Why Manufacturing Matters to Innovation

Too many decisions by companies to outsource or offshore manufacturing of their products fail to appreciate the impact it can have on innovation. As a result, say Harvard business professors Gary Pisano and Willy Shih, we've witnessed a serious eriosion in our "domestic capabilities needed to turn inventions into high-quality, cost-competitive products...."

In their March Harvard Business Review article "Does America Really Need Manufacturing?" Pisano and Shih provide a framework that can help managers understand when R&D and manufacturing are integral to innovation and should be located near each other. They say managers need to understand two things: "the ability of R&D and manufacturing to operate independently of each other, or their modularity; and the maturity of the manufacturing technology."

While Pisano and Shih note that manufacturing location decisions involve many factors such as proximity to customers and taxes, they make two points that particularly resonated with me:


"Deep integration" of product design and manufacturing processes can pose a major hurdle for competitors who want to enter a market.

Manufacturing capabilities can take decades to develop but a decision to outsource can destroy the "industrial commons" needed to support it. That makes it very difficult to return manufacturing to a U.S. location.