From the Desk of Jack Healy

Facing the New Challenge of Growth Through Innovation

Jack Healy – The voice of manufacturing in Massachusetts

By Jack Healy, Director of Operations, MassMEP [email protected]

"Finding ways to help smaller firms to innovate could help many of them remain competitive and expand their operations." – 2012 Staying Power II Report Card on Manufacturing

Over the past decade, the continued job losses in US manufacturing have been attributed to a variety of causes — productivity increases, production offshoring by large manufacturers, even a general lack of US manufacturing growth. The good news is that we have seen a leveling off of job losses over the past two years and this is now reflected in our state’s manufacturing Gross State Product (GSP).

Manufacturing Gross State Product Increases
Massachusetts’ manufacturing GSP for 2000 to 2007 was mired in a slow growth mode, increasing by only 1.3%.  From 2010 to 2011, Massachusetts manufacturing Gross State Product increased by 20.9%! What happened?

This turn-around was engineered by manufacturers remaining committed to continuous improvement activities to boost productivity, innovation, and, subsequently, competitiveness in their respective sectors.  The "2012 Staying Power II report card on manufacturing"¹ found that the initiatives pursued over the past five years to grow manufacturing operations in Massachusetts produced results.

• Nearly five out of six firms (83%) invested in new manufacturing equipment.
• While investments are certainly part of the story, half of all firms (50%) invested in education and training of their employees in order to keep their skills current with new technology.
• Just about half of all firms (47%) expanded their sales and support efforts.
• Almost the same proportion invested in product research and development, including more than one third (34%) of the over 5,000 small manufacturing enterprises (under 20 employees) and nearly three quarters (72.9%) of larger firms (over 101 employees).

The Staying Power II study validated these findings when they surveyed manufacturers on the use of borrowed funds. They found that 16.8% of the small manufacturing enterprises (20-100 employees) and 30.4% of the larger manufacturers (over 101 employees) used their borrowed funds to support their research and development initiatives. This finding came as a surprise in that most small manufacturers have traditionally managed with fiscal agility, i.e., by making small bets. While few manufacturers suffer any shortage of ideas, their fear of risk has always minimized their ability to turn concepts into cash. It is reassuring to see that a significant number of small manufacturers have learned the lesson of 2009 — that there is not enough business to go around and in order to get it you have to work at it. 

Because innovation is "so critical to the survival and prosperity of Massachusetts manufacturing," the Staying Power survey probed extensively about the type of innovations manufacturers were utilizing. The results of this are contained in the following "Innovative Activity and Innovation Score."

For anyone who wishes to assess their own firm’s innovation performance, grade your company according to the above and then benchmark against the survey participants, as follows:

Innovation Index and Increased Production
One of the major survey findings was that only 29% of the firms who scored "very low" on the Innovation Index expected to increase their production levels over the next five years.  This is in sharp contrast to the 88% of the firms who scored "High" or "Very High" on the Innovation Index; they expect to increase production over the next five years.

Of all the firms in this manufacturing survey, the firms with fewer than 20 employees, who represent over 72% of all manufacturers  in the state, had only 6% of their firms with "Very High" Innovation scores.  Over one third (35%) of these firms were in the "Very Low" category, with more than half (56%) scoring either "Very Low" or "Low" on the Index.

Significantly, the survey indicates that "finding ways to help smaller firms to innovate could help many of them remain competitive and expand their operations."

Continuous Improvement Enables Innovation
Over the past decade, the small manufacturing community has focused on implementing continuous improvement techniques such as Lean, Six Sigma, etc. This acceptance and application of the continuous improvement programs was an enabler for manufacturers of all sizes to deal with the changes and market demands of the last decade. However, market demands change and today we find many of today’s large manufacturers are asking their suppliers to move up the technology ladder.  This change, in turn, offers the small manufacturing community the opportunity to compete on innovation rather than on price, as well as provides a significant opportunity to grow their respective companies.

Manufacturers looking to access new technologies in order to grow their companies can find assistance from the MassMEP. Contact Greg King at 508-831-7020.

1. Prepared by Northeastern University, Kitty & Michael Dukakis Center for Urban and Regional Policy.