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PRODUCT MARKET STRATEGIES AND SKILLS

Creative, Performing Arts & Heritage

Background

This sector covers advertising, crafts, cultural heritage, design, music, performing arts, and literary and visual arts. Overall, there are around 37,000 people employed in this sector in Scotland.

To examine product market strategies and their relation to the demand for skills, the creative sector can be usefully split into two sub-sectors - the public and the private. The private sector companies tend to be relatively small in size. In advertising and design they are often part of the supply chain to larger private sector employers such as the major banks. In the public sector, the companies tend to be larger, often catering for a domestic audience. Nevertheless, they are important in establishing Scotland as an international centre for the arts and improving Scotland's attractiveness as a quality tourist destination.

The creative and performing arts sector is dominated by small and micro firms. The sector as a whole is characterised by a relatively highly-skilled labour force. Across the sector, the majority of jobs are full-time. However, a significant proportion of jobs are filled by the self-employed, particularly in the music and arts sub-sectors. Freelancers are also an important element of the workforce, perhaps reflecting the increasing flexibility required in the sector. In the museums and galleries sub-sector, volunteers also play a significant role.

Case Studies

The case study employers in the Creative sector consisted of:

• a large theatre company;
• an organisation responsible for the funding of the arts;
• an independent music label;
• a design company specialising in brand communication, workplace/interior design and exhibition design;
• a marketing and communication company; and
• a touring dance company.

In the Creative sector, it was necessary to make a distinction between those parts of the sector which received public funding and those which were purely commercial.

Scope for Influence

Although the case study organisations in the public sub-sector receive public funding, this is often supplemented by commercial revenue. The scope of the government for influencing product market strategies and skill strategies in this sub-sector revolves around:

• the opportunity to embed training or skills requirements in the conditions associated with grants from the public sector;
• the ability to appoint dynamic leaders and the support offered for developing existing leaders in the sector;
• supporting the use of high-performance working practices in eliciting discretionary effort from staff; and
• supporting organisations in the competition for audiences and in exporting their expertise to other markets.

There are, of course, limitations. The dynamic leaders in the case study organisations were clear that it was their role to shape their organisation's product market strategy and skills strategy. Once appointed, they took the lead. Similarly, some organisations in this sector are also closely linked to other sources of local funding, and close collaboration between the funding bodies is seen as vital for effective action.

The private sub-sector is very different. Here profitability is the key motivation. The scope for influencing product market strategies and skill strategies in this sub-sector revolves around:

• supporting a 'critical mass' of skilled staff in the sector and encouraging larger Scottish businesses in general to make better use of the indigenous creative sector's expertise;
• the importance of protecting intellectual property rights; and
• recognition of the dual-nature of the creative sector, in that it can be considered as an industrial sector or as part of our cultural landscape.

Again, there are limitations. Case study employers in this sub-sector are clear that they themselves lead in terms of their product market and skill strategies. This is more so when it is recognised that much of the necessary expertise can be learnt on-the-job.

Issues Relating to the Supply and Utilisation of Skills

The following issues were raised through the case study interviews with employers in this sector as influencing the ways in which they utilise skills:

• the competition for market share and in attracting talent, especially from major centres such as London, and increasingly from outside the UK;
• the need for many recruits in some sub-sectors to have strong technical skills (such as in design and graphics) allied to 'softer' skills such as customer-handling and team-working alongside awareness of the world of business;
• the need to change the perception of the industry amongst potential recruits in order to attract high quality candidates and the need to ensure that the image of the industry portrayed in the educational system reflects the careers on offer;
• the impact of new technology on parts of the sector and its knock-on effect for training facilities, training courses and qualification content; and
• the possibility of introducing specific tax exemption for artists, up to a set limit, to encourage people to enter and remain in the industry.

Energy and Utilities

Background

This sector covers electricity, gas, water and waste management and employs over 57,000 people in Scotland, with the largest numbers employed in waste management. The sector has a high level of capital investment, reflected in the high productivity per worker in the sector.

The companies in this sector are competing in the domestic market. Unlike the other case study sectors, where industry structures have evolved over many years, this sector has experienced rapid change in recent years. In some parts, English utilities have been privatised whereas in Scotland they have not. The ramifications of privatisation of large parts of the sector and the impact of the regulatory environment are still being felt.

The privatisation of parts of this sector has resulted in vertically-integrated national industries being replaced by a more complex structure. Large asset owners dominate some of the sub-sectors, with many functions outsourced to a series of small and medium-sized sub-contractors. These sub-contractors offer specialised services, often operating across the different parts of this sector.

Many of the jobs in this sector are highly-skilled, in the skilled trades and associate professional and technical occupations. The Sector Skills Council, Energy & Utility Skills, has suggested that a continued drive for efficiency and downsizing may have resulted in an underinvestment in the skills of the workforce.

Employers in this sector use sophisticated capital intensive technology, both in energy production and in the maintenance process, requiring high levels of technical skills.

Case Studies

The case study employers in the Energy sector consisted of:

• three major utility companies;
• a small to medium-sized business providing pipeline inspection, drain and sewerage cleaning services;
• a major contracting company providing civil engineering services across all utilities; and
• a company which manages environmentally-friendly energy production sites.

Scope for Influence

In this sector, the principal scope for influencing product market strategies and skill strategies centres around efficiency regulation (regulations designed to encourage the efficient utilisation of resources):

• efficiency regulations have a significant influence on firms' product market strategies, through their recognition of the importance of human resource management and ongoing training in the sector to ensure quality work. This is evinced in recent decisions to include apprenticeship training costs within pricing agreements;
• these regulations also cascade down through the sector by influencing the product market strategies of sub-contractors;
• the behaviour and requirements of major companies in the sector has a noticeable 'knock-on' effect for sub-contractors in the sector in terms of their own skill strategies and training requirements; and
• rapid technological change in the sector is impacting on skill utilisation in companies as they introduce new equipment and improved techniques.

As many of these companies were only created as a result of the privatisation of the industry employer organisations have had less time to become established. As public limited companies, some of the major players in this sector have been diversifying into activities such as property and leisure ventures. Increasingly, therefore, there will be activities of these companies which are outside the scope of the regulator.

Issues Relating to the Supply and Utilisation of Skills

While efficiency regulation is important in influencing product market strategies, standards regulation (regulations which specify standards of job or task performance) is important in influencing the utilisation of skills. The following issues were raised through the case study interviews with employers in this sector:

• standard regulation has a powerful influence in this sector on the ways in which skills are utilised;
• these effects also cascade through the sector, having an influence on the utilisation of skills by subcontractors;
• the introduction of new technology and the growing importance of environmentally-sustainable methods will also be key drivers of skills requirements;
• the perception of the industry amongst potential recruits and a need to ensure that the image of the industry reflects the careers on offer; and
• there is a recognition that many bodies are already working well together on skills for the sector and across common occupations, e.g. engineering. Case study employers desire a training and qualifications system that continues to be responsive to employers' needs in the sector.

Financial Services

Background

The Financial Services sector is an important employer in Scotland. In 2007, the Financial Services sector employed 108,000 people directly and a further 70,000 in related industries. Most activity is centred around Glasgow and Edinburgh.

In 2007, there were 4,400 financial services workplaces, including sole operators and small businesses. The clustering of financial services in Edinburgh and Glasgow has stimulated the growth of a specialist workforce and shared business infrastructure. The sector is characterised by a high proportion of higher-level and intermediate-level skills.

The financial crisis which emerged in the latter part of 2008 has impacted disproportionately on this sector.

Case Studies

The case study employers in the Financial Services sector consisted of:

• a major international bank;
• an insurance company;
• a company providing independent financial advice;
• a 'back-office' support function providing administrative support to multiple locations worldwide;
• a small, local bank;
• a company which provides financial services and support to institutional investors;
• a wealth management company; and
• a credit union.

A key point here is that the case study interviews were completed before the impact of the economic downturn. This highlights, very starkly, both the dynamic nature of our economy and the importance of external factors in the determination of product market strategies.

Scope for Influence

Financial regulation is already an important tool for influencing product market strategies in parts of this sector and one that is likely to be of increasing importance as a result of the global financial downturn. Further regulation may have an impact on firms' product market strategies and their skills strategies in the sector more generally. However, many larger companies, and the multi-national corporations in particular, are clear about their desire to control and direct their own skills agenda as they see the skills of their staff as part of their competitive advantage in the market. Regulations around the selling of financial products and risk management are currently important in shaping the productivity and skills agenda, but the behaviour of competitors and customers have a greater influence in shaping their business strategy. There are also specific examples in this sector of a 'collaborate and compete' approach where employers band together to engage with public sector on a collective basis to help drive the performance of the sector.

There are currently two main areas which offer scope for influence:

• financial regulation is currently having more of an impact on the strategies of Independent Financial Advisers, smaller companies and credit unions in the sector and
• the joint strategy 'The Strategy for the Financial Services Industry in Scotland' is a collaboration between the Scottish Government, industry, unions, universities and other parts of the public sector. This has the potential to impact further on employer product market strategies.

Issues Relating to the Supply and Utilisation of Skills

This sector is also characterised by a high degree of collaboration between the public and private sector in addressing skills issues.

The following issues were raised through the case study interviews with employers in this sector:

• 'The Strategy for the Financial Services Industry in Scotland' is helping generate a critical mass of skilled workers and spreading good practice on skills utilisation as well as helping develop a 'collaborate and compete' culture in the industry;
• standard regulations are also a powerful influencer in this sector, with the Financial Services Authority stipulating minimum standards for some roles leading to an increased demand for technical knowledge from employees in the sector;
• the need to ensure that the image of the industry reflects the wide range of careers on offer and so improve the quality of candidates, and
• the use of sophisticated IT systems in part of this sector is creating a demand for highly-skilled professionals on one hand, and a high proportion of sales and customer service staff with intermediate skills on the other.

Food and Drink

Background

Many companies in this sector are primarily competing in the domestic market. However, some companies are exposed to international competition, especially in the more knowledge-intensive, high value-added part of the sector. It makes a significant contribution to Scotland's manufacturing base and export performance.

Alongside increasing competition, employers in this sector are facing numerous challenges, including changing consumer preferences and tastes, new technologies and products, increasing concentration of market power and ongoing regulation of food standards and labour use.

The Food and Drink sector employs around 50,000 people in Scotland where there are around 1,600 workplaces. Companies range from numerous small and medium-sized enterprises to major multinationals.

Almost half of all direct employees in this sector are plant and machine operatives. The sector has a large proportion of workers with low or no qualifications. It is also reliant to some extent on migrant labour, estimated by Improve Ltd to account for 15-20 per cent of the workforce. Full-time wages in the sector are below the Scottish average.

Case Studies

The case study employers in the Food and Drink sector consisted of:

• a large bakery;
• a premium-brand whisky distiller;
• a specialised tea and coffee supplier;
• a small meat-processing company;
• a family-owned business which manufactures food products for use by other companies; and
• a small, local supplier of fish and game to hotels and the licensed trade.

Scope for Influence

There are a number of areas where the case studies indicate that the government is influencing the product market and skills strategies of companies in this sector. This is a sector where there is a strong potential impact for 'branding' to provide a means through which some employers can be encouraged to move into higher value-added activities. Unlike many industries where the brand is the property of a particular firm, sections of the food industry can be influenced through public and private sector collaboration, to create a 'Scottish brand' through which employers can be assisted to move towards premium products. This generates an interdependence between the public and private sectors in marketing the industry which does not exist in some industries. In the Food and Drinks industry there is scope to influence product market strategies through:

• Scotland Food and Drink, a government-supported, industry-led, agency which seeks to place Scotland as a premium producer of high-quality food and drink. This has the potential to impact on the supply chain, stimulate product innovation and encourage employers in the sector to shift towards more premium products.
• In addition, there was scope for government help for the specific issues which face the survival and succession of family-owned and family-run small businesses and the challenges they face in obtaining appropriate advice.

Issues Related to the Supply and Utilisation of Skills

The use of high performance working practices in this sector is geared toward the generation of enhanced capability among operatives to increase productivity and improve the quality of the product. This involved increasing their technical knowledge as well as increasing their skills in problem solving and teamworking.

The following issues were raised through the case study interviews with employers in this sector:

• the use of high-performance working practices to make better use of employees skills, although this is an area where employers must take the lead;
• the need for opportunity for companies in this sector to learn from each other through the identification and promotion of transferable high performance management practices. In particular the use of mentoring, quality circles and multi-skilling has been adopted in this sector to enhance quality and commit employees to company objectives;
• the use of standard regulation, including Health and Safety legislation, International Standards Organisation standards and those imposed through the British Retail Confederation ( BRC). These are being used in association with high performance working practices to build capability among the workforce;
• the recruitment difficulties faced by the sector. Some are admittedly due to the nature of the jobs on offer, their geographical location and working conditions. Others, particularly in the higher-skilled occupations such as food scientists, are potential skill shortages. One partial solution to this has been recognised by the UK Migration Advisory Committee by including food scientists in its Skills Shortage Occupation List ( SSOL), and
• the need for potential recruits to be aware of the full range of opportunities on offer in the sector.

Hotels

Background

The tourism sector employs around 200,000 people in Scotland, some 9 per cent of the workforce. Hotels and restaurants employ around 170,000 people in Scotland. The hotel industry is primarily geared to the domestic/ UK market, with only a limited number of hotels seeing themselves as competing in a global market

Although the case study hotels covered a range of hotel types, most hotels saw their main competition being from other hotels in the area. Often these hotels were competing on the facilities and level of service that they offered. However, there are distinct segments of the hotels sector which compete in international markets, especially at the top end of the market. This includes competition for business and leisure customers as well as competition for the 'conference industry'.

The hotel sector consists of a variety of sub-sectors, including major international chain hotels, exclusive boutique hotels, budget hotels, travel-to-work hotels and bed and breakfasts (B&Bs). The customer base also ranges from the 'exclusive experience' offered by major resort hotels, through to business and conference activities and general tourism.

There is a high level of heterogeneity within the sector, resulting in differing operational challenges and companies offering different experiences and levels of service for customers. This is creating subtly different demands for skills amongst the workforce. Unlike some other sectors, technology is not generally an important driving force for skills in this sector.

Some hotels are increasingly taking a longer-term view in planning their development and activities in association with public bodies. This includes working with city promotions to target specific conferences, exhibitions, cultural events and trade shows.

Case Studies

The case study employers in the Hotels sector consisted of:

• a boutique hotel;
• a hotel, part of a large international group, focused on the business and conference market;
• a major resort hotel;
• a small, family-run hotel;
• a medium-sized hotel, part of a privately-owned group, focusing on a specific segment of the market; and
• a small, luxury hotel focused on providing a unique 'visitor experience'.

Hotels are another sector where parts are dependent on the branding of the locality through public/private collaboration. In particular the Scottish Tourist Board has been successful in promoting Scotland as a quality tourist destination. This is also illustrated through the importance to the sector of public-sponsored events, such as major festivals. Hotels are also a sector where criteria regulation (regulations which specify that employers have to meet specified criteria in the service they offer) is effective in influencing product market strategies.

Scope for Influence

There are three main levers available to government to influence the product market and skills strategies in this sector. These are:

• the branding of Scotland as a 'quality destination' or of specific localities as 'quality local tourist destinations';
• the collaboration with the private sector in generating demand for a distinctive customer experience through big public-sponsored events, such as major Scottish festivals; and
• criteria regulation which include standards for grading accommodation as well as more general Health and Safety standards.

Issues Related to the Supply and Utilisation of Skills

The case study hotels which seek to compete at the quality end of the market see it as essential to remain in control of staff training. For such employers, the skills of their staff in delivering a quality service are an integral part of their competitive strategy. This requires them to have appropriate support structures in the form of high-performance working practices. Smaller employers were also active through various trade associations in seeking to address some of these challenges collectively. The use of information technology is not as pervasive as it is in some other sectors.

The following issues were raised through the case study interviews with employers in this sector:

• the use of high-performance working practices in the form of problem-solving teams and multi-tasking aimed at encouraging staff to use their discretion in dealing with customers. The aim is to support an improved customer experience and generate customer loyalty;
• the need to ensure that potential recruits to the sector are aware of the wide range of opportunities on offer in order to improve the quality of recruits;
• the need to further signpost the availability of public provision for vocational skills. Here, the Sector Skills Council may have a role in ensuring that the skill and qualifications system is suited to employers' needs; and
• the need for an increasing awareness among employers of the ways in which reorganising and restructuring the working environment can assist in the recruitment and retention of employees in lower-paying jobs.

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