• 03 Oct 2012
  • What Do You Think?

Can We Bring Back the “Industrial Commons” for Manufacturing?

Summing Up: Does the US have the political will or educational ability to remake its manufacturing sector on the back of an 'industrial commons?' Professor Jim Heskett's readers are dubious.
by James Heskett

Summing Up

Where Is the Leadership Necessary to Regenerate the "Industrial Commons"

In their book Producing Prosperity, Gary Pisano and Willy Shih pointed to the lack of long-term thinking and investment as well as education necessary to rejuvenate an "industrial commons" in the US. A "commons" fosters the process-oriented innovation that in turn contributes to the vitality of the industrial sector and the health of the economy.

Respondents to this month's column were somewhat pessimistic that such resources could be found or developed.

Marco Sormani commented, "Where was (the) … support for manufacturing when it really counted, before much of it escaped offshore? … Why should we believe this 'new thinking' now?" Citing "… high labor costs and uncooperative unions," Philippe Gouamba pointed to its failing educational system as a reason the US has fallen behind in the competition for a share of the "commons." Peter Sebregondi commented that "companies aim to have the least possible ownership of the capital or assets involved in the value chain," but points out that they "went a little bit too far, and entire nations are now suffering."

There was little agreement over how these barriers might be addressed. While suggesting "less and not more help from government," Doug Elliott nevertheless reminded us that many of those workers and managers essential to the rebirth of the "commons" may be "found mostly in state and community colleges and not so much in the Ivy leagues." But Hugh Quick commented, "Beware of government interference with schools."

One positive example put forward was that of Germany. Bob Houck reminded us that industrial jobs still constitute "over 20% in Germany and at good wages." Peter Sebregondi said that "the German government, companies and unions TOGETHER have defended the German Industrial Commons" in response to pressure from globalization and EU East expansion." But Bob Houck reminded us that "… this doesn't mean the US can follow this model."

Yadeed Lobo was more optimistic. As he put it, "The United States is good at achieving turnarounds…" But he warned that "the biggest obstacle will be organizational and managerial insecurities," the lack of "strong leaders who are confident and determined" to add to the near-term cost base for the long-term benefit of the organization. Byron also took leadership to task, pointing out the lack of "deep knowledge of production, products, and culture" necessary for the task, while saying that "I don't think most of management is willing to … take the long view."

These last comments provided a good lead-in to the question posed by Jay Somasundaram: "What types of leadership do we want most?" Where do we find such leaders? How do we develop them? Where is the leadership necessary to regenerate the "industrial commons"? What do you think?

Original Article

A new book, Producing Prosperity , by profs. Gary Pisano and Willy Shih, argues that a manufacturing renaissance is critical to the process-oriented innovation that has contributed to the worldwide dominance of the US economy. The argument presumably extends as well to other countries with developed economies.

Pisano and Shih maintain that their proposals are intended to encourage the regeneration of the "industrial commons"∼the "R&D and manufacturing infrastructure, know-how, process-development skills, and engineering capabilities"∼resulting from the clustering of universities, suppliers, and manufacturers in industries such as biotechnology, electronic components, and semiconductors in which rapidly-developing innovations in processes and process technologies are taking place.

They are many of the same industries in which constant interaction between R&D and manufacturing are most important, industries where the outsourcing of manufacturing to another country can not only prove to be destructive to the innovative process but to the industrial commons as well. It can lead to the demise of entire industries.

Note that Pisano and Shih are not calling for the return to the US of jobs in mature industries or those in which product innovation can be separated from manufacturing. Nor are they claiming that this will create many new jobs, since (1) manufacturing will probably never again amount to more than about 10 percent of total employment in any of the world's developed economies and (2) the return of manufacturing activity to the US will have to be accompanied by increased productivity, probably through investments in technology that eliminates jobs.

Their argument is more basic. It is that the innovative capabilities critical to maintaining industrial leadership are being threatened and need defending.

Rebuilding the industrial commons will, they argue, require efforts by both government and management. Government will contribute by providing support for the educational system, with incentives to encourage advanced study in engineering as well as information and manufacturing-related technologies. In addition, they call for a national economic strategy for manufacturing, with an emphasis not on "picking winners" among companies or even industries, but on providing support for basic process-oriented innovation that can be utilized by competing companies in several industries.

Managers who understand the importance of competing through innovation will fare best in the future Pisano and Shih envision. This means such things as:

  • Making capability enhancement "an explicit goal in the strategy process."
  • Including executives with deep knowledge of such things as "the company's technology, operating processes, culture on the shop floor, and supplier network" in the strategy-making process.
  • Adopting a "dynamic perspective" that emphasizes cumulative investments over relatively long periods of time.
  • Recognizing that instead of evaluating investments in R&D or new factories on a purely short-term financial basis, that the math of location decisions take account of the impact on process-oriented innovation as well. They admit that in this day of short-term, transaction-oriented management, this is a tall order.

This leaves us with some questions: How realistic is the thesis that Pisano and Shih advance? Where is it most likely to succeed? To fail? What can be done to mitigate the possibilities for failure? Can we bring back the "industrial commons" critical to manufacturing? What do you think?

To Read More:

Gary P. Pisano and Willy C. Shih, Producing Prosperity: Why America Needs a Manufacturing Renaissance , Harvard Business Review Press, 2012.