The world is changing at a rapid pace and it can be hard to keep up. One way of making sense of the churn around us is to understand the major underlying forces, or megatrends, driving the economic, social, and political environment. All of these megatrends are already happening and their impact will continue to grow over the coming decade. These are the global events, which affect each and every country/region where the organisations want to operate.
Megatrends driving global economy
The manufacturing companies, which form the backbone of the economy, communities and markets are adapting to these changes. Many global companies have responded to these megatrends and are capitalising on the disruptiveness these trends are causing. Some of these trends are as follows:
Demographic shifts: The largest pool of young and employable workforce is not new to India. The UN predicts that by 2050, India will have over a billion people eligible to enter the job market. The impact is huge not only in terms of job creation, but also in having more people to save and pay taxes, which has the ultimate potential to transform economies and power investments.
Shift in global economic power: By 2050, the E7 economies (Brazil, Russia, India, China, Indonesia, Mexico and Turkey) are projected to be twice the size of the G7 economies (US, Japan, Germany, UK, France, Italy and Canada). It is a fact that through the FDIs and new entrants in the Indian economy, numerous industrial manufacturing companies will be citing an emerging market revenue growth as a key driving factor in earnings for both, now and in the future. India currently stands in the third place and is projected to overtake the US economy by 2040 in PPP terms.
Accelerating urbanisation: Smart city and urban development are important pillars of the government’s developmental efforts. The percentage of people living in urban centres is projected to grow from 50% today to approximately 72% by 2050. The organisation’s strategists have already started planning at city level than at consolidated levels.
Climate change & resource scarcity: We, as a nation, have already ratified the Paris Accord and will have impact on each of the industry in the way it consumes resources, power, energy and the impact it causes on the environment. The government’s ZED manufacturing initiative does focus on the Zero Effect.
Technological breakthrough: The impact of technology, convergence of industries created by digitisation, mobile technology, the cloud, and other breakthrough technologies have fundamentally changed the business landscape and are creating extraordinary value.
These are not just predictions, but they are a given. The impact is going to be seen exponentially over the period of the next decade. This has created immense opportunity for India and the business environment in which Indian companies operate in.
Challenges associated with economic growth
India is already the third largest economy based on purchasing power parity. We will become the third largest by 2050 after China. With the current growth rate, the Indian economy will be worth USD 6 trillion as an economy in 20 years. The government has put forth an ambition of becoming USD 10 trillion in the same period with a staggering growth rate of 9% per year.
For the manufacturing sector, all of this has a far greater implication. Currently, the manufacturing sector contributes roughly 16% to the GDP of India. The government of India has the ambition of increasing this share to 25% by 2025. This means that while the economy will grow by 3 times in the coming 20 years, the manufacturing sector will grow by 5 times from its current base. This staggering growth will be associated with challenges, some of which are faced today and some of which will be faced in the coming future. Some of these challenges are:
Resource constraints including land, infrastructure, water, etc
Policy and regulator issues including government policies, compliances, safety, etc
Adaption of technology, including availability & understanding of technology itself
Lack of research & development and innovation related constraints
Lack of skilled manpower including the employability of the population
Several government policies are seen to be addressing these issues through their campaigns & programmes, which have been launched recently. This is especially true with initiatives like the ‘Make in India’ or ‘Skill India’, where the ease of doing business ranking improvement and many other aids are provided by the government. The macro factors, which will aid this staggering growth, are getting addressed or will get addressed eventually.
Leaping towards manufacturing excellence
The important point is, how does the organisation respond to this growth challenge? Looking inwards, what should the manufacturing organisation do? How can it be ready to take advantage of this massive shift? The winning leap lies in improving manufacturing competitiveness and bringing structural shifts in the way we address manufacturing excellence.
The winners will be the ones who are going to evolve the way they address the manufacturing excellence landscape. It will be the ones who alter and re-define the way manufacturing excellence has been thought of and put in motion in the organisation. The various concepts / tools / philosophies, such as WCM, Lean Manufacturing, TPM, etc do address problems, provide solutions and improve the organisation. These are the fundamentals required for the organisations but today, they have become table stakes, which is basically the minimum requirement.
Shift in thought-process is key
We, at PwC, tried to reference our ‘Fit for Growth’ framework to replicate the thoughts for bringing the structural shift in the way organisations drive manufacturing excellence. The tools & techniques will follow and will find the fitment in the following pointers. These are the fundamental thoughts in which the organisation has to rethink and focus in order to steer towards the journey on manufacturing excellence. The manufacturing excellence winners should focus on:
Identifying the differentiating capabilities: Identifying at least three to six differentiating capabilities, the things that your company does better than anyone else, enables you to compete in the most effective way. These are the capabilities, which the organisation already has and can be leveraged to create an edge over others in the business environment. Identifying these capabilities channels the organisational strategy & execution. These channeled manufacturing excellence initiatives gives purpose to the employees compared to the run-off-the-mill/generic agendas.
Align the cost structures with the identified differentiators: Deploy the investments in manufacturing excellence against the key identified capabilities. Commit to these differentiators. This commitment is the backbone of the success in manufacturing excellence drives. It is the indicator of the organisational strategy to be put into execution. This commitment will also mean that the excellence drive will be working on the critical few areas, which the organisation strategy has identified as important for the future.
Re-organise for growth: Change the way the success of the manufacturing excellence is measured in light of the differentiating capabilities. The new metrics & organisational changes take shape in this step. The manufacturing excellence drive takes a different shape through the following three types of initiatives:
a. Transformation initiatives
b. Streamlining initiatives
c. Continuous improvement
The typical manufacturing excellence drives are seen to be woven around continuous improvement initiatives, but the growth requires the transformation initiatives, which are for the differentiating capabilities & streamlining initiatives in order to eliminate the bottlenecks. This step also requires re-thinking in terms of how the teams & various hierarchies will contribute towards achieving excellence.
Create an environment & evolve the culture: To embed & sustain this shift from table stakes manufacturing excellence drives to the strategy contributing to the manufacturing excellence drive, putting the culture to work is necessary. For sustenance, the differentiating capabilities will also help in identifying the key differentiating behaviours that are expected from individuals. These few yet critical behaviours will form as the models within which the workforce is expected to align. This alignment will ensure that the new manufacturing excellence drive sustains.
Putting organisational strategy to execution
These fundamental thoughts can create unique manufacturing excellence initiatives for the organisations. These initiatives will contribute towards putting organisational strategy to execution. The benefits that can be realised by applying these thoughts prior to launching the manufacturing excellence drive are immense. The drive created around these thoughts will ensure that right tools are used instead of running behind the jargons. This thinking will also help the organisations and the sponsors of the manufacturing excellence initiatives with a clear visualisation of what to expect from the efforts, what will be the areas that the drive need not address, the manners in which the efforts will help the organisation to execute the strategy, etc. The differentiators that the organisation identifies will play a vital role in each and every phase of the manufacturing excellence journey. Many organisations have started working towards this journey with these fundamental thoughts and will find themselves well equipped to address the changes coming through the megatrends.
Towards addressing competitiveness
In conclusion, the megatrends and the growth potential of India needs the organisations to re-think on creating new ways of addressing the challenges. The Indian manufacturing sector needs to be ready for this growth and the changes that are visible. The manufacturing excellence initiatives have to address the manufacturing competitiveness gap and lead the organisational change. This will not get addressed through having run-off-the-mill or table stakes oriented manufacturing excellence drives. The re-thinking, therefore, needs to focus on how manufacturing excellence drives differentiators and evolve as winners.