U.S. manufacturers are experiencing major gains in revenues and profits as they lead the economy back from the depths of the Great Recession. As successful as these companies are today, however, evidence suggests they are not investing at an appropriate pace to carry their firms into tomorrow and remain competitive as the intensity of global competition grows.
In addition, various reports suggest 600,000 manufacturing jobs—primarily key operator and machinist positions—remain unfilled due to a skills mismatch. Finally, manufacturers are undergoing a massive transition of ownership, which will challenge the preparedness of the next generation. The manufacturing sector is unquestionably at a defining moment.
The 2013 Next Generation Manufacturing Study, recently released by the American Small Manufacturers Coalition, identifies an enormous execution gap between the recognition of importance of next-generation strategies and the number of companies that are on the path to world-class status. For example, while 90 percent believe process improvement to be important or highly important, only 44 percent are at or near world-class status. Similarly, 83 percent consider product innovation important, while just 42 percent are at or near world-class in execution. This gap will affect our ongoing manufacturing competitiveness on a global scale.
At the same time, baby boomer retirements are affecting all facets of our lives. Many of the firms that are engines of today’s economy were created by boomer entrepreneurs. Consider that 87 percent of U.S. manufacturers—approximately 261,000 firms—are privately held, and according to the study, 61 percent anticipate a transition of leadership in the next five years. Therefore, approximately 159,000 manufacturers nationwide could face leadership transitions in the very near-future.
U.S. manufacturing is at an inflection point, with a new generation about to take the helm at companies challenged by the execution gap. Unfortunately, evidence suggests that many privately-held companies have spent little time preparing for management or ownership succession—and 40 percent have no transition plan at all.
A focus on the transition of knowledge, skills and abilities for top leadership roles will be essential to ensure a successful next generation. This extends from taking the foundational steps of ownership transition, including estate planning, valuations and exit plans, to enhancing skills in cash flow management and profitability. Most importantly, the next generation needs to be prepared to understand those actions that are drivers for financial results. Their knowledge and skills will help lead the way to closing the execution gap.
For example, leading a continuous improvement culture, driving innovative capacity to meet market needs, optimizing supply chains, developing workforce skills and applying green manufacturing principles into the business model are drivers of future manufacturing success.
Skills in these areas may be intuitive for today’s leaders, but in the impending transitions of leadership, we will experience a massive exodus of invaluable knowledge. Capturing and teaching this knowledge is essential, as the effectiveness of these transitions will have significant implications for our local communities.
I expect the national conversation about manufacturing competitiveness to continue for many years. We must be thoughtful about the transition of leadership skills, as our nation’s manufacturing future will depend on how these new leaders craft strategy and implement the drivers of manufacturing success. iBi