The report by Exact and the Centre for Enterprise and Economic Development Research (CEEDR) shows SMEs with above average levels of operational efficiency based on 17 different operational functions not only have greater productivity levels, but are also considerably more successful in terms of achieving sales growth and more optimistic about continuing to do so in the future.
While external market factors have impacted the 757 SMEs who took part in the research, the report suggests a key part of improving performance levels is through the adoption of new technologies but many, particularly smaller businesses with 40 employees or fewer, are unable to do so because they are too busy to step back and take stock of existing processes.
The research, which included input from SMEs in the manufacturing, professional services and wholesale & distribution sectors, showed 70% of those that consider themselves to have above industry average levels of operational efficiency saw sales figures increase last year, with just 8% experiencing falls. This compares to just 50% who saw sales figures grow among those with below average levels of operational efficiencies, with nearly a quarter (24%) of them seeing sales decrease.
Furthermore, among the 3% elite group of trailblazers, those SMEs who managed to increase their sales turnover by more than 100% last year, 56% had above industry levels of operational efficiency; none of them had poor operational efficiency levels.
The report shows adoption of new software is significantly related to better growth performance, most notably through the use of cloud and mobile technologies. Almost one in five businesses surveyed used cloud solutions, 78% of whom are deemed to be operating at above industry norms.
These findings come on the back of recent Government statistics showing the vast majority (68%) of the UKs 4.9 million SMEs set out to grow their businesses last year, but only 13% succeeded in doing so, said Dr Rob Baldock, Principal Researcher at CEEDR. The message from our research is an extremely strong one. Effective time management is of considerable importance in increasing performance capacity and growth, yet less than one quarter of SMEs see it that way.
Although fear over the costs involved in introducing change is a barrier among SMEs who are performing less well, notably those with 40 staff and under, the report states that proportionally a far greater barrier lies in the fact that many (36%) lack the time to consider improvements and do not know where to find appropriate help and advice to address their problems.
Lucy Fox, General Manager, Cloud Solutions at Exact UK, said: What this research proves is the extent to which time management efficiencies can impact on business performance. It shows that the majority of SMEs are focused on growth and many working at full or near capacity to achieve that, but not always focusing those efforts in the most productive way.
Its also clear that one quick way for small businesses to make immediate operational efficiencies is to invest in cloud and mobile technologies – with almost 80% of those businesses already doing so performing above their peers for operational efficiency. Whats more, these businesses are also experiencing better growth performance.
While there is plenty of financial support being offered to SME businesses through growth accelerator funds and Government grants, more needs to be done to help support them in other ways, given many are just too busy to do anything about it, she added. Time is one of the most valuable commodities SMEs have, and it needs to be invested wisely.
- 6% of SMEs consider they are operating below industry average levels of efficiency. The manufacturing sector has the most at those levels (8%), but at the same time also has the most SMEs operating at better than average efficiency (54%).
- These shortcomings are particularly apparent for smaller businesses, those with 40 employees or less, where less than half had above levels of efficiency. Just 38% are operating at above industry norms in the 11-40 employee size band.
- Efficiency is strongly related to working at capacity; Three fifths of businesses operating at full capacity are perceived to be working at above average levels of industry efficiency. Conversely, one fifth of those operating at less than half of capacity perceive they are working at below industry average levels of operational efficiency. Manufacturing appears to be the strongest performing sector, with one fifth (20%) at full capacity and 54% at above 90% capacity or above. However it also has the highest sectoral proportions operating at below three quarters and below half capacity levels (19% combined).
- Adoption of new software was a major factor in improving time management efficiency (TME) for almost half (48%), this was significantly related to better growth performance, partifcularly in professional services and wholesale & distribution businesses.
- Nearly two fifths (38%) are spending more than 10% of their time in non-productive tasks and one in eight are spending more than 20% of their time on such activities. Wholesale & distribution is the sector with the greatest number of businesses that spend more than 10% of their time on non productive activities (40%), closely followed by professional services at 39% and manufacters at 35%.
- There is greater cloud-technology software adoption in manufacturing than in other sectors. More businesses in manufacturing (27%) use cloud software to manage financial and business processes (compared to on-premise software, Excel spreadsheets or pen and paper) than businesses surveyed from other sectors (professional services 17%; wholesale and distribution 13%).
- More businesses in the manufacturing sector are looking to grow considerably next year (32%) than in businesses in the other sectors questioned (wholesale and distribution 23%; professional services 20%).
- Manufacturers are least efficient when it comes to finding new customers; just under a tenth (9%) rated themselves as poor or very poor in doing so.
- The three things most important to SME manufacturers in terms of running at maximum efficiency are: meeting sales targets, pricing and business planning.
Professional Services specifics:
- Less than half of professional services businesses (45%) felt they are operating at above average levels of operational efficiency. Half (50%) felt that they were only operating at average levels of overall business efficiency, and 6% below average.
- Professional services businesses have the lowest proportion (40%) of businesses operating at above 90% capacity (compared to 54% in manufacturing and 49% in wholesale & distribution).
- The three things most important to professional services businesses in terms of running at maximum efficiency are: business administration task (e.g. back office activities), pricing and retaining customers.
- Adoption of new software (48%) was the biggest factor in improving time management efficiency among professional services businesses that took part. The biggest barrier for improving TME is lack of time to consider improvements (40% said this was a problem).
Wholesale & Distribution specifics
- More than half (53%) of all wholesale and distribution businesses described their overall business efficiency as average; 38% described it as good, while 5% said very good.
- Wholesale & Distribution businesses are the least efficient when it comes to distribution logistics; 7 % rated themselves as poor or very poor at such tasks. One in four (25%) rated themselves as average.
- The three things deemed most important for wholesale & distrubition businesses in terms of operating at maximum efficiency are: meeting sales targets, pricing and business planning.
- The biggest barriers to improving time management among wholesale and distribution businesses were fears that it will cost too much (41%), a lack of time to consider improvements (36% ) and lack of resources to pay for improvements (33%).