Are we about to see a renaissance in British manufacturing?

I was born in 1948 and grew up in what must have been the worst period, in history, for British manufacturing. It was typified by decline, poor productivity and strikes. My father was a buddy of Sir William Lyons, the founder of Jaguar cars and of Bill Heynes, Jaguar’s chief engineer, the man who designed the famous XK engine.  In those days, Jaguar was one of the most prestigious car manufacturers in the world; but there were plenty of other prestigious British manufacturers as well. However, during that terrible period, from the end of the second world war to 1979, we saw the remorseless decline of many of our manufacturing companies and, indeed, entire industries.

By contrast to my own background, my wife’s father, who I didn’t know until 1975, was a shop steward in the Steel Company of Wales’s plant at Port Talbot. He was actively involved in some of the crippling strikes of the 50s, 60s and 70s. He was also a buddy of Hugh Scanlon, the leader of the engineering union, the AUEW.

I mention all this to highlight the contrasting views and ideologies that I encountered in my youth and early adulthood and, therefore, the perspective that they have given me.

If we are to understand that period of decline, we really need to go back not just decades, but centuries.

Towards the end of the seventeenth century, the foundations of the British Empire were laid, with new colonies in North America. The empire continued to grow throughout the eighteenth century and was accompanied, first by the agricultural revolution and then the industrial revolution.

Agriculture became mechanised – one of my own ancestors was Jethro Tull, who invented the seed drill. There was a huge migration of people from the land to the cities. Steam driven manufacturing grew, as all manner of new machinery was invented. And transport systems were created, firstly with the canals and then the railways. Britain was leading the world.

The growth of empire and the growth of manufacturing drove one another. Raw materials were imported from the empire and finished goods were exported to the empire. It was a closed shop but, in 1776, it was nearly derailed, when the American Colonies declared independence. The key issue for the colonists was the control over their trade and manufacturing exerted by Britain. It’s interesting to speculate what would have happened if the government of Lord North, the Prime Minister at the time, had been more forward thinking and relaxed those controls, as the colonists had demanded. The US may now be an independent monarchy, within the Commonwealth, with the Queen as Head of State!

As it turned out, the loss of the American colonies proved to be a wobble rather than a show stopper. Despite setbacks, with various wars and recessions, 25% of the land surface of the world eventually submitted to British control. The Empire continued to grow throughout the nineteenth century and so did British Manufacturing.

Britain was dominant, politically, financially, commercially and militarily. But in the second half of the nineteenth century, things started to change. Bismarck united the German states to form the German empire and American industrialisation started to gather momentum. Japan was also beginning to industrialise. So the threats to Britain’s dominance were emerging.

The early years of the twentieth century saw the British Empire at its peak; but the cracks were beginning to appear. Then, of course, came two world wars, which wrecked the economies of Europe and Japan, whilst giving an economic stimulus to the US.

It’s what happened next that was, in my view, the defining factor. Germany and Japan, with American financial support, set about rebuilding their countries, their economies and their manufacturing industries. Britain, on the other hand, focused on developing the welfare state and, under American pressure, dismantling the empire.

However desirable Britain’s priorities may have been politically and socially, the consequences for manufacturing were disastrous. Without an empire, our closed shop disappeared and we were exposed to competition from other manufacturing nations, particularly Germany and Japan. Despite the magnitude of our earlier glories, we had never really encountered international competition on this scale before; and we proved wanting. But compounding the problem was the development of the welfare state, which consumed huge resources that may otherwise have been available to invest in manufacturing. Germany did, of course, develop its welfare systems but only after it had rebuilt its manufacturing base and could afford to do so. Finally, we had the un-mitigating disaster of nationalisation, which saw several of our key industries taken into public ownership and run by bureaucrats and politicians, who were managerially incompetent and prioritised political objectives over commercial ones.

Lack of investment, industrial unrest, over powerful unions and poor quality management all combined to decimate our manufacturing base during the 60s and 70s.

In 1979, a phenomenon called Margaret Thatcher became Prime Minister. Some people, including my late father-in-law, would say she decimated British manufacturing industry. I believe that, in the future, when historians can look back with complete objectivity, they will agree that the decimation occurred prior to Thatcher and that it was her government that established the foundations for its recovery in a very different world from the one that existed when British manufacturing was at its peak.

The Thatcher government did four key things. It addressed the union problem; it deregulated the financial markets; it privatised the state controlled businesses; and it stopped propping up inefficient businesses.

By addressing the union problem, managements were able to start managing their businesses, once again, without the constant fear of disruption and reprisals. This was a massive achievement.

The deregulation of the financial markets facilitated the availability of investment capital and venture capital, which are crucial to manufacturing industry. Despite the current problems, this was a hugely important move.

Turning back the role of the state meant that previously state owned businesses could become less politically driven, more commercially led, more dynamic and more capable of competing in world markets.

Not propping up failing businesses is probably the factor, for which the Thatcher government is most disliked because it resulted in large scale job losses and industrial wastelands in some parts of the country.

The underlying problem was that these companies and industries were operating in increasingly international markets and unable to compete. Propping them up might have worked, if during that time, they had adapted and changed; but they didn’t and the position became unsustainable. Maybe the process should have been extended over a longer period to reduce the amount of personal suffering; but it wasn’t and we are where we are.

Since 1979, we’ve seen British manufacturing shrinking, driven by competition from Germany, Japan and other nations too. We’ve also seen more and more outsourcing of manufacturing to China and the Pacific Rim, where labour costs have been much lower. Furthermore, our increasing wealth and standard of living, during the 90s and early 21st century, have been largely based on the success of banking and financial services not on manufacturing.

So where does all this leave British manufacturing? Are we going to let it go on declining or are we going to do something about it?

I believe that we are at a crossroads and that it could go either way; and which way it goes will depend on whether there are enough manufacturers prepared to grasp the nettle and do what needs to be done.

So what does need to be done? But before I answer that question, let’s look at some of the positive signs for British manufacturing that are already there.

The car industry has seen a huge renaissance. We’re producing more cars than ever before; and we’re seeing some real success stories – Jaguar Landrover: Honda: Nissan: Mini: Rolls Royce: Bentley: and others as well. But they’re mostly foreign owned; and I’ll come back to that point later.

We have other world class businesses such as BAE Systems in defence and aerospace, GlaxoSmithKline in pharmaceuticals and Rolls Royce in engines, turbines and power systems. So we can do it.

We have many excellent smaller manufacturers in specialist niche markets. So we have the ingenuity.

Our political leaders are, at last, beginning to understand that we have become too dependent on financial services and that we need a stronger manufacturing base. So we are likely to see more help and support for manufacturing over the next few years.

There seem to be some signs that the drive to have 50% of school leavers go on to university is creating huge problems by devaluing degrees, by promoting degrees that are of little practical value and by undervaluing trade and manual skills. So maybe the tide is starting to turn.

We’re also seeing the return of apprenticeship schemes and, although they may not be as good as we’d like, in the words of the Chinese philosopher, Lao-Tzu, “a journey of a thousand miles begins with a single step”.

So we need to take these positives and build on them. But first, let’s try and identify our core weaknesses, for which there are two interrelated clues.

The first is that we have outsourced huge amounts of manufacturing to China and the Pacific Rim because of cheap labour rates; and yet, for many products, labour is a relatively small proportion of the final selling price; so the gains are not always that big. Germany has, for many years, had higher labour rates than us but lower labour costs because of its higher productivity. It does outsource, particularly to Eastern Europe; but not as much as we do and, as a consequence, it retains a much larger manufacturing sector. Basically, they manage their production processes better than we do.

The second is back to the car industry. Our car industry is now world class. It employs British work forces and, within its organisational structures, most of the management is also British. But it’s largely foreign owned; German, Japanese and Indian; and their management styles and cultures have been able to influence their UK businesses in a way that has created stable, effective, efficient, well paid and well looked after workforces. They achieve higher standards of operational excellence than we do and they’re better at managing their people.

Despite the passage of time, British management still tends to be influenced by the period of empire, when we didn’t actually need to be that good and by the culture of welfare that promotes “the world owes me a living” attitude.

The Germans have shown that, in many instances, high productivity can support high wages and successful manufacturing. Our own car industry shows that British workforces can perform at world class levels. The real weakness we have – and many manufacturers won’t like me saying this – is the way we run our businesses and the way we manage our employees.

Governments and banks have a significant influence; and the economic conditions that have existed since 2008 have made life much more difficult for manufacturers; but they aren’t the core underlying problems.

There is now a real chance for a renaissance in British manufacturing. But, for this to happen, owners, shareholders and directors of manufacturing businesses, from the smallest to the largest must come to terms with their strategic, operational, organisational and leadership weaknesses. And then they must put plans in place to address those weaknesses and create the levels of excellence that others have proved are achievable.

If manufacturers can grasp this nettle, the future for British manufacturing will be bright. If they don’t, there are likely to be several more generations of decline.

Marketing has never been more important. But what exactly is marketing?

To some people this may be a silly question; but, there are many businesses, in many different sectors, that talk about marketing but mean advertising and promotion. Undoubtedly, advertising and promotion are part of marketing but, on their own, they are not marketing.

So what is marketing?

Probably the best place to start is the Chartered Institute of Marketing (CIM), which is the world’s largest organisation for professional marketers and is based here in the UK. The CIM’s definition of marketing is: –

“The management process responsible for identifying, anticipating and satisfying customer requirements profitably”.

I would argue that advertising and PR, whilst extremely important to most businesses, represent a relatively small part of the marketing mix. However, they may well account for a disproportionately large share of the budget, particularly in businesses that sell B2C. This implies that there is a significant risk factor because, if a business gets the identification and anticipation elements wrong, the advertising and PR expenditure, which is part of satisfying customer requirements, may be wasted, in part or even entirely.

I’m afraid to say that I have seen this happen all too often, particularly in small and medium sized businesses, within which there tends to be less sophistication and fewer really experienced marketers. Typically, SMEs tend to develop strong operational and selling skills but marketing gets tagged on to the sales director’s responsibilities. He/she then becomes the sales and marketing director with a relatively junior manager heading up marketing, which is predominantly advertising and PR.

I’ll come back to how SMEs might consider addressing this problem, without spending large sums of money that they don’t have. But first I’d like to look at what a more rounded marketing process might look like.

We should probably begin with asking, “Who is our customer?” Because, if we get that wrong, everything that follows will also be wrong.

Whichever market your business is in, it is likely to consist of an array of sectors and segments; and even within these, there will probably be many different profiles of customers at both B2B and B2C levels. It is generally a mistake for SMEs to try and cover too wide a spectrum; and the risk of trying to do so is that the business never really succeeds in becoming a significant player in any part of the market. So there is a need to evaluate the market you’re in and build up a profile of the type of customer, with which your business is or can be most successful. In a B2B environment, this may require some market research. In a B2C environment, there are some extremely sophisticated and accurate profiling tools available. In both cases, these don’t have to cost huge sums of money; but, even so, relatively few SMEs use them.

Once you know the profile of your target customer everything else should be focused on optimising your sales to that target. This doesn’t mean that you turn away sales from customers outside your target profile; but it does mean that you don’t go looking for them and you don’t compromise your position, with your target customer, by taking them.

Having identified your target customer profile, you then need to assess what products and services those customers require. This needs to be objective and realistic; so, once again, some market research may be needed. Then comes, what I think is perhaps, the biggest challenge of all. Of the products and services your target customers require, which ones can you supply efficiently, effectively and profitably? Once again, this needs to be dispassionate, objective and numbers driven. If you can’t make money from it; don’t do it. If you can’t do it efficiently don’t do it. And if you can’t do it effectively; don’t do it. Inevitably, the argument will be put forward that, “We make money on product A; but, in order to sell it, we also need to supply product B, on which we lose money”. At the extremes, the solutions are easy. If you make a substantial profit on product A and the losses on product B are not significant, you sell product B. If the profit on product A is small and the losses on product B are large you don’t do it, even if that means you don’t sell product A. The dilemma comes when the balance between the profitability of the two products is less obvious; and it is in this area that many SMEs get themselves into trouble. Often, they don’t have a clear understanding of the numbers and they do favours for their customers, without fully appreciating the cost to themselves. But with a robust marketing strategy, this would be less likely to happen.

In addition to products and services that are current today, marketing also needs to look at trends and developments of both the products/services and the market itself. Going back to the CIM definition, this is about anticipation. What will your target customers require in the future? Which product groups have growth potential; and which are likely to decline? Where are the gaps for new product initiatives; and what new products are likely to emerge through market and technological developments?

Whilst there is inevitably a degree of crystal ball gazing in this, the risk can be substantially reduced through having really good market intelligence and, of course, market research.

Having established the target customer and the product(s)/service(s) to be supplied, the next stage is to ensure that the resources and processes are in place to enable the efficient, effective and profitable delivery of those product(s)/service(s). Most of the work here isn’t a marketing responsibility; it’s down to production/fulfilment, IT, logistics etc. However, marketing does need to have a watching brief and an involvement in the co-ordination of the various activities involved, so that it can co-ordinate advertising & PR, sales training etc.

Only at this stage does marketing move into the advertising and PR phase. However, if everything prior to this has been done properly, an effective campaign is much more likely.

I’ll finish off by returning to the challenge for SMEs that don’t have a substantial marketing resource. The key is to recognise the need for good strategic marketing input. Once that hurdle has been crossed, there are ways in which simple market research can be done at low cost and much of it “in-house”. And, as I’ve already said, there are some very good consumer profiling tools available at a modest cost. In many SMEs, the missing ingredient is senior marketing expertise. But, in reality, most of these businesses cannot justify the costs of employing a marketing director as well as a sales director. Nor do they need a full time marketing director because the demand for his/her skills is likely to fluctuate considerably. The obvious solution is to engage an independent marketing professional, with strategic marketing skills, on a “when needed basis”. This could be on a project by project basis; it could be on a regular basis of an agreed number of days per week/month; or it could be on just an advisory basis such as attending monthly review meetings. Different businesses will have different needs; but this strategic input should not be confused with the role of the advertising agency, which is to work to a specific advertising brief that is developed from and preceded by the marketing strategy.

There are some good strategic marketers around. But they tend to be industry/market specific; so be sure to engage someone that knows the market your business is in; and look for someone who has a marketing qualification and/or is a member of the Chartered Institute of Marketing. By taking this approach SMEs can benefit from the strategic marketing expertise they need, when they need it and at a cost that is affordable.

I’ll be following this article with a series of articles that explore some of the issues I’ve raised here, but in more depth.

If you’d like more information about me and my consultancy business, AP Management Consultants or would like to discuss any of the issues in this article,

Log on to www.apbusinessconsultants.co.uk

Email me at anthony.pratt@apbusinessconsultants.co.uk

Call me on 01962 715899 (+44 1962 715899 from outside the UK)