Posted on: 23/08/2019
The term productivity describes the effectiveness of productive effort, measured in comparing a company or country’s output against its input. It’s therefore an important factor in both company performance and economic growth. When measuring productivity by output per hour, the Office of National Statistics (ONS) figures show that there is a productivity gap of 15% -19% between the UK and the rest of the G7 nations.
According to the Federation of Small Businesses, there are 4.5 million SMEs in the UK, making up 99.9% of all UK businesses. It is for this reason that analysing their contribution to UK productivity is essential.
Currently, UK SMEs face productivity challenges relating to government, regulation, access to finance and the overall economic landscape. Exemplas work with government and public bodies to deliver support services to SMEs, helping them to unlock their potential and ensure that small businesses in the UK not only survive uncertainty, but thrive. Below is a breakdown of the top seven productivity challenges SMEs face, as stated in The Power of Productivity report from the Close Brothers.
According to the report by the Close Brothers, 95% of UK SMEs think it’s important to improve productivity, yet it was found that three in ten of them are not currently measuring it. There are no specifications for tracking SME productivity in the UK, which may be the reason for the lack of knowledge or the means to measure.
The Power of Productivity report found that 29% of UK SMEs do not feel supported by the government. Along with financial incentives, SMEs are most concerned about apprenticeships, with one in five stating that they would like government help in this area. Research from the Centre for Economics and Business Research (CEBR) suggests that an average apprentice can deliver productivity gains of over £10,000 per annum; meaning that improving the UK’s apprenticeships system could be an important step in closing the productivity gap.
Across the UK, the larger the SME, the more likely they are to have had issues with regulatory red tape. Due to the resources required to navigate these issues, it’s becoming a real issue for productivity. A study of UK SMEs found that they were losing an average of ten hours a week dealing with HR compliance and regulatory paperwork.
Exemplas consultancy brand Ellenbrooke, help businesses to achieve certifications for internationally recognised standards, helping to strengthen business practices, getting businesses into the right supply chains and enabling sustainability and growth to aid productivity.
Technology and innovation are important measures for improving SME productivity, creating opportunities for growth and more efficient businesses. The Close Brothers report found that 55% of UK SMEs have invested in new technology and software, and one in four plans to in the future. An important factor to consider when investing in new technology is cyber security, as if not supported correctly it could result in data loss and IT system failures, inhibiting business productivity.
Two thirds of UK SMEs think they have skills shortages; productivity relies on a company’s ability to retain the right staff. It’s therefore important that SMEs are upskilling their employees through training, education and workshops. Secondly, when it comes to working practices linked to productivity, presenteeism and absenteeism (employees who are at work but not engaged in productive work) are well-known causes of productivity loss.
Access to finance, growth and productivity are inherently linked. The International Monetary Fund (IMF) estimate that lack of funding could be responsible for 0.4% of the decline in UK productivity1. The Power of Productivity report found that in the UK, overdrafts are heavily relied upon and a third (33%) of SMEs are using this type of finance to grow their business. Not only does securing the wrong financial product often prove costly, it often means that these SMEs do not have the financial security to invest in boosting their productivity. The British Business Bank provided over 89,000 businesses with £6.6bn of finance by the end of the last financial year2. The lack of understanding among SMEs of their financial options may be the issue.
Exemplas deliver public sector contracts, including Hertfordshire Growth Hub and Enterprise Europe Network in the East of England, that help SMEs to access funding from local, national and international bodies.
When it comes to looking at future productivity challenges for SMEs in the UK, Brexit brings uncertainty and is at the forefront of many small business owners’ minds. Weighing in on decision making and long-term business strategy, it seems that although they may not be able to do much about the current economic landscape, SMEs are ready to roll out productivity measures to help grow their business, with a third (34%) stating that they intend to use innovation to improve productivity3.
Improving productivity is paramount to business growth. Whilst many SMEs in the UK know its importance, many are not measuring it. This is maybe the first step towards filling the productivity gap.
Exemplas has been supporting SMEs to recognise their growth potential for over 25 years. Experts in trusted advice, we are passionate about helping small businesses achieve their ambitions. Find out more about the work we do here.