Why do manu-services matter?

Posted on 14 Mar 2011 by The Manufacturer

Andrew Sissons of The Work Foundation says manuafcturers must broaden their horizons to flourish in the new business landscape

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