Half of All UK Companies Fall Into Bottom Quadrant of Competitiveness, Posing Threat to UK’s Future Prosperity, New Research Reveals

• 46% of UK firms fall into the least competitive quadrant of new model created by academics at Goldsmiths, University of London in partnership with Microsoft
• Firms struggling to remain competitive amid dual shock of COVID-19 pandemic and Brexit uncertainty
• Incremental changes to existing business models could quickly yield a £48 billion boost to the UK economy – more than the entire cost of the UK furlough scheme
• Microsoft commits to helping 1.5 million British citizens acquire digital skills to boost UK digital competitiveness

LONDON--(BUSINESS WIRE)--A new model of competitiveness devised by academics at Goldsmiths, University of London in partnership with Microsoft scores almost half (46%) of UK firms in the lowest quadrant, posing a threat to Britain’s prosperity as organisations rally from the impact of COVID-19, and prepare for Brexit as UK-EU negotiations reach their conclusion.

The research finds that more than half (54%) of UK organisations surveyed have seen a decrease in revenue this year compared to last year, with more than one in five (22%) experiencing a drop greater than 15%. The same proportion (22%) had to scrap an existing business model within days of entering the UK’s first lockdown, and 45% of leaders surveyed expect their current business model will cease to exist in 5 years’ time – an increase of 12% over the past year.

However, the model also identifies minimal, rapid changes that UK organisations could make to existing business models, which would quickly yield a cumulative boost to the British economy in excess of £48 billion – more than the entire cost of the UK furlough scheme. Further, this value is just a starting point based on minimal changes and minimal investment by business leaders – it could grow considerably if organisations drive longer-term investment in competitiveness.

Forming the basis of a new report launched today by Microsoft, Creating a Blueprint for UK Competitiveness, the model incorporates input from renowned experts on competitiveness from Harvard University, the CBI, PwC and the Tech Talent Charter, and utilises data from a survey of 1,713 UK senior decision makers and 2,470 UK employees, conducted in partnership with YouGov. The report also includes practical insights from a range of leading British businesses following sustainable growth strategies, including Admiral and Sainsbury’s.

A hollow victory?

As organisations begin the rebuilding process in the wake of the COVID-19 pandemic, the research uncovered two distinct strategies emerging – Hollow Growth and Sustainable Growth – with alarmingly different outcomes that could impact the UK’s future prosperity.

Firms pursuing a Hollow Growth strategy typically extract as much value as possible from people to reduce costs; offer little support to employees to adapt to new conditions; focus technology investments in siloed areas of the business to solve individual challenges; and benchmark future readiness by traditional productivity measures. Organisations pursuing Sustainable Growth on the other hand, strive to maintain resilience and have a capacity to adapt; adopt leadership defined by empathy and decisiveness; nurture a culture of trust, empowerment and inclusivity; and consider the impact of technology across their organisations as part of their wider strategic approach.

The researchers identified a clear correlation between the strategy adopted by organisations and their current competitiveness levels:

• Frontrunners: 15% of UK organisations, currently enjoying turnover growth of 5% to >15% in the current climate. This group is most likely to be pursuing a Sustainable Growth strategy, have a solid digital infrastructure and be faster to adopt new technologies. It’s also more likely to do business overseas, invest strongly in R&D, have a diverse workforce and feature empathetic leaders.
• Challengers: 27% of firms, these organisations have started to adopt many of the basic characteristics of Sustainable Growth. Their turnover has remained steady or increased up to 5%.
• Survivors: 12% of organisations, showing signs of Hollow Growth, experiencing small turnover declines – up to 5% down on last year.
• Endangered: 46% of UK organisations, demonstrating strong Hollow Growth characteristics and a falling turnover, from 5% to 15% decline. With less diverse talent and taking too long to integrate new technology, this group appears financially vulnerable and not prepared to face the future.

48 billion reasons to change now

Economists within the research team led by Dr Chris Brauer at Goldsmiths, University of London estimate that the UK would see an immediate boost to the economy in excess of £48.25 billion if every leader took even basic and low-investment steps to move towards sustainable growth practices. In the longer term, the figure could rise considerably as business leaders drive further investment towards a Sustainable Growth model.

To help put this figure into context, the cost of the government’s entire furlough scheme until mid-August was £35.4 billion. If 10% of the total £48 billion figure was used to fund new hires by UK business leaders, it could create as many as 128,920 full time jobs at the average annual adjusted salary rate of £37,428. Further, if those new jobs primarily went to traditionally underpaid populations – such as female and BAME workers and those working outside London – the impact on regional, race and gender pay inequality would be substantial.

Incremental changes recommended with the report relate to the Talent, Technology and Future Readiness dimensions of the new model for competitiveness for the digital age (see Notes to Editors). This includes urgently addressing the gender pay gap and state of diversity within organisations, especially increasing the number of female STEM graduates. It includes speeding up technology transition times by three months and migrating more functions to the cloud to increase agility. It also includes the creation of ‘innovation clusters’ among technically-literate staff to drive in-house R&D at low cost.

Microsoft’s commitment to skilling the UK

In light of these findings, Microsoft is today announcing an ambitious commitment to help address the widening digital talent gap in UK industry. By the end of 2025, and working with organisations across industry, Microsoft will help 1.5 million people build careers in technology and help connect a further 300,000 to tech job opportunities.

Clare Barclay, CEO of Microsoft UK, comments: “UK organisations face a unique moment. Buffeted by the headwinds of pandemic and Brexit, the nation’s collective competitiveness is being put to the test like never before. But can they thrive? Today, we are ringing the alarm bell, as our research reveals that half of organisations will struggle to adapt.

“The tech intensity that was starting to gather pace before the pandemic struck has become turbocharged – to keep up, leaders must act decisively and quickly. Small changes in approach to investment, people and technology can quickly boost the UK’s competitiveness, giving our economy the best chance of success in the post-COVID and post-Brexit era.”

Roxanne Morison, Head of Digital Policy, CBI comments: “The UK has a long tail of low-productivity firms which face challenging times ahead without changing their business model to suit the digital age. If we got those companies confident in using cloud, confident in using digital marketing systems, confident in using data, the positive impact on our productivity would be significant.

“But technology cannot be viewed in isolation. As the Microsoft research shows, it must be underpinned by progressive leadership, fair and inclusive talent development and adaptability for future change, in order to build a sustainable competitive advantage.”

Please visit www.aka.ms/ukrecovery to download a copy of the report.

-Ends-

Notes to Editors

A new model of competitiveness for the digital age

The research team found that the UK’s benchmarks for competitiveness haven’t changed much since the 18^th Century and fail to account for the transformational impact of technology. Rather they view digital systems as an adjunct to the traditional drivers of competitiveness: capital and labour. The researchers determined that to address the UK’s productivity paradox, combined with the twin challenges of COVID-19 and Brexit, required a new approach.

The new model for competitiveness is built around three core elements, all underpinned by the ecosystem in which firms operate. These are:

• Talent: leaders must be responsive, foster a diverse and inclusive workforce and create an environment in which they work with employees to innovate and share knowledge.
• Technology: create a solid digital infrastructure to boost productivity, efficiency, and collaboration. Tech needs to be embedded at the heart of an organisation, not restricted to certain functions or departments.
• Future Readiness: Leaders need to show agility to navigate disruption. Be ready to quickly identify and grasp fresh growth opportunities and adapt to new challenges or changes.

About the research

The research was conducted in summer and autumn 2020 by Microsoft in partnership with Dr Chris Brauer, Director of Innovation, Goldsmiths, University of London leading a team of economists, psychologists, data scientists and social scientists. They used a mixed method approach to build a model, scorecard and blueprint of competitiveness in the UK. This included:

• An in-depth literature review of academic, industry and media knowledge and data sources.
• Barometer surveys among 1,713 leaders and 2,470 employees. Respondents were based in a range of small and medium sized businesses and large enterprises (250+ employees) in all regions of the UK. The surveys were conducted by YouGov. Fieldwork dates were 10th - 24th August 2020 for ‘leaders’ and 10^th – 20^th August for ‘employees’. The survey was carried out online. Qualitative exploration – interviews with a variety of academics, professionals and UK company case study leaders around both the research model and the findings of this project. Quotes were analysed and used as evidence to support hypotheses.

To arrive at the UK’s £48.25 billion economic opportunity, the economists calculated the average increase in revenue that different sized companies could expect to see, if they were to follow the minimum Sustainable Growth changes recommended in the new model of competitiveness. Data from the Office for National Statistics (ONS) that detail the turnover of all the nation’s active, VAT-registered businesses was used, with minimum figures in each turnover size band adopted.

About Microsoft

Microsoft (Nasdaq "MSFT" @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.