The Business Magazine staged this roundtable at Lainston House Hotel near Winchester with Southern Manufacturing 100 sponsors NatWest, Shoosmiths, MHA MacIntyre Hudson, JLT, and Taylor Made Computer Solutions, along with invited business representatives who together provided an interesting mix of views on remaining competitive in the fourth industrial revolution.
The first industrial revolution was …
David Murray explained how manufacturing is now facing a fourth industrial revolution.
The first industrial revolution used water and steam power to mechanise production. The second revolution used electric power to create mass production. The third used electronics and IT to automate production. And the fourth will drive the digital age, by fusing technologies that are already blurring the lines between the physical, digital and biological spheres.
“We are beginning to see glimpses of what this new age will bring – drones, self-driving cars, virtual experiences, genetic breakthroughs – and how different, for better or worse, life can become for many of us,” he said.
The fourth industrial revolution would see the advent of cyber-physical stems involving entirely new capabilities for people and machines. Murray exampled genome editing, artificial intelligence, breakthrough materials, and even controlled corporate governance using cryptographic blockchains – distributed databases that maintain a continuously-growing list of records, or blocks, secured from tampering and revision.
Does this revolution mean anything yet in your industry?
‘Absolutely,’ said Ella Barrington who works at the leading edge of motorsport creating virtual simulated driving experiences for real-life grand prix racing teams.
“If this wasn’t occurring I don’t think we would be in business. It is exactly what we do, fusing virtual reality with digital technology and software to create 171 virtual circuits, from satellite data, architectural maps, electronic sensors and physical people giving feedback from actual race circuits and cars.
“We have lots of very clever virtual reality coming along, but actually people still need a physical interface with the real world. Maybe the next generation won’t. Our business is now 50% digital side and 50% people making things and bolting them together. That interface is crucial to getting the job done well today, and will become far more important in the wider technology space.”
Martin Watts admitted that before the roundtable he had not heard about the ‘fourth industrial revolution’. HS Butyl is a traditional 30-year-old manufacturing business – “We mix butyl, then extrude butyl, and some of our equipment is relatively old. I guess we are ripe for this revolution.” There may be opportunities for technological improvement, but the challenge, as for most businesses, remained “moving from today to the future, while managing the busy today.”
Banker Antony White was not sure industrial change was being driven solely by technology or other factors such as Brexit or the living wage introduction, particularly for those with large EU-linked workforces. A lot of his business clients, faced with increasing costbases, were simply looking at technology as a means of improving their manufacturing process.
You can’t win, if you are not in
Based on the latest findings of this year’s annual MHA Manufacturing and Engineering Survey Report, Kate Arnott revealed that 75% of businesses do not know what the fourth industrial revolution is, yet they are investing in digital technology, such as remote servicing machines.
The threat is that UK manufacturing businesses are not investing in technology to the same high levels as Germany, US or Japan, she warned. “They are currently much better than us at it, and we need to get up to speed. We need a long-term strategy for the industry.”
EEF’s Jim Davison agreed: “There is definitely a lack of understanding in the UK as to its relevance and how to grab the current technological opportunities.”
Uptake of technology differed greatly between industry sectors. Larger, multinational companies were already harnessing fourth revolution opportunities, such as cobots – robots that interact very closely with humans – and use of Big Data.
“There’s lots of ad-hoc stuff happening, but some industries just can’t see a way of doing it. British industry has the fourth industrial revolution tools, but people are not thinking about using them in a strategic way to drive commercial benefit.”
Watts: “From today’s discussion, I can see our business does need to move forward and do things better. But it’s also a case of how much do we spend, and on what?”
Joe Jeffers used to work in companies manufacturing life jackets and dry suits.
“There has been investment in automation to replace hand-cutting by scissors, but like the fashion industry, the human element was needed to sew and produce bespoke work. It has to be a balance between technology and the human element. I can’t see that changing soon.”
“Robotics is definitely coming in more and more though,” stated Murray.
Davison said British productivity was challenged by its lack of investment in equipment, processes and systems, and the government had a supportive role to play in that. “We have got to start moving, and moving quickly because we have got a real job of catch-up.”
Arnott cited recent industry studies that estimate that the UK could add about £20 billion to the UK economy by 2020, if it spent as much on new digital technology as Germany does.
She agreed with Davison that businesses seemed to lack understanding about it, how best to invest in it and where to obtain advice and funding. “Certain niches such as the automotive and motorsport industry excel at using technology though.”
Yes why is that? Murray asked Barrington.
“We are early adopters. It’s innate to our industry. We are competitive, not constrained by the same market forces, and the nature of our sector attracts innovation and people who are willing to try new things,” she replied.
The Motorsport Industries Association, supported by the Government, had also campaigned successfully for ‘horizontal innovation’ to add value to its manufacturing – 3D printing, simulation, Big Data etc – which companies adopted in order to win races. That innovation has since trickled down into the Americas Cup racing, defence and marine sectors.
Grand prix computational fluid dynamics innovation was now even being used in architecture and street planning to avoid dangerous gusts of wind.
“We need to take that sort of useful technology into wider spheres, supply chains, skillsets because ultimately it will help us all through an improved UK economy.”
Lawyer Lynn Knight exampled a sign-making company that had ditched its bedrock machinery of 10 years ago in favour of digital and laser equipment. “The change is fascinating.”
“Because its CEO and the company have been in the sector for 40 years it can see what the next stage is, and it has not been afraid to become early adopters and market leaders.”
Is a fresh type of manufacturing persona needed?
“Yes, definitely,” recruitment consultant, Benjamin Wiggins answered. “Companies need to keep upskilling their workforce to make sure the gap between their current skills and digital technology does not get any bigger, because 20-year-old engineers with 30 years experience don’t exist. Technology and skills need to move forward as one, or standards and deadlines will not be met.”
Wiggins mentioned recent ARM research that showed employers believed candidates were attracted by more money, whereas candidates rated higher salaries as third behind interesting work and career progression opportunities. “So, employers can capture good employees in different ways. They just need to sell their businesses better.”
Major brand marketing helped larger corporates with talent recruitment, but SMEs suffered from lack of recognised branding. Fortunately the merging of digital technology with manufacturing design and assembly would help boost interest in the sector overall.
Davison: “The general perception of our industry is not accurate. The public image of modern manufacturing businesses does not reflect the skills, opportunities, environment, services and products that they are creating, which can today offer fascinating careers.”
Arnott agreed and asked “How do we change that?”
Barrington: “There is a misconception that manufacturing is dirty, and for engineering you have to be good at maths. As a country we don’t sell enough the creativity and amazing things that are happening in these industries.”
There is no silver bullet, said Davison, but the industry does need to publicise its achievements better and ‘rebrand’ itself.
Jeffers also highlighted the value of the ‘Made in UK’ manufacturing accreditation on products, which “sell themselves in international markets because that flag means quality.”
It goes further said Davison with ‘Made in Oxford’ selling MINIs and ‘Made in London’, Brompton Bikes.
“With any change, it is all about engaging people,” stated Knight. “The automotive sector is streets ahead of other sectors,” she added noting that MINI at Cowley was now concentrating on ‘winning the hearts and minds’ of employees. To overcome quality control issues, for example, they had helped staff embrace the MINI product through a ‘Made perfect by you’ campaign.
Cross-industry collaboration can also help with the hearts and minds aspect, Barrington pointed out. “Motorsport people want to work in the Americas Cup at the moment, and vice versa.”
Murray: “This is where we score over robots, because they don’t have hearts and minds.”
So, there will always be a place for humans, won’t there?
Davison: “Oh yes, 100%.” Human curiosity and interest in different projects will force businesses down innovative channels and into new markets. “Forward thinking from the top, plus the introduction of new technologies, will help manufacturing businesses fly.”
Watts highlighted the improved health and safety argument for more automation. “If you have less people doing risky things, you will have less accidents.”
Davison mentioned that technology-added manufacturing would enable the creation of materials and products that have never been made before. In many areas, manufacturing already employs fewer unskilled and semi-skilled workers, while providing more higher-skilled, interesting, safer jobs. Machines tend to be more cost-efficient, but the hand-made human quality factor is important to consumers.
The Roundtable agreed. The personal element is part of the magic of ‘Made in Britain.’
Digital manufacturing’s story needs to start in our schools
Barrington felt there should be a digital technology cross-industry ‘melting-pot’ initiative, aligned with fresh engagement with the education system at all levels. Schools often had good teachers, but they were career teachers with no knowledge or awareness of modern manufacturing or engineering, she noted.
Davison said EEF spread awareness of modern manufacturing with various partners including academia – where the most powerful advocates were often current graduates and apprentices.
Arnott: “Large plcs tend to have more time and money to establish schemes with schools. The issue for many SMEs is that they don’t, and still have a traditional image. The challenge is getting young people to realise that they can still do the cutting edge digital tech, and exciting manufacturing practices at a family business down the road.”
Davison pointed out that the biggest manufacturing region in the UK is the South East. “It is very diverse manufacturing and often within clusters but we have a lot of small South East companies that are leading edge. Selling the story of that manufacturing magic is something we have to do better.”
An investment of time and money
Davison: “Augmented reality technologies are here, but they need to be rolled out much further. The thing is, we are on the cusp of a change that is going to happen so fast that many of us will struggle to embrace it.”
White: “We have to encourage businesses to make that digital investment or risk stagnating and losing out commercially.” NatWest is doing that by assessing company desires and abilities to finance technology investment and providing ‘Statements of Appetite’ through its dedicated technology and green energy teams.
“Our biggest challenge is that businesses do not want to borrow money despite most banks having suitable balance sheets and appetites to lend money.” Brexit-induced market uncertainty was acting as a millstone around decision-makers’ necks, he added.
Based on a leading industry survey* of over 500 SMEs, Arnott reported that 90% are planning to undertake significant cap-ex in the next 12 months, with the vast majority investing in R&D. “Maybe it will be self-funded?”
Knight queried if businesses had sufficient market knowledge, advisory, peer group networks or business eco-systems to enable astute and confident decision-making.
Watts: “That’s one of the reasons I am at this Roundtable today. Networking is so important. The more cross-fertilisation there is, the better. I shall come away with 10 ideas today, just by investing two hours this morning.” His attendance at a recent Southern Manufacturing 100 dinner had gleaned valuable smart technology insights from the guest speaker from McLaren, he added.
“When you are busy at work it’s difficult to take time out to discover how to make your end product more efficiently and better. But you can catch-up through investment because technological leaps can be great, and that’s the exciting thing about this fourth revolution.
“If Britain really does get its act together, we can catch-up in a lot of industry sectors.”
Knight felt the professional services sector should do more to help its clients share its technology investment experiences. “It’s something we are alive to, but can never seem to do enough of.”
White: “It is hard. NatWest is trying to do that through E-Spark and Catapult business centres and our Future Fit reports. There are many interesting things out there, but it comes down to encouraging businesses to invest their time and funding.”
Networking and advisory work is one of the fundamentals of the EEF, and its membership appeal, said Davison. “If people take away two things from our events and implement them in their businesses, then that is a day well spent.”
The Southern Manufacturing 100 enacted a similar brief, added Murray.
Taylor Made approaches the technology investment question with clients following a strategic review of their current IT infrastructure and potential IT usage, said Jeffers. “We act as a strategic IT partner, to ensure the efficient use and deployment of IT services within a business – essentially mitigating risk.”
The need for cyber security in manufacturing firms
Working in the inherently competitive motorsport world, Barrington admitted: “We are very IP sensitive. It is ingrained in us internally not to let secrets go. And, we have to consider outside threats because as we become more connected there are more potential loopholes, so we are very watertight and pro-active about our IT.”
Even IT experts Taylor Made Computer Solutions employ independent third-party assessors to regularly test the cyber resilience of their own IT infrastructure and systems, stated Jeffers. “There is probably not a single business in the UK that gets a full bill of health when they are penetration tested, so it is really important to be doing things now that mitigate risk.”
Watts said his company did not have a highly-connected IT infrastructure within our manufacturing processes but he recognised that cyber security was a challenge for any business today.
Cyber threats were constantly changing, so Jeffers advised regular IT checks and updates – “keeping up to speed with what is out there.”
The geography of the fourth industrial revolution would not be national, international or global but based in cyber space, Murray highlighted.
Arnott mentioned the national Cyber Security campaign her firm is currently running. As traditional sectors move into digital technology to remain competitive, there needs to be education about these new technology risks. “Most manufacturers that have introduced digital technology now have annual penetration testing, but they didn’t used to.”
Professional services firms have dual obligations to provide cyber security for their own business plus client data, Knight noted. “We have to be really savvy because people are becoming more sophisticated about trying to get hold of personal data.”
Barrington reminded the roundtable that 93% of data protection breaches result from human error – passwords left on desks, laptops on trains, mis-emailing, being scammed. “We are at this collision point between the digital and real world, and we are still the weakest link.”
Knight: “We have been drilled in security because our business cannot afford to get things wrong, but employees in other business sectors have not, and awareness needs to be widespread.”
White: “This is an important topic and we must keep banging the drum.”
‘Keep calm and carry on’
That was the advice from Knight as the Roundtable discussed the post-Brexit scenario. “The winners will probably be those who are willing to be bold but calm, and carry on with their business”
There have already been export winners and import losers in various sectors but a form of normality will return at some point, said White. “My concern is about the millstone of uncertainty and those delayed business decisions.”
Jeffers said the rest of the world was also uncertain, waiting for the UK to enact Brexit.
“Businesses need to remain positive and push on with plans as best as they can, rather than wait for two years.”
Knight: “The jury is still out for most of our clients.” Media over-reaction to government announcements, and the pound falling to record lows would ‘freak people out’, creating uncertainty and stagnation. “It would be so good if the media would just support government and business by reporting the reality.”
While the weak pound was good for his company’s exports, EU sales were very important to HS Butyl. “We are moving into an interesting environment,” said Watts.
Personally, he felt: “The UK should drive on, under a credible leader. We need to act like professionals and get on with our business.” People over-react and markets will come back, he added.
One challenge was whether foreign investors would continue to invest in the UK.
Arnott confirmed that the Brexit vote had caused “a big pause” in business decisions. Although UK activity was now happening, foreign direct investment was still largely on hold. “As a country we need to get the new trade deals done. That’s the biggest uncertainty for manufacturers we approached.”
Brexit had put recruitment on ice for a fortnight, revealed Wiggins, but several employers were still uncertain about taking on European staff and equally European candidates were unsure about changing their jobs. We also saw a noticeable spike in contract hires being taken on during this period.
Davison mentioned that despite increased manufacturing demand, some companies were taking on staff rather than investing in machinery and technology.
Watts: “You can bring in temporary staff tomorrow; a machine can take six months.”
Davison noted that while many companies had been building their cash reserves, their investment intentions were now softer. The Government making its own investment decisions – on infrastructure such as airports, housing, and broadband – would be beneficial to ease uncertainty.
“To date, the broadband focus has been on domestic customers. The bandwidth that businesses need is already a constraint that will only get more pronounced as we move into these emerging technologies.”
White mentioned a client that is self-funding a six-figure broadband infrastructure project, because of the 10-year delay waiting for government support for businesses.
Davison said the Government’s continuation of R&D credits, Patent Box and Catapult Centres would send out the right message to firms seeking to invest in technology. Those who invest now could well be best placed when the uncertainties of Brexit are over.
* The 2016 MHA Manufacturing and Engineering Survey is a report produced annually by the leading association of independent accountancy firms, MHA and has been providing an insight into the sector over the past five years. The results of this year’s survey reflect the fact that the UK has opted to leave the EU, with all that entails, as it was launched after the referendum result was declared.
Kate Arnott: Partner, MHA MacIntyre Hudson
Ella Barrington: Managing director, Base Performance Simulators
Jim Davison: Southeast region director, EEF, the manufacturers’ organisation
Joe Jeffers: Finance director, Taylor Made Computer Solutions
Lynn Knight: Corporate partner, Shoosmiths
Martin Watts: COO, HS Butyl
Antony White: Relationship director, NatWest
Benjamin Wiggins: Recruitment consultant, ARM
David Murray: Managing director of The Business Magazine, chaired the discussion.