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Does A Manufacturing Decline Reduce The Capacity To Innovate?

Tue, 11/05/2013 - 9:11am
Penny Olmos

Innovation doesn't exist in a vacuum. From innovations that pioneered the use of new technology to the ones that led to further advancements in a particular sector, they happened because there was something pushing people to come up with new discoveries. If you want to innovate, there must be a compelling case for innovation; innovations are also propelled by a conducive market dynamic fueled by consistent sectoral growth.

This brings us to the manufacturing sector in the U.S. and the lack of innovation in a country that was once the hotbed of cutting-edge research.

The U.S and its manufacturing downturn is definitely a cause for concern, with the loss of jobs in this sector getting everybody's hackles up. While this is as acceptable a cause of concern as any, what everybody seems to be ignoring is the elephant in the room — innovation. The declining growth in the manufacturing sector might just be hitting the capacity of organizations to innovate. There is very little doubt manufacturing, specifically advanced manufacturing, is an innovation trigger and is essentially the one reason why the US has been so competitive.

Manufacturing just makes up around 12 percent of the economy but manufacturers conduct 68 percent of private sector R&D, which helps introduce new processes that improves productivity, quality and gives the manufacturing sector a push in the right direction.

More than a growth driver and a sector that brings the rate of unemployment a few notches down, in advanced economies, this sector is more about promoting innovation than anything else. The associated benefits that this innovation brings to the table is what drives the trade paradigm for these economies.

Loss in Manufacturing Capacity and the Inability to Innovate

According to a two-year study conducted by MIT (Massachusetts Institute of Technology) titled Production in the Innovation Economy (PIE) the declining manufacturing capacity of the U.S. over the past decade is cited as the main reason for the the country's declining capacity to innovate. For long, the U.S. was regarded as playing a transformative role in world technology and economy through its ability to innovate. Unfortunately, a decline in its manufacturing sector seems to have led to a tragic decline in new ideas entering the market to fashion a new era in tech innovation.

The key phrase here is “new ideas entering the market.” It's not like there aren't any new ideas floating in the heads of enterprising individuals, but the ideas just don't reach the shop floor. The resources needed to bring innovative ideas to life are in short supply in U.S.

An organization thinking about scaling up a commercial production of an innovative idea that it's been gestating for a while might end up putting the idea in cold storage for lack of finance, lack of supplier or manufacturer support or even the right equipment to prototype the idea. Everybody, from small- and medium-sized manufacturing companies to the multi-national corporations, is facing this problem.

Basic Weaknesses Incapacitating Innovation

The downturn in the manufacturing sector has led to an “innovation ecosystem” that is fraying at the edges and is unable to sustain the development of any new thought process. Most organizations, who are gung-ho about product innovations, cannot take a step forward because they end up being restricted by the limitations of this ecosystem.

Let's take a look at some of the bottlenecks that they simply cannot maneuver through:

Supplier survival

One important reason for organizations refusing to take the plunge into product or process innovation is they are scared their suppliers might fold their operations, leading to a lot of existing product development happening in-house. This very real fear is a result of declining growth in the manufacturing sector. Such organizations want to prepare themselves for a situation where a large part of their financial and human resource capital might be called on to substitute for the missing suppliers. What this means is exploring new avenues for business growth, in terms of new product development keeps taking a back seat.

Resource crunch

There are some businesses that are just caught in the downward spiral of using their previous year's profits to fund current development cycles. These businesses want to innovate and are searching for outside funding to breathe life into their idea, but this is an avenue which has become really very difficult to tap. This means businesses have no other option but to not innovate. A critical lack of resources like training, suppliers and even local banking is making life difficult for businesses who want to innovate.

Innovation has just become difficult in the absence of a robust and high-performance manufacturing sector. Think of a scenario, where you've just had a brain wave for what you think is the next big invention. But, you are unable to find the machine shop or the supplier that helps turn your idea into a prototype; however you somehow create a prototype for your product, only to find no agency willing to fund the commercialization of your prototype. No, this isn't a hypothetical scenario in its strictest sense because there are actually people who aren't getting the opportunities to realize their ideas. The bottlenecks just keep getting narrower and narrower till they finally just give up.

This is a gist of startling revelations of the MIT study, which is more of a wake-up call than anything else. It calls for a need for a policy change that seeks to bolster support for manufacturing and by association innovation also.

This is a world phenomenon

Different countries are powered by different economic models that are an outcome of their political, geographical, historical and sociological compulsions. This also means they have different industry sectors targeted for growth. But, a single commonality runs through their manufacturing sectors, irrespective of their economic model, overall economic growth of the country or the sectoral focus. Every country that experiences robust economic growth in the manufacturing sector does come up with world-class innovation.

A case in point is China. It has a huge manufacturing sector and focused efforts have ensured it is on course for becoming one of the leading lights of world-class innovation. There was a time in the not too distant past when any discussion on the subject of innovation, had us looking westwards at the U.S., but a tectonic shift seems to be taking place in global manufacturing. We've now started also look eastwards while we talk of innovation. It's not just a sign of the change in times, but also irrefutable proof that manufacturing growth is the catalyst for a sustainable culture of innovation.


Penny Olmos is associated with Holloway Houston, Inc. a leading industrial lifting equipment manufacturing company. She is a writer for Holloway Houston, Inc. and loves to write on rigging hardware. Her writing is backed by knowledge gained by her many years of experience partnering with clients to build their business through development and implementation of track-proven Internet marketing strategies.

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