Published on 10 October 2024
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Why technology alone won’t solve the UK’s productivity puzzle

Despite the promise of digital transformation, UK productivity has flatlined for over a decade. While some businesses excel by harnessing the latest technologies, many remain stuck in low-productivity cycles. Through insights from Chief Information Officers, in her latest research Nina Jörden explores why technology has failed to close the productivity gap and what cultural and structural changes are needed to foster widespread growth.

When you listen to business leaders, consultants, and economists these days, the air is filled with excitement about the transformative power of new technologies. Automation promises to eliminate repetitive tasks, digital tools streamline communication, and AI systems enhance customer experiences — all of which, in theory, should help solve the long-standing UK productivity puzzle.

Yet, despite these technological leaps, the expected surge in productivity has not materialised yet. UK productivity has remained stagnant for over a decade, lagging behind key competitors like the United States (US), Germany, and France, and finding itself in the bottom half of the rankings compared with OECD (Organisation for Economic Co-operation and Development) countries.

A closer examination of the UK’s productivity data exposes a profound and troubling divide:  At one end, we find a small group of high-performing businesses that are effectively harnessing the latest technologies — AI, automation, and data analytics — to enhance their productivity and sharpen their competitive advantage. These firms are outpacing their competitors by a wide margin, with the top 10% of UK companies achieving productivity levels that are more than double the national median.

At the other, a much larger group of businesses remains stuck in the lower tail of the UK’s productivity spectrum. A possible explanation is the failure of “technological trickle-down”—where innovation at the frontier is not reaching the wider economy. As a result, a small elite is surging ahead while the majority struggles.

The extent of this productivity gap in the UK is particularly worrying. In comparable economies such as Germany or France, the gap between high and low productivity companies is smaller, with more companies operating closer to the frontier. This divergence likely explains much of the productivity stagnation in the UK over the last decade. Therefore, the problem is not just low overall productivity, but uneven distribution, where growth is concentrated to a few while the majority continues to lag behind.

Thus, the challenge is clear: how do we accelerate adoption and remove the barriers preventing more widespread use of these powerful digital tools to foster growth across the board?

Our research, supported by The Productivity Institute, focuses on the barriers to digital adoption in ‘digital immigrant’ firms. By interviewing thirteen Chief Information Officers (CIOs) from sectors like retail, construction, and financial services in 2023, we examined how these firms — rooted in traditional business models — struggle with integrating digital tools. The CIOs provided insights into key obstacles: cultural resistance, skill gaps, and misaligned strategies.

1. Misunderstanding productivity vs. efficiency

A common issue that emerged is a fundamental misunderstanding within organisations about the difference between productivity and efficiency. Many CIOs observed that their firms remain fixated on cost-cutting and short-term gains rather than focusing on long-term innovation. This approach leads to digital tools being used primarily to boost efficiency — automating tasks, reducing overheads — while neglecting the broader, transformational potential that these technologies offer for sustained productivity growth. CIOs stressed the need for leadership teams to move beyond this narrow focus, integrating technology into their broader business strategies and creating an environment that fosters innovation, rather than simply driving down costs.

2. Employee engagement and continuous learning

CIOs emphasised the critical role of employee engagement and training in maximising the impact of technology investments. Training is frequently treated as a secondary priority, leading to poor uptake and limited impact. This issue is exacerbated when engagement and training are inadequately considered during the preparation of business cases, resulting in their underestimation in project budgets. This oversight can result in underestimating the true costs of implementation, stretching resources too thin and reducing the effectiveness of the technology. As a result, employees may resist new tools, either due to insufficient understanding or inadequate preparation. CIOs stressed that continuous learning and development are essential to equip staff to adapt to technological changes. Without this focus, even the most advanced tools can be underutilised, preventing organisations from fully realising the productivity benefits they aim for.

3. Management disconnect and strategic alignment

A recurring issue in our research discussions with CIOs was the disconnection between technology initiatives and broader business objectives. They pointed out that this often stems from specific management failings, particularly among senior leadership, where a focus on short-term efficiency gains frequently overshadows the need for long-term innovation. This imbalance results in technology investments being inadequately integrated into the wider business strategy. Rather than being positioned as a driver of transformation, technology is too often deployed as an isolated operational fix. Consequently, implementation suffers, and the organisation misses key opportunities to harness digital tools for meaningful productivity gains.

4. Rigid organisational structures, budgeting constraints, and financial oversight

Another significant barrier identified by CIOs is the combination of rigid organisational structures and conservative financial oversight. These factors together present a major obstacle to effective digital transformation. CIOs highlighted how traditional hierarchies slow down decision-making, often requiring multiple layers of approval before any investment in new technology can be made. This rigidity makes it difficult for firms to be agile and responsive, leaving them unable to capitalise on emerging digital opportunities in a timely manner.

Adding to this, financial oversight from Chief Financial Officers (CFOs) often imposes tight controls on technology budgets. CIOs noted that CFOs tend to prioritise short-term cost savings over long-term investments in innovation. This narrow focus not only limits more ambitious digital projects but also leads to the underestimation of training and engagement costs in financial planning. As a result, inadequate resources are allocated for the training necessary to ensure successful technology adoption. While financial discipline is important, an excessive focus on short-term efficiency can stifle both innovation and the development of the skills needed for lasting productivity gains.

Taking action: practical ways to drive productivity with digital tools

While the barriers to digital adoption may seem significant, from our conversations we have identified practical, small-scale actions that organisations can take to start bridging the gap between technology and productivity.

1. Start regular technology-strategy meetings

One of the most practical ways to address the disconnect between technology initiatives and business goals is to establish regular, focused discussions between CIOs and department heads. These meetings, held monthly or quarterly, should specifically explore how ongoing or upcoming technology projects align with the company’s broader strategic goals. The objective is to create a shared understanding of how technology investments contribute to long-term productivity rather than just short-term gains. By building this dialogue, firms can ensure that technology decisions are fully integrated into their overall business strategy.

2. Launch micro-learning sessions for new technologies

Employee engagement with new technology does not necessarily require large, time-intensive training programmes. A more effective approach is to begin with small, focused micro-learning sessions lasting 15-30 minutes. These sessions, tailored to a specific team or department, should go beyond merely explaining the features of a tool. Instead, they should highlight how digital tools enhance the daily workflow of the people using it.By making the benefits clear and relevant to their roles, employees are more likely to adopt and embrace the new technology, helping to drive the productivity gains it promises.

3. Pilot a productivity-first technology project

Select one digital tool and focus its implementation on a small team or department, explicitly with the goal of improving productivity. Set clear, measurable goals — whether that’s streamlining collaboration, improving workflow efficiency, or enhancing customer service — and track the outcomes closely. This focused pilot project allows the company to see tangible productivity gains in a controlled environment before scaling the initiative across the business. By showing early success, the initiative can help shift the company’s broader focus toward using technology as a productivity driver.

By implementing these practical steps, businesses can begin to build a culture where technology is more closely aligned with strategic goals, creating a foundation for larger, more transformative changes in productivity.

The insights from CIOs provide a vital perspective on why the anticipated productivity gains from technology investments have not materialised across much of the UK economy. What emerges is not simply a lack of digital tools but a broader organisational challenge — a gap in leadership vision, an underinvestment in skills, and a misalignment between financial controls and innovation goals. These issues collectively stifle the transformative potential of technology, leaving many firms stuck in a cycle of efficiency-driven cost-cutting, rather than unlocking long-term productivity growth.

The UK’s productivity puzzle cannot be solved by technology alone. What is needed is a cultural shift within businesses, where technology is embedded into the heart of strategic decision-making, and where leaders are willing to invest in both their people and processes to realise the full potential of digital tools. Only by addressing these deeper structural and managerial issues can the UK hope to close the widening productivity gap and create an economy that fully harnesses the power of innovation.

Read the working paper: Navigating the productivity paradox: strategic insights from Chief Information Officers


The project, funded by the Business Innovation Grant for “Strategic Productivity for Business Functions and Leadership Teams 2023,” was carried out with support from The Productivity Institute, funded by the Economic and Social Research Council [grant number: ES/V002740/1]


The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.

Authors

Dr Nina Jörden

Research Associate at the Bennett Institute for Public Policy

Dr Nina Jörden is a Research Associate at the Bennett Institute, specialising in the study of organisational structures, processes, and practices. Her research is driven by three central themes: Her...

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