Small business key findings and calls to action

Key findings

1. The Digital Divide widens & younger small businesses pull ahead

The Business Digital Index score has increased by 32% since 2014 (from 45 to 60 points), demonstrating the significant progress small businesses have made with their digital capabilities.;

Nearly one in every two small businesses are digitally advanced (segment 5)
Since 2018, 203,000 more small businesses are exhibiting the highest level of digital behaviours. Whilst this digitally advanced group has continued to grow, the proportion of small businesses with low levels of digital capability (segment one and two) has remained at 16% since 2018.

For the first time the Index include the new measure of organisational Essential Digital Skills
2.2 million (56%) of small businesses have all the Essential Digital Skills. As the new framework is more complex, including more detail on cybersecurity, eCommerce and ability to use Cloud functionality, it is perhaps positive that the proportion is similar to the number of organisations with Basic Digital Skills in 2018.

Younger companies are wise beyond their years
Small businesses under three years old are more digitally capable, with nearly two-thirds (63%) having the highest level of digital capability (Segment 5). Their digital behaviours are also translated into digital abilities as more than two-thirds (69%) of small businesses operating for less than 3 years have all six Essential Digital Skills, 17 percentage points higher than small businesses over 10 years old.

Almost three-quarters (73%) of younger small businesses have a Facebook page compared to just over half (53%) of older firms. They also have loftier ambitions; not only are they more aware of virtual reality, connected devices and Artificial Intelligence, they are seeking opportunities to implement where relevant.

2. Practice makes productivity for one-third of small businesses

For 1.3 million (33%) small businesses, testing and learning translates into time saving and turnover (a proxy for productivity). Analysis shows that these 1.3 million businesses are undertaking a breadth of over 35 digital activities and are reaping the rewards. They have an average turnover of £754,000, £260,000 higher than the average surveyed business. Their turnover has grown an average of 21% over the last two years and they have simultaneously saved a day per working week

The return on investment of digital technology and skills has also increased. In 2018 small businesses who used Cloud-based systems, online accounting software and digital training tools had £103,000 higher annual turnover than those using none. This year the difference has risen to £262,000, more than two and a half times in a year.

Behaviours and attitudes of small businesses prioritising productivity
This 'productive' small business population are significantly more likely to have leaders with clear digital strategies (38% versus 27% average).

Whilst there is no silver bullet when it comes to increasing productivity for small businesses, we have identified 5 key digital ingredients that can help business to thrive. These 'productive' small businesses are significantly more likely to:

  1. Use data to make decisions on how to improve their online presence
  2. Use Cloud-based IT systems
  3. Allow customers to view products and services on their website
  4. Plan to grow their marketing capabilities
  5. Use or intend to use ‘smart’ devices in next two years

762,000 (19%) small businesses are using the internet to trade overseas and reach new markets.

3. Digital defences are on the rise

Cybersecurity has been the biggest priority for small businesses since 2018

There has been a 42% increase in the cybersecurity capabilities of UK small businesses with more organisations and consumers now benefitting from increased security. 95% of small businesses can do at least one cybersecurity skill:

  • 87% have the ability to keep their software up to date
  • 79% are backing up critical data  
  • 77% have a password policy in place that reflects best practice
  • 75% are now using fraud protection procedures

Despite this, there are still weak links in the armour

  • There has been an increase in small businesses with a Security Index Score of zero for Scotland, South East and South West.
  • Manufacturing, Construction and Agriculture businesses are the least likely to be have essential cybersecurity skills, one in three (32%) lack fraud prevention policies and 33% connect company devices to unsecured networks.
  • 28% of small businesses are still connecting to unsecure networks, potentially putting them and their customers’ data at risk.

And small businesses are more concerned than ever about their digital footprint
The key barrier to doing more online is cybersecurity concerns, which have doubled to over 40% since 2018.

Last year the most sought-after digital skill was cybersecurity, and this may be reflected in the vast security improvements. This year however, small businesses are now seeking social media and marketing and technology infrastructure more so than any other digital skill.

Calls to action

1. Convert digital understanding to adoption

Collective action is needed to inspire and influence small businesses to understand the benefits digital can unlock and the steps they can take to get there.  Clarity and consistency of messaging from industry and government is essential to ensure businesses can identify the relevance of digital to their business performance.

This remains an area to build on from 2018. There must be clear communication around the benefits of investing in the right technology and how businesses can identify and undertake credible training.

Firms seeking to identify areas of potential improvement should be encouraged to benchmark themselves against best practice. Be the Business has developed a benchmarking and assessment tool that enables firms to determine how their business compares to businesses of a similar size and sector. Firms are then able to access practical examples of how similar businesses have adopted tech.

2. Trial the five key ingredients

Ensuring provision matches the digital ingredients that help a business thrive is essential. The report indicates there are five key activities that provide the digital foundations for a more productive firm.

In this years’ findings it is evident that digital capability amongst small businesses is improving. However, there is still some way to go embedding digital within organisations. It's not enough to simply adopt the technology, this needs to be accompanied by culture change to ensure that employees become advocates.

For smaller firms this can be an intimidating prospect, especially if they have struggled to implement digital improvements in the past. Too many companies have undertaken the difficult process of introducing technology to their business only for them to fail to fully realise the benefits because their teams weren’t prepared for the change. Even with the most advanced business technologies, people remain the key to success.

Ensuring management and employees are fully bought in and have had the right training to help them implement and indeed benefit from the technology should be at the core of the digital adoption process. Businesses could significantly benefit from demystifying how their peers succeed in embedding technology throughout their business.

3. Build on the cyber security foundations

Businesses have prioritised cybersecurity over the last year and have increased their capabilities and infrastructure within this area. There is an opportunity to capitalise on learnings and replicate this improvement for other skills.

Understanding the routes to market that small businesses have taken to build cybersecurity skills themselves; providers, educators and policy makers can target potential growth areas and signpost to further training and support.

Compared to other countries, fewer UK firms have implemented productivity enhancing technology. Building on where firms have developed capability over the last year in cybersecurity, even with relatively basic technology, will hugely benefit future adoption of technology.

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