What Australian manufacturing industry can learn from its ‘outliers’
Thursday, October 16, 2014/
Australia’s manufacturing industry is in decline. Yet some businesses are managing to buck the trend. The question is what do these “outliers” do differently from their competitors? And what does each thriving business have in common?
The Australian Department of Industry commissioned the University of Melbourne’s Centre for Workplace Leadership to find out.
We studied 1,054 small and medium-sized manufacturing enterprises across Australia to investigate what leadership techniques led to increased productivity. We also studied a series of high performing manufacturing businesses to understand how they manage to thrive in a challenging environment.
What we found is top performing organisations place equal emphasis on technological and management expertise. They also aren’t afraid of investing in innovative technologies, processes and products.
Practically, this translates into significant research and development spending as well as regular reviews into business models and leadership teams.
The Redarc case study
Some surprising examples emerged as part of our study. One unlikely turnaround story was a company that started as an electronics battery charging manufacturer operating out of the back of a tin shed.
When young engineer Anthony Kittel bought Redarc Electronics with his father-in-law in 1997, the business was shrinking. It had reputation problems and was facing a dwindling customer base. What forced a rapid turnaround in the company’s direction was an astute decision to concentrate on quality, backed by the introduction of a “no questions asked” warranty on its products.
Now the business wins awards in recognition of its success and is an innovative leader in its field. Redarc designs and produces patented vehicle-based electronic power products for “anything with a battery that moves” worldwide. This includes trucking and mining machines to “grey nomad” recreational vehicles and caravans.
A major turning point for the company was its decision to build a new innovation-focused facility in 2005, helped by a A$1.6 million government grant. Redarc has a global and rapidly expanding customer base and its expected revenue by 2017 is A$50 million.
Strategies for success
We found Redarc’s success hinges on three key factors.
First, its leadership team places strong emphasis on technological innovation. The company reinvests 15% of its revenues in research and development each year. It also allocates 20% of its employees to focus on rapidly developing its technological expertise. This in-house research is backed by strong partnerships with four universities specialising in advanced manufacturing. Through these partnerships, Redarc is also able to access new talent by employing bright engineering graduates.
Second, innovation within the business extends far beyond new product development to the manufacturing facility itself. The company commissions an independent review of the entire facility every two years. Leading technology consultancy firms are regularly brought in to advise on development projects.
Third, a high performance leadership culture is carefully cultivated. This starts at the very top. Chief Executive Mr Kittel has continued to developed his own leadership skills. Not content with a MBA that launched his management career, he enrolled in a three year strategic leadership course at Harvard Business School. He has also handpicked an impressive advisory board to act as his mentors. These board members provide a forthright and ambitious sounding board. As he told us:
“The outcome is always not exactly what you expect, but I always run with their advice. It’s very open – every time I meet with them it’s like holding up a mirror and looking at other ways to do business.”
Developing different management techniques
For Australian manufacturing to make a similar transition from decline to sustainable growth, we need to make greater effort to understand and learn from these outliers.
Redarc’s remarkable change of fortune is neither shrouded in mystique, nor based on especially favourable markets. Instead, Australia’s highest performing manufacturing businesses have developed complementary strategies using technological and leadership expertise.
We found some variants of these techniques present amongst our other outliers. For example, Dowell Windows adopted lean manufacturing techniques to improve their work systems. When regional manager Darin Dinneen trialled these techniques, the company discovered they were ideally suited to its need for rapid change. This management strategy emphasises talent or processes that directly add value to the business. As Mr Dinneen told us:
“We make sure we don’t put David Beckham in goal. If we’ve got a good player, we play to their strengths.”
The significant lesson from our positive outliers is that promising management techniques need to be far more rigorously and systematically developed.
The implications for industry are that businesses and governments should take heed of these unlikely innovators already thriving. Understanding and replicating this performance is key to building a sustainable economic future for Australia’s manufacturing sector.
Read the other pieces in our Reinventing Manufacturing series here.
Michael Fischer is Senior Research Fellow at the Centre for Workplace Leadership, which has been co-funded by the Commonwealth Government and The University of Melbourne.
Laura Good is a Research Assistant at the Centre for Workplace Leadership, which has been co-funded by the Commonwealth Government and The University of Melbourne.