Rethinking Manufacturing in Scotland: a strategic view

In the third in a series of manufacturing blog posts, Steve Paton takes a look at the strategy of manufacturing and how operations strategy must respond. 

In earlier blogs we argued that Scottish manufacturing needs to think beyond supply chains and embrace manufacturing ecosystems where an ecosystem comprises a group of firms who together offer a coherent solution to an end-user. This solution offers complex functionality like a windfarm generating electricity, or a mobile phone behaving as a digital tool-box. We noted that ecosystems are inherently dynamic which we explained in terms of the appropriation dynamic, the capability dynamic, and the governance dynamic. Each ecosystem will have an arrangement in place that balances these three dynamics. But this state of balance is always temporary - this arrangement will be subject to constant challenge. 

For firms, strategy then becomes a matter of dealing with such challenges or embarking upon initiatives in attempts to re-balance the ecosystem to their own advantage. But what does that entail and how does that impact their strategy and operations? 

The accepted wisdom about strategy for Scottish manufacturing firms is that they should avoid competing on price, hence the drive for High Value Manufacturing. It is worth pointing out that High Value Manufacturing is often confused with Advanced Manufacturing: a phrase that wrongfully equates ‘high-tech’ with ‘high value’. Manufacturing that is technologically advanced is not necessarily of high value. 

Advising manufacturing firms they need to compete on value and that their operations must be Lean and Agile is much too simplistic. Lean is useful but it requires relatively stable environments to be fully effective and, unfortunately, stability is becoming less a feature of 21st century business. Agile is problematic as it suggests that firms need to be flexible and adaptable but gives little guidance on how this can be achieved within their own circumstances and, rather ironically, Agility often comes at a cost, challenging the gains made by Lean. 

Adopting Ecosystems thinking is more useful for manufacturing firms as it recognizes a more complex landscape where operations strategy is multi-layered. 

Value is important because it drives appropriation. Gaining an understanding of why your contribution to an ecosystem is considered valuable and commands a good price is one of the starting points for strategic thinking. If you can achieve a good price for your contribution, you might feel comfortable, but you shouldn’t as other initiatives will emerge to challenge your position. 

Understanding why you have difficulty maintaining your position within the ecosystem should prompt you to take the initiative and do something about it. 

What can a shipyard contribute to the ecosystem that runs ferry services on the West Coast of Scotland, that other shipyards cannot contribute? What can a fabricator contribute to the construction of foundations for wind turbines that other fabricators cannot? Why should your shipyard or your fabricator be considered are all? 

If your response is being ‘lean’ and lowering costs, the chances are that you are condemned to a race to the bottom. 

Capability is important because it allows you to make valued contributions to an ecosystem. Understanding what you are capable of is a second starting point for strategic thinking. Run-of-the-mill capabilities are of little use. Clearly the scarcer your capabilities are the better it is for your competitive position. Unique capabilities are of course best and with these you might feel comfortable, but again you shouldn’t. Here too other initiatives might be lurking that could challenge your position. The realisation that your capabilities may be replicable should prompt you to take action. Capability development through innovation and investment is a constant requirement for high value manufacturing as it safeguards your ability to continue to make contributions to an ecosystem. 

Relationships are important as they indicate how the ecosystem is governed and organised. They dictate how the various solutions are put together to achieve the overall complex functionality. There can be a lead firm who is more or less in charge and who picks and chooses suppliers and complementors. There can be an arrangement dominated by competitive tendering in an open market. There can be a mixture of different arrangements. Understanding the nature of your relationships and how these achieve coordination through contracting, competition and cooperation is a third starting point for strategic thinking. These relationships serve a purpose for delivering the overall complex functionality that the ecosystem generates for end-users. But relationships can also be asymmetric with some firms getting short-changed. If you have drawn the short straw, that should prompt you to take the initiative and take action. 

All three dynamics - appropriation, capability, and governance - need to be considered in your strategic thinking. 

To strategize in these terms is to see the firm as providing and adding solutions to the ecosystem. To remain viable, the strategic focus should be on spotting problems and developing solutions, or in developing better solutions for existing problems. Your solutions are your value proposition. Your capability tells you what solutions you have on offer. The governance indicates how your solutions fit into the larger offering. 

Operations strategy must respond to the altered landscape provided by ecosystems thinking. First it must become much more connected to the overall strategic direction of the firm and how it is positioning itself with its solutions in the ecosystem. Second, operations strategy must expand its horizons to consider not only manufacturing capability but also innovation and creativity and wider inter-organisational relationships. Third, operations strategy must realise that efficiency and productivity are just hygiene factors. Lean and Agile, though not irrelevant, are no longer a path to competitive advantage. 

In summary operations strategy must shift focus. It must focus on building capabilities which provide solutions to problems as they emerge within ecosystems that are evolving at increasing rates. 

About Steve Paton

Dr Steve Paton is a senior lecturer in Operations Management at the University of Strathclyde Business School in Glasgow. Prior to entering academia he spend 20 years in industry within the Aircraft and Defence sectors. His research interests include the management of operations and projects in high-value complex, engineering environments. His aim is to generate useful knowledge which is academically rigorous but easily transferrable to practice.