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Business Development & Marketing General Interim Management & Executive Support

Is your business barely managing and if so why?

Business barely managing in stormEvidence suggests that many UK businesses are barely managing when compared to foreign-owned businesses of equivalent size operating in the UK.
At the moment it is easy to blame everything on the uncertainty surrounding the outcome of the UK’s negotiations to leave the EU, especially as political positions remain entrenched and seemingly irreconcilable with just 40 or so days to go before the deadline.
As the most recent productivity figures from the ONS (Office for National Statistics) showed, productivity and output per hour fell to their weakest in two years at the end of 2018, prompting FSB (Federation of Small Businesses) Chairman, Mike Cherry, to opine: “”Productivity data demonstrates exactly what a prolonged period of uncertainty does to an economy. Small business confidence has dropped to its lowest point since the financial crash, with four in ten firms expecting their performance to worsen.”
Of course, Brexit has prompted more businesses to divert their attention to do such things as stockpiling raw materials or components to mitigate any potential supply chain disruption, and of course, investors have been holding onto their money during this period of uncertainty.
It has also been suggested that another inhibitor to SME growth and scaling up has been what is known as the Seven-year Rule, whereby tax breaks for investors, made through tax-efficient venture capital trusts or via the enterprise investment scheme (EIS), are only accessible to companies for seven years after they make their first sale. This, it is argued, makes it harder for SMEs to access the finance they need to scale up.

Is business barely managing a “British Disease”?

However, in this context I would argue Brexit is a distraction and a convenient excuse for poor productivity and that the answer lies in the way UK businesses value, or actually don’t value, their people.  This is backed up by plenty of research from many sources.
According to the Guardian business and economics opinion writer Philip Inman there is a significant difference in productivity between the way foreign-owned businesses in the UK and UK-owned ones are run.
According to ONS figures foreign-owned businesses make up one in four of large UK-based businesses and are twice as productive as their domestically-owned equivalents. When it comes to medium-sized companies the foreign owned ones are about three times as productive.
Why should that be?
There is, argues Inman, plenty of evidence that the foreign-owned UK businesses pay attention to two things that affect productivity: processes and structure.  The ONS has found that there is a positive link between attention to these two and productivity.
Other researchers have argued that UK businesses do not value or pay enough attention to good middle-tier management, especially in family-owned firms that have been running for more than three generations.
Middle managers often have little management training or support and this leads to a lack of confidence among both senior managers and workers that their ideas are valued and suggestions acted upon.
UK businesses of all sizes clearly need to pay more attention to their people skills and competence, their processes and structure, especially once they find themselves cast adrift on post-Brexit competitive waters.

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Banks, Lenders & Investors Business Development & Marketing Finance

Could proposed new rules on foreign investment in UK damage SME prospects?

foreign investment in businessThe Government recently proposed expanding its powers to review and intervene on foreign investment in UK businesses.
Under the proposals, which are subject to consultation, the Government’s remit would cover all UK businesses including SMEs, where previously it could only review proposed deals where there were national security implications. It would include powers to block takeover deals across all sectors of the economy.
The UK’s plans are reportedly in line with efforts in the United States, Germany, France and Australia and relate to concerns that China and other rivals are gaining access to key technologies.

How does foreign investment affect the UK economy?

The UK’s current account is a measure of the economy’s health.
It is calculated by adding up the goods and services of our exports and the income earned by the UK from overseas investments and subtracting those goods and services we import, income paid overseas for investments in the UK and the payment of things like international aid.
If this figure is negative it means that the economy has a deficit which can act as a disincentive to foreign investment in the UK, especially now, while business is beset by uncertainty and the prospect of exports being stifled by Brexit.
The most recent Office for National Statistics (ONS) figures, for January to March 2018, show that the current account was a deficit of £17.7 billion (3.4% of gross domestic product (GDP)) albeit this is a reduction of the gap for the third successive quarter.

How does foreign investment affect UK productivity?

According to ONS figures published in July this year British businesses, including SMEs, with foreign owners are up to three-times as productive as those with only UK investors.
It is not clear whether this is because overseas investors choose to put their money in the most productive UK businesses, or those which are already intensively involved in export, but there is also an argument that foreign investment comes from businesses that are already expert in the latest and most productive techniques of management, the organisation of work and the application of new ideas.
Readers might like to see a guide I recently produced on this topic: Guide to Productivity Improvement.

Why does a change in foreign investment scrutiny matter to SMEs?

The proposals have already raised concerns among MPs and notably the Institute of Directors (IoD) whose policy director Edwin Morgan said: “…the wide scope for intervention set out in the white paper could have a chilling effect on foreign investment in growing sectors of the economy”.
Oliver Welch, of the manufacturers’ trade body EEF also warned that even those companies not seen as a security risk “could end up caught in red tape”.
As many as 4 million UK workers are employed by companies with foreign investors, so a reduction in foreign investment could also have a significant impact on jobs.
More significantly, for SMEs hoping to grow and expand into overseas markets, many of whom are in the tech sector, access to investment is essential. Equally, as mentioned by the EEF, the last thing SMEs need is to have to engage with yet more Government red tape which is already a burden.
If the Government is proposing to widen its scrutiny of foreign investment to include key technologies on national security grounds, how does this square with its exhortations to SMEs to step up their efforts to seek more export opportunities?
Joined up thinking is not much in evidence here. We need policies that promote us abroad, not ones that isolate us from the rest of the world.

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Business Development & Marketing General

Are we being naïve about the powers of technology?

stormclouds over the power of technologyThere is no doubt that using various IT systems offers scope for huge time savings and efficiencies but at what cost and how do you cope with the expectations of technology that many companies and users are not familiar with, not least about its performance and reliability?
There seems to be an ever-growing list of IT failures and meltdowns. They include the problems TSB has had in installing its new system, which locked people out of their bank accounts, made several thousands vulnerable to their accounts being hacked and money stolen and, it seems, have still not been completely resolved eight weeks later.
Then the VISA payment system failed for a day, making it impossible for customers to pay for purchases in countless shops.  The London Stock Exchange recently had to open an hour late “due to a technical issue” and, as I recently reported the Government’s business rates appeal website has been castigated by SMEs as being less than user-friendly. Those are just examples from this year.
It is not uncommon for Government-commissioned websites to go way over budget or to be delayed, such as the roll-out of Making Tax Digital, parts of which will not now be implemented for several more years.
Yet we are constantly being advised, or even pushed, into using technology and in many cases businesses cannot function without it.

How much should SMEs rely on the powers of technology?

It is all very well for banks to be closing rural branches and encouraging everyone to bank online, but this can be frustrating, time consuming and therefore costly for the rurally-based SME in a location where the broadband service is less than reliable.
Indeed, the FCA has just revealed research findings that consumers in rural areas of the UK are far less likely to use their smartphones for banking than their urban counterparts, largely due to patchy mobile and broadband coverage.
In a recent Guardian Article James Bridle argues that “We have come to believe that everything is computable and can be resolved by the application of new technologies” about which he says we understand less and less.
He cites the example of the Cloud, which we use for working in and for storing often crucial business information.
As he says: “the cloud is not some magical faraway place” but actually a “physical infrastructure consisting of phone lines, fibre optics, satellites, cables on the ocean floor, and vast warehouses filled with computers”.
Any physical infrastructure is likely to have vulnerabilities and weaknesses, and this is something that you should take into account when developing IT systems for your business.
Essentially this means that wherever possible you should get the best possible advice when choosing any system to install, taking into account your location and the reliability of the infrastructure.
You should ask questions about its capabilities, and above all you should both understand the limitations of the powers of technology and should always have data back-ups, whether it be paper records or external and locally-based hard drives to avoid your business being unable to function in case of a failure.
You should also have fall-backs if the system is down but I shall deal with business continuity in another blog.
Ultimately the powers of technology are huge but exploiting them requires vision, reorganisation, planning, training and considerable investment.

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Business Development & Marketing Finance General

The pros and cons of team building activities for SMEs

team building activities or socialising?There is considerable disagreement about the effectiveness of company team building activities, especially those that involve away-days for things like paintballing, go-karting, white water rafting and the like.
The question is whether team building activities away from the office will make a noticeable difference to your productivity, rather than simply to the bottom line of the businesses that offer such facilities.
According to Forbes Magazine, Kate Mercer, author of A Buzz in the Building: How to Build and Lead a Brilliant Organisation and a co-founder of the Leaders Lab consultancy, warns that such activities can actually damage your workplace because it takes a great deal of skill to bring out the learning points and to transfer them back to the workplace.
Not only that, she says, they can make some employees feel embarrassed and others feel patronised and too often they confuse socialising with actual team building activities.
Such exercises can also be expensive, particularly for a small business, and the American researcher Kenneth Stålsett argues in his doctoral thesis that while they may be fun – for some – they rarely alter established ties between colleagues or enhance communication and collaboration skills back in the workplace after the event.
Stålsett argues that team building should be tailored to the unique challenges that exist within each group, or business, and that team building should be a recurring exercise.

Do SMEs need team building activities?

There is a distinction between social and team-building events. During the planning, you need to be clear about the purpose and outcomes you want.
Of course, you want your business to function as efficiently and effectively as possible and therefore you want your employees to work well together.
This can be particularly crucial for an SME in today’s fast-paced economic environment where it is important to get new employees to fit in and become productive as quickly as possible.
There is no denying that your business productivity can benefit from a co-operative and well-knit team of employees and it is therefore important to encourage this.
This means your business environment needs to be comfortable, positive and welcoming, in the sense that everyone’s contribution is valued and where people are stimulated, challenged and recognised for doing their best.
Your team building activities need careful thought and design to encourage people to respect, trust and co-operate with each other and should be part of an ongoing process of building trust and reinforcing goals to ensure everybody is heading in the same direction and has a shared set of values.
So yes, your team building activities are important, but they are about a continuous process, not about expensive away-days.
Those should be seen as enjoyable social activities, perhaps as a reward or thank you for employees’ exceptional efforts. They should definitely not be compulsory.

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Business Development & Marketing Cash Flow & Forecasting General Rescue, Restructuring & Recovery Turnaround

Staff costs, efficiency and productivity

business core valuesIn this month, when our blog theme is about monitoring and measuring performance and putting appropriate systems in place, today’s blog topic is about applying this to employees, efficiency and productivity.
Of course, all businesses want to maximise profits and minimise overheads and one of the biggest overheads can be employment costs.
However, as the recent employment tribunal ruling against Uber’s conditions of employment and now potential action by people working for Deliveroo suggest, a ruthless strategy of keeping employment costs to a minimum above all else can backfire.

Staff productivity is achieved by investing in people and job security

As the above examples illustrate classifying people as self-employed or issuing zero hours contracts may minimise the wage bill, but it may also be myopic if a business wants to protect both its longevity and its growth.
Clearly, people want job security and at least a fair return for their efforts, but many studies have shown that offering additional cash incentives for improving efficiency or productivity is not effective.
What works better is for employees to feel valued, included, respected, listened to and engaged in any changes being contemplated.
This starts from the moment a new member of staff joins a company, when employment contracts, terms and conditions should be clearly stated and fair.
They should be settled in with an induction programme that makes them feel valued and welcome, one that introduces the culture and values as well as training them to use equipment and the company’s procedures.
It may seem like a revolutionary idea but when change is being considered, consult those people “at the sharp end” who will be doing the job.  Indeed, they often have ideas that management have not considered and a much better idea of what will work and what will not.
While setting targets and goals that can be measured is essential for productivity and growth, recent research by the Centre for Business Research in Cambridge and the Global Development Institute in Manchester has shown that employees’ productivity is directly related to their personal development and security of employment.
Investment in employees as well as equipment is more likely to ensure long term prosperity for a business than keeping them living with the fear of job and financial insecurity.