Is U.S. Innovation Dead or Alive?

12 Feb, 2006 By: Kenneth Wong

Analysts respond to latest report from Joel Popkin

Is U.S. manufacturing innovation at risk? It is, according to a report released earlier this month by the Council of Manufacturing Associations and the Manufacturing Institute of the National Association of Manufacturers. Economist Joel Popkin, author of the report, argues, "Trends in R&D are important bellwethers for manufacturing, the productivity it generates, our ability to compete globally and the capacity to maintain strong growth."

In U.S. Manufacturing Innovation at Risk, Popkin singles out five warning signs indicating a discouraging future:

  1. Manufacturing output since the recession significantly lags recoveries of the past 50 years;
  2. Total plant and equipment investment is lagging, so little new capacity is being built;
  3. The U.S. share of global manufacturing trade has shrunk from 13% to 10%, with a marked drop in machinery, equipment and advanced-technology products;
  4. There is a growing shortage of skilled workers such as engineers, scientists, and technical workers who make up the backbone of the innovation process;
  5. The U.S. preeminence in R&D is sure to be challenged as growth in R&D has averaged only about 1% a year in real terms.

Joe Barkai, PLM program director of Manufacturing Insights, says, "I do think that the U.S. is complacent about the importance of cultivating innovation and creating the right environment for it, from improving education in math and sciences — here, again, the U.S. does not score very high — to a culture that supports it. I am less concerned about the alarming numbers often quoted, for instance, about the number of engineering graduates in China vs. the U.S. There are two points to consider: China is a huge country that needs that many engineers to support itself; China and India, the giants that supposedly threaten the U.S., are still ranked 50th in terms of productivity."

"I do think that the manufacturing industry has been too complacent and is now at risk. Overcapacity, inflexible manufacturing and ignoring the tenacity, innovation and low-cost manufacturing available in other regions led to the current state."

Barkai agrees with the recommendations in Popkin's report, but, he adds, "I believe that the manufacturing lifecycle decision-making process in the globally connected economy will be based on a framework of product lifecycle economics — optimizing each decision about innovation, R&D or manufacturing and their impact on downstream phases of the product lifecycle. For example, increasing R&D expenditure in order to reduce manufacturing costs, or optimizing product portfolio in terms of quality and features for a better fit for a geography and service delivery capabilities."

John MacKrell, senior consultant at CIMdata, points out, "This is a more complicated situation than is indicated by simply measuring manufacturing productivity. First, manufacturing productivity in the U.S. is negatively impacted by global outsourcing. It is to be expected that U.S. manufacturing will continue to decline as more work is sent offshore. Second, improving innovation is not directly related to R&D spending. The collaboration and innovation processes are much more important than increased R&D spending. This is where PLM [product lifecycle management] plays an increasingly important role — by helping companies implement collaborative processes that support innovation."

For an alternate perspective, MacKrell suggests Money Isn't Everything (Strategy + Business, December 5, 2005). Citing a Booz Allen Hamilton study of the world's 1,000 biggest spenders, the article cautions "Lavish R&D budgets don't guarantee performance."

About the Author: Kenneth Wong

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