5 minute read 12 Mar 2021
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Four ways the manufacturing sector can improve corporate strategy

By Juan Uro

EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP

Experienced strategy, transaction and transformation advisor and operator. Board member. Husband, father of two.

5 minute read 12 Mar 2021

To maximize investments and fend off competition, manufacturing and mobility executives expect to substantially reformulate their strategies.

In brief
  • Executives must embrace new areas of leadership and enhance the board to forge a path forward.
  • A nimble strategy requires an understanding of new mindsets and stakeholders.

For most manufacturing and mobility leaders, the COVID-19 pandemic and non-traditional competition point to the need to change long-term strategy and to allocate capital toward innovation and digitization.

Among the key findings in the latest EY-Parthenon Realizing Strategy survey of CEOs, CFOs and other C-suite executives: 75% of Advanced Manufacturing & Mobility (AM&M) executives say they will need to adjust their medium-to-long-term strategy due to COVID-19. In addition, 25% of AM&M executives, versus 10% on average in other sectors, believe that the pandemic is impacting their sector so drastically that they will need to fundamentally change their strategy.

Among other key findings from the AM&M executives surveyed:

  • 76% say that customers are as important as, or more important than, shareholders when formulating strategy and 61% say the same of environmental and social issues.
  • 63% believe that the biggest competitive threat in the next three years will come from a company outside their current sector. This response was particularly true of companies in the chemicals, transportation and travel/tourism industries.
  • 60% expect to moderately to substantially change their capital allocation process to maximize the value of investments.
  • More than 80% of AM&M companies that added new officers in the last five years — including leaders focused on growth, innovation, transformation, sustainability and information security — say those positions have delivered moderate to significant impact.

There are four key areas that CEOs and other executives may consider as they develop strategy. These include the following:

  1. Rewire the organization to move at the speed of thought
  2. Embrace the changing dynamics of the manufacturing and mobility ecosystem
  3. Incorporate diverse C-suite perspectives to flawlessly develop and execute strategy
  4. Understand different stakeholders, objectives and mindsets

1. Rewire the organization to move at the speed of thought

The global manufacturing industry is rapidly shifting from mass production to advanced, disruptive technologies, and the pandemic has expedited the need for digital capabilities. But many manufacturing and mobility companies have grown through multiple acquisitions that may not have been properly integrated or that have not achieved full returns. This means leaders may need to reexamine their capital allocation processes.

As more players enter AM&M ecosystems, internal processes and controls including budgeting and risk management may need to be redesigned to overhaul the capital allocation process.

Additionally, the survey shows that the COVID-19 crisis has prompted executives to reexamine elements of strategy formation across their businesses. These areas include the distribution channel, cost structure, capital allocation process and supply chain and operating model. It may be crucial to take a systematic and objective approach that is supported by data and linked to strategic goals. This approach may also need to be flexible enough to quickly respond to changing market dynamics so that capital may be redeployed on strategic imperatives.

Key priorities for AM&M executives:

  • Break down silos to enable clear visibility into every business and functional unit across the enterprise.
  • Readdress core capabilities, determine impactful areas in need of help and be willing to take risks with swift capital redeployment to achieve disruption.

2. Embrace the changing dynamics of the manufacturing and mobility ecosystem

Unexpected entrants have had a material impact for 72% of AM&M survey participants.

In response to the new entrants, AM&M organizations have invested more capital in innovation, significantly reduced their cost structure and exited key markets, segments or geographies. Yet two-thirds (64%) of AM&M executives who responded to EY-Parthenon’s survey say their strategic discussions are focused on improving current products rather than exploring new ones. In other sectors, the focus was balanced between existing and new products.

As industry dynamics continue to change, nearly half (47%) of AM&M executives say they are willing to pursue disruption even if it compromises short-term financial results to improve long-term performance and sustainability. There is even a willingness to partner with competitors to overcome traditional barriers or to enter into new markets.

Most AM&M organizations (89%) are increasingly using alternative forms of investment to position their organization for the future; including joint ventures, incubators and minority investments in start-ups. But they have pursued corporate venture capital (CVC) funds less than most other industries.

Key priorities for AM&M executives:

  • Continually evaluate in the widening ecosystem.
  • Develop an action plan that anticipates competitive threats from other sectors and consider “coopetition” - ways to enter and create new markets, and overcome barriers, with competitors.

3. Incorporate diverse C-suite perspectives to flawlessly develop and execute strategy

AM&M companies are incorporating new and diverse C-suite perspectives that help to flawlessly execute strategy as disruptive technologies, and the pandemic, expedite the need for change.

Over the past five years, 25% of manufacturing and mobility organizations established new roles including Chief Transformation Officer, Chief Innovation Officer, Chief Sustainability Officer, Chief Growth Officer and Chief Information Security Officer. More than 80% of executives whose companies added these roles said they have delivered moderate to significant impact given the organizational transformation required to address regulatory change and increasingly inter-operable data.

One third (33%) of C-suite executives agree that board members with experience in innovation and digital businesses not only can be stewards of strategy but can drive innovation. Leveraging the external insights provided by the board in key capability areas, combined with internal expertise, can help combat and disrupt new entrants.

Key priorities for AM&M executives:

  • Consider implementing or expanding roles tied to strategic mandates in sustainability, growth, digitization and transformation.
  • Embrace the essential capabilities of board members in achieving strategic goals.

4. Understand different stakeholders, objectives and mindsets

With the global pandemic hastening challenges for manufacturing supply and demand, it may be immensely important to consider a broader set of stakeholders when addressing medium- and long-term strategy.

Three in four, or 76%, of AM&M executives recognize customers as being as important or more important than shareholders when formulating strategy, which lags other sectors (Consumer Products, Financial Services, Health and Life Science, and Technology). Executives recognize the increased importance of environmental issues and regulatory requirements, reinforcing their perspective that strategy must be looked at holistically.

Key priorities for AM&M executives:

  • Reevaluate the objectives and mindsets of various stakeholders including customers, shareholders and employees.
  • Carefully weigh the evolution of environmental and social factors.

Conclusion

With AM&M organizations experiencing so much change, they may need to take eight key actions for reimagining and realizing long-term strategy:

  1. Understand the totality of your ecosystem to effectively compete and innovate
  2. Focus on Total Stakeholder Return to enhance enterprise value
  3. Build real-time, dynamic analytics and strategic planning to pre-empt disruption
  4. Increase the speed of capital relocation in your organization’s DNA for adaptability
  5. Build a repertoire of playbooks to boost ROI from all types of transactions
  6. Redesign your process to enhance the value from your ecosystem
  7. Keep the digital strategy in sync with enterprise strategy to unlock full potential
  8. Redesign the capital allocation process to enable swifter capital redeployment

 

 

Summary

Advanced manufacturing and mobility leaders face significant hurdles ahead, but breaking down silos, embracing change, expanding roles tied to strategic management and revaluating objectives can lead to resilience in a complex world.

About this article

By Juan Uro

EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP

Experienced strategy, transaction and transformation advisor and operator. Board member. Husband, father of two.