MSBs must evolve by leveraging their defining characteristics and resolving weaknesses
Mid size businesses (MSBs) make a disproportionate financial contribution to the broader UK economy. They are particularly vital to regional economies and in their role as employers. However, it is their far greater contribution as masters of new-economy skills and value-creation capabilities that warrant government and industry recognition of MSBs as a defined and distinct category –as well as the provision of targeted, relevant resources and support.
Through this research and report we have shone a light on the often ignored middle segment of UK businesses. The report offers a definition of an MSB that we would recommend for adoption – recognising, as it does, not just the size and scope of MSBs in staff and financial terms, but also the character of this segment in the UK.
We would encourage government and the wider business support community to recognise and use this definition to help better distinguish and support the MSB sector. Germany’s Mittelstand are characterised by a common set of values and management practices, rather than demography alone. It is time the UK adopted a similar approach and stopped lumping MSBs in with small businesses under the term ‘SMEs’.
The importance of providing MSBs with a classification - a definition of their unique features, challenges and opportunities – should not be underestimated in terms of the direct value it provides to them in the search for, and provision of, relevant and therefore effective solutions and support.
Fuelling MSBs – removing obstacles, and helping them to better traverse the impact of growth and to realise their ambition – makes both economic and social sense. This is because MSBs possess a mastery of many of the sought after capabilities needed to be economically competitive in the future, including R&D, innovation, invention, incubation, scaling, IP development, technology-driven productivity, and the adoption of digital technologies, data, machine learning and AI.
MSBs also lead differently and in a more people-centred way than large enterprises. They measure success in human terms and are sensitively aware of the profound impact technology and Industry 4.0 will have on the people in their charge. This is yet another critical value they offer the UK economy in an intensifying contest for skills and talent.
Despite this considerable contribution and rare value, MSBs have both a crisis of identity and confidence –and it is little wonder as their gains have been hard fought and won with little acknowledgement or support. MSBs don’t see themselves as MSBs; when looking in the mirror of confusing and widely varying industry classification, they are unable to recognise themselves and identify with common and universal signatures of the segment. This sets them adrift from their peers and bouncing off the pinball-machine cushions of services for small businesses and large enterprises – caught often in the no-play zone.
For the majority, the lack of confidence which ensues is exacerbated by Brexit, the skills and talent shortage, and growing technological and digital challenges. This manifests as a tempered growth ambition, cautious innovation, strategies to consolidate and maintain sustainability, and improvement-led productivity. MSBs’ similarly conservative attitudes to financing may act as a further brake to growth.
This is a tremendous opportunity cost for both MSBs themselves and the wider economy, which will be felt most by regional communities upon which community prosperity relies so greatly. While some MSBs are ambitiously growing, and at the forefront of driving value through technology, this remains a subset of technology-oriented firms. MSBs are in danger of confusing caution and consolidation with inertia and inaction.
A failure to continually innovate and/or consciously and proactively plan in the service of growth – be it addressing new markets, products, services, acquisition, delivery or retention – will adversely and directly affect MSB performance and stability. In driving growth, genuine and radical (as opposed to incremental) ambition and innovation is needed.
MSBs can be more consciously connected to the innovation ecosystem, working closely with their supply chains, universities and the innovation support available to drive this agenda.
All MSBs have potential benefits to be gained through developing a genuinely digital culture and in understanding and enabling the productivity benefits of the Fourth Industrial Revolution. Industry 4.0 is here and now, and the nature, scale and scope of MSBs means they are ideally placed to reap its benefits.
As MSBs grow and demand for talent increases, they can, and should, do more to retain and retrain their current and future employees. This is particularly true in thinking about succession planning, and in developing the capability of their senior teams and boards.
For MSBs, boards are an active and influential function, setting their ambition and direction. MSB directors, NEDs and chairpersons should feel proud of their achievements in the context of the findings of this report. However, a new wave of challenge and complexity is approaching and boards will be well served to put in place priorities and practices that ensure an understanding and application of technology-driven productivity gains, Industry 4.0 (including but not limited to data, machine learning and AI), innovation, strategies for leadership and board diversity, success planning, skills acquisition and general renewal.
Alongside the opportunities for MSBs, there is a clear need for government and the commercial ecosystem to be much more aware of the distinctive nature and needs of MSBs. Government, service providers, academic institutions, and MSBs themselves, must recognise ‘mid size business’ as a distinct category with its own inherent, positive characteristics and unique needs – rather than being solely a functional categorisation for tax or employment purposes.
The combination of an evidence-based definition for MSBs and identification of their priorities and challenges should act as a catalyst for government, vendors, suppliers, advisors and membership bodies to provide policy, regulation, services, solutions, support and resources that:
- Leverage and amplify MSBs’ inherent characteristics
- Specifically address MSB issues
- Offer broad-based, contemporary advice that is not determined solely by the capabilities of vendors and suppliers
- Are credible and independent
- Dispose of verbose, nebulous or theoretical solutions, and focus on the practical, applied and usable
- Are affordable and easy to access in the privacy of the home or online, and on demand
- Enable clearer targeting of national and regional business support functions to optimise investment returns.
It’s time to act, and a simple classification has the potential for profound impact should Government, industry providers and MSBs themselves recognise the category and respond accordingly.
If MSBs are to maintain their current economic contribution as well as realise national and regional industrial strategy ambitions, particularly in the context of Brexit uncertainty and a skills and talent shortage, they must evolve by leveraging their defining characteristics and resolving weaknesses. Government and industry recognition of MSBs as a distinct category and the provision of tailored policy, regulation, services and support is a binary requirement for success - and long overdue.
MSBs themselves must lead this evolution with a focus on leadership diversity, emerging technology fluency, technology for productivity gains, innovation and contemporary workforce acquisition and retention.