Australian Manufacturing Continues Strong Growth

Australian Manufacturing Grows

Last night I was at the SEMMA (South East Melbourne Manufacturers Alliance) end of year get together at the Nissan Casting Plant in Dandenong. We were celebrating another year of Australian Manufacturing, and in particular Melbourne Manufacturing. The Nissan Casting Plant is a great example of how we can compete globally. Nissan have pulled their car assembly operation out of Australia a long time ago but the casting plant stayed and supplies their world chain.

 

SEMMA

SEMMA

And I was reminded again that not only is Australian Manufacturing not dead yet, it is in fact still growing. Check out this 5 year view of the Australian Performance of Manufacturing Index. 50 represents stable with numbers below 50 meaning it is contracting and numbers above 50 meaning it is expanding or growing.  The trend line is up and it has been expanding since 2015 with only 1 month where that didn’t happen.

 

Australian Manufacturing PMI 2017

Australian Manufacturing PMI 2017

That is 3 years of solid growth. So some really good news for the end of 2017 and I expect it to continue into 2018.

 

Successful Endeavours specialise in Electronics Design and Embedded Software Development, focusing on products that are intended to be Made In AustraliaRay Keefe has developed market leading electronics products in Australia for more than 30 years. This post is Copyright © 2017 Successful Endeavours Pty Ltd.

Practical Innovation

Innovation

Innovation is always a topic of interest to me. This post covers an approach to Innovation that I found helpful and was inspired by Frank Connolly of Think Quick. He is working with SEMMA as part of their Future of Manufacturing project which we are supporting.

 

Frank Connolly of Think Quick

Frank Connolly of Think Quick

So the first thing that always comes up is the question of “What is Innovation“? After all, it is a word that has been done to death and nearly everything has to be Innovative or else it a dinosaur. Here are a few of the definitions I have heard over the years and the sources:

 

  • Innovation is the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. Wikipedia
  • Innovation is “Change that creates value”. Frank Connolly
  • Innovation is a “Change that adds value”. Roger La Salle
  • Innovation is a change that is intended to be an improvement. Ray Keefe
  • Innovation is “something new or different introduced”.
  • Innovation is “The act of introducing something new”. The Free Dictionary.
  • Innovation generally refers to renewing, changing or creating more effective processes, products or ways of doing things.” The Australian government business website.

 

All of these involve the idea of change or something new, coupled with improvement or increase in value. So I think I’m happy that the meaning of Innovation is fairly consistent when you look beyond the word at the formal definitions. Some are easier to understand than others.

 

What I think has happened is that the process of Innovating has become such a grand design that it can now only be done with a 155 page strategy document, a think tank and the aim of revolutionising a market in one single step. In other words, it has become nearly impossible to do.

 

Clayton Christensen in his book The Innovator’s Dilemma showed us that the business drivers of our current customers blinds us to emerging but currently unsuitable technology that eventually takes over our market. This has led to a focus on Innovation that looks to be disruptive as its primary goal. And I have come to the conclusion that this has hampered our attempts at Innovation. We have set the bar too high. And this isn’t what Innovation was about. Just a way of looking at a specific type of Innovation.

 

Practical Innovation

So this is where Frank Connolly got my attention. He is saying a similar thing. That Innovation itself isn’t the hard bit, it is the way we think about Innovation that makes it hard. He runs a training program DIY Innovation which includes looking at Practical Innovation. This is a training course anyone can sign up for and definitely great value having just done a core component of it as part of the SEMMA Future of Manufacturing project.

 

Frank’s premise is that we are creatures of habit and that it is the habit, not the ability to think, that is the problem. He also sees Innovation as having been made to seem way too difficult for ordinary people to do. You have to be an Innovation Super Hero with a triple PHD in something and a weirdly wired brain in order to pull off actual Innovation.

 

What Frank teaches includes material that has the following characteristics:

 

  • Has been proven to work in practice
  • Is clear and understandable to anyone
  • Is logically structured so you can follow it clearly
  • Is intended to be used at every level of an organisation and not just by an elite leadership team

 

Practical Innovation

Practical Innovation

I’m not going to try and reproduce what I learnt at the workshop but instead to share with you the 3 most important ideas I came away with.

 

  1. Innovation can and should be done by everyone!
  2. Do lots of small, simple, structured experiments and document them in a consistent manner.
  3. You should expect at least half your experiments to fail.

 

Everything else flows from those 3 fundamental ideas. And Frank took the time to lay a proper foundation with lots of examples as well as some models of problem types in order to ensure we understood everything and were able to then go and do it. And the reason half your experiments should fail, is that you are looking to discover something new and so you can’t predict when and how you will find it. Many things can be progressed by removing a small but significant obstacle.

 

The main problem he has is that once he has done this, it looks too simple. Surely Innovation is hard. So can Innovation really be done by mere mortals? It seems it can after all.

 

Frank Connolly is the founder of Think Quick and consults to governments and businesses across the globe.

 

Successful Endeavours specialise in Electronics Design and Embedded Software Development. Ray Keefe has developed market leading electronics products in Australia for nearly 30 years. This post is Copyright © 2014 Successful Endeavours Pty Ltd

Modern Economies Need Manufacturing

Professor Goran Roos

 

South Australia Thinker in Residence

Professor Goran Roos

As well as being the Thinker in Residence for South Australia, Professor Goran Roos is considered one of the 20 most significant thinkers of the 21st Century. This morning he was presenting his views on Australian Manufacturing to a combined breakfast meeting of the South East Business Network and SEMMA.

 

So what did I learn?

 

Here is the short list on what manufacturing does for an economy:

 

  • R&D is driven by it
  • Innovation is primarily manufacturing related
  • Value added exports are usually manufactured
  • Creates more indirect jobs per direct job than other sectors
  • Many service companies have a manufacturing core
  • Is the fastest knowledge growth domain
  • Is essential for a highly competitive economy

 

His primary point is that “A healthy manufacturing sector is a must for any advanced economy with ambitions to maintain both economic and social wellbeing“.

 

Now he has my attention big time. Because this is something I have inherently believed my entire working life. Australia needs manufacturing.

 

Manufacturing creates employment

Next he looked at the contribution of manufacturing to employment and why we have employment issues in Australia. Yes I know the official unemployment figure is low, but that is because many people looking for work are not included in the official figure. So here is how is pans out for employment:

 

  • For each manufacturing job, there are 2.5 other jobs created around it
  • In Australia where there are 1 million jobs in manufacturing, that means there are 3.5 million jobs in total associated with manufacturing
  • For each working person, there is a dependent person relying on them for income. These can be relatives, children, spouse etc.
  • So in total there are 7 million people in Australia dependent on manufacturing

 

Now lets look at mining:

 

  • For each mining job, there is another job created around it
  • In Australia where there are 200 thousand jobs in mining, that means there are 400 thousand jobs in total associated with mining
  • For each working person, there is a dependent person relying on them for income. These can be relatives, children, spouse etc.
  • So in total there are 400 thousand people in Australia dependent on mining

 

So the current government policies and industry practices of reducing manufacturing and increasing mining for direct export are actually economic suicide.

 

The service industry is even worse for indirect job creation though it does employ more people than mining ever will:

 

  • For each service industry job, there is 0.5 jobs created around it
  • The ABS statistics for 2010 show roughly 3 million people working in service industries in total including the 0.5 jobs created
  • For each working person, there is a dependent person relying on them for income. These can be relatives, children, spouse etc.
  • So in total there are 6 million people in Australia dependent on service industry jobs

 

What this means is that manufacturing is actually the most critical sector in Australia in terms of job creation and future prosperity.

 

So lose manufacturing, and you lose a huge number of jobs.

 

The USA has shed 5 million manufacturing jobs since 2000, primarily to offshoring manufacturing to lower cost economies. These jobs were replaced by low paying personal service jobs. The net result is record levels of unemployment and a trade deficit in every manufacturing category.

 

He also spoke of the hidden categories, particularly in industrial products, that lead to high export incomes and have been strength of many European Manufacturers. The following diagram shows the attributes that make these products possible. Note that 4 are to do with knowledge, and 4 to do with structure and relationship. This implies you need both.

 

Hidden Profit Generators

Invisible Middle Market

Economic Growth and Competitiveness

Economic growth is a measure of how well you have been doing up to now. It is a measure of the past performance. It applies to yesterday.

 

Competitiveness is a measure of how well you will keep doing. It is a measure of likely performance. It applies to tomorrow.

 

So it is more important for the future to be positioned to be competitive, than it is to have had past economic growth. Ideally you will have both.

 

Some examples of countries that are highly ranked for competitiveness and also economic growth are:

 

  • China
  • Singapore
  • Switzerland
  • Sweden
  • Finland

 

That was a surprise. Australia ranks at number 15 for competitiveness and growth according to this analysis. The red line is the frontier of highest competitiveness. Australia is a long way from it.

 

Future Economic Success

Future Economic Success

Innovation

Goran Roos also had an interesting take on innovation and this fits in nicely with the view of Edward De Bono on Creating Value. He defines 2 types of innovation that are required to address Australia’s lack of competitiveness:

 

  • Innovate to create value
  • Innovate to retain value

 

Based on this, offshoring is a really bad idea. It is only done to reduce overheads for cost based activities. For value based activities where we retain the value and the income from that value in Australia, we should be onshoring!

 

Knowledge

Manufacturing is the fastest knowledge growth domain. This is an interesting claim and one that had a case put for it to demonstrate the validity. Here is the case:

 

  • Manufacturing generates 15 times the knowledge that mining does per unit of economic activity
  • Manufacturing generates 3 times the knowledge that service industries do per unit of economic activity

 

Professor Goran Roos also pointed out that knowledge is like a race. If you slow down for a bit, then you can’t catch up if the other runners keep going full steam ahead.

 

Onshoring

It now makes sense that mining for export is not that great an option. Take something of huge potential value, and give it away at the lowest point you can in the value chain.

 

Onshoring means we pull value creating back in Australia so we get paid for it. And making stuff, and providing the service industries to support that should be our primary strategy for the future.

 

The other point Professor Goran Roos made is that Australia is not a scale based economy. We don’t have a large local market by world standards and so we should focus on product categories which do not require scale. Or in my language: lower volume, higher value add products. This is also know as Niche Electronics Manufacture.

 

Thinker in Residence

His speech on the future of South Australian manufacturing is also worth watching and listening too. Here it is:

 

 

All graphics are Copyright © Goran Roos 2011.

 

Successful Endeavours specialise in Electronics Design and Embedded Software Development. Ray Keefe has developed market leading electronics products in Australia for nearly 30 years. This post is Copyright © 2011 Successful Endeavours Pty Ltd