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 support to improve focus New lean models fuel optimism as SMEs look to create 400,000 jobs Two thirds (65%) of SMEs1 in the UK have been forced to overhaul how they work in reaction to poor economic conditions, according to a new report out today from CitySprint. The report, ‘Collaborate UK’, highlights the new strategies being followed in response to the downturn, revealing a significant cultural shift among the dynamic SME community and the emergence of a new breed of leaner, more focused ‘size zero’ businesses. It found that a 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. The report identifies the emergence of a 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 million2 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’ economy3, 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 1 SME = small and medium sized enterprises (less than 250 employees) 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 UK SMEs (which is 4,795,200 according to BIS) is 479,520 2 and Humberside would even consider working with a competitor (compared to the national average of 12%) These smarter ways of working have perhaps 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: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/80247/bpe-2012-stats-release-4.pdf 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