Why Mid-Market Manufacturers Must Change Their Mindset for Long-Term Growth in Industry 4.0Why Mid-Market Manufacturers Must Change Their Mindset for Long-Term Growth in Industry 4.0

Why Mid-Market Manufacturers Must Change Their Mindset for Long-Term Growth in Industry 4.0 Transcript:

You’re listening to The Kula Ring, a podcast made for manufacturing marketers. Here are Carman Pirie and Jeff White.

Jeff White: Welcome to The Kula Ring podcast. This is Jeff White speaking. Joining me today is Carman Pirie. Carman how are you?

Carman: All is well Jeff.  I think we have a great show lined up today. I’m really happy to be chatting with our next guest.

Jeff: Me as well.

Carman: Are you going to introduce her? I think you should.

Jeff: Okay, I will. Andrea Olson is the CEO of Prag’madik, a consulting agency.

Carman: A customer-centric operations strategy consultancy to be specific.

Jeff: That is much more specific.

Carman: As well as the author of No Disruptions, The New Future for Mid-Market Manufacturing. And Andrea is also a podcast host for Women and Manufacturing. So without further ado, Andrea Olson, welcome to The Kula Ring. Please tell the listeners a little bit about yourself.

Andrea Olson: Oh thank you, thank you Carman, thank you Jeff. That was a wonderful introduction. I’m not sure exactly how far I should go. But a little bit about Prag’madik.

Simply put, we help companies better understand and engage their customers. Because everything in regards to growth comes out of knowing and understanding customer needs. Many companies tend to start doing things backwards. You have an idea for a product and then you look for a market to sell it, and we try to help companies understand customers’ buying behaviors, motivators, how you can better engage customers, how you can align your company culture with customer needs, and then most importantly, aligning sales and marketing teams with that. So a myriad of tactics and strategies can fall out of that and every client engagement is very different. So we really try to help companies solve those challenges in understanding their customers better.

You had mentioned that I am a host of the Women and Manufacturing podcast. There are a few hosts of that podcast, myself and a gal Desiree Grace host the Riveting Exchanges podcast, which is a subset of Women in Manufacturing. We really talk about the different challenges that women face in an environment that might be a lot more industrial, that might be a lot more male-oriented and dominated, and how you navigate that environment.

And then of course, there’s quite a few different non-profits and organizations that I’m involved within manufacturing and outside of manufacturing, but I’m also an author as you mentioned of a book called No Disruptions, talking about the challenges that mid-market manufacturers face and how they can really address the changes coming in the future with regards to technology.

And also I have a second book coming out in the next week or two called The Customer Mission. It’s really about the principle of how do you center your organization, processes and culture around your customers so you can have significant growth instead of incremental growth.

Carman: So I have to think that there’s some connectivity between these two books, that part of the requirement or the imperative around the new future for mid-market manufacturing has to be driven by changes in the customer, and those they serve, and having to respond to those.

So what is the new future for mid-market manufacturers that we’re trying to prepare them for?

Andrea: Well you know, the interesting thing that I’m sure many companies have heard about is Industry 4.0. The concept of advanced automation, we talk about robotics, we talk about big data, we talk about 3D printing. These new burgeoning technologies that are going to change manufacturing just like they did in different things in the industrial revolution. The challenge, fundamentally, with especially small to medium-sized manufacturers is they’re not prepared to even think about, much less address, these changes on the horizon. Many mid-market manufacturers don’t even have the fundamentals in place from a technological perspective, from a process perspective, from a culture perspective, or specifically, even marketing and customer insights.

So to jump from an organization where, let’s say, you’re using QuickBooks, you’re keeping track of customer information and data on a spreadsheet, a lot of things are done manually, to think about and apply concepts like robotics or something along the lines of 3D printing, it’s so far field it’s just not even plausible to fold into the organization in an economical way that’s going to have an impact on growth. So the premise of the book is about focusing on the fundamentals, the blocking and tackling—how can you get out of probably, typically, the 1970 and 1980’s processes and infrastructure and start getting up to current day, so then you are prepared to take on and address some of the challenges that are coming in the future.

Carman: Well I’m glad that the book gets into addressing some of those fundamentals because initially as you were introducing it, I was beginning to think that the future may be almost too bleak for these mid-market manufacturers and almost too far behind the 8-ball to be able to catch up. But clearly you see that a different way. What are the key areas that they need to be focusing on as they position themselves for what’s next? And I guess I’ll start there.

Andrea: Sure. Sure. You know, I’ve been personally in two global manufacturing operations over the last fifteen years. One was about 800 million globally, the other one was about 350 million globally. So two different sizes but fundamentally the same challenges. This really stems from the fact that manufacturing, way way back, decades back, started with someone that was possibly an engineer, they were an inventor, they were a product developer, they had an idea. They saw an opportunity in the marketplace, they created something, and then they sold it. And these deals came through handshakes, they came through relationships. And as those contracts built, the companies grew, these organizations got into a mode where they were comfortable, they’re comfortably cashing checks, they’re making their product, they streamline operations, they reduce their costs, but everything is fairly status quo.

The challenge has been that in the last ten to twenty years, the advent of simply the internet, computers, the advancement of computer processing, mobilization of data, the cloud—these things are the basic fundamentals of every day business that many manufacturers aren’t really understanding and utilizing. So they have an older staff, they have older technology that they have not kept up on, you know they might be using Windows 98 as an example. I can tell you one of the manufacturers that I worked for, again that was in the hundreds of millions of dollars of sales globally, was using an interface that was a blue screen, you know that old blue screen with the yellow type that looks like a DOS system, was the infrastructure for running the company. So you look at those pieces and you say how can this organization move ahead when they have no transparency to data, or access to information.

In addition, the second half of that is, culturally speaking, the organization hasn’t been living and breathing that way. The team is unprepared, especially middle management, to be able to understand and analyze information, make predictive and strategic moves to help grow the company, it’s been very basic. So now when you’re looking at these companies coming up against larger bohemeths that have much bigger budgets, they’re really under prepared to make a major move into something that we talk about as the future, the Industry 4.0. So it goes back to these companies need to critically get up to speed with regards to business strategy, what we call front of the house operations, and understanding how business works today, not just how manufacturing works today.

Carman: I have a few thoughts coming out of that. On the one hand, you might think that even the prominence of conversation around Industry 4.0, the promise of it would lead people to be more open to the conversation around what technology delivers, for instance on the marketing side and elsewhere. Then in some ways, initiatives to digitally transform the enterprise would gain some steam when looked at through that lens. But then on the other hand, the other thing I’m thinking too is that it’s one thing for folks who are, as they encounter a larger, better-funded competitor who has been more digitally savvy, that obviously brings with it its own set of complications. On the other side is the opportunity around if you are in a category that isn’t particularly fast-moving yet or hasn’t seen a lot of advancement, if you can choose to get out of your own way, you have an enhanced opportunity to get ahead of your competition it would seem to me. For instance, I guess what I’m kind of saying is that it would seem to me that if you embrace digital transformation as a mid-market manufacturer, the potential upside is so much greater because the chances of your competition getting with religion any time soon is less, than it is in other categories.

Andrea: Sure, sure. And it does make complete sense, but the problem, fundamentally is that a lot of owners, first-generation, second-generation maybe even third-generation owners, know what they know. They know what they’ve experienced. And many second-generation owners have learned from the first generation. And the first generation was many, many decades ago. Now that doesn’t mean that the new owner and leadership aren’t aware of technology and technological changes. But with every opportunity is a risk.

If you are operating on somewhat of a shoestring, everything is somewhat day-to-day, you have 80% of your business with one account, with one contract, your focus tends to be not looking at improving your operation expanding, but maintaining and keeping what you have. So if you think about this generational gap, and understanding technology, I would argue that probably both of you and I, we’ve grown up in a digital world. We’ve grown up where we understand the web, that’s something that you guys do as a service to your clients and in my former life, I started a web development company back in the 90s. But without that familiarity, it’s very scary, and it’s hard to justify an investment in change because it’s not just the cost of implementing something new, it’s getting the organization around it and having them adopt it, utilize it. Otherwise it slows down everyday processes and people start finding work-arounds. They want to go back to the old way of doing business.  So if your staff tends to be older, they’ve not had to deal with change, they’ve not had to use advanced technology, they’re very comfortable in the old processes that they’ve been doing for decades, this change is much more outside of just a cost. It can easily impact profitability, it can impact production, it can impact organizational culture. It’s a big shift that is pushing a boulder uphill.

Jeff: Is there an inevitable move into this kind of thing, basically driven by the fact that they’re going to have to be hiring people who are driven more digitally, you know, by default, because as the workforce matures, the new people moving in are going to be significantly more savvy, and they…

Carman: Basically as the enterprise changes, the pace of the HR change, it just happens naturally, in the life cycle of the organization, or my guess is, Andrea may argue that change wouldn’t be fast enough, they need to move faster than the pace of that.

Andrea: Right. That’s the rub. A lot of companies and organizations believe, well, okay, we don’t have modern processes, what we’ll do is we’ll bring in a lean expert, or we’ll put in a new ERP system, and this kind of addresses 80% of what our issues are. That’s really just half of the equation. So if you have people that are baby boomers maybe, or even older than that, that are the majority of your organization, culturally things have been status quo. It’s going to be virtually impossible to throw in a massive change and have the organization accept and adopt it. In addition, the other side of the coin as you say, well, we’re going to hire one or two younger people, they’re going to champion this change, and they’re digitally savvy, that will address the problem.

Well, they’re going to be on an island. They’re going to be one person that’s in a junior position that’s trying to change the organization as a new employee. And culturally, manufacturers often tend to be somewhat antiquated. So if you are young, you’re eager, you want to make change, you want to help grow an organization at a pace that maybe the organization hasn’t been typically growing, it’s going to feel slow. It’s going to feel cumbersome. And I would argue that many times, and from my personal experience, I was brought on in that capacity, and then the first thing I had to do was learn and understand an obsolete operating system within the organization. It’s not to my advantage. It’s not something that I can put on my resume. It’s not something that I can take that skill and knowledge somewhere else and use it. It’s only exclusive to that company. So then it becomes that uphill battle of getting that organization to make a technological change in that scenario. So it’s not a cart before the horse situation, it’s two things that have to be implemented simultaneously.

You’re listening to The Kula Ring, conversations on manufacturing marketing. Don’t forget to subscribe now at Kulapartners.com/thekularing.

Carman: So as we’re trying to… I mean we’ve certainly successfully painted a picture of the mid-market manufacturer that’s slow to adopt technological change and is facing a challenge of a workforce that may lack inclination or desire for that change, I guess, in your experience, is there one area of the organization that say, a savvy marketer who’s trying to push that rock up the hill, what organization within the firm, what department ought they maybe be focused on to try to first… as they’re looking for allies, where do they look first? Do they try to get sales on board first? Is the road to salvation through the IT department? Help me out.

Andrea: You know I think that can be very specific from company to company. Because if you look at an organization that’s very sales driven, even though there’s a CEO or leadership team in place, you can pick up very quickly whether everything centers around sales, or everything centers around product development, or everything centers around customer service, let’s say. You have to understand where the rudder is in the organization. Is it the CEO that is actually driving the organization and making those decisions and ensuring they’re implemented? Or is it from the middle out, where let’s say sales is influencing the CEO and everything is driven by the PNO? You have to know that environment going in. So I wouldn’t say that there’s a simple this department or that department, it’s just like any other group organization, is understanding the influencers and the players and aligning with them.

Carman: Andrea, I think this all really, I think helps us understand the time that we’re at in mid-market manufacturing where, the challenge that’s ahead of us if you will, I’m kind of wondering for the manufacturers that start down this path, that raise their hand and say, yeah, I realized that we need to head down this path and we’re going to start marching down it. What does it look like, I guess how do they know they’re starting to see some success there? What are the key differences in the organization that they can point to and say, yeah, we’re now in a better position to succeed in this more competitive and digitally enabled future, what does that look like, the two-beast state if you will.

Andrea: Sure. You know, personally I believe that it starts with building a culture of change. And this doesn’t have to be dramatic change. It doesn’t have to be a major disruption. It’s about every department and individual starting to understand and behave in a way where they can look at what they’re doing and examine new and more efficient ways to do it. This requires a lot more collaboration between departments. Many manufacturers function in silos, where sales in on one end, product development is on another end, and marketing is somewhere in the middle, often underutilized. They’re the make it pretty department that maintains the website, organizes the trade shows and updates brochures. So, fundamentally, it has to start with that culture and encouraging and supporting any time of progressive change, whether that be a small process change or even more communication between departments. But more importantly, it also shifts more towards understanding what customers need and keeping the organization in touch with those customers. This is not exclusive to sales. It’s not exclusive to product development. Every single person in some way or another always touches a customer. Even accounting touches customers with billing questions. Starting to change that mentality around, instead of being a product development company where we make widgets, we’re in the service industry. We’re helping solve customer problems that might be outside of specifically what we manufacture.

So a simple example would be, we might have a simple billing process, and a person in the billing department might see that there is a pattern where customers constantly call in to check in on the status of an invoice being processed let’s say. So that in itself is fundamentally a service change that they can influence to help improve customer engagement and satisfaction. How can that be simplified? How can that be modified? Can it go through a different process? Is it something that customer service can handle so the customer doesn’t have to make two or three calls to the accounting department? These are very simple changes that can start that ball rolling.

When you look at the bigger picture, it really has to be something where the organization is focused around accepting the fact that their current status quo is not going to get them ahead. And that can be a problem, especially with those manufacturers that have big OEM clients. You know, that they’ve had relationships with for decades. You know, that the bills are getting paid, there’s no sense of urgency to change. The important thing is to look at not just their environment, but the macro-view. What is the organization going to do from a strategic perspective for growth? And this isn’t, well, we’re going to increase sales revenue this quarter by ten per cent. It’s the how. That’s simply just the goal. That’s the target, that’s not the strategy of how you’re going to get there. And strategy isn’t, well, we’re going to acquire ten more clients, sales or marketing go out and do a campaign, we get ten more clients, and everything’s fine.

The critical infrastructure is actually developing a business strategy for long-term growth. And if the company is either not interested, or not prepared to do that, they are going to simply be either obsoleted, or absorbed by a larger organization that will purchase them for their assets, or their patents or products. So if you’re looking long term, I see that even though we look at the small to mid-market as the 80% of jobs and revenue across the United States, the problem is if these manufacturers don’t start looking at embracing change, and looking at their business growth from a strategic perspective, we’re going to see that size of market shrink and consolidate over the next ten years, very quickly.

Carman: Andrea, really, that’s very fascinating to consider the full scope of the change that’s required, and I think that one of the encouraging things about it is it’s not all about investment and cost. So much of it is simply about mindset change and of course, changing your mindset is sometimes the most difficult thing to do, but it’s not necessarily the most expensive thing to do. So I think that that’s encouraging.

Andrea: Yes, it’s definitely about changing the mindset. It’s difficult because as an entrepreneur, you have to constantly be pushing forward and identifying new opportunities for growth. And as time goes on, people get tired. People get older. Being an entrepreneur, being a business builder, really is an effort in continual change and embracing new challenges and really this momentum where that organization is never in a comfort zone. And understanding that is essential in knowing what you need to do to make changes to move the organization forward.  So I’d argue that many companies, the problem is that they’re in a comfort zone, and the revenue is coming in, things are humming along just fine, and cheques are being cashed. They do see that there are changes along the horizon, yet they’re not fearful of these because they don’t feel that pain yet. The problem is once you feel that pain, just like anything else, it possibly could be too late and too hard to pivot the organization to effectively change and keep up with that. If you think about a simple analogy with your personal health, you might say, well I feel fine today, nothing is wrong, I don’t have to worry about changing my personal habits, but once you get to the point where you do have let’s say, high blood pressure, or you are overweight, now changing those behaviors is a much bigger task. When you start that before the change is needed, you can head off that issue as well as get ahead of the game and not have to deal with that type of issue.

Jeff: Thanks very much for joining us today on The Kula Ring Andrea, we really enjoyed having you and hearing your perspective. It was incredibly interesting.

Andrea: Well thank you so much Carman and Jeff for the time today. You know there’s so much more that we could cover and dive into, but I think that the biggest takeaway here today is that change is inevitable, and even though you’re a manufacturer, you’ve maybe been within manufacturing for the last twenty, fifty, hundred years. It doesn’t mean that the environment around you hasn’t changed, and that business and strategy has not changed. Change is constant, and one of the things that manufacturers need to examine is that there is a new way of technology just like back in the industrial revolution that will start impacting your business. It might not be today, it might not be in five years, but it’s about getting your house in order, and getting your technology, your processes.

Thanks for listening to The Kula Ring with Carman Pirie and Jeff White. Don’t miss a single manufacturing marketing insight. Subscribe now at Kulapartners.com/thekularing.