The importance of supporting SMEs

In the UK, too much emphasis is given to the scientific and academic elements of the innovation landscape. This may be why much of our county R&D is forever destined to remain on the shelves of the inventors.

In other countries, there is more emphasis on product or process innovation; organisational or managerial innovation; innovation in marketing or business models; and skills and capabilities upgrading, activities sometimes labelled as Technology Extension Services.

In modern economies, SMEs create the largest proportion of jobs because, in most economies, 98 per cent of enterprises are SMEs. The growth in importance of SMEs has some interesting side effects. For example, it has had a detrimental effect on the productivity indices because there is clear evidence that SME performance lags behind that of larger corporate entities. Such impacts are driving governments to try to improve SME performance.

In my own experience as CEO of the northeast process industries cluster NEPIC, I believe that there is too much policy rhetoric in the UK about creating entrepreneurial new technology firms, which are only a small minority of the economy SMEs. In the UK, policymakers have been duped into believing that asset based innovation facilities are the answer to the country innovation productivity. Building the assets and expecting innovators to come and use them has been the oft repeated mantra.

We can look back now and see that across the UK so many asset based innovation facilities, expensively supported by the public purse, have closed. Many of these were in universities or mothballed in centres of excellence. Sometimes they were too reliant on the expertise of a single professor, with closures occurring when that professor moved on or retired. So called national centres for bioprocessing, anaerobic digestion, pharmaceutical formulation and several nanotechnology centres have all received huge amounts of public cash with apparently little or no returns in terms of value to the economy.

There is plenty of evidence to show that policy responses to foster innovation and growth in SMEs are much more complicated than can be tackled by such a unidirectional response to the multidimensional nature of the problems encountered by SME enterprises.

Shapiria, Youtie and Kay, in their paper on building capabilities for innovation in SMEs, say that challenges exist at the firm level, at the industry level, within the context of social infrastructure, and in the innovation environment. There are demand side gaps, with SMEs lacking information, expertise and skills, training, resources, strategy, and confidence to adopt new technologies and techniques. This is not a demand for access to assets, it is a plea for real practical industrial expertise.

Huge success in supporting the innovative growth of SMEs has been achieved by using the knowledge of NEPIC senior managers, all of whom have held operational and development roles in the industry. NEPIC has also, when needed, accessed willing mentors from NEPIC member companies, all senior managers and directors who have shared their extensive knowledge about innovation and technology with SME beneficiaries. This is much more effective than support strategies based on costly open access facilities in universities or centres of excellence.

The NEPIC approach to helping SMEs to innovate has recognised that innovation takes many forms, not just in products and processes but also in management services, supply chain connections, infrastructure, energy usage and operations management. SME growth projects, such as the NEPIC DEELOCSI and BASME projects, have helped over 500 SMEs innovate in a variety of ways specific to the SME concerned.

Over the past three years, we have engaged with over 550 SMEs. Following our interventions, these SMEs have reported that they have increased their business by circa £50m and added over 1,130 jobs. Using a mid supply chain Gross Value Add rate for our sector supply chains of £50,000 per job, this now represents over £0.5bn per year of Gross Value Add to our local economy.

To deliver these projects, NEPIC has utilised £2.1m of public support while at the same time the process industry also helped with £3m of in kind support through the time utilised by mentors. This represents a 2,690 per cent or 30 times return on the public money invested in our work.

NEPIC has no assets, just industry knowledge, expertise and practical innovation advice to share. NEPIC projects always undergo independent review so that we can be confident in the numbers we use to inform stakeholders. We are proud of our measurable achievements, but sometimes it is the less tangible aspects that give rise to the hard results. The learnings, insights and industrial connectivity that SME owners and managers receive through the mentoring process are the highlights most reported by them.

Dr Stan Higgins