Policies for Growth

 

Dr Scott Steedman FREng

Dr Scott Steedman CBE FREng

In his letter to the Prime Minister in February 2012, Vince Cable, Secretary of State for Business, Industry and Skills, challenged the coalition government to shape a new industry policy, fit for the difficult economic conditions in which the UK finds itself. In March this year, the government rolled out three more of these new policies, on nuclear, on aerospace, and on oil and gas. A clutch of other sector-based policies are in the pipeline, from agritech to the information economy. Will they deliver the goods?

Industrial policy in the UK over the past 60 years has ranged from the highly interventionist, which lasted through the 1970s, to the tactical instruments of recent decades focused on individual companies with schemes to support R&D, finance and exports. Sir John Parker GBE FREng, President of the Royal Academy of Engineering, spoke out strongly in the press last year on the importance of refocusing policy on industry sectors rather than relying on firms to ‘pick and mix’ from myriad unconnected incentives.

The government is developing its new policies on a sector basis but with a new message: this time, it is all about partnership between industry and government. So an Aerospace Growth Partnership will oversee an Aerospace Industrial Strategy and a new Aerospace Technology Institute. A new Oil and Gas Industry Council will provide leadership and direction for a series of initiatives for the sector, ranging from supply chain issues to technology.

Both aerospace and oil and gas benefit from having relatively few major players and well-established, well-ordered supply chains. Because of this structure, it should be relatively easy to drive policy through these industries. Opportunity knocks, provided there is long-term commitment towards an agreed strategy on key issues such as innovation, skills and procurement.

Beyond these prestige industries, however, there is a raft of industry sectors where the pressure of international competition is taking its toll. As the Academy’s report Industrial Systems – capturing value through manufacturing put it, “There are no national boundaries to business today”. Furthermore, we should recognise that successful national economies will not be built on the traditional perspective that ‘products’ are somehow distinct from ‘services’, but rather that a product is simply another form of service. In this case, an integrated, cross-cutting approach that looks at common problems in different sectors becomes ever more important if we are to transform our own engineering base from a focus on products for local markets to a new understanding of the industry’s real role as a service provider in a complex global supply chain.

Of course, leading engineering companies already recognise their role in the service economy. The example of Rolls-Royce no longer selling aero-engines but instead offering ‘power by the hour’ is often quoted. But the challenge is much greater for the average engineering and technology company.

A report by the European Research Advisory Board published in 2004 argued convincingly that small and medium sized enterprises (SMEs) could be classified usefully under four categories with respect to their capacity for taking advantage of research and development. Only a very small percentage of companies are ‘technology pioneers’, companies capable of generating new knowledge. A modest proportion in the mid-range might be classed as ‘users’ or ‘adopters’ of new technology. But the vast majority, nearly 70% of all SMEs, were classed as ‘basic’ companies, simply following the market.

We all know the pioneering companies and we would recognise engineering companies that try to exploit new technology in their service offerings. But we do not know even the names of the hundreds of thousands of 'basic SMEs' in the sectors that the government is addressing with its new policies. Mostly these businesses are simply struggling to get by and they have no time, let alone resource, to learn new ways of working.

How powerful it would be if the UK’s new policies for industry addressed each group separately, aiming to increase the proportion of ‘pioneers’, of ‘users’, of ‘adopters’ and, at the same time, to transform even 20% of those ‘basic’ companies delivering engineering and technology services in the UK from the role of survivor into the world of opportunity. The Academy has a rare opportunity, through its work with government this year, to reshape national policy.

Dr Scott Steedman CBE FREng
Editor-in-Chief

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