Productivity is the buzzword of the moment with several fringe meetings at the party conferences, including ours, setting out to solve the ‘productivity puzzle’. And it’s a buzzword for a good reason.

UK productivity is lagging behind that of the G7 countries and annual growth in productivity has been slowing over recent years. (Read Eleanor’s blog for an explainer on productivity). Working out how to increase productivity growth would boost the UK economy and help loosen our financial belts. But boosting productivity isn’t straightforward.Brighton beach

“We can’t solve the productivity puzzle until we solve it within SMEs*”

(*small and medium-sized enterprises)

The challenge was thrown down by Phil Jones, Managing Director of Wired Sussex, a membership organisation for companies and freelancers operating in the digital, media and technology sector in Sussex, at a discussion during the Labour conference.

But how do SMEs become productive?

An hour and half isn’t long enough to solve this question, but a few themes came out of our discussion:

Getting some business nous

Businesses starting out need a model that enables them to capture the value they are creating in order to help them grow. To do so, they need to define the impact they want to have, and then go about delivering it. They need business skills to do this successfully.

But many SMEs grow out of an individual’s expertise or vision – such individuals may not necessarily have any experience of business. The Brighton Fuse project conducted by the Universities of Brighton and Sussex set out to highlight the challenges and opportunities within Brighton’s creative, digital and ICT cluster.

Starting with the belief that by connecting the arts, humanities and design with digital and ICT will enhance creativity and innovation, it created connections between higher education institutions and individuals and businesses in the creative sector, enabling them to access tailored support.

We heard from Mike Hollingbery of BozBoz, a creative design agency that started out as a self-taught bedroom industry and is now an employer of 30 plus people. He pointed to the opportunity to access business skills through the Brighton Fuse project and Wired Sussex as a key turning point in the company’s success. BozBoz is now a ‘super-fused’ SME, benefiting from networks that allow it to access the contacts and skills it needs for success.

Networks – relationships and proximity play a key role

It’s not just what you know but who you know, and a major challenge for businesses starting out is making the right contacts. Universities are increasingly playing a role in creating the networks and support that help businesses build the contacts that can move them forward to the next level. This is the idea behind the University of the West of England (UWE) i-nets. These were established as a response to the challenge of low productivity growth in South West England. UWE has established innovation networks with universities, trade organisations, local authorities and key companies, focused on different sectors.

We heard from Stirling Dynamics, a business with a niche capability providing technical engineering services and control system technology in the aerospace, marine energy and training and simulation market sectors, that gained significant benefits from engaging with the UWE environmental iNet.

And there are a lot of returns for universities in creating these networks. Not only is there the opportunity for students to gain work experience in SMEs, the university’s own research and teaching can improve as staff gain first-hand experience of business.

The challenges of managing risk

Keeping the money flowing while developing the business is a big challenge for SMEs. We heard from two ends of the spectrum. Martine Warburton has grown her freelancing work into a business based in Brighton’s creative sector. Puree Design now employs three members of staff. She highlighted the importance of freelancers and short-term contracts to fill gaps in skills and experience as she developed her company, enabling her to ‘test the waters’ and manage risk before expanding and employing more staff.

Diversifying from public to private funding sources can also change the pressures on a growing business. Stirling Dynamics talked about the tension between conducting research and growing its customer base. To an extent, the company’s investment in cutting edge R&D is what attracts customers, however, the partial grant funding on offer to progress these projects means the company must be extremely selective in those it takes on.

Simplifying the systemFigure 10 from the Dowling Review of Business-University Research Collaborations gives an overview of complex landscape of innovation support in the UK. Reproduced with permission from the Royal Academy of Engineering.

As the Dowling report into business-university research collaborations highlighted earlier this year – check out the map on page 25 – there are a huge number of different initiatives designed to support business-university interactions and the growth of SMEs. Navigating this complex landscape brings challenges.

A lot of regional SMEs use local funding streams. With the creation of 39 Local Enterprise Partnerships (LEPs) across England, SMEs often have to engage with multiple LEPs on a project. This creates challenges when different partners may be working to slightly different timescales and criteria. Timing is also tricky – SMEs need to manage gaps between funding so that they don’t risk losing expertise that they have built up.