Europe’s industry is changing – but is it changing enough?

Europe’s industry is changing – but is it changing enough?

Europe has been tasked with many challenges as of late which have pushed industries to their limit. Maddie Walker, Industry X lead for Accenture in the UK and Ireland, shines a spotlight on where companies in Europe should be investing to increase and secure the region’s overall competitiveness.

Russia’s war on Ukraine, the pandemic and the energy transition has been testing Europe’s industry to the limit. They have faced forced-accelerated switches from physical to digital operations, soaring energy and material costs amidst economic instability, ongoing supply chain disruptions and the scarcity of skilled labour. As a result, companies and the wider industry have been questioning how they operate and have started to take decisive action to improve productivity and remain competitive.

According to recent research from Accenture, manufacturers and other industrial companies are reinventing their enterprises from the ground up. Relying heavily on advancements in automation, robotics, Artificial Intelligence and other technologies, they have kicked off holistic change programmes beyond single functions and isolated goals. Their transformation goals are not just resulting in better financial results but are also fostering innovation, increasing resilience and creating value for stakeholders, establishing ‘a new performance frontier’ that is agile, flexible and predictive.

The transformation of Europe’s industrial sector is one of the key themes that came out of this year’s Hannover Messe 2023, the trade fair for industry and technology. But, despite the changes being made, Accenture’s research paints an ambiguous picture:

The good

• Manufacturers and other industrial companies in Europe are changing more ambitiously and holistically. Almost three-quarters (72%) have started far-reaching transformation programmes during the past two years, versus 64% of companies across other sectors. Over half (57%) said they wanted to achieve ‘a major step change that sets a new level of performance in the industry’ (vs. 45% overall).

• Companies in Europe rate their transformation efforts a success. When asked how successful their transformation was or is expected to be, manufacturers and other industrial companies in Europe rated their achievements on par with companies in other sectors and regions. A quarter said they had exceeded or will exceed the business case; almost 60% stated they had met or will meet the business case.

• Europe’s industry has invested more broadly than others in technology. During the past two years, companies have increased the implementation of key technologies – for example, cloud services (82% vs. 70% of global industrial sector companies) and AI and automation (76% vs. 64% of global industrial sector companies). The research shows similar leads in data, security and network and connectivity technology investments.

• Commitments to transformation remain strong. Even in a recession, 86% of Europe’s manufacturers and other industrial companies would accelerate their programmes (vs. 75% overall). For many, Metaverse and Web 3.0 technologies will be part of this ongoing enterprise transformation, as 61% said they were planning to implement these technologies within the next 12 months (vs. 53% of all companies).

The not so good

• However, they still need to catch up financially. Compared to all companies worldwide, Europe’s manufacturers and other industrial companies report 11% lower incremental revenue growth, 8% lower cost-reduction improvements and 7% lower balance-sheet improvements due to their transformation programmes.

Tracked against their peers in North America, companies in Europe firms realise 6% lower incremental revenue growth and 4% lower cost-reduction improvements. However, compared with businesses in China, India and Japan, they lag far behind financially, reporting 29% lower incremental revenue growth, 25% lower cost-reduction improvements and 21% lower balance-sheet improvements.

• And they are less inclined than others to continue to invest. According to the data, slightly fewer manufacturing and other industrial companies in Europe than globally are planning to increase their spending on AI and automation, cloud environment and cloud services, data technologies, security and network and connectivity technology.

These results indicate that the competitiveness of Europe’s industry is arguably at risk when compared to other markets. While companies have started to change to better meet the challenges, the job is far from finished and there are still some factors holding them back from reaching their full potential. One factor that needs considering is having the right skills on board to facilitate such enterprise reinvention.

Looking ahead, to increase and secure Europe’s overall competitiveness, companies need to invest in four areas: the energy transition and sustainability, resilience, productivity, and new business models. They all require the consistent digitisation of engineering and production capabilities through investment in digital twin, digital thread, AI, and other data technologies, as well automation and robotics. This digitisation lays the foundation for many of their efforts toward net zero, zero waste, energy efficiency and circular business models.  All are necessary to make production networks and supply chains more agile, flexible and predictive.

In the UK, in addition to the four areas identified above, manufacturers should invest in talent to fulfil their transformation goals. However, a surge in demand for engineering talent across the industry is making it harder than ever to fill those roles, with two-thirds of businesses in the UK finding it challenging to recruit digital skills. In fact, Accenture’s UK Tech Talent Tracker shows that there are nearly 100,000 technology and engineering job advertisements in the UK, 17% higher than the same period in 2021, even after an intense period of growth last year. This demand for these skills likely reflects manufacturers’ and industrial companies’ need for engineers to reach their Digital Transformation goals.

However, competitiveness doesn’t just rely on efficiency, it also needs to focus on growth. Europe’s industry overall needs to add new and – more importantly – disruptive business models to its portfolio. Investing in new business models and digital technologies to shape the next wave of industrial growth is fundamental. For example, in the automotive and mobility sector, Europe should be harnessing its know-how to lead and drive the change from the combustion engine to electric power. 

Europe’s industry may be bearing the brunt of cost of living and energy crises and lagging in technology innovation as a result – but it’s also outperforming its peers overseas on sustainability, talent and the ability to transform themselves. Now they need to build their competitiveness on it.

Click below to share this article

Browse our latest issue

Intelligent CIO Europe

View Magazine Archive