Balancing the Skills Equation Addressing Supply and Demand Through Public Policy

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Balancing the Skills EquationAddressing Supply
and Demand Through Public Policy

• Ewart Keep
• Deputy Director
• ESRC Centre on Skills, Knowledge
• Organisational Performance,
• University of Warwick
• Coventry, CV4 7AL,
• ENGLAND
• E-MAIL skopeek_at_wbs.ac.uk

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THE THREE FACETS OF SKILL

• 1. Supply
• 2. Demand
• 3. Usage
• In the UK public policy has fixated on 1, is
  just starting to look at 2, and makes wildly
  over-optimistic assumptions about 3.
• This is counter-productive, as 3 in reality
  tends to determine 2, which in turn tends to
  determine 1.

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STRUCTURE OF THIS TALK

• Quick look at skills supply
• Examination of how demand for skill comes about,
  what determines its type and level, and some
  thoughts about why assumptions about a universal
  need for up-skilling are deeply flawed.
• 3. Some thoughts on skill usage and its
  relationship with skill creation in the workplace
  environment
• Implications for public policy
• Perspectives from England, the wider UK, and
  Scandinavia.

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UK VET AND MORAL PANIC IN PUBLIC POLICY

• Skills as THE key to national competitiveness
• Skills as THE key to performance at firm level
• Skills as THE key to a host of problems
• Unemployment and social inclusion
• Lack of strong sense of citizenship
• Poverty and welfare dependency
• Crime and drug abuse
• Anti-social behaviour
• The current wave of UK concern started in 1976
  and is ongoing. It has been fuelled by
  international comparisons of stocks of skill.
• Bound up with visions of the Knowledge-Driven
  Economy
• These concerns have led to a supply side
  revolution

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SKILLS economic success

• Where does the notion come from?
• The notion that skills are the key to economic
  success has become such a commonplace that the
  origins of the assertion/theory have become
  obscure.
• It does not originate from management literature,
  which generally has relatively little to say
  about skills in any shape or form. Indeed,
  management research tells a very different story.
  
• A reflection of how relatively unimportant skills
  are deemed to be in the great scheme of things
  comes from the MBA syllabus worthy of one
  session, in one optional course.
• The real origin of the idea is a group of
  American economists- Gary Becker (of human
  capital fame)
• Lester Thurrow and Robert Reich
• Human capital theory has been the dominant
  concept in the minds of policy makers working in
  this field.

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BOOSTING SUPPLY TO MATCH OVERSEAS COMPETITORS

• Over the last 25 years England has
• Massively expanded post-compulsory participation
  among the 16-19 age-group.
• Massively expanded its higher education system
• Increased government support for employer
  training, through apprenticeships and now through
  schemes for adult workforce.
• Created a state of permanent revolution in the
  institutional structures that control, manage,
  fund, inspect and deliver VET.
• Centralised the control of the VET system in the
  hands of central government and its agencies.

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SOME WEAKNESSES REMAIN

• Relatively low participation post-17. Reflects
  structure of youth labour market and labour
  market regulation (e.g. absence of a licence to
  practice).
• Adult literacy and numeracy (basic skills)
  problem are quite extensive.
• Employers training efforts are not integrated
  into public VET system. About 5 of employers
  are involved in government-funded VET
  initiatives. Two parallel systems exist
  Employers and State.
• Otherwise, UK has improved its relative position.
  Its workforce does not look enormously
  differently qualified from that in the USA (the
  worlds most successful economy).

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DEMAND FOR SKILLS - CLOUDS IN POLICYMAKERS SKIES

• After a quarter of a century of expanding the
  supply of skills (as measured through
  qualifications), largely at public expense, there
  has begun to dawn a realisation that expanding
  the supply of skills may be a necessary
  precondition for, but on its own is not
  sufficient, to usher in the desired economic and
  social transformation.
• There has been a gradual acceptance that, in
  part, the UKs relatively low levels of VET
  vis-à-vis other developed nations may reflect the
  fact that demand for skill in the UK economy is
  relatively limited.
• A realisation that perhaps training more people
  and supplying more skills is the easy first stage
  rather than the end of the story.
• How has this come about?

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RESEARCH ON DEMAND FOR SKILLS

• One of SKOPEs missions has been to expand and
  integrate work in this field, which has covered
  researchers in strategic management, economics,
  personnel management, HRD, and sociology.
• There have been a number of foci for research
• Links between product market strategy, product
  specification and skill need.
• Links between HRM/employee relations systems and
  business strategy and skill needs
• Links between HRD strategies and HRM strategies
• What do they tell us?

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BUSINESS STRATEGY, PRODUCT MARKET STRATEGY,
PRODUCT SPECIFICATION AND SKILL

• The NIESR matched plant comparisons
• Keep and Mayhew on alternative routes to
  competitive advantage
• Finegold, Soskice and the Low Skills Equilibrium
• Mason and Low Skills Trajectories
• Significant parts of the economy appear locked in
  to producing relatively low specification, lower
  quality goods and services that do not require
  high levels of skill to deliver them.
• Hogarth and Wilson and the DTI study
• SKOPE and the Employers Perspectives Survey
• RESEARCH CONCLUSION
• Higher product or service specification/quality
  is positively associated with the need for higher
  levels of skill. However, the link is not always
  simple and direct, and may impact on different
  parts of workforce with varying force.

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DEMAND FOR SKILLS IS DETERMINED BY.

• Product market strategy
• Market segmentation strategy
• Value proposition you offer customers
• Product/service specification
• Quality/customer service standards you aim to
  deliver
• Work organisation
• Job design

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PROBLEMS WITH BUSINESS STRATEGY

• The results of 30 years of research
• Many firms lack well developed strategies they
  have some numerical targets.
• The links between business strategy (where it
  exists) and HR/people management strategies is
  often very weak.
• The links between HR strategies and training and
  development strategies is often very weak.
• HR specialists have limited impact on the
  formulation of organisational strategy. Training
  specialists generally have none.

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SKILLS AS A 4th ORDER ISSUE

• In most organisations, skills are a 4th order
  issue.
• 1st Order
• Competitive and product market strategy
• 2nd Order
• Organisational structure to deliver 1
• 3rd Order
• Work organisation, job design and people
  management systems
• 4th Order
• Skills required
• THE KEY QUESTION FOR POLICY
• How do measures aimed at boosting the supply of
  skills, impacting on a 4th order issue which has
  weak linkage to organisational strategy, produce
  a step change in 1st order product market
  strategies and firm performance?
• Can skills alone achieve a step change in
  business performance and competitiveness?

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THE PORTER REPORT

• Michael Porter and colleagues were commissioned
  to report on the health of the UK economy. They
  concluded
• The UK currently faces a transition to a
• new phase of economic development.
• The old approach to economic development
• is reaching the limits of its effectiveness,
• and government, companies and other
• institutions need to rethink their policy
• priorities..We find the competitiveness
• agenda facing UK leaders in government
• and business reflects the challenges of
• moving from a location competing on
• relatively low costs of doing business
• to a location competing on unique
• value and innovation.
• (Porter and Ketels, 2003 5)

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THE PIU WORKFORCE DEVELOPMENT PROJECT

• The Prime Minister commissioned the Cabinet
  Offices Performance and Innovation Unit (PIU) to
  undertake a follow-up to the NSTF. Its aim was
  to address some fundamental issues left hanging
  by the NSTF.
• The PIUs inquiry reached conclusions that
  changed the fundamental direction of VET policy.
  It argued that
• Weak demand for skill was as much a problem as
  poor supply.
• Besides possible market failure, there was also
  systems failure underpinning a partial Low Skills
  Equilibrium in the economy.
• Skills are a derived demand derived from and
  driven by business need.
• The key for policy was to impact on business
  strategy
• Workforce development needs to be
• addressed in the wider context of
• government and business strategies
• towards product strategy, innovation,
• market positioning, IT, human resources
• policies and so on.

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IMPACTING ON DEMAND FOR SKILL A MULTI-LAYERED
APPROACH

• As the Treasury emphasises, there are several
  drivers of economic success, of which skills are
  but one.
• Unless the UK economy is characterised by
• High levels of RD and innovation
• High levels of capital investment in plant
  equipment
• High quality public infrastructure, including
  communications and transport
• Readily available sources of patient and
  knowledgeable capital
• A domestic market for goods and services that
  demands high levels of product quality,
  specification and customisation
• A domestic income distribution and public
  purchasing policy that can support point 5 above
• Higher levels of skill supply on their own may
  have very limited effects on economic outcomes.

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IF THESE ARE THE PROBLEMS, WHAT ARE THE SOLUTIONS?

• Traditional
• Supply more skills
• Emergent
• Supply more skills AND simultaneously
• seek to help firms to move up market, become
  more profitable,
• increase productivity,
• develop new markets,
• organise work differently,
• and use skills better.

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SKILLS AS ONE COMPONENT IN LEVERAGING
IMPROVEMENTS IN BUSINESS PERFORMANCE

• Skills Supply
• Business Support to Firms
• Cluster, Network Supply Chain Development
• Innovation Policy
• Public support for RD
• Efforts to spread usage of ICT
• Regional Economic Development Strategies
• Key Policy Goal
• Engineering Mutually Supportive Interaction
  between the three components

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IMPLICATIONS FOR AGENCIES

• Multi-agency working is essential.
• Targeted Support Rather Than One Size Fits All
• Different firms will have very different
  requirements in terms of skills, innovation and
  business support needs.
• Different sectors
• Different product market strategies
• Different market niches
• Different levels of people management
  sophistication
• Different production technologies
• Different phases of business development
• If time, energy and resources are finite, where
  should they best be directed?
• Towards those already on the high road, or at
  those making the least progress?

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IMPLICATIONS FOR GOVERNMENT

• Whatever policies are adopted, the need is for a
  long term view.
• There are no quick fixes.
• A substantial adjustment to product market
  strategies might take 10-15 years.
• The kind of transformation being aimed at
  requires considerable political commitment (at
  national, regional and local level) and will need
  buy in from a wide range of actors.

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SKILL USAGE THE MISSING PIECE OF THE PUZZLE

• Skills deliver enhanced organisational
  performance within contexts set by the
  organisation. We know that different forms of
• Employee relations context
• Work organisation context
• Job design context
• Will materially impact on how productively
  enhanced skills can be deployed. Looking at the
  stock of skills tells us little about how they
  are being deployed.
• If the context is poor, skill usage may be
  inefficient, and productivity benefits from
  skills smaller than expected.

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Skills and the Black Box of Utilisation
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THE UK CONTEXT

• Chartered Institute of Personnel and Development
  study in manufacturing
• The current managerial approaches to job design
  are counter-productive.the types of impoverished
  job we see in manufacturing organisations up and
  down the country represent waste, on an enormous
  scale, of the resources, intelligence, skills and
  energy of those required to perform them.
• Recent Workplace Employee Relations Survey showed
  no signs whatsoever that high performance work
  organisation is spreading across UK economy.
  Take up has been static since 1998.
• More skills may therefore be wasted.

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TAYLORISM AND FORDISM ALIVE AND KICKING

• Despite talk about a Post-Fordist world and an
  end to Taylorised work patterns, evidence
  suggests that much work in the UK continues to
  have
• A low skill content
• Highly routinised patterns
• Low discretion
• Low autonomy
• Short job cycle times
• Hierarchical organisation
• Supply more skills, of itself, may do little to
  change this.

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DECLINING TASK DISCRETION

• If one element of being skilled is control over
  how you do your job, the UK workforce is in
  trouble.
• The 2nd Skills Survey (2001), showed that
• Between 1986 and 2001 there was a 14 per cent
  decline in the proportion of workers who felt
  they had a great deal of choice over how they did
  their work.
• The fall was sharpest for professional groups
  (knowledge workers), from 72 per cent in 1986 to
  just 38 per cent in 2001.
• Rising skill levels, as proxied by
  qualifications,
• have not been accompanied by a rise in job
  control, quite the reverse.
• This begs questions about how skills get used.

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POOR JOB DESIGN, POOR USAGE ISSUES FOR SKILLS
SUPPLY

• 2001 (UNPUBLISHED) Scottish Adult Literacy
  research showed that
• Reading skills
• Across the Scottish workforce, the following
  percentages
• of workers rarely or never use
• Info from computers 34
• Letters or memos 26
• Bills, invoices, spreadsheets 35
• Diagrams 31
• Manuals, reference books 53
• Reports, articles, magazines 52
• Foreign language material 91
• 27 of the workforce indicated ...
• rarely or never to five or more of above
  items.
• What price for boosting adult literacy skills?

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OVER-QUALIFICATION

• In Britain, among 20-60 year-old employees, the
  proportions holding qualifications at levels
  higher than needed to obtain their current job
  were
• 1986 29
• 1992 33
• 2001 37
• SOURCE 2nd Skills Survey
• Increasing skill supply and skill stocks may look
  good in international comparisons,
• ... but how many of the skills get used?

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ITS USAGE NOT SUPPLY

• As the national employers confederation put it in
  their submission to a Scottish Parliament
  inquiry
• As the CBI Scotland report Competitive
• Scotland showed, Scotland already has
• a more highly qualified workforce than
• the rest of the UK but appears to derive
• no consequent labour productivity boost
• from it. This should remind us that simply
• increasing the volume of learning will not
• automatically improve economic performance.
• What matters is the extent to which individuals
• possess competencies which can add value
• and how these competencies are deployed in
• work or enterprise situations.

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LABOUR MARKET REALITIES

• On EU definitions, about 25 per cent of the UK
  workforce is low paid
• The labour market is polarising
• (the hourglass economy), with more managerial
  and professional work, and more low paid, low end
  work.
• The proportion of workers who will receive
  in-work tax credits is set to rise.

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TIME TO OPEN UP THE BLACK BOX

• Public policy has tended to treat the firm as a
  black box. VET policy has centred on injecting
  more externally provided skills into the box and
  assuming that more and better outputs will emerge
  at the other end.
• The limits of what can be achieved via this route
  are being reached. Attention now needs to shift
  to how skills get used, and how this usage might
  be improved.

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WORK ORGANISATION, JOB DESIGN AND SKILLS TWO WAY
INTERACTION

• There is a complex set of interactions between
  product market strategy, product/service
  specification, employee relations systems and
  procedures, work organisation and job design, and
  these interrelationships are important for skills
  in two ways
• They determine what types, levels and volumes of
  skill are required, and how skill will need to be
  distributed across the workforce.
• They have a very significant impact in
  determining what kind of a learning environment
  the workplace will provide.
• Thus both demand for, and the internal capacity
  to create skills, tend to be inextricably linked
  to how the organisation chooses to compete, what
  kinds of goods/services it aims to supply and the
  manner in which the productive process is
  organised.

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THE WORKPLACE AS A LEARNING ENVIRONMENT

• Research shows that informal learning in the
  workplace exceeds formal learning, and that this
  informal learning is important to productivity.
• In the main, people learn through
• Participation in group activities
• Working alongside others
• Tackling challenging tasks
• Problem solving
• Working with clients (internal and external)
• Some workplaces offer expansive learning
  environments
• Others are restrictive learning environments.

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CAPACITY BUILDING

• If more and better workplace learning is to take
  place, capacity building is essential.
• Many organisations lack adequate training
  capacity in terms of
• Trained and competent trainers
• Clear knowledge of what skills their employees
  possess
• Ability to assess training need
• Ability to design appropriate training
  interventions
• Ability to build learning opportunities into work
  organisation and job design
• Managers and supervisors with appropriate
  coaching and mentoring skills
• Changing this is a big challenge!!!

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LESSONS FROM THE FINNISH WORKPLACE DEVELOPMENT
PROGRAMME

• Specific policy concerns
• sluggish productivity in traditional sectors
• small rapidly ageing workforce, labour shortages,
  need for sustainable productivity growth
• Still many jobs with neo-Taylorist features
  (high work strain, limited opportunities to
  deploy skills and capabilities)

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Work Organisation Job Design Framed within a
National Innovation System

• Comprised of
• labour market regulation
• industrial relations system
• corporate governance arrangements
• technology transfer
• regional policy
• education and training provision

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THE PROGRAMME

• Started 1996, now in third phase
• Initiated by Ministry of Labour, and managed on a
  tripartite basis
• AIM To improve productivity and the quality
  of working life by furthering the full use
  and development of staff know-how and
  innovative power at Finnish workplaces.
• Funds use of external experts (researchers,
  consultants) in various development projects
• Projects should strive for balanced development
  between productivity and QWL, holistic change in
  organisations entire mode of operation, and
  involve the whole workforce

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DOES THE PROGRAMME WORK?

• Official evaluations suggest successful outcomes
  at project level

Source Ramstad (2002) BUT Reliance on soft
measures positive bias
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DEVELOPING RESEARCH CAPACITY TO SUPPORT WORKPLACE
DEVELOPMENT

• Some universities started doing this in the late
  1980s
• 2003 130 RD units and 1700 researchers involved
  in workplace development
• Uneven regional distribution
• Differences in quality and research methods of
  units
• Leading-edge examples include
• Work Research Unit at University of Tampere
• Centre for Activity Theory and Developmental Work
  Research at University of Helsinki
• Takes considerable time to develop this kind of
  research expertise

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THE DIFFUSION PROBLEM The role of Learning
Networks

• How do you spread the lessons from individual
  projects?
• Cant implement someone elses best practice,
  therefore
• back to organisational fit again.
• Learning from differences
• Role of learning networks or development
  coalitions
• E.g. The Municipal Quality Network

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CONCLUSIONS

• The challenge of designing interventions that
  can impact on
• Product market strategies
• Goods and service quality and specification
• Investment strategies (plant, RD, product
  development)
• Production/service delivery systems
• Employee relations
• Work organisation
• Job design
• In order to create higher demand for, and better
  usage of, the skills being supplied.

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THE CONCLUSIONS OF NORWEGIAN POLICY MAKERS

• It is not how much knowledge employees have, but
  what they collectively manage to do with that
  knowledge, that drives value creation
• The main message.is that knowledge resources
  are enhanced through use
• knowledge and skills must be activated
• and put into play in order to create future
• growth and social welfare. Work organisation
  plays a key role in this respectthis approach
  is challenging, as it forces us to establish a
  closer connection between competence policy and
  other important areas such as industrial policy,
  innovation and labour market policy.
• Competence Report 2003.

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DIFFERENT SOLUTIONS FOR DIFFERENT SECTORS AND
FIRMS

• Tailor-made solutions rather than blanket
  solutions
• Joined up design and delivery of business support
  and skills support.
• Developing expertise among advisors
• Helping and encouraging industry to help itself.