Small and medium-sized businesses in Wales are prioritising survival over productivity as economic uncertainty continues to shape decision-making.
At a roundtable hosted by Business News Wales and the Wales Productivity Forum, participants said many firms have shifted their focus in recent years towards maintaining stability rather than investing in growth, limiting opportunities to improve productivity.
Phil Jones, chief executive of Business in Focus, said insight from SMEs across South Wales points to a sustained period of caution, with businesses concentrating on preserving existing operations in the face of external pressures.
He said that rather than pursuing expansion or adopting new technologies, many firms are focused on maintaining turnover, protecting jobs and supporting staff, with investment often directed towards core systems and processes rather than longer-term transformation.
This position was echoed across the discussion, with participants describing a business environment shaped by uncertainty following the Covid-19 pandemic, Brexit and ongoing wider economic pressures. In this context, productivity is often a secondary consideration to cashflow, cost management and day-to-day resilience.
Rachel Lai, partner at Menzies LLP, said most company directors are not engaging with productivity as a concept, instead focusing on immediate financial performance.
She said business leaders are typically concerned with managing costs, maintaining profitability and ensuring continuity, rather than measuring output or benchmarking performance against wider economic indicators.
Delays in decision-making were also identified as a significant constraint on business activity. Lengthy processes around contracts, planning and approvals can leave firms exposed to ongoing costs without certainty of income, creating additional pressure on cashflow.
Rachel said this can lead to a more cautious approach, with businesses less willing to commit to investment or expansion in an uncertain environment.
There was also a view that many SMEs lack the time, capacity or support to focus on productivity improvement, particularly where management capability is stretched. In smaller firms, leadership is often focused on immediate operational demands, leaving limited scope to consider longer-term performance.
Rod Howells, executive director at BIC Innovation, said this can be compounded by a narrow understanding of productivity, with businesses more likely to associate it with output or equipment rather than overall efficiency and performance.
Participants also highlighted the role of confidence in shaping business behaviour. A lack of optimism about the economic outlook was seen as contributing to slower decision-making and reduced appetite for risk, further dampening investment.
At the same time, there was recognition that businesses are making incremental changes where possible, particularly in areas such as systems, processes and workforce wellbeing, to maintain performance and prepare for future growth when conditions allow.
Technology, including artificial intelligence, was identified as a potential enabler for SMEs, offering opportunities to improve efficiency without significant upfront investment. However, participants said adoption remains uneven and is often constrained by time, skills and awareness.
Overall, the discussion pointed to a disconnect between the strategic importance of productivity and the realities facing SMEs on the ground, where immediate pressures continue to dominate decision-making.
Participants said that supporting businesses to move beyond survival mode will be critical to improving productivity, with greater emphasis needed on confidence, capability and the conditions required for long-term investment.
