Blurring the boundaries between manufacturing & services – perspectives from Tata

Last week I was fortunate to listen to a perspective on the re-invention of UK Manufacturing by David Landsman, OBE, Executive Director at the global giant Tata Ltd, who gave the key note speech at the Manufacturing Leaders conference in the UK.

He gave a fascinating analysis of UK manufacturing, and how it must adapt to the new value chains being created and enabled by technology innovation. As a self confessed non-engineering person, he has had a career in the Foreign Office and was the UK’s Ambassador to Greece and Albania. He brings an uncluttered insight to the challenges of manufacturing, not only within the UK, but to all nations in the global economy.

His observation is that the world has dramatically changed over the last 20 years:

‘Technology in various forms, including big data, is also helping to blur the boundaries between manufacturing and services, as both the demands of business and the pace of technological change make asset-light models more attractive to both suppliers and customers. ‘

This is challenging our perception as to what is a traditional manufacturing company. Look no further than Automotive where we see the battle between potential disruptive new entrants, and establish player redefining their business:

‘So, just as Google aspires to become part of the automotive sector, so companies like our Jaguar Land Rover are rapidly becoming part of the IT sector’

David made the case that to take full advantage of the opportunities presented by this shift in thinking, we have to change our own paradigm in three important ways:

1. The skills, innovations and techniques we call manufacturing will become an inescapable part of the modern value chain. The UK simply cannot afford to ignore manufacturing, any more than it can afford to ignore IT.
2. In securing the future for manufacturing, we need to seek out a combination of agility and long-term vision, of diversity and focus, which will come from an ecosystem made up of larger and smaller businesses working together.
3. Society, politics and governments need to understand and to adapt too, to take best advantage of the opportunities

What makes this analysis very interesting, is that David Landsman is not alone in this analysis that we must rethink how we define manufacturing. In a recent article in the economist, ‘Does Deutchland go Digital’, Trumpf the German based global leader with its roots in metalworking and other hardware, is building a new business purely based on software and data. Its online offering, called Axoom, connects machines built by Trumpf and others, and uses the data it collects from them to help customers organise their production—for instance, to warn them when they are running out of material or to order it directly from the supplier. Much like smartphones, Axoom will be able to run “apps” from other providers, such as software to schedule workloads, or to predict when machines will need a spare part.

In his address, David also pointed out the role government and society have to play. For the UK I found this observation extremely relevant in that we are in the process of developing a National Strategy for the Manufacturing Services such as Through Life Engineering Services and Servitisation business models. Led by leading UK industrial companies and supported by leading thought leaders & government organisations, this initiative aims to educate and motivate policy makers to take positive actions that support an increasingly important part of the economy.

These stories, perspectives and activities all indicate that it we are in the midst of a shift that is far more radical and far reaching than an evolutionary process. What we are really talking about is the RE-INVENTION of how we perceive manufacturing and the role of services in monetising technology. This can enable an influx of new talent into industry, attracted by careers that are challenging, well paid and inclusive.

Indeed a key message David Landsman left us with was that:

‘We can honestly say, in today’s environment, if you want to work somewhere smart, go into manufacturing ‘

A full text of his key note can be downloaded through this link  David Landsman_Manufacturer Keynote Nov 15.final.

Below we have tried to provide readers with some interesting excerpts from David’s speech:

David Landsdown – Abridged Key Note speech at the Manufacturer’s Leaders Conference, Birmingham, UK, November 2015

At the crossroads

This really is a crucial moment, not just because we are just over six months into a new Government and on the day after the spending review was announced, but because the crossroads is very real. Can we take the path towards the exciting new opportunities which are out there, and enable the UK to play a full part in the new Industrial Revolution which has already started?   Or will we take the wrong road and end up as a footnote?

I believe – to be optimistic – that our options are far from closed.   But I also believe – to be realistic – that we have not yet assured our place in the next industrial revolution.   It’s there for the taking, if we – and that’s those in this hall but also UK plc much more widely – want to take it.

What we need to do is to make a clear, simple and persuasive case for manufacturing.   We might think we shouldn’t need to do it, that it should be obvious.   But experience suggests that it’s nothing of the sort, even in the country where the first Industrial Revolution started.

Celebrate Success

You’d expect me to start with the automotive industry, where the UK is on target to beat the all-time record for car production. Where nearly 80% of cars manufactured are exported, making up over 10% of the UK’s goods exports. Where there is production in each of the four nations of the United Kingdom, from North to South.   This is why a global business such as Tata has chosen to show confidence in the UK automotive industry, investing not only in production and assembly but also in design and innovation in Britain too.

There is also an impressive story in aerospace, where the UK has 17% of the world’s industry and where the UK sector has grown by 27% since 2010.

There are great stories in other areas of advanced manufacturing and in bioscience too.   Britain’s universities and broader research base, its traditions, the openness of the economy are vital factors for the success of manufacturing and, if we get the details right, they can continue to provide Britain with significant competitive advantage.

In fact, in some respects the picture is arguably more optimistic than it appears. Although manufacturing’s share of GDP appears stubbornly stuck at a little over 1/10, the changes in the structure of business make the figure rather deceptive.   As servitisation becomes an increasingly important phenomenon, some of the output which would previously have been counted as manufacturing and is still firmly in the same value chain and calling for the same skills gets reclassified.

Outsourcing has a similar impact. People who were once employed by the manufacturer used to count towards manufacturing, now if they’re employed by outsourced service providers, they drop off the figures, but their work still contributes to manufacturing.

An answer to the productivity puzzle

This isn’t just a matter of creative statistics, because it demonstrates that manufacturing remains more relevant to our economic future than may at first sight appear. And when the UK is still grappling with the productivity puzzle, in short why the G7 as a whole is 17% more productive than we are, manufacturing makes a positive contribution.   Productivity in some of our most important manufacturing sectors, including automotive and aerospace, have risen substantially and help to offset weaknesses elsewhere.

So let’s start off with the success stories. There is a good story to tell and it’s important we tell it.   We have not, by a long way, failed at manufacturing.   On the contrary, there are many great successes, which continue to attract investment from around the world, including of course from the group I represent, from Tata.

Serious challenges remain

Unfortunately, this isn’t the whole story. Going beyond the headlines and despite the increases, signs of manufacturing growth are not sufficiently strong or consistent to enable us to have confidence that this rebalancing is, if you like, structural, rather than transient.

This demonstrates some real weaknesses, some of which apply more generally across the economy, while others hit manufacturing particularly hard.

Many have been in the making for many years.   They include infrastructure gaps, tax regimes, which seem to discriminate against capital-intensive manufacturing, the hollowing out of parts of the supply chain during the years when the prospects for manufacturing looked particularly bad, as well as a related skills shortage.

Each of these requires attention, in the ideal world as an integrated whole, but at the very least they all need attention.

The Global Context

There has been progress. “Rebalancing” is real and in some cases has had substantial impact.   But at the same time the indicators tell a depressing story which in other sectors has been played out in all too stark human and economic reality.

We still have a challenge on our hands. And we are living in a world in which others are seeing that challenge and rising to it.

Responding to rapid technological change

So, how do we do that?   First, we need to look forward not back.   Let’s not be misled by the “re” in “re-balancing”.   Restoring manufacturing to its rightful role in the economy cannot be about a return to a glorious past.

Instead, it has to be about preparing for the future, one which is uncertain but exciting and full of opportunities which Britain is well placed to take up.

We can’t know what the future will bring, but we can all see the key trends.   We need to be clear about what they are going to do to the sector and be clear – and bold – about explaining them more widely. Because there is no doubt that technology is bringing about radical change very quickly indeed.

But the new generation will go much further. Colleagues at Tata have argued that Artificial Intelligence will “abolish workflows”. And when you think about it, I think you will agree that it really changes not only how quickly you do things, not just how you do them, but the “things” you do themselves.

AI is of course not the only new generation technology, which is rapidly coming upon us.   The Internet of Things, big data analytics, alongside faster communication and processing power will be equally transformational for every aspect of our lives from medicine to traffic management.

And of course all of these innovations will contribute to the future of manufacturing itself. Technology which radically changes the processes fundamental to industry is certain to have a radical, if unpredictable, impact on our economy.

Let me mention a few of the consequences for manufacturing.   Technological advances are going to blur – or perhaps completely destroy – the boundaries between engineering, design and IT.

Another of my colleagues summed up the blurring of the lines nicely by saying that a car is “now a supercomputer on wheels”. So, just as Google aspires to become part of the automotive sector, so companies like our Jaguar Land Rover are rapidly becoming part of the IT sector.

Indeed, JLR is developing technology that will use cloud-computing to push data from real-time driving experiences outside the car and to whoever needs them.   So not only will your car have the information to avoid the potholes – good enough, you might think – but it will also be able to tell the local council that they need filling in.

Of course, this supercomputer still needs to be connected to the wheels, so there’s still very much a need for mechanical engineering skills, but of a new kind.

Technology in various forms, including big data, is also helping to blur the boundaries between manufacturing and services, as both the demands of business and the pace of technological change make asset-light models more attractive to both suppliers and customers.

The new technologies will further intensify the trends towards globalisation, resisting predictable (and entirely understandable) pressures from those afraid of the future. That’s because there will be opportunities as well as threats, new ways to solve human problems and to provide people with better and more personalised products and services more safely and more sustainably.

The shift in recent years of economic power towards the East has confirmed the emerging markets as significant beneficiaries, and we will surely see this continue.   But it has also brought new opportunities to our part of the world and in the next phase will bring others.   As value chains can be spread out further, and as emerging market costs rise, there is scope for more distributed manufacturing, leading to value-enhancing global collaborations and more reshoring.

What business needs to do

And for me there’s a vital message here. As the boundaries which define manufacturing change and become blurred into IT in all its forms, manufacturing will become more not less important for the UK.

The skills, innovations and techniques we call manufacturing will become an inescapable part of the modern value chain, as in their older form they were a vital part of our past. We simply cannot afford to ignore manufacturing, any more than we can afford to ignore IT.

That’s my first conclusion.

My second is about what this means for our approach to business. To be successful in securing the future for manufacturing, we need to seek out a combination of agility and long-term vision, of diversity and focus, which will come from an ecosystem made up of larger and smaller businesses working together.

Challenges for Government and Society

It’s not just of course business which needs to adapt to the changing context.   So my third point is that society, politics and governments need to understand and to adapt too, to take best advantage of the opportunities, to manage the risks in ways which secure broad support without becoming risk averse, and to ensure a fair slice of the cake for our national industry and people.

But, when so much of the change is driven by technology – which people like you in this hall understand best, we have to accept the responsibility not to act like an interest-group, but transparently and honestly to help society understand and manage the changes, finding collaborative ways to achieve the results we seek.

This calls for some redefining of the roles of business and Government.   With such rapid change, with such potential, we mustn’t fight yesterday’s battles, as if technological process is something we can opt out of, or as if it would be better if the some of the manufacturing were better done out of sight somewhere else.

We need to identify where our relative strengths lie and play to them: for its part, business can deliver technology with the needed investment and can create outcomes. Government can enable, and convene, while creating a favourable environment for business. Business needs to respond to society’s needs, to engage openly and explain itself.   And both business and Government need to look continually outwards, to set the strategies for what we do at home with an eye always on the wider world.

This is a very modern role for government: using its unique capacity and capability not to direct, certainly not to fund fully, but to convene diverse groups which can innovate at different levels and provide our business with the opportunity to be world-beating.

Selling manufacturing to future employees and investors

It can be a very exciting picture, both for those with the potential to work in manufacturing as well as for investors.   But we in manufacturing need to work harder to attract both groups.

From where I sit, it’s very clear to me that there is an exciting world open to the next generation of engineers in Britain. Sectors which once looked on their way out are now flourishing, new technologies offer new opportunities and there is a broad consensus in favour of significant investment in infrastructure which will span the next couple of generations at least.

The blurring of the lines between IT, design and engineering can make the opportunities appeal to people with a much wider range of interests and aptitudes.

It means that, at every stage from entry-level to the top, graduate and technician, there are good and – let’s be frank about it – well-paid jobs to be had.   And with the welcome renaissance in apprenticeships as well as the degree route, the opportunities are available, here and now.

But they key message we need to shout about is: if you aspire to be a CEO or a start-up entrepreneur, engineering and the manufacturing skills offer an excellent starting point.   Just ask my Indian colleagues in Tata: I often have the impression that almost all of them, whether in engineering roles or not, have started there.

Let’s not be modest about it.   We can honestly say, in today’s environment, if you want to work somewhere smart, go into manufacturing.