The upcoming Presidential election season and transition to a new Administration offers an opportunity to shape a new model for manufacturing growth in America. The headlines and pundits now characterize manufacturers as part of the older industrial age, not at the forefront of the 21st century economy. While the global playing field is by no means level, a nation can make up for its cost disadvantages by being more innovative, creative and responsive to the global marketplace. The real threat to US manufacturing competitiveness is not cost disadvantage – it is from a growing incapacity to innovate, collaborate and generate value for customers. In the competition for customers it is not just the cost of a physical product that matters but the total experience delivered to the customer. Manufacturing has a special role to play in the national innovation ecosystem. Traditionally we have understood the nature of transforming tangible materials into finished products and the required investment in capital, ingenuity and risk taking. What is less understood is how we invest into the more intangible assets such as entrepreneurship, services, organizational learning and new kinds of business models that are more networked, knowledge based and relationship driven. This is a propitious time to catalyze a grass roots dialogue and shift the national mindset from the demise of manufacturing to one essential to our future possibilities. With the right insights and creativity manufacturing can be an integral player in the innovation networks of the future.
The nation, too often, takes an interest in manufacturing when bad news occurs. The politicians, media and lobbyists and are ready to jump in when national icons like GM, Ford, Chrysler, Visteon, and Delphi get in trouble, close down plants and face potential bankruptcy. The national perception is that US manufacturers are now the losers in the global redistribution of technology, talent and capital. Furthermore, advocacy groups in Washington consistently point out the manufacturing sector faces an unfavorable tax and regulatory environment, is burdened by huge health care costs, unfair exchange rates, trade barriers and a legal system that hurts US competitiveness. These factors are cited frequently as major factors threatening the US industrial base. Should we be surprised that the public has lost confidence in the manufacturing sector as a future creator of economic growth, jobs and standard of living? Compared to a generation ago, manufacturing is no longer an attractive career option. Unfortunately, this narrative has embedded much of the US manufacturing sector into a self-fulfilling prophecy of decline, obsolescence and diminished opportunity. Despite the booming global demand for manufactured products, technology, capital, skills and related services, the expectation for the US is a shrinking role for manufacturing. A profound change in narrative and mindset is needed that is forward looking, compelling, growth oriented and focused on innovation.
THE NEXT WAVE OF INNOVATION
The nation is in the middle of a massive transformation of its economic structure similar to the mass production paradigm at the turn of the last century illustrated in the graphic below.
The Innovation Ecosystem How Manufacturing Fits
A number of reports, books and conferences address the significance of this transition(see below). These reports reflect a broad consensus on the direction of policy. These include boosting federal investment in basic R&D, increasing the pool of scientists and engineers, more flexibility in the workforce, stronger incentives for small business, risk capital and entrepreneurship, strengthening the intellectual property regime and other measures. These are all important policy ingredients and inputs to the innovation process. However, more attention and outreach needs to be devoted to how these ingredients will be combined into a domestic production recipe for generating value and economic output.
Beyond Cost and Quality to Innovation
Manufacturers showed amazing resilience when they faced up to the mid-80s competitiveness challenge, primarily from Japan. US manufacturers responded by giving extraordinary attention to the fundamentals of cost control, six sigma, lean production, supply chain optimization and continuous quality improvement. By the late 1990s the US recaptured a leadership role and emerged as the manufacturing productivity leader of the world. These cost minimization strategies are now the standard to be in the game but no longer sufficient to maintain competitiveness.
As formerly centrally planned economies adopt market oriented policies and aggressively develop export platforms they begin their journey with lower initial cost structures--- providing them a huge competitive advantage. To overcome these cost disadvantages US firms need to give deep thought in optimizing value and innovation as a core competency. Cost-cutting can help organizations weather the recessions and downturns, but this approach will ultimately render them obsolete. Only the constant adaptation to markets and pursuit of innovation can ensure long-term success.
Some Future Directions for Manufacturing
New Sources of Innovation Opportunity. A number of significant trends in manufacturing technologies hold potential for creating US competitive advantage for manufacturers. We see it in the elements of modeling and simulation, nanotechnology based materials, adaptive supply networks, customer knowledge sharing, on –demand customization, shared use facilities for R&D and prototyping, complex numerically controlled tooling and advanced CAD/CAM, precision engineering and design, dual use systems for commercial and military products and in contract distributed manufacturing. These technologies if leveraged appropriately offer major value creation options to help offset the wage and cost advantages of foreign competitors.
Collaborative Approach is Key. A key ingredient for success will be collaboration between industry, customers, suppliers, research and government to share the risk, cost and time of development of new technologies. This means integrating new designs, processes and materials in a modular fashion. We will need to invest in new human, organizational, and financial models. The U.S. could dominate nano-technology if we are the first to build nanofabrication capabilities to make cost competitive products for the global market.
DOD has a Critical Stake. If US production capabilities continue to shift to overseas locations, and our innovative design and R&D stages follow it offshore, the Department of Defense will face a major national security problem with maintaining a technology edge and its transformation strategy. DOD is a huge beneficiary of productivity gains in manufacturing which helps DOD afford its vast acquisition and procurement program as it transforms its infrastructure to deal with the changing threat environment. The DOD can play a vital role by collaborating with industry on breakthrough manufacturing processes such as distributed and desktop manufacturing, quality inspection that is built into the production process, use of revolutionary materials and methods of fabrication, and devices and machines built at the nano-scale.
New Business Models. The next generation of manufacturing will entail new business models that integrate services, design, and manufacturing stages throughout the extended production enterprise creating value “on-demand.” Business processes increasingly rely on software, communication technologies and an expanding array of computing devices and sensors to work effectively. Open computing platforms—both hardware and software—are an essential feature of a more networked world. Software research and standards for interoperability enable enterprises to have the freedom to share information, collaborate and upgrade applications without tremendous legacy costs or time delays. The lack of software interoperability adds to production inefficiencies and poses a major barrier to shortening the design to manufacturing execution cycle. More interoperability will enable a “network effect” and more efficient manufacturing/service integration. The pervasive and exponential economic impact of the Internet owes its success to the application of open computing principles and standards.
Adaptive Capacity of Small and Mid-size Manufacturers. There is perhaps no greater need for innovation than in the small and mid-size manufacturing sector (SMEs). The 350,000 SMEs that employ over 7 million people and comprise nearly half the US manufacturing base are confronting enormous challenges to remain viable in today’s global economy. Issues facing small manufacturers include disproportionate regulatory burdens; unfamiliarity with changing technology, production techniques and business management practices; lack of interaction with other companies in similar situations; difficulty in finding high quality assistance; access to qualified workers; high health insurance costs; and, the problems in obtaining capital to modernize. These trends in combination raise serious economic survival issues for small manufacturers.
Technology Roadmapping and Federal Research Priorities. Technology roadmaps represent a consensus regarding industry direction and research needs, innovation trajectories, alternative scenarios and the possibility of disruptive technologies and surprises. Industry associations and sector based collaborations are making greater use of technology roadmapping methodologies as an input to the federal R&D priority setting process as well as inputs to their own innovation planning. Roadmapping exercises can provide the basis for public and private investments in radically new production systems.
Innovation Metrics. Measurement systems for innovation have typically focused on inputs such as R&D, numbers of scientists and engineers, patents and generation of scientific and technical publications. Managements need much better measurements of the productivity of R&D, organizational culture, product development cycle times, rate of return on innovation investment and value creation in the marketplace. Disclosure of intangible assets, risk management methodologies and improving the predictability of innovation are also a key priority.
Reports and Papers:
• The National Academy of Sciences, National Academy of Engineering, and Institute of Medicine, Committee on Prospering in the Global Economy, Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future, October 2005. http://books.nap.edu/catalog/11463.html
• Center for Strategic and International Studies (CSIS), Waiting for Sputnik: Basic Research and Strategic Competition, October 2005. http://www.csis.org/media/csis/pubs/051028_waiting_for_sputnik.pdf
• National Association of Manufacturers, Looming Workforce Crisis: Preparing American Workers for 21st Century Competition, September 2005. http://www.nam.org/s_nam/index.asp .
A press release and related statement from John Engler, President, National Association of Manufacturers can be found at: http://www.nam.org/s_nam/bin.asp?CID=202378&DID=235160&DOC=FILE.PDF and http://www.nam.org/s_nam/doc1.asp?CID=202003&DID=235067.
• Richard Freeman, Does Globalization of the Scientific/Engineering Workforce Threaten U.S. Economic Leadership?, National Bureau of Economic Research, Working Paper 11457, July 2005. http://www.nber.org/papers/w11457
• Business Roundtable and 14 other Business Organizations, Tapping America’s Potential: The Education for Innovation Initiative, July 27, 2005. http://www.businessroundtable.org
• Council of Graduate Schools, NDEA 21: A Renewed Commitment to Graduate Education, June 2005. http://www.cgsnet.org/pdf/NDEA21Final.pdf .
• Center for Strategic and International Studies (CSIS), Technology Futures and Global Power, Wealth, and Conflict, May 2005. http://csis.zoovy.com/product/0892064633
• Telecommunications Industry Association, Investing in Telecom for Tomorrow's Innovations: The Case for Increased Telecommunications Research Funding, March 2005. http://www.tiaonline.org/documents/TIATelecomResearchFundingFinal.pdf
• Business-Higher Education Forum, A Commitment to America’s Future: Responding to the Crisis in Mathematics and Science Education, February 2005. http://www.bhef.com/media/feb1605.cfm
• Defense Science Board, High Performance Microchip Supply, February 2005 http://www.acq.osd.mil/dsb/reports.htm .
• AeA, Losing the Competitive Advantage?: The Challenge for Science and Technology in the United States, February 2005. http://www.aeanet.org/Publications/idjj_CompetitivenessMain0205.asp
• Task Force on the Future of American Innovation, The Knowledge Economy: Is the United States Losing Its Competitive Edge, February 2005. http://www.futureofinnovation.org
• National Research Council, Committee on Department of Defense Basic Research, Assessment of Department of Defense Basic Research, January 2005. http://books.nap.edu/catalog/11177.html
• Council on Competitiveness, National Innovation Initiative (NII), Innovate America Report, December 2004. Omnibus legislation aimed at implementing key NII recommendations to be introduced by Senator Ensign and Senator Lieberman in the fall. http://www.compete.org
• National Intelligence Council, Mapping the Global Future, Central Intelligence Agency, December 2004. http://www.cia.gov/nic/NIC_globaltrend2020.html .
• Office of Senator Joseph I. Lieberman, Offshore Outsourcing and America’s Competitive Edge: Losing Out in the High Technology R&D Services Sectors, May 11, 2004. http://lieberman.senate.gov/newsroom/whitepapers/Offshoring.pdf
• Electronic Industries Alliance (EIA), The Technology Industry at an Innovation Crossroads, May 2004. http://www.eia.org/news/pressreleases//2004-05-05.153.phtml
Books:
• Richard Florida, The Flight of the Creative Class: The New Global Competition for Talent, Harper Collins, 2005.
• Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-first Century, Farrar, Straus and Giroux, 2005.
• David Heenan, Flight Capital: The Alarming Exodus of America's Best and Brightest, Davies-Black Publishing, 2005.
• Kent H. Hughes, Building the Next American Century: The Past and Future of American Economic Competitiveness, Woodrow Wilson Center Press, 2005.
• Clyde Prestowitz, Three Billion New Capitalists: The Great Shift of Wealth and Power to the East, Basic Books, 2005.
