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

1. Professor Mark Hart
Deputy Director, Enterprise Research Centre
& Aston Business School
SME Live, NEC, 16th October 2018

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. 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. UK’s Productivity - ‘fat lump’

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Goldman Sachs 10,000 Small Businesses
Programme - Impact on Productivity

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. Thank you
More information at http://enterpriseresearch.ac.uk/
Contact us:
Mark Hart mark.hart@aston.ac.uk
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.