SME Growth . Life after ERDF
Life after ERDF
Article by Edwin Karinga | 12.01.2017
DCLG has recently published a map of funded projects. Although not completely up to date, this gives a sense of where funding has been allocated across the country and a rough proxy for business support as the majority of support for small firms in England is now funded by European Social Investment Funds (ESIF), primarily ERDF. These funds give LEPs the ability to establish projects that are specifically designed to deliver strategic priorities in their area but the funds do also come with considerable constraints.
From the current blizzard of live ERDF calls, it is clear that the current focus is on allocating all remaining funds but now is also the time to start thinking about what happens after ESIF. My prediction is that there will be less funding in future but I am hopeful that any new regime will be more accepting of creative delivery models and less driven by daunting compliance requirements. So what can we learn from ESIF which will help us to design more innovative and effective support in future?
1. Focus on delivering economic impact not project outputs: the majority of ERDF outputs require provision of certain quantities of advice, coaching or grants to each business rather than driving to achieve specific economic impacts. It is worth thinking long and hard about the economic growth that we want from funded support and selecting KPIs that will drive the design and delivery of support to achieve this impact.
2. Be demand led: not all SMEs have the same potential to grow as measured by their market opportunities, internal capacity, and commitment. Resources should be focused on those firms that which have the greatest potential for delivering economic growth and demonstrate the commitment to achieve it.
3. Work with the private sector: In many areas, the private sector is willing to engage with and support entrepreneurial ecosystems but the ESIF compliance requirements make it unattractive and practically very difficult for them to do so. New funding schemes need to be designed such that they can accommodate a range of private sector co-investment models to reduce reliance on the public purse.
4. Use the 80/20 rule in designing compliance requirements: ESIF guidance is very extensive and designed to deal with every eventuality. It means that a substantial proportion of funding has to be spent purely on managing cumbersome administrative processes in order to prove eligibility of expenditure. A delivery model, combined with some key delivery principles, that is focused on impact, will deliver far greater value for money in terms of impact and therefore economic growth.
5. Provide financial incentives for achieving success: ERDF projects have no financial upside but plenty of downside: no profits are allowed; there are penalties for under achievement although there are no performance payments for over achievement; there is the potential for budget clawback; and expenditure is also repaid several months in arrears. Models that incentivise providers to deliver an excellent service and reward delivery of impact are known to work. These principles should be designed into new models.
As we come to the end of the ESIF 2014 – 2020 commissioning era, we have an opportunity to design new delivery models that learn from the best and the worst of recent times. We should do this now while we have the opportunity.
Dr Jane Galsworthy is a Director of Development and an expert in the design of business support for high growth SMEs with needs around scale-up, accessing finance and commercialising innovation. For the last 20 years, she has worked at the interface between business, academia and policy building partnerships to create effective enterprise and innovation ecosystems.