Lloyds Bank SME Index Salon

What does the UK Business Digital Index tell us about digitally empowering local SMEs and charities in the North West?

October 16th, Hilton Deansgate Hotel, Manchester

Salon Report

Why create a UK Business Digital Index?

As a Founding Partner of the UK’s leading digital inclusion and skills charity, Go ON UK, Lloyds Banking Group is committed to empowering consumers, businesses and organisations across the country to unlock their digital potential. In partnership with Go ON UK, Lloyds Bank recognised that while a number of initiatives existed to track the digital capabilities of consumers, there was clear deficit in our understanding and knowledge of the emerging digital capabilities of SMEs and charities. With 30 million UK customers, 10 million active digital users (5 million of which use mobile banking services on a daily basis) Lloyds Bank is well placed to leverage its physical and digital presence across the UK to help address this information gap.

Lloyds Bank firmly believe that inclusive access to digital skills and business opportunities is a key enabler for maximising the UK’s potential for future economic growth offered by digital technologies. This digitalisation dividend is estimated to be worth up to £63 billion1 in additional annual GDP growth – including £18.8 billion2 of economic value which could be unlocked by digitally empowering UK SMEs. Lloyds has a 20-25% share of the SME market, with 1 million small business customers who borrowed an estimated £28.2 billion last year. According to research conducted by Lloyds Banking Group in 2012, 3 50% of SMEs reported an increase in sales when doing business online and charities who can receive online donations are more than twice as likely to see increased income.

What is the Index and who is it for?

The Index is a survey of nearly 2,000 Lloyds Bank and Bank of Scotland business customers designed to analyse and track digital capability and maturity among UK SMEs and charities. One of the primary reasons the Index has a unique capacity to deliver value is that has been constructed as an on-going process capable of providing annual snapshots of digital capability at a national and regional level. Created in partnership with Accenture and Go ON UK, the Index has been structured to serve the needs of three specific audiences. For Go ON UK, the Index offers a key source of strategic intelligence in the form of a baseline level indicator of digital maturity and digital skills. For Government, the Index provides a tool for targeting investment policy, assessing the impact of the Government Digital Service’s Digital Inclusion

1 Booz & Co, This Is for Everyone: The Case for Universal Digitisation, November 2012, page 42 Booz & Co, This Is for Everyone: The Case for Universal Digitisation, November 2012, page 63 Lloyds Banking Group, Britain’s Digital Opportunity, A Study of Digital Maturity within Britain’s Businesses and Charities, 2012, page 5

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Strategy, predicting SME/charity digital growth patterns and identifying underserved audiences and regions. Finally, the Index is also designed to help SMEs and charities identify common barriers to digital adoption and raise their awareness of the benefits of investing in their digital capability and accessing online business opportunities.

7 Key Segments of Digital Maturity

The Index has identified 7 key segments which allow us to define different levels of digital maturity which can be benchmarked against the national average score of 100. The Index shows that nearly 1.7 million businesses and organisations fall under the disconnected and basic adopters categories, exhibiting no or minimal internet use and low digital infrastructure (e.g. a basic enterprise website at best). This suggests that 33% of SMEs and charities in the UK are currently failing to take advantage of digital business opportunities. At the other end of the spectrum, there are nearly 1.5 million businesses and organisations (29%) which fall under the advanced users and innovators categories, allocating significant investment towards digital security, infrastructure and training, demonstrating usage of cloud services and online accounting, and actively seeking external support to drive further digital innovation within their business.

What does the Index tell us about UK SMEs and charities?

The 2014 Index shows that 31% of SMEs and charities across the UK have no basic digital skills. Moreover, three quarters of these organisations are not making any investment to improve their digital skills, 25% of organisations don’t know what support they need, and one in four organisations are not actively looking for help to address this. The Index also demonstrates that one of the key challenges is in relation to prevailing attitudes towards digital, with 29% of respondents reporting that being online was simply not relevant to their business activity, and 10% expressing no interest in being online. In terms of additional barriers, 35% of respondents believed that they were doing all they can online, while 11% cited lack of staff digital skills as a key barrier. Interestingly, only 2% of respondents referenced poor connectivity, 5% highlighted security concerns and 6% identified cost as being significant barriers.

What does the Index tell us about SMEs in the North West?

In the North West, 38% of SMEs have no basic digital skills, the highest proportion in the UK in comparison with a national average of 31%. Slightly more than the national average (37% of SMEs) believe they are doing all they can online – although this should be balanced against the high percentage of organisations lacking digital skills. However, encouragingly, 75% of SMEs believe that being online is relevant to their business which is significantly higher than the UK average.

What is Lloyds Banking Group doing?

Alongside its commitment to deliver annual updates to the UK Business Digital Index to track changes to digital maturity across the country, Lloyds Banking Group is also pursuing a range of additional activities. In the Northwest it is working with training providers to develop and deliver face-to-face training for small businesses in partnership with Go ON UK. In the North East, Lloyds Bank is running a pilot project to support 40 SMEs to develop their digital skills. The Group has also built up a network of 3,000 digital champions amongst its colleagues, with the objective of providing additional support to individuals and SMEs. Finally, Lloyds Customer Innovation Labs is also working with Go ON UK, GDS and BIS to develop bespoke and targeted support resources for SMEs to be hosted on DigitalSkills.com.

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Manchester Business Growth Hub

Established in 2011, Manchester Business Growth Hub has helped thousands of businesses across Greater Manchester ranging from established large companies to SMEs and start-ups. As a not-for-profit business support organisation the Business Growth Hub has an annual turnover of £100 million and is dedicated towards developing Manchester’s local economy. Within the scope of this objective, digital is a key enabler for growth and business development. The Business Growth Hub is working with over a thousand businesses to help them embrace digital opportunities – not just within the digital sector, but across all sectors, including manufacturing and retail. For example, with the support of the Growth Hub, a local butcher in Bury Market has developed his meat selling business using social media to set up an online meat subscription service which is now turning over £2 million a year. The lesson to be drawn here is that any business can exploit digital opportunities to drive growth and increased sales.

The Growth Hub is working directly with women entrepreneurs to expand their digital skills, and offers match funding of up to £3,000 per year for digital business projects, such as developing an e-commerce platform or a mobile app. In this context the UK Business Digital Index represents a valuable tool – both in terms of identifying and addressing problems on the ground, but also in tracking the impact of Growth Hub initiatives and activities to support future applications for government funding.

Small firms need more accessible and visible digital role models

It was commented that many organisations’ previous experience of engaging with digital technologies has reinforced negative perceptions – even though these technologies have become progressively cheaper, more accessible and easier to use. There is a need to accurately convey the message that the time saving dividends from digital adoption only materialise once a business has first invested time and effort towards that objective. A key priority should be to bring together a set of examples and case studies which demonstrate how the investment in digital capability has paid off for a range of small businesses across different sectors.

We want individuals running small businesses to be able to see themselves in these examples and understand that these opportunities are both relevant and important to the future of their business. The language used to articulate the benefits of digital transformation and transition can also represent a barrier for many small firms. If you talk about “change”, many small businesses will immediately be thinking “how much does it cost?” We need more small business role models who can share their personal stories and testify that they made more than they spent by going digital. Ultimately local case studies will wield the most powerful influence – if you learn about how a business just down the road gained customers and increased profits using digital – you will be likely to sit up and listen.

Young talent and the digital economy

A key input for businesses seeking to make the transition to digital is the availability of young talent – particularly those with social media and digital marketing skills. We need to ensure that young people and their parents are better educated about the opportunities of the UK digital economy, and that they understand that this is where the jobs are right now – not in ten years. Digital apprenticeships could make a huge difference for many small businesses, but right now the infrastructure and mechanisms for matching suitable apprentices to opportunities just doesn’t exist.

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We’re already doing enough = missed opportunity

It was commented that the percentage of businesses in the North East (37%) saying they are already doing all they can online is concerning. One of the key reasons that many businesses feel they can ignore digital opportunities is that their firms are already well established and running a profit. And yet this is a massive lost opportunity for the UK economy given the added value these established firms could unlock if they scaled up their digital business activities and services. On the other side of the coin, newer businesses often face fewer challenges when it comes to digital adoption as they do not have to deal with the costs of transitioning from legacy systems and old infrastructure which can act as a barrier for more established firms.

Fear of the online world remains a barrier for some businesses

Fear of the online world also constitutes an important barrier for some businesses, particularly in the context of recurring news headlines about cyber-attacks, identity theft and security breaches. We need more people with experience of running secure online business operations and setting up basic safety and security precautions to engage with small businesses to balance existing perceptions of risk, and show how most threats can be effectively mitigated.

The equalising influence of digital business opportunities

A unique feature of digital business opportunities is that they tend to be an equalising influence in society, given that they do not discriminate on the basis of location, gender or ethnicity. Indeed, research into the impact of technology for women entrepreneurs has shown that digital opportunities provide enhanced and welcome flexibility which allow women to balance the requirements of managing their business with other competing demands on their time. It was commented that 50% of this year’s entrants for the Manchester Business Growth Hub programme for start-ups are women, and that the Hub is also in the process of launching an Evolution programme which will include a specific focus on targeting female entrepreneurs to enhance their digital skills. It was also noted that the 2015 edition of the Lloyds Index will include questions which cover the gender component.

Digital is no longer just a specialist business discipline

Should microbusinesses and sole traders be in a position where they have to do all the digital legwork themselves? For example, is asking a butcher to develop the necessary skills to design a website too much to ask? Some would suggest that not every sole trader can be expected to become a multidisciplinary digital expert. And yet, if we want to deliver effective cultural and behavioural change in this area then we need to diminish prevailing perceptions of digital as being a technical or specialist discipline. We need to move away from traditional stereotypes (digital geeks and techies) and raise awareness that digital capability and digital skills are universal and essential requirements of the modern business landscape. Digital technologies and opportunities affect all business sectors and individuals at all levels within every organisation need to enhance their digital skills to drive future growth and profitability.

Spreading the benefits of digital

Spreading the benefits of digital is not about forcing people to go online. In a context where the majority of public services and business services are progressively moving to digital channels – it is more about ensuring that everyone has the chance to take advantage of these new benefits, cost savings and opportunities. For those 1.7 million businesses that lack basic digital skills – we want to help firms who

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want to develop their digital capability but haven’t been able to so far for a variety of reasons. In a situation where digital skills have become the 4th pillar of basic literacy alongside, reading, writing and arithmetic, we need to empower everyone to reach their digital potential. Age, social class and income can all be linked to the likelihood of someone being online. As digital exclusion disproportionately affects the elderly, the disadvantaged and those on low incomes – there is both a moral and economic imperative for providing people with digital skills to ensure they are not left behind.

The baseline for digital capability is a moving target

It should be remembered that the baseline standard of digital skills and capability is a constantly moving target, given the rapid pace of digital innovation. The formal education sector has struggled to adapt to the evolving demands of an increasingly digital job market. There also remains a huge problem with new job market entrants lacking the right skills – particularly soft business skills like communication. Even if an individual has coding or technical skills, they need to be able to relate well with different people and understand how their contribution fits alongside other business functions.

You don’t need to be online to have a digital footprint

Microbusinesses and sole traders need to be aware that in many respects their business may already have an online footprint even if they aren’t online themselves. For example, the proliferation of customer rating websites and online forums mean that your customers can already talk about your business and share their experiences of your services and products even if you don’t have a website. Most firms would rightly be keen to engage with those online discussions and to benefit from expanded insights into their customer base and their levels of satisfaction.

Sssh… don’t mention digital

Businesses across the UK are being invited to hold events in support of Small Business Saturday on December 6th to help inspire and promote small businesses. It was commented that many of these events could be used to educate small firms on how to promote, market and drive sales and profitability across their businesses, including the digital opportunities which exist across these areas. In many instances it may be far more effective to initially focus on the business outcomes which are attractive to small businesses than overly concentrating on the digital dimension. Indeed, it was suggested that given the widespread media coverage of high profile and expensive government digital projects which have often run over budget or failed to deliver on their promise – a business outcomes oriented approach may have less negative connotations than more digitally branded opportunities.

Accessing digital markets – carrots and sticks

It should be remembered that developing and maintaining digital capability in a business context is both an iterative process and an on-going journey. One of the biggest small business opportunities of going online is expanding your geographical reach into wider national and international markets. In many ways this represents both a carrot and a stick incentive. While going online can help a SME in the North West sell products in the South East of England - not going online increases the chances that other UK or European businesses may steal your customers.

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Is there a link between confidence and digital competence?

The Lloyds Index highlights that organisations with higher levels of digital maturity tend to demonstrate better financial performance, have better growth prospects and have higher levels of confidence in the future of the UK economy. Does this mean that business confidence can be linked to digital competence? In practice there are a number of potential answers. In some respects digital technologies act as a disruptive influence in many sectors, empowering new comers to the market and threatening incumbents. In such instances, if a firm isn’t concerned about its digital capability – maybe it should be!

There is also an established link between risk and reward in most areas of business. Firms which are more likely to take risks may be potentially more likely to focus on digital development which can in turn yield higher profits. However, in an increasingly digital market place it can also be argued that the risks of not taking advantage of digital opportunities will in most instances significantly outweigh the risks of embracing modern digital business practices. It is worth remembering that digital is an enabler for business, not just in e-commerce terms, but across many other business functions as well. For example, for many firms, the primary savings and efficiencies which can be achieved through digital transformation are connected to improved customer service, engagement and satisfaction.

Getting the right mix of support

It was noted that in a digital context there is value in investing in multiple channels and routes for small businesses to get support for digital adoption. The experience of the Manchester Business Growth Hub suggests that among the businesses it works with there is a considerable appetite for both targeted events to build digital skills, opportunities for knowledge transfer between businesses, alongside signposting to relevant online resources and support. It is also essential that businesses are helped to realise that they can’t just throw money at digital and expect to see results – they need to ensure they have a strategy in place with clear priorities based on an understanding of the opportunities for growth. They need to properly diagnose how digital can transform their businesses and develop a framework to support that transition.

Closing thoughts

Recent research in the North East is consistent with the Lloyds Bank Index findings that lack of motivation, lack of time, lack of understanding and knowledge on how to develop digital skills represent important barriers to organisations improving their digital capabilities. Ultimately the Lloyds Bank Index provides valuable intelligence and data which can be leveraged to help us understand how SMEs and charities can be helped to gain the digital skills they need to successfully transact, market and promote themselves in a digital marketplace. This annual snapshot of national and regional capability can help inform and prioritise future activity to offer digital support for small firms – but change in this important area will only be possible on the back of a concerted effort from key stakeholders who work with businesses and charities to influence their underlying attitudes and perspectives towards digital. There is a clear and pressing need to better articulate the benefits of digital business opportunities and to support organisations across all business sectors to take that all important first step of their digital journeys – whilst encouraging innovative organisations to share their experiences with others.

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