Call it a gut feeling. About two weeks before Federal Reserve Chairman Ben. S. Bernanke told a Senate committee on Nov. 8, 2007 that he expected the U.S. economy to "slow noticeably" in the coming months, manufacturers had already sensed that economic storm clouds were gathering.
In a new, exclusive Managing Automation poll conducted in mid-October, U.S. manufacturers reported a 14 percentage point drop in expectations about economic growth for the coming year, compared with 2007. Moreover, fully one-third of the poll's respondents said they are beginning to feel the heat from the nation's deepening credit crisis brought on by the sub-prime mortgage lending fiasco.
The sharp downturn in manufacturers' confidence in the state of the U.S. economy in 2008 has also begun to trickle down to how they feel about the prospects for their own businesses in 2008. The latest poll registered a 6 percentage point drop in confidence levels year over year.
These are just some of the findings of the new MA reader poll on manufacturing's business and technology outlook for 2008. More than 360 MA readers voiced their opinions on the state of the U.S. economy, their confidence levels for their businesses, and their attitudes about technology investments in 2008. In addition, they weighed in once again on the importance of becoming agile, a business discipline this magazine first began investigating in its 2006 outlook poll. This year, poll respondents are signaling that less emphasis is being placed on this business technique.
But, clearly, the most dramatic finding in this year's poll has to do with feelings about the U.S. economy and where it may be heading in 2008. Many respondents, no doubt, have been influenced by a confluence of factors in 2007: the mortgage/credit crisis, the weak U.S. dollar, stock market gyrations, and continued uncertainty in such key industrial sectors as automotive. In the new poll, as a result, just 39% of survey respondents said they expected the U.S. economy to improve moderately, the most watched gauge in the poll, compared with 53.2% who felt this way last year. Those expecting the economy's numbers to be flat increased to 35.4% from 29.9% last year, and those expecting the beginning of an actual decline rose to 13.5% from 8.8%.
When asked what impact the mortgage/credit crisis may be having on their businesses, a sizable majority, 60.8%, said they haven't felt anything — yet. But more than 34% said they are now feeling an impact in varying degrees, with 13.1% of this group indicating a "moderate" effect on their business as of the fall. This number could grow if the credit crisis reverberates further into the economy this year.
This cause-and-effect dynamic is also something to watch closely with regard to manufacturers' actual business performance over time. When asked in October about the health of their own businesses, confidence levels didn't suffer as much as attitudes about the economy, but there were some noticeable changes. This year, 49% of respondents indicated they were more confident about their business prospects going into 2008, down more than 5 points from last year. Those expressing somewhat less confidence going into the new year, while only a small percentage, grew to 12.7% of respondents, compared with 7.4% in last year's poll. The shift is certainly not of sea-change proportions at this point, but, taken in context with feelings about the economy and the impact so far of the credit crisis, it could be a harbinger of things to come.
If the economy takes a sharp turn for the worse in coming months, bets will certainly change, but when it comes to business priorities going into 2008, manufacturers still seem to be focused on a set of business activities designed to advance a goal they established a couple of years ago — growth. By contrast, once again this year, cost reduction receded as the top business priority on manufacturers' agendas. Last year, cost reduction slipped 14 points in terms of poll respondents identifying it as a high priority. This year again, the percentage of respondents characterizing cost reduction as a high priority declined, dropping to 42.9% of respondents from 47% last year and 61% in 2006.
Cost reduction, a perennial business discipline, of course retains an important role on manufacturers' agendas, but business activities related to growth occupy an equal, if not more important, status, according to the poll's results. When asked what emphasis their companies will place on better business execution, for example, 54.6% of poll respondents indicated that this was a top priority for them, the highest-rated activity in the poll. Not far behind were improving key business processes, at 46.5%; new market penetration, at 46.3%; and new production introductions, at 43.6%, results pretty much in line with last year's.
Interestingly, worker re-education and skills improvements, two areas that industry associations such as the National Association of Manufacturers and the National Association of Advanced Manufacturing have been hammering on for years, seem finally to be getting greater emphasis, although the overall numbers remain disappointing. This year, 28.8% of poll respondents indicated that such educational activities would be a high priority for their companies in 2008, compared with 22% last year.
When it comes to technology activities on the boards for 2008, the usual suspects — integration projects, information architecture, and mobile systems — remain in force with a status that is pretty much equal to last year's, although with a couple of notable changes. Information systems consolidation, which led the pack of activities with a 30% share last year, has dropped to only 23.2% of respondents indicating this as a high priority for their companies. Moving up slightly in emphasis is inter-enterprise collaboration, with 25.2% of respondents, even as integrating plant floor systems with business systems holds its ground, at 24.8% of the survey group.
Fans of the digital factory concept — the integration of design and production — may have mixed feelings about the survey results on this tech activity. In response to this new question in the survey, only 15.4% of respondents indicated that the digital factory integration activity is a high priority for their companies in 2008, but another 55.7% said that their companies would put a moderate degree of emphasis on it this year. This glass may be half full.
Relatively good news can also be found in attitudes toward technology budgets. This year, again, a majority of survey respondents, 54.9%, indicated that their companies' technology budgets would increase, compared with 57.8% saying so last year. And those expecting their budgets to be pretty much at the same level as 2007 came in just about 2 points higher than last year, to 30.4% of the survey group.
At the top of the purchase intention list again this year are such technologies as wireless, manufacturing and business intelligence software, e-commerce technologies, RFID, and product lifecycle management and ERP applications.
Agility, a business idea about which Managing Automation has been asking for the past two years, may have lost some of its luster as a "hot" management concept and could be settling in for a period of implementation and digestion. Although the percentage of respondents indicating that business agility is a high priority for their companies in 2008 actually slipped to 37.7%, compared with 45% last year, an overwhelming majority of companies said that it is clearly on their agendas as a business activity.
But the drivers for agility are apparently shifting and reflect the degree of emphasis that was seen vis-à-vis growth and cost reduction. Last year, poll respondents said they most closely associated cost reduction with agility. But this year, respondents said that while cost reduction remains very important, reducing time to market has become even more important. In the new poll, 49.2% of survey respondents said reducing time to market is the most intense driver related to agility now, compared with 43% saying so last year. As a factor, cost reduction slipped slightly, to 47% of respondents from 51% last year. And management is placing the most emphasis on agility in product design.
The inadequacy of most manufacturers' IT infrastructures to support agility, clearly in evidence in the MA polls over the past two years, remains true in the new poll, but what's encouraging this year is the percentage of companies saying that they are modernizing those infrastructures in order to advance the discipline. This year, 41.6% said modernization efforts are under way, up 8 points from last year's survey. In companies where infrastructures aren't adequate to support agility, 68.4% said they plan to modernize, and of those 55.6% said they plan to do so in 2008.
Sustaining management's focus on agility as a key business discipline, which has surfaced as a more pronounced challenge in this year's poll, may very well be tested as the months of 2008 unfold and the growth pattern of the economy materializes. Should Fed Chairman Bernanke's predictions pan out, manufacturers may shift their attention yet again back to cost reduction.