Causing the Pain to Survive
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Michigan Manufacturers Association – The Voice of Michigan Industry – Enterprise Magazine – September/October 2004
By Ronald Dukes
Can the U.S. maintain its position as “top dog?”
Recently a global pharma-ceutical company inflicted pain on the populace with an ad campaign delivering unpleasant, thought-provoking messages.
Significant amounts of time, money, intellectual capital, technology and cutting-edge physical operations are needed to develop great products that will improve lives. Without this investment, one may conclude that lives, even one’s own life, will be negatively affected. But an improved life comes at a price.
That dynamite one-two punch to the heart and pocket induces major pain registration in the brain. The marketing strategy is one manufacturers could use to garner support in what seems a friendless world. Imagine the anguished reaction to the following messages:
The view — and the future — is the same for all but the lead dog
U.S. industry originates, therefore it leads. Ideas distinguish our nation’s manufactured products, keeping us at the head of the pack. And Michigan is a lead dog in innovation. We ranked first in the nation in industrial research and development (R&D) investment in 2000, investing $17.6 billion.
But if nationally recognized economist Joel Popkin is right, current funding isn’t enough to sustain a dominant global position — and the view for every American may change for the worse. According to his recent study, Securing America’s Future: The Case for a Strong Manufacturing Base, spending on research and development has nose dived. In the past two years, it increased at merely half the rate seen in the previous decade.
This trend leads Popkin to conclude that U.S. manufacturing is in danger of losing its preeminence in innovation. This downshift in creating ideas may be a harbinger of a decline in the American standard of living.
The domino effect will be obvious in the U.S. economy. Manufacturing is responsible for two-thirds of all R&D in the private sector. These innovations are used in a variety of other industries. Manufacturing is a driver in creating wealth in all areas of the economy. One dollar generated from demand for manufactured products produces 67 cents in other manufactured products and 76 cents in services.
Mirror, mirror on the wall...
Manufacturing’s constituencies are not the fairest of all. Manufac-turers are expected to be all things to all publics, with the notable exception of being a business.
Since 1990, manufacturers increased productivity by 54 percent. Leadership in any other industry would receive accolades for such an astounding accomplishment. Yet expansion, growth and profitability are slow. Customers, employees, Wall Street and the public are unsympathetic to the business realities of manufacturing, a hostile environment they help perpetuate.
Employees and the public bemoan the passing of the cradle to grave security and vilify companies for “discarding” workers by outsourcing labor. Technology is regarded as a double-edged sword, reducing the number of jobs and increasing the qualifications needed while improving productivity, worker satisfaction and safety.
Yet Popkin’s study found that manufacturing wages and benefits are approximately 20 percent higher than the national average.
A study by the National Association of Manufacturers and the Manufacturers Alliance/MAPI found U.S. industry is strapped by non-production costs that their major competitors do not bear. These costs add approximately 22 percent to unit labor costs and severely hamper competitiveness. Not surprisingly, the high cost areas cited are corporate tax rates, employee benefits, tort litigation, regulatory compliance and energy.
You can’t teach old — or new — dogs any tricks if they aren’t around
Manufacturing companies need a high-caliber management team with diverse talents to lead in this environment. Current talent has done a tremendous job of continuously battling decreasing margins and skyrocketing costs while meeting the expectations of an increasingly demanding constituency. But American manufacturing can’t compete just on price. Leadership-driving innovation is critical in keeping U.S. in front of the pack.
Manufacturing is in danger of not having enough executive talent with the right professional and personal attributes to sustain its position. Many “old dogs” — proven contributors in the management ranks — have taken early retirement. Capable executives find themselves with multiple responsibilities, diverting valuable time from strategic planning, product and staff development and other “big picture” activities.
If assigned asset value, the intellectual capital lost and the effects of the destruction of informal executive development would elicit venomous criticism from Wall Street analysts and shareholders. Instead, downsizings are applauded, driving a short-term focus and defensive stance.
But Wall Street should wake up: few are in the wings learning how to take the lead. Everyone is still in the baby boomer mode, thinking there are more people employed than needed. But the number of people categorized as in their executive development years — ages 35 to 44 — is declining. A study by the Society for Human Resource Management revealed that 60 percent of CEOs say their long-range business plans don’t consider the aging of the workforce.
Manufacturers must stop the brain drain. They need to get potential and current retirees, who possess a wealth of knowledge and experience, back on a full- or part-time basis. These “old dogs” are critical to mentoring and quickly developing the young pups, those graduating from bachelor’s and master’s programs.
And the pups need to be brought in as part of the team in training. Recent graduates actually buy the unflattering images of manufacturing careers. They believe that the road to the top is pristine, through sales, marketing, finance or engineering.
Grads have the impression that every manufacturing role requires having to pay dues at production operations located in remote or rural areas. “Getting dirt under the fingernails” can be unappealing and unimaginable to those without experience in the real world. It can also be the best and most satisfying executive development experience they will ever have.
Manufacturers have to combat these negative associations and promote the rewards of their career paths. They must devote funds to attract, retain and develop the best talent available to solidify a strong manufacturing base and build their ability to compete.
Don’t bite the hand…because it may cease to be
Distribution companies trade on price, not product. Not only do they dictate the price they will pay manufacturers for products, they expect manufacturers to invest in technologies for their specific systems and dedicate staff to them at their own locations.
Manufacturers are at a point where they must evaluate whether such a customer is actually a detriment to the company’s bottom line and future. The manufacturing firm realizes lower profits because it is paying the customer’s overhead, helping its balance sheet look good. Funds are diverted from growing the manufacturing business via R&D and other critical operations.
Consumers champion these retailers, choosing to remain blissfully ignorant of the fact that the prices they pay are only possible if manufacturers utilize off-shore production. While offshoring has a positive effect on the nation’s inflation rate and enhances individual buying power, it results in fewer jobs at home not just in unskilled or lower-skilled labor but at every echelon of a company. It also results in fewer manufacturers who pay those extra non-production costs like employee benefits and corporate taxes.
However, unpleasant revelations that suggest shared responsibility seem to have no place in political theater, especially during an election year. Politicians woo voters with their impassioned outrage about health insurance, keeping jobs on America soil and other issues. They inflict pain, but offer no solutions, especially about who picks up the tab.
As manufacturing goes, so goes the nation
A strong, vital manufacturing base is a balm for economic pain. Constituencies need to mature and allow manufacturers to be competitive businesses. Otherwise, the pain may be too much to bear.