Business analysis: the public sector has much to gain from small business

If words alone made the difference, Britain's entrepreneurs would be kings of the world. By common consent, they – and only they – can lead us out of the financial mess in which we find ourselves. Politicians of all hues seem convinced that small and medium-sized businesses, rather than their larger brethren, are not just going to provide the economy with a much-need boost through their innovative zeal. They also believe they'll pick up the slack created by cutbacks in public services and, along the way, put some meat on the bones of the idea of the Big Society.

The idea that Big Business has had its day is an over-simplification. Large companies with their huge resources still have substantial advantages over the small firms that are attracting so much attention. Of course, many large businesses are bereft of ideas and ripe for challenging. But many others – retailers John Lewis Partnership and Tesco spring to mind – remain not only resilient but also capable of finding fresh ways of persuading their customers to part with money. Moreover, while they may be products of the internet, we should beware of continuing to think of Google and Amazon as start-ups. Thanks to a relentless desire to understand and exploit the limits of technology, such businesses could potentially be more powerful than any enterprises yet seen.

So, yes, small businesses are going to – as they always have – come up with innovations in products, services and ways of doing business that will help get the economy going again. But the likelihood is that they will not do it on their own. We are not living in an either/or world.

Instead, collaboration is almost certainly going to take place on a much greater scale than has been seen ever before. For some time, businesses have become used to not having to do everything themselves. They have outsourced back-office staff, they've employed information technology specialists on contract so that they can hire those they really need when they need them, and they have invested in small businesses that have technology or ideas they think are useful. But because of the rapid development of the internet and the "crowdsourcing" techniques it makes accessible, this sort of activity is likely to become widespread.

For example, the consumer goods company Procter & Gamble, long renowned as a research and development powerhouse, is acknowledging that it cannot come up with all the answers it needs on its own and is embracing "open innovation" to the extent of welcoming ideas from individuals and businesses outside the company. Similarly, pharmaceutical companies, which have hitherto employed thousands of people and spent huge sums on R&D, are cutting down on such facilities (hence the closure of Pfizer's facility in Kent) and looking for ideas from university labs and other small operations.

Such an approach is behind an initiative begun a few years ago by the internet services company Cisco. Its I-Prize, worth $250,000 annually, is a formalised way of turning to the "global community" as "a comprehensive resource for creativity and innovation" and a way of identifying its next business opportunity. At the same time, it is celebrating smaller businesses with its Business Heroes campaign. David Critchley, the company's director of small and medium enterprises (SMEs) in the UK and Ireland, believes it is "incumbent on big business to create an environment for SMEs".

This is also true of government. And many in the SME sector question the true level of commitment. The public sector has much to gain by using smaller businesses and so could be expected to at least give them a try. Many larger businesses still see SMEs as rivals undercutting and outperforming them, rather than as potential partners. The likes of Cisco and P&G could face a challenge in seeking to change that mindset.

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