If 2006 was a year of sober expectations for the economy and the business of manufacturing, the year now beginning appears to hold the prospect of a measured continuation of many of the same feelings, trends, and spending plans that played out in U.S. companies over the last year.
Manufacturers across the U.S. have settled into a steady-as-she-goes pace coming off a relatively uneventful 2006, a year that saw no major economic upheavals or natural disasters that could affect manufacturing's health or prospects. With the book on 2006 recently closed, feelings about the U.S. economy and manufacturing's prospects in 2007, which are predicated on moderate improvements in both, are essentially unchanged from what manufacturers felt at the start of 2006.
The one big shift is in the attitude toward cost reduction. Long at the top of manufacturers' agendas, and particularly in force in the last few years during and after the recession, cost reduction has lessened in intensity as a business priority. Although still very important as a continuous business discipline for manufacturers, cost reduction appears to have given way to a renewed focus on factors that drive growth — including getting into new geographic and industry markets and ratcheting up the pace of new product introductions.
These are just some of the findings of a new, exclusive MA reader poll on manufacturing's business and technology outlook in 2007. More than 350 MA readers voiced their opinions on the state of the U.S. economy, the prospects for their businesses, and their attitudes about technology investments for the next 12 months. In addition, they weighed in once again on the importance of becoming agile, a business discipline MA first investigated in its 2006 outlook poll. This year, the emphasis on agility continues with consistent force throughout manufacturing.
The growth message shows up in a number of places in the poll. Whether in feelings about the economy, business priorities, or technology budget direction, the message is even-handed and, frankly, conservative in tone, rather than a shout-from-the-rooftops clarion call. When asked about their confidence levels in the U.S. economy, for example, a majority of survey respondents, 53%, said they expect mostly moderate improvement in the year ahead. That's consistent with last year's finding, when nearly 50% said the same. Once again this year, just under one-third expect a flat performance from the economy, while those expecting a decline actually decreased by four percentage points.
Manufacturers' confidence in their own business prospects somewhat mirrors their feelings about the economy. In this year's poll, 55% of survey respondents indicated that they are more confident about the health of their businesses in 2007 than they were a year ago. But the percentage of those who feel significantly more confident about their business was once again much higher than those who felt the economy would improve strongly. Sixteen percent of poll respondents said they were "significantly more confident" about their businesses, while just 4% indicated the economy would "strongly" improve in 2007. Evidently, many manufacturers feel they have greater control over their own businesses and, based on the poll, they are taking steps to improve their operations across the board.
Traditional wisdom tell us that spending intentions are closely linked to how well companies feel about economic and business conditions, and that is indeed borne out by the survey results. This year again, a solid majority, 58%, expects budgets for technology purchases to rise, with a double-digit number, over 11%, saying that the increase will be more than 10%. Last year, 13% said they expected a double-digit increase. Those indicating flat budgets dropped a few points to 28% of respondents, from 32% last year, while the few projecting budget cuts actually rose slightly to more than 9%, from 6% last year.
Wireless technologies, business and manufacturing intelligence software, radio frequency identification technology, and, yes, that old standby, enterprise resource planning applications, are at the top of purchase and evaluation lists for survey respondents.
This menu of technology desires is no doubt inspired by a broad set of business initiatives under way at many companies. While cost reduction continues to be the top business priority for survey respondents, the margin of its dominance over other priorities has narrowed noticeably. This year, 47% of survey respondents indicated that cost reduction was a high priority for their firms, down 14 points from the 61% who said so last year. By comparison, new market penetration was also a high priority for 47% of businesses, while new product introductions were a high priority for 44%. The overwhelming majority of those with a less intense focus on cost reduction still label it a moderate priority, reflecting the persistence of the issue.
But no other business priority experienced that significant a change in this year's poll. In fact, other key priorities, including new market penetration, new product introductions, and becoming agile retained their importance in the eyes of respondents, with agility gaining five points in the high priority category.
Interestingly, two new options put before survey respondents this year — business model transformation and improving key business processes — registered impressive numbers in the survey results. Nearly one-quarter of survey respondents, 23%, indicated that business model transformation was a high priority for their companies. Another 56% said that such transformation is a moderate concern. Only 20% rated it a low priority.
Improving key business processes, however, registered as a high priority for 44% of poll takers, with another 52% saying it is a moderate priority.
As they undertake these business model and process changes, injecting notions of agility into those revamped processes is much on the minds of manufacturers. Last year, when the question about agility was first put to poll takers, 40% of respondents indicated that it was a high priority, and another 53% said it occupied a visible place on their radar screens. This year, 45% said it was a high priority for them.
The drivers behind the agility move, however, appear to be shifting. This year, a majority, 51%, indicated that cost reduction was a key driver for agility, but that's down nine points from the whopping 60% who checked off cost last year. Competitive factors also seem to have receded as a primary motivation to adopt the discipline. Changing market requirements and reducing time to market, however, continue to be driving factors for respondents.
Once again this year, notions of agility are being applied in many functional areas of the manufacturing enterprise, from demand management, to designing products, to managing the supply chain, to production and assembly operations. No single functional area is clearly dominant in respondents' thinking.
But what comes through loud and clear again is that respondents' information technology infrastructures are still not up to the challenge of enabling agility, although some slight improvement has taken place. This year, 18% of respondents reported that their IT infrastructures are fully capable of supporting agility, up four points from last year's poll. Thirty-seven percent said their infrastructures can support some aspects of what's needed, essentially the same as last year, and another one-third indicated that they are on a path to modernization. A majority said 2007 will be the year that modernization occurs.
When it comes to identifying the challenges associated with agility, the numbers this year are consistent with 2006's poll — implementing business process changes garnered a majority, 53%, of respondents' votes.
All in all, the 2007 poll suggests that the year now unfolding will be another period of steady-as-she-goes progress. But not far beneath the surface are fundamental business model and process changes that, in the aggregate, will reshape manufacturing in the years ahead.