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Rethinking business support to establish place-based innovation platforms to deliver improved productivity, industrial transformation & inclusive growth

April 9, 2018

At the back end of 2017, two important reports were published which are likely to provide some impetus for many Local Enterprise Partnerships (LEPs) to start to think about reshaping the role of their local business support systems.

 

In “Building a Britain fit for the future”, the UK Government sets out the case for placing greater emphasis on boosting the economy, building on the country’s strengths and embracing the opportunities of technological change, by (amongst other things) investing £725 million in new Industrial Strategy Challenge Fund programmes; agreeing ‘Sector Deals’ to help sectors grow and equip businesses for future opportunities; and supporting four ‘Grand Challenges’, through which the government hopes to establish the UK at the forefront of the industries of the future. 

 

In “Making Our Economy Work for Everyone”, the Inclusive Growth Commission asks the government for four things; to ensure they deliver on their commitment to develop place-based industrial strategies; for a fundamental reset of the relationship between Whitehall and the town hall, underwritten in new social contracts; for inclusive growth to be placed at the heart of public investment; and for the need to make sure the working definition of economic success is rooted in inclusive growth.

 

But how will LEPs and Local Growth Hubs evolve their service offerings to deliver on the findings of these two important strategies? What steps can LEPs take to deliver a refreshed business support model, which delivers the scale of transformational impact that is required to improve productivity?

 

Well, the first thing to note is that many LEPs, and their predecessor organisations, have always considered that their business support strategies needed to prioritise innovation and inclusion. In reality, business support strategies have largely, historically prioritised four areas of intervention;

 

  • A ‘universal service to all’: A free, objective, Information, Diagnostics and Brokerage (IDB) service, available to all businesses, regardless of size, sector, geography etc.;

  • A ‘high-growth service’: To stimulate higher levels of growth in the economy, by working with ambitious, growth orientated businesses;

  • An ‘enterprise outreach service’: To reach out to ‘underperforming’ sections of the economy, to stimulate social mobility by encouraging greater levels of enterprise and entrepreneurship; and

  • A ‘sectoral support service’: To support the growth of priority sector’s in the local/regional economy;

 

However, the precise nature of the policy mix adopted in each regional/local geography has largely depended on the local economic conditions and the available resources.

 

Under the current EU funding model, the methodology for distributing funds generally supported those areas with higher levels of deprivation, with more funding.

 

Generally speaking, this resulted in a somewhat polarised business support model up and down the country;

 

  • Economies with less areas of deprivation, a strong innovation economy, a strong embedded research capability and a buoyant private sector business support sector, generally got less money and tended to feel that their Local Growth Hubs simply needed to ‘open the door for businesses and get out of the way’. In these situations, some Local Growth Hubs have generally prioritised the delivery of a Universal IDB service, believing that every other support need was capable of being provided by the market.  The potential downside risk associated with this model is that the service just becomes far too transactional, simply pointing people at commercial providers, believing that the only market failure that exists in the locality is the SMEs lack of information about who provides what, in the local supply base.  

  • Similarly, many of those with larger ‘underperforming’ economies and/or ‘weak innovation systems’ have traditionally felt more inclined to try and build their own systems for trying to tackle this underperformance.  The inherent risk with this approach is that it creates a form of ‘state-run’ business support, which inhibits the capacity of the market to come into play (and indeed actually suppresses the growth of the private sector). Detractors of this model argue that it's vital that the interface between supply and demand doesn’t become so thick, that it inhibits a business from finding suitable support in the market.

 

So which model is right?

 

Well, neither really.  The What Works Centre has found that the evidence is inconclusive, with their analysis suggesting that, in most cases, business advice programmes had vague or multiple objectives, which made measuring success difficult. They found no evidence that would suggest one level of delivery – national or local – is more effective than another and have suggested it is “difficult to reach any conclusions about the effectiveness of public-led vs. private-led delivery”.

 

Whilst some might argue that LEPs and their predecessor’s organisations business support interventions have delivered a solid return on investment, history also suggests that;

 

  • Neither model has really helped ‘game change’ the UK economy in the way we need to going forward, if we are to achieve the scale of productivity improvement we need to compete more effectively, internationally;

  • The UK has historically not really been very successfully at creating a critical mass of businesses that dominate a key global market, or produced a ‘big gorilla’, such as Microsoft, for a number of years; and

  • Public sector policy interventions to support the growth in key priority sectors have largely dismally failed.

 

Moving forward, the UK economy is going to be increasingly squeezed by the existing and emerging innovation economies in Scandinavia, North America and South and East Asia. Given this situation, if the UK is to create companies that can compete successfully in the emerging markets of the future, there is an argument which says that we need to re-think how business support is delivered in the future and invest in appropriate forms of more intensive support.

 

However, one of the six key principles that BEIS have historically asked Local Growth Hubs to adhere to in developing their future service offering is that they continue to provide “a triage, diagnostic and signposting service that joins up national and local business support (public and private), simplifying the support on offer for businesses” and that “core services continue to remain free to business at first point of contact”.

 

In simple terms, this means they expect Local Growth Hubs to continue to provide a free, objective, Universal IDB service for every business that comes knocking (although this could be limited to a telephone, email and/or web based service).

 

Similarly, BEIS have also regularly indicated that LEPs should try to ensure that any plans for Local Growth Hubs are “deliverable and sustainable beyond the current round of Government funding ends”.  This is a slightly more challenging issue, as ‘sustainability’ can often force Growth Hubs down the road of charging for services, and this is where they need to be particularly careful to not compete with the market (the earliest iteration of Business Link was heavily criticised for doing precisely this).

 

The financial picture is made slightly more complex because many LEPs have historically relied on European Funding to subsidise the delivery of more specialist business support services, but the future of this funding is much less certain, as the Brexit process evolves.  

 

So where should LEPs invest to strengthen their business support capabilities?

 

Well, there is an increasing argument for central government and LEPs to come together with Local Growth Hubs and other relevant sub-regional partners to invest the limited revenue funding they do get into creating stronger ‘place-based’ industrial-innovation platforms, which are focussed on nurturing, supporting and growing ‘niche capabilities’ in global priority sectors, by promoting greater collaboration between the public, private, academic and community sectors. 

 

These kinds of industrial-innovation platforms go beyond the provision of simple 'tiered' business support solutions, to create 'place-based' innovation eco-systems, which bring together whole value chains in priority sectors (i.e. End Users/Lead Buyers; Research Organisations; Skills Providers; Growth Hubs etc.), to build the comparative advantage of the region and the competitive advantage of key firms in that sector.  

 

The services that they provide are not likely to compete with providers, because public funding is initially being used to establish a platform, rather than simply deliver 1:1 support to businesses. As the model matures, its likely that the quality of the support offered will be sufficiently intensive to be able to charge membership fees.  

 

These kinds of innovation platforms are already evident in some other innovation hotspots around the world, in the Bay Area of California; in the ELAT Triangle of Flanders; and in the Research Triangle of North Carolina, for example. They build on the strategic assets of the area (in the vein of the EU’s Smart Specialisation approach) and support the growth of key sectors where there is sufficient critical mass to warrant the investment and where the whole of a value chain can be brought together to work towards a shared vision. 

 

Nurturing this kind of collaboration requires strong place-based business leadership, a willingness to take risks and a capability to bring together the fragmented institutional landscape to pool resources, networks and develop a ‘shared commitment’ to drawing together a range of services into an integrated delivery model. In order to be truly effective, they require;

 

  • In depth engagement from large, end-users, prepared to adopt pre-collaborative procurement and open innovation approaches to working with the local business community; 

  • In-depth engagement of the private sector with a willingness to innovate and a desire secure defensible niche market positions;

  • In depth engagement from skills providers with willingness to develop provision to support nascent and emerging sectors;

  • Clear incentive structures that strengthen education-industry relations (which is likely to mean, for example, changes to the way Research Council’s work, enhancing the mechanisms to increase the level of collaboration between universities and local industry and creating space for universities and local areas to ‘experiment’ with measures to promote the innovation economy);

  • Systems and processes to increase the generation of ideas from all forms of knowledge markets (including the HE and FE sectors, catapults and applied research organisations) and translating these ideas into viable ‘innovations’;

  • Systems and processes to increase the number of research led spin-outs-coming from our universities, centres of excellence, research institutes and university-business collaborations;

  • Outreach activities to draw in excluded and hard to reach communities into supporting the key sectors; and

  • A strong commitment from all partners to work together to embed design, technology and innovation in the national psyche, by promoting a widespread discourse about its importance in society;

 

Past attempts to parachute these kinds of Industrial-Innovation Platforms into localities from 'on high' (through initiatives like Launchpads) have largely failed, so the importance of ensuring the development process is led by localities should not be underestimated. 

 

What does that mean for the future of Local Growth Hubs?

 

In simple terms, the role of the Local Growth Hubs might remain largely unchanged in this kind of Industrial-Innovation Platform. It really depends on the role and relationship of the LEP and the Local Growth Hub in the locality, what resource base exists in the area and what the quality of leadership is like in the business support environment locally.

 

As far as service provision is concerned, faced with limited resources, the Local Growth Hub will likely need to continue to provide many of the same services that they have always provided – with them potentially focussing much more front-line resource into supporting the collaboration across the sectoral value chains which the LEP has prioritised.  

 

They also have to find new ways of managing unwanted demand, or at least find ways of dealing with business enquiries where they are unable to play a strong role in fostering comparative advantage for the sub-region and/or building the competitive advantage of the firm.

 

In areas with a particularly high incidence of deprivation, they may also need to find new ways of reaching out into these communities to stimulate higher levels of enterprise and entrepreneurship, to stimulate increased levels of social mobility.  

 

This requires re-engineering their organisations around the sectors that the LEP wants to prioritise and re-aligning their resources to these new priorities. This is actually the easy bit and can be achieved through a standard service redesign process.

 

However, it also requires a shift in mindset from a transactional business support model, to one which delivers widespread innovation and industrial change within key sectors through the promotion, encouragement and adoption of new, transformative capabilities in the business community.

 

The real challenge for any area that wants to adopt this kind of Industrial-Innovation Platform Model remains the need to overcome institutional resistance and fragmentation; the need to secure the commitment of large end-users/lead markets willing to pull through the innovations (many large public sector end users are increasingly just trying to stay afloat); the need to secure the wholesale commitment from large number of firms to innovate; the need to convince government departments (and their arms-length bodies, like UKRI) to devolve innovation budgets; and the need to keep the whole system agile, so it can adapt to changes in the market as new advantage is created and new competencies emerge.   

 

That said, for those regions and sectors that can manage to develop strong collaborative, sector based innovation value-chains, the prize will be significant, as agile, flexible partnerships emerge around key market opportunities to help encourage, support and accelerate the emergence of new industrial competencies and the development of untapped talent to strengthen the productivity of whole sectors of the economy.  

 

 

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