The MIT Task Force on Innovation and Production: Convening Function and the Road to Recovery

March 14, 2013

In its Production in the Innovation Economy report, released February 22, the MIT Taskforce on Innovation and Production sheds light on the impact of globalization on innovation, as well as some of the ways in which U.S. manufacturers can collaborate to succeed in this ever-shifting landscape.

The statistics are well known, but still sobering: a half century ago, manufacturing employed 29% of all U.S. workers, and wages among those employees had enjoyed a steady upward climb.  Product development and production worked hand-in-glove, and the result was a steady stream of ever more innovative goods.

What’s more, the items invented here were invariably manufactured here.  Only after a product was scaled up and standardized would U.S. companies consider seeking production facilities offshore.

That has not been the case for a number of years.  Even the first generations of the most innovative tech devices are rarely built on American soil.  The result is massive trade deficits and a number of key American brands—Dell, Cisco, and Apple, among them—with little or no in-house manufacturing.

A growing number of high-profile OEMs, however, from Otis Elevator Company and Coleman to Buck Knives and Caterpillar, are bringing their manufacturing operations back to domestic shores, and for good reason.

“Not all costs of offshoring roll up directly to manufacturing,” say John Ferreira and Mike Heilala, authors of a recent Accenture study of more than 275 manufacturing executives.  “Overreliance on direct costs to the exclusion of other legitimate cost factors distorts the case for offshoring, and likely many decisions to offshore were incorrectly made.”

Factor in additional elements like the risk to intellectual property, the rising expense of transpacific shipping, opportunity costs due to long delivery times and quality stumbles, and the ancillary costs can be more than enough to tip the scales in favor or reshoring.

So what else can be done to revitalize this critical sector of the U.S. economy, which suffered a disproportionate level of job losses during the recent recession?

A number of states and municipalities have put their support behind efforts to create clusters in emerging industries, such as firms specializing in biotech, medical devices, or additive manufacturing.  This approach has had some high-profile successes, more clusters are being conceived, and the model continues to be refined.

The MIT report goes on to highlight another innovative strategy that holds real promise: the gathering of “convening functions.”  These co-located complementary activities have seen high rates of growth and job creation, indicating that the convening model is a key weapon in the recovery arsenal.

The process beings with a private company or public institution (such as a university) making new resources available to others, with the understanding that they will also contribute—through technology, human capital, or the distribution of their own developments—to the cause.

This approach cuts costs and mitigates risks for all involved, pooling common resources and creating new collaborations.  What’s more, these gains tend to spread across multiple industries, rather than a few advanced niches.

Despite the sometimes dire talk of a future without manufacturing, one fact remains: the United States is still the most innovative player on the world stage.   With the problems identified, the next step is response, and the tide is turning—steadily, and with gathering speed.