Member Article

A decade on: Are SIC codes still fit for purpose?

Justin Fitzpatrick, co-founder and COO at DueDil

The Standard Industrial Classification (SIC) has been a staple of British business since 1948. Originally established to help government statisticians better understand the fabric of the UK economy, today businesses also use it to discover new customers to trade with and size their own marketplace.

Yet to what extent are these codes fit for purpose? It’s been a decade since the SIC codes were last revised. In that time we have seen new types of companies incorporate in the UK – including sharing economy companies Twitter, Airbnb and Uber, to name a few.

SIC categories range from the very niche, “striking of coins” to the outright generic, “other professional, scientific and technical activities”. New sectors are being created every other week and today it is simply impossible to completely categorise every sector in a four or five-digit code.

Times have changed, along with the way we search for information. Today’s search engines such as Google and voice-controlled operating systems such as Alexa, have culturally trained us to search intuitively in natural language. Instagram and other social networks have introduced hashtags to help us categorise and search for themes. The days of command prompt are long gone, yet searching under SIC codes is akin to using Microsoft DOS commands.

A company seeking to discover new customers or suppliers in the rapidly growing multi-billion-dollar low-powered wide area network internet of things sector, or “LPWAN”, would find it virtually impossible to find a suitable SIC code. Yet imagine if companies were tagged with #LPWAN in a similar way to Instagram – it would make discovery of such companies so much easier. SIC codes once helped statisticians categorise the economy, but we should accept that the very fibre of businesses is changing at a pace faster than the creators of SIC codes ever anticipated.

There are also practical implications to restricting businesses to a four or five-digit code. One would argue that in a business to business context, it’s possible to find new customers or suppliers through the internet, or through expensive marketing lists. Of course, while time and labour intensive, it is possible. Yet it is the next step of taking this shortlist and conducting due diligence which complicates the process.

Typically, when a bank or company conducts its due diligence on a prospective customer or supplier, it would pull information from other sources. This might include information from Companies House, credit rating agencies and more. Therefore, if the query is to find all independent LPWAN device manufacturers with a turnover of between £500K - £1m, with an average or above credit rating, one can quickly see the limits of going from SIC codes to a comprehensive list of companies and their associated information using traditional methods.

The good news is that through technology and more open data sources on businesses, this type of query and robust diligence is now possible. Through due diligence platforms, companies are “tagged” with a more accurate description of business activities. Knowing what is actually going on within the economy and within specific businesses opens up a host of exciting possibilities.

For policy makers, there is the potential to observe and more accurately measure the impact of the policies they make. Banks would be able to identify companies to lend to that previously were under the radar, and insurance companies would finally be in a position to underwrite risk on a company by company basis rather than by crude industry groupings. But the most important benefit is to businesses themselves. By looking beyond the limitation of SIC codes and embracing the power of tags, businesses can more easily discover and build bridges with new trading partners - both in the UK and beyond. For those who continue to seek growth, the time to do this is now.

This was posted in Bdaily's Members' News section by Justin Fitzpatrick .