Small and medium-sized enterprises (SMEs) play an important role in the economy of the United Kingdom (UK), but major gaps remain in technology adoption by local SMEs. While UK SMEs show comparatively high uptake of mature digital tools (e.g. cloud computing and data analytics), the deployment of advanced technologies (e.g., robotics and automation) remains more limited. Adoption also varies strongly across industries and regions, reflecting the economic geography of the UK. This report assesses issues and policies affecting SME technology adoption in the UK, drawing on desk research and two fact-finding missions in the three regions of Greater London, West Midlands and the North-East. The report finds that cost, perceived relevance and trust in technology vendors are key barriers to technology adoption by UK SMEs. On the other hand, peer learning, supply chain relationships, and intermediary organisations are among the most common technology diffusion channels. Building on this analysis and an assessment of current UK policies, the report proposes fifteen concrete measures that can further advance the SME technology adoption agenda of the UK government.
SME Technology Adoption in the United Kingdom
Abstract
Executive summary
Technology adoption patterns in the United Kingdom vary markedly by technology maturity, firm size, region and sector. UK firms perform well in the adoption of mature digital technologies, such as cloud computing and data analytics, and many SMEs have largely narrowed the gap with larger firms in basic digital capabilities. By contrast, adoption rates decline significantly for more advanced technologies, such as robotics and automation, where smaller SMEs lag further behind. Regional differences are marked: London and the South-East lead on the adoption of most technologies, while regions in the north of England show relatively lower adoption rates. There are also clear adoption differences between sectors: manufacturing tends to show higher adoption of AI, robotics and automation, while wholesale and retail trade are among the strongest adopters of accounting software and management-support programmes.
Based on interviews with local stakeholders, cost and relevance emerge as the most important barriers to SME technology adoption in the United Kingdom. Many SMEs, especially in sectors such as manufacturing, face high upfront costs, uncertain returns and difficulty in the identification of solutions that match their operational needs. Cultural and behavioural barriers also matter, including the average age of business owners in some sectors and distrust of technology vendors. Together, these factors lead to a “wait-and-see” approach, where SMEs adopt new technologies only after peer validation, thereby slowing diffusion across the wider business population.
Diffusion channels vary across sectors and technologies, but three mechanisms stand out. Peer learning is a critical driver of adoption, particularly in manufacturing where firms primarily rely on trusted examples and practical demonstrations as risk reduction strategies. Supply chain pressure can accelerate diffusion when buyers create incentives and provide support for suppliers to adopt technologies. Intermediary organisations play a central role at different stages of technology maturity: some connect firms with cutting-edge research and capabilities, while others help SMEs navigate a fragmented support landscape and reduce perceived risks.
The regional dimension is a core feature of effective technology adoption policy in the United Kingdom. Regional stakeholders from the three regions covered in the project (Greater London, West Midlands and North-East) highlighted the need for national policies to be flexible enough to adapt to local conditions, while also providing clear national guidelines and strong national branding to signal priorities and ensure policy coherence. Stakeholders commonly favoured national responsibility for funding decisions, combined with local decision making over spending choices to reflect regional needs and opportunities.
The multilevel governance of technology adoption policies remains largely ad hoc in the United Kingdom. There are no standing consultation mechanisms between national and subnational governments, nor between the public and private sectors, that are specifically dedicated to technology adoption policy. Nonetheless, current arrangements seem to function reasonably well in practice, as demonstrated by the recent consultative processes underpinning the Technology Adoption Review and the new Modern Industrial Strategy. At the regional level, collaboration among institutions often relies on informal, practitioner-led networks.
Stakeholders also identified some structural features that may hinder technology diffusion at scale. While the United Kingdom performs strongly in early-stage research and prototype development, it is perceived as weaker in research commercialisation. Innovation policy is also seen as relying too much on short-term grants, which can limit firms’ ability to undertake longer-term strategic investments and may contribute to fragmentation in programme delivery. As a consequence, stakeholders have called for greater attention on skills development and advisory services, including by strengthening management capabilities and workforce upskilling through short, industry-driven formats.
Choices on policy design also involve trade-offs, with the report highlighting a tension between light-touch programmes that have a broad outreach and others that offer more intensive support to smaller groups of firms. In this respect, some stakeholders favoured prioritising support for firms with the greatest productivity potential, while others advocated for a more inclusive approach so that the benefits of technology adoption spread beyond the best-performing SMEs. Concerns were also raised about the rigidity of some programmes, such as the apprenticeship levy and the R&D tax credit, including calls for reforms to strengthen their flexibility, predictability and administrative efficiency.
Against this backdrop, the report proposes fifteen policy measures to enhance SME technology adoption in the United Kingdom, which are organised under the main category of “technology adoption” and the two complementary categories of “skills development”, an enabler of technology adoption, and the “regional dimension”, covering measures which may help bridge the UK regional divide in technology adoption.
Under the first largest group, measures include simplifying the national R&D tax credit and introducing more favourable conditions for SMEs and collaborative R&D; positioning the “Made Smarter” programme as the national reference for upgrading small manufacturers; strengthening the digitalisation support component of the Business Growth Hubs; and reinforcing research commercialisation in the work of the Catapults. The report also proposes a staged approach to voucher implementation, with a view to better catering to different technology needs across different types of firms, and the development of an introductory AI package for SMEs to support the uptake of more advanced technologies.
On skills development, suggested measures include strengthening the development of digital skills across different education levels and through adult learning; reforming the “Growth and Skills” levy so that it can also be used for the acquisition of micro-credentials responding to new emerging skills needs; supporting peer learning through theme-focused networks (e.g., workforce training, energy efficiency, etc.); and developing a hands-on management skills pathway within the “Help to Grow: Management” programme to support firm-level technology adoption projects. The report also highlights complementary levers, including business succession support and catalogues of accredited technology solutions, with a view to reducing risks related to programme implementation.
On the regional dimension, suggested policy measures include drawing on the wide range of international good practices in business cluster policies to implement the new Local Innovation Partnership Fund; launching a dedicated technology adoption programme for peripheral regions; strengthening collaboration and mutual learning between local areas; and developing a technology adoption survey, including through timely collection methods, to underpin more evidence-backed policy design and monitoring.
Across the full set of suggested policies, some common threads emerge. First, financial support tends to have stronger impacts when combined with skills and advisory support. Second, peer learning is a particularly effective mechanism for small businesses. Third, intermediary organisations are essential bridges between government and firms across both high-tech and low-tech diffusion pathways. Finally, achieving diffusion at scale requires an inclusive approach that reaches SMEs beyond the high-tech segment and allows for sufficient flexibility to tailor programme delivery to different regional contexts.
