Over 250 years ago UK manufacturers pioneered the first industrial revolution and have since been a driving force of growth in the economy; contributing jobs, investment spending, cutting edge research, world class brands and significant revenues. We are now at the starting phase of the fourth industrial revolution which redefines how manufacturers derive and deliver value through greater automation, data analytics, computing power and internet connectivity. Manufacturers have the potential to transform into connected, customer-centric businesses capable of developing highly customisable products, more efficiently and delivering them faster and at lower cost.
These fundamental changes are required in much of UK manufacturing and as identified in our 2019 Manufacturing Digital Transformation Report drive opportunities in production and the back office – but progress is being significantly hampered by the uncertainties surrounding Brexit. Digital transformation is not a nice to have – our global competitors are investing significantly in Industry 4.0 technologies and are starting to take what looks like a difficult to claw back lead in digitalisation. This will have long term consequences for UK manufacturing.
Digital transformation requires investment in new capital and skills – and this requires a reasonable level of certainty for manufacturers to have the confidence to invest. The continuing focus of the government on Brexit to the detriment of all other aspects of the UK economy and the uncertainties around the type of Brexit that will be achieved has provided very little certainty.
With these factors taking its toll on the level of investment manufacturers are willing and able to make. Our Q3 Make UK/BDO Manufacturing Outlook survey has shown manufacturers investment intentions contracting throughout 2019 and in this quarter – investment entered negative territory for the first time since Q3 2016 meaning the sector’s progress towards becoming digitally-focused for the long term has stalled.
Driving productivity growth
One of the biggest economic challenges facing the UK is our stubbornly low levels of productivity. GDP per hour in the UK increased by just 1.1% between 2008 and 2016 compared with 8.5% in the United States, 7.4% in Japan and 6.5% in Germany. According to BDO research, 85% of UK manufacturers said that increasing productivity levels was a key benefit to any digitalisation project. But with manufacturers curtailing investment plans it’s likely that our productivity crisis will continue. No or minor improvements in productivity means slow GDP growth.
Skills and talent
As well as capital investment, industry needs to have the confidence to invest in people and skills. Digitalisation is about the integration of human, machine and data. Despite moves to foster digitalisation, UK manufacturers remain hamstrung by the skills set of its current workforce. According to our survey, only 21% of manufacturers believe the government is doing enough to help them address the skills gap that currently exists and the vast majority (84%) want them to do more to deliver skills for manufacturing digitalisation. However, the government has been focused only on Brexit over the last few years and has ignored the needs of industry and the development of a sustainable, long-term industrial strategy. This will have significant implications for manufacturing for many years.
Companies need to prepare for a more digitally-fluent, productive future both in terms of the people they employ and the technologies they deploy. Clear government action is needed or UK manufacturing will be placed at unnecessary risk.
Tom Lawton is National Head of Manufacturing at BDO.