MANUFACTURING winning in the next decade

Transcription

1 Text DANISH MANUFACTURING winning in the next decade Text September 22, 2016 Aarhus University 0

2 Danish society needs productivity improvements to afford future welfare Hourly productivity by country USA = index SOURCE: Produktivitetskommissionen Det handler om velstand og velfærd (2014) 1

3 Transportation Business services Trade Primary Hotels and restaurants Manufacturing Construction Other Manufacturing is leading measured on GVA per hour Gross value added per hour, DKK, 2013 prices 1,250 1,200 1,150 Pharma 1, Other industry 1 ICT and other services Public % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of employment, 100% = 2.6 m 1 E.g. Food industry, textile industry, plastic- and rubber industry and oil refinery industry 2 Excluding financial services 3 Including utilities SOURCE: Statistics Denmark 2

4 Our analysis of Danish manufacturing identifies 10 success patterns of winning companies looks ahead in the next decade and identifies 7 pressing an impactful trends outlines 5 action areas for corporates and policy makers 3

5 SUCCESS PATTERNS Success patterns of winning companies Positive effect Negative effect High impact No effect Impact on Profitability EBIT margin 2014 Growth CAGR A1 Company size. Companies with > DKK 100 m in annual revenue are on avg. 42 percent more profitable and grow 3.2 PP faster than companies with an annual revenue < DKK 30 m A2 Internationalization. Global players are on avg. 17 percent more profitable and grow 3 PP faster than local players A3 Customer satisfaction. Companies with high customer satisfaction are on avg. 27 percent more profitable but grow 33 percent slower than companies with low customer satisfaction A4 Innovation. Innovative leaders are on avg. 13 percent more profitable and grow 1.8 times faster than innovation followers A5 $ $ Premium companies are on avg. 16 percent more profitable but grow 47 slower than lowprice companies A6 Solution scope. Component businesses are on avg. 14 percent more profitable than fullsolution providers A7 Aftersales and services. Companies with high degree of aftersales are on avg. 11 percent more profitable but grow at only 5 percent of low aftersales companies growth A8 Industry affiliation. Avg. growth rates vary from percent, while profitability varies from percent A9 Management incentives. Companies led by leaders with significant ownership grow on avg. 5 times faster than companies led by leaders with little ownership A10 Labor productivity. Companies with high labor productivity are on avg. 2 times more profitable and grow 4.8 PP faster than companies with low productivity SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

6 TRENDS Opportunities and challenges in the next decade Opportunity / Prepared Risk / Not prepared Large effect Opportunity or risk? Neither nor Prepared for trend? B1 Increased demand for customer-specific system solutions and integrated services B2 Relative shift of demand to markets outside Europe B3 Rising and more volatile raw material costs B4 B5 $ Increasing importance of aftersales/service Increasing environmental aspirations and requirements at both process and product levels B6 B7 Shortage of engineers/skilled labor in Denmark Disruptive technological innovations revolutionizing products or production processes SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

7 ACTION AREAS 5 action areas for companies and policy makers Success patterns A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 $ $ Size Internationalization Satisfied customers Innovation Premium Component vs. solution Aftersales/ service Sector Management structure Labor productivity Trends B1 Increasing demand Shift of demand for customized to countries system and outside Europe integration solutions Area III: customized solutions based on standardization and modularization $ B2 B3 B4 B5 B6 B7 Targeted internationalization strategy with Rising and Disruptive more volatile technological emphasis on premium material costs and emerging markets innovations Area I: targeted internationalization strategy with emphasis on premium Increasing relevance of aftersales/ service Area V: circular products and business models Increasing environmental aspirations/ requirements Area IV: expanded aftersales/service offering Area II: investments in disruptive technologies to drive innovation and boost productivity Shortage of engineers/skilled labor in Denmark Investment in disruptive technologies to drive innovation and boost productivity Customized solutions based on modularization Expanded aftersales/service offering Circular products and business models 6

8 Appendix: 7

9 ACTION AREAS Ensure targeted internationalization strategy - emphasis on premium Companies Policy makers Distribution of corporate profit pool Percent 3 specific ideas for companies and society Advanced economies Emerging economies 1 Granularly prioritize geographical areas by paying attention to evolving mega cities % 32% 2 Internationalize gradually from exporting to a global value chain % 38% 3 Attract foreign direct investment and qualified labor to boost productivity and ease the internationalization process 1 Based on projection regional and industry specific revenues and profit margins SOURCE: McKinsey Global Institute Playing to Win, September 2015; Dansk Industri (Fremstillingsindustrien) and McKinsey survey

10 ACTION AREAS Invest in disruptive technologies Companies Policy makers Manufacturing R&D/ revenue 1 3 specific ideas for companies and society Germany 4.64% 1 Develop a clear innovation strategy, considering the R&D spend of European peers Sweden UK 3.49% 4.39% 2 Own the platforms of the future - to exploit new sources of revenue and preempt competition Denmark 3.43% 3 Put Industry 4.0 at the front of the national agenda with inspiration from Germany Finland 3.03% 1 Based on 2011 SOURCE: OECD; Eurostat; National Statistical Offices; McKinsey; Dansk Industri (Fremstillingsindustrien) and McKinsey survey

11 Policy makers Companies ACTION AREAS Customize solutions and expand aftersales/service offerings Key survey insights 3 specific ideas for companies and society Aftersales account for only 14% of revenues in manufacturing 73% of manufactures plan to create more customer specific solutions Best in class companies successfully exploit aftersales potential Create a customized aftersales/service offering for each customer segment appreciating segment differences Run a dedicated aftersales/service business unit with clear performance measures Minimum content of aftersales/ services in some public tenders SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

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13 APPENDIX: INTERNATIONALIZAITON Trend prioritization by country Share of firms that selected trend as top 3 trend Top 5 trend Trend Denmark Germany 1 Finland 1 Increasing demand for customer-specific system solutions and integrated services 56% 47% 30% Relatively shifting demand to markets outside Europe 42% 45% 37% Rising and more volatile raw material costs 34% 12% 20% Increasing importance of aftersales/service 32% 39% 31% Increasing environmental aspirations and requirements at process and product levels 28% 21% 26% Considering Denmark as a key factor for competitiveness 26% 30% 24% Increasing competition due to new market participants 25% 31% 36% Intensifying and globally synchronized economic cycles 18% 16% 34% Shortage of engineers/skilled labor in Denmark 17% 20% 10% Disruptive technological innovations revolutionizing products or production processes 14% 28% 31% Increasing importance of trade policy and legal/regulatory framework 8% 11% 20% 1 Benchmark is scaled to match Danish survey SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

14 APPENDIX: DISRUPTIVE TECHNOLOGIES Action Area 1: Premium combined with international focus equals higher margins Avg. profitability; EBIT margin, 2014 Average Share of sales outside Denmark Sold in Denmark Sold abroad < 30% 30-70% > 70% Premium segment 5.3% 5.5% 7.7% 6.7% Target customer segment Both 5.5% 6.1% 7.1% 6.4% Medium price segment 5.0% 5.9% 6.3% 5.8% 5.2% 5.8% 7.1% SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

15 APPENDIX: DISRUPTIVE TECHNOLOGIES Action Area 2: Innovation leaders has higher margins and experiences higher growth Innovative position Avg. profitability EBIT margin, 2014 Avg. growth CAGR, Avg. R&D spending Percentage of revenue Avg. revenue DKK m, 2014 Innovation leaders 7.3% 4.0% 7.8% 651 Innovation followers 6.5% 2.3% 4.5% 465 SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

16 APPENDIX: DISRUPTIVE TECHNOLOGIES 8 value drivers from digitization for manufacturing companies Predictive maintenance Remote maintenance Virtually guided selfservice Smart energy consumption Intelligent lots Real-time yield optimization Routing flexibility Data-driven design to value Time to market Supply/ demand match Quality Aftersales/ Services Inventories Resource/ process effectiveness Labor efficiency Asset utilization Machine flexibility Remote monitoring and control Predictive maintenance Augmented reality for MRO 1 Human-robot collabo-ration Batch size 1 Real-time SC optimization In situ 3D printing Automation of ment manage- knowledge work Remote monitoring and control Digital performance SOURCE: McKinsey Industry 4.0 Knowledge Investment Project 15

17 APPENDIX: CUSTOMIZED SOLUTIONS Profit advantage for component business driven by Standardization and automation Avg. profitability, EBIT margin 2014 Component business Solution business Effect of standardization Degree of standardization Effect of automation Degree of automation Combined effect of standardization and automation 7.6% 8.1% 9.0% High High High (both) 6.4% 5.9% 5.7% Medium/ low 6.5% 5.7% Medium/ low 6.6% 5.5% Medium/ low (both) 6.9% 5.6% SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

18 Offerings Operations Employees APPENDIX: AFTERSALES/SERVICE To excel at aftersales companies focus on increasing qualifications of service staff and expanding distribution network Biggest challenges in the aftersales/ service segment Actions to mitigate aftersales/ service challenges Percentage of respondents Employee knowledge 34% Increase qualifications of service employees 48% Short response times in service 40% Expand availability 25% Density of service network Online service maintenance Faster availability of spare parts 27% 21% 37% Establish/expand distribution network Optimize spareparts logistics 22% 53% Broad service range 30% Expand service offerings 44% Pricing 26% Introduce online services 30% SOURCE: Dansk Industri (Fremstillingsindustrien) and McKinsey survey

19 APPENDIX Definition of manufacturing Definition: We define manufacturing as: Production of machinery, metals, electronic equipment, motorized vehicles, ships, and other means of transportation Support services for machinery and electronic equipment are included Pharmaceuticals and food and beverages are excluded 18