Episode 6 - In conversation with The Manufacturer
| by Emma Pownall
In this show, I’m delighted to be speaking with Nick Peters and Henry Anson from The Manufacturer, who have just released the 2020 results of their annual survey - the benchmark in taking the temperature of UK manufacturing. With the sector dealing with skills challenges, technological disruption and more, we’ll get to see what Britain really thinks.
With it being the biggest story of the year, I wanted to start by asking Henry how the manufacturing sector was taking the news that Brexit is finally happening.
Henry: The thing that paralyzed UK manufacturing last year was the uncertainty, which led to stockpiling at various points during the year. And certainly, Nick and I noticed in June/July time almost all investment decisions, whether it's software, hardware or anything else, were put on hold. So what we're seeing now with the certainty whether you agree with it politically or not, but we are actually leaving Europe and we will be out by this time next year, we will begin to see that sort of tidal wave hopefully, of investment coming through.
Nick: Henry, I want to pick up on that if I may. I'm not 100% certain that manufacturers are now entering a period of certainty. We're told that we're going to have a new free trade agreement with the European Union magically, in the next 11 months. I really don't know how that's going to happen. They're talking about splitting goods off and services and having different agreements on that, we’re talking about the American deal, we don't know whether we were going to have frictionless trade in December of this year, and if we don't, and there's a risk of hard Brexit, cliff edge Brexit, total Brexit if you like, I think manufacturers are feeling as uncertain and as nervous now, as they were last year.
Henry: Okay, two points to that Nick, and you're absolutely right of course. The wonderful thing about the manufacturing sector is the pragmatism and resilience that it shows. And these guys have a habit of getting on with it. So they've been ignored by government for many years, and the press thinks it's almost disappeared from this country. And these guys as I said are very good at just getting on with stuff. My other point is that I agree with you totally that there's still a lot of uncertainty, but UK manufacturing is in a state now where it simply has to invest in this whole area of digitalization and we potentially are falling further and further behind our European competitors, mostly people like France and Italy who have a very similar sized manufacturing sector to us. So I think there's an imperative. Now, I agree that there's still uncertainty, but at least we now know the direction of travel, we will be leaving Europe.
As they have recently conducted their landmark annual survey, I wanted to know what the data shown to be the views of manufacturers.
Nick: Well, actually it reinforces what Henry just said, largely. In the areas where manufacturers are in control of their own destinies, so to speak, and they're not having to look at what the politicians are doing and so on, they're feeling very, very confident and upbeat. But they feel very, very nervous about government. They believe that for all the talk of these brand-new trade deals and government support for trade with new partners, they don't believe that the government's capacity to support manufacturers and their exports is anything like adequate enough. Nor is government support for industry adequate as well. Now, I would argue with that because I think actually the government's doing some pretty good things or has been - this is mainly under Mrs May’s government - with the industrial strategy and the Made Smarter review and all that flows from that. But generally speaking, as Henry says, manufacturers are very resilient. And what the annual manufacturing report, to give it its full title, what the survey demonstrates is that the sector is confident about its own abilities, but when things move outside their sphere of control, they become very nervous.
Moving on to looking at some of the big manufacturing trends, large manufacturers have been looking at servitization for quite some time. But I wondered whether this was a buzzword, or whether the survey highlighted that businesses are actually looking at this.
Nick: I think that manufacturers by a very large majority actually, 78% of them said that they were looking to adapt their business models to add services to their manufactured products. It is a fascinating example of the way that manufacturing has undergone incredible change, a very high rate of change as well, over the last decade. The thought that now that instead of making a product and then selling it to a customer, and then maybe coming back and selling them another one in five years’ time, the fact that you can now bundle up so many services – of course, the concepts not new, I mean, Mr. Gillette was doing this with the birth of the razor blade, so let's not kid ourselves. This is not new.
But the fact that manufacturers right across the spectrum are adding services in order to aid customer retention by providing customer value, and that's really what it's all about. They see that's the only way to compete on a global stage where a lot of people have got very much greater advantages on them in terms of labour costs, and so on. We're talking obviously, China and India in particular, the only way that they can actually compete with them, they can't compete necessarily on price but they can compete on value and service. And by doing that, this is how manufacturers of the future will be in a much stronger position perhaps than they have been in the past.
Henry: So just to pick up on something you said, Emma, you mentioned large manufacturers and I disagree with that statement, because we're seeing it across the spectrum of UK manufacturing. The most advanced servitised manufacturer I've been to and we visit hundreds each year is a very small industrial sewage pump manufacturer in Norwich, not particularly exciting or apparently. But they actually make more money now selling the data that's coming through those sewage pumps, and they actually do the sewage pumps themselves. So it's not just a remit for the big boys, although clearly Rolls Royce power by the hour were the founders of that. Servitisation, as Nick mentioned, has been around for really quite a long time now, that's from an academic perspective, but what's happened is technology has enabled it very dramatically in the last sort of three or four years. That's what's taken it from a slightly academic conversation, which only the really big boys like Rolls Royce could adopt into a very widespread and sort of widely understood concept.
I wondered what the challenges are for manufacturers who embrace technologies such 5G and IoT.
Nick: It is obvious that the visibility that data gives you from your machine, right down to your customer, you have a seamless visibility transparency across not only your own value chain, but across the entire supply chain as well. And it's the technology that makes all of this possible. Of course, data is useless if it just pours out and sits in a bucket in the corner of the office, you've got to do something with it. Which is why obviously companies who can offer the analysis and the real time information that not only allows the manufacturer to see what's happening from the machine to the customer, but also allows the customer to see what's going on and create a much closer relationship with the product they're buying and experiencing. That is the way that technology makes all of this possible.
Henry: I do think that advisors, people like ourselves, software companies need to be very careful about the language they’re using with manufacturers at the moment. There's a certain concern we're seeing at the moment that manufacturers feel they’re being oversold to at the moment, people are offering to boil the ocean. And that, in fact, what they want, as Nick said, is to get that machine talking to that piece of software talking to that bit of software. So very few companies are gonna rip out their existing hardware and software and put a completely new system in, it's making the existing kit talk to each other.
Nick: Yeah, that's a very fair point. I was implying that this was a magic bullet and it's not it's, it is magic in its own way. But incremental change is the way that manufacturers who are quite cautious about these things as you say, they don't want to rip the entire thing out then come in on Monday and have a new entire modus operandi, they bit by bit gaining confidence, changing the culture of their staff to understand and accept this new way of working, that takes time and patience. But we all know it works, it's just a question of making sure that manufacturers understand that Nirvana is reachable, even if it might take them a little while.
With anything like this, it’s not just the technology that needs to change. I asked Nick what implications there are with the people side of a business.
Nick: They are massive. I mean, we're talking transformation here and it's no accident that we have a chapter in the annual manufacturing report 2020 entitled ‘Business Transformation’. This is something that the people supporting it with us, PwC, are very keen on because they know that businesses that don't approach transformation with a very clear understanding of what is required of the people, of their technologies, of their internal structures, everything has to change and it can be painful and in some cases fatal. So this is not something that can be approached lightly.
But the good news on the people front is that investment in technology - by and large, is regarded by manufacturers as an opportunity to hang on to the people you've got, and upskill them, retrain them, and give them higher value jobs. And that is what this technology does. All this nonsense in the papers about robots are going to take all our jobs is exactly that, nonsense. It is an opportunity for businesses to do more with the people they have and to persuade the people, get their consent obviously, because consent is vital in any changing company. And I would imagine if you said to somebody, you know what, if you go along with this, you're going to end up better paid, better career prospects, and everything - people are going to go with it.
Henry: Brexit will come, Brexit will go. Governments will show varying degrees of indifference but the biggest long-term threat to UK manufacturing is a skill shortage and it has been since probably World War Two and even possibly before that. The Made Smarter report, which came out about two years ago now estimated that we were a million people short in the manufacturing sector. And of course, what's changed is we need a different type person than what we had in the past. So there's this massive skill shortage, it's still viewed as a very boring low paid sector. In actual fact, nothing could be further from the truth. But as I said, we need more people and we need people with different skill sets. So this whole digitalization is really bringing that to the fore.
Nick: There is a crucial point in what Henry has just said, which is we need people with different skill sets. The fact is that the educational system in this country is lagging behind the pace of technology at the moment. That is one crucial point. Universities generally, I think, pretty plugged into the way that modern manufacturing goes, but the further education college system has been just run down over the years. And a little anecdote if I may: FE colleges are vital to the whole apprenticeship process. And we had one of our very close companies, they're good friends of ours, and they said, you know, ‘It's absolutely amazing. We put some apprentices into the FE college to do their classroom training. And at the end of the course, the college was trying to recruit them to come and teach the next course.’ And she said, ‘is it so bad that colleges are trying to recruit kids just out of their first round of apprenticeship training?’ So that is absolutely crucial. And we do have a big problem in this country. It's a peculiarly British thing, and I don't know what it is - whether it's because the welfare state and the cradle to grave and all that has somehow got ingrained in our personalities and our understanding in our culture.
But we seem to think that government has to do everything for us and has to provide. And many manufacturers are now saying, ‘We’re fed up with this, we're now going to do our own thing’. And so they're starting their own training centres, not in vast numbers, but it's beginning to happen. And I think manufacturers are going to take responsibility in the future for more and more of their own training needs, because government is not up to the job. That comes through loud and clear in the survey. It does every year to be honest. People just say the education system is failing manufacturing. And it may be that government says well, okay, you just guys get on with it. I mean, that's what happens in Germany. The training system for manufacturers in Germany is created by the manufacturers. Government supports it, but its manufacturers that take the lead. In this country, we let the Department for Education do it. And I don't think they're up to the job.
We have certainly seen examples of that within our manufacturing customers. We work with a business called Banhams, a London based security business, and they have a training centre. They really invest heavily into their apprenticeships so that they have the skills within their workforce, because they're just not finding them from outside of the business.
Henry: It's one of the big frustrations that Nick and I suffer from. We host a lot of these roundtable, private networking dinners for very senior manufacturers. It doesn't matter what the topic of the evening was, we eventually always get around to the skill shortage. And they're all complaining like mad about the lack of skills and the lack of diversity and all sorts of things like that. And then Nick or I ask them to put their hands up, you know, who’s actively engaged with training programs with the local schools, and only about half are. So my point to the UK manufacturing community is that you can't whinge about it unless you try to do something about it.
Nick: Sir David McMurtry is a legend that hardly anybody will have heard about, but he got his knighthood for a very good reason. He was a Rolls Royce engineer working on the Concorde engines, and he developed, in his kitchen, a new device that changed the way engineers measure things. And Renishaw, the company he built in Gloucestershire, is an absolute testament to what you were saying about Banhams.
He says, ‘Apprentices are our lifeblood’. And wouldn't you rather bring a young person into your business, teach them everything you know, make it possible for them to grow within your business, rather than have to go out constantly recruiting people from outside. Some luxury he's got because Renishaw they got such an edge on the market that they became fabulously wealthy very very quickly. And Sir David is now a multi billionaire as a result, but it was down to his own ingenuity and his philosophy. There is a philosophy around manufacturing and you find it when you meet people who just make you stop for a second and think, you are really good at what you do at being a manufacturer, you understand, so much more than just about literally nuts and bolts. Don't you find that Henry? I just think we meet so many inspiring people.
Henry: Yeah, I was at Airbus in Portsmouth last year and I saw the Mars Rover. Looking at something that is going to be on Mars within the three or four year time period is just astronomical and the science, the physics, the manufacturing behind it is just jaw dropping it really is, and it frustrates me so much when people say, you know, I go to dinner parties, people say we don't do manufacturing in this country anymore, and nothing could be further from the truth.
Another big trend within the manufacturing world is sustainability. Consumers are really caring about the environment, it would seem, and I wondered if Henry and Nick were seeing that in the data from their survey.
Nick: Yes, we didn't touch on it much, we didn't drill very deep at all. But a very large proportion, over 75% of manufacturers say that sustainability, the challenges of climate change, the need to address consumer concerns are actually catalysts for changing their business model. And people talk about sustainability, inverted commas, as if oh my god it’s just another buzzword. Sensible manufacturers understand that if you've got a sustainable policy running right the way through everything you do, then you're actually going to be saving money. Sustainability is a fantastic way at improving productivity and your bottom line. So yeah, absolutely manufacturers with half a brain are onto sustainability big time.
Henry: The anecdotal conversations we had last year, you take out the sort of concerns about Brexit and all that sort of stuff. Sustainability was the big thing coming through. And I think the messages got through now that it's not a sort of tree hugging, box ticking, CSR exercise, its actually good common business sense. And I think you can almost sort of switch to stainability for efficiency in terms of terms. And I think manufacturers are beginning to realize, as Nick was saying, it’s just good common sense. And notwithstanding the consumers demands for greater visibility and traceability of the product and everything else.
Nick: I think if I can jump in there, in our latest issue of the magazine, we've started a new section called the insights report, which is doesn't sound very glamorous I know. But the point is that what we do in the magazine, we report on what's going on now. We thought we ought to have a section of the magazine that looks ahead. And the real piece that came out of it for me was about materials of the future. Because of course, plastic I mean, you just think materials, you've got to think plastic, you've got to think waste. You've got to think David Attenborough and Greta Thunberg. I mean, that's basically it, isn't it. But the chap who wrote it from the National Composite Center, which is part of the high value manufacturing catapult, what he was saying was that up to now all the materials that we have used in manufacturing have come about as a result of long term R&D and ROI exercises.
So we will use the materials that we think will do the job best for us to produce a decent product, etc, etc. He was saying in future, the ROI thing is not going to be a luxury that manufacturers are going to have because the consumers, as you said, are going to demand certain characteristics of the materials you use, you won't be in a position to dictate, they will. And he said, what happens if products in the future are going to be built to last 10, 15, 20, 100 years that consumers say I don't want to change my table and chairs every five years, I want to keep them forever. So in other words, we're going to loop back to the way things were done in the old days. Now, what does that do? That's an industrial revolution of its own sitting right there and it may not happen, but I mean, you've got to think of these things. You've got to look over the horizon and wonder just how your processes are going to get to the point where you're going to be able to adapt and stay agile and that's really what it's all about.
Henry: Also, we understand we talk to government a lot, Bays and the manufacturing people within there. We understand and we are yet to see much evidence of it, but any government interaction with manufacturing will be viewed through a sustainable prism. So if manufacturers are going to get get any support or help from government going forward, it will be through a sustainable microscope.
I asked Nick what implications this will have for manufacturers.
Nick: Henry is very good at describing the way that manufacturing operates in this country. We've got very large companies at the top of the iceberg as he describes it, hidden below it are vast numbers of quite small companies. We don't have the luxury of the kind of middle sized companies that they do the Mittelstand in Germany for instance, which means that there isn't very much potential inside those small companies to do their own R&D. R&D tax credits, I must admit are very, very, very popular, but so are any tax credits to be fair, but small companies really enjoy the R&D tax credits, but when it comes to, you know, stuff they don't know. I mean, you can only really, research and develop things that you've got in your own brain. That's why I think we celebrate something that started under Lord Mandelson when he was Labour's business secretary, so were going back a long time.
But the catapult centres and in particular, the high value manufacturing catapult, which is obviously the one we interact with most, and they've got seven or eight, nine, I forget now centres around the country with satellite centres going off them and they are absolutely fantastic resource for any manufacturer who wants to go in there and I think on a match funding basis, they can get access to academic and expert help in R&D. And the catapult system thankfully has been retained because obviously when governments come in they tend to undo all the good that previous governments did in the name of political - I don't know - spite is the one word I could think of, but they could have knocked the catapults on the head, but they didn't and thank goodness because they are actually a shining light. Innovate UK which funds the catapult, a brilliant example actually of a public private partnership and we need more of that not less.
Henry: As you say it's a fantastic example of positive government intervention and has made a real difference to the manufacturing sector in this country.
Nick: If I can point one thing that is both good news and fundamentally bad news about the way we do things in this country. Obviously, the Huawei issue with the government is massive about allowing them into our 5G network. And people say, well, why is this technology always developed overseas? Well, the fact is the core technology of all Huawei products came out of BT labs in Martlesham in the 1980s. It's called compound semiconductors. They are fabulously powerful semiconductors, much more powerful than silicon. Every smartphone, if you pick up your smartphone, and the screen comes on and goes off, whatever, these are sensors built around compound semiconductors, that technology still exists, we are still world leaders. There's a cluster in Newport in Wales, led by a company called IQE which was spun out of BT labs and taken private. And the thing is that even though we're world leaders, the semiconductor itself is only a small part of the end value of any product. So typically British, we create the technology, somebody else develops the value, we've got to develop the value ourselves in this country. So another catapult has emerged. The compound semiconductor applications catapult and their job is to drive R&D and to drive development of value-added products that we create in this country. And these electric vehicles need compound semiconductors for battery efficiency. Autonomous vehicles need compound semiconductors for LIDAR because they are light sensors, as well as physical sensors. There are quite a remarkable product. We have the world lead, and IQE that I mentioned, they have 10 factories around the world. And you can bet your bottom dollar one of them is in China. And they're supplying Huawei with the core ingredient of the technology. That will now come back in to run our 5G systems.
Henry: It's one of the big frustrations here in this country, we are a fantastically innovative and creative nation, but we don't tend to maximize the value of the innovation. The list of products that have been commercialized elsewhere, once they've been developed here is endless.
Nick: If I can just mention Arm which was the company in Cambridge that developed the chips for smartphones that was bought by the Japanese company SoftBank. Well, the technology they founded that chips on was British, that was compound semiconductors. So we had a company developing these things, and it was not regarded as a national asset. It was allowed to be bought. The market may govern many things very well, but sometimes, I think it's important that the government steps in and say you know what, something like this is a national jewel, we should hang on to it.
Henry: To bring this back to your original question around sustainability and this the growing trend that we're seeing. We run an awards program every year called The Manufacturer of the Year Awards in association with Mackie and I was fortunate enough to be a judge of the sustainable category this year and we went to see some absolutely fabulous companies up and down the country including Accolade Wines, BMW Mini, Kingspan, Pladis, and various others. And it's absolutely clear to me that these guys are embracing it and investing in sustainability. Now what that means it means this is the problem with that word. It means so many different things to different people. One of those companies was looking at putting a wind turbine up, another had already got one. Other companies were looking at just making sure the lights are being more efficient. Other companies are looking at their entire business process. So trying to buttonhole what sustainability is, is very difficult, and it's different things to different people. So it's a very, very difficult term to try and encapsulate and express.
Nick: A bad news story about sustainability and manufacturing. I don't know how many of you have got Sonos speakers, I have a couple at home, and I was horrified to learn the other day that they've got a trade-up program, which says that if you agree to let them effectively kill your Sonos speaker with a software fix, they'll give you 30% off a brand new one. Now, if you think about it, these are lumps of metal and plastic that could quite easily be given to grandparents or children or whatever or sold, but no, what they're saying is we're going to kill these products. This is not just planned obsolescence. This is planned death of product. And I'm horrified by that. Sonos if you think about it is a servertised product. You're not getting a loudspeaker, you are getting a streaming system that allows you to access stuff from all over the internet. But what they’re basically saying is that we have control of your loudspeaker. And indeed, just the other day there was more horror from expressed in the press about Sonos, because what they were saying was, we’re going to stop providing upgrades to speakers, which were sold as recently as two years ago. This is where manufacturers have to be really, really careful. There is an ethical element to everything, or there should be, to everything that they do, and consumers will find them out in a heartbeat. I think if we're talking about reputational damage Sonos scores two big ones just there.
Clearly Sonos is getting it wrong, but there's plenty of examples of businesses getting it right. I wondered if there is a growth opportunity in this.
Henry: Yeah, there is a growth opportunity. And in some of the companies I mentioned, they are definitely passing on the cost to the consumer. It very much depends on the product and the demographic of the consumer obviously. Accolade are able to pass on a little bit of the increased cost, because it's a luxury item aimed at the middle classes, you know, Ibstock Bricks who I didn't mention who we also saw, are completely unable to. The key thing to me here though, is whether you can or can't pass on the increased cost of this. It's a necessity because your consumers are demanding it. Government will legislate for it. So, it really isn't a question of a shall I or shan’t I, it's working out the best way in which to do this.
Nick: I think really the savvy manufacturer is going to work out how to use sustainability to lower costs. And clearly energy is a very high element of all costs, particularly if you're using subtractive manufacturing or whatever. There are some great technologies coming down the pipe, though, which are being invented, innovated by British engineers. There's somebody up in Yorkshire who’s developed a new engine that can do two things. It can drive something, or it can be driven. It's quite an amazing piece of kit. And it's so complicated. I regret I can't explain it to you, but it’s called FeTu and it can sit inside the chimney of a factory and the gases coming from the factory chimney will drive this engine and it will create electricity from the factory’s own emissions. Now, when you think about technology being able to start finding new answers to very old and very difficult problems like emissions, then you start to realize that the depth of ingenuity in British manufacturing is almost endless.
So that's why we get very turned on when we hear all these stories, the company that Henry mentioned, in Norfolk that does the pumps that discovered they completely change what they do, because they just have open minds and clever minds as well. There's a lot going on in British manufacturing. And on the sustainability front, I'm pleased to say you got very, very smart people working out new ways, not just of being more sustainable, but of making their manufacturing processes more efficient, less costly, and therefore hopefully, allow them to make more margin and therefore invest more in technology.
After discussing technology, I wanted to know whether manufacturers are embracing smart factories.
Nick: Yeah, totally. The numbers of people saying, you know what, we just got to get on with this, have shot up in the last three years. That's a product of people like ourselves talking about it, people like the Made Smarter Commission, the government itself. Everybody has been talking about the need to get on with digital technologies. Let's just be clear, smart factories are basically factories that are run using digital technologies that produce data that can be analyzed and help you with the decision making, and relate better to your customers and so on, providing you with transparency, provided the data is analyzed and presented in a meaningful and useful way. In this annual manufacturing report survey, we discovered that 90% of the people we canvassed said, we've got to get on with adopting digital manufacturing technologies.
Three years ago, people were moaning, they’re kvetching, they were saying, stop it with all this you keep telling us about all this. I don't know what digital is, and it has really, really changed. The big difficulty now is persuading people to begin, in one part of their factory and maybe expand and where to find the money. The banks really don't understand much about this, the survey demonstrates that the big banks certainly are just not switched on to what manufacturing is doing. We know that some elements of them are and we have some very good friends among the banks, but a small manufacturer trying to get their local branch of the bank if there is such a thing these days to understand what it is they want to do with a digital manufacturing technology. The banks generally don't get it. So that aside, people really do understand the need to get on with this, and fingers crossed, we're going to see what was a quite a slow start, I think there's going to come a point at which it's just going to take off because if you don't adopt these technologies, other people around you will and sooner or later you'll be left in the dust.
Henry: Which if you don't mind me saying takes us back to my very first point that despite the continued uncertainty over Brexit, there's an understanding 90% of people who responded to the survey say they simply have to get involved with this, they simply had to adopt digitalization. So, despite the uncertainty, I think this is going to be the year when we see a really big investment and adoption. And going back to something else Nick said, so we monitor very closely on the manufacturer.com, which is our website, the kind of material that our audience are consuming, and until about two years ago, the information people were consuming about smart factories industry 4.0 is very much around the ‘what is’. In the last two years it’s very much gone to ‘how do I’ ‘how’, so that's the questions they're asking. We see a lot of pilot projects and I think the issue that people are struggling with mostly at the moment how you take it away from the little pilot in the silo and take it into the whole organization. So it's that expansion out.
Nick: I want to pick up on the word pilot there as well. The made smarter pilot is going on in the Northwest of England, which is actually the most intensive, most productive manufacturing region in the UK. I was mentioning earlier that we in Britain seem to have this thing that well the government should do things for us. There’s, I think, a huge danger with this Northwest pilot, which is that because government is funding some of that, people are saying, well, I'll wait and see what happens. And because the pilot is necessarily quite slow, they've been going one year now, they've done 62 projects, they've got 300 more in the pipeline. But that's a tiny, tiny pinprick. And I think that it's a grave danger that people say, well, let's just wait and see what happens. Manufacturers need to say, to heck with this. There's a lot of expertise around there. It may not be that I can get government funding to help me with this. But if I wait, I may be in danger of being overtaken. If I get ahead of the game now, I can outstrip my competition. So smart manufacturers will build smart factories very much more quickly, than the system, if you're going to use the system, than the system would allow.
I asked Nick what his advice would be to business leaders looking to make the first steps towards a smart factory.
Nick: Well, there's tons of advice out there. We work very closely with a gentleman who used to run the manufacturing advisory service, which was a fantastic organization that was killed by the Cameron government. And he now works alongside us, his name is Steven Bar. He runs a company called Edge Digital. And he works closely with the high value manufacturing catapult and with the made smarter review, to help manufacturers get to stage one to build a digital roadmap. And it's all important to have somebody who knows what this is all about, to say this is what a beginning looks like, this is where you are, and this is what the ending or the continuing process looks like. Go and find some information. Stephen Bar is a great place to start but there are other people out there, go and talk to your local catapult. The catapult will probably send you to somebody like Stephen. But just enquire. We have fantastic events that we stage at The Manufacturer. Talking about industrial data, talking about innovation, talking about all these technologies. And we have a load of content on our website. So, if you're curious, there's no shortage of information out there. But don't be bamboozled. The trouble is that we – and I plead guilty to this - we have used so many buzzwords over the years. And a lot of the time people are saying I just don't bloody understand it because I don't understand these buzzwords. Don’t sit there moping about that. Get out there and find out what it's all about.
Henry: Emma, the problem with that question is it's an impossible question to answer because everyone is starting from a different place. Now, I've been asked that question, probably 1000 times in the last two or three years. And it just depends on where you are and where you're trying to go to. But you know, some manufacturers are already very automated, very digitalized, whatever and they’re just trying to get from next step. I talked to a very significant manufacturer, 100 million pound turnover manufacturer, about 18 months ago who said we'd started our journey, we just bought an ERP system. So they've been operating off spreadsheets. And that as far as he was concerned, he would start his digitalization journey. For most people out there, that was something that’s 10 or 15 years old. So it's an impossible question to answer, because every single one's different.
Nick: I would say there's a litmus test in what Henry's just said. If you're using spreadsheets, you know, you need to get with the program - now.
Check it out.
There's definitely some digital transformation needed along the way. I think that's probably part of the answer because these manufacturers will be working with suppliers that potentially, if it's not something they can help them with in the technology space, it's something that they can pass on and put them in touch with the right sort of technology partners to help them.
Nick: Yeah, I think that that's a very good point, Emma, because what we're seeing more and more, is that the key players in any supply chain are now beginning to say, if you're not going digital, we're going to work with people who are. I sat down with Warren East, who used to actually be CEO of Arm, now Rolls Royce PLC, and he said, we look across the landscape and we work with several dozen electronics companies, we're going to whittle that down to four or five, and they have got to be part of our transparent, totally 100% visible supply chain.
And so it may not even be down to your own choice as to whether you do this. It may be that customers slightly further up the chain, are just going to tell you to do this. And that goes for things like cyber security as well. They're going to dictate that you have firm cyber security policies in place. Just on that subject, by the way, it was fascinating to see that very large numbers of companies say that cyber security - they’re on it. Well, actually, when we talked to people outside of the survey, a lot of them aren't on it. And I just wondered whether people are saying that just to say, yeah we're on it. Cyber security is going to be as important a part of business continuity planning, as fire, flood, acts of God, and if people aren't on it, and I must say that, obviously, the insurance game has to catch up, I don't think they have yet, but if people aren't on this, then again, supply chain partners may turn around and say, I'm sorry, you need to be more secure than you are and you need to get with that program. So you may not be a master of your own destiny if you're a small manufacturer, you may just have to get with the program, and quickly.
Henry: Manufacturing is the second most targeted sector after healthcare, globally. And we're seeing increasing numbers of ransomware cases and things like that. So I think a lot of manufacturers have got some basic provision, but they're certainly nowhere equipped to deal with sophisticated attacks and hacks.
I think again, this is where tech partners can really help because they're working with multiple businesses and looking at these topics on a day to day basis, whereas it might not be the core of the manufacturing businesses’ knowledge. It's about working with the right people.
Nick: Oh, totally. I mean, it's all too easy to sit there and say, well, I know my business. I know how it works. I know how to make money. Actually, unless you're out there talking to the real experts in the business, and of course, this also brings in culture and people which we touched on earlier. Cyber Security, in fact IT Security generally used to be in the hands of whoever it was sitting in the corner with the putty-coloured box and the big screen and that was it. But now IT has moved over to OT, the convergence of IT and OT is in many places almost complete. If that migration, that convergence hasn't started in your business, then you do need to start questioning what you're doing. Because the cyber threat to manufacturers, it normally comes in somewhere if you’ve got a sensor somewhere an Internet of Things sensor, particularly with 5G, that's how they're going to get in and it's going to hit OT possibly before it hits IT. So these guys need to get together.
Finally, I wanted to know if there was anything from the survey results that surprised Nick.
Nick: Nothing that particularly surprised me. But something really reinforced something that Henry and I have been banging on about for a very long time. And that is the need for so many of the small companies. I think I mentioned earlier that we got a few very large companies, not very many middle-sized companies, and a whole host of small companies, you call it the hourglass, and the pinch point in the hourglass is what the profile looks like. We don't have many of those companies. Why? Well, there are several reasons. One is that we just don't believe in manufacturing anymore. So, manufacturing has just not received the attention of government. Nobody's really thought about why it's important to have medium-sized companies. But it really is absolutely vital. If you're going to have a strong manufacturing sector, you have to have large numbers of middle-sized companies. It is why Germany are so successful at manufacturing. We have all the right ingredients; we just don't have the right way of doing things. I think part of it is culture. I think that we have a kind of trader’s mentality in this country, rather than a business growth mentality. The trader’s mentality is, I'll build this company up, and I'll flog it off, and I don't care who to, and I’ll move on to the next one. So that's the entrepreneurial bit. But entrepreneurs need to grow businesses, not just build them. And without that growth, particularly post Brexit, we are going to be vulnerable. I get very cross with politicians who say, this will make us very attractive to foreign direct investment. Well yes, of course, you do need foreign direct investment. But that company will always be owned by somebody outside of the UK. Profits will go overseas, and our destiny will be in other people's hands. If we don't grow these companies ourselves, we won't be able to make the decisions we need to make, nor will we be able to have the prosperity that this country will need long term.
A lot of what we have discussed has implications around investment challenges or business transformation - but what's the immediate roadmap for business leaders for the rest of the year?
Nick: The fact is that most manufacturers devote 99.9% of their time to getting from one day to the next. So daily challenges will always consume them. But sensible manufacturers obviously have to take a step back and think long and hard about their place in the sector and where they want to go. So, I think in terms of that, my advice to them would be to take a step back and look at what's happening. The ones, we talk to a lot so often at our events, they are very, very, very engaged. They understand the process, but there are thousands of manufacturers out there, who we don't meet. And we don't know how they're going to react to all these challenges. There is a lot of uncertainty. But I know for an absolute fact that the manufacturers who succeed are the ones who say, well, every challenge is an opportunity. It's an opportunity for somebody and might as well be me. And that's when you go out and find a technology partner who's going to help you upgrade your systems, increase your efficiency, and enable you to perhaps get a head start on the competition. Other than that, if you stay stuck in the headlights of uncertainty, and say, well, I can't move because I don't know what's going to happen with the trade agreements and all that so I’ll just carry on. One respondent in the survey said, you know what, since Brexit came along, we decided to just go and do our own thing. We've upped our exports 80%, we’re much more efficient, we're making much more money. They basically said, you know what, that challenge that everybody else is hunkering down to hide from. They went over the top, and they won big time.
My guests were Henry Anson and Nick Peters from The Manufacturer, covering the challenges and opportunities for UK manufacturing in 2020.
If you'd like to read The Manufacturer's Annual Survey Report 2020 it's available to download here.
Our next episode is a must-listen for finance leaders. As technological disruption changes the work of finance teams and CFOs seek to become more proactive business partners, we ask – what is the future of finance? And how can both boards and CFOs prepare for and profit from an empowered finance function?
See you next time on Business Futures.
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Nick Peters, Editorial Director at The Manufacturer
Lifelong journalist, broadcaster, and writer on subjects including enterprise, leadership, and the future of work, Nick is now the Editorial Director at The Manufacturer Magazine. From the extraordinary work being done in factories and workshops right through to the efforts made in design studios and tech labs to make thing better, more profitable, and more sustainable, Nick works alongside his team to publish success stories within UK manufacturing.
Henry Anson, Managing Director at Hennik Research
Henry is passionate about British manufacturing and the role it plays in the future of the UK. Determined to eradicate the negativity and misconceptions surrounding the sector, Henry is the Managing Director at Hennik Research, publisher of The Manufacturer Magazine. Henry is responsible for all commercial activities at Hennik Research, linking board level manufacturers with suppliers to this sector in a timely and appropriate manner.
Business Futures host:
Emma Pownall, Marketing Director at Datel
My team and I provide our customers with a range of events, guides and tools that bridge the gap between business leaders and technology. From large conferences connecting customers with each other and the software world, to sharing customer stories that explain what is possible with the right business solutions, I'm focused on sharing how people and technology can support business success.
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