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SMEs are natural innovators – here’s how they increase productivity and profits

22 February 2022

Research by the Federation of Small Businesses has shown that its members do not necessarily see themselves as ‘innovators’.  Yet the FSB points out that, as entrepreneurs, SMEs and microbusinesses are, by their very nature, continuously improving their products and services – and a lot of free support is available to help them do even more.

Jennifer Thomas is the FSB Development Manager representing 4,500 members in Leicestershire, Rutland and Northamptonshire:

The vast majority of Leicester and Leicestershire’s economy is SMEs. The region has more than 42,000, with more than 98% of all regional businesses employing fewer than 50 people.

The term ‘Innovation’ itself isn’t as relevant to normal businesses as many in Government think. However, improving and evolving business products, services and processes is incredibly important to ensuring that an individual business, and the UK economy, is competitive and productive.

No matter how successful or how long they’ve been running, SMEs are constantly needing to innovate in order to remain competitive, meet customer and regulatory needs, and tackle big issues such as the Pandemic. But they would probably look at that innovation activity as being problem solving, upgrading or growing.

A business owner might think that they would need to invent something to be an innovator but, in reality, it’s about staying ahead of the curve and taking on new ideas – not necessarily coming up with them yourself.

FSB research in 2018 found a quarter of members had introduced a new product to market but 95% had made changes to their own businesses. What sort of measures are your members taking?

For our members, ‘new to firm’ innovation, such as adopting digital technology, will always be more common, more achievable and more valuable to them and to the UK’s productivity levels in general. It might mean investments in design, branding, software development and organisational improvement. For example better management practices and processes.

Innovation is a long-term driver of growth. The research you mention also found that 76% of small businesses had innovated in the prior three years in order to remain competitive. This does not have to be large scale or disruptive in nature. It can be gradual or incremental within the organisation.

For many of our members, the Pandemic was the ultimate market disruptor. In response, they demonstrated high levels of resourcefulness and innovation in the face of adversity. For example, our research showed that 10% of all small businesses diversified into producing new services and 6% moved into new products or goods during the lockdown.

Increasing productivity is a focal point of the Government’s Levelling Up agenda. How can innovation help with this?

Pre-Covid research showed a productivity benefit attached to micro-businesses (organisations with nine employees or fewer) which increase their adoption of digital technologies. Moving into technology such as cloud-based accounting services or HR software applications can be game-changing.

To an extent, the Pandemic has forced businesses to go digital in ways which could have otherwise taken years. However, this now needs to be sustained if it was purely undertaken as a reactionary measure in response to the crisis.

Is there somewhere SMEs can get started with funding?

Members tell us that major barriers to innovation are lack of time, lack of staff or particular skills, or deciding whether it is worth the effort. Finding funding and support isn’t always quick and easy, and can take time to research, apply and receive the grants or support.

There is various free and Government-funded business support available locally, from universities, the Business Gateway Growth Hub, or membership bodies like FSB or the East Midlands Chamber. Of course, by reading this, SMEs are already doing their research and initiatives like the Innovation Festival are important in bringing information, opportunities and people together. My general advice is to start with the Business Gateway, speak for free with an adviser and see what support they can offer or signpost you to.

I’d also recommend engaging a self-employed, independent and specialist consultant who knows their stuff. Their advice and contribution should pay for itself and save you time and effort. Ask other businesses in your network for recommendations, attend networking events, use LinkedIn, ask your accountant, and see who you find. There are specialists in innovation, product development, digital transformation and R&D tax credits, for example.”