Small and medium-sized enterprises (SMEs) generate, on average, only around half the productivity of large firms. This is a gap equivalent to as much as 5% of GDP in advanced economies and up to 10% in emerging markets, according to OECD and McKinsey research.
Despite increasing investment in software, ranging from CRM and ERP systems to accounting and HR platforms, this gap has not closed. In many cases, it is widening.
According to analysis from The Productivity Institute, the issue is not a lack of tools, but a structural failure in how businesses are run.
“SMEs don’t lack software, they lack a formal system to run their business,” said Andrew Bizzell, Director of The Productivity Institute. “SME’s have invested in tools that record transactions, but not in systems that define how work actually gets done.”
When People Become the Operating System
“In early-stage companies, founders act as the operating system, holding processes, decisions and standards together. As businesses grow, this model breaks down across a number of managers. Without a structured operating framework, SMEs remain dependent on individuals rather than a system.
“Knowledge sits in people’s heads, processes remain inconsistent, and performance becomes difficult to measure or manage. As SMEs scale, more people hold pieces of the operating system,” Bizzell added.
“That creates inconsistency, limits visibility and makes productivity increasingly difficult to control which leads to what the Institute describes as a ‘productivity paradox’: managers spend so much time firefighting issues that they are unable to fix the underlying system causing them.”
The Limits of Today’s Software Stack
Bizzell noted that over the past decade, SMEs have adopted specialised tools across every department, from sales and operations to finance and HR. But these systems operate in isolation and focus on transactions rather than operational design.
The result is what the report calls ‘data theatre’, dashboards that appear to provide insight but are disconnected from how work is actually performed.
“Most businesses think they’re data-driven,” Bizzell said. “But if your data isn’t connected to how work happens, it doesn’t help you improve it.”
A Missing Layer in Business Software
Stratosfia, launched by The Productivity Institute, is designed to address this gap by introducing what it describes as a Business Operating System (BOS), a layer that structures how work is done across the business.
Rather than replacing existing tools, the platform sits above them, connecting how departments operate and making performance visible at a process level. The aim is to move businesses from fragmented, people-dependent operations to structured, system-driven execution, Bizzell explained.
Why This Matters Now
The shift comes as SMEs increasingly look to artificial intelligence to improve decision-making and productivity. However, AI systems currently rely on fragmented transactional data without the operational context, limiting their effectiveness.
“AI cannot optimise what it cannot see,” Bizzell said. “If your data only reflects transactions, you’re only seeing a small part of the picture. By capturing how work actually happens, Stratosfia is designed to create the missing operational dataset required for more effective AI-driven insights.”
A Structural Shift in How SMEs Are Managed
The platform is aimed at SMEs with 10 to 2,000 employees, particularly those transitioning from founder-led environments to more structured organisations.
“Most SMEs don’t fail, they grow with hidden inefficiencies,” Bizzell said. “The businesses that win over the next decade will be the ones that move from relying on people to running on systems.
“Looking forward, AI Agents will become a significant element of the workforce and business that run on systems will be the only businesses that will integrate AI Agents effectively.
“Stratosfia is delivered through a membership model combining software, onboarding and management training, with early customers currently being onboarded.”