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Solving the UK's Productivity Problem against the backdrop of Brexit - challenges and opportunities for small businesses


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Keynote Presentation at SME Live 2018,NEC, October 16th by Mark Hart.
Solving the UK's Productivity Problem against the backdrop of Brexit - challenges and opportunities for small businesses

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Solving the UK's Productivity Problem against the backdrop of Brexit - challenges and opportunities for small businesses

  1. 1. Professor Mark Hart Deputy Director, Enterprise Research Centre & Aston Business School SME Live, NEC, 16th October 2018
  2. 2. Background • Clear connection between ‘business dynamism’ and growth in productivity – at local and national level • Business start-up and growth metrics reveal the challenge ahead – for both the investors and business leaders in every region • Innovation at the core of driving ‘business dynamism’
  3. 3. Business Dynamism – the Challenge • Initial survival and scaling of start-ups a key concern – not interested in the volume of start-ups per se • Very few firms that can be categorised as ‘high-growth’ or have shown evidence of scaling • Growth ambition among early-stage entrepreneurs nd micro- businesses is low • These ‘weak’ business growth metrics show some correlation with low levels of productivity
  4. 4. UK’s Productivity - ‘fat lump’
  5. 5. Dispersion and Persistence • ERC analysis using the ONS firm-level data (2008-2015) suggests that, in a population of survivor firms, firms at the top 10% mark of the productivity distribution are ten times more productive than those at the bottom 10% mark. • And, just as important, this dispersion is persistent: about a decade later the 90/10 ratio was still around ten.
  6. 6. Jobs or Productivity? Turnover Growth Job Growth Zero Zero ‘Green Zone’ + + + - - - Only one ‘space’ where growth in T/O; Jobs and productivity are all +ve – the ‘green zone’ But sparsely populated with firms – 9% …and more than half of them where there is very little growth Rule of thumb – 74% of firms which grow turnover grow productivity; 21% of firms which grow jobs grow productivity Source: Anyadike-Danes, M and Hart, M (2016) “Seeing the trees for the wood: going with the grain of the extraordinary heterogeneity of firm-level productivity”, ERC WP, November 2016; Anyadike-Danes, M (2016) “Locating High Growth Firms in Productivity Growth Space” – Slide deck available from author. British Business Bank (2018) 11% 6% 6% 27% 7% 9%
  7. 7. High-Growth Firms (HGFs) – 20% employment growth p.a. (2014-17) • HGFs are a very small proportion of UK businesses population (n=10,778) yet they have a disproportionate impact on job creation. • Typically, over a three year period, high-growth SMEs represent less than 1% of established businesses, but generate 20% of all job growth amongst established businesses which grow.
  8. 8. High-Growth Firms: Jobs Vs Productivity? • Only 20% of 10+ employee firms in the ‘green zone’ are HGFs (T/O definition) • Only 5% of 10+ employee firms in the ‘green zone’ are HGFs (Jobs definition) • So from a productivity perspective HGFs, as defined by the OECD, are not an important group of firms!! • But,………… should we be focusing on these firms anyway? – more useful is a life cycle approach and focus on drivers of high growth episodes!!
  9. 9. Firm Productivity Growth (2014-17) Firms who grow both in terms of jobs and revenues but have a faster rate of growth in revenues
  10. 10. Firm Level Productivity & Brexit Concerns • Certain UK regions identified by the Government’s own economic impact analysis as more at risk to the negative impacts of a range of Brexit scenarios • In these regions the business population is characterised by even greater numbers of low productivity firms. • Considerable variation in productivity within firm size-bands: it is not case that that larger firms have uniformly higher productivity than smaller firms.
  11. 11. UK’s Micro-Businesses & Brexit • The most authoritative survey of UK micro-businesses was undertaken in 2018 (Q1). • Many are homebased and three-quarters have no growth ambition and aim to ‘keep their business similar to how it operates now’. • Growth in sales has been modest for most firms over the last year with around a third of micro-businesses exporting but exports represent less than 10% of total sales. • Evidence would suggest that, given their current modest performance and ambitions, this is not a group of firms that is ‘set to thrive’ after whatever type of Brexit emerges in just over 6 months. Increasing uncertainty over ‘Deal/No Deal’ will only serve to exacerbate this assessment.
  12. 12. Challenge for Business Leaders? • Uncertainty necessitates contingency planning and business model innovation but for the majority of small business owners this is not within their skill set. • Urgent work is required to ensure more small business leaders: – understand their value proposition; – take control of their own strategic financial metrics – develop more efficient channels to existing and new domestic customers – understand what opportunities might emerge in the international market place. • In other words, upgrade their management practices!
  13. 13. Innovation made Simple! • Innovation – a fancy word for problem-solving – or asking the question - ‘is there a better way of doing something in your business?’ • Solving a problem you have in your business is the best place to start thinking about innovation • So I define innovation as trial & error leading to successful problem-solving or finding a better way to do what you’re currently doing.
  14. 14. Demand-led Innovation • Develop a customer-centric view: “Innovation in business is all about enabling your customers to buy – repeatedly, into the future, and to refer.”
  15. 15. Why are leadership/management/ entrepreneurial skills crucial? • Growth Accelerator clients in England reported that the main barriers to their growth were Strategy and Management (53%) • Chartered Institute of Personnel and Development shows that nearly three-quarters of SMEs in England report a deficit in L&M Skills. Source: Hayton, J (2015) “Leadership and Management Skills in SMEs: Measuring Associations with Management Practices and Performance” BIS Research Paper No. 211, March 2015 Skills Practices Performance Leadership Skills Entrepreneurship Skills Organisational Skills Strategy Centralisation Strategy Formalisation Strategy Responsiveness Technical Skills HRM Best Practices Turnover Productivity Growth
  16. 16. New Initiatives on the Horizon? • Chancellor has announced £31m for a business-led package of initiatives aimed at driving up firm-level productivity. One of which is……………… • ‘Small Business Leadership Programme’, which will provide management training to 2,000 small business leaders in its’ first year with an ambition to train 10,000 per year by 2025. • BEIS want to draw on the excellent training provided by our business schools and leading UK businesses to design and deliver this programme.
  17. 17. Goldman Sachs 10,000 Small Businesses Programme - Impact on Productivity
  18. 18. Impact on Leadership & Management 77% of 10KSB UK graduates attribute a change in their leadership style as a result of the programme. Develops a growth mindset, with 89% of 10KSB UK graduates - expecting to grow turnover in the next 12 months, versus 40% of UK SMEs generally.
  19. 19. Thank you More information at Contact us: Mark Hart This work contains statistical data from ONS which is Crown Copyright. The use of these data does not imply the endorsement of the data owner or the UK Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce National Statistics aggregates.