3. Foreword
In my foreword to our last Economic Outlook report, in October 2011, I wrote that
“managers and leaders clearly perceive the British economy to be on the verge of
a double dip recession”. We now know that the economy did indeed contract in the
months that followed, and the UK has slipped back into recession.
What is more, the GDP figures are only part of the story. The eurozone has experienced a
rolling crisis in recent months and many analysts would not yet discount the possibility of
eurozone fragmentation. Here in the UK, the latest inflation figures suggest that consumer
demand will remain muted. Unemployment remains high, despite recent welcome signs
of improvement – and the cost of energy remains a major source of concern.
It is evident that a large part of management opinion remains deeply wary of such a
toxic mix. A persistently high percentage of the managers surveyed for this series –
over 80 per cent – report that these conditions are having a detrimental effect on their
organisation. Managers expect their organisation’s investment to be limited or reduced
in many categories. Some companies have developed substantial cash surpluses and
it is evident that many managers remain deeply cautious about how best to use them.
Yet there are also signs that the worst may be behind us. Optimism about the next six
months has increased, particularly in the private sector. Time will show whether this
optimism translates into real economic activity, supported by an expansion in demand
and investment decisions that promote growth. Official predictions for growth are at
levels that would have been regarded, for much of the last decade, as anaemic – yet
would, in the current situation, be very welcome. We all need to adjust our expectations.
If the supply of financial capital is limited, then I believe we must refocus on our human
capital. That means the skills of our people: and there are few skills more important
than management and leadership when it comes to critical challenges like cutting costs,
cultivating innovation and maximising new opportunities. Yet this survey shows that
management skills shortages are an increasing source of concern – and 79 per cent
expect their budgets for management and leadership development (MLD) to be capped
or cut this year. When recent research has shown that effective development improves
organisational performance by 23 per cent1, these findings suggest a lack of investment
in MLD will continue to harm UK economic performance.
Indeed, our members support policy measures to build human capital, such as tax
breaks to incentivise employer investment in skills, as well as measures to release more
financial capital to business by improving bank lending. Government has an important
role to play in setting the right policy framework.
I hope that, in six months’ time, we are no longer talking of recession but of a steady
return to growth.
Christopher Kinsella
Acting CEO, Chartered Management Institute
1 The Business Benefits of Management and Leadership Development, McBain et al, CMI, February 2012 www.managers.org.uk/MLDbenefits
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4. Summary of findings
The UK economy •• Impact of the current state of the economy – 83 per cent of managers report that
the state of the economy is having a negative impact on their organisation. This number
has held steadily above 80 per cent since March 2009. Only six per cent think that the
state of the economy is beneficial to their organisation, with the remaining 10 per cent
suggesting that it has no impact.
•• Impact of the economy by sector – managers from the public and not-for-profit
sectors are most negatively affected by the economy with 92 per cent and 91 per cent
reporting a damaging impact on their organisation. This is lower, but still high, among
private sector managers (78 per cent).
•• Economic growth over the next 12 months – managers are pessimistic about the
direction of a number of key macro-economic indicators. Over the next 12 months
they expect reductions in the rate of GDP growth, consumer spending and levels of
employment, and they predict that business insolvency, household debt and the cost
of credit will increase.
UK organisations •• Employer optimism – managers’ reservations about the prospects for the wider
economy are reflected in their assessment of the prospects for their own organisations.
It is still the case that more managers feel pessimistic than optimistic about the outlook
for the next six months, with a net score of -4 points, despite an improvement from
-20 six months ago.
•• Long term outlook – managers’ opinions are more positive about their prospects over
the next three years, with a net score of +26, a ten point increase on our last survey.
•• Improved private sector optimism – the differences between managers in different
sectors are stark. Among public sector managers, the net score is -35 over a six month
period, rising only to -25 when looking ahead three years. By contrast, private sector
managers give a net optimistic response both in the short and the longer term, rising
from +11 when considering the next six months, to +53 for the three year net score.
•• Employer investment – managers suggest that employer investment over the next six
months will decrease in many business areas, with marketing and business development
the only categories where spending increases are more commonly expected. Thirty-five
per cent expect cuts in training and development and 32 per cent expect cuts in
management and leadership development activities, despite skills shortages being
highlighted as having a damaging impact on businesses.
•• Focusing on costs – the most common management response to economic conditions
over the last six months has been to cut costs. Fifty-seven per cent of managers report
pay freezes, 50 per cent an attempt to reduce business overheads and 49 per cent a
recruitment freeze in their organisation.
•• Availability of finance – 93 per cent of managers report that the availability of finance
for both short-term needs and long-term investment has deteriorated or remained the
same over the last six months.
•• Damaging economic factors – 67 per cent of managers think the high cost of energy
will have a detrimental impact on their organisation over the next six months. The level
of government debt is seen as the second most common barrier to growth, reported by
81 per cent of public sector managers as having a damaging impact on their organisation.
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5. UK managers •• Job security – job insecurity continues to be an issue with 43 per cent of managers
feeling insecure in their current job, although this is down from 48 per cent. Insecurity
rises to 60 per cent in the public sector.
•• Morale – employee morale continues to suffer with 64 per cent of managers reporting
that it has got worse over the last six months.
Policy measures •• Austerity measures – 59 per cent of those surveyed report that the Government’s
austerity programme is having a damaging impact on their organisation. This rises to
83 per cent in the public sector and falls to 45 per cent in the private sector. Despite
the concerns over its impact, an increasing number of managers report that the
Government’s deficit reduction strategy is being implemented ‘at about the right pace’
(up to 43 per cent from 39 per cent six months ago).
•• Skills development – 82 per cent of respondents would like to see tax breaks given
to employers for investing in skills. Managers’ understanding of the importance of skills
development is also seen in the fact that 81 per cent support the expansion of funding
for apprenticeships, while 67 per cent call for greater employer influence over public
investment in skills.
•• Taxes – 91 per cent of managers support the simplification of business taxes. A bespoke
capital allowance scheme for SMEs is also popular among managers, with 70 per cent
supporting this policy. Access to credit remains a real concern to managers with 84 per
cent urging Government to strengthen measures to improve bank lending to businesses.
•• Infrastructure – a clear majority of managers feel that government should direct
investment towards transport infrastructure (72 per cent), whilst just under half support
investment in green infrastructure (45 per cent).
Commentary on findings
The UK economy The continued economic stagnation of the UK economy since the recession in January
2009, and its latest return to recession, is leading some to draw comparisons with Japan’s
lost decade. This Economic Outlook shows that managers are suffering the effects of
the UK’s stalled economy. Eighty-three per cent report that the economic conditions are
negatively affecting their organisation, a figure that is comparable to those of six and
12 months ago (84 and 86 per cent respectively). The number of respondents reporting
that the economy is having a harmful impact has held steadily above 80 per cent since
March 2009.
Figure 1
Impact of economy Significantly negative impact
on organisation Slightly negative impact
-43 -40 10 51 No impact
Slightly positive impact
Negative % Positive %
Significantly positive impact
Combined with the Government’s budget deficit reduction programme, the conditions are
hitting those in the public and not-for-profit sectors the hardest, with 92 per cent of public
sector managers and 91 per cent of not-for-profit managers reporting a negative impact.
This compares to 78 per cent in the private sector. Across all sectors, just six per cent of
managers suggest the UK economy is having a positive impact on their organisation.
5
6. Economic Reflecting the UK’s return to recession, managers are pessimistic about the direction of
indicators a number of key economic indicators over the next twelve months. With many managers
highlighting access to credit as a key barrier to growth, it is worrying that two-thirds
believe the cost of borrowing is set to increase. Seventy-one per cent think that business
insolvencies will increase, though this is down from 76 per cent six months ago and 80
per cent one year ago. Three quarters of managers expect employment levels to either
stagnate or decrease over the same period and 91 per cent expect stagnation or a fall
in consumer spending.
Half of managers expect no significant shift in GDP growth and 27 per cent expect a
further decline in the rate of growth. Only 17 per cent expect growth to accelerate although
this number has more than doubled from six per cent six months ago.
Management The findings on management optimism continue the trend of modest improvements over
optimism the last 12-18 months. As Figure 2 shows, in the private and not for profit sectors, the
number of managers who are optimistic about their organisations’ prospects for the next
six months now outweighs the number who are pessimistic. This is the first time this has
been the case for the private sector since September 2010.
Figure 2
Management optimism % net optimism
over next six months 50%
by sector
40%
30%
20%
10%
Private sector
0% Public sector
Not for profit sector
-10%
-20%
-30%
-40%
-50%
Sept ’08 March ’09 Sept ’09 March ’10 Sept ’10 March ’11 Sept ’11 March ’12
By contrast, net optimism about the next six months continues to lag behind in the public
sector, with a highly pessimistic score of -35. Nonetheless, this is 14 points better than the
low recorded in September 2010.
As with previous findings in this series, managers tend to be more optimistic over the longer
term than the short term. This is particularly true in the private sector, where managers
are considerably more optimistic over the longer term. Net optimism measures for the
next twelve months and three years now stand at +33 and +53 (up from +7 and +41 six
months ago). However, optimism in the not-for-profit sector and public sector over the
long term remains stubbornly low. With private sector growth vital to the UK’s economic
recovery, policy makers will be hoping that increased optimism translates into growth.
6
7. Figure 3
Management optimism % net optimism
over time by sector 60%
50%
40%
30%
20%
10%
0%
-10% Private sector
Public sector
-20%
Not for profit sector
-30%
-40%
-50%
6 months 12 months Three years
Employer Reflecting on barriers to growth, 67 per cent of managers highlight the cost of energy as
challenges likely to have a damaging impact on their organisation over the next six months. Across all
sectors, the level of government debt is the second highest barrier to growth, selected by
54 per cent of managers. Unsurprisingly, public sector managers rate this as their number
one barrier. Management skills shortages are the next highest barrier overall, with 38 per
cent expecting them to have a damaging impact on their organisation.
Figure 4
80%
Factors impacting on Cost of energy
business over the next
70% Levels of
six months: per cent Government debt
damaging impact 60% Management skills
shortages
50% Pension liabilities
Employment disputes
40% Levels of
personal debt
30% Labour shortages
Changes in value
of the pound
20%
Availability of credit
Reducing carbon
10% emissions
0%
March ’09 Sept ’09 March ’10 Sept ’10 March ’11 Sept ’11 March ’12
The Chancellor used the 2012 Budget to update business on plans for implementing the
£1 billion Business Finance Partnership programme, but managers continue to report
concerns about the availability of finance. Ninety-three per cent report that the availability
of credit for both short term and long term projects has got worse or remained the same
over the last six months.
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8. Figure 5
Managers reporting
availability of finance 60%
50%
Work in progress and
40% short term needs (worse)
Long term investment
(worse)
30%
Work in progress and
short term needs (better)
20% Long term investment
(better)
10%
0%
Mar ’09 Sept ’09 Mar ’10 Sept ’10 Mar ’11 Sept ’11 Mar ’12
This data suggests that the Government still has much to do to improve the availability
of finance for businesses wishing to invest and grow. Unsurprisingly, as Table 3 (page 10)
shows, there is strong support for the Government to strengthen measures to improve
lending to businesses as a matter of urgency.
Employer The last Economic Outlook noted that employer investment decisions have dropped
investment and off since the beginning of the series in 2008. This edition still shows low expectations
cost cutting of investment overall. In nine out of eleven categories, as shown in Table 1, managers
believe that budgets will decrease over the next six months. Only budgets for marketing
and business development are expected to see increases in investment.
Nonetheless, the latest survey’s data offers signs that investment may be beginning to
pick up. Across every area, net scores have improved since six months ago. For example,
expectations for investment in recruitment have seen a 10 point net increase, which
must be welcomed in light of the latest employment figures showing an 8.3 per cent
unemployment rate2.
Table 1
Sept ’08 Mar ’09 Sept ’09 Mar ’10 Sept ’10 Mar ’11 Sept ’11 Mar ’12
Net investment
expectation over the Management consultancy -20 -30 -29 -23 -34 -33 -29 -26
next six months Recruitment -19 -38 -30 -22 -37 -37 -33 -23
Plant and machinery -11 -26 -28 -21 -24 -26 -25 -17
Training and development 13 -21 -16 -13 -23 -24 -23 -14
Management and
leadership development n/a -22 -14 -10 -19 -22 -19 -13
Employee pay n/a -12 -10 -1 -18 -24 -18 -13
Corporate social responsibility 6 -9 -11 -6 -16 -14 -13 -9
Product research
and development 11 -14 -14 -8 -17 -14 -12 -9
IT 16 -17 -10 -4 -16 -14 -9 -1
Marketing 31 7 8 16 1 1 6 8
Business development/sales 38 12 14 21 14 7 7 16
The findings show that cutting costs continues to be a priority for management, especially
in the public sector as it adapts to spending cuts. Staff costs have been a key area for
reductions in the last six months. As Figure 7 shows, rates of voluntary redundancies are
over four times higher than in the private sector, whilst rates of compulsory redundancies
are double those in the private sector. Overall 57 per cent of organisations have implemented
a pay freeze and 49 per cent have implemented a recruitment freeze, rising to 82 and
72 per cent in the public sector. In the private sector, 56 per cent of managers are trying
to reduce other business overheads.
2 http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/april-2012/statistical-bulletin.html
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9. Figure 6
Organisational responses 90%
to the current economic 82
conditions in the last six
80% 77
months by sector
72
70%
60%
60
56
50 52
50%
Private sector
43 42 42
40% 39
36 Not for profit sector
Public sector
30% 27 26
20% 17
10%
0%
Frozen Reduced Recruitment Voluntary Compulsory
pay levels business overheads freeze redundancies redundancies
UK managers Employee morale levels continue to suffer with 64 per cent of managers reporting that
they have got worse or much worse in the past six months. Unsurprisingly, given many of
the findings in this report, 87 per cent of public sector managers report that morale has
got worse over the same period compared to 65 per cent in the not for profit sector and
52 per cent in the private sector.
Figure 7
Change in employee
morale over the past Overall -39 -25 31 5
six months
Much worse
Private sector -40 -12 41 7 Worse
Neither worse
nor better
Not for profit sector -50 -15 27 8 Better
Much better
Public sector -34 -53 12
Negative % Positive %
Overall, perceived levels of job security have slightly improved, with those reporting they
feel very insecure or insecure in their jobs fallings from 48 per cent six months ago to
43 per cent now. Encouragingly, the difference between men and women reported in
the last Economic Outlook seems to have narrowed.
Figure 8
60%
Job insecurity
by gender 50% 47 47
44
40%
33 35 33 Men
30%
Women
20% Overall
14
9 10 11 10
10% 6
0%
Very insecure Insecure Secure Very secure
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10. Austerity and With the Government making tackling the deficit its number one economic priority, the survey
deficit reduction asked managers what impact the austerity programme is having on their organisation. Across
all sectors 59 per cent report that it is having a damaging impact on their organisation. This
rises to 83 per cent in the public sector, whilst 64 per cent in the not-for-profit sector and 45
per cent in the private sector report a damaging impact. Despite the concerns over its impact,
an increasing number of managers report that the Government’s deficit reduction strategy is
being implemented ‘at about the right pace’ (up to 43 per cent from 39 per cent six months ago).
Table 2
Spring 2011 Autumn 2011 Spring 2012
Managers’ views on
the pace of deficit % % %
reduction measures Not quickly enough 11 25 24
At about the right pace 40 39 43
Too quickly 48 36 32
Policy measures Over ninety per cent of managers are in support of measures to simplify the tax system and
for growth 70 per cent are in favour of a bespoke capital allowance scheme for SMEs. Access to credit
remains a real concern to managers with 84 per cent urging Government to strengthen
measures to improve bank lending to businesses.
Professional managers’ continued commitment to skills investment is again clearly visible in
this edition’s data. Tax breaks for employers investing in skills and more Government funding
for apprenticeships both receive above 75 per cent net support, whilst devolving greater
control over skills funding to employers and learners enjoys a net support of 60 per cent.
As debate about investment in Britain’s infrastructure continues, managers offer stronger
support to investment in transport infrastructure (net support 65 per cent) than green
infrastructure (net support 27 per cent).
Table 3
Net level of support
Agree Disagree Net level of support
% % March 2012 %
for possible economic
policy measures Taxes should be simplified to encourage growth 91 3 88
Government should strengthen measures to improve bank
lending to businesses as a matter of urgency 84 5 79
Government should provide tax breaks for employer
investment in skills development 82 4 78
Government funding for apprenticeships should be increased 81 5 76
A capital allowance scheme for SMEs should be introduced
to encourage investment 72 3 69
Government should direct investment towards transport
infrastructure 72 7 65
Regulation of the financial sector should be tightened 73 11 62
Employers and learners should be given greater control over
funding for skills development 67 7 60
Measures to reduce business regulation should be accelerated 68 14 54
The planned increase in business rates should be scrapped 64 11 53
Interest rates should be held at current levels 64 18 46
Business taxes should be cut 59 14 45
Government should direct investment towards
green infrastructure 45 18 27
Public spending should be cut further 27 55 -28
Visa laws should be relaxed to support businesses in the
recruitment of international talent 20 54 -34
Interest rates should be raised 21 63 -42
Government can do little to affect the circumstances
of my organisation 14 72 -58
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11. Recommendations – the management challenge
In February, CMI and Penna published a major study which quantified the impact that
management and leadership can make. Organisations that invest effectively in management
and leadership development were found to be performing 23 per cent higher across a
range of measures of organisational performance3. Such margins can be the difference
between success and failure. Indeed, research by the LSE/McKinsey has shown that a
20 per cent improvement in management practices is equivalent to as much as a 35 per
cent increase in total capital employed4. Given the difficult conditions which continue to face
managers in all sectors, as shown in this Economic Outlook, it is clear that management
performance is at a premium.
Yet the findings also show that employer investment in management development, like
other areas of spending, is under real pressure. At the same time, the level of concern
about management skills shortages is on the rise. Of course, managers are responsible
for controlling costs, and that has been a priority for many managers. But employers
must also look closely at where cost-effective measures are still possible to improve
management capacity.
The importance of investing in our human capital is clear in the recommendations
emerging from this report for policy makers. Managers are making clear demands
for additional support to help their investment for growth:
•• Employers are continuing to seek greater control over the funding of skills development
and strongly support tax breaks to support their existing investment in skills. Further
funding for apprenticeships is in demand, and the new UKCES Employer Ownership
Fund of £250m should be a welcome new funding opportunity to support investment
in management and leadership capability
•• Simplification of the tax system: a clearer and effective tax regime which supports
investment is rated as more of a priority than reductions in tax
•• Measures to support a reliable flow of credit and access to finance, with the evidence
suggesting that this remains a problem for many companies
As we have previously argued, restoring Britain’s economic health will be achieved
by persistent commitment to a wide range of complementary measures: in fiscal and
monetary policy, in legal structures that define corporate governance and the scope and
structure of markets, in education and training, and in trade and social policies. The policy
areas identified form an important part of that picture and addressing them will help
managers to deliver improved performance for UK plc.
It is still the case that major challenges lie ahead for the UK economy, both domestic and
global in nature. There are complex policy issues to be resolved – among them, improving
access to financial capital, which remains restricted. Just as importantly, managers and
policy makers must look again at how we can raise UK plc’s human capital, building
much-needed skills and strengthening our businesses, ready for the heavy lifting needed
to restore economic growth.
3 http://www.managers.org.uk/MLDbenefits
4 http://cep.lse.ac.uk/management/Management_Matters.pdf
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