Capability Crunch Reported by SMEs, Painting a Worrying Picture for UK Productivity Growth

  • Businesses are dedicating less time to enhancing their management skills, HR practices, and operational efficiency
  • Research shows hybrid businesses are more inclined to implement measures geared towards improving productivity
  • Organisations that frequently seek advice report stronger performance and capabilities

Small and medium-sized businesses report significantly lower capabilities in areas linked to high productivity, according to new research by Be the Business, a charity that champions small business productivity.

Measuring performance, expectations, and the actions businesses plan to take to drive growth in the future, Be the Business CEO Antony Impey says the findings ‘require a redoubling of efforts to get businesses thinking about productivity in their businesses.’

Key findings include:

  • A 2nd consecutive fall in the headline Productive Business Index which is published twice annually
  • The index stands at 111.4, which is 1.2 points lower than the 5th edition published in October and 10 points lower than Q1 2022.
  • This fall was driven by a significant drop in action taken by SME leaders to improve management skills, HR practices and operational efficiency, all of which have a proven link to higher levels of productivity
  • Businesses that operate a hybrid model report higher performance and stronger capabilities than remote businesses and those operating from a dedicated work environment, like an office or factory.
  • Business leaders who regularly seek advice report significantly higher levels of business performance and activity to improve capabilities.

Commenting on the findings, Anthony Impey MBE, CEO of Be the Business, said:

“There isn’t a secret to higher levels of business productivity. It is a code that’s already been cracked. Businesses which invest in their management skills, HR, operations and technology are stronger performers than those which don’t.

“It is worrying that fewer business leaders have taken action in these areas compared to last year. The sustained growth needed for a higher wage economy won’t happen without more businesses building their management skills.”

UK productivity has grown at an average of 0.4% per year since 2008, compared to the OECD average of 0.9%. Lower productivity significantly inhibits the ability of both the public and private sectors to offer wages that keep up with or pace ahead of inflation.

Too soon to end working from home?

The report explored the post-pandemic legacy of hybrid working and its impact on productivity. Be the Business found that businesses implementing a hybrid model are more likely to be working on the skills linked to higher productivity levels. In contrast, those primarily operating a remote model aren’t investing in their skills to the same extent.

More than four in 10 (42%) of hybrid businesses will further develop their business strategy in the next 12 months compared to less than a third (31%) of remote businesses. A similar trend is found in planned financial forecasting activity and management skills development.

Anthony Impey added:

“The businesses debating a return to offices should ensure they don’t lose the productivity benefits hybrid arrangements provide. And those businesses operating entirely remotely should ensure they find opportunities to collaborate and provide a supportive environment to younger workers, both of which appear to be areas of organisational weakness.”

Advice pays

The report also compared the responses of business leaders who regularly seek advice to those who don’t look externally for help. It found that those who regularly seek advice are more than twice as likely to report an improved financial situation compared to businesses that do not look externally. Business leaders who get advice also reported larger amounts of new employment and an increased volume of orders.

Anthony Impey added:

“Getting advice pays off in real and meaningful ways. Those who do so regularly show increased revenues, fuller order books and more employment. By contrast, those who don’t seek advice appear overconfident in their management skills.

“There needs to be a collective effort from the business community and government to demonstrate the value of an external perspective to business productivity and performance.”

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