SMEs and Public Service Innovation: Why Smaller Teams Make a Bigger Difference

By their very nature, Small and Medium Enterprises (SMEs) play a vital role in driving continuous improvement through their participation in public sector procurement. It is easy to assume that any large organisational transformation relies solely on sizeable suppliers and complex frameworks, but this is far from the truth. As of early 2024, SMEs accounted for 99% of the UK business population, 60% of employment, and 52% of turnover (GOV.UK). These figures make clear that SMEs are not peripheral - they are central to the UK economy.

This article explores how they are quietly reshaping how government organisations build and deliver services, through agility, collaboration, and deep technical know-how.

Breaking Monopolies and Unlocking Technical Value

In recent years, there has been a clear move towards the inclusion of SMEs in public sector technology. Historically, government technology programmes were dominated by a handful of large suppliers. However, the UK government is actively challenging this model; warning that over-reliance on a few major providers can lead to vendor lock-in, slower innovation, and unnecessary complexity.

This intent to diversify is reflected in policies such as the UK Ministry of Defence’s 2022 SME Action Plan, which emphasises empowering smaller suppliers to inject fresh approaches and promote open, modular, interoperable systems. Similarly, UK Crown Commercial Service’s SME Action Plan details efforts to simplify procurement. It encourages consortium bidding, and reduces barriers, helping government departments to diversify suppliers, spread risk, and foster competitive ecosystems.

SMEs bring necessary competition and diversity, reducing long-term dependencies and encouraging a dynamic market. Their involvement safeguards against monopolistic behaviour, and the nature of competitive bidding fosters continual improvement; ensuring that solutions evolve with emerging public sector needs.

Agility, Delivery & Decision-Making

So, SMEs are important structurally, but can they outperform larger suppliers when it comes to delivering tangible value? The answer is often yes, and then some. One inherent advantage is that smaller companies can respond to change faster. Far from being a limitation, their smaller size enables them to move quickly, work flexibly, and adapt as priorities shift. Forrester found that around one-third (31%) of small business owners believe their ability to quickly change offerings gives them a competitive edge. Academic research supports this. Studies in the Journal of Open Innovation and Small Business Economics highlight how small firms thrive through tight social networks and a culture of experimentation: ingredients that directly support innovation and entrepreneurship.

In practice, this means SMEs can bring bold, creative thinking into government settings, where traditional structures might resist change. Unlike larger suppliers, they aren’t constrained by legacy systems or slow decision-making hierarchies. They can act quickly, adapt early, and pivot when needed. This specialisation matters. According to Forbes, 43% of people prefer SMEs for exactly this reason: they provide more tailored and bespoke services. This flexibility is particularly vital in fast-moving areas like AI, cyber, space, and digital infrastructure.

Additionally, SMEs often have a greater appetite for calculated risk, allowing them to test emerging technologies with speed and precision. A study on SME culture and risk-taking found that this higher appetite for calculated risk helps build adaptive, action-oriented teams: precisely what's needed for high-stakes, high-impact public projects. A striking real-world example can be seen in the Ukraine conflict, where SME-led innovation is driving rapid advances in defence tech, from agile drone deployments to the creative repurposing of commercial tools. Governments seeking commercial suppliers may take note of the success of this SME-led approach. It’s a powerful reminder that when the pace of change matters, SMEs deliver.

Culture & the Human Touch

In government organisations, where every decision has a human impact, trust is critical. And here again, SMEs have a natural advantage. Gallup data supports this: 85% of people view small businesses positively, compared to just 42% for large ones. And 69% of consumers say they feel proud of their local SMEs and would feel a personal loss if they closed. In public sector delivery, this emotional connection translates into genuine co-ownership. SMEs don’t just deliver, they advocate, experiment, and stick around.

This collaborative, human-centred approach helps build real ownership and trust. Research from Forbes shows 37% of people view SMEs as more trustworthy, and 25% say SMEs have “a reputation to protect”. In government procurement, reputation matters. If an SME cuts corners on a public sector project, word spreads. That accountability encourages better quality and deeper care about outcomes. As one study in the Journal of Business Ethics found, most SMEs “are not being driven by financial perspectives alone.” People in SMEs often work harder, not because they have to, but because they care.

Additionally, flatter structures and embedded working practices SMEs to sit shoulder-to-shoulder with public sector teams, ensuring technical solutions are shaped in real time by operational realities. The result is that government organisations can access solutions that are not only innovative but built to fit. This means technical tools and approaches that are secure, scalable, and deeply grounded in practical understanding of their client’s organisation and it’s needs.

Collaboration and Consortia

To tackle the complexity and scale of today’s public sector programmes, many SMEs are teaming up to form consortia that bring together top-tier expertise across a range of disciplines. The International Journal of Public Sector Management notes that SMEs form bidding consortia to gain access to shared resources, compete more effectively, and achieve economies of scale without the diseconomies caused by a large size. This study also mentions additional benefits include learning, innovation, value creation, and resilience.

Today, SME-led groups are combining strengths in areas such as cyber operations, advanced sensing, AI and machine learning, cloud infrastructure, and organisational change. The result is a joined-up, flexible approach that can scale, without the drawbacks of slow, rigid legacy providers. This model gives government departments the best of both worlds: the agility and deep knowledge of smaller suppliers, with the coordination and confidence needed for major projects. And it’s gaining real traction. It is an approach that is increasingly recognised in Defence, Health, and Space procurement frameworks, which now actively support SME involvement not as an optional extra, but as essential to delivering transformative results.

Final Thought

If you want proof that people make the biggest difference, look no further than the SMEs, and SME consortia, transforming government organisations today. They’re fast, human, collaborative, and full of deep expertise. Where public-sector challenges are becoming more complex and fast-moving, the ability to move quickly, care deeply, and solve real problems together is exactly what’s needed.

Central Government Programme activities

The techUK Central Government Programme provides a forum for government to engage with tech suppliers. We advocate for the govtech sector, evangelise tech as a solution to public sector challenges, facilitate market engagement, and help make the public sector an easier market to operate in. Visit the programme page here.