This article is part of our collection on Manufacturing and Automotive
Research highlights business and operational challenges facing Scottish manufacturers.
Last updated: 12 Jul 2019 6 min read
Focused on MEs (medium-sized enterprises) – with turnover from £5m to £50m – the research concludes that the next five years will bring disruptive, transformational change to the ME manufacturing sector. In Scotland, as with many parts of the UK, there is a split between the business leaders who are cautious about the future and those who embrace the new technological developments that will come with it.
Based on nearly 300 interviews with ME manufacturers and extensive quantitative analysis, the report finds that the manufacturing sector is built on solid foundations of high-quality processes, cross-disciplinary collaboration and long-term instincts.
But a careful analysis of the trends and opinions from within the industry reveals a sector whose success will be threatened by a disconnect between the future demands of global manufacturing, and manufacturers’ strategic plans to meet and prepare for these shifts.
This was captured by one ME leader as ‘the problem of grip and vision’ – keeping a grip on the often overwhelming day-to-day running of a business, while simultaneously developing a bold plan and a practical vision for the future.
Among the companies surveyed in this report, 91% agree that it will be crucial to accelerate their capabilities over the next five to 10 years to stay competitive. But 14% of these vital businesses have no plan in place to help them achieve these goals.
The report also found that there are significant differences in future-proofing planning and strategies between small, medium, and large MEs.
Small MEs (of revenue £5m to £10m) were found to be the most nimble of the sector, less stifled by process, and open to new possibilities. For this group, the disconnect between grip and vision is down to finding the resources to pursue ambitious future plans.
Medium MEs (of revenue £10.1m to £35m) are known as the ‘squeezed middle’. These are dealing with internal challenges as they turn from owner-management structures to corporate professionalisation. For this group, the disconnect is the struggle between balancing creative energies and developing a profitable vision for the future.
Large MEs (of £35.1m to £50m) are well-established, commercial, highly professionalised, and willing and eager to adopt new technologies. While they have a firm grip of the opportunities and challenges, they need support and advice to ensure future competitiveness.
The report found that across the sector, companies are uncertain about Scotland’s global standing as a manufacturing country. While businesses recognise the country’s future manufacturing status will be decided by how well it performs against overseas competition, there’s a mix of confidence levels across MEs. Of the MEs surveyed, 41% believe the sector is outperforming global competitors, 26% think it's doing worse; and 30% think it equals peers.
The desire to remain entrenched in domestic markets is rooted in whether Scotland is equipped to compete against foreign competitors. Worryingly, found the report, this reflects how inwardly focused MEs are, with only 50% expecting to find new customers overseas in the next five years, while 38% expect to see business confined to Scotland.
Moreover, the report found that MEs need to embrace new technological thinking. While more than than two thirds of the MEs surveyed believe that technologists will be the most in-demand skill set by 2050, there was little energy for exploring how to meet these needs.
This may be because manufacturers experience blind spots about the usefulness of some emerging technologies that industry experts identify as key. For example, 31% see access to nanotechnology and new materials – cited as major areas of global opportunity for MEs by industry experts – as a means of future-proofing their businesses.
The report also found that support networks within the industry are powerful tools for giving MEs the connections to become global exporters. But many MEs appear to operate in an insular culture.
Successful high-growth businesses tend to coalesce in ecosystems of mutually reinforcing activities and skills. But data in the report found that many MEs operate in fragmented supply chains, leaving businesses isolated and vulnerable to economic shocks and unforeseen technological changes. The serious impact of this lack of connectedness is plain to see, with 40% of those surveyed feeling that poor visibility of customers' plans is a major internal challenge.
The report argues that the future of manufacturing is to blend divergent disciplines and capitalise on growth opportunities, but finds that greater and more coherent efforts are needed to build an improved and more innovative version of the German-style Mittelstand system in Scotland.
The report found that ME manufacturers recognise that their customer needs are changing and the era of pure-play manufacturing is fading. In response, the report argues that manufacturers will have to consider the impact of transforming their business from pure manufacturing to providing a wider service model. MEs have to invest in innovation and skills simultaneously, and much more quickly than in past investment cycles, which will put huge pressure on a company’s internal resources.
The report also highlights that turbulent and changing times call for new business models, which will provide stability and staff engagement that spurs innovation, and suggests employee ownership models that can make a business more resilient.
Across the sector, MEs identified the need to harness intelligence that will let them see the opportunities and threats ahead.
Solutions proposed by MEs include the need for progressive mentorship models, where businesses would receive support such as professional guidance and advice, a technology audit to help them improve and modernise their business, and/or guidance in areas such as financial planning, leadership skills and risk management.
The report also identifies the need for a robust, resilient and joined-up business ecosystem. This will connect MEs with relevant industry stakeholders to collaborate towards new thinking, skills and a global perspective of emerging strategies.
For further insight into the future threats and opportunities facing ME manufacturers, read the full report here:
Manufacturing and Automotive, Leadership and Management