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Innovation and SMEs

Hunting the Snark: Some reflections on the UK experience of support for the small business sector: Convened by Terry Cutler and Mark Dodgson, Brisbane, September 2007

Alan Hughes
Centre for Business Research, Judge Business School, University of Cambridge, United Kingdom

Abstract

In the past twenty-five years the UK has experimented with a wide range of policies to promote small and medium size businesses (SMEs). Recently there has been a major overhaul of SME support policies in general and of science and innovation support in particular. So it is a convenient time to reflect on the emerging lessons from this experience.

My talk draws on a long-term programme of SME and policy evaluation research carried out at the Centre for Business Research . This has included a regular biennial survey of over 2000 SMEs carried out since 1991 as well as several innovation policy evaluations and a unique innovation survey benchmarking the UK and the USA.

Keywords

small enterprises, medium enterprises, innovation, policy, market failure, innovation systems, resource distribution, open innovation

Article Text

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I will now try to draw out some conclusions about overall trends. The scorecard appears a disappointingly mixed bag, given the huge expenditures on SME support. The bad news is that, in aggregate terms, the SME sector has not increased in significance in the UK. SMEs are growing less fast than in the past. Maybe this reflects the increasing importance of constraints arising from a lack of management skills, and internal capacities to manage growth within an increasingly competitive and increasingly technically sophisticated set of markets. There is, as we have seen, a substantial skills support budget so the remaining question is whether the support is directed to the right areas in the right way given that the incidence of training has not increased. There is very little evidence of R&D increasing, but then I am rather sceptical about just how important R&D is per se, as opposed to a range of other activities. Venture capital is still focussed away from start-ups and small firms, and the incidence of innovation and exporting has not gone up much, taking all small firms together.

The good news is that there is some improvement in innovation in the 10-49 employee firm category. Constraints from the unavailability of finance are definitely less, and collaborative activity is rising but the question of its quality remains. So the overall aggregate conclusion is a disappointing mixed bag and I think this is increasingly the feeling in the UK. Just as I left there was a major rationalisation programme launched by the small business service. The idea is to reduce the number of programmes from 3000 to 100. I'm afraid lots of Snark related programmes will begin to disappear There has been a major restructuring of the bureaucracy. The Department of Trade and Industry is no longer a department and the Department for Education and Skills has been restructured, so we now have three new, easy acronyms for the trainee policy advisor to remember: DERR, DIUS and DCSF. The Department for Enterprise and Regulatory Reform has taken that part of the DTI that was not related to science-based innovation. The rest has gone to a Department for Innovation University and Skills, and the higher education and vocational skills agenda has been moved from the Department for Education and Skills into this new organisation. The DFES itself is no longer - it is now a Department for Children, Skills and Families, focussing on a younger age range. And the ultimate fate of the Snark seeker, the Small Business Service, has been scrapped and is now a new directorate within the Department for Enterprise and Regulation Reform.

Well, what are the key Snark hunting lessons?

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