The 3 Rules Of Innovation: Location, Location, Location

Does manufacturing have a future in the U.S.? A two-year-long study suggests it does—especially if companies work together.

It’s been two years since a group of 21 scientists from MIT announced the creation of Production in the Innovation Economy (better known by the delicious acronym PIE), an initiative designed to reveal how manufacturing and innovation relate to each other in America. On Thursday, the group released its long-awaited report, and it couldn’t have come at a better time. With Obama calling for more funding for manufacturing innovation, there’s plenty of momentum behind those who make things in the U.S. But there isn’t much hard data, which is exactly what MIT is offering.

PIE is founded on a simple insight: Manufacturing in the United States isn’t dead. It has declined significantly across the board, sure, but there’s also been some surprising growth. Between 2004 and 2008, 3,500 American manufacturing companies doubled their revenues. PIE was created to answer questions like why and where this growth was happening, but it also had an underlying mandate: To figure out whether these successful companies could be pushed in the direction of more innovative activities. So for the past two years, the intrepid 21-member team has traveled across the country visiting factories, conducting interviews, and crunching numbers (sounds like a great movie montage, no?).

One big coup—something overseas operations can’t compete with—comes when a company can quickly fabricate an innovative product. It’s rare that a single company can do both (design and produce), so it’s crucial that collaborative networks develop to share the burden. That’s what’s happening at a company called Mass Tank, which makes storage tanks for chemicals and food. It works with five smaller companies that experiment with new designs and materials, while they focus on bringing the product to market. "Once components are decoupled from design, there’s a reduction in the latent knowledge of how things are made," said one interviewee. Keeping designers engaged in the manufacturing process is crucial—and even if a company only specializes in fabrication, it’ll benefit from smaller, design-minded firms nearby.

It follows, then, that companies tend to do better when they’re part of a local network. According to MIT’s Peter Dizikes, it takes the average startup 12-15 years to turn a profit, and many of them rely on a "cluster" of other local companies doing similar or complementary work to survive the first few years. "This often helps startups surmount the diversity of obstacles they find on the road to production," he explains. The report also trumpets something called a "convening function," which is an open platform created by a university or corporation that smaller firms can contribute to and build upon. One great example of that? The Brooklyn Tech Triangle, where several universities and companies are building a support network for dozens of smaller startups.

PIE’s findings also contain some interesting comparisons between the U.S., Germany, and China. Germany, it turns out, is superb at repurposing their existing infrastructure for new ends (a talent that might have its roots in the postwar era?). "The companies we interviewed had moved from autos to solar modules, from semiconductors to solar cells, from machine tools to make spark plugs to machines to make medical devices like artificial knees," the authors write. China’s strength lies in its ability to quickly scale up: When an American company invents a great component for a photovoltaic panel, that company will often turn to Chinese partners for helping with scaling up the production of their design.

The synopsis ends with a strong argument for the power of proximity. "If we believe that they have a real chance, it’s because what’s held manufacturing in the United States in the last resort—even as so much turned against it—was the advantage firms gain from proximity to innovation and proximity to users," write the authors. "Even in a world linked by big data and instant messaging, the gains from co-location have not disappeared."

All of the report’s findings come with a footnote about the massive transformation still gripping the U.S. economy—a kind of "but we might be wrong." And while Obama might be busy hooraying innovation in America, the threat of the approaching sequester reminds us that the government can’t lead us out of the woods, either. The full PIE report is worth a read, and it’s written in surprisingly accessible language (I’d even call it gripping at certain moments, but I’m a dweeb). Check it out here.

[Image: Map via Shutterstock]

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