Elix-IRR – Written evidence (DSC0046)

 

Executive Summary

1. The UK economy has moved from a “knowledge based” to a “knowledge driven” economy, a structural move fuelled by the growth of new digital technologies and the exponential increase in availability and manipulation of data. At the end of 2011, it was estimated that if the UK had the right digital capabilities and fully exploited the potential of the digital era, there could have been a £63 billion[1] uplift in total GDP in that year.

2. That said, the UK is simply not maximising the potential of digital, yet. This paper addresses two questions:

3. What are the barriers that businesses and SMEs face in trying to operate in a digital economy?

Elix-IRR believes there are four barriers SMEs face to operating successfully in the digital economy:

4. How can businesses equip the workforce with the required skills to operate in a changing environment and a digital economy?

The workforce needs to evolve to match the progression of digital technologies. This is not possible without support from UK businesses. The four areas in which business can play a role are:

5. The educational system, business and the government all have a role to play in increasing the digital capabilities of the UK economy

Introduction

6. Economist Nikolai Kondratiev outlined in his 1925 book[2] that periods of economic change can be attributed to a series of ‘major economic cycles’. In short, he described these as:

Kondratiev argued that these ‘super cycles’ typically lasted 50 – 60 years, and were accompanied by great surges of change in the economy, driving eras of phenomenal transformation. 

7. Today the global economy has started to move from ‘Spring’, into the ‘Summer’ or ‘Acceleration’ phase of a ‘Kondratiev wave’. This Kondratiev wave has been fuelled by the continual development of new digital technologies and the ability to store and manipulate vast quantities of structured and unstructured data. One statement captures the scale of change we are experiencing today:

It took 75 years for the telephone to connect to 50 million users[3], whilst it took only 5 years for Whatsapp to obtain 500 million users[4].

8. With this acceleration in technology, the pace of Kondratiev waves is getting faster. The increased speed at which ideas and knowledge is spreading means that they no longer take 50 – 60 years. It is this acceleration in technology and the emerging ability to interrogate seas of data that is driving the UK’s advancement from a knowledge based to a knowledge driven economy. This is characterised by:

9. Digital technology has not only been a driver in creating a new Kondratiev wave but it has also been the architect of a new era of creative destruction, a paradoxical term coined by Joseph Schumpeter[5] to describe how economies evolve. In this theory, lost jobs, failing companies and declining industries are an inherent part of a growth system where over time, fundamental shifts in science and technology will provide a more productive outcome. In light of a number of high profile collapses in businesses in recent years (such as HMV, Blockbuster and Kodak), it’s difficult to dispute the constant evolution of digital technology and its resulting impacts as a force of creative destruction.

10. In the UK, SMEs account for 99.9% of all private sector business, 59.3% of all private sector employment and 48.1% of private sector turnover[6]. Market leaders in the digital field – Google, Apple and Amazon – all started out as SMEs. These statistics and examples demonstrate the importance of SMEs to the UK economy and the benefit to the UK of SMEs becoming part of the digital age. In the context of Schumpeter’s economic theories we can also identify the potentially disastrous economic consequences (through vast numbers of failing businesses) for the UK if SMEs fail to compete in the digital economy. If SME’s form such a crucial part of the UK economy, why have so many failed to embrace digital? What are the barriers that stop them? How can SMEs overcome these barriers? How can the government help? In the following paper we link a knowledge driven economy to the developments in technology and the use of digital services. Firstly we take a look at the key barriers faced by SMEs and how these can be overcome. We then outline how businesses can further equip the workforce with the necessary skills to thrive in the evolution of a digitally-focussed economic climate.

Part 1: Barriers to businesses operating in a knowledge-driven economy

Barrier 1 – skill gaps and limited education / training

11. Changes within industry happen quickly and aggressively and the speed of change is increasing as our economy becomes more knowledge driven, eroding traditional structural barriers to change. However, the pace at which the workforce reacts often fails to mirror the speed of change experienced in industry. In 1970, around one fifth of the UK workforce were described as ‘knowledge workers’. Today this number has risen to about two fifths. By 2020 it will be over half of the total workforce[7]. Despite this, access to the skilled labour that companies need in order to compete in a digital world remains limited as demand in the labour market continues to outstrip supply. A recent survey revealed that 36% of the UK's smaller companies admit that a shortage of skilled staff is hindering their growth prospects[8] whilst the UK Digital Skills Taskforce has estimated that an additional 745,000 additional workers will be needed between 2013 and 2017 to meet gaps in demand[9].

12. The skills ‘problem’ experienced by businesses can be broken down into three areas:

13. The educational curriculum is not aligned to the demands of the digital age

The skills shortage and skills gap in our economy can be largely accredited to the weakness in training and education that the labour market, or future labour market, receives. One of the root causes of the skills shortage is limitations in the provision of Science, Technology, Engineering and Mathematics (STEM) subjects within the education system. In a 3 year study of further education colleges by the New Engineering Foundation (NEF), it was found that STEM provision was inadequate in every case. In the worst example, 80% of a curriculum was ‘misaligned’ to industry trends in these areas[11].

14. Strength in STEM subjects act as a basis to enable development of digital capabilities in the workforce. The learning methods and skills required to succeed in these subjects lay the foundations for digital aptitude. With digital skills in increasing demand, the educational system needs to:

15. It is of no surprise that those countries strong in STEM development, such as Finland and China, are also the countries who have heavily invested in the quality and remuneration of STEM teachers. They have both “instituted active programmes of reform that are focused on making science and mathematics more engaging and practical”[12]. Deploying learnings from these countries would support an uplift in both the quality of STEM subject education and lay the foundations for a digitally capable workforce in the future.

16. A gender gap in STEM subject participation exacerbates the digital skills shortage

Women now make-up 46% of the UK’s workforce, but only 15.5% of the STEM workforce are women[13]. This disparity can be partly attributed to cultural trends throughout the education system, which have historically shown that male uptake of STEM subjects is far greater than that of female. An increase in women studying these subjects would help increase the volume of digital capabilities in the workforce.

17. There is however, positive evidence to show that a cultural shift is occurring and that the uptake of STEM subjects by women is rising. According to statistics gathered by the Women into Science and Engineering (WISE) campaign, between 2008 and 2011 there was an increase of 21% in the number of females achieving Engineering and Technology degrees10. 

18. Industry run programmes like the WISE campaign proactively foster interest in STEM subjects from women within the education system. The WISE campaign believes breaking down this barrier and increasing the number of women working in IT could generate an extra £2.6 billion for the UK economy each year.[14]  The Women’s Business Council also outlines steps the government can take to alleviate this problem and suggests initiatives to encourage more business leaders to become STEM Ambassadors, “promoting best practice in schools and engaging with businesses to ensure they provide help at a school and college level”.9 Whilst this is a positive trend, a further increase is possible and necessary and can be achieved through the combined support of the government and industry in the educational system.

19. The educational system is not nimble enough to react to changes in industry patterns

Significant and fast paced changes in industry can take years to filter down into the curriculum. This serves to heighten skill gaps in the workforce as the education given to the future labour force becomes even more misaligned and out of touch with the industries it is preparing students for.

 

20. The nature of the educational system means that without a change in structure, it will never be able to match the continual change within industry. Adoption of an approach which embraces technology as an enabler, along with establishing cross-industry initiatives, will help overcome this. For example:

Barrier 2 - Business Culture

21. Culture is another chief barrier that businesses face in the knowledge driven economy; both in limitations within the existing business culture and resistance to changes brought by the digital era. 

22. Incentives and training must play a more prominent role in business culture to retain skilled employees

In today’s knowledge economy talent is one of the main sources of competitive advantage but retaining the most skilled employees often remains a challenge for SME’s for the following reasons:

23. A recent survey by Towers Watson revealed that 41% of organisations have problems retaining critical-skilled employees. The most cited reason for leaving in the survey was “career advancement opportunities”, highlighting that companies with limited employee mobility are those most likely to see their top talent leave. To combat this, companies need to invest in career management strategies to ensure that their top performing and skilled employees are appropriately rewarded.[15] By making use of initiatives such as retention bonuses, spot awards and increased workplace flexibility, managers can increase the retention of their most digitally skilled employees.

24. SMEs can also increase retention through targeted training opportunities for their most valuable employees, as well as wider up-skilling of the business. Creating a sense of investment amongst individuals and their careers, will often lead to a return in that investment through greater employee loyalty. Elix-IRR has seen first-hand the value of investment in training initiatives through our work at Morrisons. We have supported the supermarket in designing and developing a learning academy aimed at increasing knowledge, technical skills and employee engagement to deal with the challenge of discounters and multi-channel customers. The academy marked a visible step change in people investment at Morrisons, post-training scores have been exceptional and colleague engagement indicators have improved by 13%.  

25. ‘Corporate rigidity’ leads to resilience within the internal cultural to change

Corporate rigidity, or the resistance to change, can hinder many organisations when it comes to adapting to industry trends. We have already seen very real examples of corporate rigidity in HMV and Jessops and the inability to adapt to new digital trends, resulting in the demise of these businesses. For HMV, its single biggest mistake was a lack of investment in its online offering – it chose instead to diversify into electronics (a business that was already faltering on the high street)[16].

26. The shift to a knowledge driven economy not only means that change is inevitable, it also means the pace of change is far more frequent and relentless. Rigidity, whether it is a product of culture, as frequently seen in big organisations, or simply the inability to keep up, due to other factors such as high investment, is a significant cultural barrier for firms. To overcome the barrier, organisations must not allow themselves to become complacent and rely on strategies that have been successful in the past; they must learn to accept change and embrace the shifts that are occurring almost overnight within industries. Leaders in business need to be willing to deploy often unpopular change programmes to diversify into digital technologies and resist the temptation to continue with a business model which may be successful now, but may not be fit for the future. As such, incentives amongst business leaders and at an Executive level have a role to play in promoting digitisation within business.

27. Similarly, businesses should also consider the creation of a specialist role which is solely concerned with creation and operationalisation of digital strategies – a Chief Digital Officer (CDO). Companies that have created a CDO position include McDonalds, L’Oreal, Starbucks and The Guardian. Generally their previous business experience lies in e-commerce and transactional expertise (driving traffic, conversion and revenue), online marketing and social media and transformative product and technology capabilities. In creating such a role, a firm can develop a more digital mind-set, promote a culture that embraces innovation and ensure that digital becomes part of everyone’s job within the firm.

28. The digital potential of existing employee skills needs to be fully utilised

The principle of corporate rigidity can also be applied to the way job roles are formulated and skills are used within an organisation. As drawn upon previously, skills under-utilisation is one of the biggest skill related issues that companies face in the knowledge driven economy. Unclear job roles and a reluctance to adapt an employee’s role to support emerging digital capabilities required by the business can often result in under-utilisation of an employee’s full potential. A survey conducted by Accenture found that only 34% of respondents report that it is easy to move to another job within their company where their skills would be best utilised, and slightly less than 49% of respondents report that their employer does a good job of providing a clear understanding of the skills needed for different roles and career paths.[17] Given the pace of digital change, the corresponding statistics for digital only roles are likely to be higher.

29. Similar to the way in which businesses tackle the problem of retaining their skilled employees, a cultural change is needed to overcome the problem of skills under-utilisation. Employers need to put consideration into career management strategies, which not only focus on retaining their employees, but also ensure that the employee’s skills are being maximised in the job role that they are performing day-to-day. An employee who feels like his skills are being utilised is an employee who feels valued and is less likely to leave.

30. The government needs to play a greater role in setting up an environment for digital success

The government can play a huge role in setting up businesses for digital success by creating an environment where digital capabilities can be easily fostered. Elix-IRR believes there are key ways that the government can support this:

By playing a role in each of the above, the government can help foster a more conducive environment to digital enhancements within business.

 

iv. Barrier 3 - Operating model

31. An operating model is a representation of how an organisation operates across process, people, technology and organisation in order to accomplish its strategy. Digital change is challenging firms to review their traditional operating model structures and to respond to growing customer expectations.

32. Today’s economy has been moulded by a flux of digital market leaders such as Amazon, Apple and Google. These digitised organisations specialise in meeting consumer needs - online service chat, click and collect and personalisation are all a common service. For customer expectations to be met in a digital or knowledge driven economy, an organisation is required to develop a much more ‘customer centric’ operating model.

33. In spite of this, many well-known brands, including the likes of Blackberry and Nokia, have been unable to respond by successfully digitising their operating model. With customer expectations set extremely high by market leaders, and with other large corporate firms unable to fully grapple in the digital arena, it is no surprise that developing digital solutions may seem beyond the reach of a SME, meaning they choose not to deploy digital capabilities.

34. We outline why building digital capability may be viewed as an intimidating objective for SMEs by exploring the impacts on channel strategy, supply chain and customer service.

35. The traditional view of ‘digital’ requires that large changes be made to a firm’s channel offering 

When most people think about digital capabilities, they think of the development of new routes to market via online and mobile solutions. Having the skills, desire and investment to develop these channels is an undertaking for any business in itself, but achieving the full scale of digitisation involves much more than simply developing siloed digital channels. Once developed, customers expect a seamless customer journey between mobile, telephony, online and stores. In the eyes of the customer, they are dealing with a single organisation – they expect channels to be fully integrated, and to be able to find out the same information from each channel. 

36. Delivering this capability requires agile delivery models with flexible modular technologies. Developing, testing and delivering this technology on a large scale requires a significant investment of money and energy, alongside ongoing governance, maintenance of the solution and Management Information (MI) on channel performance.

37. If done badly, this can actually cause more harm to a business than good. Increased and varied channels facilitate greater access for a customer to a business, in turn exposing the business to greater opportunities for customer disgruntlement if not correctly executed. This fear is perhaps why SMEs tend to develop a website only approach, without going further into the digital arena. A recent publication by Lloyds Banking Group suggests that only 50% of SMEs in the UK have a website, and only 18% of these SMEs allow customers to purchase products from their website.7

38. Wholesale digital change may also require significant changes to a firm’s supply chain

For retail companies particularly, how a firm distributes its goods and services is extremely important. Digital channels also have the potential to open up a firm to new locations, increasing its geographical reach and diversifying its customer base. However, for this to be truly effective, a business needs the infrastructure to be able to serve these customers effectively, a criteria that has knock on impacts for a firm’s supply chain and the role it plays in the operating model. Traditionally, the role of supply chain has been to reduce costs, but in the age of the knowledge driven economy, it requires greater agility to offer increasing fulfilment opportunities to a wider expanse of customers. It may also require investment in new distribution centres to offer the speed of delivery expected by customers.

39. SMEs do not always have the appetite or capital required to fulfil such expectations. For these capabilities to be operative, and to provide adequate return on investment, a degree of business scale needs to be in place. Without the operational reach, an SME may find it difficult to employ digital strategies to increase its customer base, and without the customer base, an SME will not have the investment case to increase its digital strategy, thereby creating a ‘chicken and egg’ type scenario.

40. Digital is also driving competition in new areas of a firms operating model

In today’s knowledge driven economy, customers look for much more than price as a competitive feature. Price comparison sites, online shopping and mobile apps have made pricing much more transparent, leading businesses to differentiate themselves in other ways. The concept of value is being redefined from the transactional level (i.e. a customer pays a business for a good/ service) to an exchange of an experience or outcome. For example, customers now understand that when they hand over their money they are also handing over data about themselves as a customer. In return they expect to be provided with value beyond the mere physical product. The concept of product therefore is also being completely redefined. For example, a phone is now a health monitor, map, and gateway to your social life – it is not just a device for making calls. As such, personalisation, is now one of the biggest competitive weapons in a business’ armoury. Shop Direct are the UK leader in this area – their website is personalised to the customer each time they log on, providing an endless list of recommended products based on their customer features, demographics and previous purchasing history. 

41. Firms therefore need to be prepared for increased susceptibility to competition in untraditional areas of their business model, and to be open to developing new customer retention and acquisition strategies. Firms will have to go beyond just the transaction point with the customer, to build up an emotional and personal connection with the brand. These strategies are only viable in the modern economy through understanding your customers, which in turn means investing in customer data collation and analysis, with the associated data mining aptitude required by employees. Processes and technology have traditionally been built around efficiency and ease, but for investment into digital capability to be worthwhile, a business operating model needs to be transformed to be much more customer orientated. This will create a necessary reliance on service management throughout organisations, to drive efficiency gains and most importantly ensure consistent levels of customer service provision throughout.

42. Employing a model that is knowledge based, or a digitally orientated strategy, therefore has wide ranging and significant impacts on the operating model. Smaller businesses may see a foray into the digital world as opening up a proverbial ‘can of worms’, leading to large operating model changes they have not got the appetite for.

43. SMEs need to be selective in the digital capabilities they employ, and find a range of capabilities that best suit their business model

SMEs clearly will not have the scale, appetite or investment available to make the large changes to channel strategy, supply chain or customer service functions that larger companies are currently deploying. However, employing digital capabilities within an SME does not necessarily have to mean radical transformation to all aspects of the operating model. Knowing where to play in the digital field can be just as important.

44. As will be discussed in the next section, investment options are not readily available for SMEs looking to create digital capability. Therefore they need to be savvy with the capability they choose to employ. SMEs may not have the reach of larger corporates, but they can be more responsive to change and more agile in meeting customer expectations and habits. For example, SMEs can choose to offer the ability to purchase a product online, but they don’t have to necessarily build an app to offer the same capability. They can choose to make processes both customer centric and cost effective, and they have the ability to implement change much more quickly than large corporates do. By identifying the digital levers available to them, prioritising those that will drive sustainable growth, and then implementing and monitoring their performance, SMEs can employ digital capabilities to enable growth without large transformation or investment. In doing so, SMEs can continue to adapt to the digital economy at the pace and scale affordable to them.

Barrier 4 - Investment and Finance

45. Research by Booz&Co in 2012 showed that SME investment in digital technology could unlock as much as £18.8 billion in incremental revenue1. The research also shows that SMEs investing in digital strategies are growing on average by an additional 8%.

46. Limitations preventing this investment in digital capabilities occur at an individual firm level and industry wide level. By their very nature, smaller enterprises do not have the economies of scale to warrant large investment in digital development given the short-term returns that need to be generated. At an industry level, high sunk-costs required in expanding technology through to the availability of lending from banks, reduce investment options available to them. 

47. Macro-economic factors have also inhibited SMEs ability to gain the required level of funding for digital capabilities

On a macro level, the wider economic environment will influence the ability of SMEs to operate in a knowledge-driven environment, in part, simply due to the rapid rate of change witnessed across the economy. The question that SMEs are asking is whether their investment levels can keep up with the constant evolution of digital strategies, and whether the sunk cost of investment in such elements as infrastructure change, will require notable ongoing expense to maintain. This is illustrated by only 20% of UK SMEs (out of a 1,988 entity sample)7 being said to be actively looking to increase their overall digital investment spend.

48. Wider still, the conservative and regulatory-driven economic climate has vastly increased bank lending costs, slowing the access and availability of credit to SMEs and as a direct result investment is hindered. Just 4 banks in the UK account for over 80% of all SME banking relationships[19], with a finance rejection rate of 38%.[20] This is not to say that the majority of applications should be accepted in a perfect economy, but with such a limited breadth of realistic lending options, SMEs face a roadblock around accessible finance for further investment in areas such as digital infrastructure and associated training. Despite the economy maturing into a knowledge-driven economy with incredible ease of access to information, numerous investigative reports, including a report by the Institute of International Finance (IIF)[21] that state “information about SME creditworthiness and potential, is too costly and difficult to obtain”. This demonstrates how the 38% market rejection rate16 is founded on assessments made using imperfect, regulatory restricted information. 

49. Competing priorities in the short term often divert attention away from development of digital capabilities

The importance of shorter term liquidity and cash flow, which is so vital for an SME, could explain the lack of investment in digital capabilities at a firm level. While there is often an awareness of the benefits of long term investment, the relative instability that smaller enterprises have and a focus on short term company targets, or even survival, will override expenditure on a long term digital vision. Where investment is available, it may be targeted to areas of the business that are seen as more immediately vital, given limited liquidity and variations as a result of cyclical expenditure. This is supported by the Lloyds Bank UK Business Digital Index, which shows that 75% of the 1,988 SMEs sampled7 aren’t investing directly at all in improving digital skills within the workforce.

50. SMEs need to appreciate that investment in niche capabilities can drive long term gains

For an SME to overcome these barriers, it is paramount that they understands their limitations. SMEs can be successful in exploiting niche markets, and by using less capital intensive, specifically tailored digital strategies they can realise the benefits that larger corporates enjoy. For example, innovations built on cloud infrastructure provide businesses with a method of deploying the latest technology without excessively heavy capital expenditure and long-term investment. Despite concerns over security, the broad (and ever-increasing) range of add-in applications that cloud platforms can subsequently support, with little or no overheads has created a very viable alternative to investing in physical technology infrastructure.

51. Overcoming systemic economic barriers is clearly an area where government intervention is also vital. Influencing or shifting bank lending behaviour undoubtedly won’t be a short-term solution, however government awareness of the above mentioned barriers, is key for the formulation of relevant policy. That given, it is still vital that SMEs do more to secure finance in the first place. It was recently stated that 71% of businesses who seek funding only approach one provider15 despite the extensive literature looking at SME financing and numerous government policies that are in place today.

Part 2: How to equip the workforce with new skills in a rapidly evolving environment

Introduction

52. In the remaining section of this paper, we explore how businesses can best equip the workforce with the skills required to succeed in the knowledge driven and digitally savvy economy.

53. Investment in employee’s education and training is vital in equipping the workforce with the skills required in a rapidly changing environment. It is important for businesses to equip themselves with the skills they need to compete in the industry they operate in and to future-proof themselves to survive the pace of change that operating within a knowledge driven economy brings. Increasing training can increase productivity, help strengthen an organisations culture and assist in attracting and retaining the best talent. 

54. Equipping the general, not just the specialist, workforce with sufficient digital skills to operate effectively in a knowledge-driven economy, is not a new concept. Despite this, research shows that on average, companies are spending no more than 20% of their training budgets on purely digital development.[22]

55. We see the following four methods of education and training by business as key to up-skilling the UK workforce and transforming the UK into a global leader in digital utilisation:

56. Each of these four methods are explored in the following sections, however as mentioned in the first section, it must be noted that the education system has a part to play at the grass roots level also.

Evolution of ‘on-the-job’ training

57. In both large and small companies, HR led ‘self-service’ employee training has prevailed since the nineties. Kiosks and intranet sites have been used as the low cost, mass rollout option for both mandatory and optional training units, with associated credits awarded where relevant. However, this method has not necessarily been appropriate for training on digital capabilities. With training modules individually created by each business and tailored specifically to their company, the content swiftly becomes out of date, virtually as soon as it is written and published. This method also has limited flexibility, with desktops often required, allocated terminals often used and a network connection necessary for security. In this respect, self-service training is not a forward-thinking solution for digital training and education.

58. Self-service training needs to move into the digital era

Self-service training should by no means be seen as fully obsolete. The key to revamping this method is to provide software as a service (SaaS) to improve the agility of education, moving towards on-demand and easily digestible chunks of information (modulated curriculum), as opposed to three hour long obligatory courses. Massive Open Online Courses (MOOCs) offer some capability in this area. Courses like Kahn Academy, Codeacadamy, Lynda and Udemy provide an easy way to educate your workforce in technology skills. These however bring their own challenges in that employees often start but do not finish the courses. 

59. With the development of mobile and social technology, schemes such as Bring Your Own Device (BYOD) can be used so that digital training can be undertaken at anytime, anywhere. This will help erode the infrastructure barriers firms have historically faced in providing training. In addition, the difficulty and managerial fears over security of data, although still relevant and an ongoing threat, should not be a substantial barrier, given the default and advanced encryption levels through which mobile devices now submit and receive data.

60. One of the most significant benefits of this form of online training, is the openness and ability of firms to pick-and-choose, personalise and develop training plans as extensively or restrictively as they please. For a fully tailored solution, costs for online development will clearly add up. The key for SMEs is to identify the areas where customisation is critical and those areas where it is not. The vast majority of digital up-skilling required is relatively generic across different companies and industries. An additional benefit of this form of training is the data analytics available for easily identifying the most effective solutions and also reacting to the least.

61. Making courses in digital technology recognised within an organisation would help increase the participation in these types of courses. Project Management is recognised by Prince2, Infrastructure capability is recognised through ITIL and Surveyors are Chartered. Formalising digital courses internally within a business, and externally through industry recognition, would help improve the quality of training and the numbers of those attending.

62. Social media incorporation is key to a modern training programme

Social media aids and influence should be of notable consideration in the training field, the collaborative use of multiple platforms can provide an all-encompassing training solution, with the capability to provide remote and flexible training options, as well as methods of communication to facilitate knowledge transfer. They also provide capabilities to link workgroups and ideas, to online materials and solutions with ability for managers to track real-time progress. Tools such as Huddle, Yammer and Tibbr should be increasingly explored by organisations aiming to increase their real-time feedback, levels of shared content and digital focus.

63. Untraditional mentoring roles can facilitate knowledge transfer upwards

Given that the younger generation are often more technologically and digitally skilled than other generations, ‘reverse mentoring’ could be explored in businesses as a useful training method. No matter how senior a member of a company may be, they are never too old to learn modern day digital skillsets, especially as they will ultimately make the decisions affecting a company’s strategic priorities and allocation of investment. In General Electric, in 1999 CEO Jack Welch ordered 500 of his top managers to find young employees to teach them about the internet. Since then reverse mentoring has become common practice at Dell, Time Warner and Proctor & Gamble,[23] demonstrating the value delivered by these initiatives.

Training outside of the ‘day-to-day’ job

64. Education outside of a business as usual role can considerably develop new skills which employees can relay back in to their day-to-day job, improving effectiveness and efficiency within an organisation.

65. Opening up employee perspectives through ‘cross-pollination’

There are numerous courses and generic employee training/team building programmes currently available, but effective digital training strategies are remarkably limited. As shown in the case study, P&G in partnership with Google[24] initiated a programme to encourage development of both of their workforce’s digital skillsets and their digital footprint in preparation for future growth. The broadened perspectives gained from witnessing how companies operate differently in the digital space, in totally different product markets, has been said to have been mutually beneficial in expanding employees’ horizons and focus. This kind of forward thinking and planning for future growth will not only aid the workforce in building their skillsets, but prepare these multinationals to maintain their competitive advantages and can be used by SMEs.

 

66. Lessening historic inequality of specialist skillsets

Investing in all employees can help the overall workforce generate new, refreshing and innovative ideas which are vital to an organisations success. With this in mind there have been a handful of fledgling initiatives, whereby diversity in the progression of digital skills, has been encouraged. Microsoft for example has started sponsoring female employees to learn to code through events organised by a digital training company called ‘Decoded’. This initiative was introduced after a realisation that a disparity in the balance of this specialised workforce had grown. Combating this through sponsored events should be actively encouraged and shouldn’t be an avenue only open to larger corporations. Start-up organisations such as ‘Women Who Code’ also aim to reduce the digital skills gender inequality further, but need greater exposure in order to evolve into entities that can make a real difference. Only through companies encouraging and sponsoring their workforce to attend these courses, can these ideas reach their full potential.

Investment in industry, the community and the current workforce

67. It is evident in recent times that businesses are taking their social responsibility increasingly into account, by not only focussing purely on the development of their own workforces, but understanding and realising the advantages (in real terms) of investing in training and developing the wider workforce. These positive examples however, aren’t widely prevalent and the development of these strategies is key to developing skills in a rapidly evolving workplace environment.

68. Corporate responsibility needs to be reinvigorated and re-defined

There are a number of identifiable, yet relatively small scale examples of this ideology being enacted in industry today, however equipping the wider workforce with digital skills is dependent on the formalisation and mass rollout of these principles, which can only be achieved through direct corporate exposure. As the Virgin Case Study illustrates[25], a handful of large corporates have taken the opportunity to invest time and resources in SMEs, to aid the education of small business leaders and their subsequent workforces on practical digital skills and the direct benefits that a more complete digital strategy can have. This example was only a pilot case and isn’t yet a widely seen practice in the UK. CSR initiatives need to be widened and re-defined to encompass responsibility for the UK workforce and business development, not just other social responsibilities such as the environment.

 

69. The commitment of businesses to investment in the wider workforce, should not be viewed as a purely charitable transaction. The incubating of start-ups and subsequent building of relationships, allows companies to tap into a broad repertoire of new ideas, products and markets, with potentially substantial upsides. Business in the Community (BITC) is the largest of the current initiatives helping to create “more productive employees”, with a strong social responsibility edge and over 46,000[26] volunteer instructors and helpers last year. Support to initiatives such as the ‘Business Connectors’ programme, connecting business leaders to communities in great need of skills training, including digital capabilities is gaining momentum. Through greater publicity and awareness, the outputs from businesses investing time and effort in the existing workforce can be realised. While this remains a priority for BITC, they also have strong focus on training the next generation.

Businesses influencing training of the next generation

70. Whilst it is vital for businesses to equip their current workforce with the skills they need to perform in today’s skills driven industries, it is also essential that they consider investment in developing the skills of the next generation. This is increasingly important in the post-recession economy, as the focus is now on the private sector to drive economic growth going forward.[27] Businesses are well placed to influence the skills required for future generations, as they are able to capitalise on their knowledge of industry to help tailor and shape the content and delivery of education, to ensure that future workforces are equipped to operate in the industries they seek to join.

71. Business influence is needed to define how the next generation can increase their ‘employability’

In a recent study conducted by the CBI (Confederation of British Industry), over 70% of businesses said they want to see employability skills made a top priority at schools and colleges. The same survey said that 55% of respondents are already involved in apprenticeship programmes, with a further 17% planning to be involved over the next few years.22 Some organisations such as BT[28], which is known as one of the best investors in skills for the future, have implemented a number of programmes, including apprenticeships as well as piloting many new initiatives as mentioned in the case study.

72. Modern techniques and joint initiatives can proactively equip the next generation

Going forward, business investment and input into initiatives that aim to circumvent the traditional education system and become more proactive as opposed to reactive, should be further stimulated. Internships are a normal part of almost all businesses in the UK, so these initiatives should be seen as an extension of that theme, whereby immediate value isn’t necessarily realised, but the long-term potential is considered. Programmes developed by initiatives such as Apps for Good, which “equips students to research, design and make digital products and take them to market”[29] should be used more effectively and where possible; on a larger scale. With a focus on joint visions with industry leaders, the skills taught and exposure granted could have a significant bearing on the equipping of the workforce of tomorrow. Examples such as the hugely popular Raspberry Pi computers initiative, where small, cheap and simple “single board” computers are used for teaching the basics of computer science, illustrate what a significant impact can potentially be realised through charitable initiatives. If these initiatives were to have a corporate partner, the benefits would surely be realised significantly quicker than the organic growth many charities are dependent upon.

73. Whether businesses choose to take a more traditional approach with their involvement in education, by running apprenticeship schemes, or whether they experiment with new and more direct initiatives, such as sponsoring and tailoring courses and the curriculum itself, their involvement is key. There are numerous examples, such as the creation of a Master’s programme in Food Engineering at Sheffield Hallam, developed in conjunction with a number of other food and drink companies including Arla Foods where direct business involvement and the subsequent industry insight they can provide, has created an infinitely more relevant education curriculum. Business involvement in education and training remains imperative to the growth of the economy and the future ability of the UK to compete on a global scale in today’s knowledge driven environment.

Conclusion

74. The pace of digital evolution in a knowledge economy shows no sign of slowing and the importance of a strong digital capability in an organisations market competitiveness, is only going to increase. Customer expectations, which are currently shaped by leading corporate organisations will eventually permeate all levels of business, including SME markets. It is increasingly important that SMEs participate in the digital arena and that the workforce is fully equipped to support them in participating in this change.

75. From the four barriers outlined in this paper (education, culture, operating model changes and investment), the largest barrier to businesses increasing their digital capabilities lies within education and training. If SMEs had access to skilled and knowledgeable talent pools through appropriate grass roots education and training of employees, the transition to a digital business model would be a much smoother and confident choice. Coupled with an appreciation of the value of digital capability at the leadership level and greater awareness of existing support available to SMEs, this would significantly enhance a firm’s ability to build and deploy effective digital strategies.

76. There are a handful of instances where businesses have identified a deficit in digital skills within the workforce and have proactively built strategies to influence this and overcome these barriers, be it with their existing employees, within the wider workforce or for the next generation. Schemes employed by the likes of BT and Virgin are examples of just how beneficial the impact of big business on human capital development can be. The majority of these schemes to date have been entirely self-incentivised, and so the government has a vital role in encouraging more large businesses to play a wider role in educating the UK workforce. If schemes like those evidenced in the case studies used in this paper were prevalent across the majority of large corporates, digital skills curriculum and industry schemes could be moulded to be mutually supportive and beneficial. In doing so, businesses have an additional avenue in building a strong competitive advantage, to outperform the ever-increasing global competition.

77. Digital technology is only becoming more dominant in the way we communicate, purchase products and in the way we work. A new generation is growing up having known nothing else but smartphones, apps, online purchasing, personalisation and digital entertainment. Corporate companies will only become more digitised and SMEs need to do the same or their failure is inevitable. The value of digital capability in economic terms for the UK is enormous, and this does not even consider the value delivered by providing further educational and developmental opportunities. The government and big business each have a role to play in setting the UK up for digital success. Failing to act now will compromise our future business sustainability and leave UK PLC trailing behind other countries.

5 September 2014

 

[1]  “This Is for Everyone: The Case for Universal Digitisation”, Booz & Co, 2013 http://www.go-on.co.uk/wp-content/uploads/2013/12/The-Booz-Report-Nov2012.pdf

[2]  “The Major Economic Cycles”, Nikolai Kondratiev, 1925

[3]  “How long does it take to reach 50 million customers?”, Réseau, 2012 http://www.reseau.com.au/2012/12/how-long-does-it-take-to-reach-50-million-customers/

[4]  “WhatsApp crosses 500 million monthly active users in less than 5 years of its inception”, BGR Media, 2014

[5] “The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Joseph Schumpeter, 1912

[6] Federation of Small Businesses http://www.fsb.org.uk/stats

[7] “Employability and Skills in the UK: Redefining the Debate”, Jonathan Wright, Ian Brinkley & Naomi Clayton, 2010 http://www.mbsportal.bl.uk/taster/subjareas/hrmemplyrelat/twf/164295reading14.pdf

[8]  “Skills gap hindering SME growth, study finds”, Seun Robert-Edomi, 2013 https://www.trainingjournal.com/articles/news/skills-gap-hindering-sme-growth-study-finds

[9] “Digital skills for tomorrow’s world” The independent report of the UK Digital Skills Taskforce

Beta Edition, July 2014 http://www.ukdigitalskills.com/wp-content/uploads/2014/07/Binder7-REDUCED2.pdf

[10] “Employability and skills in the UK: redefining the debate” A report prepared for the London Chamber of Commerce and Industry Commercial Education Trust, November 2010 http://www.mbsportal.bl.uk/taster/subjareas/hrmemplyrelat/twf/164295reading14.pdf

[11]  “Transforming STEM Economies”, Sa’ad Medhat, 2014 http://www.thenef.org.uk/report/inventingthefuture/Inventing-the-future-final.pdf

[12] “STEM: Country comparisons International comparisons of science technology engineering and mathematics (STEM) education”  Brigid Freeman, May 2013

http://www.academia.edu/3664766/STEM_Country_Comparisons_International_comparisons_of_science_technology_engineering_and_mathematics_STEM_education_Marginson_Tytler_Freeman_and_Roberts_

 

[13]  “Government and industry join forces to help get more women and girls in STEM”, Government Equalities Office & Jo Swinson, 2013

https://www.gov.uk/government/news/government-and-industry-join-forces-to-help-get-more-women-and-girls-in-stem

 

[14]  “Women in Science, Technology, Engineering and Mathematics: from Classroom to Boardroom”, Sue Botcherby & Lisa Buckner, 2012

http://www.wisecampaign.org.uk/files/useruploads/files/wise_stats_document_final.pdf

 

[15]  “How Companies Can Better Engage Critical-Skill Talent”, Victor Lipman, 2014 http://www.forbes.com/sites/victorlipman/2014/03/28/study-explores-how-companies-can-better-engage-critical-skill-talent/

[16] “Why did HMV fail?”, Philip Beeching, theguardian.com, 2013 http://www.theguardian.com/commentisfree/2013/jan/15/why-did-hmv-fail

[17]  “Skills gap: companies short on talent, but stingy with training”, Joe McKendrick, 2011 http://www.smartplanet.com/blog/business-brains/skills-gap-companies-short-on-talent-but-stingy-with-training/

[18]Ofcom – Independent regulator and competition authority for the UK communications industry  http://media.ofcom.org.uk/facts/

[19]  “SME finance: help to match SMEs rejected for finance with alternative lenders”, Department for Business Innovation & Skills, 2014 https://www.gov.uk/government/consultations/sme-finance-help-to-match-smes-rejected-for-finance-with-alternative-lenders/sme-finance-help-to-match-smes-rejected-for-finance-with-alternative-lenders

[20]  “SME Finance Monitor Q1 2013: The uncertainty of demand”, BDRC Continental, 2013 http://www.bdrc-continental.com/EasySiteWeb/GatewayLink.aspx?alId=6345

[21]  “‘Restoring Financing and Growth to Europe’s SMEs”, IIF (Institute of International Finance), 2013

[22]  “The Digital Talent Gap Developing Skills for Today’s Digital Organizations”, Capgemini Consulting, 2013 http://www.capgemini-consulting.com/resource-file-access/resource/pdf/the_digital_talent_gap27-09.pdf

[23] “Reverse Mentoring at Work: Fostering Cross Generational Learning and Developing Millennial Leaders”, Wendy Marcinkus Murphy, 2012 http://www.uky.edu/Centers/iwin/RTOCT12/Murphy_Reverse%20Mentoring_HRM21489.pdf

[24]  “A New Odd Couple: Google, P&G Swap Workers to Spur Innovation”, Ellen Byron, 2008 http://online.wsj.com/news/articles/SB122705787917439625

[25]  “Digital Skills for Britain”, Virgin Media, 2013 http://about.virginmedia.com/blog-post/76/digital-skills-for-britain

[26]  “Annual Report 2013”, BITC (Business in the Community), 2013 file:///C:/Users/Charles%20Tanner/Downloads/bitc_annual_report_2013%20(1).pdf

[27]  “Building for growth: business priorities for education and skills. Education and skill survey 2011”, CBI, 2011 http://www.cbi.org.uk/media/1051530/cbi__edi_education___skills_survey_2011.pdf

[28]  “Innovation and Skills”, BT Global Services, 2012 http://www.globalservices.bt.com/static/assets/pdf/local_government/Innovation_and_Skills.pdf

[29]  Apps for Good http://www.appsforgood.org/public/about-us