The Scottish Government

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Joint Performance Team
November 2005
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INTRODUCTION

Smart, Successful Scotland ( SSS), first published in January 2001 and updated in 2004, sets out the Scottish Executive's strategic direction for the Enterprise Networks. It is designed to provide direction and focus for the Enterprise Networks' activities and builds on the Framework for Economic Development in Scotland ( FEDS).

SSS identifies three key themes and twelve specific priority areas for economic development in Scotland. These themes and priority areas are closely inter-related, with progress in one area contributing to, and reinforcing, progress in other areas.

A Joint Performance Team ( JPT), comprising representatives from the Scottish Executive, Highlands & Islands Enterprise and Scottish Enterprise, was established to develop a framework to monitor progress towards achieving the ambitions for the Scottish economy identified in SSS. Following an extensive consultation in 2001, the approach adopted by the JPT was to develop progress measures for each of the twelve SSS priority areas . These measures are a combination of those that:

• describe what a smart, successful Scotland would look like and allow progress towards it to be tracked, e.g. productivity of Scottish industry
• indicate the extent to which the necessary conditions for a smart, successful Scotland are in place e.g. the cost and geographic coverage of broadband.

These progress measures are intended to add to the strategic direction of SSS and guide activities to promote the economic development of Scotland in the medium to longer term (3 to 10 years). The progress measures are not intended to be operating (output) targets for the Networks. However, the specific operating targets employed by the Networks are chosen so that they contribute to progress measures. The activities planned for any individual year therefore link to longer term ambitions and changes in the Scottish economy.

In order to provide an independent assessment of Scotland's progress towards achieving SSS ambitions, external organisations have been contracted to analyse data and provide a commentary. Four annual Measuring Scotland's Progress Towards a Smart, Successful Scotland reports have been completed (for 2002, 2003, 2004 and 2005) and published by the Scottish Executive.

APPROACH TO MEASURING PROGRESS

For each of the twelve priority areas in SSS, there is currently one lead measure and two supporting measures. The lead measure is intended to meet three main requirements:

• be an appropriate overall measure of progress;
• provide the right strategic steer to the Networks; and
• be capable of relatively straightforward international comparison.

The supporting measures are intended to provide a more rounded picture of progress to avoid the potentially distorting effects of too narrow a focus on lead measures. There are also currently two overarching measures which relate to prosperity and environmental sustainability.

In order to monitor progress in an international context, Scotland's performance is benchmarked against the thirty member countries of the OECD, with the aspiration to move towards the top quartile for each measure ( i.e. to be 'world class'). The use of OECD nations gives a broad international dimension of countries from different parts of the world with a range of characteristics (size, stage of development, etc). To some extent the use of the OECD benchmark also helps iron out distortions caused by business cycles and other external factors. Also, data comparisons with the OECD members is feasible, although not always easy.

The timescale over which an aspiration to reach the top quartile of OECD countries might be achieved will vary across the measures and may only be achievable over a long time period. This will depend largely on where we start from (the setting of baselines for each measure is particularly important in this regard), external and global factors and the degree of influence Scotland has in improving performance. Our aspirations are therefore set in the context of what the best in the world are able to achieve and what Scotland realistically can be expected to attain.

The availability of appropriate data to monitor progress in each area is of crucial importance to this exercise. For most measures, the availability of comparable data makes performance against the proposed OECD benchmark reasonably straightforward to monitor. However, when this approach was designed, it was recognised that for a small number of measures there was not a complete set of data for Scotland or for all OECD comparator economies, so some judgement would be required to assess performance.

REFRESHING THE MEASURING SMART, SUCCESSFUL SCOTLAND FRAMEWORK - CONSULTATION PROCESS

A refresh of the current measures is required for a number of reasons:

• the need to reflect the 2004 update to a Smart, Successful Scotland ( i.e. introduce measures where strategic priorities have been adjusted)
• the need to revise current indicators where there are difficulties with data availability ( e.g. where data is not available and proxy data has been used)
• the need to remove indicators that do not add to our understanding of how Scotland is progressing.

A series of proposed measures is set out in the next section of this paper. Given the value of year on year comparison, the majority of these are unchanged from those used in the past. Where new or revised indicators have been proposed, these have been assessed according to the following criteria:

• availability of Scottish and comparator economy data (for UK regions and OECD countries);
• timeliness of data;
• ease and cost of collecting data.

Specific issues on which input is sought include:

1. Do the proposed changes to the measures adequately reflect the ambitions of Smart, Successful Scotland?

2. Are there other measures that could be included to help monitor progress towards achieving a Smart, Successful Scotland?

3. Will the proposed measures give the right strategic steer to the Networks?

4. Does the use of four overall measures of progress, compared to the two used in the 2005 report, provide a top level assessment of economic progress, encompassing competitiveness, economic welfare and the environment?

5. Will this measurement framework be appropriate to the partnership approach for the Networks that is emphasised by Smart, Successful Scotland?

6. Have the cross cutting issues identified in Smart, Successful Scotland (sustainable development, closing the opportunity gap, equal opportunities) been given enough attention in the proposed approach? If not, how could this be captured without overly complicating the approach or unbalancing it?

Any comments on the proposals set out in the consultation paper should be submitted to Robbie McGhee (Scottish Executive, 4th Floor, Meridian Court, 5 Cadogan Street, Glasgow. G2 6AT,robert.mcghee2@scotland.gsi.gov.uk) by 31 January 2006.

MEASURING PROGRESS TOWARDS SMART, SUCCESSFUL SCOTLAND

The proposed set of measures to monitor progress towards achieving the ambitions of a Smart, Successful Scotland are set out below. It has been noted whether each measure is new or unchanged from previous reports and at the end of each theme reasons for introducing new and removing old measures are provided.

PROPOSED OVERALL MEASURES

• Gross domestic product ( GDP) per head of population (UNCHANGED)
• Productivity (NEW OVERALL MEASURE - PREVIOUSLY WITHIN GROWING BUSINESS THEME)
• Employment rate (NEW OVERALL MEASURE - PREVIOUSLY WITHIN SKILLS AND LEARNING THEME)
• CO2 emissions (UNCHANGED)

Why these measures?

GDP per head is a standard measure of living standards and of the economic prosperity of an economy and standard methods of calculation across countries allow accurate international comparisons. It is recognised, though, that GDP per head may not capture all the benefits or reflect all the issues of standards of living as it does not measure aspects that do not have a monetary value and it does not capture how wealth is dispersed amongst society. However, in the absence of an alternative standard of living index, GDP per head is considered the best available proxy.

In addition to GDP per head, productivity, the employment rate and CO2 emissions are suggested as further overall measures of progress. These will provide a more rounded assessment of economic progress, encompassing competitiveness, economic welfare and the environment.

Considering these in more detail, productivity, which can be measured as output produced by workers, is a key determinant and driver of competitiveness and long term economic growth. There also tends to be a strong positive relationship between productivity and living standards ( GDP per head).

The other key determinant of economic growth is the employment rate, which measures the proportion of the working age population in employment. This is an indicator of the extent to which the potential labour in an economy is being put to productive use.

Scotland needs to achieve continuous growth which is stable and benefits everyone now and in the future. Scotland's actions must not be to the detriment of the wider, or global, community and resources must be used efficiently and with a view to safeguarding them in the long term. Economic growth needs to be decoupled from pressures on the environment and a central indicator of the environmental impact is the level of CO2 emissions. This also allows a measurement of the carbon intensity of the economy.

GROWING BUSINESSES

A culture of enterprise and more businesses of scale

Proposed Lead measure

• Number of new business starts (UNCHANGED)

Supporting measures

• Number of high growth business starts (UNCHANGED)
• Number of businesses of scale (NEW)

Why these measures?

Entrepreneurial attitudes, creativity and drive are increasingly key drivers that lead to economic success. Progress towards a more entrepreneurial economy can be measured through changes in attitudes, but fundamentally any change in culture will be reflected in changes in business activity. The rate of business start-ups is an indicator of entrepreneurial culture and of potential for economic growth. A high rate of business starts increases the pool of potential high growth businesses and future businesses of scale and drives up levels of competitiveness.

High growth businesses tend to be more innovative, productive and competitive and are more likely to capture market share outside Scotland. This in turn creates jobs and value for the Scottish economy and opportunities for further growth.

Increasing new business starts alone is not enough to impact significantly on overall productivity and there remains significant scope to improve the performance of established businesses. While Scotland has a number of successful, innovative businesses, we lack a critical mass of larger businesses of scale (defined as businesses with a turnover of £20 million and above and/or 250 or more employees).

Increased innovation and commercialisation of research

Proposed lead measure

• Business expenditure on research and development ( BERD) as a proportion of GDP (UNCHANGED)

Supporting measures

• Proportion of innovative businesses (UNCHANGED)
• Number of academic spinouts (UNCHANGED)
• Number of patent applications - academic and industry (UNCHANGED)

Why these measures?

Business expenditure on research and development ( BERD) is a key driver of productivity growth and provides an estimate of how much the business sector is investing in innovation to develop new products and processes. Measuring R&D spending as a proportion of GDP allows an assessment of the relative levels of R&D activity in different countries.

As well as R&D activity, businesses more generally need to be innovative in order to stay ahead of competitors and to meet the changing needs of customers. Innovation can be measured in different ways, such as product development and the development or adoption of new processes.

Commercial exploitation of university research is one route to increasing the number of innovative businesses. The creation of businesses based on university R&D (spinouts) is a measure of the degree to which university R&D is market orientated and an indication of the strength of links between the academic sector and the business community.

The number of patent applications provides an indication of how successful businesses and academic institutions are at converting the knowledge they create into potentially marketable products and processes.

Success in key sectors

Proposed lead measure

• Productivity levels in key sectors (UNCHANGED)

Supporting measure

• Share of value added from knowledge intensive sectors (UNCHANGED)

Why these measures?

Scotland needs to achieve maximum impact from the sectors considered as key to future economic growth. These are the industries which Scotland has a competitive advantage through, for example, scale of existing businesses, quality and product differentiation. These include energy, food and drink and digital media.

The contribution of knowledge based sectors, defined as medium/high technology manufacturing and high value added services, to the overall economy is a useful measure of the success of sectors regarded as key to future economic development.

Use of e:business to create business advantage

Proposed lead measure

• Proportion of businesses trading on-line (UNCHANGED)

Supporting measures

• Proportion of business activity transacted through e:business (UNCHANGED)
• Proportion of businesses using broadband (UNCHANGED)

Why these measures?

E:business opens up a global market place to Scottish businesses and is now considered a critical component of modern business practices. The use of e:business technologies and processes can be an important driver of productivity. The proportion of businesses trading on-line, through for example allowing customers to order and pay on-line and ordering and paying for inputs on-line, is a measure of the degree to which an economy's businesses are adopting e-business technologies.

Whereas the proportion of businesses trading on-line is a measure of the overall adoption of e:business technologies, the effective use of these technologies is key to the potential productivity benefits businesses can gain. The proportion of business activity or sales transacted through e:business provides one indication of how these processes can contribute to business performance.

Broadband technology allows large volumes of data to be transferred at high speed and contributes to the ability of businesses to adopt and benefit from e:business tools. The use of broadband can allow businesses to offer more through on-line services and e:business processes and to do this more rapidly.

Overview of changes to Growing Business measures

SKILLS AND LEARNING

Improve the operation of the Scottish labour market

Proposed lead measure

• The proportion of working age people in education, employment and training ( NEET) (UNCHANGED)

Supporting measures

• The proportion of the working age population who are unemployed (unemployment rates) (NEW)
• Skill shortages (UNCHANGED)

Why these measures?

The proportion of people who are in education and training as well as employment provides an indication of the degree to which the population is actively engaged in the labour market.

Unemployment is a waste of a potential economic resource and is linked to wider problems such as health and social exclusion. Low unemployment rates are evidence of an efficiently operating labour market.

The ability to identify and respond quickly and flexibly to changing demands from employers is a characteristic of an effective labour market. The level of skills shortages is a measure of the ability and the efficiency of the labour market to match labour supply with employer demands.

The best start for all our young people

Proposed lead measure

• Proportion of young people (aged 16-19) who are not in education, employment or training (UNCHANGED)

Supporting measures

• Proportion of young people (aged 20-24) achieving NVQ level 3 qualifications or above (UNCHANGED)
• Proportion of school pupils with basic skills (reading, mathematical and scientific literacy) (UNCHANGED)

Why these measures?

Being out of education, employment or training at the age 16-19 is a powerful predictor of unemployment in later years. Access to education, employment or training opportunities in early life provides a strong base for future labour market participation.

All young people need to be equipped with the skills, advice and support needed to allow them to contribute to, and benefit from, economic growth and to underpin lifelong learning. Holding a qualification at level 3 or above is an indicator of whether young people have the necessary 'technical skills' to enable them to access the labour market or further education and training opportunities.

Basic skills, such as reading, mathematical and scientific literacy, is an indicator of the performance of the school system in equipping young people with the skills employers are increasingly looking for.

Developing people who are in work

Proposed lead measure

• Proportion of those in employment undertaking training (UNCHANGED)

Supporting measures

• Number of and employment in Investors in People accredited companies (UNCHANGED)
• Current and recent participation in learning by the adult population (UNCHANGED)
• Future intentions to learn by the adult population (UNCHANGED)

Why these measures?

Developing those who are already in work is a fundamental requirement in delivering innovation and increased productivity. It also helps employers address skills needs and improves the overall operation of the labour market. The proportion of employees that are receiving training is an indicator of the extent to which employers are investing in up-skilling activity.

Investors in People is an internationally recognised quality standard for the development of businesses and organisations through good workforce development practice. It is a useful indicator of employers' commitment to and investment in workforce development.

Current and recent participation in learning of the adult population, not just those in employment, provides a wider indication of the level of demand for learning among the working age population. The importance of people wanting to learn is reflected in a measure of future intentions.

Narrowing the gap in employment and reducing economic inactivity

Proposed lead measure

• Reducing the gap in employment rates between the worst 10% of areas and the Scottish average (NEW)

Supporting measures

• Employment rates of relatively disadvantaged groups (UNCHANGED)
• The proportion of the working age population who are economically inactive (NEW)

Why these measures?

Employment rates in Scotland are at historically high levels and unemployment rates have fallen, although there are still pockets of high unemployment. Monitoring the employment of the worst areas in Scotland and the national average provides an indication of the ability of all localities to benefit from economic growth.

The employment rates of relatively disadvantaged groups, such as ethnic minorities and people with a disability, is a measure of the degree to which all groups are involved in and benefiting from economic growth

Economic inactivity contributes to social exclusion and acts as a barrier to growth. Unemployment data, however, does not include individuals who, for a number of reasons, are not looking for work. The proportion of the working age population who are economically inactive is one way to capture this.

Overview of changes to Skills and Learning measures

GLOBAL CONNECTIONS

Increased involvement in global markets: taking Scottish knowledge to the world and bringing the world's knowledge to Scotland

Proposed lead measure

• Exports as a proportion of GDP (UNCHANGED)

Supporting measure

• Exports per worker (UNCHANGED)
• Flows of foreign direct investment (NEW)

Why these measures?

Exports of goods and services as a proportion of GDP and export per worker are a tangible measures of the degree to which an economy is open, globally connected and competitive. In Scotland's case, this will include exports to the rest of the UK as well as overseas.

Involvement in the global economy is not only through exporting. Overseas businesses locating in Scotland (inward flows of FDI, particularly high value FDI) is a further measure of an open, connected economy.

Scotland to be a Globally Attractive Location

Proposed lead measure

• Graduates as a percentage of the labour force (UNCHANGED)

Supporting measure

• Overseas and British tourist numbers (NEW)

Why these measures?

A highly qualified workforce is an important factor for businesses looking to locate in a country and for the growth of domestic businesses. It is also an indication of the ability of a region to attract and retain talent. Graduates as a percentage of the labour force provides a measure of the attractiveness of a location to highly qualified people, both in terms of access to employment opportunities and wider quality of life considerations.

Overseas and British tourist numbers gives an indication of the attractiveness of Scotland within the UK as a leisure and business tourism destination.

Connecting to the Rest of the World

Proposed lead measure

• Cost and coverage of broadband (UNCHANGED)

Supporting measures

• Share of the population on-line (UNCHANGED)
• Share of the population from low income groups with access to the internet (UNCHANGED)
• Number of direct international routes and destinations from Scottish airports and ports (UNCHANGED)

Why these measures?

Access to and the cost of high capacity telecommunication infrastructure (broadband) is a key element in place competitiveness and for successful economies. Cost and coverage of broadband can support the current and future flows of knowledge and people that drive economic growth.

The number of people on-line gives an indication of the connectedness of the population and the share of households from low income groups with access to the internet is a measure of the degree to which all groups in society are benefiting from the opportunities the internet can provide.

Direct physical transport links are a further aspect of global connectedness and are a key determinant of the perception and reality of Scotland's attractiveness as a business and tourism destination.

More People Choosing to Live, Study and Work in Scotland

Proposed lead measure

• Net migration as a proportion of the population (UNCHANGED)

Supporting measures

• In migration (of working age people) (UNCHANGED)
• Working age population change by Local Enterprise Company (UNCHANGED)

Why these measures?

Net migration is a measure of Scotland's ability to attract and retain people. Regions or nations which attract migrants tend to be more dynamic and competitive and positive immigration is closely linked to economic performance.

In-migration of working age people is a further refinement and is a measure of the ability to attract economically active people.

Population change across Local Enterprise Companies provides an indication of the degree to which people are choosing to live and work in all parts of Scotland.

Overview of changes to Global Connections measures

References

Scottish Executive (2001): A Smart, Successful Scotland http://www.scotland.gov.uk/library3/enterprise/smart-successful-scotland.pdf

Scottish Executive (2004): A Smart, Successful Scotland http://www.scotland.gov.uk/library5/enterprise/sssen-00.asp

Scottish Executive (2002): Measuring Scotland's Progress Towards a Smart, Successful Scotland http://www.scotland.gov.uk/library3/education/JPTfinal.pdf

Scottish Executive (2003): Measuring Scotland's Progress Towards a Smart, Successful Scotland http://www.scotland.gov.uk/library5/government/sss03-00.asp

Scottish Executive (2004): Measuring Scotland's Progress Towards a Smart, Successful Scotland http://www.scotland.gov.uk/library5/enterprise/MP%20Report%202004.pdf

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