Today we publish our Innovation Monitor 2015/16, in partnership with Vodafone.
The report shows just how dynamic and innovative UK manufacturing is. Companies are using innovation to move into new markets, satisfy their customers, boost productivity and much more; innovation is key to enabling UK manufacturers compete on a global stage.
However, innovation is far from easy, and the report also highlights the many challenges innovative manufacturers have to overcome to achieve successful outcomes. This blog takes a look at some of the key findings.
Manufacturing is leading the way on innovation.
Manufacturing leads the way when it comes to innovation in the UK. ONS statistics show that the sector accounts for 69% of all business expenditure on research and development. Our Innovation Monitor survey shows just how widespread this innovative activity is:
94% of manufacturers engaged in innovation in the last three years.
- While larger companies are most likely to be innovating, even amongst the smallest manufacturers, 90% said that they were innovating.
Innovation can reduce production costs and boost productivity, helping UK manufacturers compete all around the world.
“Innovation enables [our] business to compete with overseas businesses in manufacturing on a similar cost level” – Survey respondent Innovation Monitor 2015/16
Think the UK can’t compete on cost overseas? Think again. 56% of manufacturers engaged in process innovation in the last three years, helping them to reduce the costs of production and improve operational efficiency.
That said, most UK manufacturers aren’t competing on cost alone, they’ll be using product and service innovation to add value and differentiate their products, enabling them to charge higher prices and build stronger profit margins.
One manufacturer we spoke to said that his business was under high levels of price pressure from customers. As low levels of demand in Europe had made competitors more aggressive on price, and the strength of sterling had made European competitors’ products relatively cheaper.
He saw service innovation as a way to differentiate his company from competitors – thus mitigating price pressures in existing markets – but also a way to help the company move into new markets. He particularly mentioned the Middle East, saying that relationship-based business was especially important in that region and he therefore thought that developing new services, which helped his customers to use his products better, would help ensure long-term relationships.
Innovation is key to boosting sales in new markets.
“Innovation gives us the stepping stones to future sales” – Survey respondent Innovation Monitor 2015/16
UK manufacturers have upped their sales to emerging economies over the last few years – and how have they achieved this? Innovation is the answer: new products and services helps manufacturers gain the attention of companies overseas. This year’s survey shows that 52% of manufacturers are innovating to help them expand into new markets: great news for the UK economy as a diversity of export markets makes the economy more resilient to economic shocks by reducing the volatility of export earnings.
Achieving successful outcomes isn’t easy.
“Far too much opportunity and not enough resource” – Survey respondent Innovation Monitor 2015/16
Unfortunately, successfully moving into new markets isn’t easy – in fact it’s one of the most difficult things manufacturers can do. Manufacturers we spoke to highlighted the resource intensity of building a new customer relationship in a new market: new customers will often have specific requirements that their suppliers need to meet before they purchase products and the validation processes can be expensive and time consuming.
One manufacturer said that his company had approached a customer in 2011, reached an agreement in 2012, but then had to spend two years working on the customer’s quality checks and requirements before an eventual order was placed in 2014. While the outcome was positive, and the manufacturer now has more orders from that customer, it was a challenging and costly process.
This resource-intensive nature of innovation can make it difficult for manufacturers to achieve the results they want. This is not just the case when it comes to moving into new markets, but also for developing services, or developing new technologies. Manufacturers are investing heavily in innovation – and often diverting resources from elsewhere in the business – but it’s not always enough. Manufacturers particularly cite a lack of specialist skills and equipment as areas that are holding them back from doing more.
This is having an impact on the sector. Though most companies think they are innovating enough to compete, a growing minority do not think this is the case: this year’s Innovation Monitor survey shows that 28% of manufacturers are concerned that they are falling behind competitors due to their level of investment in innovation, up from 26% in 2014 and 19% in 2013.
Government support can help manufacturers innovate more, and more effectively.
This year’s Innovation Monitor gives clear evidence that government support is plugging the resource gaps that manufacturers experience, at least partially – and often fully – addressing their key issues.
Government support helps manufacturers to overcome these resource gaps – in particular – to access skills and expertise, but it also help them innovate more effectively in other ways. Government support also helps manufacturers to help themselves, by easing the process of collaboration with universities, other manufacturers and other potential partners.
UK manufacturing is in the race, but it isn’t running fast enough.
The UK is a good place to do innovation, and improvements to support such as the enhancements of the R&D tax credit, and the introduction of the Catapult network have been positive for innovative manufacturers, but it is not job done. Manufacturers’ concerns about falling behind competitors highlight just how important it is that the UK does more to boost innovation. The opportunity is large, we just need to grasp it.