For those businesses that are growing within the Welsh economy, there are serious challenges ahead and it will mean that doing the same old thing as in the past will just not suffice, even amongst the best businesses in Wales. For too long, there has been an acceptance by politicians, policymakers and even the business community itself that radical improvement in performance is not a priority within the Welsh economy. This is despite growing evidence to show that managing your business more efficiently and effectively through adoption of better management practices can lead to increased performance in terms of growth, profitability and, most important of all, productivity.
For example, ONS research has shown that an increased focus on leadership and management practices makes the business more efficient and effective in terms of productivity whilst a review of recent evidence for the UK Government's Industrial strategy found that substantial productivity gains can still be achieved by improving management practices across the entire population of SMEs. The UK has a long-tail of poorly managed low productivity firms that could achieve substantial productivity gains through having better managers adopt technologies and ideas. In fact, the UK (and Wales) has a long tail of poorly managed low productivity firms that could achieve substantial improvement through having better managers who can adopt technologies and ideas.
Unfortunately, good management practices remain a major challenge for many businesses as it simply isn’t taken seriously by those in charge. For example, a recent study found that whilst the costs involved in improving management practices are as high as those associated with capital investments such as buildings and equipment, many firms are not prepared to invest in the former while having little hesitation in throwing cash at the latter as part of their ongoing strategy.
This is despite the finding that better managed firms are more profitable, grow faster and are less likely to fail. They also spend ten times as much on research and development, attract more talented employees and foster better worker well-being, exactly the type of business that Welsh Government wants to nurture. Simply put, if Wales had better managed businesses, it would lead to superior performance that would, in turn, create better jobs and higher levels of economic prosperity.
Sadly, there is evidence to show that Welsh businesses are not engaging with this agenda. A recent study by the Hodge Foundation found that few firms have a full strategic plan in place and that the key barriers to improved productivity performance include lack of skills and management capacity.
So why is this important to Wales in particular? With the evidence showing that the development of management skills are critical to creating a more productive economy, there needs to be a greater priority given to this vital area if the issue of falling productivity is to be addressed, especially as the latest regional productivity data shows that Wales has the worst performance of part of the UK at 83% of the UK’s average productivity.
This has not been a policy priority in Wales to date and whilst the UK Government has committed £56m to improving productivity across SMEs in England (including £11m for the creation of a Small Business Leadership Programme and £20m to strengthen locally-focused business networks so UK companies can share management strategies and their experiences), there has been very little focus by policymakers in Wales on supporting the development of management skills within larger SMEs.
As a result, SMEs in England can get access to free management development courses through their local business schools that are funded by the UK Treasury whereas there is no support whatsoever available for Welsh firms to do the same.
The publication of the 22nd Wales Fast Growth 50 has again shown that we have some incredible Welsh businesses that are making an impact in their sectors. generating a collective turnover of £444 million and employing nearly 2600 people in 2019. More importantly, they produced an additional £280 million in turnover during the period 2017-2019 at an average growth rate of 171 per cent, higher than in 2019 and creating over 1,300 new jobs in just two years, doubling their workforce and demonstrating their continuing importance across the Welsh economy.
However, Wales needs more than just fifty high performing businesses if it is to recover quickly from the economic effects of Covid-19. Certainly, investing in better management skills which lead to higher levels of productivity within Welsh SMEs would be a first step in ensuring that our businesses develop the capabilities to grow over the next few years and, as a result, increase prosperity and job creation across the nation.