Harvard Business Review

Just How Important Is Manufacturing?


Posted on Harvard Business Review: February 21, 2012 11:52 AM

by Willy C. Shih

Having a strong domestic manufacturing base is vital to the United States maintaining its world leadership in innovation. That is because advanced manufacturing provides an important institutional foundation for learning and developing process skills and capabilities that are increasingly intertwined with core R&D in some of the industries most important to the country’s economic future. These include advanced and specialty materials, biologics, nanotechnology, and precision mechanical devices.

Since joining the Harvard Business School in 2007 (after a long career at IBM, Kodak, Silicon Graphics, and other companies), I have visited hundreds of factories. They include ones that produce a million notebook computers a week, a significant proportion of the world’s ibuprofen and acetaminophen, sophisticated biopharmaceuticals, microchip engine controllers for 40% of the world’s cars, key components for iPhones, commercial jet engines, scientific instruments, heavy construction equipment, tools for making semiconductors, and solar panels.

With the exception of two jet-engine factories and two plants that make heavy equipment, all were located outside the United States. If that surprises you, you’re not alone. Most Americans have no idea where the stuff they buy comes from and don’t appreciate how much of the U.S. manufacturing base has disappeared.

A Lot of Manufacturing Is Knowledge Work

Most Americans believe factory work is mechanical, snapping together plastic parts or assembling electronic devices. No thinking required; just put in these four screws 2,400 times a day.

There certainly is a great deal of such routine manual labor going on in the world, but there is also an enormous amount of sophisticated knowledge work. Many of the jobs in the most advanced semiconductor-manufacturing plants are as complex as a lunar-landing mission. Making parts for an iPhone is a challenging mix of materials science, mechanical engineering, precision fabrication, and managing mind-boggling complexity in the supply chain. Producing biologics involves enough biochemistry, chemical engineering, and cell biology to make a graduate student wince.

Working in these plants are inventive people who are the source of important ideas for making products better or in different ways. The best factories routinely conduct scientific experiments to improve their processes, and the best factory managers are teachers and innovators as well as leaders of people.

When R&D and Manufacturing Must Be Near

Manufacturing provides the foundation for many kinds of innovations. If manufacturing processes are immature or the know-how needed to develop the product or process to produce the product is tacit and not well codified, you cannot innovate in a country if the factories are on the other side of the world. R&D and manufacturing must be located close to each other so their people can together figure out how to develop a product that can be manufactured at a cost and level of quality that will make it a commercial success.

This is why I cringe when I see pharmaceutical makers shipping more and more of their production and development capability offshore, or when I see semiconductor tool makers move their manufacturing from the U.S. to Asia.

The bottom line is if a country loses the ability or the capacity to manufacture, its innovation space will be truncated. To me, that is why we have to manufacture in the United States.

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