Small businesses in the East Midlands risk losing out compared to those in other parts of the country, according to a new report.
Smaller firms in the region are less likely to innovate, export, use external finance or see the benefits from investing in new technology, research and development or training, particularly in management.
The issue was highlighted as the prolonged lead-up to Brexit highlighted the ‘just in time’ focus and lack of strategic planning by the region’s small businesses.
The report comes as new funding was announced to support 150 microbusinesses in Leicester and Nottingham with free leadership and management training.
Author and researcher Professor David Rae of De Montfort University Leicester (DMU) said many firms were understandably focused on the day-to-day running of their firms and so were less able to prioritise factors that affected their medium to long term success.
Managers and business organisations needed to work together to improve their competitiveness through improving leadership and using digital technologies effectively. Less effective management has been linked to low productivity, measured by the value of output produced per working hour.
Professor Rae worked with the East Midlands Chamber of Commerce to produce the new study called Why Leadership Matters for Micro and Small Firms in the East Midlands.
It includes data from the Quarterly Economic Survey, undertaken by East Midlands Chamber, including micro and small businesses, or MSMEs. Micro businesses are those with nine staff or fewer while SMEs have less than 250 employees.
Professor Rae, Director of DMU’s Centre for Enterprise and Innovation, said: “There is growing and significant evidence, from business and research organisations, and from well-established leadership programmes for MSMEs, of the strong connections between investment and commitment to leadership development; and improvements in firm performance and resilience.”
The high proportion of small and micro businesses in the East Midlands is a strength, reducing reliance on a handful of large firms. It has been named one of the best places in the UK to start a business, and the region’s central location makes it appealing to investors.
However, the report found business owners were prioritising day-to-day operations over longer-term planning, losing out on opportunities to grow and develop.
The survey by East Midlands Chamber found most MSMEs do not have a formal approach to support leadership development; most spent no money on it nor had any plans or interest in it.
However, nearly 60% of those who had leadership training said it had an impact.
Managers said they found it difficult to find time away from their business to train.
Previous studies have found firms in Nottinghamshire and Derbyshire have a “disproportionately large” numbers of businesses with average productivity, impacting their ability to compete.
Professor Rae said short-term focussed management tended to lead to firms competing on price rather than on quality, innovation or customer service, which put small firms at a disadvantage to the bigger players.
He said: “Business organisations need to focus on how to work together to create conditions for business resilience and growth in a period of quite unpredictable change.”
Three business schools accredited by the Small Business Charter – DMU, University of Leicester and Nottingham Trent University – have been selected to run free training for 150 microbusinesses to help them develop the skills they need to compete.
The national programme, called Leading to Grow: Managing Digital & New Technology Adoption, is now recruiting firms to start in January and includes tailored support, workshops and one to one support.
The report was launched at an event called ‘Think Beyond Now’ held as part of the Leicester Business Festival. Businesses at the event were keen to sign up for the Leading to Grow programme.
Prof Rae said: “The vital role of leadership skills and their importance to business growth, resilience and productivity gains are now being addressed with development organisations, funders and most importantly SMEs themselves. At a time of growing uncertainty, businesses need to show determined leadership.
“It is essential for all of us, from big business to government, educators, business professionals and local decision makers, to work together with the MSME community. By doing this, we can help to ensure the region not only weathers current economic uncertainty, but emerges stronger through it.”