SMEs report 'capability crunch' that paints worrying picture for productivity growth

The research is based on a survey of 1,179 senior decision makers in UK business, working in companies employing between two to 249 employees.

The report concludes that businesses implementing hybrid working report better performances than “remote businesses” and those operating from a dedicated work environment, like an office or factory.

The Productive Business Index, which is published twice annually, stands at 111.4, which is 1.2 points lower than the figure published in October and 10 points lower than the survey from the first quarter of 2022.

In a statement, Be the Business said: “This fall was driven by a significant drop in action taken by SME leaders to improve management skills, HR (human resources) practices and operational efficiency, all of which have a proven link to higher levels of productivity.”

Mr Impey said: “There isn’t a secret to higher levels of business productivity. It is a code that’s already been cracked. Businesses which invest in their management skills, HR, operations and technology are stronger performers than those which don’t.

“It is worrying that fewer business leaders have taken action in these areas compared to last year. The sustained growth needed for a higher wage economy won’t happen without more businesses building their management skills.”

Be the Business found that businesses that have implemented a hybrid model are more likely to be working on the skills linked to higher productivity levels. In contrast, those primarily operating a remote model aren’t investing in their skills to the same extent, according to the research.

More than four in 10 (42 per cent) of hybrid businesses said they will further develop their business strategy in the next 12 months, compared with less than a third (31 per cent) of remote businesses. A similar trend is found in planned financial forecasting activity and management skills development.

Mr Impey added: “The businesses debating a return to offices should ensure they don’t lose the productivity benefits hybrid arrangements provide.

"And those businesses operating entirely remotely should ensure they find opportunities to collaborate and provide a supportive environment to younger workers, both of which appear to be areas of organisational weakness.”

Mr Impey added: “Getting advice pays off in real and meaningful ways. Those who do so regularly show increased revenues, fuller order books and more employment. By contrast, those who don’t seek advice appear overconfident in their management skills.

“There needs to be a collective effort from the business community and Government to demonstrate the value of an external perspective to business productivity and performance.”