New research from Paragon Bank has revealed that six in ten SMEs are increasing their innovation budget compared to pre-Covid levels, with more than three-quarters of business owners (77 per cent) listing innovation as a key priority to power their recovery.
As well as seeing innovation as a top priority for their business, SME owners also valued the importance of it for their industry as a whole, with 79 per cent naming this as a key driver for their sector to recover from the pandemic, Paragon found.
Pre-pandemic, SME owners assigned an average of £415,000 of their annual budget to focus on innovating. This has increased by 19% to £494,000 with businesses assigning budgets across a range of areas, including process, proposition, organisational and marketing innovation. One in five SMEs (19 per cent) boosted their innovation budget by 50 per cent or more.
The agriculture sector increased its innovation budget the most out of any industry, with 90 per cent of agricultural businesses seeing an increase and 82 per cent of those indicating a surge of more than 30 per cent.
Businesses in Wales prioritised innovation above other areas of the UK, with 92 per cent listing this as a key priority.
John Phillipou, managing director of SME lending at Paragon Bank, said: “UK SMEs are bouncing back from the pandemic at a rapid pace and are looking at ways to maintain the momentum of this recovery. Many SMEs will have gone through a period of rapid transformation in order to adapt in the early days of the pandemic, and it’s encouraging to see that innovation is still a priority for so many businesses as they start planning for their long-term recovery and growth.
“It’s interesting to see that so many agricultural businesses are increasing their innovation budget. The industry experienced a sharp increase in demand for produce in the wake of the pandemic and will be looking to innovate in order to continue to maximise growth opportunities.”
The Paragon Bank research demonstrated a fairly even split between innovation priorities across different business areas.
Four in ten (39%) SMEs are prioritising process innovation, with IT infrastructure and security the leading source of investment, a focus for 61% and 60% of businesses innovating in that area.
Proposition innovation was the second most important priority, with 36% of SMEs listing this area as a priority. Amongst those, 73% of businesses were focused on introducing new services, while two-thirds expanded existing product lines and services.
Amongst UK SMEs, 35% prioritised organisational innovation – with half of those (47%) assigning budget to the implementation of a flexible working model. Four in ten invested in learning and development and staff wellbeing, while more than a quarter (27%) were focused on creating sustainable operational changes and ESG-focused initiatives.
Marketing innovation was key for one in three SMEs, with half of those focusing on improving customer comms, adding new channels, targeting new audiences or updating their website.