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The strategic development of manufacturing: Market analysis for investment priorities
European Management Journal Vol. 15, No. 3, pp. 297-302, 1997
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© 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain
Pergamon PII: S0263-23 73(9 7)00009-1
0263-2373/97 $17.00+ 0.00
The Strategic Development of Manufa g: Market Analysis for Investment Priorities TERRY HILL, Professor of Operations Management, London Business School; ROY WESTBROOK, Associate Professor of Operations Management, London Business School
The UK government promoted a 'manufacturing, planning and implementation' (MPI) scheme between 1991 and 1994. Its aim was to support the strategic development of advanced manufacturing technology (AMT) in participating companies. For such AMT developments to be strategic required the companies first to undertake a market review to establish what precisely was required to win orders in its target markets. Consultants hired by companies under the scheme were required therefore to conduct an analysis of market needs sufficiently thorough to permit the appropriate manufacturing developments to be made. This article by Terry Hill and Roy Westbrook examines seven such projects, and demonstrates various types of weakness in the method and outcomes of these market analyses. The methods include customer surveys, internal surveys, SWOT (strengths, weaknesses, opportunities, threats) analyses, and broad reviews. These are shown to have been conducted in such a way that only general statements, rather than indepth analysis, are produced. The weaknesses of these statements are analysed in terms of coverage, verification, segmentation, and definition. It is suggested that a good market analysis must employ a rigorous approach using multiple methods to eliminate these four types of error. © 1 9 9 7 Elsevier Science Ltd
capabilities must competitively serve its target markets, and to serve target markets means to understand their requirements. Thus the frameworks developed to assist in the making of a manufacturing strategy have in different ways required companies to analyse market needs. Hill (1993) argues that for each market in which a company wishes to compete, it must identify orderwinning criteria, such as price, delivery speed, or quality. He has also shown how to identify such criteria. Platts and Gregory (1992) take existing frameworks (as does Hill) and 'operationalises' them via an audit process - which includes establishing 'what the market wants'. The process then goes on to look at production capability and to analyse gaps in performance, so that those capabilities can be realigned with market needs. Hayes and Wheelwright (1984) agree with this need for market knowledge, but urge companies to go beyond alignment of capability to a proactive role for manufacturing influencing corporate strategy and deploying production competence as a competitive weapon. But whichever approach to manufacturing strategy development market analysis is used, it is essential that the market analysis which underpins it is thorough, and the results expressed in an appropriate level of detail. For as markets become increasingly diverse, so a manufacturing strategy needs to accommodate a wider set of customer demands, and only detailed market knowledge, fully acknowledging that diversity, will serve as a basis for strategic development.
Introduction There is a reasonable consensus among scholars that the development of a manufacturing strategy requires an understanding of market needs. This seems almost tautologous; for manufacturing to be strategic, its EuropeanManagementJournalVo115 No 3 June 1997
This article presents empirical evidence that UK companies and their advisers are failing in this fundamental task of market analysis, and is in three parts: (1) The MPI scheme: The UK government scheme which provided the research opportunity is explained, 297
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THE STRATEGIC DEVELOPMENT OF MANUFACTURING
and the research method described; (2) The examples: Seven short case examples from the research database are given which illustrate the methods of market analysis being used and the degree of market understanding (or misunderstanding) which results; and (3) Discussion: The common elements in the examples are discussed and tabulated and some conclusions are drawn about the characteristics of a good market analysis for manufacturing strategy development.
The MPI Scheme Over the last twenty years the Department of Trade and Industry (DTI) has launched a series of initiatives designed to stimulate technological innovation in UK industry. The most recent of these initiatives is the manufacturing, planning and implementation (MPI) Scheme. The specific aim of the MPI Scheme is to relate advanced manufacturing technologies (AMTs) to market needs. The firms had to be independent companies with fewer than 500 employees. One hundred and forty small and medium-sized enterprises (SMEs) have taken part in this Scheme, which came to an end in December 1994. The MPI Scheme was primarily concerned with the enhancement of the ability of a firm's manufacturing function to support agreed markets as clearly indicated by the initial DTI announcement that the aim was to:
enhance advanced manufacturing technology (AMT) activities within consultancy, industrial, research and training communities in the UK by encouraging SMEs to adopt best practice in their application of AMTs by strategically planning and implementing AMTs for competitive advantage.
and all relevant data and documents. The project reviews all involved: o*." several site visits o:° in-depth comparative analysis of documents o:o structured discussions with company executives and consulting advisers °5° additional analyses of primary data Therefore this task offered a unique research opportunity, because of the number of projects within a single research theme and the quality of access.
The Examples The methods used by consultants in the scheme to review markets included: o:° customer surveys •~° internal surveys (i.e. collating views of individuals within the client company) °**° SWOT analyses •5. use of earlier analyses completed by other consultants • 5" broad overview The following seven examples drawn from our database illustrates the use of each of these methods and the quality of the outcomes produced. In several instances the analytical co-ordinator (AC) probed the issues further with company personnel and demonstrated that the market review was incomplete or lacked precision.
Company A
Each MPI project had two major parts; the market review, and the selection of appropriate AMTs. The first of these parts was explicitly emphasised in the guidelines issued to advisers:
Company A is in the garment industry, and supplies nine major customers (mainly retail chains). In reviewing the market the consultants conducted a telephone survey of the company's customers.
the key to any project is the analysis phase which challenges a company's assumptions regarding its business, markets, competitors and why products are chosen by customers.
°.*° The questions were devised by the company with no input or addition from the consultant. °.*° Only six of the nine major customers were spoken
The market review phase is vital because it gives context to the relevance of any changes to or reviews of existing capabilities.
°t° Past or potential customers were included.
to.
A project must link the company's competitive approach in its market to its capability to provide goods which meet market needs. A unique feature of the scheme was the inclusion of an analytical co-ordination (AC) role, undertaken by a group of operations management academics (including the authors of this article), whose task was to analyse the methods used by consultants working with client companies to meet the aims of the scheme. The AC team has undertaken a structured review of fifty of these projects, for which they were permitted, as a condition of any MPI grant, full access to all personnel involved 298
The output of this 'customer satisfaction survey' was in effect the market review, even though: *5° It did not differentiate between the customers, nor give specific verbatim quotes from any of them. o.*o Only two major segments (socks and garments) were identified, with no subdivisions into plain and patterned. o.** Customers were asked to rate the client against competitors in terms of 'quality' and 'responsiveness', terms which were not defined. *t° Further questioning of management by the analytical co-ordinators showed they could easily place all customers on a design-price continuum, and European ManagementJournalVo115 No 3 June 1997
THE STRATEGIC DEVELOPMENT OF MANUFACTURING
that quite distinct differences existed between customers in order-winning terms.
Company B Company B makes and installs shelves and shop fittings, and also makes supermarket trolleys. In addition to desk research on the size of the UK retailing market and on eleven major competitors, a customer perception survey was undertaken. °5° 15 telephone interviews of prospective customers were conducted. No current customers were contacted. o~° Questionnaires on 15 existing customers' views were completed by company B's own salesmen. •~° A SWOT analysis was prepared by one consultant for debate with management °~° None of the criteria or questions for these exercises were provided by customers. °5° Markets were treated as homogeneous, i.e. there was no differentiation between product types (standards or specials), between contract or noncontract work, or between large and small orders. Yet company B's products varied from a turnkey £400k shopfitting contract at one extreme to an order for 28,000 trolleys at the other. °5° Only the shelving market was considered (64 per cent of total revenue). The company was interested in opportunities on the Continent, but only the UK market was studied. °5° Only when the company was taken over during the project, and new management came in, were the customers investigated in detail about their precise needs.
Company D Company D is a specialist drill-fit maker, selling both under its brand name and for 'own-label' customers. Forty per cent of sales are for export, but no country dominates the export sales. The market analysis consisted of both internal and external data gathering, SWOT used to organise internal views and a telephonebased customer survey for external views. °~° Of the company's 400 customers, the company gave the consultants a list of 30, of which they contacted 19. These I9 were all UK customers and all brandname customers, thus 381 of the companies were unrepresented in the 19 contacts. No analysis of export needs was made, •~° The survey did not segment the responses in any way, even though the UK brand-name customers fall into four distinct groups (hire shops, builders merchants, powertool distributors and fixing specialists). These groups in fact have quite different needs, and our own investigations showed that they were easily differentiated by company management in terms of both price sensitivity and need for fast delivery. Even within a segment, individual customers were more demanding of short lead times than others. This knowledge was not trapped by the survey, which sought only the customer viewpoint. °~" The SWOT analysis, being too general a tool for the purpose, did not expose such market details. Thus the internal data (SWOT) could not complement the external data (customer survey). °,'° The SWOT analysis did however produce 161 points. But, these items were never prioritised or reviewed in any way, and were not used in subsequent project work. ':%1,,,,:,
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Company C Company C makes clothing for women and children. A survey of 8 major customers was undertaken on the telephone, the questions devised by the consultants. A market analysis was produced with four sections: supply chain, baby wear, children's wear, lingerie. There was no segmentation within the three product categories, no data analysis, and no competitor analysis. Only general statements were made, and these were largely unsubstantiated and unattributed (except to 'our industry contacts'). As an example, the section on supply chain issues contains the claim that 'The retailers are driving the UK market. In the medium term, the drive will be towards quick response from the supplier.' No indication of what exactly 'a quick response' meant was given, No distinction was made between lead time and delivery reliability. Yet in discussion with managers at Company C, analytical co-ordinators found that the company was able to place major customers on a continuum for each of these two criteria. But this internal source of knowledge had not been explored. European ManagementJournal Vol 15 No 3 June 1997
Company E °5° Company E makes hot water cylinders and tanks to installers and some merchants in the UK. They have operated in a niche market, supplying bespoke products to small depots close to the point of sale. More recently they have developed a range of thermal storage heating and mains pressure hot water appliances, which new government regulations suggest may become a preferred system requiring high volume standardised production. In reviewing the market, the consultants used an internal survey, seeking the views of Company E personnel only. A SWOT analysis was used 'only to get the project started', the lead consultant said. The SWOT analysis played no part in subsequent work, and by the time of our investigation could not even be found! The outputs from the review were two documents, a company analysis and a business plan for 1993-1996. *,'° Existing strategy is not examined or critiqued, but simply described as 'to occupy a niche selling bespoke products to installers'. The continuing viability of this strategy is not considered. 299
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THE STRATEGIC DEVELOPMENT OF MANUFACTURING
°~° The need for a 'new marketing strategy' is claimed, but not specified in any detail or justified. Rather it is asserted that 'service and delivery are likely to be important elements'. This statement is nowhere substantiated and the terms 'service' and 'delivery' are not defined. oto The company now makes a wide product range in different categories, and plans to extend the range further. This is not reflected in the market analysis, which regards the company as serving a single, homogeneous market. °,'° There is no analysis of market share, product line profitability, likely growth areas, or competitors. Thus the commercial impact of different strategies cannot be assessed. °,*° The reports claim that delivery and quality will be key, and a way to avoid price competition with larger competitors. This implies that orders will be won on these issues, but the company sales director revealed that price is and will remain the main orderwinning criteria. o,*o Investigation by analytical co-ordinators suggests not only that segments vary in degree of price sensitivity, but that sub-segments do also. Thus in the thermal store product group, product A is sold to local housing authorities, and product B to the private sector new build and replacement markets - - and the former is significantly more price sensitive than the latter.
Company F Company F makes specialist climbing equipment and clothing, 60 per cent for export to the US and Japan. The consultants' work on market analysis produced two outputs, a SWOT analysis and a broad review of the UK and US markets. °,*° Each member of the management team produced a SWOT analysis, and these were collated by the consultants into one. This final SWOT had no market orientation, being largely a list of two or three word phrases, all very general - - e.g. strengths include 'quality' and weaknesses 'cash flow'. None were investigated further and the analysis was not used in subsequent work. o~° The UK and US market reviews were very broad, neither more than three pages long and differed very little from each other. The work was done by the UK and US sales managers, and this view was not checked against other internal or external sources. °,*° The reviews were produce reviews, stating for each item in company F's range the market share and competitors, and how the product is perceived (not specified by whom). No differences are identified between markets, and it is assumed that they are, therefore, homogeneous and that all products win orders in the same way.
Company G Company G manufactures air conditioning equipment, 300
ranging from extremely large, complex, highly customised close control systems to small, fairly standardised systems. At the time of the MPI project, company G also introduced a new standard product intended to be sold from stock. Half the company's sales are for export. °~° The MPI project began in 1992 but two earlier market reviews had been carried out in 1990 and 199I. The consultants claimed they would take advantage of this to build on the earlier studies. They produced a new sixteen-page report, with the following areas of analysis: Size of UK market (volume and value) by product group (indicates growing or declining) and by equipment specifier; Buying criteria, ranked within the two main product groups; Sales and market share by product group; Customer perceptions of company G; Requirements for success of the new standard product range - company G's own views; and six questions for them to consider. °**° The views on buying criteria and customer perceptions are reproduced from one of the earlier studies. The consultant accepted the limitations of the earlier study which confined analysis to the UK and did not segment in any more detail than product groups. °,*° A subsequent report did make one change to the earlier (pre-MPI) list - - it elevated price to the key criterion and thus proposed that change efforts should focus on 'cost reduction', then 'shorter, more reliable deliveries'. There was no analysis of price or delivery sensitivity by customer or product, so these claims were not substantiated. Discussion
These seven examples exhibit several elements common to each other, and to many other cases in the MPI database. These common elements fall into two areas: the market review activity (the methods used and time taken), and certain weaknesses in the outputs of that activity. These are discussed below, and summarised in Table 1.
Market Review Activity The seven cases used between them four methods of gathering new data about markets needs. (In one case there was an existing review to draw on). These methods will each, on their own, lead to only a partial view of the situation consultants are asked to analyse. The methods, and their partiality, are: Customer survey
A seemingly essential component, though neglected in three cases above. A customer's views are obviously important, but will encompass only those products and services with which he is familiar. He is unlikely to be fully conversant with all the products and services, or the requirements of customers in other market segments. A customer may also use a survey to articulate preferences rather than analyse competitive criteria - - claim they European ManagementJournalVo115 No 3 June 1997
THE STRATEGIC DEVELOPMENT OF MANUFACTURING
Table 1
Summary of Seven MPI Company Examples: Review Method, Time Spent, and Analytical Weakness Market review method
3ompany
Customer survey
Internal survey
Broad review
Time spent on review
SWOT analysis
~/(phone) (~/) (phone) ~/(phone) ~/(phone)
,/ ,/
(v/) ,/
Useof earlier review
,/
would like features which are in fact peripheral to his main reason for selecting a supplier. Also he will answer only those questions which are put to him, so the design of the survey instrument will be important. Internal survey There will be knowledge of market needs within the client company itself, but similar problems apply. Company personnel may not know all the customers equally well, or all the reasons behind their preferences. In particular, they may be ignorant of potential customers. Broad review This is a review undertaken by only one or two personnel, drawing on their existing knowledge, bringing together disparate elements of that knowledge into a single statement. This might be useful as a starting point but is certain to lack depth and detail, or be only a view from a single function. S W O T analysis SWOT (strengths, weaknesses, opportunities, threats) is essentially a way of organising a brainstorming session or of structuring a list. Its popularity (used by four of our seven examples) lies in its simplicity, but so does its weakness. The lack of analytical depth is evident in all four examples, with no prioritisation of items or expansion on the points raised. This led to the SWOT not being used in subsequent work. To some extent these methods complement each other, and could be used in conjunction. A broad review by a senior manager might lead to a series of SWOT analyses, which in turn become a source of questions to be investigated. That investigation would involve both internal and external viewpoints on the same issues, so that conflicting perceptions are exposed and can be investigated further. But this might require client viewpoints to be challenged, and this has happened very little in the MPI Scheme. There has also been little original analysis of primary data. If a client company claims its delivery is '90 per cent on time', this is accepted, not verified. Doubtless there are time and cost constraints in conducting such analyses. But the MPI Scheme, as we saw earlier, explicitly states 'the key to any project in the analysis phase which challenges a company's European ManagementJournaIVo115No 3 June 1997
Analytical weaknesses in
No Days
% of total
7 25 14
20 22 15
5
5
17 5
15 11
9
8
Coverage
~/ ,/ ,/ ~/ ,/ ,/ ,/
Verification
,/ ,/ ,/ ,/ ,/
Segmentation
v' ,/ ,/ ,/ ,/ ~/ v~
Definition
,/ ,/ ~/ ,/
assumptions' and 'the market review phase is vital'. Hence a substantial portion of the project resources should be allocated to it. However, as the central columns of Table 1 show, all our examples devoted less than a quarter of total project time to the market review, varying from 5 per cent to 22 per cent. It is not surprising that the outputs therefore showed certain shortcomings, discussed in the next section.
Market Review Weaknesses All the market reviews exhibit a number of different weaknesses, but these can be grouped into four broad types: problems of coverage, verification, segmentation, and definition. In determining whether a review is weak in any of these areas., we ask certain types of question under each, as follows: Coverage Are all markets, or all key markets, covered by the review? Are all the major customers in a segment included? Does the review consider past and potential customers, as well as existing ones, and future product plans as well as all existing products/ If selected coverage only is sought, what is the basis of the selection? Verification Are internal views checked against external ones? Are internal views consistent across functions, or can differences be explained? Where inconsistency is found, is primary data analysed to resolve the debate? Are previous views and analyses verified by more recent investigations? Segmentation Are markets treated as homogeneous? Are segments defined with sufficient rigour? Do product groups correlate with segments, and are product groups or individual products the appropriate unit of analysis? Are the segments perceived by sales and marketing the same as those perceived by manufacturing? Is there analysis at the order level, distinguishing between order size, lead time requirement, or elements of customisation? Definition Are the terms used to express market needs precisely defined? If a market is said to require 'increasing 30I
THE STRATEGIC DEVELOPMENT OF MANUFACTURING
specialisation', are the areas and degree of specification made clear? Are performance variables such as 'quality', 'service', 'responsiveness' described with these ambiguous terms, or is the precise customer need for each product or service parameter spelled out? Where appropriate, are performance needs quantified? As the examples show, there are problems with the market reviews in most of these four dimensions (the main areas are indicated in Table 1). The weaknesses derive of course from the methods (and time) analysis of the preceding section; the use of more (or more effective) review methods, and more resources, will be needed before all the questions posed in these four categories can be answered in the affirmative. By implication, an effective market analysis must be able to demonstrate appropriate degrees of coverage, verification, segmentation and definition.
Conclusion It follows from the previous analysis that the companies in the MPI scheme have not received a market analysis of sufficient depth and/or breadth to serve as the foundation for manufacturing strategy development. In particular, the analytical coordinators, in putting their own questions to managers, have uncovered important distinctions missed by the market review (Companies A, C, D and E). Significant variation exists between major customers purchasing on price or design (Company A), between the relative importance of price and delivery speed to different customers (Company C), and the degree of price sensitivity between major segments (Company E). Such factors need to be appreciated before
At bottom then, the failure is a failure to use a methodical approach, an intellectual framework for such investigations. We stated in the introduction that various frameworks exist for the development of manufacturing strategy. It is important to emphasise here that these frameworks are not idealisations existing only for debate among academics. They are practical tools intended for the use of managers. They are not buried in obscure publications or arcane treatises. They are widely available. In the case of Hill, and of Hayes and Wheelwright, they can be found in two of the bestselling books on manufacturing strategy, while Platts and Gregory's audit approach is freely available as a workbook in a DTI publication. Yet these frameworks were not used. And without an approach requiring detailed investigation, key issues will be missed, and 'analysis' gets little further than general statements. Only with a rigorous approach involving multiple methods of data gathering, and a concern for the right degree of coverage, verification, segmentation, and definition, will companies truly be able to claim to understand their markets sufficiently to make manufacturing strategic.
References Hayes, R.H. and Wheelwright, S.C. (1984) Restoring Our CompetitiveEdge.Collier Macmillan,New York. Hill, T.J. (1993) ManufacturingStrategy, The StrategicManagement of the ManufacturingFunction.2nd ed. Macmillan,London. Platts, K.W. and Gregory, M.J. (1992) A manufacturingaudit approach to strategy formulation.In ManufacturingStrategy, Process and Content, ed. C.A. Voss, Chapman & Hall, London.
TERRY HILL, London
ROY WESTBROOK,
Business School, Sussex Place, Regent's Park, London NWl 4SA.
London Business School, Sussex Place, Regent's Park, London NWI 4SA.
Terry Hill spent the first I0 years of his career in the i I industrial sector which included responsibility for managing manufacturing plants. Switching careers, he held a number of university appointments beforejoining the London Business School as Professor, Operations Management. He has contributed numerous articles on related issues and written several books the latest of which are Manufacturing Strategy: Text and Cases Second Edition, Irwin (1994), The Strategy Quest, Pitman (1994) and Manufacturing Strategy: Text and Cases, Macmillan (1995).
302
deciding how manufacturing can best compete for orders in these markets.
Professor of Operations Management and Chairman of the Sloan Master's Programme at London Business School. Roy is ~ currently acting as an analytical co-ordinatorfor the DTI's scheme promoting advanced manufacturing technology projects. He has visited Japan six times to study just-in-time and total quality both in major corporations and in some of their suppliers. His most recent publications include New Strategic Tools for Supply Chain Management, Mass Customisation: Japan's New Frontier and Total Quality in Leading Fast-Moving Consumer Goods Companies.
EuropeanManagementJournalVo115No 3 June 1997
~
© 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain
Pergamon PII: S0263-23 73(9 7)00009-1
0263-2373/97 $17.00+ 0.00
The Strategic Development of Manufa g: Market Analysis for Investment Priorities TERRY HILL, Professor of Operations Management, London Business School; ROY WESTBROOK, Associate Professor of Operations Management, London Business School
The UK government promoted a 'manufacturing, planning and implementation' (MPI) scheme between 1991 and 1994. Its aim was to support the strategic development of advanced manufacturing technology (AMT) in participating companies. For such AMT developments to be strategic required the companies first to undertake a market review to establish what precisely was required to win orders in its target markets. Consultants hired by companies under the scheme were required therefore to conduct an analysis of market needs sufficiently thorough to permit the appropriate manufacturing developments to be made. This article by Terry Hill and Roy Westbrook examines seven such projects, and demonstrates various types of weakness in the method and outcomes of these market analyses. The methods include customer surveys, internal surveys, SWOT (strengths, weaknesses, opportunities, threats) analyses, and broad reviews. These are shown to have been conducted in such a way that only general statements, rather than indepth analysis, are produced. The weaknesses of these statements are analysed in terms of coverage, verification, segmentation, and definition. It is suggested that a good market analysis must employ a rigorous approach using multiple methods to eliminate these four types of error. © 1 9 9 7 Elsevier Science Ltd
capabilities must competitively serve its target markets, and to serve target markets means to understand their requirements. Thus the frameworks developed to assist in the making of a manufacturing strategy have in different ways required companies to analyse market needs. Hill (1993) argues that for each market in which a company wishes to compete, it must identify orderwinning criteria, such as price, delivery speed, or quality. He has also shown how to identify such criteria. Platts and Gregory (1992) take existing frameworks (as does Hill) and 'operationalises' them via an audit process - which includes establishing 'what the market wants'. The process then goes on to look at production capability and to analyse gaps in performance, so that those capabilities can be realigned with market needs. Hayes and Wheelwright (1984) agree with this need for market knowledge, but urge companies to go beyond alignment of capability to a proactive role for manufacturing influencing corporate strategy and deploying production competence as a competitive weapon. But whichever approach to manufacturing strategy development market analysis is used, it is essential that the market analysis which underpins it is thorough, and the results expressed in an appropriate level of detail. For as markets become increasingly diverse, so a manufacturing strategy needs to accommodate a wider set of customer demands, and only detailed market knowledge, fully acknowledging that diversity, will serve as a basis for strategic development.
Introduction There is a reasonable consensus among scholars that the development of a manufacturing strategy requires an understanding of market needs. This seems almost tautologous; for manufacturing to be strategic, its EuropeanManagementJournalVo115 No 3 June 1997
This article presents empirical evidence that UK companies and their advisers are failing in this fundamental task of market analysis, and is in three parts: (1) The MPI scheme: The UK government scheme which provided the research opportunity is explained, 297
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::,
THE STRATEGIC DEVELOPMENT OF MANUFACTURING
and the research method described; (2) The examples: Seven short case examples from the research database are given which illustrate the methods of market analysis being used and the degree of market understanding (or misunderstanding) which results; and (3) Discussion: The common elements in the examples are discussed and tabulated and some conclusions are drawn about the characteristics of a good market analysis for manufacturing strategy development.
The MPI Scheme Over the last twenty years the Department of Trade and Industry (DTI) has launched a series of initiatives designed to stimulate technological innovation in UK industry. The most recent of these initiatives is the manufacturing, planning and implementation (MPI) Scheme. The specific aim of the MPI Scheme is to relate advanced manufacturing technologies (AMTs) to market needs. The firms had to be independent companies with fewer than 500 employees. One hundred and forty small and medium-sized enterprises (SMEs) have taken part in this Scheme, which came to an end in December 1994. The MPI Scheme was primarily concerned with the enhancement of the ability of a firm's manufacturing function to support agreed markets as clearly indicated by the initial DTI announcement that the aim was to:
enhance advanced manufacturing technology (AMT) activities within consultancy, industrial, research and training communities in the UK by encouraging SMEs to adopt best practice in their application of AMTs by strategically planning and implementing AMTs for competitive advantage.
and all relevant data and documents. The project reviews all involved: o*." several site visits o:° in-depth comparative analysis of documents o:o structured discussions with company executives and consulting advisers °5° additional analyses of primary data Therefore this task offered a unique research opportunity, because of the number of projects within a single research theme and the quality of access.
The Examples The methods used by consultants in the scheme to review markets included: o:° customer surveys •~° internal surveys (i.e. collating views of individuals within the client company) °**° SWOT analyses •5. use of earlier analyses completed by other consultants • 5" broad overview The following seven examples drawn from our database illustrates the use of each of these methods and the quality of the outcomes produced. In several instances the analytical co-ordinator (AC) probed the issues further with company personnel and demonstrated that the market review was incomplete or lacked precision.
Company A
Each MPI project had two major parts; the market review, and the selection of appropriate AMTs. The first of these parts was explicitly emphasised in the guidelines issued to advisers:
Company A is in the garment industry, and supplies nine major customers (mainly retail chains). In reviewing the market the consultants conducted a telephone survey of the company's customers.
the key to any project is the analysis phase which challenges a company's assumptions regarding its business, markets, competitors and why products are chosen by customers.
°.*° The questions were devised by the company with no input or addition from the consultant. °.*° Only six of the nine major customers were spoken
The market review phase is vital because it gives context to the relevance of any changes to or reviews of existing capabilities.
°t° Past or potential customers were included.
to.
A project must link the company's competitive approach in its market to its capability to provide goods which meet market needs. A unique feature of the scheme was the inclusion of an analytical co-ordination (AC) role, undertaken by a group of operations management academics (including the authors of this article), whose task was to analyse the methods used by consultants working with client companies to meet the aims of the scheme. The AC team has undertaken a structured review of fifty of these projects, for which they were permitted, as a condition of any MPI grant, full access to all personnel involved 298
The output of this 'customer satisfaction survey' was in effect the market review, even though: *5° It did not differentiate between the customers, nor give specific verbatim quotes from any of them. o.*o Only two major segments (socks and garments) were identified, with no subdivisions into plain and patterned. o.** Customers were asked to rate the client against competitors in terms of 'quality' and 'responsiveness', terms which were not defined. *t° Further questioning of management by the analytical co-ordinators showed they could easily place all customers on a design-price continuum, and European ManagementJournalVo115 No 3 June 1997
THE STRATEGIC DEVELOPMENT OF MANUFACTURING
that quite distinct differences existed between customers in order-winning terms.
Company B Company B makes and installs shelves and shop fittings, and also makes supermarket trolleys. In addition to desk research on the size of the UK retailing market and on eleven major competitors, a customer perception survey was undertaken. °5° 15 telephone interviews of prospective customers were conducted. No current customers were contacted. o~° Questionnaires on 15 existing customers' views were completed by company B's own salesmen. •~° A SWOT analysis was prepared by one consultant for debate with management °~° None of the criteria or questions for these exercises were provided by customers. °5° Markets were treated as homogeneous, i.e. there was no differentiation between product types (standards or specials), between contract or noncontract work, or between large and small orders. Yet company B's products varied from a turnkey £400k shopfitting contract at one extreme to an order for 28,000 trolleys at the other. °5° Only the shelving market was considered (64 per cent of total revenue). The company was interested in opportunities on the Continent, but only the UK market was studied. °5° Only when the company was taken over during the project, and new management came in, were the customers investigated in detail about their precise needs.
Company D Company D is a specialist drill-fit maker, selling both under its brand name and for 'own-label' customers. Forty per cent of sales are for export, but no country dominates the export sales. The market analysis consisted of both internal and external data gathering, SWOT used to organise internal views and a telephonebased customer survey for external views. °~° Of the company's 400 customers, the company gave the consultants a list of 30, of which they contacted 19. These I9 were all UK customers and all brandname customers, thus 381 of the companies were unrepresented in the 19 contacts. No analysis of export needs was made, •~° The survey did not segment the responses in any way, even though the UK brand-name customers fall into four distinct groups (hire shops, builders merchants, powertool distributors and fixing specialists). These groups in fact have quite different needs, and our own investigations showed that they were easily differentiated by company management in terms of both price sensitivity and need for fast delivery. Even within a segment, individual customers were more demanding of short lead times than others. This knowledge was not trapped by the survey, which sought only the customer viewpoint. °~" The SWOT analysis, being too general a tool for the purpose, did not expose such market details. Thus the internal data (SWOT) could not complement the external data (customer survey). °,'° The SWOT analysis did however produce 161 points. But, these items were never prioritised or reviewed in any way, and were not used in subsequent project work. ':%1,,,,:,
--
Company C Company C makes clothing for women and children. A survey of 8 major customers was undertaken on the telephone, the questions devised by the consultants. A market analysis was produced with four sections: supply chain, baby wear, children's wear, lingerie. There was no segmentation within the three product categories, no data analysis, and no competitor analysis. Only general statements were made, and these were largely unsubstantiated and unattributed (except to 'our industry contacts'). As an example, the section on supply chain issues contains the claim that 'The retailers are driving the UK market. In the medium term, the drive will be towards quick response from the supplier.' No indication of what exactly 'a quick response' meant was given, No distinction was made between lead time and delivery reliability. Yet in discussion with managers at Company C, analytical co-ordinators found that the company was able to place major customers on a continuum for each of these two criteria. But this internal source of knowledge had not been explored. European ManagementJournal Vol 15 No 3 June 1997
Company E °5° Company E makes hot water cylinders and tanks to installers and some merchants in the UK. They have operated in a niche market, supplying bespoke products to small depots close to the point of sale. More recently they have developed a range of thermal storage heating and mains pressure hot water appliances, which new government regulations suggest may become a preferred system requiring high volume standardised production. In reviewing the market, the consultants used an internal survey, seeking the views of Company E personnel only. A SWOT analysis was used 'only to get the project started', the lead consultant said. The SWOT analysis played no part in subsequent work, and by the time of our investigation could not even be found! The outputs from the review were two documents, a company analysis and a business plan for 1993-1996. *,'° Existing strategy is not examined or critiqued, but simply described as 'to occupy a niche selling bespoke products to installers'. The continuing viability of this strategy is not considered. 299
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THE STRATEGIC DEVELOPMENT OF MANUFACTURING
°~° The need for a 'new marketing strategy' is claimed, but not specified in any detail or justified. Rather it is asserted that 'service and delivery are likely to be important elements'. This statement is nowhere substantiated and the terms 'service' and 'delivery' are not defined. oto The company now makes a wide product range in different categories, and plans to extend the range further. This is not reflected in the market analysis, which regards the company as serving a single, homogeneous market. °,'° There is no analysis of market share, product line profitability, likely growth areas, or competitors. Thus the commercial impact of different strategies cannot be assessed. °,*° The reports claim that delivery and quality will be key, and a way to avoid price competition with larger competitors. This implies that orders will be won on these issues, but the company sales director revealed that price is and will remain the main orderwinning criteria. o,*o Investigation by analytical co-ordinators suggests not only that segments vary in degree of price sensitivity, but that sub-segments do also. Thus in the thermal store product group, product A is sold to local housing authorities, and product B to the private sector new build and replacement markets - - and the former is significantly more price sensitive than the latter.
Company F Company F makes specialist climbing equipment and clothing, 60 per cent for export to the US and Japan. The consultants' work on market analysis produced two outputs, a SWOT analysis and a broad review of the UK and US markets. °,*° Each member of the management team produced a SWOT analysis, and these were collated by the consultants into one. This final SWOT had no market orientation, being largely a list of two or three word phrases, all very general - - e.g. strengths include 'quality' and weaknesses 'cash flow'. None were investigated further and the analysis was not used in subsequent work. o~° The UK and US market reviews were very broad, neither more than three pages long and differed very little from each other. The work was done by the UK and US sales managers, and this view was not checked against other internal or external sources. °,*° The reviews were produce reviews, stating for each item in company F's range the market share and competitors, and how the product is perceived (not specified by whom). No differences are identified between markets, and it is assumed that they are, therefore, homogeneous and that all products win orders in the same way.
Company G Company G manufactures air conditioning equipment, 300
ranging from extremely large, complex, highly customised close control systems to small, fairly standardised systems. At the time of the MPI project, company G also introduced a new standard product intended to be sold from stock. Half the company's sales are for export. °~° The MPI project began in 1992 but two earlier market reviews had been carried out in 1990 and 199I. The consultants claimed they would take advantage of this to build on the earlier studies. They produced a new sixteen-page report, with the following areas of analysis: Size of UK market (volume and value) by product group (indicates growing or declining) and by equipment specifier; Buying criteria, ranked within the two main product groups; Sales and market share by product group; Customer perceptions of company G; Requirements for success of the new standard product range - company G's own views; and six questions for them to consider. °**° The views on buying criteria and customer perceptions are reproduced from one of the earlier studies. The consultant accepted the limitations of the earlier study which confined analysis to the UK and did not segment in any more detail than product groups. °,*° A subsequent report did make one change to the earlier (pre-MPI) list - - it elevated price to the key criterion and thus proposed that change efforts should focus on 'cost reduction', then 'shorter, more reliable deliveries'. There was no analysis of price or delivery sensitivity by customer or product, so these claims were not substantiated. Discussion
These seven examples exhibit several elements common to each other, and to many other cases in the MPI database. These common elements fall into two areas: the market review activity (the methods used and time taken), and certain weaknesses in the outputs of that activity. These are discussed below, and summarised in Table 1.
Market Review Activity The seven cases used between them four methods of gathering new data about markets needs. (In one case there was an existing review to draw on). These methods will each, on their own, lead to only a partial view of the situation consultants are asked to analyse. The methods, and their partiality, are: Customer survey
A seemingly essential component, though neglected in three cases above. A customer's views are obviously important, but will encompass only those products and services with which he is familiar. He is unlikely to be fully conversant with all the products and services, or the requirements of customers in other market segments. A customer may also use a survey to articulate preferences rather than analyse competitive criteria - - claim they European ManagementJournalVo115 No 3 June 1997
THE STRATEGIC DEVELOPMENT OF MANUFACTURING
Table 1
Summary of Seven MPI Company Examples: Review Method, Time Spent, and Analytical Weakness Market review method
3ompany
Customer survey
Internal survey
Broad review
Time spent on review
SWOT analysis
~/(phone) (~/) (phone) ~/(phone) ~/(phone)
,/ ,/
(v/) ,/
Useof earlier review
,/
would like features which are in fact peripheral to his main reason for selecting a supplier. Also he will answer only those questions which are put to him, so the design of the survey instrument will be important. Internal survey There will be knowledge of market needs within the client company itself, but similar problems apply. Company personnel may not know all the customers equally well, or all the reasons behind their preferences. In particular, they may be ignorant of potential customers. Broad review This is a review undertaken by only one or two personnel, drawing on their existing knowledge, bringing together disparate elements of that knowledge into a single statement. This might be useful as a starting point but is certain to lack depth and detail, or be only a view from a single function. S W O T analysis SWOT (strengths, weaknesses, opportunities, threats) is essentially a way of organising a brainstorming session or of structuring a list. Its popularity (used by four of our seven examples) lies in its simplicity, but so does its weakness. The lack of analytical depth is evident in all four examples, with no prioritisation of items or expansion on the points raised. This led to the SWOT not being used in subsequent work. To some extent these methods complement each other, and could be used in conjunction. A broad review by a senior manager might lead to a series of SWOT analyses, which in turn become a source of questions to be investigated. That investigation would involve both internal and external viewpoints on the same issues, so that conflicting perceptions are exposed and can be investigated further. But this might require client viewpoints to be challenged, and this has happened very little in the MPI Scheme. There has also been little original analysis of primary data. If a client company claims its delivery is '90 per cent on time', this is accepted, not verified. Doubtless there are time and cost constraints in conducting such analyses. But the MPI Scheme, as we saw earlier, explicitly states 'the key to any project in the analysis phase which challenges a company's European ManagementJournaIVo115No 3 June 1997
Analytical weaknesses in
No Days
% of total
7 25 14
20 22 15
5
5
17 5
15 11
9
8
Coverage
~/ ,/ ,/ ~/ ,/ ,/ ,/
Verification
,/ ,/ ,/ ,/ ,/
Segmentation
v' ,/ ,/ ,/ ,/ ~/ v~
Definition
,/ ,/ ~/ ,/
assumptions' and 'the market review phase is vital'. Hence a substantial portion of the project resources should be allocated to it. However, as the central columns of Table 1 show, all our examples devoted less than a quarter of total project time to the market review, varying from 5 per cent to 22 per cent. It is not surprising that the outputs therefore showed certain shortcomings, discussed in the next section.
Market Review Weaknesses All the market reviews exhibit a number of different weaknesses, but these can be grouped into four broad types: problems of coverage, verification, segmentation, and definition. In determining whether a review is weak in any of these areas., we ask certain types of question under each, as follows: Coverage Are all markets, or all key markets, covered by the review? Are all the major customers in a segment included? Does the review consider past and potential customers, as well as existing ones, and future product plans as well as all existing products/ If selected coverage only is sought, what is the basis of the selection? Verification Are internal views checked against external ones? Are internal views consistent across functions, or can differences be explained? Where inconsistency is found, is primary data analysed to resolve the debate? Are previous views and analyses verified by more recent investigations? Segmentation Are markets treated as homogeneous? Are segments defined with sufficient rigour? Do product groups correlate with segments, and are product groups or individual products the appropriate unit of analysis? Are the segments perceived by sales and marketing the same as those perceived by manufacturing? Is there analysis at the order level, distinguishing between order size, lead time requirement, or elements of customisation? Definition Are the terms used to express market needs precisely defined? If a market is said to require 'increasing 30I
THE STRATEGIC DEVELOPMENT OF MANUFACTURING
specialisation', are the areas and degree of specification made clear? Are performance variables such as 'quality', 'service', 'responsiveness' described with these ambiguous terms, or is the precise customer need for each product or service parameter spelled out? Where appropriate, are performance needs quantified? As the examples show, there are problems with the market reviews in most of these four dimensions (the main areas are indicated in Table 1). The weaknesses derive of course from the methods (and time) analysis of the preceding section; the use of more (or more effective) review methods, and more resources, will be needed before all the questions posed in these four categories can be answered in the affirmative. By implication, an effective market analysis must be able to demonstrate appropriate degrees of coverage, verification, segmentation and definition.
Conclusion It follows from the previous analysis that the companies in the MPI scheme have not received a market analysis of sufficient depth and/or breadth to serve as the foundation for manufacturing strategy development. In particular, the analytical coordinators, in putting their own questions to managers, have uncovered important distinctions missed by the market review (Companies A, C, D and E). Significant variation exists between major customers purchasing on price or design (Company A), between the relative importance of price and delivery speed to different customers (Company C), and the degree of price sensitivity between major segments (Company E). Such factors need to be appreciated before
At bottom then, the failure is a failure to use a methodical approach, an intellectual framework for such investigations. We stated in the introduction that various frameworks exist for the development of manufacturing strategy. It is important to emphasise here that these frameworks are not idealisations existing only for debate among academics. They are practical tools intended for the use of managers. They are not buried in obscure publications or arcane treatises. They are widely available. In the case of Hill, and of Hayes and Wheelwright, they can be found in two of the bestselling books on manufacturing strategy, while Platts and Gregory's audit approach is freely available as a workbook in a DTI publication. Yet these frameworks were not used. And without an approach requiring detailed investigation, key issues will be missed, and 'analysis' gets little further than general statements. Only with a rigorous approach involving multiple methods of data gathering, and a concern for the right degree of coverage, verification, segmentation, and definition, will companies truly be able to claim to understand their markets sufficiently to make manufacturing strategic.
References Hayes, R.H. and Wheelwright, S.C. (1984) Restoring Our CompetitiveEdge.Collier Macmillan,New York. Hill, T.J. (1993) ManufacturingStrategy, The StrategicManagement of the ManufacturingFunction.2nd ed. Macmillan,London. Platts, K.W. and Gregory, M.J. (1992) A manufacturingaudit approach to strategy formulation.In ManufacturingStrategy, Process and Content, ed. C.A. Voss, Chapman & Hall, London.
TERRY HILL, London
ROY WESTBROOK,
Business School, Sussex Place, Regent's Park, London NWl 4SA.
London Business School, Sussex Place, Regent's Park, London NWI 4SA.
Terry Hill spent the first I0 years of his career in the i I industrial sector which included responsibility for managing manufacturing plants. Switching careers, he held a number of university appointments beforejoining the London Business School as Professor, Operations Management. He has contributed numerous articles on related issues and written several books the latest of which are Manufacturing Strategy: Text and Cases Second Edition, Irwin (1994), The Strategy Quest, Pitman (1994) and Manufacturing Strategy: Text and Cases, Macmillan (1995).
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deciding how manufacturing can best compete for orders in these markets.
Professor of Operations Management and Chairman of the Sloan Master's Programme at London Business School. Roy is ~ currently acting as an analytical co-ordinatorfor the DTI's scheme promoting advanced manufacturing technology projects. He has visited Japan six times to study just-in-time and total quality both in major corporations and in some of their suppliers. His most recent publications include New Strategic Tools for Supply Chain Management, Mass Customisation: Japan's New Frontier and Total Quality in Leading Fast-Moving Consumer Goods Companies.
EuropeanManagementJournalVo115No 3 June 1997