As this IOD article describes, First Minister Nicola Sturgeon recognizes businesses are the lifeblood of Scotland’s success.
She also identifies international growth as the key to their success, but that less than 10% export internationally. Also Nicola says:
“By focusing on our innovative abilities, we can develop ground-breaking technologies and return an immense boost for our economy.”
Boosting Productivity through Technology Innovation
However the challenge is many small businesses aren’t capitalizing on technology as much as they could be, and consequently not developing the required world-class innovations.
In Scotland we can see the whole picture of the impact of this when you consider Scotland’s primary economic challenge: Stalled productivity.
The David Hume Institute documented the nation has made no productivity gains in 15 years and “Scotland sits mid-table for productivity among OECD countries, and falls below other European economies such as the Netherlands, France, Italy, Germany, and Spain.”
The Royal Society of Edinburgh responded to explain that productivity growth is dominated by the top 1% of companies, with the remaining 99% stagnant, and they identify a lack of investment in R&D as a primary cause. This is evident through a lack of investment in technology, for example the Microsoft digital nation blueprint reports that:
“While 75% stated that digital technology was essential to the future growth or competitiveness of their business only 37% of the 4,000 Scottish businesses surveyed stated that their employees were equipped with sufficient technology skills to meet the business’ digital technology needs.
Only 36% invested in an improved company web site and only 17 – 19% have invested in e-commerce sites and Cloud services.
28% still don’t even have a web site!”
All research repeats that technology and international growth are key ways to boost productivity but as we can see Scotland’s SMEs aren’t equipping themselves with the basic tools needed in today’s world to do so.
Harvard – Cloud Computing Is Helping Smaller, Newer Firms Compete
The solution is the Cloud. It brings technology to small businesses that previously only large organizations could afford and use.
This Harvard Business Review article explores how this technology is powering the US economy, particularly SMEs:
most strikingly, cloud computing — unlike other technologies like PCs and e-commerce — has been adopted first by smaller and younger firms. ..the most nimble, youthful, and entrepreneurial companies are the pioneers of adoption.
Sectors like Tourism are a huge part of Scotland’s success, and is a great example because it is mainly populated by very small businesses: B&bs, tour operators et al, with many still under-utilizing technology as Microsoft reports.
As this CNBC article describes there is huge potential to help the industry grow even more, tapping into the technology to develop innovative new digital business models that expands their global reach and the way in which they service their customers and run their operations.
The Microsoft blueprint highlights that quite rightly 25% of SMEs are worried they are falling behind their competitors.
The term ‘Digital Transformation’ encapsulates the essence of that threat, with those that fail to embrace this modernization likely to become the next Blockbuster wiped out by the next Netflix. This returns us again to Microsoft’s research, particularly the point about digital skills. Importantly we need to focus on senior leadership teams especially the CEO. While certain technical skill sets like Data Science are popular in Scotland, and rightly so, they are the tools of the job.
First companies need to understand which tools they might need and why, and this starts at the boardroom level first. BCG identifies Five Traits of Transformative CEOs. The essential dynamic is the shift from seeing IT simply as an operational cost, to be managed and reduced, treating technology only in terms of commodity items like PCs and servers, but instead to elevate it to a strategic catalyst for transforming the organization. McKinsey explores Digital First strategies for the Construction industry, another mainstay of Scotland’s economy, highlighting how digital transformation struggles “because they don’t establish an operating model that supports digitization and innovation.” They highlight how organizations still treat digital as a separate endeavour rather than core to their strategy, a strategy that Harvard articulate would be central to improving business agility and competitive advantage:
Flexible access to computing resources allows small firms to scale-up (or down) rapidly and to experiment with new products and features. This operational agility can be particularly valuable when facing uncertain demand or a fast-evolving competitive environment.
Again the primary issue is that “leaders simply don’t ask IT teams to explore innovative digital strategies to reduce costs or improve productivity, nor do they request that IT teams provide new services to their customers. Instead IT groups still focus on old-school activities, such as installing new software and hardware systems.”
This last point strikes to the heart of Scotland’s R&D and productivity challenge, the most important dynamic is the ability to rapidly create innovative new products, a new digital-enabled service that underpins a transformation of the business model. We can look to the leader of the Cloud industry itself Amazon as a keynote example:
“Our pace of innovation is unmatched in our industry. We launched over 1,400 capabilities in 2017 alone. This allows you to innovate as quickly as we are.” – @triciadm #AWSPSSummit pic.twitter.com/iSay3oZVDf
— AWS for Government (@AWS_Gov) October 2, 2018
That’s a staggering statistic to consider: 1,400 new products in one year! It offers an accelerating effect for Scotland’s SMEs to tap into as those new services can be leveraged as the building blocks for enabling new innovations in other industries. For example Harvard describes KenSci, a small Seattle-based healthcare analytics company, where they did exactly this:
KenSci has been able to quickly scale up and offer its services worldwide, without building a sizeable IT-infrastructure beforehand. The computational agility of cloud computing has been playing a role in manufacturing as well, fostering the creation of new “smart’” products.
The Cloud can help bring and accelerate new Scottish startups to market, across a multitude of industries from Smart Cities, Healthcare and Construction, among many others, greatly boosting the economy and international exports.
Furthermore an especially powerful keystone foundation will be increased use of these SMEs by the government themselves. They are guilty of not “eating their own dog food” by stipulating others should be more innovative, while playing it safe and buying from the usual big IT suppliers like IBM, CGI et al. This may seem prudent at the outset but the proven reality is actually the opposite, with these contracts being so large and cumbersome many fail in a manner that is very costly to the taxpayer.
Rather as GovTech points out they too should embrace and support Scotland’s SMEs, transforming their own rigid procurement policies and supplier cliques, as a foundation for unleashing a Scottish digital innovation nation.