Small-, Micro-, and Medium- Enterprises (MSMEs) form the backbone of private sector economy in the United Kingdom (UK). According to the Business Population Estimates published by the Department of Business and Trade, in October 2024, MSMEs account for 16.6 million jobs, or 60% of the employment and contribute to 52%, or £2.8 trillion to the UK private sector turnover (Department of Business and Trade, 2024). Despite their crucial role, research undertaken by Hart and Bonner (2024) identified that during the period 2021-22, only 8% of MSMEs had managed to concurrently grow turnover, jobs, and productivity. These firms grew both their revenues and headcount, but their revenues at a faster rate thereby increasing their productivity.
Adopting technology, particularly digital technologies, amplifies productivity (Brynjolfsson & Hitt, 2000; Brynjolfsson & Yang, 1996; Hitt & Brynjolfsson, 1996; Pilat et al., 2003; Van Ark, 2016; Van Ark et al., 2013). The recent surge in Artificial Intelligence (AI) deemed a General-Purpose Technology has generated optimism about its potential to boost productivity. Early research indicates that Generative AI and Large Language models can substantially enhance labour productivity by a wide margin of estimates ranging from 10 to 56% (Acemoglu, 2024; Acemoglu & Restrepo, 2018; Brynjolfsson et al., 2023; Cambon et al., 2023; Filippucci et al., 2024; Jaffe et al., 2024). However, despite considerable media attention and the availability of numerous AI solutions, adoption rates of AI in the UK remain relatively sluggish (Be the Business, 2024a; Cunha et al., 2024; Goldman Sachs, 2024a; Microsoft & Public First, 2024).
The Project —The AI Catalyst — embarked on participatory action research to investigate the causal factors affecting productivity, assess digital readiness, and determine whether tailored, research-led ‘Knowledge Exchange’ sessions could facilitate AI adoption. Collaborating with fifteen MSME firms across the UK, the project spanned across five months, during which 100 hours of ‘Knowledge Exchange’ sessions were delivered. Each firm actively engaged in at least six sessions, held fortnightly. During the sessions both Generative AI and Non-Generative AI solutions were explored.
Several causal factors affecting productivity and digital technology adoption in MSMEs were identified. Broadly they can be categorised into access to resources and capabilities and their efficacy. But, most importantly, integrating digital technologies, particularly AI, into a firm, necessitates a sociotechnical approach (Brynjolfsson & McAfee, 2011, 2014; Butler et al., 2023), which involves developing a comprehensive understanding of the technology, firm, people, occupations, and tasks as components of a unified system (Brynjolfsson et al., 2018; Kraus et al., 2022; Prahalad, 1993; Sawyer & Tyworth, 2006; Venkatesh et al., 2003; Vial, 2019, 2021).
Twelve of the fifteen firms chose to adopt Generative AI solutions. Additionally, three firms-initiated trials on business process systems. One firm upgraded its accounting package to leverage AI capabilities, and few firms invested in upgrading their broadband infrastructure.
Collectively, these initiatives resulted in an estimated investment of more than £100,000 to support more than 360 users, representing over one-third of the workforce employed by the twelve firms. Most importantly, the efforts led to an increase of 0.25 in the weighted score for technology diffusion, that was applied for the assessment.
