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.
1. product innovation - from customer centric perspective (apple iphone / etc..)
2. product innovation - technology centric (a real viable elecrtic automobile; a new green jet engine, bio-electronics, etc...)
3. process innovation - manufacturing tech centric...
the last will happen where manufacturing actuall happens and will therefore be outside the US practically speaking..
Even the 2nd option will be driven as much by the manufacturing process (since investment in technology atleast from the private sector will be driven by presence of manufacturing concerns and enterprises)
Only the 1st remains - and will be based on the 300 mill pop US market - compared to the 500 mill pop W.EU markets; the 1.5 Bn pop Chinese market and the 4 Bn pop rest of Emerging markets.. - To the extent that US culture and taste leads the upmarket world, potentially for another decade or max two, this first option will be there for the US to squeeze. But post 2025, doubt US will be anything better than UK of 1890s... - one more empire gone to seed.. - like it or lump it, you might as well start righting the book about the rise and fall of pax americana...
I believe this will also take a major change in the views of management and management structure. In the current management climate, how many individuals actually have the deep knowledge of production, products, and culture?
With so much of management moving around (hopefully for all the right reasons) management doesn't really have a good handle on the nuts and bolts of the business.
Related to this is the willingness to take criticism for the investments in R&D, the future, and willingness to take the long view. I don't think most of management is willing to do that. While studying for my MBA, I was very much in the minority for advocating fewer payouts in terms of dividends/payments/etc. to allow the business it invest in itself. (what should the firm really worry about?)
Summing up, I think it is realistic and workable; but will require a serious change in the views of management and their willingness to weather short term pain for long term gain.
Bryon
This is a vocational, not an intellectual crisis. Making things is a hand's on experience even if you are using machines as the intermediary to the making. It is experiential and thrives better with apprenticeship methods than with computerized instruction. It is a kind of innovation that does better with less not more because want sharpens the focus and desire for things versus concepts.
It requires the sweat and dirt and stink of a shop floor to frame the manufactured object in the mind's eye, to move the hand and body to the process that makes the thing. You need a mastery of fifth grade math not second year calculus to make things.
The skill sets for manufacturing can't be discerned from ACT or SAT scores. The Americans that will make the best manufacturers most likely have blue collar roots with the genes of second generation craftsmen.
You can still find them in the burnt out city shells from Pittsburgh and Cleveland and Detroit to Milwaukee and St. Louis and south to the Galveston shipyards and Birmingham. The ones that go to college are found mostly in state and community colleges and not so much in the Ivy leagues.
The word 'renaissance' is probably not in the vocabulary of this emergent American workforce. If you want them to succeed, simplify the regulations and bureaucracy of the government. Keep the corporate experts and private equity at bay. In the wake of the economic carnage of these many past years, this breed of new manufacturer is like a grass that will cover all. Just let them work.
If the dynamic commons is to work, it has to have a funding apparatus as innovative. Dynamic commons success in a greed driven environment (turn and burn) is impossible. Serendipity in a commons is the powerful thing, ideas build and mesh and collide. But that is very hard to fund. I might suggest an "early in almost never out fund", where investments are rewarded based on time invested as well as profit (if any) returned (yes, this is a Ponzi Scheme/Chain Letter of sorts). New investment pays some into old, a kind of idea annuity fund guaranteed value regardless of current profitability. Crazy, perhaps. But the key to the dynamics is the persistence and reinvestment, not just the output, of capital returns. Early in and kept in, most out eventually regardless. Huge exit returns eventually even everybody up (or not). Greed is logical, insanity is reasonable, persistence wins.
ty (Institute of Industrial Engineers and so on...) to have a focus on entrepreneurism and hold back not from financing, with a focus on job creation. I find myself in this exact position & the difference between this & regular entrepreneurism is the high focus on job creation.
During the industrial economy, each small/medium/large machine/design/widget "shop" had its (mostly local/regional/national/international) markets and its (specialized) internal "Industrial Commons" (some R&D, know-how, process-development skills, and engineering capabilities/infrastructure) to serve its markets. External "Industrial Commons": transportation (railroads, highways, interstate, airways, airports, shipping lanes, and seaports), communication (telegraph, telephone, internet, cell phones, and networks), raw material manufacturers and part suppliers and local/regional/national financiers were accessible to all concerns. In the 20th century, manufacturing technology evolved at a very slow pace and generation upon generation took up similar work/jobs. In these manufacturing industries process improvement or reengineering is intertwined with manufacturing technology. In the 21st century, the process "leap-fogging" innovation
can create a competitive advantage in manufacturing technology and retain some of the old manufacturing concerns in the US or any other developed (or developing) country if the country can achieve the most cost effective process "leap-fogging" innovations. However, it is very unlikely to be intertwined with the old manufacturing technology and therefore it is not what professors Pisano and Shih are trying to shore up through bringing back the "industrial commons" for manufacturing. With respect to US, the question is for the cost of establishing a base of industrial commons, how many old manufacturing concerns could be retained in the country? My estimate is not many old 20th century manufacturing concerns could be retained by establishing a base of industrial commons which may not be cost effective. It is akin to trying to live in the past or looking backwards.
Now fast forward to today's knowledge economy with cutting-edge industries in biotechnology, space technology, digital technology, computer (hardware and software) technology, energy generation/storage technology, communication technology, applied materials technology and AI technology (robotics). New manufacturing technology evolves at a very fast pace: old inefficient processes/jobs become obsolete faster and new efficient processes/jobs appear also faster. In order to have a competitive advantage, concerns in cutting edge industries need to have ownership of process knowledge and process leap-fogging innovations through patents (some proprietary internal "Industrial Commons"), and seek government assistance in workforce education and retraining, basic R&D through university clusters and information security (external "Industrial Commons"). What we need is to look forward to the future and invest in external industrial commons such as clusters of uni
versities that create new cutting edge basic knowledge for the 21st century. Hence, "Industrial Commons" for shoring up manufacturing industries is important for 21st century manufacturing concerns but not for 20th century manufacturing concerns in the USA.
What would be the fate of workers who are displaced by more intelligent/advanced manufacturing technologies or not capable of being retrained for new cutting edge jobs? Do they (perhaps some of the 47%) have a place in our economic model? Are we human enough?
If nothing drastic is done, failure is assured. We have to rebuild high technology based manufacturing in this country but that will not happen if education lags. Here is the truth of it: only when the US can surpass the educational pace and brain power of nations such as Japan and India and combine that with low wages, then and only then will high-tech manufacturing return and grow in the US. For now, high tech manufacturing on US soil will remain an unobtainable dream.
"Industrial commons" here in the US? Possibly, but only on a very small scale.
Getting higher positions on the basis of world political and military dominance of developed countries may disillusion them to keep the vision clear. Probably this has lead to pseudo-sustainability protocols to control practical leaders from developing economies to get more practical and fit in simpler challenges than those posed by other international trade and technology caps by developed nations.
At last we just need to identify that people to stay among people cannot be people averse. We cannot keep innovating technologies to stop people earning from each other by their material and intellectual efforts. If the thesis carries its work further, it may arrive at similar conclusion which may demand the change of school of thought, change is world politics and bringing down the fear of developed nations by those developing or once highly developed like China and India. The success and failure of this thesis may totally depend on the work it may carry due to its received ideas in the form of comments. It may hardly influence the US due to its deep insecurities and high energy dose.
Thank you.
The United States is good at achieving turnarounds.
Similar proposals have been advanced by Fareed Zakaria and Vivek Wadhwa especially the emphasis on investments in STEM ( Science, Technology, Engineering and Mathematics fields) education.
However, the key thing is recalibrating the mind sets of managers.
The biggest obstacle will be organisational and managerial insecurities. Especially about cost structures and management restructures.If this change were seen to be adding to the cost base ( like most long term R&D investments or capability enhancement) the resistance to change will be insurmountable.
That's where the temperament of strong leaders who are confident and determined to execute on the change will come into play.
Although Manufacturing counts for 21% of German GDP, German average manufacturing labor cost per hour was ? 35.66.
The cost in the U.S. was much lower at ? 23.81 per hour. However, "Made-in-Germany" is very innovative and competitive, thus allowing for relatively high wages. Highly profitable exports are pulling the standard of living of the whole country up. Over the last 15 years under huge pressure from globalization and EU East expansion, the German government, companies and unions TOGETHER have defended the German Industrial Commons (which was built over the last 200 years). It payed off.
Only Norway ? 52.61, Switzerland ? 44.96, Belgium ? 40.66, Sweden ? 40.46, Denmark ? 37.64, and France ? 35.91 had higher cost per hour in 2011.
Some other cost points: Japan ? 27.46, Italy ? 26.45, UK 23.12, Spain ? 21.88, Greece ? 15.85, South Korea ? 15,34, Portugal ? 10.40, Poland ? 6.46, Russia ? 5.10, China ? 3.17.
You can find the pdf report in German language at http://www.etracker.de/lnkcnt.php?et=lKbSM9&url=http%3A%2F%2Fwww.iwkoeln.de%2F_storage%2Fasset%2F92766%2Fstorage%2Fmaster%2Ffile%2F2112841%2Fdownload%2FTR-3-2012-Schroeder.pdf&lnkname=TR-3-2012-Schroeder.pdf
The author's Website: http://www.iwkoeln.de/de/studien/iw-trends/beitrag/92762?relatedarticles.p=4
See pdf on page 6, published Oct 3, 2012.
The world has changed and will need newer ways of interacting with the stakeholders. The stakeholders will perhaps not change much, but the fabric of interaction will. Resource (Knowledge, Engineering Capabilities, R&D etc.) accretion within the limited ambits of the frontiers of an economy/country sound anachronistic to me. I am not challenging the concept of Industrial Commons - only that its topology will inevitably be far more complex than envisaged by the Authors.
I think this is reality of industrial common. Let it be so.
When I started my company near Boston there were two or three machine shops in every town, run by skilled old timers. The cross cut wood floors in the old mill buildings were soaked with cutting fluid and grease. Those buildings are now condos.
When I moved my company to the DC area, there were no small family machine shops to be found. The agricultural base did not historically develop the infrastructure. I still use the New England manufacturing base, and add a little for UPS.
If not strategic , before we know it, the world will be economically clustered in continents (world Blocs) and make it difficulty for a particular nation to cluster its own economy.
What is "manufacturing"? It is a collection of Physical Processes and a collection of non-physical or service processes.
"Manufacturing" is also the repetive use of such collection of processes to achieve the output (Product, Process or Application/Use) at the required quantity, place and time.
Let us focus only on the first half of this definition - physical and service processes and their role in manufacturing:
The service processes are rich with information processes (collection, dissemination, data processing, analysis and decision making). The "Industrial Commons" of service processes are the standardized IT platforms, applicable and usable across many companies and industries. They have been standardized and exploited relentlessly in the past three to four decades. They will continue to be further harvested, thus increasing manufacturing productivity. This will also lead to job-less recovery in the manufacturing sector.
The physical processes also create "Industrial commons", which are applicable across many companies and industries. As an example, the physical process of generating surfaces using abrasive tools - the grinding processes - and the science and engineering behind them can be seamlessly applied across many industries (Steel mfg., automotive, aerospace, industrial components, semi conductor manufacturing, optics, bio-medical tools and instruments, LED, PV Solar, etc.) and for a wide variety of needs. It is the science and engineering of such physical processes and their exploitation as "Industrial commons", which have been forsaken, underutilized and in many cases lost in the past three to four decades (where the short term quick benefits of productivity gains though IT driven platforms have overshadowed the potential benefits from Physical Process based industrial commons.
To suggest that these physical processes based industrial commons and their education reside in Community Colleges is another misunderstanding. Their engineering practices as we know of them today may reside in the Community colleges. But understanding the science and new strategic pathways to exploit them will have to come from commitment and effort from higher level schools of learning.
For more details, see: Transformational Skills for Technical Professionals --- ASME Press.