The Growth Imperative: And will the recent Budget change it for businesses?

All businesses and countries aspire to grow. Sometimes that is driven by business owners, shareholders, parent companies, market opportunity or through government policy seeking to deliver enhanced public services.

With a focus on mid-sized private businesses, rather than making any political observations, and with the dust on the recent Budget starting to settle, in this article we consider the extent to which the Budget will impact on the need and the appetite for growth, or potentially accelerate it in UK SMEs, and if so, how?

The changes to national insurance contributions, an increase to the minimum wage, and expected changes in employee rights, will impact all UK businesses, with some being more resilient than others, and some able to pass on the incremental costs more than others. For some businesses it may be the trigger to drive for enhanced economies of scale to invest in growth, innovation and accelerated digital transformation. 

On 6th November, YouGov published an article summarising results of a recent survey of 1,000 UK businesses regarding the impact of these changes. 58% of respondents anticipated a negative impact on their finances, and 23% felt the increases would have a positive impact. 

The degree of the cost impact will clearly depend on the number of employees and the employee composition (i.e. full time and part time roles, salary mix and occupation types) of a particular business. 

These overhead increases add to the operating challenges and choices facing all businesses, all of the time. Growth is also an ever-present challenge for most businesses too. But not all businesses face into and address growth in the same way. 

For example, in some mid-sized businesses, where operating performance is going well… and whilst there is an interest in growth… there may not be a driving imperative to analyse and invest in assessing growth options. As a result, the business continues to focus on business-as-usual challenges and doesn’t quite get to addressing the growth issue.  

Now, and specifically following the recent Budget with increased people and overhead costs, it may be the case the imperative has become tangible and present. Why? Once the leadership team has considered how they will respond and cope with increased costs, it may be apparent that achieving commercial growth and a superior performance is essential to maintaining and succeeding in a new reality. 

Increased economies of scale may be beneficial to the P&L, and in some cases essential. As we all know, economies of scale can provide businesses with benefits including reducing the average cost of unit production, driving increased production efficiency which can be passed on as reduced pricing, or contributing to enhanced profitability. Alternatively, it can increase head room for investments in innovation, growth and/or diversification. 

There are several classic barriers to business growth, for example customer concentration, lack of a strategy, the emergence of new or stronger competitors, out of date technology, inefficient processes, constrained cash flow, lack of creativity and innovation, and challenging external market factors such as economic downturns, or perhaps a change of government policy.  

Conversely, there are several drivers of business growth including operational efficiencies through digital adoption and acceleration, enhanced sustainability and resilience, enhanced customer engagement and retention, an adjustment of current proposition or introduction of a new proposition that increases relevance and value to customers, responding to strategic risks, pursuing innovation, developing strategic partnerships and a business model review. Most of which help enable businesses to cope with market and trading fluctuations and challenges. 

As we tend to operate in service-related sectors, and continually talk with CEOs and business leaders, we are very familiar with helping leadership teams to address the growth agenda and navigate the complexities, trade-offs, challenges and opportunities associated with it. Whether that is high-growth supply-side businesses and market disruptors, or demand sides business seeking to take advantage of new and innovative technologies and processes. 

The recent government policy changes just add another material dimension for all businesses and organisations to address as part of their operating and strategic landscape and to be factored into the growth decision making process. 

If you’d like to discuss this blog post or share your own perspective on the issues covered, please get in touch or comment.