Back to basics: what works in promoting productivity?

“Productivity isn’t everything, but in the long-run it is almost everything.” Paul Krugman’s famous dictum explains why policy makers have invested so much in the quest to boost business productivity and overcome the malaise of recent decades.

Much of the focus has been on small and medium-sized enterprises (SMEs) which are on average across the OECD a third less productive than larger firms. Many are struggling to adopt new technologies and effective management practices. And yet while many bright ideas and programmes have been tried, there‘s not enough evidence about what works.

Putting policies to the test

Over several years, the Innovation Growth Lab (IGL) has worked with the UK government and the European Commission on a new approach to this problem. It  has set up experimentation funds to test new interventions to boost innovation and productivity among SMEs.

The UK’s Business Basics Programme funded 32 projects in which a range of public-sector and private-sector organisations experimented with approaches to promote the adoption of new technologies and management practices.

At the same time, the European Commission’s INNOSUP-06-2018 programme supported innovation agencies around Europe in testing 13 innovative interventions. In each case, the experimentation funds have enabled organisations not just to implement a programme but also to begin to fill the evidence gap with additional funding and advice to carefully examine its impacts.

The results are now in. There have been some clear successes, including:

  • An online training programme on Operational Coaching for managers implemented by Notion Ltd was successful in prompting SME managers to make more use of coaching practices in their work. As an online, self-guided training course, Notion’s programme has the potential to be made widely available to SME managers at low cost.
  • Researchers at City, University of London trained SME managers to use a ‘scientific’ approach to decision-making – meaning that they would formulate and test theories and hypotheses about their business models. This led to participants making more pivots in their business strategy when necessary and to faster growth during the subsequent months. This approach has now been shown to be effective in several experiments in the UK and Italy, with further large-scale trials being carried out around the world.
  • Under the 200SMEchallenge, representatives of SMEs in seven countries around Europe participated in ‘design sprints’ alongside design professionals, students and customers, with the aim of improving the usability of their products and services. This led to significantly increased knowledge and ‘know-how’ about the design sprint method.
  • Two projects implemented by Start and Grow UK demonstrated the value of integrating peer-to-peer interaction within training courses. The Business Boost programme resulted in greater adoption of modern management tools and the development of a positive vision and strategy for the business, while Evolve Digital was successful in building confidence in the ability to use digital technologies among small family-owned firms.

In addition to the results from the full-scale trials, many of the interventions that were tested at a smaller scale were well received by participants and are good candidates for further testing.

Promising approaches that have generated interest with policy makers include:the use of diagnostic tools; benchmarking against peers; design thinking; exposure visits for SMEs to larger companies in their area; consulting on HR and people management; counselling on soft skills; placements for students to work with SMEs on technology projects; and health and lifestyle assessments for SME employees.

Failing forward

Policy “failures” also offer valuable lessons. The experimentation funds enabled organisations to take risks with novel ideas. As expected some of the projects didn’t take off. Implementation difficulties and a lack of engagement from SMEs revealed that some assumptions about the ability to deliver positive impacts were too optimistic.

There was also the enormous unexpected disruption caused by the COVID-19 pandemic. But even the programmes that were less successful in terms of immediate delivery have generated a wealth of learning about how to design and implement business support programmes and about pitfalls to avoid.

Recruiting SMEs to engage in programmes is a perennial challenge, but one that some organisations have been able to overcome, albeit most often through costly one-to-one approaches. Perhaps the clearest lesson to come out of these projects is the importance of piloting a programme at small scale and iterating until it works, before investing in a larger-scale rollout. We should only consider these projects to have failed if too much was invested up front, if we weren’t able to discover why they didn’t work, or if lessons are not learnt.

Crucially through this process, policy makers and business support organisations have been engaging directly in generating evidence about how their programmes are working. These initiatives have set the stage for more experimentation in the future, something that will gradually let us build up a better understanding of what does and doesn’t work to boost productivity among SMEs.

Impact of Notion training on time allocation by SME managers


Notes:

The Innovation Growth Lab (IGL) is a global initiative that aims to make innovation and growth policy more impactful through new ideas, increased experimentation and better evidence. Our report about what we’ve learned under INNOSUP-06-2018 here, and we’ll be publishing a report about learning from the Business Basics Programme in the near future. You can follow our blog or subscribe to our newsletter to learn more. Please get in contact if you would like to find out more about the use of experimentation funds or applying these approaches to develop and evaluate your programmes.

IGL received funding from the European Union’s Horizon 2020 research and innovation framework programme under Work Programme 2018-2020 Action 7. Innovation in small and medium-sized enterprises: Support to design and running of randomized control trials under INNOSUP-06-2018. IGL’s work with Business Basics was funded by the Department for Business, Energy and Industrial Strategy (BEIS) and Innovate UK. The information and views set out on this page are those of the authors and do not necessarily reflect the official opinion of the European Innovation Council and SMEs Executive Agency (EISMEA), the European Commission, BEIS or Innovate UK.

Deputy Director at Innovation Growth Lab | + posts

James Phipps is the Deputy Director of the Innovation Growth Lab where he leads work to encourage and enable policymakers to adopt an experimental approach within innovation, entrepreneurship and business growth policy. This involves working with government ministries and innovation agencies around the world, helping them to identify and develop ideas for experiments and to build their capabilities to take these forwards.

Evaluation Manager at Innovation Growth Lab | + posts

Rob Fuller is Evaluation Manager in the Innovation Growth Lab, where he is responsible for working with project teams, funders and researchers to deliver high-quality evaluations that can be used to inform policy decisions. He has experience in designing and implementing randomised controlled trials and quasi-experimental evaluations. Most recently, he has been providing technical advice to teams carrying out RCTs under BEIS's Business Basics Programme and the European Commission's INNOSUP-06 programme.

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