Make lockdown switch to digital permanent to secure economic recovery

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A new report from The Entrepreneurs Network argues that small firms should make better use of digital technologies to tackle the sluggish productivity which characterised the pre-Covid economy and bounce back faster post lockdown.

“Upgrade: Closing the digital gap and lifting productivity for SMEs”, commissioned by global small business platform Xero, shows many small firms are failing to make use of the right digital tools. It finds that although the UK is one of the world’s most innovative economies hosting over 70 tech unicorns, over a third of small businesses are not adopting tried-and-tested tech.

This is important because if the UK’s 1.1 million micro businesses doubled their uptake of key digital technologies it would lead to a total £16.6bn boost to the economy. This amounts to a £4,050 average productivity boost for the 4.09m workers employed by micro businesses, restoring four-fifths of lost productivity growth between the financial crisis and the lockdown.

While the UK’s productivity has on average underperformed relative to other major economies, top-performing UK companies are on par with the most productive businesses in the world. The problem is the large gap between the UKs ‘leaders and laggards’. Technology adoption is a similar story. Although the UK is home to world-leading tech businesses, many SMEs do not do the basics.

Over a third of UK SMEs have very low levels of digital adoption. According to the EU’s Digital Intensity Index, which measures the use of digital tech by businesses, many lack a website, social media presence, or fast broadband. By contrast, in Sweden and the Netherlands just over a fifth of firms have very low levels of digital adoption. In Finland, just one in ten have low levels of adoption.

Sam Dumitriu, Research Director at The Entrepreneurs Network and author of the report, says: “Recent events have highlighted the importance of digital technology in enabling businesses to continue trading in the most difficult of circumstances. It is now time to take advantage of a massive opportunity to boost productivity by increasing the rate of digital adoption.

“Britain is a world-leader in innovation, but too often best practices are not spreading to all SMEs.”

Gary Turner, UK Managing Director, Xero says: “One of the achievements of so many small firms in recent months has been how they have been able to pivot their business models to operate differently. They are discovering new digital ways to achieve greater value, scale and resilience.

“As the economy reopens and small firms look to rebuild, we must close the digital divide to help small firms bounce back more quickly. Hence, the lessons in this study on how we can encourage firms to make more use of the right technology are more important than ever.”