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News Policy publications - Productivity & growth

Lifting the Long Tail - productivity report summary

19 Nov 2018

Manufacturing plant productivityThe IoD recently released a new report “Lifting the Long Tail”, which assess the productivity challenge facing small businesses, and puts forward fresh policy recommendations. You can read it here or take a look at our quick summary below.

1. The UK is home to many leading global and innovative businesses, but it also has a ‘long tail’ of underperforming firms seeking to grow. We need to give business leaders the tools to change this, and tap this significant hidden potential for future wage growth and employment.  

Closing the gap between the best and the rest could boost the economy by around £270 billion. Source: Bank of England

2. The gap can be closed by helping firms to adopt existing best practices in management and technology. Small firms generally face a greater challenge to adopt established web-based tools and data analytics software that are known to drive business performance. Meanwhile larger firms are also more likely to engage in staff and management training, and implement target, monitoring, and incentive techniques.

Business adoption rate of selected 'best' practice technology, % source: IoD Policy Voice survey

Business adoption rate of selected best practice technology graph

3. For resource-challenged SMEs, this is considerably harder. To begin lifting performance, we need to drive a culture of continuous improvement. Yet many small businesses simply do not have the capacity to work ‘on’ developing their organisations because they’re too busy working ‘in’ them.

1 in 2 IoD micro-enterprises say time is the biggest impediment to raising their productivity. Source: IoD Policy Voice Survey

4. Even if SME leaders get the chance to focus on strategy, diagnosing business problems, implementing the right solution, and then absorbing it into their organisation – whether it’s a new cloud computing system or a staff incentive scheme – depends on access to skills and finance.

While we’re a nation of many start-ups, we often find it hard to develop the people and operations skills to help founders turn their business idea into a flourishing organisation.

The hurdles to adopting new-to-firm technologies and management styles, source: IoD Policy Unit

Hurdles to adopting new-to-firm technologies and management styles

5. The UK lacks an integrated business support system to help diffuse the new methods, processes, and technologies uncovered by our frontier firms. SMEs need financial incentives, hand-held assistance at a local level, and bespoke skills support to drive their take up of best practice.

The IoD’s Policy Recommendations

A new Enhanced Capital Allowance to support productivity growth in SMEs      

This would create a clear signpost and greater incentive, above what is already available, for small business leaders to invest in defined best practice technologies, such as data analytics and cloud computing, by allowing them to cut their overall tax bill.

Develop a more formalised national business support system

LEPs/Growth Hubs need to be adequately resourced to coordinate business support delivered through private institutions – including business groups, consultants, social enterprises, business partnerships and universities – at a local level, and across five core layers:


 

IoD's Proposed National Adoption Ecosystem

(Source: IoD Policy Unit)

1.

Best practice community:
A coordinated community-led movement to inform businesses about 'best practice' in management and technology, and driving 'productivity mindsets' at a local level. It should ideally include an online portal showing supporting events, networking, mentoring, and training programs, navigable to the regional-level

2.

Enquiries:
General business advisors, and operational management support, on day-today issues, including HR, tax and regulatory compliance, and financial management to free-up business leaders to think about business improvement.

3.

Diagnostics:
Research, business experimentation, and technology specialists to help SMEs 'diagnose' opportunities and problems, and 'de-risk' business improvement projects. 

4.

Consultancy:
'Hand-held' bespoke consultancy support to assist in executing business improvement projects and transformations.

5.

Referrals:
Assist in identifying relevant partners, consultants, and training schemes.
Just 6% of IoD small business members currently draw upon the LEPS/Growth Hubs network to help them adopt management and technological best practice. Source: IoD Policy Voice survey

Support greater knowledge transfer between higher education institutions and small businesses

Innovate UK’s Knowledge Transfer Partnership program, which connects businesses with a highly-skilled graduate, should be broadened to better support small businesses on their growth journey.

Broaden the scope of schemes such as the Apprenticeship Levy with a focus on leadership, management, and digital skills

Firms need flexible access to management, leadership, and digital skills courses emphasising practical application and on-the-job training so that learnings can be quickly embedded and applied.

Create a culture of SME networking, mentoring and coaching

Small businesses are more likely to adopt high performance work practices when they are part of an external business advisory network (Source: Wu et al, 2014)

Businesses with well-connected directors are likely to be more productive than firms with a weaker contact base (Source: Bank of England)

Build a culture of technological leadership in SMEs

An industry-led movement is required to boost basic digital skills, increase technological awareness, and support the development of tech leaders in SMEs.

Equip the independent Industrial Strategy Council to help assess and monitor small business productivity policy

Small businesses need continuity, coordination, and long-term thinking from Government– making productivity a central pillar of the Industrial Strategy Council, an independent body designed to assess and monitor the Government’s Industrial Strategy, is therefore crucial.


Reminder that you can download and read the Lifting the Long Tail report here.

Contact Press Office

Donjeta Miftari, Head of Communications  

020 7451 3285


Euan Holmes, Press Officer

020 7451 3280


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