Innovation and Management Best Practices in the Automobile ...

IndustrialStrategyinPractice:

InnovationandManagementBestPracticesintheAutomobile,EnergyandAerospaceClustersinBizkaia

May8,2017LSE- ShawLibrary,Sixthfloor,OldBuilding

DrAlexanderGrous

DepartmentofMediaandCommunications

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Overview

• Bizkaia is one of three provinces in the autonomous Basque Country located in theNorth of Spain.

• The Basque Country has a concentration of over 700 firms in industrial clusters includingthree major clusters: automotive, energy and aerospace.

• These firms generate a global turnover of €64bn and 23% of Basque GDP.

• Bizkaia also represents ’government in action’, with the Administration actively engagedin the innovation process.

• This research assessed the management practices of 10 firms drawn across the threeclusters using leading methodology developed by the LSE and McKinsey & Co.

• Results place Bizkaia firms in the top 5th percentile of firms surveyed globally since 2005for 20,000 firms in 35 countries.

• Success in Bizkaia reflects industrial practice in action between Government, industry,learning-institutions and society.

• 40 years of cluster development, Government investment, a strategic location withinfrastructure and logistical acess, and leading suppliers and customers.

SocioeconomicFundamentals

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Araba/Álava Bizkaia Gipuzkoa

POPU

LATION

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Population(million) Area(000sqkm) Population% Area(%)

• Basque population of 2.17 million people, 7,230 km².• 251 municipalities in 3 provinces- Araba, Gipuzkoaand Bizkaia: population of 0.32 million (15%), 2.138million (52%) and 0.71 million (33%) respectively.

• The highest percentage of gross domestic product(GDP) invested in R&D: 2.12% in 2014 vs Spain’saverage of 1.3%, and EU average of 2.06%.

BizkaiahasthehighestGDPofthethreeBasqueCountryprovinces.

• Strongbroadfinancialbaseintheeconomy:capitalandmortgagesup.

• 2nd highestGDPpercapitainSpain€30,459behindMadrid(€31,812);35%higherthannationalaverage.

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EstablishinganInnovationCulture

• The Basque Government and Bizkaia Administration have an ‘innovation tradition’.• €1bn investment made in major cluster industries: energy, automotive and aerospace.• European Regional Development Fund (ERDF) 2014-2020 plan for the Basque Countryis €353m with 50% being provided by the ERDF.

• The Diputación foral de Bizkaia will invest €53.7m of these funds via 2014-2020 plan.• The Basque Country has the highest innovation intensity in Spain: 4.22% of companiesare actively engaged in innovation activities.

• 58% of companies spend their R&D in the Basque Country vs obtaining 35% of theirrevenue

• Bizkaia accounts for 46% of the Basque Region’s R&D expenditure, the highest of thethree Provinces.

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The Basque Country is one of the most intensive regions in Europe for innovationcentres, that bring together companies, universities, R&D facilities and technologytransfer centres.

InnovationThroughCollaboration

• The Basque Country is one of the most intensive regions in Europe for innovation centresthat bring together companies, universities, R&D facilities and technology transfer centres.

• Four major technology parks developed including in Bizkaia:

• Contributing factors to innovation and social development:

(1) political stability since 1978;(2) technology parks;(3) universities less of a role than other regions;(4) applied research focus vs ‘basic research’.

Createknowledgeanddrawfurthercompaniesintothecluster

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“Business clusters and ‘clustering can be understood as new and advancedforms of business organisation and networking. Moreover, the creation ofclusters is regarded as market driven. They form because SMEs want tostrengthen their competitiveness through cooperation strategies.”

EUObservatoryofEuropeanSMEs,Report2002/No.3

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• TheBasqueCountryhasbeendevelopingclustersforover30years.• Threeleadingclustersdominate:€63.7bnglobalturnover.

• Energy:343companies;globalturnover€46.8bn;apresencein67countries;employs63,000peopleglobally,including21,000intheBasqueCountry.

• Automotive:Over 300suppliers;globalturnover €15bn; 22%oftheCountry’sGDP;€470mspendinR&D.

• Aerospace:47majorcompanies;globalturnover€1.93bn;exporting€1.3bn;employing12,440peopleglobally;5.8%totheSpanishindustrialGDP;doubledinsizesince2006.

• MajorglobalcompaniesinBizkaia,includingsubsidiariesfromtheworld’sbiggestco-op,Mondragon,suchasBatzGroup.

• VerystrongcompanyethosinBizkaiaandBasqueCountryofsocialresponsibility.• Developedroad,seaandairinfrastructureaccessingglobalmarkets.• KeyaccesspointforS.EuropeandLatinAmerica(commonlanguage).

LeadingGlobalClusters

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• BiggestclusterencompassingWind,Wave,Smart-Grids,Oil&Gas.‘RIS3Plan’.

• €1.3bnannuallyinR&D:€240minBasqueCountry.Emergingenergyfocus.

• WindEnergy: 100companieswith€7.3bnturnover;15,000peopleemployed.• Globalleaders:Gamesa,Adwen,Iberdrole,

‘creating’ themarket.• 6.4%ofenergyworkforce;€100mspend.

EnergyCluster

• WaveEnergy:€8mturnover;€7mR&D.• 30companies;pioneeringEUprojects,

Mutriku,OPERA,BIMEP,Oceantec.

• Oil&Gas: €17.9bnturnoverand10,000peopleemployed.• MajorCo’s:Petronon/Repsoland EDP

Naturogas,VicinayCadenas,inBizkaia.• SignificantsectorwithR&Dhigh.

• SmartGrids:€14bnturnover;23,000employed;€69.5mR&D.

• 90companies;e.g.JV- BidelekSareak.€60minvestment;400ksmartmeters.

• BizkaiaHQ:Arteche,CECEnerigune,OrmazabalVeletia,Ingeteam.

Source:ClusterEnergia

EnergyCluster:MajorParticipants

Source:ClusterEnergia

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• Oneofthemostdevelopedclusters.

• Produces45%ofSpain’sautomotiveoutput,22%ofBasqueCountry’sGDP.

• 271%increaseinturnover1995-2015.

• AutomotiveIntelligenceCentre(AIC):keyinitiative

AutomotiveCluster

• 30foreignautomotivemultinationalslocatedinBizkaiaandBasqueCountry:90%oflocalrevenuefromglobalprojects.

• 700factories:270outsideSpain.• Carproduction=68%oftotal;lightcommercial(13%);lightindustrial(8.6%).

• Globalbrandspresent.• Strongsocialethos.

Source:ACICAE

Source:ACICAE

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AutomotiveCluster:AutomotiveIntelligenceCenter

Source:CICA

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• ContributestoexportsandSpanishaerospacepositionof5th globally.

• 84%exported.• Contributes6.1%ofindustrialGDPforBasqueCounty.

• R&Dinvestmenthighat8.4%ofturnover

AerospaceCluster

• Globalrevenueofclustergrewby10%.• Principalproductionareaswere:aerostructures(53.2%);Engines(39.4%);Systems&Equipment(5%);Space(2.4%).

• CompaniesinBizkaiaandBasqueCountrycontributetoPrimessuchasAirbus,Boeing,RollsRoyce,Eurofighter,Embraer,others.

Source:HEGAN

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Source:TEDAEandICEX

ManagementPractices

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”There’snothingwrongwithmymanagementstyle.It’sthecompanythatisn’tperforming.”

PlantManager,SME,UK.

TEDAEandICEX

TEDAEandICEX

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PracticesMatter

• Improvingmanagementpracticesmatters:Appliedresearchandtrialstoenhancepracticesrevealed:

• Defectsreducedby50%;• Inventoryreducedby2%;Outputraisedby10%;• 1pointinthereviewoftheiroperationscorrelatewithsignificantpotential

performanceimprovements: 23%higherproductivity;14%highermarketcapitalisation;1.4%higherannualsalesgrowthrate

• Firms in Bizkaia had similar characteristics regardless of sector:

• Lean practices had been adopted by all of the recipients;

• Best or better practices were being followed for operations and performancemonitoring;

• Targets set were ‘hard’ and ‘stretching’ for firms;

• The recruitment and retention of people was a high priority and any performanceissues were addressed quickly with a ‘respect for the individual’.

• Dominant social ethos in both co-op and non co-op companies.

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‘PracticeMakesPerfect’:ManagementPracticesinBizkaia

• LSE-McKinsey developed methodology to quantify the quality of management practices.

• Unique global work since 2005 with 20,000 interviews in 35 countries to date.

• Management quality measured in 18 practices in 4 areas: Operations; PerformanceMonitoring; Target Setting; Talent Management.

• 10 firms sampled in Bizkaia drawn from Energy, Automotive and Aerospace, with interviewsconducted with managers and CxO function, both by telephone and on-site visits.

• The average of firms across all sectors placed them in the top 5th percentile of firmsinterviewed to date.

• The sample firms in Bizkaia displayed very strong management practices.

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AverageResults:ManagementPracticesinBizkaia

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“‘IT’ain’twhatyoudobutthewaythatyoudo‘IT’"

Managementpracticescore

Topquartile

Bottomquartile

Bottomquartile Topquartile

IntensityofITdeployment

•Technologyinvestmenthasalowimpactifcompaniesarepoorlymanaged

•CorporationsmusthavetherightmanagementpracticestogetthemostoutofITinvestments

Increaseintotalfactorproductivity %

+8% +20%

0 +2%

Source: LSEManagementMattersDatabase;Teamanalysis

• ITalone=2%increase…..Practicesalone=8%increase…..IT&Practices=20%increase

CaseStudies

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CaseStudies:

• Owned by world’s largest cooperative Mondragon,Spain’s 5th largest company.

• Founded in 1956 with HQ in Bizkaia and blue-chipcustomer base.

• Turnover of €228m, employing 1,600 people in 16locations in four businesses: Stamping Dies,Automotive Systems, Energy and Aerospace.

• 95% of the workforce employed in automotive.

• Batz’s management practiceswere in the top 5th percentileoverall.

• Very strong practices across all 18areas measured.

• Co-op origin drives social focus.

• Shared same core success factorswith non co-op companies.

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CaseStudy:

• Supplies, manufactures and services equipment forpetroleum refining, chemical, petrochemical, andrenewable sources - solar thermal power and hydropower.

• Established 1918, employing 300 people today.

• Two main facilities: 40,000sqm and 50,000sqm including inPort of Bilbao to transport directly via sea.

•Reactors•Condensers•Feedwaterheaters•Heatexchangers•Boilers•Piping

• Refineries&hydrocarbons• Generationpowerplants• Combinedcyclenuclear• Powerplantsupstream• Processchemicalplants• Ammonia&urea• Solarpowerplants• Offshores

SectorsProducts

• RecipientofONBizkaia2017 Prize foraspin-offcompany.

• Managementpracticesinthetop5th percentileoverall.

• Bizkaia‘roots’maintainedwithstrongsocialethos.

• Commercialstrategystrong.• Expansionintokeygrowthareasnotwellservedtodate.

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