Where are the skills gaps in innovative small firms?

Based on a sample of 245 West Midlands manufacturers, this paper investigates small firms’ perceptions regarding the skills (and skill sources) required to improve innovation. While there are very few observed differences in perception between the more and less innovative firms (the employment of graduates is a notable exception), a number of interesting findings emerge. Principal among these, all firms, regardless of innovative classification, identify enhanced technical skills as the primary means to achieving improvements in innovative output (followed closely by marketing competencies). Improved management skills and, in particular, finance and exporting skills do not rank high on the small firms wish list. Moreover, sample firms overwhelmingly display a preference for improving in-house skills, rather than increasing the number of specialists or accessing external expertise. To rephrase, there does not appear to be an external “skills shortage” but, rather, an internal “skills gap”. Introduction While the Prime Minister was chanting “education, education, education”, the President of the Board of Trade may well have been saying “innovation, innovation, innovation”, such is the volume of recent initiatives and reports concerned with increasing innovative activity and output within the UK. This is as it should be. A better skilled workforce is, all other things being equal, likely to be a more innovative workforce. The notion that economic growth and innovation (as the “... prime source of economic growth” (DTI, 1991)) will primarily be driven by investment in human and intellectual capital, rather than physical capital, is further manifest in the present government’s enthusiasm for endogenous growth theory (see Romer, 1990). Yet, despite the acknowledged primacy of innovation and, by implication, education, the UK’s relative performance remains poor. Standard (admittedly fallible) measures of innovation and education performance point to an historical and continuing underachievement and underinvestment (Oughton, 1997)[1]. These aggregate difficulties are further exacerbated by the regional disparities which exist within the UK. If UK performance is poor in international terms, what is the position of our poor performing regions? The International Journal of Entrepreneurial Behaviour & Research, Vol. 5 No. 3, 1999, pp. 144-154. © MCB University Press, 1355-2554 The survey, part of which is reported here, is one component of a larger project developing a regional innovation strategy (RIS) for the West Midlands. Accordingly, the author is grateful to the individuals and institutions who have been involved in the West Midlands RIS. Nonetheless, any errors in analysis or interpretation remain my own. This article is part of a special issue of papers entitled “Papers from the 2nd Enterprise and Learning Conference”, edited by Alistair R. Anderson and David Deakins. Skills gaps in innovative small firms 145 current study is based in the West Midlands region of England which remains, in some respects, the heart of the industrial UK (manufacturing firms within the region contribute 29 per cent of GDP compared to the UK average of 22 per cent). However, workforce skill levels are among the lowest in the UK (see Tables I and II)[2]. Further, manufacturing productivity levels in the West Midlands (measured as gross value added per employee) are 11 per cent lower than the UK average. This would seem to suggest that firms within the region Region UK NE NW M Y and H EM WM E L SE SW 1995 Spring 40 38 39 37 37 37 36 40 47 41 39 Summer 41 38 39 37 38 38 36 40 47 42 40 Autumn 41 39 40 36 38 38 36 39 48 42 40 Winter 1995/1996 41 39 40 36 38 38 37 39 48 43 41 1996 Spring 41 39 41 38 38 38 37 39 48 42 41 Summer 42 39 41 39 39 39 38 40 48 44 41 Autumn 42 40 40 39 39 38 38 40 48 44 41 Winter 1996/1997 42 40 41 39 39 39 37 40 49 44 42 1997 Spring 42 39 41 40 40 38 38 39 50 45 42 Summer 43 39 42 41 41 39 38 39 51 45 43 Source: DfEE Table I. Percentage of the workforce qualified to NVQ Level 3, advanced GNVQ or two GCE A-level standard Region UK NE NW M Y and H EM WM E L SE SW 1995 Spring 24 21 22 21 21 20 21 23 32 24 21 Summer 24 20 23 21 21 20 20 23 33 25 22 Autumn 24 20 23 21 21 20 21 23 33 25 22 Winter 1995/1996 24 20 23 21 21 22 21 22 33 25 24 1996 Spring 24 21 23 21 21 22 21 22 32 25 24 Summer 24 21 22 21 21 22 21 22 33 26 23 Autumn 24 22 21 21 21 21 21 22 33 26 23 Winter 1996/1997 24 22 22 20 21 21 21 22 34 26 24 1997 Spring 25 20 22 22 22 20 21 21 34 26 24 Summer 24 20 23 22 22 21 21 21 34 26 23 Source: DfEE Table II. Percentage of the workforce with a vocational, professional, management or academic qualification