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From the Desk of Jack Healy

What Would Happen if Manufacturing Went Away?

By Jack Healy, Director, Manufacturing Advancement Center, jackh@massmep.org

Manufacturing must still count for something, as every time there is bad economic news manufacturing is to blame. It is hard for this writer to understand how such a small business segment, representing less than 10 percent of our workforce, can have such a widespread effect on the total economy. Makes you wonder what would happen if manufacturing, which accounts for $100 billion of the Massachusetts economy, were to go away.

Recently, Massachusetts' economic performance was described in Mass Benchmarks Magazine as, "Out of gas, reflecting an economy that is staggering under pressure from the high cost of living, outsourcing, offshoring, and competition from Asia for the state's information and technical products." Massachusetts would be unique in this if there weren't so many other states facing the same conditions but not staggering like we are. Why aren't they staggering? Why does Massachusetts (and the other New England states) limit discussion of the problems within other business sectors when they discuss economic outlooks and opportunities?

Business Churn
A key issue is the fact that the New England states seldom discuss "Business Churning Statistics." (Business churn is calculated as firm births plus firm deaths as a share of total firms). The business churn metric, more than any other, is a good indicator of the level of entrepreneurial activity necessary to move an economy. Here's how New England stacks up:

State
Percent
2003 National Rank
Connecticut
20.4
46
Maine
22.0
44
Massachusetts
23.2
37
New Hampshire
23.4
34
Rhode Island
23.2
38
Vermont
22.5
42

Note that all of the New England States rank in the bottom third of the nation's entrepreneurial activity. The sad truth is that no one can benefit from a business that is never started.

Some may attribute this lack of entrepreneurial activity as a result of globalization and the subsequent outsourcing of service sector jobs. But Massachusetts' position in the business churn is little changed going as far back as 1999, when Massachusetts was ranked 39. And 1999 was prior to the current outsourcing of service sector jobs.

A possible cause of this entrepreneurial malaise is Leadership, or the lack thereof. In fact, leadership is the biggest deficit in manufacturing, so why shouldn't it be the same in other business sectors?

Management is Better Indicator of Success than Industry Sector
New research from McKinsey & Co. confirms that management, aka leadership, matters in all companies, large and small, including top performing companies. The McKinsey study indicates that "Managers are more important than the industry sector in which a company competes, the regulatory environment that constrains it, or the country where it operates. In other words, managers are more important to how a company is managed than business lines, government policy, or geography."

The McKinsey study found a solid link between "how well managers adopt proven best practices -- such as Lean-Production methods on the shop floor and techniques for setting targets and tracking outcomes -- and how well a company performs." This is common sense when you realize that all leading companies usually have first-rate management.

We see this in manufacturing every day when a leader decides to implement best practices and become a Lean manufacturer. 

Demonstrating Bottomline Results
A recent study of over 100 Massachusetts manufacturers who have been implementing Lean manufacturing for over one year found that, at the end of the first year, over 90% felt that they were more competitive as a result of doing so. The Lean survey respondents went on to acknowledge:
  1. 85% improved their profitability
  2. 84% improved employee skills
  3. 72% improved customer relations

How many Massachusetts companies can say that they have done all of this in the past year? The results of such efforts produced $387 million in new or retained economic output for the surveyed firms.

  1. The Economic Impacts of the Massachusetts Manufacturing Extension Partnership Program on the Massachusetts Economy, Q1 2005-Q4 2005
  2. The Economic Impacts of the Massachusetts Manufacturing Extension Partnership Program on the Massachusetts Economy, Q1 2000-Q4 2005

The only negative was that a mere 103 firms participated vs the other 8,600 in the state.

While leadership is not the sole answer to the challenges caused by today's globalization, it is certainly the best answer we have while we are waiting around for something better.  Companies that have such leadership will be the ones that are still around, should a better answer then come along.

Implementing Best Practices
If there are any business leaders reading this who want to be around and are looking to implement best practices for their organizations, contact Mike Prior, Operations Manager for MassMEP, at (508) 831-7020. Mike holds roundtables for best practices in Lean manufacturing at plant locations through out the state.

The reality of the manufacturing business today is, "Get better or be gone." It has become an accepted tenet as we now have two billion people working in manufacturing through out the world...who are not sitting on their hands.

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