American manufacturers: Innovate or evaporate!, Solutions!, Online Exclusives, June 2004

AMERICAN MANUFACTURERS: INNOVATE OR EVAPORATE!

By Robert B. Tucker

A recent issue of Time magazine contains an article titled "What Can America Make?" Folks, when general interest publications like Time start doing articles on the dire state of American manufacturing, you know this has become a big issue. The USA lost three million manufacturing jobs in the last three years, and countless marginal players have ceased operations. There is, despite an up-tick in factory orders, still a deep sense of resignation in this sector that asks, "how can we possibly compete with China when all they do is produce knockoff products with a wage scale that is so much lower than ours?"

It’s suddenly an urgent question, and one that has become Topic A when manufacturers gather. At a in Miami, for instance, I addressed a metals industry conference for which the theme was "Saving North American Manufacturing." Can it be saved? I think so. It is time to embrace innovation—and there are precedents to guide our response.

This isn’t the first time
Twenty years ago Japanese manufacturers presented a similar threat with higher quality products that often sold for less. US business publications of that day screamed cover stories that also asked, "What can America make?" The response was nothing less than the Quality Revolution in the USA, and manufacturers embraced Quality Circles, excellence, TQM and other methods, or they didn’t survive.

This time the world is different—more inter-connected, and more complex. It’s not "us" versus "them." Some of the same firms that howl the loudest about China’s juggernaut actually have plants in China, and/or import much of their wares from that country. As an entrepreneurial nation, we see the progress of individual firms in China, India and other countries and salute their achievements. After all, hard work and sacrifice should pay off for anyone with the smarts to produce what customers want to buy, if only they will play by the rules and respect patents and intellectual property rights, etc. Meanwhile, some manufacturers here are not so easy to admire as they exhibit the attitude that when the going gets tough, the tough get going—to the golf course.

Optimism about the state of American manufacturing
Yet just back from travel in industrial America’s heartland, I’m optimistic about the future of USA manufacturing. I think we are beginning to see a response that, while hardly as widespread as the Quality Revolution of two decades ago, is nonetheless spirited. "If you can’t manufacture in the U.S. efficiently and economically, you don’t know how to manufacture," says LeRoy Nosbaum, CEO of $285 million Itron Corp, a Spokane, WA maker of utility meter readers. But I wonder how many people in your industry would be willing to be quoted saying such a thing? Would you?

Companies like Itron are part of the Manufacturing Vanguard. They are passionately engaged in figuring out how to compete on their strengths, rather than weaknesses. (I like what Patricia Panchak, editor-in-chief of Industry Week, says in a recent column: "Many manufacturers are so worried about competing on cost, their greatest weakness, that they are failing to compete on innovation, their greatest strength.") Vanguard companies are consistently moving up the value chain and rethinking their innovation approaches, much like they rethought their quality process two decades ago. They are making innovation an embedded, all-the-time process, and involving everyone in the quest for better ideas.

In the past 12 months I’ve worked with makers of everything from garbage trucks to industrial valves, from rubber components to food and construction equipment, and with industrial process providers ranging from heat treaters to industrial perforators. I see that every industry has a few mavericks like Itron that are out-thinking the competition when others are hunkering down. Their leaders aren’t content to wring their hands, or look to Washington for relief. Their mantra is: this may be the biggest challenge in a generation but let’s roll up the sleeves and go to work.

Based on my study of 23 Innovation Vanguard companies for my book Driving Growth Through Innovation, and recent conversations with manufacturing CEOs, here are four suggestions for kicking off the Innovation Revolution in your company.

Suggestion #1: Broaden your definition of innovation
You hear a refrain among manufacturers that goes like this: "I know we’re supposed to come out with whiz bang new products like they do in other industries, but in the [insert name of industry here], that’s a tall order. There’s only so much you can do with [insert product category here]." And this usually ends the discussion.

Actually, it should be the beginning of a whole new type of brainstorm. If you assume innovation is merely a synonym for new products, think again. What about strategy innovation, such as entering new markets with your existing products? What about supply chain innovations? What about value-adding service enhancements that allow real time responsiveness, make the customer’s life easier, and otherwise take on the customer’s problem in ways the competition is unable or unwilling to do? Such strategy innovations are a bold new frontier that many firms have never pursued.

If everyone in your industry is pushing the envelope in the product realm, do what Dell Computer did and innovate in the strategy realm—by serving customers directly. Or another example: furniture maker Herman Miller, based in Zeeland, Michigan, is bundling more of its products into total solutions for the end customer, rather than just developing new products. The combination is harder for competitors to copy. Key: broaden your definition to include not just products, but services and service enhancements, processes, technology, and strategy initiatives that grow top and bottom line revenue.

Suggestion #2: Get serious about process innovation
Process innovation includes TQM, lean manufacturing, ISO, 6 Sigma and dozens of other methods for increasing productivity and cutting costs. And even though you can’t cost-cut your way to prosperity, redoubling efforts at process innovation is not a luxury today, it’s a necessity.

Think of productivity growth as an index of process innovation in your firm. Now ask yourself a tough question: are you satisfied with the rate of improvement in business practices, space utilization, and manufacturing efficiency? Between 1995 and 2000, productivity in the manufacturing sector rose by an average annual rate of 4.3 percent, according to the Department of Labor, compared with 2.2 percent for the overall non-farm economy. These improvements are impressive, but they are only a start. There is more efficiency and productivity to be gleaned. Consider: How have you increased productivity over and above your industry’s average? Successful manufacturing in the USA will require a relentless focus on process innovation, but not at the expense of product and strategy innovation.

Suggestion #3: Benchmark innovative manufacturers
When was the last time you picked up the phone and invited yourself to visit a manufacturer that is defying the trends and thriving in these times? They are out there, and the time you spend benchmarking could provide the motivation you need to come up with your next breakthrough idea. My suggestion: become active in your trade association and attend conferences like Industry Week’s Smart Manufacturing 2004 this June, to gather new ideas and meet progressive manufacturers.

As I’ve often said, there’s no such thing as a mature market or a commodity product, only tired imaginations. The greatest asset you bring to your company in times like these is your ability to inspire fresh thinking, to assault the "this is the way we’ve always done it" assumptions. Benchmarking is guaranteed to enable you to do just that.

Suggestion #4: Unleash the creativity of your people
Your skilled workforce is a global competitive advantage—but only if you see it that way and engage people creatively. There is no question that you will need to produce more and more with fewer and fewer people. Yet few manufacturers truly tap the mega-asset of people power.

Not so at B. Braun Medical, a $750 million med-equipment maker in Allentown, Pennsylvania. Braun went through a massive, comprehensive automation project to rethink and redesign how it produces syringes and intravenous clamps. But it used creative suggestions from workers to reduce error rates to the point that its vastly superior sterilization process became a competitive advantage to customers, more important than low priced competitive products. "The more innovative you are, the higher your pricing power," B. Braun Medical CEO Caroll Neubauer told Time.

Appleton Papers, Appleton, WI, goes further. As I describe in my book, Driving Growth Through Innovation, Appleton involved all its employees not just for cost-savings ideas, but for new product and new market ideas. In a recent year, this "all enterprise approach” generated 700 ideas. "We already had a suggestion program for cost-saving ideas," explains Dennis Hultgren, Appleton’s vice president. "With GO [Growth Opportunities], we now regularly solicit ideas from everybody in the company. These people are out there, they know our technologies, and they are perfectly capable of thinking up new uses for them. We’ve learned that it is important to bring everybody in on it. Everybody wants to contribute if asked, but not everyone was being asked."

Conclusion
The recent improvement in factory orders might cause some to believe that the good old days are returning, and therefore that taking bold action may not be necessary. That would be a big mistake. What can USA manufacturers make? Plenty. I am convinced that those who are willing to embrace innovation can make anything and everything now and in the future despite the uneven playing field. But how they make it will change dramatically.

Jack Welch, former GE chairman, used to say that if the rate of change inside your organization was less than the rate of change outside it, the end was in sight. Even though you probably have some initiatives going in your company, are they the right ones? What is one action you will take today to embrace the Innovation Revolution?

About the author:
Robert B. Tucker is president of The Innovation Resource, an innovation consulting firm based in Santa Barbara, Calif. A frequent keynote speaker at conferences, he is the author of "Driving Growth Through Innovation: How Leading Firms Are Transforming Their Futures."