Making things better: the challenge for manufacturers

In the fifth and final part of our series looking at how different parts of the UK economy are trying to improve their performance, we cast the spotlight on manufacturing.

The UK manufacturing sector has haemorrhaged large numbers of workers over the past few decades. But it still directly employs around 3.5 million people, accounts for one-fifth of the economy and is responsible for almost two-thirds of all exports. According to the Department of Trade and Industry (DTI), manufacturing is a "key generator" of productivity in the wider economy because of the introduction of new products and processes. And productivity in manufacturing is 25% higher than in the rest of the UK economy.

The government set out its vision for a thriving manufacturing sector in a strategy paper in 2002¹. Declaring that "manufacturing matters", the strategy aimed to narrow the productivity gap between UK manufacturers and competitors in the main industrialised countries - the UK is around 30% behind France and Germany and 55% behind the US - by promoting investment, skills, innovation and best practice. Susbsequently, a review of progress, published by the DTI in 2004, established a revised set of priorities within the original framework, including the development of the high-performance workplaces that will ensure manufacturing's "global competitive success"². The EEF, the manufacturing employers' association, has also singled out an increase in the use of high-performance working as one of the building blocks for sustained productivity growth in the UK³.

A mixed bag

Headline productivity figures for the manufacturing sector as a whole conceal wide variations. A study of UK manufacturing establishments by the Centre for Research into Business Activity (CeRiBA) found that the performance of the top 10% was five times better than that of the bottom 10%, and calculated that by raising the lowest performers to the median productivity level in their industry overall manufacturing productivity would increase by 8% to 10%⁴.

The UK motor industry illustrates the different levels of performance that can be found within manufacturing. Nissan's Sunderland site continues to claim the top spot as Europe's most productive car plant and Toyota's Burnaston plant is consistently one of the best performers. By contrast, the Longbridge plant in Birmingham, which before its demise produced MG Rover vehicles, was one of the worst. Figures produced by the World Markets Research Centre for 2001, for example, showed that Sunderland and Burnaston produced 95 and 87 units per employee a year respectively, compared with 50 at Longbridge⁵.

One factor contributing to differences in performance is ownership. Research indicates that foreign-owned manufacturing sites in the UK tend to be more productive than those that are domestically owned. The EEF cites a study, in its recent examination of the UK's productivity performance (see above), that suggests North American-owned and EU-owned establishments are more productive than British-owned companies by 68% and 53% respectively.

Studies also show that competition is a major influence on performance, with productivity growth higher in companies that face greater product market competition. The large proportion of very small manufacturers in the UK, compared with either France or Germany, which are generally less productive than their larger counterparts is another factor influencing uneven performance across the sector.

Government response

Promoting best practice across industry is one of the seven "pillars" identified by the government in its manufacturing strategy as key to raising performance generally throughout the sector. Estimates produced by the CBI's National Manufacturing Council claim that the gross domestic product (GDP) of the UK would benefit by £60 billion if manufacturers adopted the best practice employed by competitors.

The government says that best practice would enable innovation and investment - in both of which the UK is deficient compared with competitor countries - to be turned into profitable products. It has pursued several initiatives to encourage the widespread adoption of best practice. These include:

Figures covering the first three years of MAS, show that the service has responded to around 56,000 enquiries from firms seeking advice, carried out more than 11,000 diagnostic health checks and completed more than 3,000 in-depth consultations. In financial terms, the service has surpassed its £93 million target of added value for UK manufacturing by more than £62 million.

A question of leadership

There is evidence that UK managers are more reluctant than competitors in other countries to employ new management techniques and production processes. Professor Michael Porter's examination of UK competitiveness discovered a lagging adoption of modern management techniques, which, coupled with insufficient investment in capital assets and a lack of focus on high-value innovation, he said explained persistent productivity gap between the UK and the US and leading European economies⁶.

Better-qualified managers and higher standards of leadership capability in manufacturing firms are seen as vital components in improving the performance of the sector and overcoming resistance to new ideas. Superior management and leadership were identified by the government in its vision for manufacturing as a "prerequisite for transformational change in the sector. Stakeholders contributing to the government's review of its manufacturing strategy called for continued initiatives to improve management and leadership skills by increasing manufacturing's share of university graduates and encouraging more networking and mentoring opportunities for managers.

Keith Hodgkinson, the DTI official coordinating the work of the Manufacturing Forum skills working group, which was established by the DTI to identify skills gaps and raise skills levels in the sector, says that 85% to 90% of skills deficiencies are common across manufacturing, with management and leadership one of the main areas where current capacity is poor. According to government figures, less than a quarter of managers have a management qualification.

A number of high-profile manufacturers have implemented comprehensive leadership development programmes. BAE Systems, for example, reports that in 2004 more than half its leaders had attended training, with staff participating in more than 500,000 minutes of leadership training since 2002 as part of its Virtual University, which was launched in 1998. Its leadership programme for executives is called "Performance Centred Leadership" (PCL) and is aimed at maximising individual potential by identifying talented employees early in their careers and strengthening their management skills.

PCL covers the following five core elements of leadership:

Performance in each area is assessed via peer reviews and personal development reviews. Elsewhere, food and drink manufacturer Cadbury Schweppes makes its "Leadership Imperatives" training and development scheme widely available, and actively encourages managers' personal development through international assignments. Leadership imperatives are the eight attributes that managers should demonstrate and are the focus of their personal development plans.

At a national level, the government has established a programme of informal learning, coaching and mentoring to support leadership and management in SMEs, which form an important part of UK manufacturing industry. Theis aims to support more than 17,000 SME managers by March 2008. The government has also backed the new standards for leadership and management that were launched by the Management Standards Centre and the Sector Skills Development Agency in November 2004.

Filling the skills gaps

UK manufacturing is not only deficient in leadership and management skills, but the skill base of its broader workforce is poor in comparison with competitor countries. Though there have been improvements at all skills levels, and younger staff tend to be better qualified than their older colleagues, a large proportion of manufacturing employees have low basic literacy and numeracy skills, according to performance indicators released by the DTI. Labour Force Survey data show that in 2004 just over two-thirds (67.5%) of adults working in manufacturing were qualified to level 2 (GCSE grades A-C or equivalent), and almost half (46.6%) were qualified to level 3 (A level or equivalent).

There is a particular gap at level 3 in the supply of skilled technicians. It is estimated that around 10,000 level 3/4 technicians will be required by UK manufacturing over the next few years. According to a report on workplace skills published earlier this year by the Department for Education and Science, such workers have an "essential role in raising productivity and supporting innovation in products and services in many sectors, particularly engineering and advanced manufacturing"⁷.

Addressing the lack of suitably qualified manufacturing workers is a key feature of government strategy. Skills are one of three priority areas for the Manufacturing Forum, which was established late last year and brings together stakeholders to ensure the effective implementation and evolution of the government's strategy. Hodgkinson says skills are a priority focus because of their potential impact on productivity. "We subscribe to the theory that improving skills levels will unlock a lot of productivity improvement," he says.

The skills working group works closely with SEMTA, the sector skills council for science, engineering and manufacturing technologies. SEMTA has reached Sector Skills Agreements with employers in the aerospace, automotive, electronics and marine manufacturing industries, and is currently developing a business plan to establish a Sector Skills Academy to open by September 2006, similar to the Automotive Academy that was launched in 2003. Under government plans, academies will work with employers to provide training programmes that meet their current and future business needs.

SEMTA's most recent skills scoreboard, which is conducted with the EEF, reveals that in 2003 manufacturing firms spent, on average, £190 on off-the-job training per employee per year - equivalent to 0.3% of sales turnover and 1% of payroll costs⁸. The training budget provided, on average, 2.2 days of off-the-job training for each member of staff. Larger companies spent slightly more, around £260, providing an average of 2.9 days training per employee a year. SEMTA found that the aerospace sector was the biggest spender on training, with firms in the industry averaging £380 per employee per year, or 1.8% of payroll costs.

Many larger manufacturers are seeking to establish learning cultures so individuals' skills are regularly updated to meet business needs. For example, the Southampton site of the Ford Motor Company, focuses strongly on employee development and has implemented a structured training programme for them. In winning the skills and HR category at the Manufacturer Awards 2005, the company reported that it uses versatility charts and skills profiles to identify skills needs and competencies as part of the Ford Production System. At auto-part manufacturer Unipart, training and development needs are identified and agreed against the strategic aims of the business, and the operational objectives of teams and individuals.

Innovate to survive

Aside from improving leadership and wider skills, the other principal people-related ingredient for better performance is innovation. While research and development expenditure is vital to developing new products, much can be gained from making changes to existing processes. Employees have a key role to play in identifying such changes, which, though often small, can make an enormous difference. Idea-capture systems, such as staff suggestion schemes and production development groups, are increasingly common in manufacturing as employers recognise that staff have much to contribute to improving performance.

IdeasUK, the association of employers dedicated to creativity and innovation in the workplace, estimates that member companies generated £300 million in savings from staff suggestions in 2002-03. Our survey last year revealed several examples of improvements to processes that produced considerable savings. A tool redesign at Pfizer saved the firm £70,000, for example, while more than £6,000 was saved by centralising serial number scanning in the test area at Siemens Standard Drives (see Employee suggestion schemes: an idea whose time has come). 

In addition to using fairly traditional suggestion schemes, some manufacturers are creating the conditions whereby it becomes expected behaviour for staff to put forward improvement ideas as part of their day-to-day activity. For example, at its assembly plant in Oxford, BMW operates its Working in Groups system, which aims to foster innovation. Production line improvement workshops and cross-team problem-solving meetings exist to generate ideas. JCB is also keen on employees suggesting ideas; as well as demonstrating the necessary technical skills for vacant posts, job applicants are expected to possess other qualities, including being innovative and creative. Similarly, one of the seven behaviours expected of employees at Land Rover focuses on improvement, including the ability of individuals to identify and apply new and creative ways of improving the way the company operates and performs. Toyota's work teams regularly review processes by bouncing ideas off one another, while the Airbus site at Filton operates two formal suggestion schemes and team members are encouraged to note problems on a day-to-day basis, post these on noticeboards and suggest solutions.

Involving the workforce in the wider decision-making process can also help stimulate innovation as well as generate support for change. At AstraZeneca, each one of it's nine main UK locations, including its major manufacturing sites at Avlon, near Bristol, and Macclesfield, has its own committee that meets every four to 12 weeks. As well as discussing business news and other issues that specifically affect a location, they are also forums for open debates about challenges faced by a site.

Going forward

Manufacturing may no longer be the primary engine of economic growth, but it is still a significant element of the UK economy, and one the government is keen to see succeeding. Those manufacturers that are successful tend to rely heavily on their people management systems and procedures to continually improve performance: they involve their staff, invest in their development and provide them with effective leadership. The government strategy for manufacturing recognises the importance of people and the creation of high-performance workplaces.

"My vision is of a UK manufacturing sector made up of highly skilled, knowledge-intensive, highly productive, innovative manufacturing businesses," wrote former trade and industry secretary Patricia Hewitt in her introduction to the government's review of its strategy. Realising this objective will require all manufacturing firms to invest, innovate, upskill and attract good-quality staff. And all UK manufacturers, regardless of size, will have to apply best practice in people management if they are to survive in an increasingly competitive global market for manufactured goods.

¹The Government's Manufacturing Strategy (PDF format, 242K)

²Review of the Government's Manufacturing Strategy: Competing in the Global Economy -The Manufacturing Strategy Two Years On (PDF format, 922K)

³Bridging the continental divide: The EEF comparative study of EU and UK manufacturing productivity (PDF format, 1.13MB)

⁴The UK Manufacturing Productivity Spread (PDF format, 153K) , CeRiBA discussion paper, 2002.

⁵European Automotive Productivity Index 2002, World Markets Research Centre, July 2002.

⁶UK Competitiveness: moving to the next stage (PDF format, 274K) , DTI, May 2003.

⁷Skills: Getting on in business, getting on at work (White Paper) , DfES.

⁸2003-04 People Skills Scoreboard: For the Engineering Industry (PDF format, 1.6MB) , SEMTA/EEF.