Making and Winning the Economic Argument for Skills

1. Making and Winning the Economic Argument for Skills Advanced Manufacturing Driving Business success through skills investment Change titleChange title

2. Storyboard 2

3. What key skills challenges are being faced overall? 3

4. Advanced Manufacturing mattersImagine where the sector is today? 4

5. Advanced Manufacturing...MattersWhere is the sector today? Productivity is rising, lean production is now common place and the UK has consolidated its strengths. We can be proud of our high tech, high value, innovative markets such, aerospace, defence and biotechnology and our strengths in customer service, innovation and flexibility. The sector has responded to the effects of globalisation and growing consumer demand with greater collaboration and horizontally and vertically and stronger supply chains. Significant investor in R&D, innovation and new technology Third largest UK sector (in terms of GDP) Generated �150 billion in 2008 (12% of UK GVA) Provides jobs for a sizeable share of workers (around 10% / 2.5 million people) Greatest share of export market (65% of total UK manufacturing exports are high and medium-high tech manufacturing exports). UK manufacturers generate between 15% and 20% of their revenue from services. Large number of related markets forecast to emerge over next 10 years, including significant opportunity created by shift to clean-energy Government priority due to clear growth potential. 5 Third largest sector (in term of GDP) (third largest after professional and business services and retail, source: ONS, cited in The Plan for Growth, BIS, 2011) Generated �150 billion in 2008 (12% of UK GVA) (source: ONS, cited in The Plan for Growth, BIS, 2011) Above average GVA per worker (GVA per worker is �47k per worker compared average of �42k per worker, source: ONS) Employs 2.5 million people (source: ONS, cited in The Plan for Growth, BIS, 2011), note, we�ve quoted 3 million in previous presentations , 2.5m is for 2010 and the most up-to-date figure) Greatest share of export market (65% of total UK manufacturing exports are high and medium-high tech manufacturing exports) (source: OECD STAN Bilateral Trade Data, cited in Manufacturing in the UK: Supplementary analysis, Economics Paper no. 10B, BIS, 2010) Large number of related markets forecast to emerge over next 10 years, including significant opportunity created by shift to clean-energy (source: Pew Charitable Trust, 2010) UK manufacturers generate between 15% and 20% of their revenue from services. (source: EEF (2009) Manufacturing Advantage � How manufacturers are focussing strategically in an uncertain world, cited in More than making things, A new future for manufacturing in a service economy Work Foundation�, 2011) Survey by EEF/BDO. Quoted in BIS (2010) Manufacturing in the UK: an economic analysis of the sector Manu-services contribute around 2% of the UK�s GDP (Based on 2009 figures for GDP at current market prices. Source: ONS Blue Book) Third largest sector (in term of GDP) (third largest after professional and business services and retail, source: ONS, cited in The Plan for Growth, BIS, 2011) Generated �150 billion in 2008 (12% of UK GVA) (source: ONS, cited in The Plan for Growth, BIS, 2011) Above average GVA per worker (GVA per worker is �47k per worker compared average of �42k per worker, source: ONS) Employs 2.5 million people (source: ONS, cited in The Plan for Growth, BIS, 2011), note, we�ve quoted 3 million in previous presentations , 2.5m is for 2010 and the most up-to-date figure) Greatest share of export market (65% of total UK manufacturing exports are high and medium-high tech manufacturing exports) (source: OECD STAN Bilateral Trade Data, cited in Manufacturing in the UK: Supplementary analysis, Economics Paper no. 10B, BIS, 2010) Large number of related markets forecast to emerge over next 10 years, including significant opportunity created by shift to clean-energy (source: Pew Charitable Trust, 2010) UK manufacturers generate between 15% and 20% of their revenue from services. (source: EEF (2009) Manufacturing Advantage � How manufacturers are focussing strategically in an uncertain world, cited in More than making things, A new future for manufacturing in a service economy Work Foundation�, 2011) Survey by EEF/BDO. Quoted in BIS (2010) Manufacturing in the UK: an economic analysis of the sector Manu-services contribute around 2% of the UK�s GDP (Based on 2009 figures for GDP at current market prices. Source: ONS Blue Book)

6. Advanced Manufacturing...MattersImagine where we want to be tomorrow The UK is the World�s leading advanced manufacturer It is the primary source of the UK�s international competitiveness and trade in high value products and services It�s driven by world class managers, lean and clean processes, research, engineering, and design in the search for continuous improvement and innovation We lead the way in developing new technology and are creating new solutions which fully exploit new markets in the east and growing sophistication in customer demand The sector recognises people as a source of competitive advantage and firms invest optimally in their management and technical skills The highest talent around the world is attracted to the UK�s manufacturing sector Employers collaborate on and lead the development of solutions to the sector�s problems in the pursuit if mutual gain and strengthen UK supply chains 6

7. The performance challengeProductivity 7 We are being outperformed on the world stage: UK manufacturing productivity exceeds the EU in only three of nine sub-sectors and in the US in only two BRIC economies are increasing their share of world manufacturing and manufacturing in these countries is becoming more sophisticated and knowledge-based Our children are 28th in the league table of mathematical attainment at the age of 16 The UK is12th in the World Economic Forum�s national competitiveness ranking Only two fifths of manufacturing firms report high or very high product-market strategies (below the national average). Multi-national manufacturing companies are best performing UK owned manufacturing firms are only two-thirds as productive as some of their foreign-owned counterparts in the UK Extensive research shows that the main reason for the productivity gap is the quality of management practices Management capability and workforce skills are key drivers of growth (along with innovation, infrastructure and capital investment) Only a quarter of manufacturing employers adopt High Performance Working which is less than national average It�s not just the management of staff that�s important but the management of intellectual property, the exploitation of technology and the ability to spot and realise commercial opportunities (See Case Study 1) Manufacturing labour productivity is 20% behind that of the US (Source: BIS) (note: overall labour productivity is 17% behind that of the US) UK manufacturing productivity exceeds the EU in only three of nine sub-sectors and in the US in only two (Source: Source: Experian, 2007, Groningen Growth and Development Centre, 60 industry database (www.ggdc.net), cited in Ambition 2020, World class skills and jobs for the UK - The 2009 Report) China and India are increasing their share of world manufacturing and manufacturing in these countries is becoming more sophisticated and knowledge-based Our children are 28th in the league table of mathematical attainment at the age of 16 The UK is12th in the World Economic Forum�s national competitiveness ranking Only two fifths of manufacturing firms report high or very high product-market strategies (below the national average). (Source: NESS09, UKCES) Multi-national manufacturing companies are best performing (Source: London School of Economics, Centre for Economic Performance and McKinsey, cited in From Austerity to Prosperity, McKinsey, 2010) Extensive research shows that the main reason for the productivity gap is the quality of management practices (Source: London School of Economics, Centre for Economic Performance and McKinsey, cited in From Austerity to Prosperity, McKinsey, 2010) - less than a quarter of businesses adopt HPW vs national average of 29% Manufacturing labour productivity is 20% behind that of the US (Source: BIS) (note: overall labour productivity is 17% behind that of the US) UK manufacturing productivity exceeds the EU in only three of nine sub-sectors and in the US in only two (Source: Source: Experian, 2007, Groningen Growth and Development Centre, 60 industry database (www.ggdc.net), cited in Ambition 2020, World class skills and jobs for the UK - The 2009 Report) China and India are increasing their share of world manufacturing and manufacturing in these countries is becoming more sophisticated and knowledge-based Our children are 28th in the league table of mathematical attainment at the age of 16 The UK is12th in the World Economic Forum�s national competitiveness ranking Only two fifths of manufacturing firms report high or very high product-market strategies (below the national average). (Source: NESS09, UKCES) Multi-national manufacturing companies are best performing (Source: London School of Economics, Centre for Economic Performance and McKinsey, cited in From Austerity to Prosperity, McKinsey, 2010) Extensive research shows that the main reason for the productivity gap is the quality of management practices (Source: London School of Economics, Centre for Economic Performance and McKinsey, cited in From Austerity to Prosperity, McKinsey, 2010) - less than a quarter of businesses adopt HPW vs national average of 29%

8. Case Study 1AE Oscroft Ltd - High value added strategies A rapid drop in sales left AE Oscroft Ltd seeking new markets. Collaboration with Weller Wheels to produce internationally renowned bespoke wheels for motorsport and specialist vehicles provided the solution.

9. The performance challengeManagement quality Raising management quality Strong evidence that improving management quality has a significant impact on a firm�s productivity and output However, there is a lack of awareness amongst managers of the need, and rewards for, improving management quality Case study 2 illustrates the impact management training can have a on a small firm 9 Source: McKinsey, 2010 Based on research undertaken by McKinsey, the Centre for Economic Performance and the London School of Economics examining the relationship between management quality and firm performance. Interviews with 6,000 manufacturing companies in 19 countries focusing on 3 areas 1) operations management, 2) performance management and 3) talent management almost no link was found between self-assessed management has almost no link with actual firm performance or the management �scores� that the researchers calculated Source: McKinsey, 2010 Based on research undertaken by McKinsey, the Centre for Economic Performance and the London School of Economics examining the relationship between management quality and firm performance. Interviews with 6,000 manufacturing companies in 19 countries focusing on 3 areas 1) operations management, 2) performance management and 3) talent management almost no link was found between self-assessed management has almost no link with actual firm performance or the management �scores� that the researchers calculated

10. Case study 2G and O Springs � Management capability G and O springs is a small manufacturing firm primarily supplying the Aerospace industry. It employers 24 staff in the West Midlands. A skills need assessment identified that the firm�s mid-level management and leadership capability needed improving and performance gains where achievable if these skills gaps were addressed. With the help of Semta, the employer led Sector Skills Council, G and O implemented a tailored Team Leader Training Programme to build management and leadership capability and reduce management skills gaps. The scheme was funded entirely by G and O and served to raise the quality of training delivered to staff. As a result of the training programme production lead times were slashed from 45 days to an average of nine and skills gaps are down. The consequent rises in productivity and competitiveness can be passed up the supply chain to the benefit of overall sector performance. Previously the company had been sceptical of the benefits of bespoke training preferring instead off-the-shelf solutions which the Managing Director admits, with hindsight, had limited benefit. This view has now changed and the company invests more heavily in better quality training for its workforce.

11. The performance challenge Attracting talented individuals Advanced Manufacturing firms require: Individuals with high-level technical skills (crucial to the R&D and commercial exploitation of AMTs, application of STEM skills) Multi-disciplinary teams or inter-disciplinary expertise (to maximise the potential for AMTs in different application areas) Individuals with intermediate technical skills (particularly to replace skills lost through retiring ageing workforce � higher than average across the economy). Advanced Apprenticeships are valued highly by firms (Case Study 3 and 4) Recruitment difficulties: 18% of manufacturing vacancies due to a lack of appropriate skills or experience which is higher than the economy average 57% of senior executives lack confidence in their ability to access high skilled employees in the future Attractiveness and visibility of the sector is a key challenge Employers face strong competition from other sectors (only 25% of engineering graduates enter the manufacturing industry) Smaller employers struggle to compete for graduates with larger, better known firms Technicians less valued in the UK than in other European Countries 11 Individuals with intermediate technical skills (particularly to replace skills lost through retiring ageing workforce � higher than average of 16% across the economy) (source: Working Futures III) 18% of manufacturing vacancies due to a lack of appropriate skills or experience (higher than whole economy average of 16%) (source: NESS09) 57% of senior executives lack confidence in their ability to access high skilled employees in the future (source: Austerity to Prosperity, McKinsey, 2010 ) Only 25% of engineering graduates enter the manufacturing industry (source: HESA, 2008, cited by SEMTA, 2010) Individuals with intermediate technical skills (particularly to replace skills lost through retiring ageing workforce � higher than average of 16% across the economy) (source: Working Futures III) 18% of manufacturing vacancies due to a lack of appropriate skills or experience (higher than whole economy average of 16%) (source: NESS09) 57% of senior executives lack confidence in their ability to access high skilled employees in the future (source: Austerity to Prosperity, McKinsey, 2010 ) Only 25% of engineering graduates enter the manufacturing industry (source: HESA, 2008, cited by SEMTA, 2010)

12. Case Study 3BAE Systems - Advanced Apprenticeships

13. Case Study 4The JCB Academy � Intermediate Skills

14. The performance challengeInvestment in workforce skills Skills mismatch A fifth of employers have skills gaps Yet two fifths of workforce also over-qualified for job The skills available skills are not aligned with those employers need 14 20% of employers have skills gaps (source: NESS09, compared to average of 19% across whole economy) 20% of workforce over-qualified for job (source: skills survey 2006) 13% don�t provide training because meet barriers (in line with economy average) (source: NESS09, average is 12%) Apprenticeships valued (5% of manufacturing employers provide training , average 4%) (source: x) NOTE 1 � all info on this page is for manufacturing as a whole rather than advanced man NOTE 2� last two points at present seem contradictory and 5% low (but other things we�ve produced to date say Apps valued in this sector) 20% of employers have skills gaps (source: NESS09, compared to average of 19% across whole economy) 20% of workforce over-qualified for job (source: skills survey 2006) 13% don�t provide training because meet barriers (in line with economy average) (source: NESS09, average is 12%) Apprenticeships valued (5% of manufacturing employers provide training , average 4%) (source: x) NOTE 1 � all info on this page is for manufacturing as a whole rather than advanced man NOTE 2� last two points at present seem contradictory and 5% low (but other things we�ve produced to date say Apps valued in this sector)

15. Case Study 5Jaguar Land Rover � Essential Skills for Problem Solving Lean manufacturing techniques have transformed the motor manufacturing industry and rely heavily on continuous improvement through staff development. Reoccurring problems on the production line at its Halewood plant and problems with employee engagement in training meant Jaguar Land Rover had to take a closer look at its training provision. Previous attempts to tackle these problems with training weren�t successful so with the help of the National Skills Academy for Manufacturing, the firm mapped the key functional skills needed for each stage of the production process. They identified that a lack of functional skills such as basic literacy and numeracy could be limiting workers� problem solving ability and limiting the effectiveness of training provided. A new programme that combines traditional problem solving with basic skills training was implemented. The programme leads to qualifications in Essential Skills for Problem Solving and Skills for Life in literacy and numeracy. These transferable qualifications are attractive to workers, have improved their training outcomes and will benefit the plant�s performance. To remain competitive, Jaguar Land Rover needs of all its employees to be engaged in the process of problem solving and this new programme will give them the skills they need to read technical information and other data.

16. Growth through skillsSecuring future success Across the sector: Raising the sector�s performance requires a mix of actions to address the sector�s skills needs - there is no silver bullet. Employer leadership in the development of solutions and then taking ownership of those solutions is fundamental to their success and sustainability. Government must play an enabling role to ensure this happens Two sources of investment are available to support the implementation of solutions led by business on behalf of the sector. The Employer Investment Fund (�35 million) is targeted at Sector Skills Councils to incentivise innovative and self sustaining skill solutions. The Growth and Investment Fund (�25 million) gives priority to solutions for the sector such as: Employer commitment and investment in Apprenticeships Creation of employer networks, using the supply chain for example, to overcome skill problems created by increasing complexity in the chain (see BAE Systems example) Employer-backed proposals for other skills solutions e.g. Management and leadership Professional standards high performance work practices incorporating people development (e.g. Investors in People). Information and business advice is also important as a solution. For example the Government has committed to enhance the Manufacturing Advisory Service over the next three years. Ultimately the GIF is trying to catalyse sustained investment in the development of the sector�s workforce led by employers which lies at the heart of an enterprising and dynamic nation.

17. Growth through skillsSecuring future success 17

18. Growth through skillsSecuring future success 18 Network collaboration with higher education Working Higher Network links business with universities and colleges that provide specialist and high level training and qualifications for firms in the chemicals, pharmaceuticals, nuclear, oil and gas, petroleum and polymer industries. The training is targeted at process, laboratory, engineering technicians and operators. It provides the scientific knowledge and technical skills required to achieve business improvements. The Network was initiated by Cogent Sector Skills Council. National Industrial Placement Scheme Employer-led contribution to undergraduate education through industrial placements has significant benefit to all parties. The employer is able to influence the practical element of higher skills provision thereby shaping the future supply of skills from which it can recruit. The student gains skills and employability. Collaboration between industry and academia can lead to mutual benefits from beyond the supply of high level skills. Pharmaceutical and Chemicals employers are working with Cogent on the development of the Placement Scheme.

19. Benefits to business Training investment leads to net benefits for the firm and a strong return on investment of up to 24%* Training raises firm performance and firm survival rates More than half of non-training manufacturing firms closed compared to just a fifth of those that train their staff**. * Based on a survey of large manufacturing firms in Portugal between 1995 and 1999, Almeida and Carneiro, 2005 estimated that return on investments in human capital by firms providing training to be 24% on average. This is a high estimate relative to others. ** (2007) analysis of data drawn from the 1998 Cross-section and 2004 Panel component of the Workplace Employment Relations Survey (WERS). Both are based on stratified random samples of establishments and a sample employees from these.

20. Benefits to business Training raises firm performance and survival rates *(2007) analysis of data drawn from the 1998 Cross-section and 2004 Panel component of the Workplace Employment Relations Survey (WERS). Both are based on stratified random samples of establishments and a sample employees from these. ** statistically significant at 5% or less; for the rest it is not statistically significant

21. Benefits to business Skills deficiencies damage firm performance Griffith reported that foreign owned plants in the UK car industry have a substantial labour productivity advantage over UK owned plants but that almost all of this is explained by superior capital and skills inputs*. Manufacturing firms operating below full capacity and reporting skills gaps are up to half (51%) as productive as other firms. Furthermore, the presence of skills gaps largely cancels out any productivity gains achieved by moving up the value chain to produce a higher quality product**. *Source: Griffith (1999), using the ARD dataset which is establishment level data collected under the Annual Census of Production including all production establishments located in the UK with 100+ employees, and a stratified sample of smaller ones. **Source: Harris et al (2006), analysis combining Annual Respondents Database with the Employers� Skills Survey for 2001.

22. Wider benefits to business Training boosts employee satisfaction and retention After adopting the Investors in People framework to assess skills need and offer training in a more systematic fashion, absenteeism in Thermo Fisher Scientific�s workforce fell to 3.4% and staff satisfaction stood at 65%*. Since SAM Mouldings introduced The Partnership at Work Project staff turnover has reduced by an average of 3% per year and changes to induction training have led to skills levels for operatives rising by 5% per year**. *Source: Investors in People case study on a workforce of 117, charting changes between 2001 and 2007. ** Source: Investors in People Case Studies: SAM Mouldings, DELNI, 2009