The Critical Uncertainties

THE SUFFOLK SMALL BUSINESS PROJECT

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Introduction

In the section dealing with the Economic Drivers that are propelling the Suffolk Small Business community, we established that the growth of the community was being driven by a number of economic forces and a number of demographic forces.

The key economic forces were the development of a Creative Class within the Support Economy that provides service offerings for the Dream Society. Equally, the key demographic forces affecting the Suffolk Small Business community are the rate of inward migration into the county and the degree to which this is changing the social composition of the county. The purpose of this section is to examine the degree to which these forces will have an effect on the Suffolk Small Business community, and to examine the critical uncertainties surrounding their impact.

The Economic Forces

The economic forces affecting the economy are, in turn, affected by a number of influences themselves. We need to identify those influences and to consider the extent to which they may impact upon the economic development of Suffolk.

It seems to us that the central part of our model by which the Suffolk SME community develops is through the development of the Creative Class. To recap, we are in the process of moving from the Organisational Age to the Creative Age. The Knowledge Economy is a phenomenon of the Creative Age. In the Knowledge Economy, the key to wealth creation is the ability to enhance knowledge. Knowledge is enhanced by adding value to what is known already, and this occurs through a creative process. By augmenting knowledge creatively, those who undertake this process have added value to the existing stock of knowledge, and this wealth creation drives economic growth. Those who undertake this process are the “Creative Class”.

Economic growth in a given location is driven by the locational choices of creative people (the holders of creative capital). In one sense, the theory does not represent a radical departure from traditional locational theory. In traditional theory, economic growth in a given location is driven by the locational choices of firms (the holders of physical capital). However, as the emphasis of the economy moves away from physical capital (land, plant, and equipment) and towards creative capital (or what some might term “human capital”), the locational decisions of the Creative Class become more significant in determining which areas will grow and which areas will not grow.

The Creative Class prefer places that are diverse, tolerant, and open to new ideas. An attractive place need not be a large city. It must be a place where the creative class can find suitable peer groups. Creative agents tend to cluster around creative agents, reinforcing each other’s productivity. Creative agents then coalesce to form larger economic units or firms. These firms locate in areas where they can grow and develop. The evidence suggests that creative people are attracted by an abundance of high quality amenities, openness to diversity, and opportunities to validate a creative identity. The challenge to Suffolk is to develop an environment that becomes the locational choice for the Creative Class.

The development of a Creative Class is likely to be a necessary but not sufficient condition for the take-off of the Suffolk economy. A further condition is likely to be the development of service offerings within the Support Economy. We established earlier that our patterns of consumption help to determine the logic of the business enterprise. In turn, the nature of society helps to determine our patterns of consumption. This is the key factor that establishes the link between the nature of society, the economy, and the logic of the business enterprise. Over the past fifty years, the nature of society has undergone a number of profound changes, the economy has changed a great deal, but the logic of the business enterprise hasn’t changed that much.

In a “Post Modern” society, autonomy, and diversity have come to replace the authority, conformity, and hierarchy of society under Managerial Capitalism. Capitalism follows the line of least resistance – it re-invents itself to fit the current realities. The new consumption is that which allows us to live an ever more individuated life. The rise of the individual based organisation will eventually lead to the demise of the hierarchical organisation of leaders and followers. The Post Modern organisation must allow all participants to express their voice – to become a networked organisation. However, the new individuals are still dealing with the old enterprise logic of Managerial Capitalism.

The standard enterprise logic was developed to deliver productive efficiency. Customer satisfaction is not central to this process. In the mainstream economy, firms attempt to constrain resource use and to enhance revenues to create transaction value. Customer service initiatives aim at revenue enhancement within the existing framework. By alienating employees & customers, resource constraint (cost cutting exercises) destroys relationship value. A new model of wealth creation is needed to deliver relationship value. This model forms the basis of the Support Economy. In order to thrive in the future, Suffolk will have to develop key offerings from within the Support Economy.

The final sufficient condition for the take-off of the Suffolk economy would be to develop a range of offerings that catered for the Dream Society. The concept of the Dream Society arose from a consideration of what would come after the Information Society. In many ways, the Information Society contained the seeds of its own destruction. The rise of the knowledge worker depended upon the development of information and communications technology. This same technology can be used to automate most routine Information Society work, much as most Agricultural and Industrial work has been automated away.

The knowledge-intensive company is essentially a social construct because the corporate culture (i.e. the people who make up the company) are its main asset. Value is created at the point where staff interact with each other and the customer base. The valuable employee of the future will be the one who can readily network both inside and outside of the company. In essence, the value of companies will be determined by the value of the employee networks contained within the boundaries of the company.

In the Dream Society, our purchases are an expression of our personal values, our self-identity. The emotional market underpins the Dream Society. Consumption will become a value statement, and the value statement will be encapsulated and embodied in the story of the products or services. The challenge to the Suffolk Small Business community is to develop a range of service offerings that appeal to the emotional market that underpins the Dream Society.

The Critical Economic Uncertainties

As we can see, there are a number of key uncertainties to the development of the small business sector within the Suffolk economy. There is no doubt that Suffolk is a great place to live. There are a number of genuinely world class cultural beacons, the regeneration of the Waterfront in Ipswich and the sympathetic development of rural Suffolk are both likely to enhance the built environment, Suffolk has one of the lowest crime rates in the UK, and is considered to be one of the safest urban environments in which to live in the UK. There is evidence of small businesses relocating from London to Suffolk principally for the reason of an improvement in lifestyle.

On the other hand, Suffolk does not have a significant research University and is unlikely to develop one over the horizon that we are considering. There are some links with the University of London and MIT through the IP-City initiative, but none of these initiatives have led to the development of a sizeable student population that is integrated into the host population. Furthermore, respondents to our Small Business Survey indicated that the feelings of the small business community are that the IP-City Initiative, based around the BT-Exact site at Martlesham Heath, is very remote from the small business community, and is not sufficiently integrated into that community for there to be an effective transfer of technology from the laboratory to market-place. This is in sharp contrast to the evidence that we collected on our trips to Princeton and Stanford Universities in the USA.

Our research indicates that there is a small Bohemian cluster in central Ipswich, but that this cluster has not reached the critical mass necessary for the development of a vibrant creative cluster. It only represents 1.7% of the population of Suffolk, way below the 20% threshold that is suggested as necessary to develop critical mass. Indeed, the close proximity of London (just an hour or so from Ipswich by train) attracts creative talent away from Suffolk to what would appear to be, from the perspective of the Creative Class, a more attractive lifestyle. Our Small Business Survey indicated that many of the creative class who we interviewed viewed Suffolk as a great place to live, but saw London as an even better place at which to work.

Our research indicates that Suffolk is dominated by two lifestyles – the traditional Country Dwellers and an accumulation for more suburban lifestyles (Suburban Semis, Blue Collar Owners, High Income Families, Independent Elders, and Mortgaged Families). Whilst the “Country” and the “Suburban” are an important part of the make-up of the Suffolk population, and whilst they both contribute much to what makes Suffolk a great place in which to live, we have to suspect that they are actually inimical to the development of Suffolk as a Creative Centre. The lifestyles are essentially conformist and resistant to change, and both of these features act to retard creativity.

However, this is changing, and there are reasons to expect that it might change significantly out to 2020. The impending development of the University Campus, the migration of the Creative Class from London and the South East, and the development of Suffolk – particularly Ipswich – as a creative centre could be sufficient to kick-start the transformation necessary for the development of the Support Economy.

In this respect, Suffolk has a number of plus points. The work-force tends to have a relatively high degree of technical education, broadband connections are being rolled out as a matter of priority throughout the county – particularly to the more remote rural areas, and there is a general willingness in the SME sector to embrace technological change. If the transformation were to start in Suffolk, it is quite likely to progress at a rapid rate.

The successful company is likely to be “small” in cultural terms - irrespective of size in terms of other measures. Its smallness means that it can interact with its customer base on an intimate level. It also values its staff to a high degree, and enables and empowers them to deliver the best possible customer experience. Although a labour intensive company, authority within the company will be distributed on a network structure rather than a hierarchical structure in an attempt to capture as much staff creativity as possible.

Suffolk is ready for the transformation should it reach critical mass to become established. The problem is that there are relatively few early adopters of new lifestyles. It may suffocate the transformation before it takes hold. The issue is whether enough people would adopt it to give it the critical mass necessary for the new paradigms to take hold.

This brings us to a critical uncertainty facing the development of small business in Suffolk out to 2020. If, for whatever reason, Suffolk does establish an economy based in the Dream Society, then it can reasonably expect to develop a high value added Small Business community. If, on the other hand, Suffolk misses the opportunity to locate in the Dream Society, then it can reasonably expect the development of a Small Business Sector characterised as backward-looking, dominated by the service sector, with low value-added work, and resultant sluggish economic growth.

The Demographic Forces

In many ways, the demographic forces that affect the Suffolk Small Business community is a reflection of the society which the small business sector serves. Small businesses draw from the local workforce to deliver their service offerings, and they generally sell into the local community as their customer base. In this way, changes that affect the local population are likely to impact greatly upon the Suffolk small business community.

The immediate future between 2000 and 2010 is for the population of Suffolk to continue to grow. During this period, the forecast is for the population to grow by 5%, mainly as a result of inward migration from London and South East England. Looking ahead to the longer term, there is nothing to suggest that this process will abate. Property in Suffolk still looks cheap in comparison with the property available in, say, Surrey or Sussex (part of the commuter heartland south of London). As long as this continues, and as long as the journey from Suffolk to London takes about the same time as the journey from Sussex to London, the pressure will be for those people moving out of London to do so into the northern commuter heartlands, which now includes Suffolk.

London could be a source of opportunity for Suffolk small business. The city is only an hour away by train, or just over that by car, and increasing numbers of Suffolk small businesses are using those links to sell into the London market. However, if improved transport links allow Suffolk small businesses to sell into the London market, it is also true that the same links would allow easier access to London businesses to sell into the Suffolk market. In this respect, Suffolk small businesses would be crowded out of the “home market” by “imports” from the London economy.

It is also possible that Suffolk would become a dormitory community for London. In this model, the business people living in London relocate to Suffolk for lifestyle reasons (Suffolk is a great place to live), but continue to operate their businesses and work from a London location. In this model, the Suffolk small business community acts as a facilitator for a London dormitory. Those relocating in Suffolk can do so in one of two ways. First, they can settle permanently in Suffolk and commute to work in London. The advantages of this is that housing is so much cheaper in Suffolk when compared to London, that those moving to the county can either downsize their mortgage commitments whilst maintaining their housing assets; or they can upscale their housing assets whilst maintaining their mortgage commitments. Second, those living in London can remortgage their London properties and use the equity released to buy a weekend/ holiday home in Suffolk.

If we are right, then, during the next twenty years, the change of the composition of the middle class within Suffolk will continue. We can easily foresee the further development of the Suffolk Coast as a retirement location, along with the expansion of the commuter belt outwards from the main rail links. This is likely to diminish the numerical importance of the Country Dwellers and to change the face of the county away from the rural perspective to become more suburban in outlook and presentation.

We are of the opinion that the relationship between the Suffolk small business community and the London market is likely to be of central importance in the years to 2020. How will the population of Suffolk interact with the London market? How will the migrants from London affect the social composition of Suffolk? These critical uncertainties are the key issues that need to be examined in our scenarios.