Productivity remains a persistent challenge for the Welsh economy, with output still significantly below the UK average. At the same time, research continues to highlight a clear link between innovation and growth – whether measured through increased sales or improved efficiency. Yet only 28% of Welsh SMEs are currently classed as ‘innovation active’, a figure that has fallen in recent years.
This matters because SMEs make up 99% of Welsh businesses and employ the majority of the private sector workforce. If most firms are not actively innovating, the consequences for productivity and competitiveness are profound.
The challenge is twofold: helping SMEs understand what innovation means in practice and supporting them to implement it effectively. While universities have long played a role in advancing technological innovation through research and development, there is a second, often overlooked dimension – process innovation. This focuses on improving the way organisations operate, delivering productivity gains through cost and time efficiencies.
Despite numerous initiatives, progress in this area has been limited. Part of the issue lies in how support is designed. Funding has increasingly focused on R&D and product development, while process innovation receives less attention. More fundamentally, traditional programmes often rely on transferring knowledge rather than embedding change.
This reflects what has been described as the ‘knowing–doing gap’: businesses may understand innovation concepts, but struggle to apply them in practice.
A different approach is needed, rooted in application, collaboration and peer learning.
Recent work at Cardiff Metropolitan University’s Circular Economy Innovation Communities (CEIC) has explored the value of Programme Communities of Practice (PCoPs) in addressing this gap. These programmes support participants to apply innovation tools directly to challenges within their own organisations, learning by doing rather than simply being told what to do.
Crucially, this happens in a shared environment. Participants learn with and from one another, testing ideas, sharing experiences and building confidence. This collaborative model also encourages a ‘test and learn’ mindset, helping businesses adopt practical, iterative approaches to improvement.
The results are encouraging. In one recent Welsh programme, participants delivered process innovation projects that generated over £148,000 in savings, representing a three-to-one return on investment within the first year. For many firms, these gains came from relatively small but impactful changes that might not otherwise have been implemented.
Equally important is the longer-term impact. By developing in-house capability and confidence, businesses are better equipped to sustain innovation beyond the life of a programme – something traditional approaches often fail to achieve.
The challenge now is engagement. Around 72% of Welsh SMEs are not innovation active, many operating under significant time and resource constraints in a demanding economic climate. Reaching these businesses will require support that is both accessible and clearly relevant to their day-to-day realities.
Programmes such as CEIC Wales demonstrate what is possible, offering structured opportunities for firms to build innovation capability within supportive peer networks. Scaling this kind of approach will be key if Wales is to close its productivity gap.
There are no quick fixes. But by focusing on practical application, shared learning and process improvement, communities of practice offer a credible and effective route to unlocking productivity growth across the SME base.
