Digital Business Salon Report

Lloyds Bank UK Business Digital Index 2015 Usage and attitudes towards digital technology among small businesses and charities March 26th 2015, Institute of Directors, London

Salon Report Introduction Today sees the publication of the second annual Lloyds Bank UK Business Digital Index which measures the digital maturity of SMEs, charities and voluntary sector organisations across the UK. The Index is not about banking – it is designed to serve as a tool to inform policy-makers, business leaders and a cross-section of local stakeholders about the opportunities and challenges which exist around empowering small firms and charities to take advantage of the opportunities of digital adoption.

Why create a UK Business Digital Index?

As a Founding Partner of Go ON UK, the UK’s leading digital inclusion and skills charity, Lloyds Banking Group is committed to empowering consumers, businesses and organisations across the country to unlock their digital potential. In partnership with Go ON UK, Lloyds Bank recognised that while a number of initiatives existed to track the digital capabilities of consumers, there was a clear deficit in our understanding and knowledge of the emerging digital capabilities of SMEs and charities. With 10.5 million active digital users (5 million of whom use mobile banking services) Lloyds Bank is well placed to leverage its physical and digital presence across the UK to help address this information gap. In addition, Lloyds Banking Group has been working closely with the Government Digital Service and the Department for Business, Innovation and Skills to help SMEs and charities understand the digital opportunities that are available to them.

Why is this important to Lloyds Bank?

Lloyds Bank firmly believes that inclusive access to digital skills and business opportunities is a key enabler for maximising the UK’s potential for future economic growth offered by digital technologies. This digitalisation dividend is estimated to be worth up to £63 billion 1 in additional annual GDP growth – including £18.8 billion2 of economic value which could be unlocked by digitally empowering UK SMEs. Lloyds Bank has around one million small business customers. . According to research conducted by Lloyds 1 Booz & Co, This Is for Everyone: The Case for Universal Digitisation, November 2012, page 4 2 Booz & Co, This Is for Everyone: The Case for Universal Digitisation, November 2012, page 6

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in 2012,3 50% of SMEs reported an increase in sales when doing business online and charities who can receive online donations are more than twice as likely to see increased income.

What is the Index and who is it for?

The Index surveyed nearly 2,000 Lloyds Bank business customers to analyse and track digital capability and maturity among UK SMEs and charities. One of the primary reasons the Index has a unique capacity to deliver value is that it has been constructed as an on-going process capable of providing annual snapshots of digital capability at a national and regional level. Created in partnership with Accenture and Go ON UK, the Index has been structured to serve the needs of three specific audiences. For Go ON UK, the Index offers a key source of strategic intelligence in the form of a baseline level indicator of digital maturity and digital skills. For Government, the Index provides a tool for targeting investment policy, assessing the impact of the Government Digital Service’s Digital Inclusion Strategy, predicting SME/charity digital growth patterns and identifying underserved audiences and regions. Finally, the Index is also designed to help SMEs and charities identify common barriers to digital adoption and raise their awareness of the benefits of investing in their digital capability and accessing online business opportunities.

What does the Index tell us about UK SMEs and charities?

The 2015 Index shows that 25% of organisations see digital as irrelevant to them. A further 27% of organisations think they are already doing everything they can in a digital context – which suggests a potentially worrying level of complacency. The analysis delivered by the Index over the last two years demonstrates that just because an organisation or business is digitally mature today doesn’t guarantee they will maintain that maturity in the future. In a rapidly evolving digital market place, some organisations and regions have moved up the index, while others have moved down the ranking.

So how can these perceptions of digital opportunities be explained? The Index suggests that one of the key challenges remains around prevailingly negative attitudes towards digital, alongside a lack of awareness and understanding of the potential benefits in relation to saving time and expanding revenue. However, in order to embrace these opportunities to expand their sales and market reach, businesses need to invest time in order to adopt digital processes and platforms. In a context where 78% of SMEs are sole traders this represents a significant barrier.

If we look at charities across the UK, the Index highlights that those who are digitally mature are more likely to receive double the amount of financial donations than those who have yet to adopt digital practices. And yet 58% of charities lack basic digital skills and still report that they believe having a website would not increase their capacity to access funding , in comparison with 23% of UK SMEs. Therefore, an unambiguous message from this year’s Index is that more needs to be done to help charities and voluntary sector organisations successfully engage with the digital economy.

So what has changed since last year’s Index?

This year 77% of SMEs have basic digital skills – an increase of 2% since 2014. It is also apparent that more established businesses find it harder to embrace digital opportunities in comparison with newer businesses.

The Index shows that most digitally mature SMEs are 33% more likely to report an increase in turnover over the last two years than less digitally mature businesses. There are also regional differences across the UK. Organisations in the North East and North West showed respective digital maturity increases of 8% and 9% 3 Lloyds Banking Group, Britain’s Digital Opportunity, A Study of Digital Maturity within Britain’s Businesses and Charities, 2012, page 5

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respectively. This suggests that concerted activity by Go ON UK in both those regions has already achieved a significant impact.

What else is Lloyds Banking Group doing?

Alongside its commitment to deliver the Lloyds Bank UK Business Digital Index every year to track changes to digital maturity across the country, Lloyds Bank is also pursuing a range of additional activities. In the North West Lloyds Bank is working with training providers to develop and deliver face-to-face training for small businesses in partnership with Go ON UK. In the North East, Lloyds Bank ran a pilot project to support 40 SMEs to develop their digital skills. Lloyds Banking Group has built up a network of 3,000 digital champions across the Group, including Lloyds Bank, Halifax and Bank of Scotland, with the objective of providing additional support to individuals and SMEs. Finally, Lloyds Banking Group’s Customer Innovation Labs are also working with Go ON UK, GDS and BIS to develop bespoke and targeted support resources for SMEs to be hosted on DigitalSkills.com. Finally, Lloyds Banking Group is also currently working with Go ON UK, GDS and other key stakeholders to develop a new Consumer Digital Index which will track the digital capabilities of UK consumers.

What are the opportunities and challenges for sole traders?

On average, sole traders received an average Index score of 91 in comparison with a national average score of 102. It was commented that many sole traders still don’t know where to turn for guidance and help on improving their digital skills and digital capabilities. This illustrates the challenge of engaging with a target audience which “doesn’t know what it doesn’t know”. It was suggested that a potential vector for successful engagement could be through intermediaries that sole traders already rely upon – for example, accountants, lawyers, banking staff and local chambers of commerce and business associations.

The Butcher of Bury Market In terms of the potential benefits for sole traders, the example was given of a local butcher in Bury Market in Manchester who developed his meat selling business using social media to set up an online meat subscription service which is now turning over £2 million a year. This market trader already had a strong local reputation which he was able to successfully leverage using social media channels. The lesson to be drawn here is that any business can exploit digital opportunities to drive growth and increased sales.

However, it is also worth noting that the butcher received over 800 digital orders during his first week of trading online. This illustrates the end-to-end nature of online commerce – quickly generating demand creates its own challenges of scaling up and supply.

You don’t need to be online to have a digital footprint Microbusinesses and sole traders also need to be aware that in many respects their business may already have an online footprint even if they aren’t online themselves. For example, the proliferation of customer rating websites and online forums mean that your customers can already talk about your business and share their experiences of your services and products even if you don’t have a website. Most firms would rightly be keen to engage with those online discussions and to benefit from expanded insights into their customer base and their levels of satisfaction.

What are the characteristics which predict successful digital adoption?

The Index shows a correlation between newer businesses adopting digital faster than more established organisations. There is also a variation according to the size and sector of the organisation concerned. For 3

example, many firms operating in the service sector were more likely to rapidly engage with digital opportunities than those operating in the manufacturing sector.

The role of digital champions and face-to-face engagement The experience of Lloyds Banking Group suggests that working directly with individuals and businesses in their own communities is more effective than asking people to visit branches. This was illustrated by a recent pilot project in the North East supported by the Tinder Foundation. This initiative engaged directly with 40 small businesses using a face-to-face approach. Furthermore, the 2015 Index demonstrated that only 1% of SME and charity respondents were likely to visit a bank branch for support and advice on using technology and the web, whereas 27% of respondents would seek advice from a friend, relative or colleague. However Lloyds Banking Group has also launched a digital champions programme to encourage staff to engage with customers and businesses about digital opportunities. Furthermore, in recognition that these individuals and customers may want to continue their digital journey after visiting a branch, this initiative will also involve partnering with local digital skills training centres.

Go ON UK SME programme Go ON UK is the UK’s leading digital skills charity founded and chaired by Baroness Lane-Fox. Recently Go ON UK has been developing a specific SME-focused strand of activity funded by the Department for Business, Innovation and Skills. Go ON UK leverages its small team of 12 staff based in London to work in partnership with cross sector national, regional and local stakeholders. Alongside their Board Members (BBC, TalkTalk, E.ON, Post Office, EE, Argos, Lloyds Banking Group, Age UK and Big Lottery) Go ON UK works closely with the Government Digital Service, the Tinder Foundation, Digital Unite and all 39 regional Local Enterprise Partnership (LEPs).

LEP digital skills survey Recently Go ON UK set up Digital Skills Steering Group for the LEPs designed to raise awareness of the importance of basic digital skills. According to the latest survey results, 80% of LEPs wanted to collaborate with corporate partners around the delivery of basic digital skills to SMEs. At the same time, 72% of LEPs cited a lack of funding and resource as the key barrier to engaging in more digital skills related activity focusing on SMEs. 87% of LEPs participating in the survey also stated that they would be happy to work with other non-corporate partners.

Go ON UK and the Federation of Small Businesses Go ON UK is currently working with the Federation of Small Businesses (FSB) on a basic digital skills toolkit.

Previously the FSB has primarily focused on campaigning around SME access to broadband connectivity – but increasingly they are now devoting resources towards the digital skills agenda. According to an FSB survey, 76% of SMEs see acquiring new clients and accessing new markets as the key motivators for getting online. Interestingly, 52% of SMEs categorised themselves as “digitally aware” but simultaneously felt that they didn’t need a website. Half of the SMEs participating in the survey reported that lack of time was their primary barrier to digital adoption, 36% cited a lack of skills, and a remaining 30% saw lack of broadband connectivity as the leading digital stumbling block.

Lessons from the FSB Conference in Birmingham Last week Go ON UK hosted a stand at the FSB Expo and National Conference in Birmingham. The conference offered Go ON UK a valuable opportunity to engage with 200,000 FSB members across 33 UK regions. One of the visitors to the Go ON UK stand was a small taxi business run by a father and his 4

daughter with a fleet of 100 cars serving the Birmingham metropolitan area. The owner reported that he used to spend £40,000 per year on listings in the Yellow Pages, but has since taken his business to Yell.com.

However, apart from appearing in online listings, he admitted that he didn’t use any other digital tools or platforms to promote his business. At the same time he referenced concern that UBER will shortly be setting up operations in Birmingham, whilst simultaneously being mystified as to why his profits and revenue were continuing to fall year on year. This experience illustrates that many small businesses are both oblivious to the opportunity of embracing digital business channels, as well as the threat to their livelihoods if they continue to remain offline.

Digital skills and the Sharing Economy Go ON UK is currently working with Sharing Economy UK (SEUK), the newly established trade association for the sharing economy sector. SEUK are increasingly aware that a significant proportion of the estimated 10 million adults in the UK without basic digital skills have the potential to become participants in the new sharing economy. Recent examples of innovative sharing economy businesses in the UK include parkonmydrive.com and justpark.com (offering shared parking spaces), and blablacar.co.uk which offers vehicle/ride sharing services.

The link between financial and digital exclusion Increasingly many corporates are identifying that there is a cohesive link between digital exclusion and financial exclusion. For both individuals and businesses lacking digital skills or the confidence and understanding to transact online mean they are likely to pay extra for the financial services and products they use. They are also more likely to spend more time on various aspects of financial management in the absence of time saving digital tools and money management applications and platforms. Go ON UK is currently working with the Money Advice Service to develop guidance materials around financial inclusion for individuals and businesses.

The role of trust and informal peer to peer networks It was commented that it can sometimes take up to four face-to-face visits to persuade an SME to engage with an offer of digital training – even if that service is provided for free. This demonstrates a level of wariness when it comes to some SMEs engaging with the digital world, as well as the importance of trust and leveraging local stakeholder networks. In a context where it is difficult to sell the case for digital maturity directly to businesses, it is sometimes better to engage with local shepherds to get the rest of the flock online. Indeed, in many instances, the more niche your business is, and the more specific your geographical focus, the more valuable local peer to peer support and advice becomes. Go ON UK is presently investigating potential partnerships with the Post Office to leverage their network of 10,800 branches located across the UK to expand the digital capability of the 2 million SMEs who visit Post Office retail outlets every week.

Small firms need more accessible and visible digital role models Finally, it was commented that many organisations’ previous experience of engaging with digital technologies has reinforced negative perceptions – even though these technologies have become progressively cheaper, more accessible and easier to use. There is a need to accurately convey the message that the time saving dividends from digital adoption only materialise once a business has first invested time and effort towards that objective. A key priority should be to bring together a set of examples and case studies which demonstrate how the investment in digital capability has paid off for a range of small businesses across different sectors.

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