Improving digital skills and connectivity of small businesses could add £15.3 billion to UK economy

London, UK - 3 March 2020

Improving the digital skills and connectivity of small and medium-sized businesses (SMBs)¹ could add up to £15.3 billion to the UK economy, a new report – The Digital Opportunity for Small Businesses – from Intuit QuickBooks today reveals.

Improving digital skills and ability to use digital tools could add £9.9 billion, or 0.5% of total UK GDP. Improving digital infrastructure in the same way could add £5.4 billion, or 0.3% of UK GDP.

According to the Government’s Industrial Strategy Council², regional differences in UK productivity are at their highest level in over a century, with digital one of the key contributing factors. As a result, there is a growing awareness of the need to heal the digital divide. And with 58% of businesses failing in the first five years³, embracing digital could be a significant factor for growth and resilience.

The report – developed by Oxford Economics, one of the world’s foremost independent global advisory firms – explores the potential uplift that SMBs (and local areas in the UK) could gain from having access to greater digital connectivity and leveraging existing technology and tools. 

In order to quantify the productivity uplift, Oxford Economics constructed the first-of-its-kind SMB Digital Propensity Index, which scores 170 regions⁴ for these two factors (digital infrastructure and SMBs’ inclination and ability to use digital tools⁵).

By identifying the regions that score below average for the two factors, and elevating them to the national average⁶, the Index forecasts the potential benefit to the UK economy.

This digital opportunity is bigger than the respective GDP of large cities such as Bristol (£14.8 billion), Liverpool (£13.4 billion) and Sheffield (£12.6 billion),⁷ demonstrating the scale of the benefits that digital adoption could bring throughout the UK.  

The top 10 NUTS3 regions that would gain the largest boost if local SMBSs had access to greater connectivity and embraced digital tools [for full list, see APPENDIX]

UK SMBs not capitalising on digital economy

SMBs are the backbone of the UK economy, accounting for more than 90% of employment in 38 of the 173 regions.  However, UK SMBs are not capitalising on the digital opportunity available. For example, while businesses with more than 250 employees derive 25.4% of their turnover from e-commerce sales, for SMBs this proportion falls to just 6.9%⁸.

Similarly, less than half (46.7%) of SMBs have a website, compared to 95.6% for larger firms. Only 5.2% of SMBs use enterprise planning software, while 8.6% use customer relationship management tools, compared to 67.2% and 62.9% of larger firms respectively.

Key factors behind SMBs not making the most of the digital opportunity include resource constraints – for many SMBs, high-cost investments with a long pay-off period are infeasible – and a lack of knowledge, skills and experience with digital technology among owners and employees. Only 6.7% of SMBs offer training to develop ICT/IT skills, compared to 67.6% of firms with 250+ employees.

Leading from the top

As entrepreneurs and top management in SMBs have a large influence across their firm’s operations, their experience and attitude towards digital technology can determine the extent of digital adoption in their organisation.

Gary Wood, Co-Founder and Director of commercial vehicle company Plumwood, said:

“As a small business owner, I would say that embracing technology has been key to our success. Business owners should lead by example and adopt a genuine digital mindset to stay competitive in today’s modern landscape. Digital is fundamental in my business – we have digitised a lot of our processes, including dedicated in-house systems and online portals that give detailed insights to our clients. Our commitment to technology means we are one of very few transport compliance consultancies in the UK to provide this level of service, something that is instrumental in winning new clients.”

Chris Evans, Vice President and UK Country Manager at Intuit QuickBooks said: 

“Entrepreneurship is everywhere and is driving prosperity in the UK: but it’s never been harder for small businesses to succeed. We commissioned this report because our mission is to power prosperity and improve the small business survival rate, and we truly believe that for small businesses to endure, they must have digital at their core. By adopting the digital tools available today, they can be more productive and – most importantly – ensure they are best equipped to make their business a success.

What’s truly exciting is this is only the beginning. Our report identifies that more than half of UK regions9 have above average digital infrastructure – meaning small businesses in these regions are already poised to experience the benefits of digitisation. What’s more, this opportunity will only increase: digital innovation, such as the rollout of 5G, is expected to rapidly increase over the coming years. This will spur on new technology, making it easier than ever for businesses to superpower their productivity and success.”

Financial management is one of the biggest hurdles that small businesses face. QuickBooks solutions harness the power of data and automation to help small businesses manage their finances more effectively, letting business owners get on with what they do best: growing their business and reaching their goals. To find out more, visit QuickBooks.

Sources

¹ Defined as all businesses operating in the private sector with between 0 and 249 employees. 

² UK Regional Productivity Differences: An Evidence Review (February 2020)

³ ONS, Business demography, UK: 2018, 19 November 2019

⁴ 170 of the 173 UK NUTS3 regions as defined by the European Commission. Index scores were not able to be calculated for Darlington, Leicester and Luton due to lack of data availability.

⁵ To assess regional digital connectivity, the study analysed 4G, broadband and voice services. To capture use of digital technology and tools, the report analysed how small businesses use various types of technology, including e-commerce sales, enterprise planning software and customer relationship management software.

⁶ All regions with below average digital infrastructure and/or digital inclination scores are boosted to the average score. Using an estimated correlation coefficient between the Index score and productivity, the rise in the Index score is converted to a rise in productivity. This rise in SMB productivity is then multiplied by the number of SMB employees in a region to get the associated rise in GDP in a region. For detailed methodology, please see Appendix 3 within the report.

⁷ Oxford Economics’ Cities and Regions Service. https://www.oxfordeconomics.com/cities-and-regions

⁸ ONS, (2019), ‘E-commerce and ICT activity, 2018’, 29 November 2019. Employment size categories weighted together using ONS, (2019), ‘Business population estimates 2019’, 10 October 2019.

⁹ The SMB Propensity Index identifies 97 regions with above-average digital infrastructure.

Appendix

The boost to gross value added in the 118 NUTS3 regions that benefit from the combined thought experiment (i.e. the regions where digital infrastructure and/or digital inclination are below average). Source: Oxford Economics

Disclaimer

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