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Small Businesses close productivity gap

Following several years of a widening productivity gap between the UK and other developed economies2, the report suggests this trend may start to reverse as only 3% predict their output will decline further by 2017 while 36% say it will remain the same.

The report shows that productivity improvements have been pursued most aggressively by medium sized businesses, of which 86% have adopted measures to boost output compared to just 56% of small firms. 

The third Albion Growth Report, designed to shed light on the factors that both create and impede growth among over 1,000 SMEs, highlights significant regional differences in tackling the productivity gap: 54% of business owners in the South West said they will increase productivity over the next two years followed by 52% of those in Yorkshire, London and South East. The least confident regions are the North West, East Midlands and West Midlands with only 46% expecting further improvements.

On a sector basis, firms in the medical & health service (67%) and transport & distribution (60%) sectors are the most optimistic about increasing productivity. 

According to the Report, the most common measures taken by firms to boost productivity have been better processes, (30%), technology (24%), training (18%) and flexible working hours (12%).

When asked how the Government can help SMEs to increase productivity, 42% said that investment in fixed line broadband would deliver the biggest benefits, followed by roads (31%) and affordable housing (25%).

The report underlines the importance of productivity as a key indicator of growth: of those companies that predict increased productivity, the vast majority (89%) also foresee growth, compared to just 61% among all firms.  Similarly, of those firms that see their productivity stagnating, only 36% predict they will grow.

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.

“While the government has pledged more long-term investment in areas like infrastructure, it’s ultimately down to individual businesses to adopt the right measures themselves.  It’s encouraging to see that the majority of firms have tried to addressed 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.”  

Do you expect your company’s productivity levels to grow in the next two years? (%)

UK overall

50%

South West

54%

London

52%

South East

52%

Yorkshire and Humber

52%

Wales

51%

Scotland

51%

East of England

48%

North East

47%

North West

46%

East Midlands

46%

West Midlands

46%

Source: Albion (September 2015)

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