How can defence programmes unlock more value from SMEs?
Part 1 of 3: Unlocking social value and defence capability through the SME community
Why it matters
- Specialist suppliers bring innovation and niche expertise
- Greater certainty helps smaller businesses invest and grow
- Stronger regional supply chains create economic and social value
Part 1 of the Structured collaboration series, exploring how organisations can unlock the expertise, agility and local impact of SMEs to deliver stronger defence outcomes, greater social value and more resilient supply chains.
The Government's commitment to increase defence spending presents a significant opportunity for the UK's defence sector.
But making that investment count will require more than increased funding alone.
It will require defence programmes to make better use of the expertise, innovation and capability that already exists across the UK's industrial base.
Why are SMEs important to UK defence programmes?
Small and medium-sized enterprises (SMEs) are an important part of that ecosystem.
Across the UK, they develop specialist technologies, provide niche capabilities and create highly skilled jobs in communities that have long supported the defence sector. Government policy increasingly recognises this. The Defence Industrial Strategy, Procurement Act 2023 and wider Social Value Model all reflect the Government’s recognition of the important contribution SMEs can make to delivering defence capability while supporting growth and creating wider social value.
Yet recognising the importance of SMEs is not the same as enabling them to contribute fully.
What prevents SMEs from contributing to defence programmes?
Too often, smaller businesses face barriers that have little to do with capability.
Complex procurement processes, lengthy contracting cycles and limited visibility of future opportunities can make it difficult to invest with confidence.
While many SMEs possess the expertise defence programmes need, accessing and scaling within major supply chains remains a significant challenge. As recent research by Leidos and the Institute for Collaborative Working highlights, unlocking the greater potential of SMEs requires more than policy intent or contractual mechanisms alone. It requires organisations to create the conditions in which smaller businesses can contribute effectively, invest with confidence and grow over the long term.
Success should not be measured simply by the number of SMEs involved in a programme, but by the contribution they are able to make once they are there. Bringing smaller businesses into the supply chain is only the starting point. The greater opportunity lies in ensuring they have the confidence and certainty to invest alongside the programmes they help deliver.
How can prime contractors help SMEs invest and grow?
Prime contractors have an important role to play in creating those conditions. When prime contractors are able to offer fair commercial terms and greater certainty over future demand, SMEs are better able to invest in people, technology and capability. In return, defence programmes can benefit from access to specialist expertise and a more diverse and resilient supplier base.
There are wider benefits too. SMEs are deeply rooted in local economies, employing local people, developing skills and strengthening regional supply chains. Their close links to local communities also mean they are well placed to deliver lasting economic and social value alongside technical capability. As the Defence Industrial Strategy recognises, defence outcomes, economic growth and social value are closely connected. Enabling SMEs to thrive helps deliver all three.
What does the Procurement Act 2023 mean for defence SMEs?
The Procurement Act 2023 has created greater opportunities to improve SME participation by encouraging earlier engagement, increasing transparency and reducing barriers to entry.
But legislation alone may not be sufficient to unlock the full potential of the UK's SME community. Ultimately, success will depend on how defence programmes are designed and how organisations choose to work with suppliers in practice.
How can defence programmes unlock greater SME capability?
The UK has no shortage of innovative SMEs. The challenge is ensuring they can contribute to their full potential. Programmes that remove unnecessary barriers, engage suppliers early and build long-term relationships should be better placed to harness innovation and deliver the capability the UK's armed forces require.
The next question is how. As defence programmes become increasingly complex, organisations will need to move beyond transactional supplier relationships towards more structured, collaborative ways of working. That is where the greatest opportunity lies - and the focus of the next stage in strengthening UK defence capability.
Continue reading the Structured collaboration: unlocking social value and defence capability through the SME community series:
Part 1 | How can defence programmes unlock more value from SMEs?
Part 2 | Why structured collaboration is becoming a defence necessity
Part 3 | What does a resilient defence supply chain look like?
Key takeaways
- SME participation should be measured by contribution and growth, not supplier numbers alone
- Fair terms, early engagement and demand visibility give smaller businesses confidence to invest
- Collaborative supplier relationships can strengthen defence capability, industrial resilience and regional growth
