Capabilities and Leadership Close the Skills Gap in Manufacturing

Global manufacturing executives rank “skilled talent” as their #1 competitive differentiator. When it comes to innovation, building capabilities and applying the right leadership style give top performing manufacturers the edge over skills-focused peers.

As the manufacturing sector speeds into a world of futuristic tech and disruptive business models, creativity and innovation are becoming critical skills for figuring out how to unlock value strategically. Attracting the most skilled talent has already become a strategic focus for future-forward companies. In order to prepare for the coming skills shortage in manufacturing, business leaders must assess their current capabilities, refine their market strategy, build a culture of innovation, and ensure that they have the most effective leadership styles in place. 

84% of manufacturing executives say they plan to add technology roles in the next 5 years to keep pace with the demands of a rapidly changing industry. The industry will need to add manufacturing software engineers, robotics specialists, machine learning specialists, automated systems engineers, cybersecurity specialists as well as designers, product engineers, developers, analysts, pricing strategists and procurement specialists, many of which are forecast to be in short supply in years ahead.

84% of manufacturing executives say that they will hire for technology roles in the next 5 years. (Deloitte’s The Skills Gap in US Manufacturing)

At the same time, the core job skills needed to be successful in manufacturing are fundamentally changing, creating a gap between supply and demand. Low-skilled, repetitive labor is being automated, while skills like innovation and creativity are more and more in demand. But how do you hire for creativity, innovation and strategic thinking, and create the right culture to support and develop it?

These skills will be necessary for manufacturing companies to latch on to new models, processes and products in a rapidly changing world, but they don’t always fit simply into old frames like “jobs.”

The End of “Jobs” and the Beginning of Capabilities

Traditional “jobs” were a method of structuring collections of skills that emerged out of the earlier industrial revolutions and were further developed with the computerization of work. With automation and digitization, many of the skills manufacturers are used to hiring for will be taken over by machines.

Companies will assemble, disperse and rearrange skill combinations based on strategic objectives, and an analysis of the capabilities they need to execute. They can then decide whether to train, hire, automate, partner or acquire whole companies to obtain the competencies they need.

The most important qualities will become the most human, like the ability to innovate and relearn, a quality that is a bit antithetical to a more traditional skills outlook.

Figure 1: Innovation tops the list (Source: World Economic Forum)
Figure 1: Innovation tops the list (Source: World Economic Forum)

The theme of innovation as a business critical skill for years to come was central in the World Economic Forum’s Future of Jobs 2018 report, which explores how the workplace is coping with converging technologies. Building a workplace where machines and humans cooperate effectively and efficiently is not an easy task.

To compete, companies will require teams of talented workers who possess different kinds of skills that AI and automation can’t replicate (see figure 1). Most importantly, they will need the right cultural matrix to support agile operations and flexible work.

Winning market share will depend on more than just bringing on the right technology to keep pace with cultural changes like greater mobility and wider connectivity. It will require analytical and innovative thinking to capture the value that machines can unlock.

How do companies find innovative employees, both inside and outside the organization? Very often the talent equation can be solved by finding and activating radical pockets within the organization and supporting them with the right leadership and structure.

Finding and engaging the innovators within, those employees with an entrepreneurial outlook and the right “personas”, are key to driving innovation initiatives across the organization.

The Relationship of Capabilities to Leadership

What leadership styles and capabilities do you need to achieve your goals?

When the Innovation360 team begins to work with a company, we start off by focusing on key innovation aspects and providing leadership teams with data on what it will take to innovate successfully and repeatedly. Innovation is a complex concept, and there are many different types and approaches.

We think about capabilities first, focusing in those capabilities correlated to each organization’s innovation aspirations.  We have learned that high performing innovators share certain characteristics, capabilities and leadership styles. We use these as benchmarks to identify gaps and develop a roadmap for each organization. We have found a great deal of valuable insights in the data, particularly about top performing manufacturers.

Figure 2 illustrates a comparison on 10 illustrative innovation capabilities between top quartile manufacturers and average companies.  As an example, if you look at the data on Innovation Reward Systems, you can see a significant gap. While average manufacturers have limited capabilities in this area (i.e., scoring 2.58 out of 5 points on average), top performers stand out with the top 25% performers in manufacturing scoring a very respectable 3.85). Observations like this provide much insight into required areas of focus and actions necessary to be a high performer.

Figure 2: Benchmarking Capabilities in Manufacturing (Source: InnoSurvey®)

 The Comprehensive 360 Degree Assessment

When Innovation360 completes a full assessment of a company, we pinpoint their strongest current capabilities, and look to understand whether those capabilities best serve the company’s strategy, and what gaps the company needs to overcome to fulfil their aspirations.

An important piece of the puzzle is determining how to bring aboard the skills they need to align all of those factors through innovation.

Starting from the company’s innovation aspiration, we can then determine which leadership styles and “personas” will be most effective in reaching their objectives.  Top manufacturers not only combine these factors to foster innovative ideas best, but also are better able to decide intelligently when notto innovate. As another example, as you can see in Figure 3, our research indicates that the ability to select and to shut down projects is often missing for the average manufacturing firm.

Being unable to successfully select the right projects and kill the wrong ones only clogs the innovation pipeline. This makes the other parts of innovation process inefficient.

When we asked if “the organization has a robust system for selecting the innovation projects that will be funded at each stage?”, top quartile performers in manufacturing overwhelmingly answered yes.

Average manufacturers were not so sure and many had no system at all.

Figure 3: Avg. vs. top-performing manufacturers (Source: InnoSurvey®)
Figure 3: Avg. vs. top-performing manufacturers (Source: InnoSurvey®)

Getting Out Ahead of the Skills Gap

As access to manufacturing technology levels the playing field between large, medium and small enterprises, skilled talent will increasingly be the differentiating factor in market success. That is why individual businesses must define what “skilled talent” means for them and then secure it. These are not just competitive advantages. They are survival skills.

The lesson for manufacturers everywhere is that solving for the skills gap will take more than a one-size-fits-all solution. Each manufacturer will have their own needs and goals. Bringing in talent with right mix of technical mastery and soft skills they need will require companies to create an attractive and effective workplace culture to attract and develop top talent. They will also have to learn how to create the right structures where innovative people can work with each other and the latest technology to drive the right initiatives forward.

Change is coming from every direction: externally, where shifting markets and supply chains are creating uncertainty but also opportunity, and internally, as exponential technologies and AI are optimizing operations and productions. Smart technology, sensors, augmented and simulated realty; IoT, AI and predictive analytics can work together to make production more efficient and flexible. Getting these technologies to work well and strategically together to create value will require a great deal of human ingenuity and technical expertise.

These skills will be critical for companies as they enter the Fourth Industrial Revolution, characterized by a fusion of technologies that are blurring the lines between the physical, digital and biological spheres. These will define the near-and-far-future and include robotics, blockchain, big data analytics, IoT (Internet of Things), machine learning, augmented and simulated reality tools, artificial intelligence (AI), 3D printing, and biological nanotech. The future is not a binary world of human vs. AI or online vs. offline, but a world of augmented work and decision-making, with humans and machines working together to solve complex problems.

The Age of Automation is also the Age of Augmentation

Industry 4.0 will transform the entire value chain, setting new industry standards and making it impossible for companies who do not digitize to compete. These changes are already happening internally and externally.

In the big picture, the skills in highest demand over the next decade will increasingly be those that are the most human, as employers turn their attention from workers with the ability to complete repetitive manual tasks to those who can generate creative ideation and complex problem-solving on demand.

And yet, without the foundation of a comprehensive innovation framework, creative ideation, problem-solving and innovative thinking will not translate into marketable concepts and real results. Productive innovative thinking is not inspired or sporadic. It emerges from the practical application of structured innovation processes. It’s also strongly rooted in leadership and culture.

While 78% of companies we surveyed said that they are making substantial efforts to innovate, only 10% have successfully aligned that innovation strategy to their capabilities. This is critical for manufacturers because our research also tells us that companies with an aligned, coherent innovation strategy average a 22% higher EBITDA margin than their peers.

Our research can pinpoint the skills each company most needs to fill, which capabilities the company should bring online through hiring or training, and how to align those capabilities with the right strategy for sustainable growth and profits as the world changes around them.

Want to learn more about how to assess your skills, capabilities, culture and personas on an organizational level?

The answers are here in as series of 12 short videos covering the most critical business topics: 60 minutes of Innovation Management. 

Want more news and updates? Sign up for the InnoNews newsletter.