Improving digital skills in small businesses could add £15BN to UK economy

Improving digital skills and ability to use digital tools could add £9.9 billion, or 0.5% of total UK GDP. Improving digital infrastructure in the same way could add £5.4 billion, or 0.3% of UK GDP.

According to the Government’s Industrial Strategy Council, regional differences in UK productivity are at their highest level in over a century, with digital one of the key contributing factors. As a result, there is a growing awareness of the need to heal the digital divide. And with 58% of businesses failing in the first five years, embracing digital could be a significant factor for growth and resilience.

The report – developed by Oxford Economics, one of the world’s foremost independent global advisory firms – explores the potential uplift that SMEs (and local areas in the UK) could gain from having access to greater digital connectivity and leveraging existing technology and tools.

In order to quantify the productivity uplift, Oxford Economics constructed the first-of-its-kind SME Digital Propensity Index, which scores 170 regions for these two factors (digital infrastructure and SMEs’ inclination and ability to use digital tools).

By identifying the regions that score below average for the two factors, and elevating them to the national average, the Index forecasts the potential benefit to the UK economy.

This digital opportunity is bigger than the respective GDP of large cities such as Bristol (£14.8 billion), Liverpool (£13.4 billion) and Sheffield (£12.6 billion),7 demonstrating the scale of the benefits that digital adoption could bring throughout the UK.

UK SMBs not capitalising on digital opportunity

SMBs are the backbone of the UK economy, accounting for more than 90% of employment in 38 of the 173 regions. However, UK SMBs are not capitalising on the digital opportunity available. For example, while businesses with more than 250 employees derive 25.4% of their turnover from e-commerce sales, for SMEs this proportion falls to just 6.98.

Similarly, less than half of SMEs have a website, compared to 95.6% for larger firms. Only 5.2% of SMEs use enterprise planning software, while 8.6% use customer relationship management tools, compared to 67.2% and 62.9% of larger firms respectively.

Key factors behind SMEs not making the most of the digital opportunity include resource constraints – for many SMBs, high-cost investments with a long pay-off period are infeasible – and a lack of knowledge, skills and experience with digital technology among owners and employees. Only 6.7% of SMBs offer training to develop ICT/IT skills, compared to 67.6% of firms with 250+ employees.

Leading from the top

As entrepreneurs and top management in SMBs have a large influence across their firm’s operations, their experience and attitude towards digital technology can determine the extent of digital adoption in their organisation.

Gary Wood, Co-Founder and Director of commercial vehicle company Plumwood, said: “As a small business owner, I would say that embracing technology has been key to our success. Business owners should lead by example and adopt a genuine digital mindset to stay competitive in today’s modern landscape. Digital is fundamental in my business – we have digitised a lot of our processes, including dedicated in-house systems and online portals that give detailed insights to our clients. Our commitment to technology means we are one of very few transport compliance consultancies in the UK to provide this level of service, something that is instrumental in winning new clients.”

“What’s truly exciting is this is only the beginning. Our report identifies that more than half of UK regions have above average digital infrastructure – meaning small businesses in these regions are already poised to experience the benefits of digitisation. What’s more, this opportunity will only increase: digital innovation, such as the rollout of 5G, is expected to rapidly increase over the coming years. This will spur on new technology, making it easier than ever for businesses to superpower their productivity and success.”

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