UK SME Agenda: Too big to succeed?

Almost a year ago, faced with withdrawal of support from banks and general belt-tightening across sectors, the UK government announced a series of measures to help small-to-medium enterprises (SMEs). Most welcome was Cabinet Office minister Francis Maude’s announcement that government would work towards doing 25 percent of its business with the SME sector. But just how has this panned out, 12 months on?

The fact that government has challenges working with SMEs is a simple question of mathematical scale. Central government is large, monolithic and (let’s be honest) bureaucratic – things can tend to happen slowly over a period of years, and projects tend to be large scale and in many cases, fantastically expensive. The result is a general sense of stability and long-termism but by the same token, government can find it difficult to respond quickly to requirements and when things go wrong, they do so in a big way.

Meanwhile (and again by its nature) the SME sector is small, lithe, agile and relatively cheap, without the overheads of larger businesses. Bureaucracy is minimised, meaning that expertise is easier to reach and can be better tuned to the task in hand. Some downsides are, of course, linked to size – smaller companies can find it difficult to scale and, in some cases, tend to see the world of projects as a set of nails to fit their own, metaphorical hammers.

The problems really start when large meets small. For government to engage with any company comes at a cost – the sizeable overhead of simply doing business can make what should be a small project financially prohibitive, which inevitably drives buyers towards larger projects with relatively smaller overheads. By extension, the idea that (say) a hundred projects currently awarded to large companies, should now be dealt with as a larger number of smaller projects, working with a larger number of smaller suppliers, would raise a grimace on even the most stalwart of procurement managers.

Similarly, smaller companies engaging with government procurement can very quickly come unstuck. For all the promise of larger rewards for example in the shape of long-term fees, for a smaller business the tendering process can be as time-consuming, and indeed margin-consuming as the project it represents. Without, however, any guarantee of return – as a result it can be just too much of a gamble to take on.

It is this latter point that Francis Maude wanted to see tackled first, in the shape of simpler, standardised pre-qualification questionnaires that would be mandated across government departments. At least in this way one significant element of the overhead would only have to be done once. At the same time, an SME panel was constituted, chaired by Maude himself, with representatives from smaller companies who could “hold the government’s feet to the fire”.

For all the good intentions, however, the devil could well be in the detail. While tenders may be simplifying, the aforementioned nature of government departments means that changes are slowly working their way through the system – they could still be made simpler yet. Open questions around the nature of contracts, types of business eligible to bid, the need for insurances and so on add complexity which will no doubt be ironed out over time, but time is a resource the government has plenty of, while for small businesses it can be in short supply.

Meanwhile there is the question of skills. Even larger companies can lack key skills in response to a request for proposal (RFP) – at which point they look to associates and subcontractors (and indeed, some government departments and larger service companies are seeing this as a way to hit their 25% target). Smaller businesses are less likely to have the complete set of skills in house, and by their nature, specialists are more likely to already be booked on a job. To respond to this, some organisations (such as Delivery Cell One) are looking to pool their expertise following a “micro-consortium” model.

Overall, it is not hard to see that everyone gains from the government engaging better with smaller companies. The benefits are legion: smaller projects that more quickly achieve their goals, the real potential for lower overheads and therefore reduced costs to the taxpayer; and meanwhile, a shot in the arm to the UK’s comprehensively staffed and highly skilled small business community, benefiting from its expertise at the same time as catalysing growth.

While the principle is sound, questions still remain about the practice. For all its good intentions, it just may be that the very thing that the UK government wants to see changed – work smarter and deliver better for less, by enabling large institutions to work with smaller companies – becomes yet another casualty of the fact that the government is too big to do anything quickly. One thing’s for sure – unlike government, SMEs do not have the luxury of waiting for the problems to be solved: they will move on or go out of business first.

UK SME Agenda: Too big to succeed?