Andy Neely, the new Head of the Institute for Manufacturing speaks to The Manufacturer’s Editor, Callum Bentley about the shape of the future model of manufacturing.
Cambridge University’s Institute for Manufacturing (IfM) outgoing head, Professor Sir Mike Gregory asked the question in last month’s edition of The Manufacturer when reflecting on his illustrious career in the sector, “has anything really changed, or has it just become a little more efficient?”
Gregory explained that he thought the manufacturing landscape had indeed changed – and quite a lot – referencing automation; increased access to capital finance, and the strengthened ties between industry and education, as examples of positive steps.
But it was his enthusiasm for the changing dimensions of manufacturing business models, which drove me to interview his to-be successor at IfM, Professor Andy Neely.
Neely will have taken over from Gregory as of October 1. However, as he jokes, “in practice it feels like it starts about five minutes after it’s announced”.
Neely has a longstanding relationship with the IfM, undertaking two stints at Cambridge – once in the early ‘90s and again after returning in 2008 after a period with Cranfield School of Management.
How IfM will operate under Neely’s guidance is yet to be seen, however, he assures me his direction reflects that set out by his predecessor.
“Mike and I go back a long way,” he says. “We understand each other quite well and we get on very well, so it should be a relatively smooth transition process.
“It’s a very broad church within IfM. But that breadth is also one of the things that makes it very unique – the ability to span technology, management and policy. Clearly we want to undertake world class research, but we also want to make a difference to how manufacturing firms work around the world.”
One of the ways Neely intends on making a mark on the UK manufacturing landscape is through his extensive knowledge of service-based business models.
In the past 12 months the term servitization has become one of the most talked about words within industry. Some flinch at the term, claiming it carries an American flavour and could simply become another feeding ground for consultants.
Neely on the other hand has dedicated the past few decades of his life to studying the effects that changing focus from product to service could have on manufacturing businesses of all sizes.
He undertook a large percentage of this research while overseeing the Cambridge Service Alliance, another arm of the IfM.
“When you think about the outcome that your customer or your customer’s customer is looking for, you naturally draw the boundaries of your business slightly differently,” Neely enthuses.
“So if you think my job is to provide filters, you get stuck on providing filters. If you think my job is to enable my customer to get clean air or clean water, then you can think more creatively about how you might enable them to achieve this.”
There’s no denying it, Neely’s example is simple. But it is one that applies to second or third tier suppliers, a market within the UK supply chain that has so far struggled to fully grasp the concept and adaptation of service-based business models.
By now most people within our sector are familiar with the likes of Rolls-Royce Aerospace and its ‘Power by the Hour’ model. As a giant, Tier one supplier, Rolls-Royce is in a somewhat privileged position to be able to adapt its business model towards this service-based approach.
It no longer supplies only its engines, but instead, flight hours for its customers. This requires massive amounts of data collation and product innovation to ensure the service it now supplies meets the costs it charges for monitored and predictive maintenance and product efficiency.
Again, not something some of the smaller firms can easily attain, but something Neely says is achievable with the right leadership strategy and the intuition to act sooner, rather than later.
“The danger is that the firms that don’t get involved in that revolution might get locked out. If all of your competitors are putting sensors on their equipment that allows them to remotely monitor these products, to gather data, to work out when you’re going to need to repair a spare part for example, the danger is that in five or 10 years when that becomes completely ubiquitous, your product becomes redundant.
“And for the SMEs, you get into questions about who pays for that digital infrastructure to allow me to remotely monitor the asset. For small firms, making that investment can be a challenge.
“There are some quite significant challenges facing small and medium-sized manufacturers in how they cope with the digital revolution that’s going on in manufacturing.”
A huge influx of startup companies looking to cash in on the big data industry could prove the difference between those SMEs which successfully grasp the service nettle and those that do not.
In businesses which, for example, only have the capacity to employ fewer than 100 people, the concept of having a large in-house team dedicated to collecting, collating and then analysing data effectively and efficiently seems a task almost out of reach.
“Some SMEs are absolutely getting this sorted. In fact some startups have built very successful business models centring on capturing, collating and analysing data in different ways and providing insights to people,” he says.
“They can be quite small teams that are just really good at the analytics and statistics. If you’re a small or medium-sized manufacturing company, this is not necessarily a call for you to go and build a big analytics team that sits inside your organisation that will do loads with big data, but you almost certainly want to think about who you should partner with who might have those complimentary capabilities and could do the analytics for you to open up the new market opportunities.”
Keep it together
These new market opportunities Neely speaks of are very likely to evolve in new territories. The service model is no longer something targeted only by manufacturing companies in established and developed economies.
Neely highlights a piece of research involving businesses with manufacturing SIC codes from across the globe, which claim to have a service element to their business model. He has been carrying out this piece of research since early 2006.
“What we’ve see is that in many of the developed economies, the level of servitization is reasonably stable with a little bit of growth, but not massive. This is typically in firms with 100 or more employees.
“When people started talking about servitization, a lot of the discussion of service innovation in developed economies was as a way to compete with low cost manufacturing in countries like China.
“Over the 10 years or so since I’ve been doing that study, you see a growth in proportion of Chinese firms taking on service-based models. Originally only about 1% of Chinese firms claimed also to offer services – now it’s about 20%.”
With a massive middle class emerging in developing economies, particularly China, it is little wonder its manufacturers are looking at ways to develop stronger links with their customers through service-based approaches. But there is more to it than that, as Neely explains.
“There’s been a big push in China about the importance of the service economy. Both in the current and previous five year plan was the first time they had explicit recognition of the importance of services.
“There’s also a lot of interest in platform technologies and organisations such as Ali Baba, which are creating quite sophisticated platforms that a lot of other firms can piggy back on to provide their products and services.
“Of course the people who own the platform are in a really powerful position in industry sectors. As people have got more and more aware of that, more and more people have begun thinking about how they can build the platform and offer other people to offer services. It’s a conversation that’s becoming livelier inside organisations.”
A new model, a new product?
My discussion with Neely naturally gravitates to the ever increasing global focus on shared services.
Companies such as Uber, Zipcar and Airbnb, while extremely convenient, should not only have taxi operators and hotel managers running for the hills, they should also have models manufacturers seriously reconsidering their future business.
One aspect of these evolving business models is what Neely describes as “perpetual products”.
“The idea a lot of us at IfM are exploring is how you extend the useful operating life of either a product or an asset or a system. There are the technical challenges in terms of designing products to last longer or designing for serviceability; what data sensor type infrastructure you will need to put in place in order to gather data on those individual products, etc. But if you get really good at perpetual products, you could extend the useful operating life of products.
“One of the big economic challenges becomes the fact that then the customer needs to buy fewer products, and yet we currently operate in a society which is effectively consumer driven.
“The economic model we’re operating under means you buy things, you use them and at the end of their useful life they disappear and you go and buy some more. If you can make things last longer, potentially you’ve used that opportunity to sell new products.”
The challenge then for business is how you come up with a business model which means you can still capture value by enabling people to use the product for a longer time period.
It seems to be a recurring theme when discussing any service-based model. The benefits are there, but so are the challenges. It’s those businesses that can find a way to overcome the latter that will reap the rewards on offer.