Why do manu-services matter?

British manufacturing may be bouncing back strongly from the recession, but there are some serious challenges lying ahead. Output may have grown by 6.8% over the last year, but it’s still 7% lower than before the recession. During this period, we’ve lost more than 400,000 jobs in manufacturing. Most worrying of all, our high- and medium-tech manufacturing base is shrinking twice as fast as the rest of the sector.

However, amidst these worrying trends there is a huge opportunity waiting to be seized by British manufacturers. Our latest report, published today (14 March), highlights the rise of manu-services, whereby manufacturers move away from mass production and instead provide outcomes, experiences and solutions. From smartphones to guided tractors, from walls with hidden speakers to jet engines, such must-have products have services embedded within them. Without these services – often highly innovative – they would be useless. Manu-services are not a new thing – academics have been talking about a similar concept of ‘servitization’ for some time. But we think they represent the best chance for UK manufacturing to become world leading.

So why do manu-services matter? Well, we can’t re-balance our economy without a stronger manufacturing sector; but the truth is that we are some way behind in the global battle for high-tech manufacturing. Yes, we are exceptionally good in some high-tech areas – aerospace, defence, pharmaceuticals – but we are falling behind the likes of Germany, and emerging economies are catching up at an alarming rate. Many are surprised to learn that nearly 12% of jobs in the Czech Republic are in high- or high-medium-tech manufacturing, compared to less than 5% in the UK.

And that’s where manu-services come in – they play to Britain’s strengths. If our manufacturers can harness some of the power of our service sector and link up with our world-class business schools, the UK can lead the world in this field. Manu-services aren’t so much a sector as a different business model for firms. They offer a whole new way to capture value from the global value chain, and give British firms the chance to innovate in a different way. Rather than relying on continuous product sales, businesses can build secure, long-term relationships with customers, where the value comes from top class service rather than lowest cost.

But if we are to take advantage of the rise of manu-services, we need to act now. Government policy focuses too much on technology, and too little on the type of innovative business models that manu-service firms thrive on. Too many manufacturing firms unwittingly provide services to customers without charging a premium for them. In spite of the UK’s potential to lead in this sphere, there are many obstacles to overcome such as risk, finance or making the transition to a service business model.

Our paper today calls for the government to adopt policies that maximise the opportunities presented by manu-services, enabling firms to thrive. There are two key elements to this: first, ensuring that universities, Technology and Innovation Centres and banks work with businesses as part of effective manu-service networks; and second, removing the specific barriers to growth for manu-service firms that we identify in our report.

But before anything else, we need to recognise how important manu-services can be to the future of UK manufacturing. If we excel in this area, we’ll be well on the way towards a balanced and sustainable economy.

Andrew Sissons is a researcher at The Work Foundation and the author of More than making things: A new future for manufacturing in a service economy, available on The Work Foundation’s website