced a low demand for skills, where untrained managers run the majority of firms with workers who produce low quality goods and services. Even if the quality of the labour supply improves, unless firms take account of this in planning, their business strategies will not help firm productivity.
8. The evidence indicates that Scotland's labour quality compares favourably with the world's best performing economies. Therefore, and arguably, the quality of human capital is not a leading cause of Scotland's relatively low ranking in the economic performance league tables (Futureskills Scotland).
9. The above statement indicates that there are reasons for poor productivity performance other than the supply and quality of labour.
Management
10. Management decisions on investment and management practices affect how assets (including employees) and resources are used. Recent research by McKinsey and the London School of Economics (LSE) indicated that a 10 per cent increase in managerial practice is associated with a 5 per cent increase in productivity. There is also evidence to suggest that the UK lacks managerial skills when compared to the US.
11. In Scotland 53.9 per cent of those in professional occupations had a qualification above SVQ level 4 compared to 34.6 per cent of managers. Moreover, more of those in managerial occupations had qualifications at SVQ levels 3 & 4 than above SVQ level 4 (the opposite is true for professionals).
12. In the latest Futureskills Scotland report, Skills in Scotland 2006, the vacancy rate for managers and senior officials was 2 per cent of which 65 per cent were hard-to fill and 57 per cent were skill shortage vacancies. This is relatively high and is different from the results of previous years when hard-to-fill vacancies among managerial staff were relatively uncommon. In the report, of all the firms which report skills gaps in their management staff, 63 per cent of firms cite strategic management skills as being deficient.
13. Overall the data suggest there may be a lack of appropriately skilled managers.. It may also be the case that surveys do not pick up the whole picture. For example, firms may accept that their managers are effective but it does not change the fact that they may still not compare favourably with counterparts from other countries such as the US.
Capital Investment
14. Matched plant studies have illustrated that - on the whole - in countries with higher skill levels, firms are better able to adapt, exploit and boost technology. In the UK, firms are reported to be more reluctant to invest in technology, thereby the skills of staff are not possibly being fully utilised, at least in respect to technology. [1]
15. In recent research [2] it was shown that in Scotland 73.5 per cent of employees used computerised or automated equipment compared to 82.4 per cent in London and 81.3 per cent in the South East. Indicating that technology is not exploited to the same extent in Scotland as elsewhere.
16. However, further research might need to be undertaken looking at the link between skills and capital investment.
Skills Utilisation
17. The concept of skills utilisation considers the systems, processes and policies inside the firm. Previous thinking has sometimes been restricted to skills in and output out. However, there is now a general acceptance that we need to consider how skills are used when output is produced. The skills utilisation agenda considers everything in between skills going in and output coming out, and challenges policymakers and firms (both employers and employees) to find better ways to use skills to improve productivity. Therefore, while up-skilling the workforce has been - and remains - crucial to improving our economic prospects, there has to be just as much focus on getting the best out of those skills.
18. When considering this research several questions need to be asked.
· Do firms know what skills their employees have?
· Are these skills right for the job?
· Are those skills appropriately used: if not why not? Are people being under-utilised?
· Is there best practice in skills utilisation?
Appropriate Use of Skills
19. One way to measure if graduate skills are being used effectively is to ask whether the job they are doing needs that level of qualification. Two thirds of employers surveyed in Scotland who had hired a graduate stated they would have considered applicants without a degree. One interpretation of this is that graduate skills may not be effectively used or, to put it another way, many employers are not fully aware of the capabilities of graduates and how their skill-set differs to that of a non-graduate.
20. There is a dearth of research discussing whether firms know what skills their employees have, and if they are used appropriately for the job.
HR Policies
21. There is evidence to suggest that positive HR practices can impact firm performance and help to ensure effective skills utilisation. A longitudinal study for the Chartered Institute for Professional Development on UK medium sized manufacturing businesses finds that 18 per cent of the variations in productivity and 19 per cent of variation in profitability are accounted for by people management practices.
Job Design
22. One area linking HR, skill utilisation and performance is job design. In Finland there have been endeavours at developing new forms of work organisation. One example in the 1990s was a development project aimed at municipal meal services. This project involved the kitchen workers in planning of menus, purchasing and budgeting - examples of skills utilisation. It generated improvements in productivity but also helped boost staff motivation by making the job more involving and meaningful.
23. When reviewing similar projects in Finland, Kalliola & Nakari (1999) conclude: these projects demonstrate 'how reliance on personnel's own problem solving potential may bring substantial cost reductions and increase customer satisfaction without having to compromise on the quality of working life.'
24. Research has suggested that the full benefits of workforce development and raising skill levels are only realised when bundled together within a greater array of packages of workplace changes, re-organisation and human resource practices.
Conclusion
25. Based on the evidence found, is the best way to improve skills utilisation to:
· Improve the skills of managers?
· Encourage the spread of best practice human resource management?
· Encourage firms to consider how jobs can be re-designed to make use of employees skills, e.g. problem solving?
· Encourage firms to make appropriate capital investment decisions?
[1] Bloom et al. Solving the skills gap. 2004
[2] Felstead etal. Skills at Work 1986-2006. 2007