British business says it has lost its world-class reputation

It is hardly the stuff of Gordon Brown's dreams. But at least the latest annual survey from the management consultancy Bourton Group is to be welcomed for its frankness.

For the first time since the Rugby-based firm began tracking industrial attitudes and trends 13 years ago, not one UK company rates itself as "world-class". In the 1998 survey, nearly 8 per cent of UK companies regarded themselves as world-class competitors. And while they complain about government regulation impeding progress, executives do not lay much of the blame for this state of affairs on the strong pound.

Instead, the report Culture Shock published last week, suggests that UK company culture is the biggest impediment to improved performance. Executives rate organisational politics as the single biggest inhibitor to change, feeling that "firms are not proactive about change and react only to significant external events". These can range from mergers and acquisitions, through the arrival of new competitors to the role of chief executives.

Senior managers surveyed for the report said their chief executives and chairmen ranked below all other grades of management and staff in their perceived contribution to perform- ance. Top executives changing jobs quickly and appearing not to know enough about their operations were particular causes of this dissatisfaction.

Bourton Group, the consultancy formerly known as Ingersoll Engineers, specialises in advising manufacturing industry. Each year, it focuses its surveys on particular aspects of business. It looked at business performance this year in the light of the recent focus from industry and government on improving UK competitiveness.

The top six factors the survey said helped performance were all "soft", or people-oriented, evidence of the importance of culture to business. The six were: management commitment, people's commitment, setting aggressive goals, training and coaching, customer relationships and people's skills. Organisational culture is also one of the "drag factors" that seem to outweigh the positives and so help to make UK industry less competitive on the world stage.

The researchers say com-panies do not always make a priority of dealing with matters they claim to be important. Keith Bissett, the Bourton managing director, says: "Industry leaders struggle as they try to change culture. As in all previous reports, their top two pressures are cost-reduction and improving return on investment."

The consultancy surveyed 180 companies in a range of sectors during the summer, before the 11 September terrorist attacks increased the likelihood of a recession. And tougher economic conditions could add to those pressures.

These fears are echoed by the IT consultancy Gartner, which has just issued a warning that many companies are at risk of embarking on one of "five strategies for failure". According to Helen Mumford, the organisation's European pres- ident, these are:

* "Hunkering down" and looking at their competitors rather than attending to their customers;

* Being complacent about their business models;

* Believing that their industries are not going to change during the downturn;

* Thinking that the end of the dot.com boom means they can ignore the technology associated with it, and

* Believing they can survive by "going it alone" rather than forming alliances and partnerships with other groups.

Companies which adopt such strategies will, even if they emerge from the downturn, be so weakened that they will struggle to survive in the long term, Ms Mumford says. Rather than adopting the safety-first strategies they always used in recessions, corporate business managers need to "take into account that technology has changed business".

The Bourton survey says UK companies have improved in certain respects. For example, nearly three-quarters reported above-average success with their latest major improvement initiative, and more than 90 per cent expect to do just as well next time. Similarly, the majority expected turnover and profits to improve in the next 12 months. But the survey says, "as UK industry takes one step forward, the best international competitors take two". The researchers says this can be traced to the conflict between what companies say is important and what they actually do, largely because of financial pressures.

But an emphasis on finance is not unjustified, because manufacturing labour and overheads typically account for a third of total costs in a UK company, compared with a quarter in the best international organisations. But there is a suggestion that British businesses have reached the limits of what can be achieved by traditional improvement programmes.

With organisational culture identified as a "drag factor" and "the factor which, if perfect, would most enhance competitive edge", the consultancy believes this is the key to future success. Mr Bissett believes some companies are ready to tackle it. "In identifying the critical importance of cultural change, the survey highlights a strong desire to embrace substantial step-change," he says. "This, we believe, is essential if UK companies are to achieve real competitive advantage and compete effectively in world markets."

That might provide the Chancellor with the fillip he needs for his Autumn Statement, due next month. Instead of devoting some of his precious revenue to generally poorly received business incentives, he may rely on industry to embrace culture change as a means of achieving his cherished goal of increased competitiveness.