The environment in which business operates is a mix of factors relating to the industry the organisation operates in, its own staff and resources, wider regional and national economic issues, and, increasingly, global challenges. Most of these issues have policy implications but in this section of the report, the focus is on two particular areas of the business environment, as these are areas that medium enterprise tells us is important to them, and where government can make a difference.
Although the main issues researched in this study covered access to finance, regional development and the burden of regulation, it was clear from discussions with leaders of medium organisations that there are a number of other issues that impact their performance.
Rather than ignore these issues on the basis that the research was not intended to cover them, this report has chosen to identify two factors that came up repeatedly in interviews: skills and transport. Clearly, both areas need more substantial research before policy recommendations may be identified. However, the issues are worth keeping in mind as ones that are particularly challenging for a number of leaders of medium organisations.
Skills
Key skills are important to growing businesses particularly technical, management and workforce skills. According to a DTI report on productivity and competitiveness, the lack of appropriate skills is complicit in holding back investment, innovation and productivity. In all these areas, the UK lags its G7 competition: for example, French productivity is 29% higher than the UK on an output per hour worked basis, while the US leads the UK by 27% on an output per worker basis.
Most growth businesses believe that shortage of skills is a hurdle for them. Some of the shortages are impacted by factors that go with the territory for M organisations: poaching, inability to hang on to top-class staff, lack of career progression paths, etc. Other factors causing shortages in skills are those that affect all companies to some extent or the other:
• Falling numbers of science and technology graduates – for example, only 3% of A level students in 2006 did physics compared to 9% in 1994
• Low proportion of workforce with intermediate education skills – for example, Britain lags the US, France and Germany in this regard
• High proportion of workforce with low-level skills – although Britain is level-pegging with France in this area, it has approximately double the proportion of lowly-skilled workers in the economy compared to the US and Germany.
This study found some UK-based medium businesses hiring from other EC countries on the basis that they believe continental graduates are better equipped to carry out their job than UK-trained graduates.
Transport
A major talking point for government has been its increased commitment to funding transport infrastructure, particularly in the context of public transport. These increases were highlighted by the Ten Year Transport Plan in 2000 and then revisited with further investment through to 2015 in The Future of Transport: a network for 2030, although some of the goals of the 2000 proposals had already fallen behind their targets by 2004. Some of the external assumptions in the plans are also not proving accurate, particularly the assumption that oil prices will fall steadily from 2000 to 2010, by which point $16 per barrel was expected, a trend that has simply gone the opposite direction.
The transport network provides a key mechanism for the movement of people and goods in the country, and its performance is strongly influential on the success and competitiveness of British organisations. As policy focuses on the public transport network (for good social, economic and environmental reasons), we cannot ignore the current configuration of land use in the country which is built on the presumption of point-to-point transport based on the car and lorry.
Medium organisations are more sensitive to the performance of the transport network than small organisations because they:
• tend to be strong regional performers, with presence across one or more regions
• usually have two or more locations that they operate from, often requiring transport to move goods and employees from one location to another
• recruit from a wider geographical pool, often having employees travelling across a region to go to work.
Unsurprisingly, leaders of medium organisations, particularly those from outside London, reported that transport problems, either due to delays on the road or lack of access to public transport, hold back their economic performance in a number of ways: making it harder to recruit people from outside a particular area, wasting time in transporting goods and people, and affecting growth opportunities when competing with countries that have superior performance in transport infrastructure.
In particular, with road use continuing to represent the largest percentage by far of passenger miles in the UK, it is important for policy-makers not to expect that large investments in public transport infrastructure will automatically result in a significant reduction in road use.
Further research
Much more quantitative work needs to be done in the areas of business environment to establish some clear foundations as the survey material this report is based on does not provide much insight on the impact of the business environment. However, our qualitative findings are that these issues are mentioned by leaders of medium business on a regular basis. So we have chosen to include the issues in the current report, and we hope to investigate the issues in greater detail in future.
