Göran Roos. European definition is SME up to 250 employees; Mid-sized firms are more than 250...

How Mid-sized Manufacturers Outperform The Rest Of The

Economy In Europe27th June

Göran Roos

Taxonomy

European definition is SME up to 250 employees; Mid-sized firms are more than 250 employees and up to 1bn€ in turn-over. The average German mid-sized firm has 600 employees, turns over €100 million and export 62% of their turnover; 70% are family owned, 70% are based in local/rural communities and they are on average 70 years old as firms; they have on average 5% of turnover in R&D. The mid-sized firms contribute 50 % of Germany’s gross domestic product (GDP, $3.3 trillion).They have a synergistic relationship with the institutional structure that supports high value added manufacturing in Germany80 % of the world’s SME & Midsized leaders are based in Germany and Scandinavia

© Copyright Göran Roos 2012

China may be the world’s factory but companies from the European manufacturing belt is building it


Principle strategy

Dominate global segmentsGlobal market footprint + specialisation = market leadershipStay away from large, price-driven volume marketsCompete through superior value not cost

Technology LeadershipMasters of incremental innovationVery good at innovationObsessed with leading edge technologyVery strong, mostly domestic, research network [internal plus external]

Operational effectivenessSophisticated production networks

Careful choice of outsourcing and offshoring [less then you think]Close connection between R&D and ManufacturingHighly flexible work arrangements worldwide

Learning organisations and Kaizen mastersTop class management capability


Family firms with professional managers = top class performance and unique culture

Stewardship/Custodian: Long-term survival and intergenerational transfer as key objectiveProfit is an inevitable consequence of serving customers better than anyone elseFocus on long-term sustainability with key stakeholders: customers; employees; suppliers and community at largeCompanies as communities: high degree of mutual trust and loyalty leading to an implicit life-long contract contributing to a high performance work place cultureLeadership through example:

Domain knowledgePassion for the business

Flat hierarchies and informal channels of communicationBottom-up management styleHigh degree of cross compartmental cooperation


Principle Recipe for Firm Success in a High Cost Environment

ExperiencedEntrepreneurialLeadership withAmbitious Goals

Depth

Decentralisation

Knowledgeable, LoyalLow turn-over

Employees

Focus

IntegratedInnovation

Globalisation

Specific Closenessto the customer

High PerformanceHigh Quality

Product-Service-SystemOffering

Risk reducing andInnovation driving partnerships with

research and expertise centres

Roos, G. and Burton, K., “Integrated Innovation driven by emerging technologies”, Adelaide Thinker in Residence 2011 Innovation Process: Underpinning Subject Matter Report, February 1st 2012, Department of the Premier and Cabinet, Adelaide, Australia© Copyright Göran Roos 2012

This Requires More Investment In Intangibles

Australia SwedenAustralia Sweden

Australia Sweden

Intangible investments in manufacturing and business services

Intangible Investments = Investments in:• R&D• ICT• Organisational Structures• Design• Brand Equity• Education and Training

Edquist, H., 2011, Intangible investment and the Swedish manufacturing and service sector paradox – what can Europe learn?, Research Institute of Industrial Economics, Stockholm, Sweden© Copyright Göran Roos 2012

This Requires Capable Management

2

2.2

2.4

2.6

2.8

3

3.2

3.4

3.6

3.8

4

Australian score

Global best performing country score

OperationsManagement

Performance Management

PeopleManagement

Extracted from slide No. 17 in Green, R., 2011, Future of manufacturing – management, innovation and productivity, Presentation, Australian Chambers Business Congress Gold Coast Convention Centre, June 1-3 2011© Copyright Göran Roos 2012

This requires a different employer – employee relationship

My responsibility as an employer is to make you the employee more employable during your tenure with me

My responsibility as an employee is to make you the employer more successful during my tenure with you

We both want more firms that are more successful

We differ on how to distribute the economic profit and social good that results from a successful firm


Innovation&

Effectiveness Focus

Imitation&

Efficiency Focus

The High Operating Cost Environment Recipe

Innovation&

Effectiveness Focus

Imitation&

Efficiency Focus

The Low Operating Cost Environment Recipe


Innovation Management

Innovation Strategy & Innovation Management

System

This requires Integrated Innovation

Innovation to Create ValueThrough

Efficiency Improving Innovations, Technology Based Innovations, Design Based Innovations, Art

Based Innovations and Hermeneutic Based Innovations

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Roos, G., “Integrated Innovation – The necessary route to profitability“, in B+I Strategy (ed.), Estrategia, Bilbao, Spain, December, 2011, pp. 51-58© Copyright Göran Roos 2012

Innovation Enablers

ResourcesResource Deployment System


Resources

Owned or ControlledBy the Firm



Additive Additive

Owned or Controlledby the Other Party

Owned or ControlledBy the Employee


Resource Deployment System

MONETARY

PHYSICAL

RELATIONAL

ORGANISATIONAL

HUMAN

MONETARY PHYSICAL REL. ORG. HUMAN

Knowledgecodification,

new IP

Building &developing

relationships

Developingprototypes

Sales ofman-hours

Sale of IP,processes &knowledge

ProduceBy

numbersCRM

Developingcompetencethrough use

Relationshiparbitrage

Use of othercompany’s

assets

Access toprocess

Co-learning

Sales ofproducts

Design&

Chemicaleffect

NewProcesses

NewKnowledge

Investmentin assets

Investmentin building

links

Investmentin brands,image andsystems

Recruitmenttraining,

conditions

Training

Chemicalsynthesis

Word ofmouth

Systemsgenerate

IP

InvestmentIn financialinstruments


Value Creating Innovation

Efficiency Improving InnovationsTechnology Based InnovationDesign Based InnovationArt Based InnovationCounselling Based Innovations


Efficiency Improving Innovations

All the classical techniques e.g. Business Process Reengineering, Lean Manufacturing etc. All with the objective of reducing transaction costs


Summary of value creating innovation approaches


Science Art

Medicine Design

Reductionist Approach Integrative Approach

Exploring ModelsChanging Reality

Subjective Understanding

Expressing ModelsQuestioning Reality

Individual Understanding

Explanatory ModelsExplaining Reality

Universal Understanding

Working ModelsImproving Reality

Hermeneutic Understanding

Abstract Presentation of Insights

Practical Presentation of Insights

EmotionalExperience

Practice

Technology Based Innovation

Trajectories of Existing Core TechnologiesTrajectories for potential substitute technologiesTechnology Convergence


Technology Convergence

Bio

Nano

ICT

CognoTomorrow’s

Manufacturing Base

Genome

Atoms

Bits

Neurones


Example of Converging Technologies: Additive Manufacturing

Changes the economics of making customised components. Big threat to logistics firms: why would a company airfreight an urgently needed spare part from abroad when it could print one where it is required?It lowers the cost of entry into manufacturing by reducing the amount of conventional industrial infrastructure – machine tools, testing equipment and related factory hardware – that companies require to be considered serious industrial playersRequires re-thinking existing design methodology and is a perfect complement to a Living LabThe quality of ideas becomes more important than the scale of production but brilliance alone will not suffice. Good products can be copied even more rapidly with 3D printing, so battles over intellectual property will probably become even more intense. It will be easier for imitators as well as innovators to get goods to market fast. Competitive advantages may thus be shorter-lived than ever before and although the competitive advantages of large and well organised global manufacturers will remain, the artisan production worker will return to prominence.Mass personalisation becomes a practical realityEnables some manufacturing to return from China and elsewhere.

Digital File 3D Printing Physical Product


Design Based Innovation

The objective of Design is to achieve behavioural change in the user which is

Desirable from the users point of view [i.e. they are better of in their own opinion after the change]Beneficial to the supplierPositively impacting other stakeholders


Observation Brainstorming Rapid Prototyping Refining Implementation

Analysis Genesis Synthesis

Source: Nyberg, M. and Lindström, M. (2005), “Muotoilun Taloudelliset Vaikutukset”, ETLA, Discussion papers No. 982, p. 20.

Art Based Innovation

Art has numerous opportunities to add value to business. In consumer goods art can add to the perceived authenticity of the good and thereby increase its value in the eye of the consumer. This is critical in the luxury goods end of the spectrum.


Example of profitable art: Ferran Adria’s use of molecular cooking and deconstruction to innovate cuisine and restaurant management at the El Bulli Restaurant

Svejenova, S.,Mazza, C. and Planellas,M., 2007, Cooking up change in haute cuisine: Ferran Adrià as an institutional entrepreneur, Journal of Organizational Behavior 28 (5), 539© Copyright Göran Roos 2012

Emotional / Experience / Practice Based Innovations

Innovating in this space becomes a process, the aim of which is to generate, as a creator of an object, in the mind of the interpreter (consumer/customer) a specific set of emotions, intentions and thoughts as well as physical change.


Summary of value creating innovation approaches


Science Art

Medicine Design

Reductionist Approach Integrative Approach

Exploring ModelsChanging Reality

Subjective Understanding

Expressing ModelsQuestioning Reality

Individual Understanding

Explanatory ModelsExplaining Reality

Universal Understanding

Working ModelsImproving Reality

Hermeneutic Understanding

Abstract Presentation of Insights

Practical Presentation of Insights

EmotionalExperience

Practice

Effectiveness Improving Innovations

Maximising the value delivered from the stakeholder’s point of view


Value derived from the

deployment of the offering


possession of the offering


appreciation of the offering

Instrumentalvalue

Intrinsicvalue

Extrinsicvalue

Business Model Based InnovationsDescription of the Product-Service-System/Solutions offering Value Proposition for each of the target customer segments, target consumer segments and other definitive stakeholders Description how the target customer segments, target consumer segments and other definitive stakeholders capture value from the offering What competitive advantage does the offering enable or contribute to within the target customer segments, target consumer segments and other definitive stakeholders Value attribute, attribute preference and attribute performance for each of the target customer segments, target consumer segments and other definitive stakeholders What requirements must be fulfilled by the target customer segments, target consumer segments and other definitive stakeholders in order to be able to benefit from the offering Description of how the Product-Service-System/Solutions offering should be implemented at the target customer segments, target consumer segments and other definitive stakeholders to ensure the targeted benefits (value) Place, role and strategy of THIS business in the business ecosystem of which it is part Outgoing logistics and Distribution Channel choice for each of the target customer segments, target consumer segments and other definitive stakeholders Incoming logistics and supply chain choice Relationship width, depth and frequency for each of the target customer segments and other definitive stakeholders Value Configuration (Value Chain, Value Shop, Value Network) Cost structure Revenue Models


Objective of Business Model Innovation

To have a higher profit than the revenue from the main Product-Service-System OfferingThrough accessing multiple profit pools in different value chains and ecosystems


Managing the Innovation

Innovation StrategyInnovation Management System


Göran Roos. European definition is SME up to 250 employees; Mid-sized firms are more than 250...

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