Understanding the SME Drag Effect in the West Midlands Economy ? Findings of PSP Growth Diagnostic (Survey)

Deniz E. Yoruk, M. Gilman

    Research output: Book/ReportCommissioned report


    This report provides an in-depth analysis of the SME economy in the Greater Birmingham and Solihull Local Enterprise Partnership (GBSLEP) and Black Country Local Enterprise Partnership (BCLEP) with the main objective of enhancing our understanding of the reasons behind the SME drag effect on the West Midlands economy. This report uses data from our own Promoting Sustainable Performance (PSP) survey (see Appendix A for details of this methodology) conducted between March 2018 and March 2020. We investigated a sample of SMEs operating in GBSLEP and BCLEP economies with respect to their growth and wider business activities. We compared four SME growth classifications, namely high growth firms (HGFs), low growth firms (LGFs), static firms (SFs), and declining firms (DFs). Our findings show that ? Future growth aspirations are not systematically supported by structured reflection, learning, planning and strategy. ? A general lack of understanding of strategic management by the owner-managers manifests in a strong reliance on managing the business on their own rather than involving other specialised people in business operations, substituting accounting-related measures for strategic measures for performance, and confusing having a business plan with having a business strategy. ? An excessive and short-term focus on sales and marketing strategies is at the core of SME management priorities. However, high growth is more likely when a long-term perspective in developing value-creating relations with customers & suppliers is pursued and when SMEs undertake strategic investments in technology acquisition and human resources. ? While product or service differentiation or finding a niche is a recipe for SME growth, when complemented with cost leadership strategies, it leads to high/rapid growth, as the latter stimulate achieving higher productivity (e.g. through more process innovation and the use of technology). ? Growth is more likely when employees become a source of competitive advantage, which in turn helps overcome productivity problem. However, SMEs are less likely to communicate their strategies with their employees, to invest in hiring qualified skilled employees and in training their existing employees. ? Growth is more likely when information and advice are sought strategically. It is not only about the kinds of information and advice SMEs seek but also about how they operationalise this information and advice through their business strategy (i.e. leveraging their capabilities). Our analysis of the SME growth classifications detects that DFs purport to utilise similar practices and strategies to HGFs but it does not necessarily deliver growth. This result highlights that in order to successfully implement the strategies of HGFs, the firm needs a proper understanding of business strategy development and structured purposeful planning. Moreover, this understanding needs to be complemented with capability development within the firm. This holds regardless of the sector an SME is operating in. We recommend that in a business environment shaped by the Covid-19 pandemic, policies need to consider accommodating the needs of a wider variety of SMEs (i.e. not only HGFs) both for survival and growth through improved productivity and efficiency. For this, a new approach to SME development and growth needs to be adopted by SME owner-managers and the local authorities, which will be elaborated on in our third report.
    Original languageEnglish
    PublisherCEIG Website
    Publication statusPublished (VoR) - 1 Aug 2021


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