Engineering Firms: A Survey of Factors Affecting their Growth and Performance


An ISR Technology, management & business growth study


This book is a concise account of business-economic and related factors affecting growth and performance in engineering.

It covers a wide range of different types of firm – in all the main engineering fields – in Britain, the United States, Europe, and Japan.

The study combines the findings of original field research with an extensive review of key literature on the subject. It will be useful for senior managers in engineering, management consultants, business school academics, and investment analysts and others with an interest in production engineering and manufacturing.

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CONTENTS

1. The Growth and Performance of Engineering Firms: an Overview

Introduction* General influencing factors* The growth and performance of engineering and other manufacturing firms in Britain, the United States, Continental Europe, and Japan: international comparisons* Direct foreign investment and business development in engineering* Studies of individual company growth and performance*

2. Engineering Firms and the Economy

Wider economic influences on engineering business growth and performance: an overview* Economic influences on mechanical engineering* Economic influences on information and communications technology and other electrical and electronic engineering*Local economic influences* Size of engineering firms, competitiveness, and performance: general* Significance of company size in engineering* Component supplies*

3. Engineering Markets, Product Developments, and Demand Trends

Commercial influences on the growth and performance of firms: an overview* Manufactured goods trade and markets* The market for mechanical engineering products* The market for advanced manufacturing technologies* Information and communications technology products, markets, and demand trends* Responses to recession* Recent significant engineering product developments: a summary review* The marketing and sale of new technological products* Obstacles to selling*

4. Technological Development and Product Innovation in Engineering

Benefits of new technologies: an overview* Factors facilitating and hampering technological development in industry: general*Technological developments in engineering production* Recent technology and productivity improvements in US engineering* Factors facilitating new technical-product and market development* Obstacles to radical product innovation* Case study: technical-product innovation in textile machinery* Organizational aspects of technical-product innovation and development* Personnel aspects* Finance and investment in technical-product innovation*

5. Organization and the Growth and Performance of Engineering Firms

Introduction: theory and research* Changes in company structures and operations with development* “Lean” manufacturing: the Toyota production model* Factors affecting workplace productivity*

6. Managerial, Organizational, and Technological Aspects of the Growth and Performance of Engineering Firms: Twenty-Four Company Case Studies

In-depth analyses of individual firms specializing in:

  • Advanced machine tools and factory automation systems
  • Advanced technology projects and consultancy
  • Aircraft components
  • Auto-parts manufacture
  • Broad based mechanical engineering
  • Bulk-handling equipment
  • Chemicals and steel manufacturing equipment
  • Domestic appliances, machine tools, and heavy industrial equipment
  • Energy producing plant and equipment
  • Flexible-manufacturing systems
  • Fluid-handling equipment
  • Handling and general automated systems
  • Hydraulic power tools and components
  • Industrial-commercial storage and handling equipment
  • Machine tools
  • Machining centres and systems technology
  • Mechanical handling equipment
  • Plant & equipment for the energy, civil engineering, and defence industries
  • Production and mechanical handling equipment
  • Steel, rubber, and paper making process equipment
  • Systems integration projects and consultancy
  • Traditional mechanical engineering

7. The Political and Legal Environment

Introduction* Negative political-legal influences on engineering and other manufacturing firms* Political-economic liberalizing reforms*Impact of government monetary-economic policies on engineering firms and markets* Impact of legislation and regulatory controls*Government and technological innovation* Current industry concerns*

8. The Supply and Demand for Engineering Labour

Introduction: problems in attracting, motivating, and retaining engineering labour* Key features of the engineering labour market* The significance of salaries and other benefits* Engineering education and training: general* Education and training for new technologies*Attempts to encourage more school leavers and college graduates into engineering* The supply and demand for engineering labour: a summary of problems and attempted solutions*

9. Investment and the Growth and Performance of Engineering Firms

The contribution of investment to engineering business growth and performance* Types and sources of capital* The supply and demand for investment finance* Financial investment in engineering: international comparisons*Venture capital* Engineering firms and the stock market* How particular engineering firms have succeeded in increasing their profitability, investment returns, and thus attractiveness to investors: a summary review* Foreign direct investment and growth and performance in engineering*

PRICE & SPECIFICATIONS


Print book

Second revised edition 2003. New impression 2011

ISBN 9780906321287

125 two-column pages

Hardback

Price £98.95 including free postal delivery

E-book

E-book price £16.15 (British pounds 16.15)

E-book ISBN 9780906321553


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SAMPLE PASSAGES

Technologically, the capacity of companies to innovate independently is limited. Many large manufacturing firms have specialist-professional in-house R&D facilities. R&D departments effectively integrated with production and senior management are often creative and attract top scientists and technologists by offering good career prospects and remuneration packages. However, the fact remains that historically many of the most radical technical product innovations have come from outside established industries and centres of excellence.

Unforeseen technical product developments are constantly emerging and threatening the growth and profitability of established enterprises. Nor do firms actually have to make discoveries and inventions in order to benefit commercially from them. Most industrial technologies are available for purchase or hire on the open market by any company wanting them.

Apart from technological innovations, other unexpected developments may occur in production and distribution systems that pose a challenge to existing industry leading firms. Without even changing plant and equipment, competitors may be able to gain a significant edge by implementing radically new just-in-time production and delivery methods or quality control systems.  Meanwhile, large established company managements wanting to make changes may encounter significant resistance from trade unions or their own shopfloor personnel.

Operator boredom has long been a significant problem in certain shopfloor jobs in engineering. Companies have not always succeeded in significantly increasing job satisfaction through (e.g.) job enlargement, rotation, or enhanced product identification in group-technology cells.

On this last score, many relatively low-technology engineering firms have introduced group technology cells. However, the capacity to set up such cells often depends on basic technical-production factors – such as the length of product runs, and extent of commonality of operations in component classes, and the effectiveness of systems of product make-up analysis. Firms without experiences with teamwork in (e.g.) problem-solving value engineering and new product teams may find it more difficult to introduce group technology cells…  (page 11)

One of the key factors behind the successful growth and performance of Japanese engineering firms in recent times has been the high level of efficiency of their technology component suppliers and supply networks. Japanese components supply tends to feature considerable flexibility, high quality standards, and short lead times.

Engineering components suppliers are under steady pressure from industrial customers and competitors for improvements. Large Japanese engineering and other companies tend to maintain close links with their suppliers and exert significant indirect pressure on their costs and prices, design and quality, and ease of manufacture and lead times. Both the in-house component supplying and product manufacturing divisions of individual large manufacturing companies also tend to operate highly autonomously.  In-house component supply divisions often sell freely (and at discount prices) to outside competitor companies. Meanwhile, product divisions in the same company will often bypass internal suppliers to buy-in from outside the group.

These features of Japanese component supply have had various wider business-economic benefits.

The high overall level of competitiveness in the system has exerted strong downward pressure on costs/prices while raising quality standards. Extensive choice in component supplies has also made it easier and quicker for user firms to adjust to changes in final consumer-market demand and other factors.

Generally, product development cycles have become shorter. There is constant inter-communication and exchange of information, ideas, and advice amongst the parties. Companies are often able to introduce and try new products quickly and without extensive and expensive research – rapidly scaling-up production when items prove successful, and running-down and withdrawing when they fail…  (page 25)

On the subject of investment returns from new technologies, British manufacturers’ expected payback periods for machine tools and other new equipment tend to be comparatively short (perhaps three years) and amortization periods comparatively long (perhaps 14 years on average, compared with only 9 or 10 years in Japan).

Potential buyers of new industrial-commercial technology often calculate that they would be better off going for non-technological improvements – such as simplifying their operations, cutting waste, or improving organizational communications/integration.

It is common to buy and sell technology on the basis that cost savings will accrue from its use. As said, labour savings have long been a major driver of industrial automation. However, in a particular firm, labour costs may only amount to 5-15% of total manufacturing costs. Other direct variable costs (such as materials and energy) will often match or exceed staffing costs.   Meanwhile, fixed costs may easily dwarf direct variable costs as a whole of (say) 30% of total costs in a manufacturing business.

Most investment in new industrial technology does yield significant production cost reduction and other benefits – increased flexibility, the ability to manufacture better quality products, more timely and reliable deliveries, and so on. Over the years, the realization of such benefits has manifestly greatly increased business-economic growth and performance. However, precisely calculating the costs/benefits of new technologies and forecasting the effects of (say) the introduction of automatic machine tools on production organization will always be problematical…  (page 41)

General laws relating to market competition, patenting, health and safety, and pollution (etc.) impinge on technical-product innovation – both positively and negatively.

The same applies to general features of labour markets and employment relations, wage costs, and personnel education and training, housing, and welfare. Technical product development is part of the overall process of business-economic development in countries. New products and technologies directly contribute to economic growth. In turn, general expansions in output, high and rising per capita incomes, and full employment help stimulate the development of new goods and methods of producing them.

Technical product innovation is most likely to flourish in a generally favourable political-economic environment for industry. It follows that indefinitely maintaining a favourable environment and business confidence in the future is essential to ensure that current high levels of innovation (investment, business growth and performance overall) are kept up…  (page 51)

An engineering firm in which group technology cells operated had attempted to develop product identification by introducing job rotation in the cells. Looking back, however, there had been substantial problems in trading-off the benefits of job rotation as far as the men were concerned against the loss of efficiency resulting from relearning… (page 66)

 A Japanese manufacturer of auto-parts had achieved and maintained extremely high quality and other production-performance standards over the years.

The firm’s practice was to subject any defect in a product sent to and returned by a customer to intensive analysis by a specialist team of production engineering and quality assurance personnel. This team then drew up specific counter measures both for the particular problem and for any similar problems likely to arise in the future.

In addition, extensive staff training/education and the installation of advanced manufacturing technology had facilitated the achievement and maintenance of high quality standards. The new technology included:

  • robots, CAD-CAM and flexible manufacturing systems;
  • machine vision, bar coding, and electronic data interchange systems; and
  • air-float die changing.

The particular overseas subsidiary concerned had not introduced the domestic Japanese employment relationship practice of  lifetime employment . There had been various cultural and legal as well as commercial reasons for this. Indeed, a notable feature of the subsidiary was the substantial pool of temporary labour on which it could draw or add to as required.

In addition to the achievement and maintenance of high product quality standards and the introduction and utilization of advanced new technology, various other production-organizational features and changes had facilitated the growth and performance of the firm. The firm had aimed at continuously improving production processes, productive maintenance, and on time and just-in-time production and delivery. By the standards of the industry, it enjoyed very low inventories and work-in-process and very high productivity… (page 73)

 Administratively simple tax credits for R&D and investments in new technology will lower the cost of the latter. However, they will not necessarily stimulate valuable technical/product innovation. There may also be wider dysfunctional economic effects if tax codes artificially encourage technological development (investments in new hardware and software, manufacturing processes, new technology awareness and demonstration schemes)  at the expense of other, actually more useful and profitable business alternatives.

Other factors being equal, lower business taxes will tend to improve international competitiveness, increase corporate venturing and encourage direct foreign investment into countries. However, in practice lower taxes in themselves are often not enough to offset the costs of other dysfunctional features of the political-legal environment for business. Over the years, there have been countless proposals for tinkering with the tax system to promote this or that kind of business activity.  There have been demands for differential capital gains taxes, bigger tax breaks for new technology spending, special fiscal incentives/penalties for investing in particular business assets, and so on. However, low flat rate taxes, simple codes, and reductions in the regulations surrounding taxation and tax reliefs often best serve firms as a whole. Currently, the rules governing things like value-added taxation and tax reliefs on investments are so complex and extensive that many businesses find them virtually incomprehensible.

So far as public expenditure is concerned, there are regular demands for extra governments funding for science and technology research; special grants for the education and training of engineers; subsidies for high-tech manufacturing and innovation; more government money to support  technology transfers from universities to industry; and so on. However, all such special tax reliefs and subsidies are discriminatory. Taxpayer money does not and cannot produce real overall industrial-economic development in countries.

By definition in market-capitalist economies, firms and industries themselves plus independent specialist stock exchanges, banks, private equity suppliers, and other organizations fund the great bulk of industrial-commercial investment.  Typically and traditionally when politicians have been involved in industrial investment and tried to  pick winners  etc., they have wasted scarce capital on fundamentally non-viable projects and/or has damaged competitor firms and industries. In any case, international rules designed to ensure free trade, competition, and fairness in markets nowadays largely prohibit mercantilist-type industrial subsidization policies… (pages 89-90)

 Educational and training programmes can often be speeded-up or intensified by reducing the length of courses or university and college vacations. It may be better to abandon schemes of broad-based modular training plus formal courses at colleges in favour of narrower vocational courses. Industries and economies as a whole might benefit from generally increasing educational and training specialization or focus on specific practical skills and knowledge rather than pursuing:

  • general academic-type knowledge;
  • the acquisition of various peripheral skills; or
  • the completion of onerous programmes of learning that are functionally irrelevant.

In practice, a good deal of education and training is unnecessary, time- and money-wasting, and a make-work exercise for the providers. Historically as noted, insistence on prolonged expensive education and training has been one of the main means of restricting entry into and advancement within particular occupations, trades, and professions. Opening up industries to market competition and increasing customer choice and influence normally improves performance. In the case of modern education and training, liberalization/commercialization has often resulted in the introduction of cheaper and/or more flexible and effective educational and training programmes. These have increasingly relied on open or distance learning and new kinds of learning/media technology.

In some circumstances, it may be necessary to substitute internal for external training programmes in order to raise standards, reduce costs, or increase flexibility/company-consumer control over the content, timing, and place of courses (etc.).

However, at other times substituting external for in-house training programmes might be the route to saving staff time and other costs, tapping-into useful outside sources of knowledge and expertise, or giving trainees more valuable and wider accepted certificates…  (pages 101-102)

 In industries such as motor vehicles and components, mechanical engineering, and electrical/electronic consumer products, direct foreign investment and company expansion has had various positive effects over the years – on export sales, levels of capital-and-skill intensity, and average productivity per head (etc.). Often, inward investing companies are among the world leaders in particular technologies and products. When such businesses enter countries to start manufacturing, their presence will inevitably raise median industrial performance standards in the countries concerned.

In Britain, one survey found evidence of a significant productivity gap between American and indigenous UK manufacturing firms.  The authors attributed the higher productivity of the American companies to several factors.

To begin with, they were often larger than their British counterparts were and thus able to realize significant economies of scale in production. They were also concentrated in generally higher-tech, more productive industrial sectors. Frequently, they were subsidiaries of established successful companies that had come to the UK specifically in order to grow sales and profits – and had ample resources for acquiring suitable British companies on which to base their operations initially.  As subsidiaries, they were able to run and service their UK-based operations without the costs of carrying expensive head offices in this country.  Finally, they tended to be more organizationally efficient. They made more and better use of modern productivity-enhancing lean manufacturing techniques, workplace initiatives, and incentives other than just salaries to attract and retain key employees.

Other studies have found large foreign-owned manufacturing companies in Britain to be comparatively productive. One result of higher productivity has been the capacity to pay marginally higher wages than their indigenous counterparts pay.

However, precisely measuring the wider industrial effects of direct foreign investment, isolating particular contributing factors, and discounting the influence of other variables is problematical. One study could find no statistically significant general positive effects on UK industry from foreign direct investment as such. When Girma, Greenaway, and Wakelin tested for intra-industry spillovers, foreign investment presence had no discernible impact on average productivity or wages in the industries concerned… (pages 117-118)

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