From the pages of Managing Automation

By Greg MacSweeney

As manufacturing CEOs try to determine the best course for their company, many are still focusing on cost cutting and are delaying new product development and hiring. However, if CEOs truly have their companies' best interests at heart, product innovation should be the primary focus, warns Edward W. "Ned" Hill, professor and distinguished scholar of economic development at Cleveland State University.

"Smaller manufacturers have to compete on value, not on cost," Hill said as he delivered his comments at a recent National Association of Manufacturers conference in Washington, DC. "Intellectual capital is needed because product innovation is the only way to grow. Overseas competitors will usually beat you on cost."

In his presentation, "Manufacturing: Making America's Future," Hill contends successful manufacturing organizations will be able to fight becoming "commodity manufacturers" by creating and retaining intellectual capital. "The current decade will see business focus on top-line revenue growth through product innovation," according to Hill.

Manufacturers agree with Hill's statement. A recent Deloitte & Touche global manufacturing benchmark survey found 89% of manufacturers indicate that launching new products and services will be the primary driver of growth over the next three years, with other factors such as the economic turnaround (85%) and developing new channels (72%) being of lesser importance.

Still, many manufacturers are continuing to focus on cost and are not looking beyond the next quarter. Hill warned that if manufacturers wait too long, it may be too late. Currently, economic pundits point to the lack of hiring in the manufacturing sectors as a sign of weakness in the industry as a whole. However, Hill maintains that job growth in the manufacturing sector will be much slower than in previous economic recoveries. After the recession in 1990-91, job growth in manufacturing quickly picked up. After the most recent recession ended in 2001, manufacturing continued to lose jobs through this year. "Job growth is so slow in manufacturing because there are fewer recalls to manufacturers," Hill said. "In this recovery, many of the jobs that were lost will never come back" because of advances in technology and automation. "Job growth will come from new job creation," which takes much longer, Hill added.

This job phenomenon is not unique to the United States, Hill said. "There is a global productivity revolution underway in manufacturing," according to Hill. From 1995 to 2002, the U.S. lost 11.3% of its manufacturing jobs. During the same period, South Korea lost 11.6%, China lost 15.3% and Brazil lost 19.9% of their respective manufacturing job base, despite the number of jobs that have been sent offshore from U.S.-based manufacturers, he added.

*Reprinted from Managing Automation 2004