Lifting the Trophy, by CBI, an influential, not-for-profit UK membership organisation, provides insights into the role of scale-ups and mid sized businesses in boosting productivity.
Medium sized businesses
have a crucial role to play
in boosting productivity
given their importance
to the UK economy.
Business and government recognise the importance of solving the productivity puzzle to increasing competitiveness and securing economic prosperity
With the restraints of the recession lifted, business confidence has risen and firms are showing an appetite for growth. Against this positive backdrop, business and government are grappling with the reality that productivity growth remains weak. Compared to other matured economies our productivity rate is struggling – for example, the UK’s level is 17% below the G7 average.1
Why does this matter? Productivity growth is needed for an economy to boost its potential growth rate. The more output a firm can produce, the more resources it has to pay workers, which in turn leads to more money in the pocket and supports the wider economy.
The productivity slowdown is not an issue that one institution or policy can solve. Government has a role
in tackling the productivity puzzle through dealing with structural bottlenecks such as infrastructure investment and maintaining a competitive tax regime – but not all of the solutions lie with government. Crucially, there is strong evidence that real productivity improvement must also come from within businesses. Recent NESTA evidence points towards slow productivity growth within firms as a
critical factor behind the UK’s productivity conundrum.2
Boosting productivity within medium sized firms is a crucial piece of solving the productivity puzzle
There is scope for productivity improvements to be made across the business landscape. Companies of all sizes are making decisions on a daily basis, from training staff to investing in a new piece of software, which can lead to real productivity gains.
Medium sized businesses (MSBs) in particular have a crucial role to play in boosting productivity given their importance to the UK economy. Punching far above their weight, firms with 50-499 employees are responsible for 1 in 6 jobs and generate nearly a quarter of private sector revenue.3 However, the productivity growth amongst the UK’s MSBs was 5% between 2002-09, significantly slower than the 5.6% improvement among larger firms.4
The processes and behaviours that enabled MSBs to grow into a sizeable enterprise may not be enough to facilitate further growth. Without addressing the buffers and bottlenecks within their firms, MSBs can struggle to become more productive and achieve greater scale. Given their sizeable impact on the economy and their potential to be global leaders of tomorrow, it is imperative to improve productivity among this section of the business population.
Introducing new productivity enhancing measures, from developing bespoke export strategies to adjusting management structures, can be key to unlocking capacity and kicking on for further growth. The challenge is understanding what constitutes best practice and how businesses can learn from each other.
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