This study highlights how small and medium-sized enterprises work with their supply of skills and employee skills development. As part of the study we have reviewed previous studies and evaluations of different initiatives. We have also interviewed managers and/or HR people in small and medium-sized enterprises with knowledge-intensive businesses.

Small and medium-sized enterprises’ ability to work with skills supply strategically

According to the OECD and ILO (2017), policy regarding the supply of labour has very much been focused on level of education, and very little focus has been given to how skills are put into service and utilised within companies and places of work. The OECD and the ILO suggests that policy-level attention be given to how companies and employers work with skills-related matters in practice. A great deal of society’s combined skills are utilised, maintained and practically developed within the private sector. How companies work is therefore an important element of skills supply within society more broadly, and is thus critically important to a country's long-term economic growth and development.

As we show in this report, small and medium-sized enterprises do not have the same means as larger companies to dedicate resources and time to work strategically with their skills supply and the skills development of their employees. This has also led to different initiatives that have illustrated the role of the public sector in supporting small and medium-sized enterprises in their skills supply. Influencing companies to work strategically with skills supply has also been raised as an important area for stimulating company productivity (OECD, 2019).

It is clearly a challenge for smaller knowledge-intensive companies to fulfil their skills requirements

The results of our study show that it is difficult for small and medium-sized enterprises in knowledge-intensive service industries to work strategically and long-term with their own skills supply. Earlier studies agree with our results. In other words:

• Smaller companies have neither the resources nor time to work strategically and long-term with their own skills needs.
• Identifying the skills needed is perceived as difficult, but it is even more difficult to act on existing skills requirements.
• Small and medium-sized knowledge-intensive companies are reactive to changes in the world. This means they adopt a short-term perspective to their skills needs and that the companies push for immediate returns on their skills investments.

Our interviews with managers and HR personnel in knowledge-intensive organisations show that companies are mainly focused on learning-by-doing and not as much on more structured employee development through vocational training. It is perceived to be expensive and time-consuming, and companies sometimes question its effect on profitability and productivity. What this means is that smaller companies do not primarily target employee development training, and instead support employees with minor, vocational training focused on developing the skills needed for everyday work.

Further, small and medium-sized enterprises do not always have specific functions or resources dedicated to human resources. It is not uncommon for such matters to be managed by the MD/business manager. As a result, there are clear limitations to how strategically the smaller companies can work with their skills needs.

No one-size-fits-all

Different fields of research can provide the answers to what is important for enabling human capital to be utilised, developed and to contribute to the company’s profitability and productivity. Previous studies suggest that this may involve autonomy in performing work, collaboration between employee and employer, and opportunities for learning and skills development (Eurofound/Cedefop, 2020). However, the basic conditions for creating such organisations vary from company to company, based on their industry, location and skills composition.

Earlier studies present the view that it is difficult to set strategies that can be applied across wider groups of companies. Research and earlier studies highlight that it would be better for policies to focus on providing managers with basic information about HR and human resource management, and that even a basic level of knowledge can improve how human capital is utilised and developed in companies. Many earlier studies have pointed out that there is a shortage of basic awareness and knowledge about HR and human resource management in many small and medium-sized enterprises (see Eurofound/Cedefop, 2020; OECD/ILO, 2017). Different organisations and public agencies already provide advice to companies, but it is worth considering how well this meets the needs of small and medium-sized enterprises.

Different types of support and network initiatives are required

Companies around the country rely on different types of support and contacts for their skills supply. Industries also differ in the kinds of skills they can access through their networks. There are even differences amongst companies with similar activities or business models. The differences in companies’ skills networks can be due to a range of factors, such as geographic location and business orientation.

A company’s skills network may consist of both public sector and other private sector contacts. These may include private recruitment agencies or training companies, industry organisations, local collaboration partners or collaboration with public sector training providers. In interviews with knowledge-intensive service companies, interviewees mentioned that some of the most valuable collaboration, over and above recruitment agencies, was with universities and other higher education institutions. The reason for these types of contacts is seldom to develop the skills of employees, but rather to attract and recruit talents.

The pandemic has sped up digitalisation of companies, but there are many uncertainties

The smaller knowledge-intensive companies we interviewed see both the advantages and disadvantages that the accelerated digitalisation may have for their skills supply. They say that the pandemic has brought about rapid digitalisation of how they work and also opened them up to new technology solutions. They have also become more open to using skills based in other locations, or even outside the country. At the same time, the companies expressed great uncertainty about how the skills are practically utilised and developed with the increased remote working. This is particularly true for less-structured learning, information and knowledge sharing within the organisation and informal exchanges with colleagues.

Experiences from previous initiatives

Skills supply to the private sector is a large and complex issue which requires many areas of policy-making to cooperate in order to fulfil the skills needs of the private sector. A lot of experience can be drawn from previous initiatives that have been aimed at promoting skills development in small and medium-sized enterprises, both for employees and business leaders. The Swedish Agency for Economic and Regional Growth and the Swedish ESF Council are a couple of the organisations that have run targeted initiatives with this purpose. The overall picture is that many of these efforts struggled to involve small and medium-sized enterprises as the company representatives had a hard time in seeing the benefit of and need for such initiatives. Further, earlier initiatives demonstrate the importance of understanding the everyday reality of smaller companies. Important lessons can be learnt from previous initiatives aimed at encouraging companies to work with their skills supply and the skills development of employees.