Highly educated employees from different academic backgrounds may contribute to creating high economic growth in SMEs, which leads to new jobs and more investments - and protects companies against bankruptcy.
One of Europe’s most prominent educational thinkers, Gert Biesta, once said that education always involves a risk as it is not about filling a bucket but about lighting a fire.
In other words, while the formal purpose of education is to give students a set of competences, the real purpose is give them a thirst for knowledge and a desire to pursue education for the benefit of themselves and society.
However, politicians and opinion makers have continuously debated whether investing in education pays off. Another much-debated question is whether we are educating too many academics1). Several studies2) have shown that education definitely pays off - not just for the individual, but for society3). Now, a new study from Aarhus BSS shows that education may also benefit companies financially.
“Highly educated employees with different academic backgrounds may contribute to creating high levels of economic growth. Thus, it seems that education may create new jobs,” says Carita Mirjami Eklund, postdoc at the Danish Centre for Studies in Research and Research Policy at the Department of Political Science, Aarhus BSS.
Competences key to economic growth
Eklund has conducted the study “Why do some SME's become high-growth firms? The role of employee competences”, which has been published in the Journal of Intellectual Capital and explores whether employee competences may explain the high levels of economic growth in fast-growing SMEs.
In order to answer the question, Eklund explored the companies’ so-called intangible capital and specialised knowledge to assess whether these knowledge-competences make a company more likely to become a high-growth company, defined as the five to 10 per cent fastest growing companies.
The intangible capital involving the company’s own employees consists of three types of capital:
- Research and development (R & D)
- Marketing & management (organisational capital)
- Information and communications technology (ICT)
The specialised knowledge relates to the proportion of highly educated employees, i.e. employees with either a Master’s or PhD degree - as well as to their educational background.
“The hypotheses are that highly educated employees have an effect on the economic growth potential of a company, that the intangible capital makes a high level of economic growth more likely, and that different educational backgrounds support high economic growth. The study confirms all of these hypotheses,” says Eklund.
“Some researchers argue that these high growth companies are ‘one hit wonders’ and are thus not interesting for investors. However, this study finds that previous high economic growth is positively linked to new high growth. This means that the fastest growing companies may repeat the extraordinary growth and create even more jobs and value for investors.”
Carita Mirjami Eklund, postdoc, The Danish Center for Studies in Research and Research Policy, Department of Political Science, Aarhus BSS
Education and financial crises
In other words, highly educated employees with different academic backgrounds may help generate high levels of economic growth. For that reason, owner managers should have the courage to hire people who are more skilled in key areas than they are themselves. Not just when it comes to the daily running of the company, but also during and after financial crises. Here the study shows that the proportion of highly educated employees are one of predictors of high levels of economic growth. However, this does not mean that you should fire everyone in your company who does not hold a Master's degree.
“A high educational level is just one predictor of high growth. The size of the company, the loyalty of its employees and the work environment are also important factors when it comes to the company’s survival. However, these factors cannot be measured with the data available,” Eklund explains.
The study also shows that educational diversity - i.e. different academic backgrounds - predicts firms’ high economic growth during and after a financial crisis. Thus, this diversity is an important parameter in terms of identifying new potential growth paths to the firm.
“If, for example, you own an engineering company, you should also employ people with a humanistic background or a business degree in order to make your product more attractive to the markets. This is what Apple did so well. This is particularly important if you want to turn your product into a service,” says Eklund and uses her own optician as an example:
Initially, she was looking to buy just a single pair of glasses. However, with a subscription for glasses, she now gets three pairs of glasses or sunglasses for a fixed monthly cost. The subscription includes a number of benefits that would not have applied if she had simply bought one pair of glasses. With the subscription, she gets free replacement of lenses whenever she needs a different strength. And the opportunity to choose three different pairs of glasses suitable for different occasions.
“It is kind of an all-inclusive, where the fixed monthly payment allows the shop also to make money from me during the coronavirus crisis. And I’m actually quite sure that the optician didn’t come up with this idea herself,” she says.
Organisational capital is most important
If company owners were to prioritise the types of capital, the study shows that marketing & management, i.e. the organisational capital, is particularly important when it comes to creating economic growth.
“Marketing makes customers buy the company’s products rather than the competitors’, and management is the glue that holds the company together. One aspect is to make sure that people do what they do best and thus make the most of their competences,” Eklund says.
Research and development (R&D) is not relevant during financial crises, but is, however, highly relevant before and after, while information and communications technology (ICT) always has a positive and significant influence on growth. However, not many companies possess this knowledge capital, which they often get from external providers. That is another reason why the organisational capital is the most important one.
Growth companies create jobs
According to Eklund, this knowledge is important for companies, but also for society because high-growth companies strengthen business and industry as a whole creating most actual new jobs - i.e. new employment and not just jobs in which one employee is replaced by another.
“High employment levels are an important parameter for recovering taxes to finance the highly expensive welfare state. High economic growth is an important signal for possible investors, who are of course more interested in investing in a growth company than in a company that is not growing,” says Eklund and adds:
“Some researchers argue that these high growth companies are ‘one hit wonders’ and are thus not interesting for investors. However, this study finds that previous high economic growth is positively linked to new high growth. This means that the fastest growing companies may repeat the extraordinary growth and create even more jobs and value for investors.”
Source and notes:Eklund, C.M.(2020), "Why do some SME's become high-growth firms? The role of employee competences", Journal of Intellectual Capital, Vol. 21 No. 5. The research project has been funded by the Niilo Helander Foundation, the OP Research Foundation and the EU-funded Globalinto project.
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