36.A range of studies and research indicate the importance and impact of good management and leadership for modern businesses and SMEs. Such skill sets include: commercial (e.g. marketing and serving of new offers); project management (e.g. logistics, organisations of events); financial (e.g. capital and cash flow management); strategic thinking (e.g. building internal leadership, coordinating sets of actions to fulfil new strategic objectives); and managerial (e.g. recruitment, training, retention and people management). Good business management skills are fundamental in helping SMEs to scale-up, expand internationally and to innovate. Research indicates that good management and leadership within SMEs can increase productivity, turnover and employment. For instance, one leadership and management programme aimed at SMEs run by Goldman Sachs 10,000 Small Businesses UK, has helped 1,400 businesses and reported that on average participants experienced a 22% increase in productivity after the programme.
37.Studies have found that leadership and management skills are uneven across UK SMEs, with a ‘long tail’ of many small businesses not having the requisite skills to implement management best practices, though our predecessor Committee, the Business, Innovation and Skills (BIS) Select Committee, heard that weak management skills across the board were impacting on overall UK productivity. Research carried out by the Office for National Statistics (ONS) found that management and leadership skills are correlated to company size, with medium and large companies having higher skill levels than smaller ones.
38.A survey carried out by the FSB in 2016, found that in the previous 12 months only a quarter of SME owners had undertaken specific management training, while roughly the same proportion had never undertaken such training. It also found that that only a fifth of SMEs had invested in external leadership and management training. Other evidence supports these findings, with particular deficiencies identified in human resource management, strategic management, project management and business planning. This is compounded by the fact that many managers within SMEs are promoted to management positions without any prior training. UK SME investment in line management training is also amongst the lowest in the OECD. The evidence suggests that such skills are correlated with higher productivity, and that management skills are higher among services industries than production industries, among larger firms than smaller firms, among foreign-owned firms than domestically-owned firms, and among non-family-owned businesses than family-owned businesses.
39.We heard that bad management was a “significant barrier to growth”, and was to blame for 56% of business failures between 2011 and 2014, while good management could improve SME survival rates. It has also been cited as a reason for the low take-up of digital technology. More specifically, a lack of people management skills is also having a negative impact. Many SMEs lack an in-house capability to understand employment legislation, recruit and retain key staff and deal with performance issues and the training and development of staff. Small businesses are also less able to tackle mental health issues, and burnout resulting from a long-hours culture. In addition, several witnesses told us that many small business owners lack ambition to grow their businesses or do not appreciate the benefits of expanding, which could be addressed through better management and leadership training.
40.We found that there are several reasons why SMEs do not invest in leadership and management training. Many SMEs do not realise that they have an issue that needs addressing in the first place, or are unaware of the solutions and support that is available. This is because many SMEs lack the in-house capability to identify and articulate their management and leadership needs. We were also told that providers of advice on management and leadership training often found it difficult to demonstrate to often sceptical companies the utility in providing such training to experienced staff, which meant that there needed to be clear evidence that it could improve productivity when compared to other priorities. There is also a complex, confusing and time consuming landscape for small business to navigate to identify relevant training and if they are eligible for funding. Many SME owners and staff also lack the time to attend training because they are too busy working in their business. The costs of training are also a major barrier to SMEs, both for businesses and individual staff.
41.There are a range of approaches to helping SMEs acquire leadership and management skills. For instance, we heard that offering bite-size chunks of learning, especially online, could address SME concerns over time and costs, and introduce SMEs to the wider benefits of management training. The Institute of Directors note the key role that LEPs and Growth Hubs can play in helping SMEs with day-to day issues, such as HR, tax and regulatory compliance, freeing them up to concentrate on management improvement, and helping them diagnose weaknesses and introducing them to relevant partners, consultants and training schemes. Many witnesses extolled the virtues of peer-to peer networks for spreading good management practices and knowledge, and advice on how to access the most relevant and cost-effective learning. Peer-to-peer networks can enhance leadership and management training by allowing it to be based in a business setting. Such networks, when part of a formal training programme, can continue after the programme finishes, providing further support, and allowing alumni to help support SMEs seeking training for the first time.
42.One exemplar of this approach is provided by Goldman Sachs’ 10,000 Small Businesses UK programme, which seeks to help small business leaders build confidence in core business management areas and apply knowledge learnt directly and immediately back into their business, primarily to improve productivity. It is a 4-month programme fully funded by Goldman Sachs Foundation that includes 100 hours of teaching and support from UK universities, both online and in person, and 7 days of residential learning which are structured around peer-to-peer learning. A key feature of the Programme is its alumni network, which provides a forum for continuing peer-to-peer learning and networking. The Programme reports that SMEs that go through the course experience a 28% increase in productivity compared to other high growth SMEs and see marked improvements in exports, leadership and management, investment in businesses practices, digital adoption and innovation. Other similar programmes that use such a blended approach to management and leadership training also report impressive results. Many witnesses agreed that the Goldman Sachs’ programme was excellent, though it is questionable if such programmes could be more widely spread because of the cost.
43.The Government provides some support for leadership and management training. For instance, the Business Basics Fund, run by BEIS in partnership with Innovate UK, and part of the Government’s wider Industrial Strategy, helps businesses adopt management techniques. Most recently, as part of the 2018 Budget, the Government announced a £31m package aimed at improving leadership and management. This included the introduction of a new £11m Small Business Leadership Programme to deliver 2,000 places in its first year, and an ambition to train 10,000 per year by 2025. It also announced £20m to strengthen local networks to improve business management, the introduction of a mentoring programme for SMEs and a partnership between government, professional services firms, large banks and technology firms to help support SMEs to adopt new management practices and modern business tools. The Minister told us that the Government had decided to invest in peer-to-peer networks because it knew that it worked and because where small business had started up and got “straight into networking they have grown quicker and become more productive”. The Minister acknowledged that the Government had learnt a lot from the Goldman Sachs approach; however, she accepted that it was a challenge to reach more businesses to improve leadership and ambition and that the Government was trying to tailor its support to plug gaps.
44.Poor management and leadership is a problem for far too many SMEs and is damaging their productivity and ability to grow. Often, this is because SMEs lack the time and financial resources to invest in relevant training, are unware of the benefits such training can deliver or suspect that it will not be directly relevant to their business. We welcome the Government’s recently announced £31m package of measures to help support SMEs improve their management skills and enable local networks where SMEs can learn from one another. However, the £11m of this funding assigned for management training will only reach up to 10,000 people a year. We recommend that the Government should set out immediately how it will track and report on the effectiveness of this package of measures. It should also examine how it can reach more companies. For instance, we recommend that it uses the lessons learnt from programmes such as those run by Goldman Sachs to produce scaleable offerings, such as bite-size online learning, which can address SME time and money constraints. This can be combined with local peer-to-peer networks which can enrich such learning. We also recommend that the Government introduces financial incentives, such as vouchers, as soon as possible to encourage SMEs to explore and then take-up management and leadership training.
45.Digital skills are crucial for SMEs if they are to improve their productivity and especially if they want to scale up. Digital technologies can allow SMEs to improve their relationship with their customers through customer relationship management (CRM), improve and speed up accounting, resource planning and people management processes, delivering efficiencies, especially in terms of staff time. They can allow better access to and storage of data and information (e.g. cloud computing) and enhance its creation, modification and analysis. The use of cloud computing enables SMEs to reduce the need for on-site ICT staff support and upfront investment in ICT capital. Digital technology and digital skills can also allow SMEs to benefit from digital platforms, such as social media and online selling and payments, and emerging technologies such as artificial intelligence, robotics and 3-D printing. In addition, digital technology allows SMEs to improve market intelligence, increase local competitiveness and access global markets and knowledge networks at relatively low cost. However, the introduction of such technology needs to be accompanied by staff and management training and the introduction of business processes to ensure that digital technology is fully exploited. While all of the above are essential for all SMEs to remain competitive, they are imperative for those companies that want to scale up by enhancing their knowledge-based capital, such as research and development, and introducing new organisational processes.
46.There appears to be a sizeable digital gap for many UK SMEs. Despite clear evidence that better digital capability spurs growth, a quarter of SMEs do not consider digital skills or investment in digital technology to be important to the growth of their business. Many SMEs are limited by broadband speeds, and internal resources (e.g. people, training hardware and software) to absorb digital technology. In 2017, a survey found that nearly 2 million small businesses in the UK lacked basic digital skills and digital knowledge. The lack of these basic skills has resulted in around five million working hours every week being lost to SMEs in fixing everyday IT problems, such as printer issues and computer crashes. Some SMEs are also not exploiting the use of digital in identifying customers and what they want, automating production and enhancing human resource and finance processes, and many are not able to make use of cloud computing and remote server access. The adoption of digital technology by UK firms generally has generally been behind many other OECD economies; for instance it is not amongst the top players in adopting emerging ICT technologies. Micro-businesses in particular are not fully exploiting the potential of digital, both in the types of digital applications adopted and the numbers of digital processes they are adopting.
Chart 6: Percentage of Micro-businesses adopting specific digital processes (2018)
[CRM (Customer Relationship Management); Web A/C (web-based accounting software); CAD (computer-aided design software); AI (artificial intelligence)]
Chart 7: Percentage of Micro-businesses adopting one or more digital processes (2018)
47.Though most SMEs provide some kind of digital skills training for their staff, about a half do not have a formal training plan or training budget for digital skills training, while three quarters of self-employed business people have no plan or budget to support training. SMEs are even less likely to invest in newer innovative technologies, such as AI, and the skills to exploit them, despite the UK being a world leader in developing them.
48.There a number of reasons why SMEs do not adopt digital technology. Many SMEs simply do not know about what is available, how it is being used by competitors and whether they are optimising the technology they do have. A survey carried out by the FSB in August 2017 found a range of other issues that inhibit SMEs becoming more digital.
Chart 8: Top Five Barriers to SMEs becoming more Digital (Percentage of SMEs affected)
49.SMEs face even more specific barriers to adopting more innovative technology such as an ineffective and confused landscape of business support, ambiguity about what ‘good’ looks like and not enough incentives for uptake. They also face more general problems which affect all businesses, such as a skills shortage in advanced digital skills and a lack of common standards allowing different technologies to connect. However, SMEs, especially micro businesses, have fewer resources to overcome these problems and while bigger companies see digital technology as an opportunity to invest in, smaller ones can often see it as a threat.
50.A number of possible solutions can address the digital barriers facing SMEs. Several witnesses told us that there needed to be better collaboration between SMEs and innovative, science and research organisations if SMEs were to reskill and upskill staff, and make the most of new technologies such as AI, robotics and 5G. Help could also be given to SMEs through the use of inducements, such as vouchers from LEPs or Growth Hubs to introduce SMEs to digital solutions, and good signposting to digital resources and advice. We also heard that local business networks, involving LEPs, Growth Hubs and peer-to-peer forums played a key role in allowing business to learn from other businesses on what technology worked best and where advice and support could be accessed at both a national and local level. When such networks involved local business schools and universities, they could also help promote newer technologies.
51.The Government has acknowledged that there is a problem with digital skills, and is currently consulting on a new national standard for basic digital skills, improvements to the publicly funded basic digital skills offer and the introduction of a national digital skill entitlement. The Minister drew attention to the Government’s National Retraining Scheme, which will receive £100 million to upskill workers. The Government has sought to improve digital spend on SMEs by encouraging their access to the Digital Marketplace, which allows public sector buyers to find technology or people to deliver digital projects. For instance, the Government has stated that SMEs have accessed almost half of public sector spend on digital since 2012 - over £1.9bn.
52.The Government’s Industrial Strategy also includes several strands that focus on improving digital technology uptake. There is a commitment to invest in digital infrastructure in areas such as 5G and full-fibre networks, and in digital technologies such as Artificial Intelligence and data-driven processes. The Made Smarter Review has considered how UK manufacturing can maximise the benefits from increasing adoption of digital technology, and the Productivity Review is currently looking at how businesses more generally can embrace new technology. The Government’s New Business Basics Fund also is seeking to increase SME uptake of tried and tested technology. The Minister said that it was important that growth hubs, peer to-peer networks and private sector organisations could signpost SMEs to the support available. and that while it was Government’s responsibility to enable and help small businesses with digital skills there was also a responsibility for businesses themselves to use the tools and services available to access support.
53.We support the Government’s efforts to improve digital skills in small businesses and its investment in digital infrastructure and welcome the central role of digital in its Industrial Strategy. However, too many SMEs do not possess basic digital skills and there is a danger that many will miss out on the benefits of new technologies, such as robotics, AI and 5G. This will reduce the ability of SMEs to be more productive and innovative, reach out to customers and access support, much of which is digital. It will also impact negatively on workers who need to reskill and upskill as the pace of technological change increases. The Government should ensure that digital skills are at the heart of local business support offered by LEPs, Growth hubs and business networks. Its recently announced funding for local business networks should include a focus on digital skills. It should continue to fund digital knowledge exchange forums and explore how financial incentives can help SMEs and their staff to invest in both basic digital skills and the adoption of new technologies and processes. The Government should also run an annual survey of SMEs to assess progress on improving SME digital capability and the effectiveness of its programmes, its funding and the local provision provided by LEPs and Growth Hubs.
122 See for example: OECD, , (February 2017); OECD, , (2013). The OECD’s dedicated SME and Entrepreneurship resources can be found at: .
123 See: OECD, , (2018), p 19; Keith Sisson, , Warwick Papers in Industrial Relations no. 105, (October 2016);
124 OECD, , (February 2018), p 13.
125 See: ESRC, , (May 2016)
126 See: Chartered Association of Business Schools; NIESR, , (March 2018); Nicholas Bloom et al, , Harvard Business School Working Paper, (October 2017); BEIS, , (March 2015), p 9; Chartered Management Institute, , (September 2015).
127 See, Goldman Sachs, , (accessed 31 October 2018).
128 Goldman Sachs, , (2018). See also Professor Richard Thorpe (Leeds University Business School). He notes that that evaluation of Lancaster University’s ten-month Leadership and Development (LEAD) programme for 251 SME owner managers showed average increases in sales turnover of 37.5% attributed to the programme and increases in employment, productivity and mind-set changes amongst the managers. Chartered association of Business Schools. CABS note similar results from the , the Strathclyde Business School and the Cardiff School of Management .
129 See: Chartered Association of Business Schools; Professor Richard Thorpe; BEIS, , (March 2015);
130 BIS Select Committee, , (HC 466; February 2016), pp 15–15.
131 ONS, , (April 2018). See also: ONS, , (October 2016).
132 Federation of Small Businesses, , (March 2016), p 9.
133 As above, p 10.
134 See: Chartered Association of Business Schools; Warwick Business School, , (May 2015); Chartered Management Institute, , (2015).
135 See for example: Chartered Institute of Personnel and Development (CIPD); Warwick Business School, , (May 2015);
136 Q95 Andrew Wright (Leeds City Region LEP). He noted that in a survey carried out by the Leeds City Region LEP, 50% of SMEs did not have a business plan.
138 See for example: OECD, , (February 2017); OECD, , (2013
139 See for example: ONS, , (April 2018); ONS, , (January 2017).
140 ONS, , (April 2018).
141 Written evidence from the Tees Valley Combined Authority, including input from Teesside University.
142 See: The Association of Accounting Technicians. See also: Chartered Association of Business Schools.
143 See British Academy of Management and Society for the Advancement of Management Studies; The Association of Accounting Technicians. See also: Chartered Association of Business Schools
144 CBI, , (November 2017), p 17.
145 Federation of Small Businesses, , (March 2016), p 9.
146 See: Investors in People; Chartered Institute of Personnel and Development, Recruiting and developing talented people for SME growth, (2014).
147 Institute for Leadership and Management, , (2017).
148 See for instance: Grenke, , (March 2017);
149 See: Q155 and Q165 Angela Middleton (); Q181 Professor Tim Vorley (Sheffield University); Q182 Mike Cherry (Federation of Small Businesses); Q91 Ben Wilmott (CIPD).
150 Leeds City Region Enterprise Partnership West Yorkshire Combined Authority.
151 Q79 David Willett (Open University).
152 Tees Valley Combined Authority, including input from Teesside University
153 See: Leeds City Region Enterprise Partnership West Yorkshire Combined Authority; Tees Valley Combined Authority, including input from Teesside University.
154 Leeds City Region Enterprise Partnership West Yorkshire Combined Authority. They note that many small businesses are particularly sceptical about Business MBAs and their relevance to the business challenges and opportunities. The Institute of Chartered Accountants in England and Wales also questioned whether there was an adequate definition of what constituted “good management training”, which made it difficult for SMEs to ascertain what skill mix they required ().
155 Chartered Association of Business Schools.
156 See: Q203 (Professor Tim Vorley, Sheffield University); Q175 (Linda Edworthy, Tees Valley Authority); Q57 (Charlotte Keenan, Goldman Sachs); Q61 (Professor Paula Whitehouse, Aston Business School); Newable; IoD, , (October 2018), p 18; Chartered Management Institute, , (2015), p 25.
157 See Buckinghamshire Business First; Tees Valley Combined Authority, including input from Teesside University; Institute of Directors; ); IoD, , (October 2018), p 18; Chartered Management Institute, , (2015), p 25.
158 Q57 and Q58 David Willett (Open University).
159 Q58 and Q60 Ben Willmott (CIPD); Q140 Rana Harvey (Monster Group PLC)
160 IoD, , (October 2018), p 24.
161 Q67 Professor Sarah Underwood (Leeds University); Q145 Andrew Wright (Leeds City Region LEP).
162 Q57 Professor Sarah Underwood (Leeds University); Q82 Charlotte Keenan (Goldman Sachs); Q122–124 Rana Harvey (Monster Group UK); Professor Richard Thorpe.
163 Q77 Charlotte Keenan (Goldman Sachs); Q81 David Willett (Open University).
164 Q81 Professor Sarah Underwood (Leeds University); Q82 Charlotte Keenan (Goldman Sachs). For example, they can support each other by sitting on each other’s boards and recruitment panels.
165 Q78 Charlotte Keenan (Goldman Sachs).
166 Goldman Sachs, , (accessed 31 October 2018). The core areas include: technology; internationalisation; innovation; brand and resilience. They are delivered through 3 stages which cover issues such as businesses: defining their business proposition using financial information; identifying recruitment needs and improving business processes; enhancing their ability to grow; developing their leadership capability; identifying future funding needs; developing a business growth plan for peer review and their ability to strategically review their business.
167 As above.
168 Goldman Sachs, , (2018), p 17. The Programme also reports that its graduates: grow revenue 25x faster than similar high-growth SMEs and 16x faster than UK businesses generally; grow jobs 23% faster than similar high-growth SMEs and 13% times faster than UK businesses generally. After graduating: 74% of participants increase training of staff; 71% take on external financing; 62% launch a new product or service; 97% are more effective leaders; 94% are more confident managing growth; 90% introduced new business processes; 84% use financial data more in decision-making.
169 See Professor Richard Thorpe (Leeds University Business School). He notes that that evaluation of Lancaster University’s ten-month Leadership and Development (LEAD) programme for 251 SME owner managers showed average increases in sales turnover of 37.5% attributed to the programme and increases in employment, productivity and mind-set changes amongst the managers. Chartered association of Business Schools. CABS note similar results from the , the Strathclyde Business School and the Cardiff School of Management .
170 Q136 Tony Danker, Be the Business.
171 BEIS, , (June 2018).
172 HM Treasury, , (October 2018)
173 Letter from Kelly Tolhurst MP, Minister for Small Business, Consumers & Corporate Responsibility, (October 2018).
174 Q308 Kelly Tolhurst MP, Minister for Small Business, Consumers & Corporate Responsibility.
175 Q309 Kelly Tolhurst MP, Minister for Small Business, Consumers & Corporate Responsibility..
176 Enterprise Research Centre, , (2018), p 30. Sage Group, for example, have estimated that digital tools could save SMEs on average 120 days a year if they digitalised their administrative processes (Sage Group ()). See also: Federation of Small Businesses, , (December 2017).
177 See: OECD, , (February 2018) p 12–13. Federation of Small Businesses, , (December 2017).
178 OECD, , (February 2018), p 6.
179 Science and Technology Committee, , (HC 270; June 2016), p 15.
180 See: Buckinghamshire Business First (); Q196 (Professor Tim Vorley, Sheffield University); World Economic Forum, , (2017); BEIS, , (November 2017), p 8; Hiscox, , (August 2016).
181 See: OECD, , (February 2018) p 12–13; OECD Observer, , (2018).
182 OECD, (February 2018), p 5; Institute of Directors ().
183 See Q57 David Willett (Open University). He noted that digital skills allowed SMEs to reskill and upskill their staff.
184 OECD, , (February 2018), p 12.
185 Federation of Small Businesses, , (December 2017). See also Q58 (Professor Paula Whitehouse, Aston Business School); BIS, , (September 2015), p 6.
186 See for example: British Chambers of Commerce, , (March 2017). Ben Chapman, , Independent, (March 2017). The BCC found that Smaller businesses were the most likely to suffer from unreliable broadband, with nearly a quarter (24%) of sole traders and 21% of micro-businesses reporting problems.
187 Institute of Directors (). The ONS have found that though 86% of all businesses had internet access, smaller businesses had slower broadband speeds - while 62% of businesses with 1,000 employees or more had superfast broadband in 2016, only 5.8%of the smallest businesses did (ONS, , (November 2017).
188 Lloyds Bank, , (2017). An FSB survey carried out om 2017 found that 26% of English business owners lacked confidence in their basic digital skills (Federation of Small Businesses, , (December 2017)).
189 Information Age, , (March 2017).
190 ONS, , (November 2017). The ONS notes that larger businesses make better use of website and social media to connect with their customers.
191 Sage Group (). See also ONS, E-Commerce and ICT Activity: 2016, (November 2017). The ONS notes that smaller businesses see considerably fewer e-commerce sales than bigger companies.
192 See CBI, , (November 2017), pp 14- 20; British Chambers of Commerce, , (March 2017).
193 See for example OECD , (2017). The OECD cites the following top players: US; Japan; South Korea; China; China Tapei; Germany; Sweden: France; Canada (p 20).
194 Enterprise Research Centre, , (2018), pp 30–31. Sage Group also report that 45% of SMEs have not digitised their accounting processes and 60% have not digitised their HR processes Sage Group (). A 2017 FSB Survey found that a fifth of English business owners surveyed believed that a lack of digital basic skills amongst their staff was holding their business back from increasing their digital and online presence (Federation of Small Businesses, , (December 2017)).
195 Federation of Small Businesses, , (December 2017), p 29.
196 BEIS, , (November 2017), p 9–10.
197 Q115 Tony Danker (Be the Business).
198 Federation of Small Businesses, , (December 2017), p 33. See also Enterprise Research Centre, , (2018), p 33.
199 BEIS, , (November 2017), p 9.
200 As above.
201 See Chris Barnard et al., , IDC UK, (September 2017),
202 Q57 David Willett (Open University).
203 Buckinghamshire Business First (). See also Q196 Professor Tim Vorley (Sheffield University).
204 Q110 Andrew Wright (Leeds City Region LEP). See also: IoD, , (October 2018). The IoD suggested that LEPs and Growth Hubs could use free offers as a way to introduce SMEs to training and other forms of investment to improve productivity.
205 Q115 Ruby Peacock (FSB). 5G is the fifth generation of cellular mobile communications. It succeeds the 4G, 3G and 2G systems. 5G performance targets high data rate, reduced latency, energy saving, cost reduction, higher system capacity, and massive device connectivity.
206 Q108 Rana Harvey (Monster Group UK); Q145 Andrew Wright (Leeds City Region LEP).
207 Q74 and Q76 Paula Whitehouse (Aston Business School); Q78 Sarah Underwood (Leeds University).
208 DoE, , (October 2018). See also: BEIS, , (2017), pp 40–41. And pp 109–111.
209 Q285 Kelly Tolhurst MP, Parliamentary Under-Secretary of State, Minister for Small Business, Consumers and Corporate Responsibility. See: HM Treasury, , (October 2018).
210 Crown Commercial Service, , (August 2018).
211 BEIS, , (2017), p 11, pp 128–131 and pp 151–156.
212 As above, p 36.
213 BEIS, (November 2017). See also BEIS, , (2017), pp 205–6.
214 BEIS, , (May 2018). See also BEIS, , (2017), pp 157–159.
215 BEIS, , (June 2018).
216 Qq 286–7 Kelly Tolhurst MP, Parliamentary Under-Secretary of State, Minister for Small Business, Consumers and Corporate Responsibility.
Published: 5 December 2018