Article

Technology investment focus in West Midlands

Businesses in the West Midlands could miss out on £5.2 billion1 of untapped growth in 2018.

Our research, Planning for growth, found that in 2018 businesses could leave £72.5 billion untapped potential on the table in the UK. This is the equivalent to creating a new economy the size of Greater Manchester. Or put another way, this level of growth could translate into 1.4 million jobs. In the West Midlands, this figure breaks down to £5.2 billion measured as GVA.

The research also unveiled a sustainable high-growth group of businesses that nationally achieved 20% or more in growth in 2017 – and sustained growth for the past three years2. These Growth Generators are almost five times more likely to be achieving their one-to-two-year growth targets than the rest of the market. And they are also nearly 10 times more likely to reach their targets than low-to-no growth companies. On top of this financial performance, Growth Generators share a growth mindset based on four key characteristics:

1 purpose-driven

2 invested in top-line growth and are willing to seek external funding and engage in M&A activity

3 tech confident

4 networked.

Growth Generators: Regional breakdown

The growth picture for the West Midlands

GVA for the West Midlands was £129 billion according to provisional figures for 2016 from the Office for National Statistics (ONS)3. West Midlands GVA growth was the third-highest growing region in the UK between 2015 and 2016 at 4.2%, behind the South West at 4.3% and London at 4.4%.

Additionally, GVA per head in the West Midlands was £22,144. This ranks seventh out of the 12 UK regions – just behind the North West (£22,899). London ranked first at £45,046 followed by the South East which ranked second at £28,506. In terms of GVA per head growth, the West Midlands was third most improved region in the UK between 2015 and 2016 at 3.3%, behind the South West which ranked second at 3.4% and Wales which ranked first at 3.6%.

So what do these figures show? The economy of the West Midlands is faring reasonably well despite the political uncertainty and business challenges presented by Brexit negotiations. Businesses that trade overseas – and many in the West Midlands do – have benefited from exchange rates since the referendum. This can be seen in the national export volumes that increased by 1.9% in the three months leading up to November 20174. Manufacturing – the sector at the heart of the West Midlands – reported solid growth towards the end of the year. And there remains a positive outlook for 2018 with production expected to rise5.

The region is also set to benefit from several major new infrastructure projects. These include HS2, which one study estimates will create 22,000 jobs in the metropolitan area and a £1.5 billion increase in economic output for the region6. Further economic growth is promised by Birmingham hosting the 2022 Commonwealth Games. This will bring enhanced sporting facilities, boost civic pride in the city and region, and act as a catalyst for a number of projects7.

Growth of both the West Midlands and UK economies largely depends on the prosperity of the private sector. Yet only 12% of businesses in the West Midlands in 2017 have had 20% turnover growth over the past year.

Top 10 barriers to growth

What’s holding back our West Midlands businesses?

According to our research, technology was one of the top barriers to turnover growth and operating profit cited by nearly half (46%) of regional businesses surveyed. This was higher than businesses nationally (38%) and Growth Generators (29%).

Other notable barriers cited by West Midlands businesses were brand, marketing and sales capability and market disruption. These were named by a third (33%) of local businesses, again higher than with Growth Generators.

We asked businesses what improvements to their growth rate would have been achieved over the last three to five years if leadership teams had overcome these barriers. More than half (54%) of regional businesses – compared with 80% of Growth Generators – put the improvement at over 20%.

Talent and skills were highlighted by just under a quarter (24%) of regional businesses as a barrier to growth, but ranked higher for Growth Generators (34%) and all respondents (31%).

David Hillan, Practice Leader of our West Midlands team, said: “In relation to technology, many businesses do not appreciate the incentives that are available to businesses looking to develop and implement new technology or processes. While such incentives are unlikely to cover the full cost of a project, they can provide a timely financial boost to businesses which have to innovate to achieve their growth ambitions.”

Research report
Planning for growth: don’t let uncertainty hold you back Discover the barriers and accelerators to private sector growth
Benchmarking tool Ready to grow your business? Take our growth health check

Growth strategies

The effectiveness of growth strategies is vital to the economic health of the region.

When asked about their strategy to grow revenues over the next three to five years, 72% of businesses in the West Midlands said new product or service development was one of their top priorities in shaping their growth strategy. The key focus of Growth Generators was mergers and acquisitions followed by organic growth.

In terms of growing operating profits over the same period, 78% of the region’s businesses are focused on investing in new systems and/or technology compared with 64% of Growth Generators, which see maintaining current levels of growth as more impactful to the bottom line.

David said: “These results point to the confident mindset of Growth Generators. It’s clear from analysing the findings that they are achieving sustainable and strong growth. Growth Generators are also nearly five times more likely to be achieving their one-to-two-year growth targets compared with the average business – and nearly 10 times more likely than low-to-no growth businesses.

“This is definitely echoed in our work with our dynamic clients locally, in whom we see a purpose-driven approach and a real value placed on building strong networks.”

Top 10 accelerators to growth

Case story

Our Growth 365 team has helped Pricecheck increase their exports by 45%

About our research

Our growth survey was conducted between August and September 2017. We heard from 1,000 business owners, CEOs, CFOs or CSOs at businesses with turnover of £10 million to £1 billion across all industries and regions8. We also conducted in-depth interviews with 15 CEOs and/or managing directors from high-growth companies, academics and market commentators9. For more about our research, please see our report, Planning for growth.

References

  1. Measured as GVA (gross value added)
  2. Based on respondents who said in the survey their turnover had increased by 20% or more in the last year
  3. Regional gross value added (income approach), Office for National Statistics, 20 December 2017 
  4. UK trade: ONS, November 2017
  5. IHS Markit Purchasing Managers’ Index, which is based on monthly responses from senior purchasing executives about whether business conditions have improved, deteriorated or stayed the same compared with the month before
  6. How HS2 will transform the West Midlands, Centro
  7. Commonwealth Games: Birmingham to build 2022 Games Village BBC, 13 February 2018 
  8. For detail on the full demographic breakdown and statistical analysis see the methodology section of our national report, Planning for growth
  9. For a full list of interviewees see the methodology section of our national report, Planning for growth

Planning for growth

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