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Investing in management and digital skills is essential to increase productivity

Investing in management and digital skills is essential to increase productivity

In 2020, a House of Commons committee report noted that small and medium-sized enterprises (SMEs) are critical to the UK economy, both for wealth creation and for the people they employ. In addition, it reinforced the view of many economists that productivity growth is essential for promoting long-term economic growth and higher living standards.

Given this, it is no surprise that the MPs sitting on that committee concluded that it is vital that SMEs have the best chance of success and can contribute to the UK’s productivity. But now, three years later, and with the world facing a global pandemic, a European war in Ukraine and inflation at a 50-year high, what about SME productivity in the UK?

An indicator of this can be found in the latest edition of the Productive Business Index, published by Be the Business, a body that brings companies together to improve small business productivity. The index is based on a survey of 1,000 founders, owners and leaders of UK SMEs, tracking changes in five areas of business activity, namely management capability, technology adoption, training, development and human resources, operational efficiency and innovation.

According to the index, SMEs report significantly lower capabilities in areas associated with high productivity, a situation driven by uncertainty about current conditions and the future. For example, while two-thirds of business leaders say they have the skills needed to succeed, two in five companies find it difficult to attract new skills into their organization.

In terms of the management skills of those running SMEs in the UK, a third of business leaders have taken action to improve their management skills in the last 12 months, although this is a decrease from the previous survey. More worryingly, only 34% of business leaders plan to invest additionally in management skills in the next 12 months, despite this being critical not only to company growth, but to business productivity as a whole.

With increased business investment and skills seen as key to the recovery of the UK economy over the past 12 months, it is disappointing that the number of business leaders investing in digital skills training and the number of investments in physical production equipment and operational or commercial software.

This situation is also reflected in future investment plans, with the percentage of leaders planning to invest in additional digital employee training and physical technology solutions the lowest since the index was first published three years ago.

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