The risk of inaction – can you afford to ignore digital technology?

 

With the UK facing increasing global competition and suffering a stagnation in productivity, James Selka argues that business’ failure to invest in new technology is a risk too far.

James Selka is Chief Executive Officer of the Manufacturing Technologies Association (MTA). He has over 25 years manufacturing experience, including 13 years as Managing Director of a high precision, internationally trading, supplier of turnkey instrument sub-systems.

James Selka

James Selka at a glance

Under-investment in technology has created a real competition gap between the UK and other countries1. We absolutely have to grab the opportunity to close that gap with both hands.

The risks of failing to act aren’t purely financial; they encompass operational and commercial aspects of business. In fact, it’s not an overestimation to say that the failure to address the lack of investment and adoption of digital technology is a fundamental threat to business survival.

The business risks

The 2008 global financial crisis acted as a catalyst for underinvestment that continues today. The primary hit this time round wasn’t to the workforce but instead to investment in technology.

This trend has fundamental impacts on UK productivity and our global competitiveness, where companies who fail to invest:

  • compromise their productivity as equipment becomes obsolete or inefficient;
  • increase costs as inefficiency increases and more resources are required;
  • risk being unable to attract the best talent to their business; and
  • become unattractive to external investors.

What’s holding businesses back?

Businesses shouldn’t be blamed for being risk-averse, especially in these uncertain times, but their reluctance to invest in technology can be broadly attributed to three things:

A lack of understanding. This is particularly the case when it comes to the value of technological investment. Technology is increasingly software and application engineering based and a large investment in something which isn’t tangible can often feel like a leap of faith.

Jobs. Another fear is the perception that it threatens jobs, but this doesn’t have to be the case. The car industry is a great example. They were one of the first to invest in digital technology in the R&D process and now they are hugely competitive, completely automated and have created jobs, not just directly, but across the supply chain2.

A UK problem. What is also interesting is that a lot of successful companies are in overseas ownership3. Other countries culturally understand investment better than we do. They recognise investment as a long-term strategy rather than as an inconvenient expense we have to suffer from time to time.

Countries such as Germany and China share that long-term view. They also share a more advanced approach to automation and robotics. For example, in the UK, we have around 71 robots per 10,000 manufacturing employees. In Germany, that figure is closer to 3004.

The way forward

The good news for those who shy away from tech investment because there is no tangible reward is that we’re moving towards a more sophisticated funding model for financing high value advanced manufacturing, giving businesses more options. Working capital funding, such as tooling finance, which provides upfront funding months before production begins, is just one example.

“It’s not an overestimation to say that the failure to address the lack of investment and adoption of digital technology is a fundamental threat to business survival.”

The use of modelling software packages or virtual production lines can also help provide confidence, such as digital twin - a digital copy is created and developed alongside a real machine to test and improve efficiency and quality. Whilst I agree that people shouldn’t apply technology for the sake of it, the more modelling is adopted and becomes accessible, the quicker the take-up of technology will be.

The opportunities are clear – technology has never been more powerful and the availability of cheap finance means that it has never been within such easy reach.

Harnessing the power of technology

We’re obviously experiencing a period of uncertainty at the moment, but it’s also a time of great opportunity. Our competitors: Germany, the US, China and India, all have long-term tech-inspired strategies; the internet of things and Industry 4.0. We have to react to this, and there is great work being carried out by trade bodies and businesses alike to create a long-term UK-wide industrial strategy and to build this into political policy.

Investment in technology should be powering up a business’ priority list. It can reduce costs, make you more competitive in attracting the best talent and allow you to grow in markets you perhaps haven’t addressed before. Technology offers businesses an opportunity to be super-competitive in terms of quality, flexibility and low lead times. It drives productivity as well as efficiency.

The march of automation shouldn’t be feared. Instead, UK businesses need to consider how digitisation, networking, new materials, smart structures and robotics offer opportunities they can ill afford to ignore.

James Selka infographic Lloyds
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