A special report by The National

Center for the Middle Market

Middle Market
Manufacturing
How to thrive in a transforming environment

In partnership with:
 “ With so many intersecting,
overlapping, and simultaneous
changes taking place in the
manufacturing environment,
companies require new strategies
to manage and mitigate risks
Mike Williams
so they can free up resources
EVP, Manufacturing Industry
Practice Manager
to better take advantage of
emerging opportunities.”

“ The competitive challenges of

talent, trade, and technology all
come together in manufacturing.
The best midsized manufacturers
are showing how to turn new
challenges and risks into new
Tom Stewart
markets and rewards.”
Executive Director, National
Center for the Middle Market

2
Table of Contents
4 About This Report
4 Executive Summary
5 Risk and Opportunities:
Navigating the Changing Landscape
7 Manufacturers’ Challenges: An Overview

8 Insight 1
Middle market manufacturers face increasingly
intense competition driven by globalization
and consolidation.

12 Insight 2
Manufacturers’ relationships with suppliers and
customers are increasingly interdependent.

18 Insight 3
Manufacturers are changing their product and
service mix.

22 Insight 4
Technology is rapidly changing factory floors and
manufacturing processes.

28 Insight 5
Talent management issues stem from and compound
every other challenge manufacturers face.

32 Reassessing Risk Exposures

33 What the Fastest Growing
Manufacturers Do Differently
Overview

About This Report

The U.S. middle market over-indexes currently face and to uncover what Systems, and faculty advisors from
on manufacturing: Manufacturers actions the best-performing middle The Ohio State University Fisher
represent approximately 17% of middle market manufacturers are taking to College of Business, to review
market companies compared to about mitigate new risks and capitalize on research and data and understand
12% of the economy as a whole. Clearly, new opportunities resulting from the broad challenges middle market
manufacturing is key to the success the evolution in the industry. The manufacturers face. On this basis,
of the middle market, which in turn, report presents key findings and best the Center then interviewed 250
drives the overall U.S. economy. practices manufacturers can use to strategic and financial decision makers
navigate the shifting components of the from middle market manufacturing
While middle market manufacturing environment and identify strategies for companies. Respondents were roughly
is growing and the business climate continued growth and success. evenly split between Component Parts
has markedly improved, these Manufacturers (CPMs) and Original
businesses currently face a unique set How the research was conducted Equipment Manufacturers (OEMs).
of challenges to the way they operate. They replied to a 20-minute self-
This report serves to better understand The National Center for the Middle administered online survey conducted
the environmental conditions, Market worked with experts from between March 26 and April 6, 2018.
challenges, and opportunities Chubb as well as its sponsors, SunTrust
middle market manufacturers Banks, Grant Thornton, and Cisco

Executive Summary
The business climate for middle significantly greater than the sum of in operations—they also confront new
market manufacturers has improved any one part. This has resulted in a exposures for which they may not be
markedly since the end of 2015, and manufacturing environment that is much fully prepared. These include financial
the manufacturing segment has more complex today than it was five years and competitive challenges, safety
experienced steady growth in both ago. At the same time, technological and cybersecurity risks, regulatory
revenue and employment. But with this advancements, increasing collaboration and political uncertainty, and talent
growth has come a number of critical among businesses in the same value and workforce development problems.
and interconnected challenges that chain, and changes to product and With a better understanding of the
have caused manufacturers to rethink service mix offer manufacturers increased potential for growth and
and evolve virtually every aspect of new paths to winning, as long as the how to manage and mitigate new risks,
their operations. challenges can be mastered. U.S. middle market manufacturers can
position their businesses to continue
Mounting competition and globalization, While middle market manufacturers to excel and achieve new levels of
rising costs, and skills shortages are have new opportunities—new markets performance.
urgent issues that each influence the to serve, new ways of winning and
others, making the overall challenge keeping customers, and new flexibility

Copyright © 2018 The Ohio State University. All rights reserved. This publication provides general information and should not be used or taken as business,
financial, tax, accounting, legal, or other advice, or relied upon in substitution for the exercise of your independent judgment. For your specific situation or where
otherwise required, expert advice should be sought. The views expressed in this publication reflect those of the authors and contributors, and not necessarily the
views of The Ohio State University or any of their affiliates. Although The Ohio State University believes that the information contained in this publication has been
obtained from, and is based upon, sources The Ohio State University believes to be reliable, The Ohio State University does not guarantee its accuracy, and it may be
incomplete or condensed. The Ohio State University makes no representation or warranties of any kind whatsoever in respect of such information. The Ohio State
University accepts no liability of any kind for loss arising from the use of the material presented in this publication.

4
Overview

Risk and Opportunities:

Navigating the Changing
Landscape

With so many intersecting, an opportunity to move the business opportunities: implementing

overlapping, and simultaneous forward: For example, manufacturers advanced manufacturing techniques,
changes taking place in the see great opportunity in advanced enhancing customer relationships,
manufacturing environment, manufacturing, which also exposes and evolving their mix of product
companies require new strategies to them to greater cybersecurity and services.
manage and mitigate risks so they risk. Overall, competition, talent
can free up resources to better take management issues, and costs Companies that are embracing new
advantage of emerging opportunities. pose the greatest threats. Smart technologies, integrating more with
Indeed, some challenges mitigation or protection strategies suppliers and customers, adding new
manufacturers currently face are for managing these risks can enable services, and becoming more global are
viewed as both a downside risk and companies to better focus on their growing faster than their counterparts.

A MAJOR A MAJOR RISK

OPPORTUNITY

22% Implementing advanced manufacturing techniques 5%

14% Customer management 6%

12% Changing product and service mix 2%

11% Supply chain management 5%

10% Competitive environment 25%

8% Talent management 16%

7% Raw materials cost 12%

4% Using IoT in manufacturing 2%

3% Taxes 5%

3% Trade policies 7%

3% Accessing capital 5%

3% Cybersecurity 8%

1% Environmental and sustainability issues 2%

5
6
Overview

Manufacturers’ Challenges
Manufacturers cite a host of challenges that impact business performance. They range from generic
issues like taxes to more industry-specific concerns, such as the cost of raw materials and the impact
of trade policies. The issues can be clustered into five major categories: competition, upstream and
downstream relationship management, product and service mix, technology, and talent. While
manufacturers describe the individual issues as highly challenging in their own right, when the issues
combine (rising costs in a highly competitive environment, for example) they become that much more
complex to navigate.

Business Challenges Facing Middle Market Manufacturers

TOTAL MIDDLE MARKET FASTEST GROWING COMPANIES*

Competitive environment 18% 44% 21% 41%

Raw materials cost 16% 46% 19% 44%

Talent management 15% 39% 20% 37%

Cybersecurity 15% 34% 16% 37%

Advanced manufacturing techniques 7% 40% 9% 37%

Customer management 9% 33% 12% 34%

Supply chain management 7% 31% 11% 33%

Changing product & service mix 6% 29% 8% 29%

Taxes 7% 33% 6% 30%

OEMs CPMs

Competitive environment 19% 46% 16% 40%

Raw materials cost 16% 46% 15% 46%

Talent management 14% 40% 18% 36%

Cybersecurity 15% 33% 14% 37%

Advanced manufacturing techniques 8% 42% 6% 35%

Customer management 10% 29% 8% 39%

Supply chain management 7% 30% 8% 32%

Changing product & service mix 5% 34% 8% 20%

Taxes 8% 29% 5% 20%

*>10% annual revenue growth Extremely challenging Very challenging

7
Insight 1

Middle market
manufacturers face
increasingly intense
competition driven
by globalization and
consolidation.

8
Insight 1

Margins are Manufacturers Globalization is

under pressure must innovate driving increased
across product competition
mix, technology,
and service

The vast majority—86%—of middle factor contributing to the intensified materials ties competitive environment
market manufacturers say the business competition in the industry. For as a top business challenge, and for
environment is more competitive OEMs, consolidation of suppliers CPMs, costs are the biggest headache
today than it was five years ago. This is and competitors is just as much of right now. Manufacturers are also
especially true for original equipment an issue as globalization. Customer worried about the impact of potential
manufacturers, who list competition consolidation is having an impact tariffs, and competition is making it
as their number-one business as well. difficult for manufacturers to pass
challenge. However, component parts on costs in the form of price
manufacturers feel the pressure, The squeeze of competition all along increases. Manufacturers must find
too. CPMs are particularly affected the value chain is putting tremendous other ways to make up or cover the
by globalization, the number-one pressure on costs. The cost of raw additional expenses.

Risk Spotlight
Globalization represents one of the greatest areas of challenges for manufacturers. As operations
expand overseas, it is critical to ensure that your insurance program contemplates exposures for
employees travelling overseas as well as coverage for owned and leased facilities.

10
Insight 1

What is having the biggest impact on the

20+17+15141211G 16+16+131024912G
competitive environment?

11% 12%
16%
20%

11% 9%

Total Fastest
16%
Middle Growing
12% Market 17% Companies
24%

13%
14%

16+18+16141012G 26+15+1316962G
15% 10%

2%
14% 6%
16%
9% 26%

12%

OEMs 18% 16% CPMs

10%
15%

13%
14% 16%
13%

Globalization Businesses like yours expanding

Consolidation of customers Consolidation of suppliers

New competitors from other industries Disruptive entrants

Consolidation of firms like yours Other

11
Insight 2

Manufacturers’
relationships
with suppliers
and customers
are increasingly
interdependent.

12
Insight 2

Supply-chain CPMs and OEMs Integration

customers are forging between suppliers
demand greater increasingly and customers is
speed and collaborative on the rise
transparency relationships and
growing faster as
a result

As consolidation along the value At the same time, and due in part to All of these factors have led to
chain drives increased competition this increased collaboration, 71% of greater integration between suppliers
in the industry, it’s changing the nature all manufacturers (and 88% of the and customers and with providers of
of both upstream and downstream fast growers) believe their role in the third-party logistics, IT, and financial
relationships for middle market supply chain has become increasingly services—a trend that we also saw
manufacturers. The majority of important in recent years. Just-in- among the fastest-growing middle
manufacturers, and particularly CPMs, time inventory management and market companies in The Perfect Link,
say collaboration has increased with tightening timelines make it more our supply chain report published
their suppliers and—especially—with critical than ever for manufacturers to in 2017.
their customers over the past five years. hit deadlines. As customers demand
The fastest-growing manufacturers are more speed, more reliable cycle times,
strengthening relationships both up and more transparent relationships,
and downstream to a greater extent manufacturers are expecting the same
than their slower-growing peers. from their suppliers.

Risk Spotlight
As collaboration between suppliers and customers increases, the amount of sensitive data stored
and transacted between parties may be susceptible to a cyberattack. However, many do not
consider this type of exposure as part of their insurance program. A solution that includes broad
cyber insurance and knowledgeable risk engineering services can help address a breach if one
occurs and, more importantly, prevent one from happening in the first place.

14
Insight 2

Supply chain perceptions

Speed

Our customers expect faster cycle times We expect faster cycle times from our
now than they have in the past suppliers than we have in the past

36%
36% 47% 36% 35% 28% 31% 22%

47% 51% 54% 49% 56%

45% 43% 45%

Total Middle Fastest OEMs CPMs Total Middle Fastest OEMs CPMs
Market Growing Market Growing
Companies Companies

Digitization

Digitization has made supply chain Digitization of the supply chain has
management simpler resulted in shorter timelines

22% 12% 4%
14% 16%
12% 12% 16%

51% 51% 52% 47% 46% 54% 54%

42%

Total Middle Fastest OEMs CPMs Total Middle Fastest OEMs CPMs
Market Growing Market Growing
Companies Companies

Policy & Regulation

Regulations make supply chain management Import tariffs would likely have a major
more complicated negative impact on our supply chain

18% 19%
20% 21%
23% 30% 24% 22%
58% 56%
49% 45% 37% 33% 37% 37%

Total Middle Fastest OEMs CPMs Total Middle Fastest OEMs CPMs
Market Growing Market Growing
Companies Companies

Agree completely Agree somewhat

15
Insight 2

Change over past 5 years

Relationships with Suppliers

55% 62% 54% 59%

Much more collaborative 16% 18% 13%

22%

Somewhat more collaborative 39% 37% 46%

40%

About the same 41% 42%

37% 38%

Less collaborative 4% 1% 4% 3%
Total Fastest OEMs CPMs
Middle Growing
Market Companies

Relationships with Customers

62% 73% 59% 66%

Much more collaborative 25% 23%

35% 28%

Somewhat more collaborative

37% 36%
38%
38%

About the same 33%

32% 29%
24%
Less collaborative 6% 3% 8% 5%
Total Fastest OEMs CPMs
Middle Growing
Market Companies

16
Insight 2

Change in integration over past 5 years

Upstream

56% 60% 54% 59%

Significantly increased 16% 19% 16% 15%

Slightly increased 40% 38% 44%

41%

Has not changed 41% 41%

36% 40%

Decreased 3% 4% 5% 1%
Total Fastest OEMs CPMs
Middle Growing
Market Companies

Downstream

38% 50% 36% 42%

Significantly increased 12% 13% 9%

19%

Slightly increased 26% 23% 33%

31%

Has not changed 52% 53% 51%

42%

Decreased 10% 8% 11% 7%

Total Fastest OEMs CPMs
Middle Growing
Market Companies

17
Insight 3

Manufacturers
are changing
their product
and service mix.

18
Insight 3

A majority now Product lines “Smart products”

offer value-added have become are steadily
services somewhat less entering the
diversified market

As supply chains integrate and Product mix is evolving, too. Overall, being planned by many other companies.
competition mounts, middle market the industry is moving toward About three out of five manufacturers
manufacturers are switching from a specializing on a more focused product produce some smart products, but these
product-only model to selling value- mix—being the best at fewer things—but devices typically make up less than
added services in order to stand out this trend is not universal. While 44% 25% of the product mix. Fast-growing
in the market, solidify customer say they have become more focused, manufacturers are somewhat more likely
relationships, and bring in more revenue. 36% say they are more diversified. than slower-growing firms to produce
These offerings may include installation, Overall, diversification seems to drive intelligent devices. Companies that do
maintenance, financing, consulting, faster revenue growth, especially for make smart, connected devices for the
and more. More than two-thirds of CPMs. Looking forward, diversified so-called Internet of Things (IOT) boast
manufacturers, OEMs in particular, have manufacturers make stronger revenue faster revenue growth and have healthier
added services or “solutions” to their growth predictions for the next 12 predictions for growth in the future.
offering in the past five years, and half of months than focused manufacturers.
these businesses say they generate more Top-line growth is not the same as With most manufacturers changing
revenue as a result—17.1 percentage points profitability, of course, and it is possible products or adding services or both,
more on average. Additionally, this group that the more focused group places companies must rethink their business
experienced year-over-year revenue more emphasis on profits. models and talent mix in order to
growth of 9.7%, compared to 5.7% for support their new offerings. They may
all others. Among the fastest-growing Given advancements in technology, be exposed to new risks and liabilities.
middle market manufacturers, nearly smart products—products equipped They probably need new capabilities,
four out of five have added services or with microchips, sensors, and other new types of selling skills, and new
solutions, and 62% have enjoyed boosts electronic components that allow them ways of measuring profitability and
in revenue. to communicate with other products productivity, adding yet another
or services—are coming off many element of change to the equation.
manufacturers’ production lines, and are

Risk Spotlight
In light of manufacturers switching from a product-only model to one that also includes a service
offering, it is important to protect against financial injury that could result from a product or
service not meeting customer standards. While warranties or contractual remedies exist, they
alone cannot replace the lost revenue or reputational damages due to an actual or alleged product
or service defect or failure to perform. An Errors and Omissions solution can help to fill this often
overlooked gap in an insurance program.

20
Insight 3

Have begun offering value-added Change in product mix over

service in past 5 years past 5 years

79%
71% 42%
68% 42% 45% 44%
64%

24% 14% 25% 20%

41% 36%
34% 33%

Total Fastest OEMs CPMs Total Fastest OEMs CPMs

Middle Growing Middle Growing
Market Companies Market Companies

More focused More diverse Unchanged

Change in revenue from Proportion of output consisting

value-added services of “smart products” (IoT)

4% 3% 4% 8%
More
50% 62% 50% 51%
revenue
18% 23% 19%
15%
Same
45% 36% 44% 46%
revenue
37% 32% 37% 35%
Less
5% 2% 5% 4%
revenue

Average 42% 42%

8% 12% 8% 8% 41% 40%
change

Total Fastest CPMs OEMs

Middle Growing Total Fastest OEMs CPMs
Market Companies Middle Growing
Market Companies

More than 50% Less than 25%

25%–50% None

21
Insight 4

Technology is
rapidly changing
factory floors and
manufacturing
processes.

22
Insight 4

Technological Wearables are Cybersecurity

advances becoming more will become
positively impact prevalent increasingly
productivity and important
growth

Technology has altered not only what coming year and over the next five raise security risks because “air gaps”
manufacturers make, but how those years. New materials and advanced between processes will disappear. But
items are made. process controls will also be major they will convey tremendous benefits,
areas of investment and importance too. Productivity increases are foremost
Most executives believe technology for companies moving forward, among them, followed by the ability to
advances are a good thing. Over the especially fast-growing businesses. increase customization.
past year, they have invested most Indeed, technological advances
heavily in new materials, advanced have introduced a bit of an upgrade Interestingly, many manufacturers (45%)
process controls, and robotics and challenge—the need to keep up with a believe technological advancements
automation, along with cybersecurity. rapidly advancing productivity frontier, won’t change the size of their workforce,
Nearly all—90%—say the impact of which Harvard Business School and the remaining 55% are equally
these technologies has been positive, professor Michael Porter defines as the split between companies that think the
and they believe they will continue to “sum of all existing best practices at workforce will need to grow and those
foster greater productivity, enable more any given time.” The fastest growers are who forecast employment will shrink.
customization, and allow for growth. placing greater importance on a variety
of advanced manufacturing techniques, IoT technology is also becoming
Looking ahead, priorities will change. and those that embrace technologies more prevalent in manufacturing
Cybersecurity will become increasingly most effectively will have an edge and distribution, mostly to measure
important to manufacturers as older going forward. environmental conditions or vehicle
machines that were not built for driving speed and distance, and, to
security are now being connected, Advanced technology means retooling a lesser extent, to monitor employee
with the result that cybersecurity factories. It will increase companies’ location and movement. Heavy users of
is considered the most important need for capital. Smart factories and IoT wearables tend to be larger, faster-
area for technology spending in the integrated supply chains will also growing companies.

Risk Spotlight
The physical and digital worlds are increasingly interconnected in manufacturing as Operational
Technology (OT), Information Technology (IT), and the Industrial Internet of Things (IIoT) collide.
As companies implement automation, robotics, IoT, and other sophisticated manufacturing
techniques, new risks emerge. Working with an insurance provider that has deep expertise in
these new technologies can help you stay ahead of these emerging threats and develop strategies to
mitigate operational risk.

24
Insight 4

Allocation of technology investments over past year

Cybersecurity 18% 16% 18% 17%

New materials or
19% 20% 19% 18%
composites

14%
Advanced process 18% 18% 20%
control

Robotics and other 16% 23%

19%
advanced automation 17%

Additive manufacturing 14%

13% 13% 14%
and rapid prototyping

Embedded sensor 11%

10% 9% 12%
technology
Other technology not
mentioned 3% 5% 4% 2%
Total Middle Fastest Growing
OEMs CPMs
Market Companies

Impact of technological advancements

Lower Higher
4% 76%
productivity productivity

Less More
customization 10% 55%
customization

Less need Greater need

12% 50%
for capital for capital

Lower Higher
22% 46%
security risks security risks

Manufacture Manufacture
22% 42% larger batches
smaller batches

Smaller 14% 32% Larger factories

factories

Smaller 27% 28% Larger workforce

workforce

25
Insight 4

Importance of technologies over the next 5 years

TOTAL MIDDLE MARKET FASTEST GROWING COMPANIES

Cybersecurity 37% 31% 44% 28%

New materials or composites 24% 38% 27% 49%

Advanced process control 21% 41% 26% 46%

Robotics and other advanced

26% 32% 26% 37%
automation

Additive manufacturing and other

19% 37% 24% 40%
rapid prototyping

Embedded sensor technology 24% 24% 27% 33%

OEMs CPMs

Cybersecurity 38% 30% 35% 33%

New materials or composites 24% 39% 24% 35%

Advanced process control 22% 43% 19% 39%

Robotics and other advanced

24% 31% 29% 35%
automation

Additive manufacturing and other

19% 39% 20% 33%
rapid prototyping

Embedded sensor technology 24% 25% 24% 22%

Extremely important Very important

26
Insight 4

How manufacturers implement wearable IoT technology in the workplace

MONITOR EMPLOYEE LOCATION/MOVEMENT MEASURE ENVIRONMENTAL CONDITIONS

20% 21% 20% 20% 38% 43% 34% 43%

4% 2% 5% 6%
12% 15% 10% 12%
16% 19% 15% 14%
26% 24%
19% 19% 28% 31%
19% 20%

25%
25% 22%
25%

61% 60% 61% 60%

37% 41%
32% 35%

Total CPMs OEMs Fastest Total CPMs OEMs Fastest

Middle Growing Middle Growing
Market Companies Market Companies

MEASURE VEHICLE DRIVING SPEED OR DISTANCE

37% 33% 39% 41%

6% 7% 5% 7%

31% 26% 34% 34%

14%
13% 13%
16%

50% 53% 48%

43%

Total CPMs OEMs Fastest

Middle Growing
Market Companies

Using for more than 5 years Expect to begin using in next 5 years

Began using in the past 5 years Do not expect to use

27
Insight 5

Talent management
issues stem from and
compound every
other challenge
manufacturers face.

28
Insight 5

Finding workers The fastest The ability to

with the right growers train and grow
technical skills experience the talent internally
is difficult greatest talent is becoming
management increasingly
challenges important

Like middle market companies in all globalization, a changing mix of basic skills—come in at about 40%
industries, manufacturers say talent products and new services, an each: formidable individually, almost
management issues have escalated increasingly important role in the overwhelming collectively. Executives
over the past several years. More than value chain, and integrating new are responding with expanded
half—54%—say talent is a big issue, technologies—finding people with the outreach to colleges, technical
earning it a top spot on manufacturers’ right technical skills is a tall order and schools, and economic development
list of challenges. Manufacturers that is far and away the most challenging organizations to increase the labor
are growing the fastest, and probably talent issue, cited by more than two- pool. They also are offering higher pay
have more positions to fill, tend to find thirds (64%) of manufacturers. That and benefits for skilled workers, along
talent management more difficult than percentage rises to 76% for the fastest- with more training. In the words of one
their peers. growing companies. respondent, “If you can’t hire them,
you have to grow them.”
This isn’t surprising. Given other Other talent challenges—implementing
changes manufacturers contend automation, an aging workforce,
with—increasing competition and finding people with vocational or

Talent management is a long-term internal challenge

60%

50%

40%

30%

20%

10%
1Q’15 2Q’15 3Q’15 4Q’15 1Q’16 2Q’16 3Q’16 4Q’16 1Q’17 2Q’17 3Q’17 4Q’17 1Q’18

Total Middle Market Manufacturers

30
Insight 5

Challenges associated with workforce/workplace

TOTAL MIDDLE MARKET FASTEST GROWING COMPANIES

Finding workers with the technical

skills needed
20% 44% 23% 53%

Providing health coverage for workers 13% 33% 13% 38%

Implementing automation in
7% 33% 9% 33%
the manufacturing process

Finding workers with fundamental

11% 28% 12% 31%
vocational skills

Finding workers who meet basic

requirements (e.g., drug free, 12% 25% 22% 30%
physically able to do the job)

Dealing with an aging workforce 6% 31% 7% 37%

Fostering a safe work environment 4% 18% 6% 17%

OEMs CPMs

Finding workers with the technical

21% 45% 18% 41%
skills needed

Providing health coverage for workers 13% 33% 14% 32%

Implementing automation in
7% 31% 7% 35%
the manufacturing process

Finding workers with fundamental

9% 27% 14% 31%
vocational skills

Finding workers who meet basic

requirements (e.g., drug free, 10% 25% 16% 25%
physically able to do the job)

Dealing with an aging workforce 5% 32% 8% 28%

Fostering a safe work environment 5% 18% 2% 19%

Extremely challenging Very challenging

31
Summary

Reassessing Risk Exposures

Manufacturers now face exposure The Geopolitical Climate is Adding New Services Leads to
to risk that did not exist in their old Increasingly Important. Continuing Responsibility.
environment.
Globalization requires a greater Many manufacturers have moved
Manufacturers can benefit from giving awareness of customs regulations, beyond simply delivering a product
consideration to the following issues and currency, and changing foreign and to installing, monitoring, and
speaking with their business partners, domestic trade policies. Executives may servicing it. They are connected with
including insurance agents, bankers, need to learn new forms of governance, customers and consumers in more
advisors and auditors, and lawyers to such as joint ventures, and add new ways and for a larger part of the
ensure they evaluate and manage new capabilities and tools to their finance product’s life cycle. Their revenues
risks. A comprehensive enterprise risk operations, such as understanding grow from these activities; so do their
management strategy is increasingly currency risks, the use of trade credit potential liabilities.
important—one that is regularly updated insurance, and so on.
to keep abreast of change. IT and Operations Systems Must
Digitization Opens New Doors. Become More Integrated.
Playing a More Important Role in
the Supply Chain Leads to Greater Processes that used to be physical Manufacturers can integrate IT
Responsibility. are now digitized, and the products and operations (including robotics,
themselves have more technology process controls, and data analytics) to
As manufacturing supply chains embedded. Developing, producing, improve productivity and profitability.
become increasingly integrated, protecting, and maintaining those IT also should be used to strengthen
turnaround times continue to processes and products and the operations' safety and cybersecurity.
shrink, and products become more equipment that makes them are new
customized, companies’ margin for areas of concern. At the same time,
error shrinks. Enterprise resource digitization can accelerate new product
planning and lean, agile operations development and introduction. It also
become critically important. opens opportunities to sell new
services (such as predictive
maintenance) and gather valuable
information that can spark innovation
in next-generation products.

32
Summary

What the Fastest Growing Manufacturers Do Differently

Manufacturing is thriving in the Collaboration requires new sales, marketing, and

middle market. The average annual customer support capabilities. Their
revenue growth rate among the 250 Faster growing middle market performance may need to be tracked
companies interviewed for this survey manufacturers embrace the opportunity in new ways, too; for example,
is 7.7%— exactly the same as the growth to collaborate with customers and along measurements such as return on
rate reported by the middle market supply chains. Collaborators grew a little assets may be meaningful for factory
manufacturers who responded to more than 9% last year. Collaboration operations, but less relevant to a service
the Center’s 1Q 2018 Middle Market is valuable both upstream and arm, which has fewer assets.
Indicator Survey. According to that down—that is, with suppliers and with
same survey, taken in March 2018, customers. But there is also a penalty Advanced Manufacturing
middle market manufacturers see the for non-collaboration, and it is greatest
good times continuing—they predict downstream, when companies do not It is clear that the companies
a growth rate of 7.2% for the next 12 work closely with their customers. Those growing most rapidly place greater
months.Historically, companies deliver firms grew just 4.4% last year—less than importance on a variety of advanced
higher growth than they forecast. half as fast as those that are willing to let manufacturing techniques. Often by
down barriers and allow their customers wide margins, companies growing
Clearly, then, while manufacturers to influence product lines and have 10% or more last year assign more
face complex, intense tests, the best of visibility into operations. (The Center importance to every advanced
them have been able to spin challenges uncovered similar findings in its 2017 technique about which we asked.
into gold. Looking at the actions of study of supply chains, The Perfect Link.)
manufacturers that reported 10% or Talent Management
higher revenue growth last year, we see: The clear lesson here: Customer
relationship management—a mindset, not Talent challenges bedevil the
Competition just a tool kit—is increasingly important most successful middle market
for manufacturers. The deeper their manufacturers more than their
The best performers combine strong connection with customers, the more less-successful peers. Among fast
domestic sales with some (but not likely they are to succeed. growers, 68% say talent management
too much) global exposure. Purely is extremely or very challenging. As
domestic sellers grew 7.5% in the last Smart Products & Value-added noted above (page 28), the biggest
year, whereas companies that earned Services talent hurdle for manufacturers lies in
1–25% of their revenue from abroad grew finding workers with the right technical
8.6%—more than a percentage point Advanced product and service offerings skills—skills that are also changing for
higher. The growth rate was a little less are associated with superior growth. technologically advanced companies.
(8.2%) for companies whose revenue Companies delivering these offerings It is easier for the rest, but not much: In
was 26–50% international. But the most experienced year-over-year revenue the group that is growing less than 10%,
internationalized companies, which earn growth of 9.7%, compared to 5.7% for or not at all, 58% report severe talent-
more than half their sales from foreign all others, and 7.7% for the sample as a management difficulties.
markets, grew slowest, at 5.9%. whole. The services component of these
companies’ businesses grew more than The most likely explanation for the
There may be three lessons in these 17% last year. difference is simply that fast-growing
numbers: First, exposure to demanding firms have more positions to fill. As the
global markets improves performance, There is almost certainly a link between Center and The Brookings Institution
the way exposure to heat anneals services and smart products on the one reported (Help Wanted, 2017),
steel. Second, most middle market hand and collaboration on the other. middle market employers confront
companies have lots of room to expand Both kinds of new offerings imply a a triple whammy: Having relatively
domestically, and that growth might more intimate relationship between unknown employer brands, they do
be easier to achieve. Indeed—the third a manufacturer and its customers, not attract as many over-the-transom
insight—pursuing global sales can whether it is sharing data from smart applications as larger firms; their
be risky if it comes at the expense of products or installing and servicing lean human resources teams may not
protecting and expanding a strong products after they have been sold. have deep capabilities in employee
domestic base. Managing these new lines of business development; and the public-private

33
Summary

system of community colleges, deploying new technologies, chiefly can minimize their impact through
workforce improvement boards, and it would seem in pursuit of higher operational efficiency or negotiation
the like has not been designed to serve productivity and security. On the other with vendors and service providers.
middle market companies well. It is end, companies growing faster than
interesting—and perhaps heartening— 10% a year—another two-fifths of the The data show that the most successful
that automation does not seem to group—are ahead in all areas. But the manufacturers are not overwhelmed by
provide a path out of this thicket: fast growers are particularly likely to the rapidly changing environment; they
Companies are as likely to say that emphasize the use of new materials are energized by it, riding the change to
advanced manufacturing will cause and embedded sensors, which suggests greater success. These opportunities—
them to add jobs as to eliminate them. that they are not only manufacturing in expanded markets, more collaboration
advanced ways, but that they are also along the value chain, leading-edge
Embracing the Opportunity manufacturing advanced things. products and value-added services, and
advanced manufacturing—expose them
From this study, a picture emerges Middle market manufacturers can have to new risks that must be understood,
of a manufacturing sector that is little direct influence over a number mitigated, and managed. But they
split. Manufacturers whose revenue of the challenges they face, such also expose manufacturers to new
is stagnant or sinking—about one as industry consolidation, political revenues. The best in the bunch have
in five in our sample—are also risk from potentially changing trade demonstrated that the rewards far
significantly lagging in their use of policies, overall workforce conditions, outweigh the risk.
new technologies. In the middle, about and rising costs of energy, healthcare,
two-fifths of the sample are steadily and raw materials. However, they

Importance of technological advances over the next 5 years

REVENUE GROWTH

10%+ 1–9% SAME/DECREASED

Cybersecurity 72% 71% 52%

New materials or composites 76% 58% 44%

Advanced process control 72% 63% 44%

Robotics and other advanced

63% 60% 44%
automation

Additive manufacturing and

64% 57% 38%
rapid prototyping

Embedded sensor technology 60% 49% 23%

34
Summary

The National Center for the Middle Market is the leading source of knowledge, From business as usual to business unusual, Fisher College of Business
leadership, and innovative research focused on the U.S. Middle Market prepares students to go beyond and make an immediate impact in their
economy. The Center provides critical data, analysis, insights, and perspectives careers through top-ranked programs, distinguished faculty and a vast
to help accelerate growth, increase competitiveness, and create jobs for network of partnerships that reaches from the surrounding business
companies, policymakers, and other key stakeholders in this sector. Stay community to multinationals, nonprofits and startups across the globe.
connected to the Center by contacting [email protected]. Our students are uniquely prepared and highly sought, leveraging Fisher’s
rigorous, experiential learning environment with the resources of Ohio State,
a premiere research university with 500,000 proud Buckeye alumni.

SunTrust Banks, Inc. (NYSE: STI) is a purpose-driven company dedicated Founded in Chicago in 1924, Grant Thornton LLP (Grant Thornton) is the
to Lighting the Way to Financial Well-Being for the people, businesses, U.S. member firm of Grant Thornton International Ltd, one of the world’s
and communities it serves. Headquartered in Atlanta, the Company has leading organizations of independent audit, tax and advisory firms. In the
two business segments: Consumer and Wholesale. Its flagship subsidiary, United States, Grant Thornton has revenue in excess of $1.3 billion and
SunTrust Bank, operates an extensive branch and ATM network throughout operates 57 offices with more than 500 partners and 6,000 employees.
the high-growth Southeast and Mid-Atlantic states, along with 24-hour digital Grant Thornton works with a broad range of dynamic publicly and privately
access. Certain business lines serve consumer, commercial, corporate, and held companies, government agencies, financial institutions, and civic and
institutional clients nationally. As of December 31, 2017, SunTrust had total religious organizations. “Grant Thornton” refers to Grant Thornton LLP, the
assets of $206 billion and total deposits of $161 billion. The Company provides U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and the
deposit, credit, trust, investment, mortgage, asset management, securities member firms are not a worldwide partnership. Please see grantthornton.
brokerage, and capital market services. SunTrust leads onUp, a national com for further details.
movement inspiring Americans to build financial confidence. SunTrust’s
Internet address is suntrust.com.

Cisco is the worldwide leader in IT that helps companies seize the Chubb is the world’s largest publicly traded P&C insurance company and
opportunities of tomorrow by proving that amazing things can happen when the largest commercial insurer in the U.S. With operations in 54 countries
you connect the previously unconnected. At Cisco customers come first and and territories, Chubb provides commercial and personal property and
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insight and discipline. Learn more at chubb.com.

35
About the Middle Market
The U.S. middle market comprises nearly 200,000 companies that employ 44.5 million
people and generate more than $10 trillion in combined revenue annually. The middle
market is defined by companies with annual revenues between $10 million and $1 billion.
In addition to their geographic and industry diversity, these companies are both publicly
and privately held and include family-owned businesses, sole proprietorships, and private
equity-owned companies. While the middle market represents approximately 3% of all
U.S. companies, it accounts for a third of U.S. private-sector GDP and jobs. The U.S. middle
market is the segment that drives U.S. growth and competitiveness.

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insurance sold only through licensed surplus lines producers. Chubb is the world’s largest publicly traded
property and casualty insurance group. With operations in 54 countries, Chubb provides commercial and
personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance
and life insurance to a diverse group of clients.

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