Why manufacturing may be important to innovation

The January/February issue of technology review (TR) and the March issue of the Harvard Business Review  (HBR) both contain fascinating  articles on the relationship between innovation and manufacturing that point out significant problems with the generally accepted view of globalization.  Since both globalization and innovation are important for higher education, this new discussion provides additional background for some of the major issues discussed in this blog.

Globalization, as generally defined, involves modularization of product creation, production and sales, with individual modules being carried out wherever on the globe they can "best" be performed - where "best" will be defined according to different criteria by different companies (see post Globalization and Internationalization). However, in many industries a typical result has been to offshore the manufacturing component of the process in search of production that is cheaper than domestic production.

Too many American companies base decisions about how to source manufacturing largely on narrow financial criteria, never taking into account the potential strategic value of domestic locations. Proposals for plants are treated like any other investment proposal and subjected to strict return hurdles. Tax, regulatory, intellectual property, and political considerations may also figure heavily in the conversation. But executives, viewing manufacturing mainly as a cost center, give short shrift to the impact that outsourcing or offshoring it may have on a company’s capacity to innovate. Indeed, most don’t consider manufacturing to be part of a company’s innovation system at all.

This quote opens the HBR article Does America Really Need Manufacturing? by Gary Pisano and Willy Shih (PS).  Both it, and  David Rotman's TR article, Can we Build Tomorrow's Breakthroughs?, argue that in many cases manufacturing actually is critical to the innovation system. That is, we aren't defining "best" correctly in many of our globalization decisions.

Obviously, once a company offshores its manufacturing, there is an institutional loss of knowledge and sophistication about the manufacturing process and its improvements over time. This leads to one component of the problem that was articulated in the TR article by GE's Michael Idelchik: 

One repercussion, he says, is that researchers and engineers lose their understanding of the manufacturing process and what it can do: "You can design anything you want, but if no one can manufacture it, who cares?"  

Equally obviously, if your engineers and scientists no longer understand the manufacturing process, they may not know when it changes and improves. As a result, they may not be challenged to improve their designs correspondingly, and thus may be under-designing compared to the competition.

More generally, at some level, there is a constant synergistic push-pull as innovation in product design encourages innovation in manufacturing processes, and innovation in processes encourages innovation in product design. So how does one know when this synergy is sufficient to make separating the two a significant drag on innovation?

PS describe the interaction of product design and process design in terms of two parameters.  The first is modularity -how well can the design of the product be considered as a module independent from the module of manufacturing, and vice versa?

When R&D and manufacturing are highly modular, the major characteristics of the product (features, functionality, aesthetics, and so on) aren’t determined by the production processes, and the two activities can be located far apart without any consequences. When modularity is low, the product design can’t be fully codified in written specifications, and design choices influence manufacturing choices (and vice versa) in subtle and difficult-to-predict ways.

The second parameter is the maturity of the manufacturing process - how far along it is in its evolution.

Immature processes offer the greatest opportunities for improvement. ...As processes mature, the opportunities for improvement usually become more incremental.

The four quadrants defined by these two parameter axes show the desired relationships between manufacturing and innovation:

Pure product innovation. (high modularity, high maturity) Here, the value of tightly integrating product innovation with manufacturing is low, and the opportunities for improving processes are few. Outsourcing manufacturing makes a lot of sense. Examples:Desktop computers, consumer electronics, active pharmaceutical ingredients, commodity semiconductors.

Pure process innovation. (high modularity, low maturity) Here, process technology is ripe for improvements and advancing rapidly but isn’t intimately connected to product innovation. Because sufficient design rules have been established, neither vertical integration nor locating R&D near manufacturing is critical, and it makes sense for specialized contract manufacturers to provide custom production to firms that focus on design. However, before ceding manufacturing to others, companies should keep in mind that process innovation can be a significant source of value in these contexts. Examples: Advanced semiconductors, high-density flexible circuits.

Process-embedded innovation. (low modularity, high maturity) In this quadrant process technologies, while mature, are highly integral to the product-innovation process. Small changes in the process can alter the characteristics and quality of the product in unpredictable ways. Product innovation is incremental and comes from tweaking the process. (Think wine.) So the value of keeping R&D and manufacturing organizationally integrated and geographically close is high. Examples: Craft products, high-end wine, high-end apparel, heat-treated metal fabrication, advanced materials fabrication, specialty chemicals.

Process-driven innovation. (low modularity, low maturity) In sectors developing breakthrough products at the frontiers of science, the major process innovations are evolving rapidly. Since even minor changes in the process can have a huge impact on the product, the value of closely integrating R&D and manufacturing is extremely high, and the risks of separating them are enormous. Examples:Biotech drugs, nano-materials, OLED and electophoretic displays, superminiaturized assembly.

As PS point out, it is often difficult to understand where a particular area of development fits in terms of the axes of  modularity and maturity. Nevertheless, this taxonomy is useful in understanding where treating a design issue in isolation is likely to lead ultimately to decreases in innovation. Not surprisingly, low modularity is the "red flag" that says that close connections between "abstract" product development and "real world" manufacturing are critical. And it is here that the authors strongly suggest that firms stop outsourcing and offshoring manufacturing if they want to stay competitive in product design.

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This taxonomy also tells us something about what many employers may be looking for when they hire new employees if this limitation to globalization comes to be accepted. For those types of companies that fall into the "low modularity" categories, knowing something about how things are actually made may become a critical part of the job description. As Thomas Duesterberg wrote in HBR recently:

While speaking a few months ago to the Chief Technology Officer of a highly diversified Fortune 500 manufacturer, I asked if he was able to fill all the science and engineering jobs required at his growing company. I can fill the jobs, he said, and most of the talent coming out of the U.S. schools consists of people skilled in basic science and mathematics, but with little experience or interest in actually making things. When I was a kid, he reported, I loved to take apart the latest radio or gadget to see how it worked and how the parts fit together. Most of my generation of engineers started with this basic interest, but the current generation didn't have this motivation, and they aren't very good at trouble shooting on the factory floor when a new product design doesn't quite work or there are problems with systems integration.

If globalization evolves as suggested by PS,  this ability to do "trouble shooting on the factory floor" should be an increasingly important component of the education of our students in many fields.

In addition, there are suggestions that increased connections to "the factory" floor could increase innovation in some of our university research labs. The TR article describes Yei-Ming Chaing, a chaired professor in the department of materials science and engineering at MIT, who has been a creative leader in the development of new types of batteries. In 2001, he was the founding scientist of a new-battery company A123 Systems.  Over a several year period, he and his collegues struggled to learn and introduce into the US advanced manufacturing techniques for batteries, which were critical for the production of his innovative designs. Having succeeded in that venture,  Prof. Chaing has now started a new company, 24M Technologies, that is developing an even more radical new battery design. His quote in TR about this new start-up echos points made by PS:

 The best way to do battery research is having started a battery company

Clearly, entrepreneurial faculty at many institutions would agree with spirit of this comment. They find that there are important synergies between their academic research and teaching, and companies that they help found in order to exploit their breakthroughs. For them, the give and take of the interaction between the academic laboratory and the realities of creating a useful and desirable product is an essential component of the creative process.

 

 

 

 

Comments

[Mick Raike]

I truly believe that innovation needs manufacturing. Long gone are the days of "a strong back and weak mind". As a veteran of the automotive industry, I have witnessed many good paying union jobs being replaced by automation. However, robots do not need a break; do not need a day off; never get sick or have to stay home with a sick child. If it were not for our facility in the midwest, NASA would have never been able to test their plasma fire rocket boosters that sent man to the moon. (We use that innovation to melt raw material to make iron.) Therefore, it is extremely important to prepare the next generation of manufacturing employees to run, manipulate, and maintain these complicated systems. Without this training, there could be a real possibility that manufacturing could easily be sent back to the dark ages.

Mick