Manufacturers must innovate to drive growth
John Hammann, Industry Value Engineer for Discrete Industries, SAP UK discusses why innovation is crucial in the continued growth of the UK’s manufacturing industry.
Manufacturing – the current landscape
British industrial output rose in April for a third consecutive month, shown by a survey from EEF, the manufacturers’ organisation, and advisory firm BDO, underlining the slow but steady nature of the country’s recovery so far this year.
Historically, the UK manufacturing industry’s credentials have stacked-up well in terms of its overall value to the country. This sentiment is underlined by the fact manufacturing generates between 11% and 12% of the UK’s overall wealth, 60% of exports and 2.6 million jobs.
These findings correlate with McKinsey’s Global Institute’s report ‘manufacturing the future: The next era of global growth and innovation’. This global research predicts that a bright future lies ahead as a strong pipeline of innovation in materials, IT, production processes and manufacturing processes will give manufacturers the opportunity to design and build new products, reinvent existing ones and bring renewed dynamism to the sector.
On the other hand, global manufacturing must be cautious with its optimism. The closely-watched ISM index of US factories tumbled far below expectations. It is the lowest since the depths of the crisis in mid-2009 and a clear sign that US budget cuts are starting to squeeze the economy. The news came just hours after HSBC said its index for China had also fallen, a major inflexion point for the world’s industrial workshop.
Spotlight on innovation
From conversations with partners and customers, it’s evident that businesses are confident in their own ability to drive growth and they have identified a number of opportunities to help deliver it. For the majority of UK manufacturers, innovation plays a critical role with 82% considering it “important” in helping achieve growth in 2013 and beyond, according to the findings of SAP’s Manufacturing Success research.
Despite all the signs pointing towards a continued investment in innovation, manufacturers appear to be divided on the merits. Some organisations remain focussed on investing to innovate and grow, whilst others take the primary stance of protecting themselves against risk. However, whilst investing in innovation is a calculated risk, it is a risk that can bring benefits through improved business processes and product development.
In order to effectively innovate, it’s important for firms to build close relationships with their customers and also understand their customers’ customer. Having greater visibility of the supplier-buyer network is not easy to achieve, but true innovation is often built from a solid understanding of industry dynamics, drivers and relationships.
In the 21st century manufacturing environment, being able to develop creative ideas, addressing new and complex problems and delivering innovative products and services to global markets will be the capabilities most coveted by both countries and companies. But even more essential for innovation to flourish will be access to a workforce capable of driving it.
The next steps in innovation
With a plethora of technologies now available, manufacturers are able to harness a greater understanding of customers and their changing demands, greater innovation can allow businesses to form more valuable partnerships within their business network.
As a result, manufacturers can look beyond their own company to build their strength, allowing them to better integrate with suppliers, customers and even their competitors. However, in order for innovation to be most effective, in the year ahead and beyond businesses must have the right technology foundations in place to support their desired growth. Whilst organisations may have the desire and optimism to change their business, without the right tools in place to execute their objectives, their ambitions are unlikely to become a reality.
Manufacturers exploring the notion of investment in innovation, have an abundance of choice, but breakthrough R&D and incremental improvements to existing products and services seem to be the most popular. Through continued investment and innovation we will start to see some breakthrough with new data technologies and disruptive technologies impacting on not only the products but also to the process. In a recent report released by KPMG, they have suggested 68% of manufacturers will invest in incremental R&D and 31% in breakthrough innovation in 2013 and further. The report also suggests that nearly 50% of large global manufacturers are planning mergers or acquisitions in order to compete in the industry.
Central to this is not thinking about innovation in individual silos, incorporating historical considerations such as products and services, but also in terms of thinking differently about business operations, processes, technologies and talent.
Dynamic manufacturers who put innovation at the forefront of their industries will be best placed to react to the changing marketplace and will emerge from the economic storm stronger than ever. The manufacturing industry is at a tipping point, we must react to the needs of our customers and partners. Innovation is at the forefront of this call to arms.
You can download the SAP Manufacturing Success report here: