New breed of “size zero” SMEs emerge

ready to exploit market opportunity

65% of SMEs overhaul working styles to cope with downturn

2.8m turn to outsourced specialist supportto improve focus

New lean models fuel optimism as SMEs look to create400,000 jobs

Two thirds (65%) of SMEs[1] in the UK have been forced to overhaul how they work in reaction to poor economic conditions, according to anew reportout today from CitySprint.

The report,‘Collaborate UK’, highlights the newstrategies being followed in response to the downturn, revealinga significant cultural shift among the dynamic SME community and the emergence of a new breed of leaner, more focused ‘size zero’ businesses.

It found thata quarter (24%)of the 700 SMEs surveyed are now more open to working with other businesses than they were before the downturn and 14% now work with more partners as a result. 1 in 8 would even team up with a competitor if there was a business benefit.

Thereport identifies the emergence ofa new breed of “size zero” businesses – organisations that are stripping out non-core functions by embracing outsourcing, exchanging services and sharing expertise, so that they can focus on their strengths (see map 1 for regional trends):

  • Smart outsourcing - 2.8 million[2]SMEs have embraced outsourcing, buying in a mean of five non-core business functions. Among this group, the projected mean spend on outsourcing in 2013 is £143,000 with 18% planning to increase it, while the biggest spenders can be found in the East of England, where SMEs plan to spend an average (mean) £203,000
  • Exchanging services - nearly half a million SMEs are engaging in a ‘bartering’ economy[3], by trading their services with other businesses in lieu of payment. Wales is leading the way, with 16% of SMEs there saying they have contra deals in place
  • Sharing expertise - over a quarter (28%) work with other businesses to obtain sales leads and win new business while 22% share best practice with other businesses. A huge 28% of businesses in Yorkshire and Humberside would even consider working with a competitor (compared to the national average of 12%)

These smarter ways of working haveperhaps contributed to a feeling of cautious optimism among SMEs as they look to create over 400,000 new jobs this year, with the West Midlands showing the biggest signs of optimism and the North East the lowest (see Table One).

TABLE ONE: Future employee headcount expectations amongst SMEs

REGION / Expect to hire
more staff / Expect staff levels to remain the same / Expect to hire fewer staff / Net increase/decrease in employee intentions / Number of SMEs (BIS)** / Net number
of jobs*
East / 21% / 67% / 12% / 9% / 511,488 / 46,034
East Midlands / 23% / 58% / 19% / 4% / 324,675 / 12,987
London / 27% / 63% / 10% / 17% / 805,194 / 136,883
North East / 7% / 72% / 21% / -14% / 132,867 / -18,601
North West / 15% / 77% / 8% / 7% / 431,568 / 30,210
Scotland / 11% / 79% / 11% / 0% / 318,681 / 0
South East / 19% / 67% / 14% / 5% / 767,232 / 38,362
South West / 11% / 78% / 11% / 0% / 477,522 / 0
Wales / 19% / 73% / 8% / 11% / 192,807 / 21,209
West Midlands / 29% / 69% / 2% / 27% / 368,631 / 99,530
Yorks/Humberside / 19% / 77% / 4% / 15% / 344,655 / 51,698
418,312

*Net number of jobs for each region is based on the net percentage of SMEs in each region hiring or reducing one additional employee

**The number of SMEs in each region is based on data sourced from BIS, ‘Business Population Estimates for the UK and Regions 2012’, where 99.9% of businesses in each region are SMEs:

Professor Robert Blackburn, Director, Small Business Research Centre, Kingston University, comments on the findings: “This more open, collaborative culture not only strengthens the capabilities, flexibility and efficiency of SMEs but has a wider economic benefit, stimulating more opportunities for enterprises as ‘suppliers.’”

Patrick Gallagher, CEO of CitySprint comments on the report, “By sharing expertise, exchanging services and embracing smart outsourcing, SMEs across the country are successfully stripping non-core functions out of their businesses. This is creating a new breed of leaner, “size zero” businesses,able to focus on their core area of expertise whilst tapping into their networks for everything else, as and when they need something.”

Gallagher concludes: “Our report shows that far from feeling isolated during the economic downturn, there are real opportunities for new intra-SME contracts across the sector and country and a real sense of optimism. Through the work we do, it has been really fascinating to see businesses seize this opportunity and, in many cases, play a part in it.”

MAP 1: Region collaboration trends

[1]SME = small and medium sized enterprises (less than 250 employees)

[2] Based on 60% of respondents who say that they outsource in some way. 60% of the total number of SMEs (which is 4,795,200 according to BIS) in the UK is 2,877,120

[3]Based on 10% of respondents who say that they have contra deals in place with other businesses. 10% of the total number of SMEs in the UKSMEs (which is 4,795,200 according to BIS) is 479,520