Updated: Sep 1
When start-up off road Australian car manufacturer Tomcar sought government assistance in the early 2010’s to strengthen the foundations of the company its founder, David Brim recalls in 2017 his frustration that because Tomcar outsourced the physical production process “we were always penalised by the government because we weren't seen as a manufacturer in their eyes”. (1) Insisting that production “is only one of seven steps in manufacturing" Brim was following thousands of companies that had outsourced, and/or offshored their production function - permanently. The Government had a point too. Its objective in supporting manufacturing was to increase homeland employment, the majority of which could be found in the physical production process. There seemed little value in subsiding companies that had moved that activity to someone else, or even offshore.
Today the reverse is true. Governments have a much greater appreciation of the scope of manufacturing, and it makes more sense for many corporations not to offshore that function. That at least is what seems to be the case on the surface. Although there is an immediacy to act as a result of the dire economic forces and disruptions within global supply chains, manufacturers must take a longer term perspective and weigh up the implications and opportunities arising from the benefits of the digitalisation of technology. They must also be responsive to the seismic shift in social behaviours that are an outcome from the waning influence of the baby boomers combined with changes in working arrangements in a post Covid - 19 world. In other words, it’s time to rethink long-term corporate strategy.
Despite the strongest wishes of corporations and governments too, there is an inevitability that in the longer term a new form of organisational structuring and method of manufacturing will evolve. Similarly, it is likely that the idea of bringing back outsourced production capabilities (onshoring) is not an option. Among the myriad of reasons why, there are three that standout. First is the fact that the enormity of capital required to undertake such a move is prohibitive. Second is the problem that the complexity and continued gap in comparative wage rates remains impossible to fill. Third is the fact the skills and expertise required to operate in house will at best take time to develop and at worst, are not available at all. In support of the offshoring option, it is apparent that international trade continues unabated, at least for most goods produced even though acrimony on an inter-governmental basis persists.
The good news is that in the Strategic Management Institute’s (SMI) view, a re-emergence of localised manufacturing can be brought about without having to onshore the high volume production that is made overseas. The desired outcome can be achieved through an ambidextrous approach to change whereby cash flow from the high volume, offshore production businesses are applied to the development of new, high tech onshore industries. In reality, the latter is the future of manufacturing anyway, but it won’t look anything like that in existence today.
Adapting to the manufacturing operating environment of the future
The now, regrettably, defunct Tomcar’s decision to outsource production points the finger at the real issue that manufacturers face when defining their strategic role within an integrated supply chain. It is the observation that to make it as effective and efficient as it can be, the so-called ‘end to end’ process shouldn’t be treated as a process at all, rather, it should be treated as a collaborative system. Similarly, corporations in general can’t be defined by any one industry anymore, but rather a cross section of a variety of different industries. Manufacturing is a typical example of this perspective, it isn’t an industry either, it is a sector residing within a broad range of industries. Car manufacturing is no longer a part of an automotive industry for example, it is instead a cog in the wheel of a mobility system.
These realities make it hard to determine where manufacturing sits within the mix of industry types and how a single corporation can optimise its profitability. An analysis of fertiliser and mining services company Incitec Pivot provides insight. As a spin off from mining services (explosives) company Orica, Incitec Pivot, in a reverse play, acquired Dyno Nobel, a competitor to Orica. Incitec Pivot’s justification in making the acquisition was that “both were nitrogen-based manufacturing businesses at their core” (2). The outcome meant that Incitec Pivot operated in two distinct industries, mining, and agriculture and two distinct markets, mining services and fertiliser. Quite recently however the company sought to split into two on the basis that although the core ingredient was the same (ammonium nitrate), their customers were not. There are however more subtle differences in the way each division of the company operates. While the agricultural division provides a depth of technical support to farmers, it is essentially a commodity supplier of fertiliser that relies on its fine-tuned supply chain to deliver a competitive advantage in areas other than price. The mining services division however has far greater depth, it operates an integrated supply system that offers a promise to “partner with our customers to optimise their mining operations”. (3) Mining services supply system includes the provision of explosives (dynamite and similar), delivery, and on-site management of the blast itself. It also collaborates with Sandvik Construction in the provision of training services addressing best practice explosive operations.
Had Incitec Pivot adopted the same supply system in agriculture that it offers in mining services the decision to split may not be so attractive to shareholders. That’s not because the added service would have increased sales income alone. It is also because the systemic, collaborative approach to business relationships opens the door for Green Shoot strategy opportunities to emerge. Green Shoot strategy is defined by the SMI as a method of identifying new opportunities for growth to emerge from two areas. The first is the leveraging of synergies found in ‘living’ systems (as opposed to processes). The second is the value found in corporate collaborations which are a source of opportunity from the implementation of deliberate, disruptive strategies. Although different industries, the service solution for each could, in effect, be the same.
As with many companies Incitec Pivot is extremely competitive in what it does but could well benefit from establishing a more robust picture of what it ‘could be’. It is suggested in this paper that that the adoption of the SMI's Third Wave Strategy concepts, would have brought to their attention an apparent overemphasis on the Resource element of the SMI’s Strategic Architecture, and an underemphasis on the marketing elements when it acquired Dyno Nobel. The Strategic Architecture illustrated in Figure 1, provides a structure to long term strategy; it consists of four key elements. The first two are the Outside In oriented elements of market positions; the places where the firm chooses to compete, and the activities a firm engages in, in order to differentiate itself from its competitors. Second are the Inside Out oriented elements that consist of the resources a firm possesses in order for it to compete in its chosen markets; and, the transforming activities it adopts in order to maintain and improve its resource base. Incitec Pivot was initially focused on the Resource element of the SMI’s Strategic Architecture (4) when it acquired Dyno Nobel. In focusing only on that one perspective it could not see the market elements of the architecture as an alternative. The company was apparently not conscious of, or simply ignored the effectiveness of the Differentiating Activities it was conducting to remain competitive in the mining services marketplace. With such a strong focus on resources it did, by default or otherwise, recognise the basis for its continual improvement, its Transforming Activities.
As a living, dynamic system both mining services and agriculture have the opportunity to expand their systemic service solution by adding additional services that would otherwise not have made any sense. The agriculture division could have ramped up its service solution to manage the delivery and dispersion of its fertilisers on the crops owned by the farmers, potentially a service covering total crop management. Following that, both divisions could also supply machine maintenance services for both divisions.
Figure 1: A Strategic Architecture
They are doing their own now, so why not the customers. Another is administration and strategic analytical data. If they were both on site managing crops and mineral extraction, they would have access to data tracking inventory movements. This automatically leads to an opportunity to provide a logistics service which would see Incitec Pivot take control of the management of materials at all stages of the mining and farming activities.
Regaining the momentum: Strategies for Future Manufacturing
To build momentum in the transformation to a new era of industrialisation, some specific strategies for future manufacturing are discussed next. The context for discussion is the missing link in the widely recognised, end to end supply chain, and its transformation into an integrated supply system. The essential ingredient that quickly transforms a process into a system is that of 'sharing'. A strategic interpretation of sharing in a corporate context introduces the idea of a networked, collaborative, system-based form of commerce, similar to that proposed for Incitec Pivot. When envisaged on a broader platform than just one entity, the notion of Corporate Collaborative Systems starts to sound feasible. The concept was discussed in detail in a white paper prepared by the SMI and is published on its web site. In that paper it was demonstrated that the underlying philosophy of collaboration was grounded in the spirit of sharing. Titled “Inventing Future Corporation: A Corporate Collaborative System” the paper defines such a system as: “a collaboration of transaction processing entities that deploy platform-based services, capable of hosting many and large commercial networks”. It explains a method of corporate structuring that sees some or many corporations collaborating, to form a dynamic network that is representative of a complex, dynamic, living, system. In its makeup, the enactment of future manufacturing will entail a systems approach to strategy and structuring, a collaborative approach to organising, and the adoption of digital and other forms of advanced technology such as the Internet of Things, Web 3, Blockchain and Artificial Intelligence.
The adoption of these aspects of business are expected to deliver:
a basis upon which strategic insights into future manufacturing can be based,
the foundation upon which:
complementary offshored manufacturing can be optimised, and
future focused, onshore, high tech, socially responsible manufacturing can be advanced,
a platform upon which independent localised corporates or medium sized enterprises can better compete with global, resource rich corporations
a mechanism enabling significant gains in productivity to be realised, and
identification of areas where opportunities for growth can be compounded via the conduct of system based, Green Shoot strategies while also,
delivering global reach to new markets via a network of interrelated business systems.
A strategic model that acts as a driver to the introduction of a collaborative system is an advanced version of the Strategic Architecture presented in Figure 1. It is referred to as an Integrated Value System and is illustrated in Figure 2. An exploration of the way in which an Integrated Value System informs practice can be described through the lens of two manufacturing entities that both have operations in Australia. The first is German based Robert Bosch GmbH (Bosch); it represents a prime example of a global corporation that has a strong history in the automotive industry but has diversified its business internationally. This need was enforced on its Australia operation because of the closure of the three international car companies Ford, General Motors (Holden) and Toyota in 2016. Bosch has its roots in automotive parts supply, so today Bosch operations are made up of four business sectors, of which Mobility Solutions is one. This division isn’t recognised as a true system yet, but it has the capacity to become one. As a derivative of its former automotive division, Bosch Mobility Solutions collaborates with other high tech companies in the supply of components to various mobility system networks. In forming a dynamic market system, Bosch differentiates itself, according to its website, via its “expertise in sensors technology, software, and services". The Mobility Solutions core competence platform is grounded in an Internet-of-Things cloud platform that offers "connected, cross domain service solutions from a single source”. To complete the core competence platform, Bosch’s current state of being, is an outcome from its vast experience obtained in the transforming activities, associated with the purposeful activity of the continual-transformation and renewal of its resource base. It is the cloud platform that provides the means for the ensuing integrated value system to operates smoothly.
The second company that exhibits the application of an Integrated Value System to practice, is automotive components supplier MTM Controls. MTM is an independent, private company that also suffered as a result of the international car manufacturers departure from Australia, but has managed their exit quite well. As described on its web site, MTM has found the means to leverage its core competence platform, based on its specialisation in industrial design, plastics moulding, press shop automation, die design, and casting expertise. These competences are supported via a dynamic market system which boasts a point of differentiation, based on a promise of "a capability to help with all needs relating to stamping, moulding and assembly”. Each combine to form an integrated value system that is sufficiently attractive to convince USA based, General Motors owned Cadillac, to enter into a joint venture in the supply of automotive components. MTM has also won a similar contract with the USA arm of Toyota. In the meantime, MTM is still looking to do more business outside the automotive industry, but should it? MTM has already become an integral participant in a global corporate collaborative system. In the nurturing and development of its international customer base, MTM will automatically strengthen its presence in a global mobility system, one that is being created by long standing automotive industry players.
Figure 2: An Integrated Value System.
Creating the environment for the manufacturing corporation of the future
It’s never been easy for manufacturing focused corporations to identify the means to sow seeds of opportunity that will last for at least the next 50 years. The means and need to do so has increased dramatically in recent times however, as the positive aspects of digitalisation of technology, exacting customer demand and reasonable access to investment capital are amongst the many reasons for such firms to be positive. The added bonus is that despite perceptions to the contrary, climate change, a drive for adherence to Environmental, Social, and Corporate Governance (ESG) disciplines along with a gradual acceptance of new technologies in the community have all translated into demand creating opportunities that the manufacturing sector can provide. There is now a real chance therefore that a more strategic approach to manufacturing will deliver a huge benefit to select corporations.
It must be acknowledged that manufacturing in Australia, and indeed, many industrialised countries, has been in serial decline for decades. Considered very much as an outsourced and offshored ‘function’ the purpose of this discussion was to encourage those in industry that are associated with a manufacturing capability, to reconsider their strategy. Its OK to retain the high volume, commodity based products manufactured at scale in low cost economies. The more complex products however, can be on shored to deliver the benefit, at the least, retaining control over a corporation’s ‘know how’. This means that it will not loose manufacturing flexibility and agility, or the opportunity to develop an inimitable core competence in manufacturing. This is a highly desirable attribute that was once prescribed as a means to ‘make the competition irrelevant’. It could also be argued that onshoring encourages creativity, playfulness, innovation and experimentation. These capabilities in turn, provide energy to the dynamics of organisational culture and organisational learning.
In support of this view, it can be said that the tyranny of distance that once plagued Australia’s competitiveness is largely diminished. This is demonstrated by Darwin based workplace software company SafetyCulture. This company saw a Green Shoot strategy opportunity. It led to a AUD $3 million investment in internet-of-things enabled software start-up company Inauro. Once a training based documents business, SafetyCulture’s overall plan is to apply Inauro’s technology, to build an operations platform, that automates and connects the industrial-scale machines and devices, used by its 60 thousand customers. This they suggest, will enable them to monitor the data flows on those machines in one place. Another positive is that there are now methodologies that can ease the transformation process and make investments in manufacturing viable once again. The methodologies were identified in this podcast as a Strategic Architecture, a subsequent Integrated Value System; enacted in a context of ambidextrous change, and managed within the framework of a Corporate Collaborative System, discovered through the practice of Green Shoot Strategy. Of course, there is no one size fits all solution. The right one though is identified through the adoption of the programs suggested in this paper.
1. Waters., C., Tomcar: Australia's last car maker , Sydney Morning Herald, June 6, 2017, https://www.smh.com.au/business/small-business/tomcar-australias-last-car-maker-20170605-gwkh25.html Accessed 22 Jun, 2022 2. Macdonald, A., Thompson, S., Sood, K, Incitec pivots to end explosives, fertilisers dream; UBS, Mac on board May 23, 2022, https://www.afr.com/street-talk/incitec-pivots-to-end-explosives-fertilisers-dream-20220523-p5anoeAccessed 2 Jul, 2022
3. Incitec Pivot Web Site, About Us: https://www.incitecpivot.com.au/about-us/our-businesses Accessed 23 Jun, 2022 4. Hunter, P., Corporate Strategy (Remastered) II: A Fieldbook, Implementing High Performance Strategy and Leadership, Routledge, Oxford, UK, 2020 5. Strategic Management Institute Web Site, Blogs https://www.smiknowledge.com/post/inventing-the-2040-corporation-evolving-the-corporation-as-a-corporate-collaborative-system 6. Robert Bosch GmbH Annual report, "Annual Report 2021" (PDF) (Press release), Accessed 29 Jun, 2022 7. MTM Automotive Web Site: https://www.mtmauto.com/Accessed 29 Jun, 2022 8. Prahalad, C.K., & Hamel, G., The Core Competence of the Corporation, Harvard Business Review, 68(3), 79–91, 1990