hei keynote may 19th. mark hart
TRANSCRIPT
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The Role of Universities in Unlocking UK Productivity
Professor Mark Hart
The 5th Engage HEI conference: 'Engaged Scholarship: impact, policy and practice‘
Preston, 19th May 2016
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Overview • Despite improving economic performance, the UK still has
fundamental economic weaknesses that can be improved by effective business support.
• Economic strengths and weaknesses can also be identified at local and regional level, and vary significantly across the UK.
• These differences must guide the approach to local interventions.
• Business support should ultimately be contributing to improved performance of individual firms, leading to better economic returns locally, and for the UK as a whole.
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The UK’s Productivity Challenge
• UK productivity – value added per employee - lags that in its international competitors
• Little productivity growth since 2008 has meant the situation has worsened over recent years
• Figures for 2015 suggest we are currently 16% below the pre-recession trend growth line.
• GDP per employee
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SMEs and Productivity
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SMEs and Productivity ….
• The SME population in the UK has grown by 14% since 2011. SMEs in the UK now account for 15.6 million (60%) of all private sector jobs in the UK and £1.75 trillion (47%) of revenue.
• Around a fifth of all new jobs are created by the 10 per cent of surviving small businesses which achieve high growth – around 12k firms
• These businesses are operating in all sectors of the economy and there is no spatial concentration as they are found in all regions and nations of the UK.
• Other evidence about these High-Growth Firms shows that they demonstrate above average levels of productivity growth, high levels of innovation, strong levels of export-orientation and a high level of internationalisation.
• The relatively low number of high-growth firms in the UK suggests that there is further potential to increase productivity.
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High-Growth Firms (HGFs) in the UK
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Focus more on Start-up Quality
7
UK Doesn’t Have a Start-Up Problem UK Has a Growth Potential Problem
•UK reported 500k start-ups in 2014 – around half are self-employed
•UK has the highest level of self-employment than at any point in the previous 40 years
UK creates many 0 employee firms• Limited growth potential & aspiration
UK needs more promising growth firms• Job creators, and UK prosperity
OECD Average UK
Start-ups since 2007
0
2
4
6
8
10
2008200920102011201220132014
UK France Germany
UK highest
level of new
enterprises
than any
OECD country
in Q1 2014
GEM data
shows early-
stage
entrepreneuria
l activity in UK
highest in EU
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What drives SME growth and performance?
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Think innovation…
Innovation has a strong link to growth, productivity and exporting – so:
• SMEs that innovate are around 7% more likely to export than a non-
innovator.
• SMEs that export grow more than twice as fast as those that do not.
• Internationally active SMEs are three times more likely to introduce
new to the market innovations
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The ‘Arc of innovation’
• Taking these different indicators together we can describe an ‘arc of innovation’
• Why does this matter? Because innovation is strongly linked to exporting and growth?
• We should – perhaps - worry what this says about rebalancing . And, what are the implications for policy both local and national.
• Promoting collaboration seems obvious at local levels and perhaps targeting support from Innovate UK?
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Think international…
• Recent research has shown that just over 1 in 5 SMEs are exporters.
• Of these, only 17% can be classified as ‘persistent exporters’32 and only 5% as ‘intensive persistent exporters’,
• The UK lags behind France and Germany in terms of the propensity of SMEs to export.
• We estimate that between 9% and 12% of all non-exporting SMEs have the characteristics to become exporters – around 110,000 firms.
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Evidence?
• Many studies demonstrate the positive association between internationalisation, innovation and productivity growth.
• Looking at GS10ksb participants between 2010 and 2014 we find more evidence
• The view of growth ambition as a necessary precursor to growth has been demonstrated using samples of business owners with a relatively restricted set of personal characteristics.
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Think growth…. a question of ambition?
• Ambition does matter for productivity and growth and can be influenced both by market opportunities and elements of the regulatory and legislative environment such as taxation
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Growth Dispositions
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L&M Skills in SMEs
• Growth ambitions of SMEs matter to productivity growth
• But ……weak leadership and entrepreneurial skills has been identified as a key barrier to growth
• Affects Growth Disposition and Mindsets
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Building the Evidence
• ERC commissioned by BIS to undertake research involving 2,500 English SMEs - Invest NI funded a sample of 300 supported SMEs within the study.
• Key questions:– How do L&M skills influence the adoption of best practice
and,– how they may shape business performance
• Research report, 'Leadership and management skills in small and medium sized businesses' is available on ERC website
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Key Findings
• Many SME founders face challenges in expanding their leadership to incorporate a CEO and Management Team.
• Many SMEs are found not to employ management best practice and as a result their growth is constrained.
• The evidence indicates that this weakness can have a negative effect on turnover, productivity and employment growth.
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Defining the sustained growth problem…
• For small firms growing rapidly from say £2m to £5m turnover the business and leadership challenges are immense
• Growth means the nature of the business is transformed rapidly –this creates issues around finance, organisational structure, innovation and markets (to name just a few…)
• Leadership and management demands are also transformed, with rapid growth challenging the capabilities of the owner-manager and leadership team.
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… and the solution?
• These dual challenges – business transformation and leadership development – define the sustained growth problem at the level of the firm.
• And, the international evidence is clear. Schemes which work in this way can deliver real benefits - 8-10 % a year increased and sustained growth
• So the problem is not ‘what’ we need to deliver to support sustained growth, the question is ‘how’ we best do this in the UK.
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Delivering support for sustained growth in the UK…
• The need: episodic high growth and a declining contribution to new jobs by growth-oriented firms
• The appetite: UK experience with programmes such as the GS10ksb, BIG, LEAD suggests ambitious firms are keen and would contribute
• The focus: delivering integrated business and leadership support over a sustained period with extensive peer group learning
• Existing resources: a resource rich but un-coordinated and unfocusedUK eco-system of mentors, financiers, leadership training organisations
• One possible solution…. Universities and Growth agenda – e.g., Small Business Charter http://smallbusinesscharter.org/
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HEIs & Growth Hub Week!
• Growth Hubs now provide a single focus for the delivery of business support locally across England
• Aston University/Birmingham City University are strategic partners with the Chamber in GBS Growth Hub
• “Driving UK Economic Growth through ScaleUp Ecosystems” initiative now underway in the UK (led by SUI and fully-funded by the Goldman Sachs Foundation) – 19 LEPs + Scotland
• Involves a number of HEIs (Aston; Bristol; Edinburgh; Manchester; Strathclyde; Wolverhampton; Worcester)
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Key Messages
22
UK’s challenge is start-
up quality, not volume
Survival and Growth are
key drivers
Firms fall into three very
diverse profiles
Firm trajectory is
predictable
UK spawns many 0 employee start-ups, but higher-
potential firms dominate UK economic
impact
Economic impact depends on survival and growth of start-ups
• Fail fast
• Sustain
• Grow
Future trajectory can be better profiled early in lifecycle,
creating opportunity to better support the most promising
Firms value capability-
building supportOffering firms capability building support
appears to increase likelihood of success
Firms can be seen of three distinct types,
and these have massively different
contribution to UK economy
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Final Remarks
• SMEs have a potentially important role to play in UK productivity problem. High-growth SMEs are particularly important.
• UK SMEs could be performing more strongly in in terms of innovation and internationalisation. Both would contribute to scaling and productivity particularly where innovating firms export.
• Supporting companies with growth potential can pay dividends with initiatives such as the university-led GS 10KSB UK programme having substantial growth and productivity payoffs
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Thank You
If you would like any more information about the ERC and any of its activities please contact us: Mark Hart ([email protected]).
More details about the activities of the ERC and our latest events can be found at:
www.enterpriseresearch.ac.uk