Keynote presentation by Mark Hart at the 5th Engage , HEI conference. May 19th 2016. University of Lancaster . Preston

1. The Role of Universities in
Unlocking UK Productivity
Professor Mark Hart
The 5th Engage HEI conference: 'Engaged
Scholarship: impact, policy and practice‘
Preston, 19th May 2016

2. Overview
• Despite improving economic performance, the UK still has
fundamental economic weaknesses that can be improved by
effective business support.
• Economic strengths and weaknesses can also be identified at
local and regional level, and vary significantly across the UK.
• These differences must guide the approach to local
interventions.
• Business support should ultimately be contributing to
improved performance of individual firms, leading to better
economic returns locally, and for the UK as a whole.

3. The UK’s Productivity Challenge
• UK productivity – value
added per employee - lags
that in its international
competitors
• Little productivity growth
since 2008 has meant the
situation has worsened over
recent years
• Figures for 2015 suggest we
are currently 16% below the
pre-recession trend growth
line.
• GDP per employee

4. SMEs and Productivity

5. SMEs and Productivity ….
• The SME population in the UK has grown by 14% since 2011. SMEs in the
UK now account for 15.6 million (60%) of all private sector jobs in the UK
and £1.75 trillion (47%) of revenue.
• Around a fifth of all new jobs are created by the 10 per cent of surviving
small businesses which achieve high growth – around 12k firms
• These businesses are operating in all sectors of the economy and there is
no spatial concentration as they are found in all regions and nations of the
UK.
• Other evidence about these High-Growth Firms shows that they
demonstrate above average levels of productivity growth, high levels of
innovation, strong levels of export-orientation and a high level of
internationalisation.
• The relatively low number of high-growth firms in the UK suggests that
there is further potential to increase productivity.

6. High-Growth Firms (HGFs)
in the UK

7. Focus more on Start-up Quality
7
UK Doesn’t Have a Start-Up Problem UK Has a Growth Potential Problem
•UK reported 500k start-ups in 2014 – around half
are self-employed
•UK has the highest level of self-employment than
at any point in the previous 40 years
UK creates many 0 employee firms
• Limited growth potential & aspiration
UK needs more promising growth firms
• Job creators, and UK prosperity
OECD Average UK
Start-ups since 2007
0
2
4
6
8
10
2008200920102011201220132014
UK France Germany
UK highest
level of new
enterprises
than any
OECD country
in Q1 2014
GEM data
shows early-
stage
entrepreneuria
l activity in UK
highest in EU

8. What drives SME growth and
performance?

9. Think innovation…
Innovation has a strong link to growth, productivity and exporting – so:
• SMEs that innovate are around 7% more likely to export than a non-
innovator.
• SMEs that export grow more than twice as fast as those that do not.
• Internationally active SMEs are three times more likely to introduce
new to the market innovations

10. The ‘Arc of innovation’
• Taking these different indicators
together we can describe an ‘arc of
innovation’
• Why does this matter? Because
innovation is strongly linked to
exporting and growth?
• We should – perhaps - worry what
this says about rebalancing . And,
what are the implications for
policy both local and national.
• Promoting collaboration seems
obvious at local levels and perhaps
targeting support from Innovate
UK?

11. Think international…
• Recent research has shown that
just over 1 in 5 SMEs are
exporters.
• Of these, only 17% can be
classified as ‘persistent
exporters’32 and only 5% as
‘intensive persistent exporters’,
• The UK lags behind France and
Germany in terms of the
propensity of SMEs to export.
• We estimate that between 9%
and 12% of all non-exporting
SMEs have the characteristics to
become exporters – around
110,000 firms.

12. Evidence?
• Many studies demonstrate the
positive association between
internationalisation, innovation and
productivity growth.
• Looking at GS10ksb participants
between 2010 and 2014 we find
more evidence
• The view of growth ambition as a
necessary precursor to growth has
been demonstrated using samples of
business owners with a relatively
restricted set of personal
characteristics.

13. Think growth…. a question of ambition?
• Ambition does matter for productivity and growth and can be
influenced both by market opportunities and elements of the
regulatory and legislative environment such as taxation

14. Growth Dispositions

15. L&M Skills in SMEs
• Growth ambitions of SMEs matter to
productivity growth
• But ……weak leadership and entrepreneurial
skills has been identified as a key barrier to
growth
• Affects Growth Disposition and Mindsets

16. Building the Evidence
• ERC commissioned by BIS to undertake research
involving 2,500 English SMEs - Invest NI funded a
sample of 300 supported SMEs within the study.
• Key questions:
– How do L&M skills influence the adoption of best practice
and,
– how they may shape business performance
• Research report, 'Leadership and management skills in
small and medium sized businesses' is available on ERC
website

17. Key Findings
• Many SME founders face challenges in expanding
their leadership to incorporate a CEO and
Management Team.
• Many SMEs are found not to employ management
best practice and as a result their growth is
constrained.
• The evidence indicates that this weakness can have a
negative effect on turnover, productivity and
employment growth.

18. Defining the sustained growth
problem…
• For small firms growing rapidly from say £2m to £5m turnover
the business and leadership challenges are immense
• Growth means the nature of the business is transformed
rapidly –this creates issues around finance, organisational
structure, innovation and markets (to name just a few…)
• Leadership and management demands are also transformed,
with rapid growth challenging the capabilities of the owner-
manager and leadership team.

19. … and the solution?
• These dual challenges – business transformation and
leadership development – define the sustained growth
problem at the level of the firm.
• And, the international evidence is clear. Schemes which work
in this way can deliver real benefits - 8-10 % a year increased
and sustained growth
• So the problem is not ‘what’ we need to deliver to support
sustained growth, the question is ‘how’ we best do this in
the UK.

20. Delivering support for sustained
growth in the UK…
• The need: episodic high growth and a declining contribution to new
jobs by growth-oriented firms
• The appetite: UK experience with programmes such as the GS10ksb,
BIG, LEAD suggests ambitious firms are keen and would contribute
• The focus: delivering integrated business and leadership support over
a sustained period with extensive peer group learning
• Existing resources: a resource rich but un-coordinated and unfocused
UK eco-system of mentors, financiers, leadership training organisations
• One possible solution…. Universities and Growth agenda – e.g., Small
Business Charter http://smallbusinesscharter.org/

21. HEIs & Growth Hub Week!
• Growth Hubs now provide a single focus for the delivery of
business support locally across England
• Aston University/Birmingham City University are strategic
partners with the Chamber in GBS Growth Hub
• “Driving UK Economic Growth through ScaleUp Ecosystems”
initiative now underway in the UK (led by SUI and fully-funded
by the Goldman Sachs Foundation) – 19 LEPs + Scotland
• Involves a number of HEIs (Aston; Bristol; Edinburgh;
Manchester; Strathclyde; Wolverhampton; Worcester)

22. Key Messages
22
UK’s challenge is start-
up quality, not volume
Survival and Growth are
key drivers
Firms fall into three very
diverse profiles
Firm trajectory is
predictable
UK spawns many 0 employee start-ups, but higher-
potential firms dominate UK economic
impact
Economic impact depends on survival and growth
of start-ups
• Fail fast
• Sustain
• Grow
Future trajectory can be better profiled early in lifecycle,
creating opportunity to better support the most promising
Firms value capability-
building support
Offering firms capability building support
appears to increase likelihood of success
Firms can be seen of three distinct types,
and these have massively different
contribution to UK economy

23. Final Remarks
• SMEs have a potentially important role to play in UK
productivity problem. High-growth SMEs are particularly
important.
• UK SMEs could be performing more strongly in in terms of
innovation and internationalisation. Both would contribute to
scaling and productivity particularly where innovating firms
export.
• Supporting companies with growth potential can pay
dividends with initiatives such as the university-led GS 10KSB
UK programme having substantial growth and productivity
payoffs

24. Thank You
If you would like any more information about the ERC and any of its activities
please contact us: Mark Hart (mark.hart@aston.ac.uk).
More details about the activities of the ERC and our latest events can be
found at:
www.enterpriseresearch.ac.uk