Friday 10 November 2017
10 / 11 / 2017

It’s time to bust the myths about SMEs

Despite a strong track record of delivery, SMEs are still confronted by too many prejudices and myths in accessing the public sector market, argues Elizabeth Vega

If optimism is the faith that leads to achievement, there’s a good reason that SMEs don’t always win their rightful share of government contracts.  It’s because, more often than not, they’re held back by a negative narrative, tired myths and a residual cultural resistance to change within too many pockets of government and the public sector.

In these resistant pockets, SMEs are still frequently defined not by what they are achieving and by their capabilities but rather by a narrative that focuses on their perceived limitations and the ‘barriers’ and ‘risks’ to doing business with them.  There is far less understanding of what has enabled the SME to be a successful innovator and to have served their customers so well. Not to mention the benefits that a buyer gets from direct access to an SME’s Main Board and their commitment.

With latest government figures showing SME spend has fallen as a percentage of overall government spending, questions should be asked on whether SMEs are being given a fair hearing.  We all have work to do to help meet Ministers’ target of spending £1 in every £3 with SMEs.

To get back on track, we must challenge the stifling narrative, myths and engrained cultural behaviours that are acting as a roadblock to progress.  It is time to emphasise the achievements of UK SMEs; their proven capabilities, innovation, ability to create value and the modernising, energising power that SMEs deliver into the marketplace.

We need to look beyond the prejudices and negative rhetoric to the facts. 

A good starting point is to recognise that SMEs are a powerful force for productivity. Figures from the Federation of Small Businesses show that over 99% of businesses in the UK are SMEs, they have a combined annual turnover of £1.8trillion and employ some 16.8 million people.

SMEs are also a powerful engine of job creation and have consistently created jobs on a bigger scale than large corporations since the financial crisis. Market research from Deloitte revealed that between 2008 and 2012, investment and employment in SMEs rose by 2% while large firms reduced their headcount by 1.8%.  I find it compelling that despite the uphill battle for SMEs to be awarded just 30% of government business, nPower Business and Capital Economics research found that the SME job creation machine accounts for almost four fifths of the increase in private sector employment since 2010.  SMEs are clearly doing a lot of things right!

And the potential to create even more jobs is huge.  Doing business with SMEs yields extremely powerful results for the wider economy.  The CBI has estimated that boosting high growth scale up businesses by one per cent would create as many as 230,000 new jobs and add £38bn to GDP, delivering against the UK’s all important productivity, economic growth and skilled jobs creation ambitions.

There is also plenty of evidence of SMEs delivering great value for government buyers.  For example, since it was established in 2012, the Cabinet Office Digital Marketplace has spent £1.26billion with SMEs and this has delivered innovative new services, very substantial savings and created a huge amount of social and economic value for the UK.  Waste has been cut and replaced by modern solutions that provide more responsive, user-centred services and operational efficiency at a lower cost.  Cabinet Office delivered £755million of savings in the last year alone, primarily by working with SMEs.

There are many, many examples of SMEs doing excellent, pioneering work in the public sector.  Last year’s National Audit Office report on government spending with SMEs acknowledged that SMEs are providing greater flexibility, more innovative services and solutions and better value across government.  However, instead of highlighting these successes, too many conversations across government and the public sector are still dominated by the ‘barriers’, ‘challenges’ and ‘risks’ that the buyer perceives they need to overcome.  Lessons learned should of course explore the things that can be done better.  However, lessons learned must also look at understanding what is working well, why it works, and how we can get on with doing more of it.

At a time of significant economic turmoil and uncertainty, there’s never been a more critical time to shine a light on what SMEs are achieving and on using balanced learnings and insights to encourage government and public sector buyers to do more business with SMEs.  

As a member of the Cabinet Office SME Panel for some six years, I have had the privilege of meeting wise, committed and hardworking SME champions across many Departments, Agencies and Local Authorities.  They are making a difference in breaking down barriers and prejudices.  However, I still see many pockets (some large) of deep cultural resistance and complacency within government and the public sector.  Here, all too frequently, buyers and procurers try to legitimise a lack of meaningful progress in procuring from SMEs by resorting to that old chestnut called ‘risk aversion’.

Whenever the ‘risk’ argument is advanced, it’s worth remembering that there’s no genuine ‘safety’ in the comfort zone of continuing with the old ways of doing things.  The market has experienced a seismic shift and no company is too big to fail, as we’ve seen with household names such as Worldcom, NTL, Compaq, Woolworths, Blockbuster, Comet and Monarch.

Furthermore, I want to bust the myth that SMEs don’t have sufficient skills and capabilities to do heavy lifting on projects for large organisations.  It is a fact that the most cost effective, successful and proven route to innovation for large organisations is to partner with SMEs.

Large businesses know this already – evidenced by research undertaken by transatlantic law firm Womble Bond Dickinson, which demonstrated that corporates are spending 31% more on delivering innovation through SME collaborations than on internal R&D.  SMEs are the preferred route for large corporates modernising their operations, as well as adopting new technologies and better ways of working.  Most recently, Network Rail publically called out the stagnation that is evident in the rail industry, encouraging operators to partner with SME “disruptors” to innovate, as a way of delivering a better customer experience, driving service improvements and reliability.

I also want to bust the myth that dismisses all SMEs as being much of a muchness.  SMEs offer a diverse, vibrant, aspirational supplier marketplace that quickly adapts and responds to changing buyer needs and is keen to serve customers well.  The Harvard Business Review applauds a new and growing breed of highly successful SME, whose business model is that of a “nano-multinational”; characterised by commercial maturity, agility, an elastic and scalable operating model, global outlook and big ambition.

SMEs are busy innovating, modernising and delivering value for the UK economy.  It’s time this was reflected in a more positive narrative around SMEs.  We need to overcome the engrained cultural resistance that is still limiting too many areas of government and the public sector from doing business with them.

We all have a role to play in making this happen.  If we’re going to create an optimistic environment where the UK economy, business and employment can flourish, we need to start by debunking all the myths and prejudices that are holding us back.