Enterprise and Skills Review: report on Phase 2

2. What Phase 2 delivers

As stated, our desire is for Scotland to rank in the first quartile of OECD countries for productivity, equality and wellbeing, and sustainability.

Within our current powers, the enterprise and skills support system is key to this economic ambition. The respective agencies exist to create the conditions for businesses to increase productivity and growth, and to help deliver the skills that Scotland's people and economy need.

This review will help to enhance the system of enterprise and skills support so that it is greater than the sum of its parts, making a substantial and valuable contribution to productivity and broader economic performance.

In particular, it will be a system which:

• Has a singular point of focus - the Strategic Board will ensure that each of the Agencies know the shared goals and aspirations of the whole system. Everything which those agencies do must contribute towards those goals. It will be the immediate role of the Implementation Board to frame those goals and aspirations. We know, however, that they must include:
  • Embedding a culture of innovation and aspiration into our economy.
  • Focussing on the sectors where Scotland has the potential to lead the world.
  • Building a skills infrastructure with an eye to the opportunities of the future. We must not fear innovation and change, we must support Scotland's people to lead that change and benefit from it.
• Is informed, and held to account, by evidence and data. We know there is room for improvement in how we measure the performance of the Scottish economy and our enterprise and skills activities. It is vital to know how the agencies are contributing towards growth, employment and productivity. We will create a new analytical unit to better coordinate the analytical resources of each of the agencies and the Scottish Government to help inform the decision making and performance of the Strategic Board.
• Is focussed on the customer. We will simplify the ways in which our learners access education and skills provision and in which our businesses and entrepreneurs can access services from the agencies. We will have a single access point that is trusted by all business, with agency and local authority business advice services lined up behind it.
• Has a new agency representing the South of Scotland. We will introduce legislation in 2018 to bring into effect the new agency so that it is fully operational from the beginning of financial year 2020. Focused on the needs of Dumfries and Galloway and the Scottish Borders, the new agency will: support a diverse and resilient economy; sustain and grow communities and capitalise on people and resources. We want to ensure that people in the South benefit as soon as possible from a new approach and will work with stakeholders in the area to put in place interim arrangements in advance of the new agency. This will build on the support and resources in the area.
• Is focussed on the diverse communities of Scotland. HIE and the new South of Scotland Enterprise Agency will have a particular focus on their areas of responsibility. Elsewhere, we will ensure that every community is represented by a Regional Partnership focused on the needs of the economy of their area. Our agencies will respond more flexibly to local and regional needs. Moving forward we expect future city or growth deals to be focused on the needs of the area, informed by inclusive growth with the private sector an integral part.
• Is innovative and promotes innovation. Building on our world-class research and the existing routes to innovation and commercialisation in universities and colleges and supported by our enterprise agencies, we will take action to spread innovation more widely across the business base.
• Is international in its outlook. We will implement a joined-up system that promotes a global mind-set, raises international ambition, and works with and for the private, academic and public sectors to maximise the impact of individual action and of Scotland's collective endeavour.
• Focusses on the skills which are needed for our economy, providing the right skills to our young people and opportunities for up-skilling and reskilling for those who are working in industries which are rapidly being transformed by digital innovation.

Raising Scotland's Productivity Levels

Delivering these systemic improvements will drive a step-change in Scotland's productivity. Productivity matters because it drives the overall standard of living in our economy, the competitiveness of our businesses, and the resources that are available to provide the goods and services that our society needs.

Increasing productivity also underpins our ability to create a more inclusive, sustainable economy with higher standards of living and working conditions for everyone across Scotland. That is why we have continued to focus hard on productivity growth within this Enterprise and Skills Review.

The respective agencies exist to help businesses maximise productivity, to create good jobs, and to help deliver the skills, research and innovation that Scotland's people and economy need. Part of this review, therefore, enables us to take a fresh look at how we maximise the impact of our agencies on productivity growth, both now and in the future.

To further achieve this aspiration, and consistent with the aims within Scotland's Economic Strategy, we want to maximise our collective impact on the following drivers of productivity:

• Investment: including digital infrastructure, new plant, machinery and equipment, foreign direct investment.
• Skills: including investment in our young people through our education and skills system, and the up-skilling and reskilling the existing workforce.
• Innovation: including investment in R&D by the private and higher education sectors, knowledge exchange between industry and universities and colleges, the development of 'clusters', and fostering innovative behaviours among businesses across different sectors and within businesses, in the form of workplace innovation.
• Internationalisation: including the degree of exposure to international competition and larger international markets through exports and trade.
• Enterprise: including entrepreneurship, start-ups, businesses' ambition for growth, and the dynamism of the business base.

Improving productivity is not about 'more work for the same pay'. It is about strengthening the economic conditions to provide for better paid work and new opportunities. To be sustainable, this requires resilience within the workforce and the ability to transition and adapt as global forces drive economic change. This is why we place a separate but complementary emphasis on skills.

That is also why, in an inclusive and sustainable economy, it is critical that our approach to improving performance across traditional drivers of productivity must be shaped and reinforced by the following factors:

• Fair work: including fair wage levels, job security, ownership and management and leadership capabilities.
• Health and wellbeing: the health and wellbeing of our workforce underpins our ability to improve labour productivity.
• Natural resources and sustainability: the quality and diversity of natural resources available in Scotland and economic effect of transitioning to a more resource efficient, lower carbon economy.
• Regional-specific factors such as composition and size of sector mix, business base and supply chains, infrastructure, skills and workforce all contribute driving productivity differences. A more balanced regional economy will enable us to increase our national economic potential.

Governance

Our enterprise and skills agencies are critical to achieving a more successful country, delivering opportunities across Scotland which support inclusive and sustainable economic growth. Many of the responses to Phase 1 of the Review, including from Audit Scotland, highlighted the need for greater alignment in order to deliver greater economic impact.

So this review, far from diminishing the role of these agencies, seeks to enhance the impact of the collective investment we make in economic and skills development in Scotland and create some of the best conditions in the world for inclusive growth. To do this we must help and support out agencies to transform the services, skills and the support they offer business and individuals across Scotland to be successful.

We will create a governance architecture to enable our agencies, including a new South of Scotland Enterprise Agency, to come together to deliver greater collaboration, innovation and strategic purpose, enhancing the system so that it is able to deliver more than the sum of its parts.

Throughout the review process we have listened to wide-ranging views on how to deliver this enabling architecture. The Strategic Board will support the strategic co‑ordination of agency activities around shared priorities and drive improved performance through evidence on the economic impacts of the agencies' work.

While support for the Strategic Board has been considerable, there were concerns about how it would impact on the operation and governance of the agencies, particularly HIE and the SFC. We have been careful therefore to balance the different interests of the regions of Scotland and retain the statutory functions and responsibilities of each agency.

As confirmed to Parliament on 30 March 2017, we will not legislate to change the current responsibilities of the agencies. Agency Boards will remain in place and their core functions will remain unchanged but with an absolute expectation that the agencies will work to align their delivery with the priorities set out by the Strategic Board.

It is clear, however, that strengthened governance will only achieve so much - we must, collectively, focus on what we need to change, how we will change it and how we will measure our success.

Strategic Board aims, function and membership

As set out in Phase 1 of the review, we will deliver in autumn this year a new Strategic Board that will provide the high-level governance for enhancing economic performance. In establishing the Strategic Board we will build on the work of Professor Lorne Crerar in his report 'Proposals on Governance and the creation of a Strategic Board' to enhance the collective delivery of the agencies. We have published our response to Professor Crerar's proposals alongside this Phase 2 report, providing additional detail on the future governance arrangements.

We have expanded the four Strategic Board aims which Professor Crerar identified to include a fifth aim which recognises the need for a step-change in the collaborative culture not just across our agencies but also with partners in the broader enterprise and skills system. The Strategic Board aims will be to:

• Improve the overall performance of the economy by ensuring that the whole Enterprise and Skills System delivers Scotland's Economic Strategy and supporting strategies, in all parts of Scotland.
• Through collective responsibility ensure hard alignment between agencies to drive improvement in Scottish productivity and better support business and users of the skills system.
• Hold agencies to account for performance against agreed measures.
• To actively engage with other agencies and bodies who support the economy with a view to increasing alignment and challenging others where collaboration is not happening.
• To deliver wider collective leadership, based on common culture and values, and which inspires and empowers delivery.

The immediate priority for the Strategic Board will be the development of a Strategic Plan and a measurement and performance framework which will underpin that plan.

The work of the Strategic Board will be supported by a new analytical unit which will provide robust evidence across the entire enterprise and skills system to inform the Strategic Board's priorities and decisions. The unit will also develop the comprehensive set of performance measures and shared outcomes that will help to focus the agencies on the areas with the most positive impact.

In support of the aims of the Strategic Board, Strategic Committees will be established to drive forward key priorities, bringing together the agencies with wider interests to promote collaborative delivery. To maximise efficiency, where appropriate we will look to utilise existing or re-purposed fora to act as Strategic Committees in preference to developing new groupings. For example, we will seek to utilise the existing Joint Skills Committee as a new, repurposed Strategic Skills Committee.

It is vital that the Strategic Board not only has a clear understanding of national economic performance but also a clear regional focus, working directly with stakeholders and regional partnerships to help shape and contribute to delivering regional strategies that support the delivery of their national priorities and improve local economic outcomes.

Figure 1 sets out the current working assumption for the structure for the Strategic Board and the broader governance arrangements.

Figure 1 - Structure of Strategic Board and Broader Governance

How will the Strategic Board Work?

The Strategic Board will have an independent chair appointed by Scottish Ministers and a membership drawn from the Chairs of each of the agencies as well as non-executive members drawn from business, local government, skills and research and trade union communities. In addition to their current statutory responsibilities, Scottish Ministers will assign each agency chair with a new, explicit responsibility to support the shared aims of the Strategic Board.

To deliver meaningful change, the Chairs of the agencies, as part of the Strategic Board, will be instrumental in the development of the Strategic Plan, and the common performance and measurement framework that will support it.

The Strategic Plan - which will be agreed with Scottish Ministers - will lay down the agreed areas of collective focus for the agencies and their roadmap for boosting growth and productivity.

The Strategic Board will not have responsibility for the allocation of budgets; this function will remain with Ministers, although they may choose to seek the advice of the Strategic Board when making funding decisions. Each Agency Board will retain existing autonomy and accountability for funding decisions.

We expect that the Strategic Board will meet every two months and across the country to ensure a clear understanding of regional needs, economics, activity and services.

Implementation Board

To maintain pace and momentum, an Implementation Board, to be chaired by Professor Lorne Crerar will lay the groundwork for the Strategic Board immediately following the conclusion of Phase 2. It will meet monthly until the Strategic Board is established in the autumn. All the Agencies will be represented on the Board alongside selected members of the Ministerial Review Group, and others to reflect business and the wider Scottish economy.

Specifically, this Implementation Board will look to:

• Develop an outline for the Strategic Plan and performance framework to be considered once the Strategic Board is established.
• Establish the cross-cutting priorities that will need to be an early focus for the Strategic Board and, where helpful, establish the Strategic Committees to rapidly deliver these priorities.
• Oversee progress on the delivery of the wider E&S Review workstream actions and recommendations that will fall within the scope of the Strategic Board.
• Set out the structure, accountability and reporting arrangements for the governance supporting the Strategic Board, including guidance on how the agencies will work together, and on their roles and responsibilities.