COVID-19 and the global disruption it has created have forced massive shifts in business behaviour, and not all of it negative. New research has found that Britain’s smaller firms underwent three years’ worth of innovation in just three months of the lockdown period.
Two-thirds of British small and medium-sized enterprises believe that technology is key to improving their business performance, and almost the same number are looking to invest in technology in the coming months.
That’s according to an in-depth analysis of the UK SME technology market, conducted by Be the Business and McKinsey & Company.
Be the Business believes we are in an emerging technology moment where, if action is swiftly taken, SMEs can advance to a higher growth trajectory. However, significant barriers must be addressed if the UK is to take full advantage.
To discuss these barriers and explore what makes a high-performing, resilient business, Jonny Williamson sat down with Be the Business CEO, Tony Danker.
Tony Danker: If you said to me nine months ago that there was going to be a massive surge on the part of hundreds of thousands of British firms towards efficiency, innovation and technology adoption, I’d have bitten your hand off.
Our productivity flatlining over the past 12 years has required that kind of transformational behaviour. Obviously, we would not have accepted that it would have taken a global pandemic and such human tragedy to be the catalyst for this.
And clearly, the productivity outlook in the short run remains challenging with depressed demand, revenues and output. However, the underlying behaviours have been quite dramatic and in a positive way.
Jonny Williamson: Have you witnessed a corresponding change in leadership and management behaviours during the past eight months?
Having spoken to many business leaders, they all appear to have gone through three distinct phases. The first is a sense of panic and existential threat during the initial few days of lockdown.
It was unquestionably a very difficult period, yet CEOs and business owners rapidly progressed to a ‘hero mode’ where they made dozens of significant decisions the likes of which they were used to making a handful of times a year. Decisions over whether or not to shut premises, to take out a bank loan, to put everybody on furlough or just some, whether to step up ecommerce activities or scale back product portfolios.
Decision were being made day after day, quickly and assertively. Many of the leaders I’ve spoken to found that period very rewarding, they were asked to lead, and they took leadership.
The third phase is realising that restarting is far harder than lockdown because it requires a broad set of discretionary decisions and flexibility over when to take them.
Do we reopen the plant? Do we bring everybody back to work, nobody or just a select few? Which lines go back into production, which don’t? How much debt should we take on and what should we use it for, to keep operating as usual or to invest in new products or channels? When do I make these decisions? What’s going to happen next, is there going to be a second wave?
Something not being discussed is that when you ask SME owners what COVID-19 means to them and their business, many say, “margins”. Why? Because everyone has brought cost back, but demand hasn’t bounced back by as much and so every percent matters.
The headline finding of your latest study is that British businesses achieved three years’ worth of innovation in just three months. Where specifically were gains made?
The biggest area was in the attitudes of staff and their willingness to embrace change. I recently spoke to a number of North West manufacturers about adopting new technologies and changes to the way we work during the pandemic.
You would think that this is the worst time to integrate new technologies because there’s already so much going on and people are generally resistant to change at the best of time. However, they described very high staff receptivity to adopt new practices, to change the way they work and to embrace technology.
As they put it, shop floor workers have never been more aware of the need to change because they’ve gone through so much already and their acceptance and adeptness at change has never been higher.
Our latest report found that SMEs were adopting three distinct postures:
Innovators – the third of businesses who have pivoted, tried new ideas, adopted new technology and introduced new products during lockdown.
Stickers – the third who intend to carry on or return to how they operated before lockdown. The majority in this group have not adopted new technology and largely want to try and go back to what made them successful previously.
Undecided – the third who didn’t make sweeping changes during lockdown but are open to the idea of doing so as the economy rebuilds.
I believe the undecided have seen the fast and rapid changes other businesses have achieved and are thinking about making similar changes themselves but haven’t committed to them yet. Future disruption will likely encourage many of these undecideds to become much more proactive at running their businesses differently.
The million dollar question, therefore, is how do we ensure that this willingness to embrace change, to quickly adopt new working methods and technologies, and to compress innovation cycles is retained long-term and not just during times of crisis?
That’s absolutely the question. We need to preach that gospel, exactly as you’ve articulated. We need business owners, leaders and managers to feel encouraged and inspired to adopt these behaviours moving forward, to not make them just one-offs in response to what’s happened, but to truly instil these cultures and approaches.
The fact that we’re facing a potential second wave of COVID-19 and further uncertainty until a vaccine is found, as well as potential Brexit related disruption, means the next 24 months are likely to be volatile. Such a situation lends itself well to people becoming comfortable with change and adopting new working practices.
You say it’s the million dollar question, I say it’s the million dollar imperative.
Given the continued disruption, most businesses are braced for a difficult winter. What actions need to be taken to make the coming months easier?
Technology has an undeniable role to play, particularly digital tools and systems. However, there is a sense of scepticism and weariness on the part of SMEs towards technology adoption. There are two reasons why – confidence and capability.
Over the past several months, many of us have been forced to work remotely and adopt digital tools, and manufacturers have started to ask why they don’t have access to their HR and finance systems online; why their sales teams still use Rolodexes as opposed to a CRM system; why their ERP system isn’t fit for purpose and doesn’t sit at the heart of their operation. That’s created a noticeable growth in appetite for technology and what it can provide.
The other side to this is that the predominantly large solution providers, who all want to serve the smaller end of the market, face two fundamental commercial challenges in doing so: the cost to acquire SME customers and the cost to serve them. As a result, they aren’t investing in the product and service modularisation that SMES require and they aren’t doing enough to demonstrate the ROI for a small business.
Additionally, solution providers build sales and account management approaches and high levels of complexity in the value and ROI framework because they’re used to dealing with the highly technologically educated employees of large corporates.
An SME isn’t going to adopt a significant piece of Industry 4.0 technology unless the key decision maker, usually the business owner, is across it. They aren’t surrounded by deeply knowledge Chief Technology Officers or Data Managers who understand and can critique solutions built for enterprise-level customers.
What this creates is a market that doesn’t really work, however we’ve made a series of recommendations to try and address that:
- Create a demand-side platform and advisory arm for SME technology buyers to build their confidence and capability: a ‘moneysavingexpert’ for the technology market
- Prioritise owner/manager digital skills interventions
- Rapidly create sector strategies for better sector-level adoption
- Make switching between technology solutions easier
- Accelerate adoption through government incentives
- Make technology adoption the flagship endeavour of the Business Support ecosystem
Those recommendations are on a government and industry level. What advice can you offer for individual businesses?
This is an opportune time to improve the way you manage your business. If you don’t have good information on business performance, available at the touch of button, and benchmarks as to whether or not that’s good, bad or indifferent, then you’re not building a resilient business.
You also need to become something of a magpie. High-performing businesses keep a close eye on what others are doing and often have very strong peer-to-peer networks. If you’re about to make a major decision regarding location, automation or production, you should be reaching out to those around you.
Constantly looking inwards at your own performance and looking out at the performance of your peers are two things that are essential to building a resilient business, especially so in these rapidly changing times.
Be the Business was established in 2017 to address the chronic underperformance of UK productivity. The government and industry-funded body provides free tools and resources and shares best practice from other business on approaches that are proven to work.
*All images courtesy of Shutterstock