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

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.

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

SMEs and Productivity

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.

High-Growth Firms (HGFs) in the UK

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

What drives SME growth and performance?

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

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?

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.

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.

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

Growth Dispositions

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

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

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.

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.

… 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.

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 unfocusedUK eco-system of mentors, financiers, leadership training organisations

• One possible solution…. Universities and Growth agenda – e.g., Small Business Charter http://smallbusinesscharter.org/

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)

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 supportOffering 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

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

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