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Recent key developments in MAKE│NZ
• This week’s question in our GuessMasters® competition: New Zealand currently has a population of 5.34m. Among its top 20 companies by market capitalisation, two are manufacturers. Finland’s current population is 5.62m. How many of its top 20 companies by market capitalisation are manufacturers?
The winner will be the first correct guess – or, failing that – the first guess that comes closest to the actual number. Please email your guess to dieter@makenz.org . For the answer to last week’s question, and our latest entry to the MAKE│NZ GuessMasters’ Honours Board, please go to the end of this newsletter.
• In exciting news, Hardware Meetup NZ is coming to Christchurch!
They’ll be showcasing innovation happening all across New Zealand, including having three key speakers:
Stefan Powell of Dawn Aerospace, Brendon Hale of Basis, and Jason Orchard of Evnex.
This’ll be taking place on Wednesday 20th, November 2024, from 5:30pm to 8:30pm at the Health Technology Centre (2 Worcester Boulevard, Christchurch Central).
You can find out more and look at getting tickets here.
Tickets are limited but there’s still room in the waitlist, and there’ll be a livestream link if you can’t make it during this busy time, so make sure to get involved!
• Our meeting of the Transparent Factory (Industry 4.0) Working Group last week took us to 3Way Solutions, a general engineering and sheet-metal fabrication company that sells its products to a range of customers in New Zealand and overseas, with exports making up around 50% of total sales. Dean Worner, their Director, took us through the details of their ProfitFab software, an all-in-one ERP/MES/MRP bundle for manufacturing. Compared to many systems recommended for and adopted in manufacturing operations in New Zealand, it appears to be really inexpensive, simple without being simplistic, and easily and highly configurable. A much better fit for manufacturing SMEs than other offers that – while claiming to be suitable for smaller SMES – in reality are designed for much bigger manufacturing operations.
However, in the hands of 3Way Solutions at least, it is not a networked system as such. Data inputs mostly come from employees using terminals distributed throughout the factory, rather than directly from machinery and equipment. That is a deliberate choice. Dean’s approach is focused on employee engagement to achieve timely and accurate input of data and information into the system, rather than automatic capture. The rationale is that high levels of engagement, achieved by a lot of focus on culture and, among others, a profit share arrangement, will achieve this ‘information compliance’, while also helping to improve productivity across the board.
That triggered an interesting thought and discussion: How come that we so easily, and frequently, invest in ‘fixes’ that are new, expensive, and more high-tech than what we have, often without having done a proper root-cause analysis to identify the real problem? Artificial Intelligence, anyone?! And doesn’t that apply in our private lives as much as at work?
The answer, I suggest, lies in a number of basic behavioural mechanisms we all are imbued with as modern humans (in no particular order):
– If it’s newer, it’s going to be better
– An attraction to magic
– If it’s more expensive, it must be better
– We don’t want to be left behind, be perceived to be stuck with ‘outdated’ ways of doing things
Let’s take this one by one:
– Novelty Bias: Curiosity, or Novelty Seeking, the quest for a better way, is a fundamental element of human behaviour. Without it, we would never have evolved to where we are today. Novelty stimuli excite dopamine neurons – the ‘happy hormone’ that acts on our brains to give us feelings of pleasure, satisfaction and motivation. Dopamine has been shown to drive exploratory behaviour in novel environments – not only in humans, but also in rhesus monkeys. And yet, we are not just ‘slaves to dopamine’. The Romans, for example, while quite open for innovations in military technology for example, had a much more nuanced approach to novelty as part of their culture.
– Attraction to Magic: Related to the above. Humans are naturally pattern-seeking creatures who build mental models of how the world works. Magic creates cognitive dissonance by violating these models in seemingly impossible ways. This contradiction between what we “know” should happen and what we witness evokes feelings of astonishment that activate a release of dopamine in the brain – see above. There is another factor in play here – limiting energy expenditure: In terms of energy, thinking is expensive. About 20% of our energy intake is used by the brain, and while intense mental activity only increases brain energy consumption by about 5% above baseline, developing solutions to complicated problems will occupy the brain much longer than a quick jump to accepting a ‘magic solution’
– Price=Value Trap: A combination of mechanisms. Mental shortcuts and a cognitive bias, supported by the fact that historically, higher quality materials and craftsmanship often did cost more. The attraction to that heuristic approach will be stronger where we feel that we have limited capability ourselves to competently assess the quality of the product or service we are considering to invest in. Associated with that is risk aversion – “you get what you pay for”.
In addition, there is the positive past experience of reducing the cognitive dissonance of feeling that “we paid too much” by convincing ourselves it was worth it. This reinforces the belief that expensive = better. There is also evidence of a placebo effect – Having invested in something expensive can actually enhance our subjective experience of it. Ask a Ferrari owner ….
– Keeping up with the Joneses: There are a number of mechanisms at work here, with the most important ones being social comparison, and social proof. Humans have an innate drive to evaluate themselves by comparing their possessions, achievements, and social status to those of others, particularly people they consider peers or slightly above them in status. Also, we often look to others to determine what’s desirable or “correct.” When we see our neighbours or peers making certain purchases, we tend to view their choices as more valid or desirable.
None of these mechanisms are inescapable, and we are all perfectly capable of making rational investment decisions in spite of them. And yet, when investment decisions are due, it’s worth staying alert to the fact that these mechanisms will lurk in the background of our mind – the more so, the less we feel able and confident ourselves to assess the quality and value of what we’re about to invest in.
Recent key developments in New Zealand
• I had the privilege to be invited to the ground-breaking ceremony for the expansion of the Christchurch Engine Centre – and what an expansion it will be! More floorspace, and employee numbers increasing by 50% to around 600.
At $150m, this is a significant investment, allowing the facility to service Pratt & Whitney’s next-gen GTF engine for single-aisle passenger jets. Air NZ Chair, Dame Theresa Walsh, called the Christchurch Engine Centre “a beacon for global investment”, and Pratt & Whitney President, Shane Eddy, who travelled to New Zealand for the event, emphasised the key role the Christchurch facility played in the global network of the company’s repair and maintenance facilities.
In a conversation with Mr Eddie he confirmed that the decision for Christchurch was a purely commercial one, based on the excellent performance of the Engine Centre to date. And, indeed, there were no government financial inducements involved, as is often the case in other jurisdictions.
So, a major investment for Pratt & Whitney and Air New Zealand, JV partners in the Christchurch Engine Centre. But beyond that, it is also a huge boost for Canterbury manufacturing. The Engine Centre is already relying on a strong local supply chain for its work, and there can be little doubt that the ‘trickle down effect’ of this investment will make itself felt more widely in the future.
The final address was from our Prime Minister, who pointed out how important investment decisions like these are for New Zealand. He finished his speech by saying that “… there is no reason New Zealand can’t be the best small advanced country in the world.” That begs two question: “best among whom?” and “best by what measure?” When looking for ‘small advanced economies’, using population size and excluding Hongkong and Singapore for their obvious geographic and economic ‘abnormalities’, we are left with a handful of European countries and could include the US State of Oregon as a reference point, too. When we include population density as well, no doubt another factor in economic development, it’s really only Finland (and Oregon) we can compare ourselves with:
Whichever way we look at it, using purely economic indicators shows we still have a way to go before we reach the goal set by the Prime Minister. And (Broken Record Alert!), Prime Minister, just a reminder that a goal is not a strategy. Until we hear from our government about its ideas for how to reach that goal, the manufacturing sector will have to rely on its own devices: growing the sector through developing ever smarter products, and smarter processes executed well. The Christchurch Engine Centre may well serve as a ‘light on the hill’ in that respect.
Recent key developments in the World
• A recent paper by the McKinsey Global Institute is looking at the contribution of SMEs to the US economy, and the opportunities to grow that economy through improving SME productivity. The paper covers SMEs in all sectors, but has some information specifically pertaining to manufacturing:
– US manufacturing business with no more than 500 employees account for 24% of value creation in the sector, but employ 44% of the total manufacturing workforce
– US manufacturing SMEs showed a remarkable dynamism. We all know about ‘billion-dollars-over -night’ internet companies, but were probably not aware that 21% of large US manufacturing companies with a market capitalisation of >$10 bn in December 2022 started life as SMEs with ≤500 employees at some point since the year 2000. In absolute numbers, of the 403 large companies (as defined above) across all sectors, 67 had been SMEs at some point since 2000. And 45 of those are in the manufacturing sector!
While there is no clear evidence for a simple linear relationship between the growth rate for manufacturing businesses and the size of the domestic market they operate in, these numbers suggest that it is better to be a small fish in a big pond …
Larger domestic markets typically enable greater economies of scale, more efficient distribution networks, and better access to capital and labour pools. At the same time, they tend to have greater competition, driving innovation and improvement in productivity, and offer a higher potential for specialisation.
The data in the McKinsey study also suggest that – compared to other sectors in the economy – it’s even better in manufacturing to be bigger. Manufacturing has the four-largest output gap between large firms and SMEs, and that gap in output per worker is particularly big in small enterprises (10 to 49 employees).
The report then goes on to estimate how much an improvement in SME productivity to best-practice levels in other advanced economies could add to the US GDP and comes up with a rather significant number, 5.4%.
The breakdown below shows that manufacturing, by small improvements in each of its industries (sub-sectors), could make a significant contribution to narrowing that gap:
Lessons for New Zealand? We can’t do anything about the size of our domestic market, and outside of building products, manufacturers are already taking the only path open to them if they really want to grow – exporting. Beyond that? We are not aware of any data for New Zealand that break down productivity improvements, or the productivity gap, in manufacturing by company size. We wouldn’t be surprised, however, to find a similar picture as in the US, where that gap is biggest for businesses the 10 – 49 employee bracket. There will be sound objective reasons explaining some of that gap – short runs, large portfolio of products, lack of ability to employ a dedicated resources for process improvement, etc, but that doesn’t mean processes can’t be improved. There is a ‘scale problem’ here that can be overcome by setting up an overarching programme for supporting process improvement in these businesses. Callaghan Innovation’s Lean Programme is a necessary step in the right direction, but not sufficient in its own right. And the programme itself could do with a bit more resourcing, by the look of it …
• And the correct answer to last week’s GuessMaster® question is – the Dhow (المراكب الشراعية), the generic Arab word for ‘sailboat; there are numerous words for the different types of these boats in the different regions and their local dialects.
Originally from India, for centuries the dhow has been the traditional fishing and shipping vessel on coasts around the Indian Ocean and the adjacent seas around the Arabian Peninsula.
• Traditional construction methods for dhows, still practiced today, do not involve construction plans or modern tools; shipbuilders instead rely on knowledge passed down orally and through apprenticeships, and planks are shaped by eye and experience, without patterns or plans (don’t try this at home …)
Dhows are carvel constructions where the keel is laid as the backbone of the ship, and then planks are carefully shaped and fitted to form the hull, working from the keel upwards. For smaller dhows planks are traditionally stitched together using coir rope. On larger ships nails or screws (bolts) are used. Internal frames are hand-hewn and carefully fitted to the hull shape – and floors are added for strength. For more information, you can find a short video here: https://youtu.be/w1o8bhEkyfg
Watching the short video in the link above, it is fair to say that the intergenerational transfer of knowledge and skills appears to often happen within extended families, and primarily (most likely exclusively) by imitation and direct conversation. If we move beyond the nostalgia and the attraction of the exotic, the above raises an interesting question for modern-days manufacturing: How do we ensure that the tacit knowledge and skills sitting in the heads and hands of thousands of experienced manufacturing workers and leaders, first and foremost tradespeople, can and will be transferred to the next generation of workers and leaders? And beyond the generic problem of such intergenerational transfers, do we have a specific issue when the recipient generation may be using different methods to ‘listen and learn’ and ‘watch and learn’?
There is a fair bit of evidence emerging that while the fundamental mental processes of learning remain the same, the way young people who have grown up with the internet (‘digital natives’) acquire knowledge and skills, and in particular tacit knowledge, is somewhat different from previous generations, and effective knowledge transfer will require the application of a mix of different communication methods and tools.
We can’t offer the answers here – that’ll be a topic of another day. But being aware that this is an issue and looking for ‘the right way’ before it’s too late might be a good idea. This is a challenge that each manufacturing operation will have to meet in its own way to suit its individual ‘students’ and ‘teachers’, I suspect.
Today, dhows remain important for fishing and transport activities in several areas. Many coastal communities in Oman, Yemen, and other Gulf countries still use traditional dhows for local fishing, transportation and trade. In places like Zanzibar and along the East African coast, dhow-style vessels are commonly used for both subsistence and commercial fishing.
For coastal shipping, many dhows follow traditional monsoon patterns, sailing south in winter or early spring, carrying cargo such as dates and fish to East Africa. On their return voyage to Arabia in late spring or early summer, they often carry mangrove timber to the Persian Gulf. Increasingly, dhows have been repurposed for tourism, offering cruises and excursions. This is particularly common in places like Dubai, Zanzibar, and Oman.
And the winner for last week’s GuessMasters® challenge is: Roland Sommer, CEO of Argus Group – Congratulations!
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