Many of today’s industrial manufacturing companies have grown into diverse organisations, with multiple business divisions operating across a number of countries and regions.
This web of complexity has been made worse by iterative organisational change over the last 10-20 years. Together, this has had the effect of slowing down decision-making, limiting the impact of strategic initiatives and the ability to respond quickly to market changes.
At a time when CEOs are adopting new strategies, existing structures and processes need to change so that the company is best placed to deliver the new strategic objectives.
In this paper we share our views and experience of how organisations are taking steps to create growth and competitive edge through new approaches to innovation, global operations and a closer alignment of the operating model with legal and tax structures.
The industrial manufacturing sector is a key focus area for us at PwC. We are launching our report, ‘Preparing for Growth’, which looks at the key issues being faced by CEOs across the manufacturing sector. The key statistic is that 71% of CEOs are anticipating some strategic change in the next 12 months. I am joined today by Mark Crawford, a director in our consulting practice. Mark, that is a big percentage of CEOs who are anticipating change. What do you think is underpinning that?
I think in no uncertain terms the volatility of the current economic environment over the last few years has meant that CEOs have tried a number of different things ranging from emerging markets through to cost reduction exercises. And without knowing which way to turn, they are kind of spreading their bets across a number of areas. Almost half of the manufacturing CEOs have told us that there are three areas that they are looking at are – innovation, operational effectiveness and reducing complexity.
And if we take each of those in turn starting with innovation, there is a phrase in there report that ‘necessity is the mother of all innovation’ - what do we actually mean by that?
Year on year we have heard from CEOs and from my clients the innovation is important to them. However, sometimes you wonder whether or not they are really giving it a fair go. Is it really a burning platform for them because the current products seem to be working and they are happy with their current customer relationships? So, the whole aspect of innovation really needs some drive. It needs some strategy behind it. It needs some organisational input.
And if we take the innovation and then link it toward operational effectiveness, how do we see those two things interacting with clients.
Well, if I recount a story where the client who created a new product, engineered it, prototyped it, manufactured it and then found out at the end that their customers were not really interested in the product; it kind of leads you along the line of thinking that innovation has to be interlinked with the supply chain. So, the operational effectiveness of the supply chain and the global nature of it is important but also, must be linked back to that innovation point.
And globalisation is a theme, I guess, that we have been very used to across the industrial manufacturing space for a number of years now. What impact do you feel that has had and what impact does it have on people's ability to actually achieve that operational effectiveness?
Well, organisations have grown up through a number of acquisitions or emerging market strategies. They have a global footprint but they are not quite making the most out of their organisation. I think that when I speak to CEOs and work with manufacturing clients, it is about understanding what they can keep global, what they can do globally, but then also what they can leave to the local organisations and making sure that there is a strategic intent throughout all the layers of their business.
So, it sounds like the CEOs have got a lot to think about this year and it could be a year of significant change across a number of our clients.
Thanks Mark. So, in summary, the report highlights three priorities for CEOs in the industrial manufacturing sector – innovation, operational effectiveness and simplification. All of these are linked and cannot be considered in isolation. They will often require fundamental changes in both the nature and the form of the operations. We explore all of these themes in more detail in the report and we hope you enjoy reading it. Thank you for watching.