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4/30/2013 @ 1:54PM |744 views

Building a Strong Foundation for American Manufacturing

BY GARY PISANO

As part of his administration’s strategy to rejuvenate American manufacturing, President Obama has called for the creation of a National Network of Manufacturing Innovation (NNMI) to advance and diffuse novel manufacturing technologies.  To launch it, he has allocated $1 billion in the 2013 budget.

Critics have denounced this proposal as yet another government intrusion into the market and a futile attempt to “pick winners.”  What these critics ignore is that the US government has a long history of investing in research that supports innovation in American industry.

After World War II, hundreds of billions of federal dollars flowed through agencies like the National Science Foundation, the Department of Defense, the Department of Energy, and NASA to pay for the basic and applied research that spawned the semiconductor, computer, software, aerospace, and telecommunications industries.  Research funded by the Defense Advanced Research Projects Agency (DARPA) sowed the seeds for the internet and advanced computer graphics.  And massive investments by the National Institutes of Health in biomedical research, including the Human Genome Project, helped make the United States the hotspot for biomedical innovation. The lessons from our history are clear:  Where we invest in science, we gain enormous economic pay-offs.

In principle, therefore, there is no reason why the same logic should not apply to manufacturing.  Just as the National Institutes of Health have pushed forward the frontiers of medical science, so should the NNMI be capable of doing the same for manufacturing.  There are many areas of science that underpin advanced manufacturing, including biotechnology, nanotechnology, advanced materials, computer science, optics, and various engineering disciplines. We need to get over the outdated notion that manufacturing is “mature” and unconnected to science.  Anyone who believes that should take a tour of a factory that produces semiconductors or biotechnology drugs.  In an ever more competitive global economy, US manufacturing can thrive only if it is at the leading edge of knowledge.

History provides some guidelines for making sure the NNMI lives up to its potential:

  • Have a broad agenda:  Government-funded research is most productive when it lays broad foundations rather than targets specific technologies for use in particular industries.   Consider the difference between the government’s successful effort to map the human genome and its failed attempt to subsidize “green energy” companies like Solyndra.  The former paved the way for an enormous range of subsequent commercial R&D efforts by pharmaceutical, biotechnology, diagnostics, and agricultural companies. The latter was a very specific commercial bet.  Placing these commercial bets requires a depth of understanding of markets and customers that only the private sector possesses.
  • Keep a balance between exploratory research and commercial need: While the NNMI should focus on broad, long-term research, it needs to resist the temptation to develop technologies that the private sector has no interest in.   To avoid this, its research agenda should be influenced by industry and by academics with close ties to industry.  Similarly, the NNMI itself needs to be run by people who have both strong scientific and practical expertise.  The currently proposed governance model—which balances government, industry, and academic representation—is the right one.
  • Don’t focus on regional economic interests:  Unlike the National Institutes of Health, the NNMI is following a decentralized model, with different institutes to be located in different parts of the U.S.  Decentralization has its advantages (e.g., less bureaucracy), but there is also a danger. It would be easy for each institute to devolve into a regionally focused center, particularly if regional stakeholders become overly dominant, and the implicit goal becomes to support local industries.  If this occurs, the NNMI is doomed to failure, since no one region has a monopoly on the expertise needed to develop world-class technology.  Regardless of its physical location, each center must engage academic and industrial partners from around the country.
  • It’s all about leveraging talent:  Global competitive advantage does not come from better machines, better software, or even better intellectual property.  In today’s world, these are all highly mobile factors that companies located anywhere can access quickly.    Talent is a different story.  It is much less mobile.  To access talent, companies have to be close to it. The National Institutes of Health created a lot of scientific know-how that flowed very quickly around the world.  But it also created a talent pool in the U.S. biomedical field that is second to none. And the only way to get that talent is for companies—both domestic and foreign—to do their R&D here.  That’s why pharmaceutical and biotechnology companies from around the world are putting their key research laboratories in places like Boston and San Diego. Creating new technology is not enough.  If the NNMI can build a first-rate talent pool of scientists, engineers, and workers with deep expertise in manufacturing disciplines, it will go a long way toward making the United States an industrial powerhouse again.

Gary Pisano is the Harry E. Figgie Professor of Business Administration at Harvard Business School and author (with Willy Shih) of Producing Prosperity: Why America Needs a Manufacturing Renaissance(Harvard Business Review Press, 2012).   

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