Making the lockdown digital switch to permanent

A few years back, there was a two-day tube strike in London. As with most tube strikes, it forced stressed commuters to change up their route into work at short notice. When it was all over, economists who looked at Oyster Card data made a surprising finding. About one in twenty commuters who changed up their route on the days of the strike stuck with their new route.

They found that this new route was better in some way, be it quicker, cheaper, or just less crowded. It’s a testament to the value of experimentation.

The silver lining of the lockdown is that more SMEs will have been forced to run experiments. Some businesses might discover they’re better off selling online, others might decide to give more workers the option of working from home when things return to normal.

What are the benefits that SMEs will have seen through these forced experiments?

It’s not the easiest question to answer. ONS data tells us that a 1% increase in web sales is associated with 0.2% increase in productivity. But correlation isn’t causation. It might simply be the case that more efficient businesses tend to be the first to enter new markets and experiment with new technology.

However, data from the Enterprise Research Centre’s Micro Business Britain survey helps solve the problem by looking at time lags. Businesses that adopt tech become more productive in the years that follow.

For instance, they find micro-businesses (fewer than 10 employees) who adopt cloud-based computing are 13.5% more productive down the line.

They estimate that if the UK was able to double micro-business uptake of five key technologies including CRM software, web-based accounting, and cloud computing, it would lead to a £16bn boost to GDP. To put that in context, almost a fifth of Brits work for micro-businesses. Put another way, that’s a £4,050 wage boost. Equivalent to four fifths of lost productivity for these workers since the global financial crisis.

This is achievable. Other countries do better than us. For example, the rate of SMEs with very low levels of digital adoption is three times lower in Finland.

As the debate shifts from survival to recovery, it’s vital that we close the digital gap and increase the rate of digital adoption.

A new report from The Entrepreneurs Network and Xero, Upgrade: Closing the digital gap and raising productivity for SMEs, looks at three key barriers that need to be overcome: knowledge, finance, and skills.

As the government pledges money for training and commits up to £30bn to securing the recovery, it’s vital that we also go after the information barriers. If businesses are unaware of the benefits of adopting a digital solution or cannot assess whether a solution will work, then they will under-invent in technology.

In the absence of a pandemic forcing a business to move online, how do we get SMEs to test out digital technology?

The key is helping businesses to learn from other businesses. A Chinese study found that when SMEs managers regularly met and discussed problems, they were more likely to adopt best practices.

Similarly, Belgium’s PLATO programme has been shown to lead to productivity gains. Funded by the government, but run by VOKA, a large SME membership organisation, it brings together SMEs to solve each other’s problems.

We should look at schemes like Plato and use them to get more businesses to overcome the knowledge barrier.

The government’s Business Basics fund is the right sort of initiative, as it runs experiments and closely measures their effectiveness, but it’s key what is shown to work is then scaled.

There are three lessons worth considering.

First, peer-to-peer learning should be attainable. Many SMEs won’t trust lessons from say, Rolls Royce’s. Some SMEs said that the North East’s Growth Hub’s high performance programme worked precisely because they felt they were learning from similar business that were just a bit further along.

Second, It’s important to foster trust. PLATO used intense face-to-face meetings. The challenge is finding a covid-safe way of doing that.

Third and finally, Leave it to the experts. Businesses don’t trust civil servants to run their business. But they are willing to learn from other businesses. Where possible, government should outsource advice to trusted business groups.

There’s a huge opportunity to secure the recovery by increasing digital adoption. Let’s take it.