UK: Managing revolution, Robert Heller - Thing-making has a future too - New technology may be the way ...

UK: Managing revolution, Robert Heller - Thing-making has a future too - New technology may be the way ... - Managing revolution, Robert Heller - Thing-making has a future too - New technology may be the way forward, but without the traditional processes

Last Updated: 31 Aug 2010

Managing revolution, Robert Heller - Thing-making has a future too - New technology may be the way forward, but without the traditional processes of the manufacturing industry, it is going nowhere.

Non-electronic manufacturers, long scorned as mere 'thing-makers', have been written off - and for apparent good reason. Their profits have been squeezed, their employment has slumped, and over-capacity is chronic. 'New technology' will supposedly dominate the future, as micro-electronics, the internet and associated marvels rule the 'knowledge society'.

Yet these vibrant sectors have no monopoly on new technology - or on profitable business. By far the greatest economic and technological activity lies in other areas, even in industries of such creaking antiquity as shipbuilding and steel.

Manufacturing far outsells information and communications technology. Only four of the IT specialists - Microsoft, EDS, Intel and Texas Instruments - figure in the world's 500 largest revenue-earners. Their combined sales came to $62.2 billion in 1997, 25% below five low-tech beverage giants led by PepsiCo and Coca-Cola. Throw in all the computer and office equipment giants, headed by IBM and Hewlett-Packard, and you reach only $326.6 billion, under half the total sales of the broader-based electronics and electrical leviathans such as GE, Hitachi, Matsushita and Siemens.

Combined sales of the above high-tech sectors in Fortune's global 500 are easily matched by the $1,150.8 billion automotive sector. In his new book, In Praise of Hard Industries, Eamonn Fingleton makes the point that traditional manufactures, from steel and ships to foodstuffs and components, are in growing demand in the industrialised world. And gigantically populated markets await elsewhere.

In meeting that demand, manufacturing is making spectacular use of new technology in two ways. First, it has hugely increased output per worker, sharply reduced costs, vastly cut materials consumption, and steeply raised efficiency. Much of the output is humdrum compared to the wonders of, say, the computer makers and mobile phone firms. But these latter consume massive quantities of equipment and materials from wiring to packaging. All this has to be made by someone, somewhere - and made efficiently.

Second, the IT wunderkinder depend heavily on the companies that make the machines that make the things that make the economic world go round. The technology here can be very high - and very expensive. Fingleton cites the cost of 'steppers', the lithographic machines that print circuit patterns on the silicon wafers used in computer chips. Prices soared from $1 million to $5 million between the early 1980s and 1998, with near-matching rises in performance. Nikon sold over $1.5 billion-worth of steppers in 1997.

The silicon used in the wafers is a highly specialised product that can cost up to $80 an ounce, nearly 1,000 times the price of steel. Manufacture of the wafers themselves is remorselessly innovative. Wacker-Chemie, one of three dominant makers, now needs only one man to operate 10 of the 'puller' machines used to grow silicon crystals. Textile machinery is another sector where technological advance has produced huge economic gains for the innovators: the Swiss have doubled their share of the world market in a decade.

Switzerland, Germany and Japan are all notoriously high-cost economies. But as capital-intensive machinery takes over and productive efficiency advances, labour costs become less significant. National economies that let their manufacturing capability fall into decline and fail to keep up with technological advances will not be saved by developing a buoyant high-tech industry. The British preen themselves on their lofty place in pharmaceuticals, but the world's top 10 pharmaceutical firms have lower combined revenues than General Motors.

The burning need for manufacturers is to abandon traditional ways of managing as readily as its leaders are abandoning traditional materials and processes. Philip Condit, in the pilot's hot seat at Boeing, points to one critical aspect of the need: 'We have left the cost-based world behind and we are now in the value-based business, where the customer dictates and defines value.' True enough, but it wasn't failure to add customer value that grounded Boeing: its management failed to cope with the demand created by its engineers and salesmen.

Being world champion at making aircraft, or anything else, demands superb management of the technology of product and process. Ponder the words of Sony's Akio Morita: 'In Japan ... almost every major manufacturer is run by an engineer or technologist ... In the UK, I am told, some manufacturers are led by chief executives who do not understand the engineering that goes into their products'.

Developments in information and communications technologies affect manufacturing itself. But manufacturing bosses must master the new management technology - fast-moving, customer-focused, collaborative, non-hierarchical, and IT-based - as demonstrated by Silicon Valley. That's where the old and new technologies can converge to return manufacturing to its rightful position: stage centre.

Robert Heller was founding editor of Management Today.

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