Half of SMEs expect productivity to increase

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SMEs are confident about increasing their output over the next two years

Half (50%) of small- and medium-sized enterprises (SMEs) expect their output per worker to grow over the next two years, according to a report launched by independent venture capital investors Albion Ventures.

The sample of more than 1,000 British SMEs found that only 3% predict their output will decline by 2017, while 36% say it will remain the same.

The most common measures taken by firms to boost productivity were better processes (30%), new technology (24%), training (18%) and flexible working hours (12%). When asked how the government can help SMEs increase productivity, 42% said that investment in fixed line broadband would deliver the biggest benefits, followed by better roads (31%) and affordable housing (25%).

There are steps small businesses can take to further improve their productivity prospects, according to Daniel Sgroi, associate professor of economics at the University of Warwick. “There is enough research and evidence out there to suggest that happiness in the workplace is an important and quite a cheap way to boost productivity,” he said.

“It is true that flexible working might reduce stress, which we believe will boost happiness and therefore productivity. However, there are other, more direct ways such as improving the working environment and providing positive feedback for workers."

He added: “Happiness in the workplace is an important potential driver for productivity and this needs to be brought to the attention of SMEs."

MD of the Forum of Private Business Ian Cass told HR magazine that the impact of the national living wage and pensions auto-enrolment will force small businesses to increase their productivity.

“Businesses will need to make an improvement in the way that they operate, as our research indicates that raising prices is not really viable," he said. "It comes as no surprise that they are looking to improve processes, invest in technology and increase training.

“The government needs to do more in simplifying taxation, making employment law easier for small firms, and streamlining health and safety."

Patrick Reeve, managing partner at Albion Ventures, said: “Given the majority of the UK workforce is employed by SMEs improving productivity at this level is key to achieving real wage growth and a better standard of living across the country.

“It’s encouraging to see that the majority of firms have tried to address output over the past year, but the fact that half don’t expect any improvement in their output suggests the productivity gap is a long way from being fully closed.”

John Allan, national chairman at the Federation of Small Businesses said that the UK “faces a large and longstanding productivity challenge".

“Closing the productivity gap is the best way to boost the long-term health of the UK economy,” he said. “Solving the productivity puzzle requires long-term effort and a wide, cross-governmental strategic focus that has small business engagement at its heart.”

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