Bigger threat than Brexit?
Commentary by Claire Lauder, Director of Manufacturing and Engineering.
I believe a combination of an ageing workforce, poor succession planning and lack of leadership pose a greater threat to UK manufacturing and engineering businesses than the looming Brexit. This is particularly true across the SME sector, which in turn threatens the stability of the supply chain to larger corporates.
Do you agree?
My opinion has developed through discussions with senior executives in the sector. Many of the interim managers I place resolve longstanding people and performance issues which have not been acknowledged or addressed. I regularly place interim managers into SME manufacturing businesses who cannot afford a big hitter permanently on the payroll but can benefit immensely from an injection of specialist knowledge for a short period of time.
I cannot help but notice the aging profiles of the leadership teams in these businesses. Owner managers in particular are often the driving force behind the business they run and without them the viability of that business is sometimes questionable. The profile of many of these leaders means they will be leaving the workforce in the next 5-15 years, often with no obvious successor to take the helm.
One Managing Director recently told me he had taken over a business where 37% of the workforce were over the age of 62. Perhaps an extreme example, but one that is not completely unheard of across the manufacturing and engineering sectors.
Many of these leaders have come through apprenticeships, HNC, City & Guilds etc. and worked their way up the ranks. Over the last 20 or so years apprenticeships went out of fashion, as did manufacturing, and this has left a huge skills gap which has prevented businesses from nurturing the leaders of the future. The big corporates will undoubtedly continue to hire apprentices but the apprenticeship levy may discourage SME’s from doing so.
According to the Business population estimates report (October 2016, the Department for Business, Energy & Industrial Strategy), total employment in SMEs was 15.7 million – 60% of all private sector employment in the UK. The combined annual turnover of SMEs was £1.8 trillion – 47% of all private sector turnover in the UK. Almost a third of SME turnover was spread across three more sectors: Construction (11%), Manufacturing (10%) and Professional, Scientific and Technical (10%).
The importance of the SME sector to the UK is not to be underestimated, it contributes significantly to the UK economy. It will be strong leadership that makes a success of a UK post Brexit and not government policy.
Since the Brexit vote, the initial resilience of the manufacturing sector has surprised many. BDO reported that manufacturing confidence is at a 20 month high, but according to the latest Markit/CIPS, UK Manufacturing MPI figures, whilst factory output grew to the highest level for 32 months, apparently costs also saw their largest increase since 1992 when data started to be collected.
There is no doubt that post Article 50, uncertainty lies ahead for most businesses in the UK. It will be survival of the fittest. Those most adaptable and agile with the strongest leadership teams will be the ones with the best chance of staying afloat. Companies must improve their succession planning and start thinking who their future leaders might be.
Please feel free to share your thoughts and personal experiences.
Claire Lauder is Director of Manufacturing and Engineering