Low ICT adoption leaves UK mid-sized businesses trailing large enterprises in productivity

Productivity levels of UK mid-sized businesses (MSBs) are lagging behind large enterprises, with MSBs generating £1518 less per worker, according to a new report from the Centre for Economics and Business Research (Cebr) and Cordys, the leading cloud platform provider. The study attributes this to 18% lower ICT adoption by MSBs in the UK compared to their larger counterparts.

The MSB productivity gap
MSBs have a structurally lower take-up of a range of different ICT-based activities compared to their larger counterparts. For example, 84% of large enterprises in the UK have adopted intra-company data sharing solutions, compared with only 66% of MSBs, pointing to a lack of technology integration. This gap is reflected across the board including supplier related processes (54% vs. 34%), selling online (42% vs. 28%), operational and analytical CRM (44% vs. 29%) and ERP (48% vs. 24%).

Since the financial recession in 2008, data from the EC suggests that MSB productivity in the UK declined by a significant 4.8% per year and is only now showing signs of recovery. This could be due to the decline in financial services activity disproportionately affecting mid-sized businesses in the professional services sector which contributes 29.7% of total value added generated by mid-sized businesses in the UK.

UK MSBs saw productivity decline by 1.7% more than their larger counterparts between 2007 and 2011, a much bigger gap than elsewhere in Europe (France for example saw a difference of 0.5% and Dutch MSBs actually performed 1.4% better than the Netherlands’ large firms). This is partly explained by increased use of a range of ICT activities: French and Dutch MSBs had higher overall adoption of enterprise software for use in processes such as data-sharing (France = 81%, Netherlands = 80%, UK = 66%), ERP (France = 63%, Netherlands = 53%, UK = 24%) and operational CRM (France = 38%, Netherlands = 45%, UK = 29%).

Closing the gap: The cloud solution
The report examined how the cloud can help MSBs to address this productivity gap. ICT activities can be efficiently implemented through the cloud, which can in turn make MSBs more competitive by reducing their cost base and increasing opportunities for business development. Cebr outlined the following benefits to MSBs of adopting cloud solutions:
• Business development
The elastic scalability that cloud computing solutions offer can mean better management of seasonal peaks, increasing output by 0.1% per year. In other words this would increase the output of an average MSB by €21,528 in the UK.
• Cost savings
Once all of an MSB’s services and processes have been migrated to the cloud, the resulting elimination of server and storage costs would lead to reductions in IT CapEx and asset maintenance. Cebr suggests that the implementation of a private cloud environment would lead to a 17.3% reduction in total IT capital expenditure, with a public cloud leading to an impressive 39.9% reduction. Migrating to the cloud means that there’s also a reduced need for power and cooling, with Cebr suggesting a 44% reduction in costs in a private cloud, rising to a 79% saving in the public cloud.
• Business creation
According to Cebr, the adoption of cloud computing and the subsequent lowering of the barrier to entry will see the creation 258,000 new MSBs in Europe by 2015, including 35,000 in the UK and 48,000 in France.

Shehan Mohamed, Senior Economist, Cebr, commented: “In part, the productivity gap between large enterprises and MSBs is explained by stricter lending conditions, higher supply chain costs and fiercer competition for labour, all of which tend to hit mid-sized businesses harder than their larger counterparts. However, part of the problem can also be explained by less agile and efficient business processes in MSBs which burden them with additional costs and time-intensive processes.”

"We see this in the market every day," added Art Landro, Chief Executive Officer at Cordys. “MSBs want to adopt enterprise applications like their larger counterparts, but find it tough to implement and support the required infrastructure and gain the same benefits as their larger competitors.
“However, solutions which previously would have come with off-putting upfront costs and slow deployment times are now available in the cloud, via ISVs and Service Providers in pre-packaged or custom solutions, underpinned by a Business Process Platform-as-a Service. This enables MSBs to take advantage of the benefits of a customised enterprise solution at a much lower cost. With this approach MSBs can combine cloud and on-premise systems in the same way that enterprises can,” Landro concluded.