As productivity skyrockets, manufacturing may return to the US without the jobs impact many expect. With automation and the increasing technologization of manufacturing, can we keep our workers employed? Read the full transcript below.
Howes: Hello, everyone. I am Daniel Howes, a business columnist at “The Detroit News.” It’s great to be here at Techonomy to talk a little bit about something that we know a little bit about in this town, manufacturing. I am joined here today by Amar Hanspal, the senior vice president of products at Autodesk. Next to him is Steve Hoover, the CEO of PARC, which is an acronym for Palo Alto Research Center. It’s a Xerox company. And finally, Lou Rassey, partner of McKinsey and leader of the Global Manufacturing Practice of McKinsey, and I might add a Detroit native of Sterling Heights.
Gentlemen, you know, technology can be a massive transformative force in the economy. And in manufacturing, here in one of the nation’s traditional manufacturing hubs, any renaissance of Detroit arguably is dependent on the competitive adaptation of technology and faster-moving cultures.
You guys, all three of you, are in pieces of the manufacturing world that are not what we know here traditionally here in Detroit. Now, that has changed clearly and is continuing to change after the big meltdown. But nevertheless, we still move the metal and make the metal.
I would like to ask each of you to kind of take a bite at what do people need to know about where manufacturing 2.0—which is what Steve refers to it—is headed in the United States and around the world. And can a region that considers itself a hub of manufacturing, global manufacturing, actually compete? Amar.
Hanspal: Okay. Well, our vantage point is of a software company. And so we provide tools on the design and engineering phase. And we have been watching our customers and how their participation in the manufacturing process has been changing. And so I would say I like the term “manufacturing 2.0.” And you’ve got to look at that from sort of—and we see that in two ways. One is what the previous panel talked about, which was the rise of entrepreneurship and sort of lots of people now having access to the means of production, the means of raising capital, the ways of finding customers. You know, in many ways, the inversion of the Industrial Revolution from 300 years ago. The other thing that we watch is in established companies because not everything is going to go that way. You’re still going to have planes, trains, automobiles that have to be manufactured and designed in a different way.
You watch people trying to do things faster, smarter, better. So the merging of design in manufacturing, the more and more of manufacturing being considered at the designer engineering stage, we certainly see that on the software side. People asking us to provide tools that consider the impact of things downstream. So does the downstream side start to become more like what Apple says, design in Cupertino, assembled in China, which is not always true. Or other things like custom manufacturing, which is smarter manufacturing or lean manufacturing. You know, we see people asking for tools and supporting that. And I think those are the trends that we see.
And I’ll turn things over it my colleagues to comment more.
Hoover: I think, really building on the points there, the biggest thing about if you are looking for the change in manufacturing, is to not look at what you think of as manufacturing. That a lot of the change is happening in the context. So there are changes in manufacturing, 3D printing. We are working at PARC on ways to print electronics, not only physical devices but to combine those together.
Those are very important technologies. But the biggest change is in the context. It is in this idea that everybody who is a designer can become a manufacturer and have things made. It is that everybody who has an idea can get it funded. It is in that idea that the ideas won’t only come from me but the social collaboration around those ideas that you hear in Quirky.
And this is sometimes the most dangerous kind of change for people who are in the center of something because it looks different, it feels different. You won’t recognize it. And I think that’s the risk to manufacturing — is that much of the change is around it, but it means manufacturing will get done in a different way, different skills will be needed. And it will get blended together. Design and manufacturing won’t have the same boundaries.
Howes: So the barriers to entry are—technology is lowering the barriers to entry?
Hoover: They are lowering the barriers to entry and changing the basis of competition. Because the basis of competition will not only be how many things can I make, how quickly at what price. It is can I deliver something that meets your needs at the time you need it, the way that you need it, customized to your need. And if you are focused on cost and throughput only, then you’ll say, oh, that technology will never work, because it’ll be 20 percent more. Except, you know what, someone is willing to pay 20 percent more to get that customized coffee table that Mark talked about. So you will miss that. That’s the risk.
Howes: So how do companies and countries compete in that environment?
Rassey: I would agree with the way Steve characterized the change. I think to the original question, Daniel, what do we need to know about manufacturing 2.0? I think it is changing but a couple of things are staying the same. Manufacturing will remain important for economic health in the long run, not just as a driver of employment, but as a driver of productivity, of innovation, as you both have highlighted, of exports, of national defense.
So the importance of manufacturing remains. I think that’s important to keep on the table as we reflect on the road forward.
I think secondly, associated with this changing environment that we’ve talked about, there’s also a great deal of uncertainty. The end state we’re moving towards, we don’t exactly know yet. That creates both excitement and anxiety, but I think it’s also important to know that yes, it’s changing, but it’s also highly uncertain, which is making it even more difficult for companies and governments to effectively navigate where we are today.
But in that changing and uncertain landscape, it points to great opportunity. Reasons for places like Michigan and manufacturers around the world to be really excited about what the future could hold, new products, new technologies, new markets, new businesses, new jobs to deliver all of that. So great opportunity and reason for excitement.
But lastly, what we want to understand and reflect on is it’s going to get increasingly competitive, as Steve pointed out, both for companies and for governments. I think in our view, we’re in the midst of a research effort, looking at the future of manufacturing globally and its implications and how companies and countries will compete. And what we’re finding is it requires a bit of a new mindset. What is manufacturing? How do we think about it? And also a new set of skills and capabilities both for companies, governments and individuals to really compete.
Howes: Down the street here there’s a company called Galaxy Solutions. On their building they have a big sign that says: Outsourced to Detroit. And they brought—he brought some 500 jobs here instead of taking them to Brazil. There’s been some writing recently about re-shoring and how the American economy is becoming more competitive for manufacturing.
I’m wondering if any of you can kind of give me a sense how legit that really is, if the American economy is becoming more competitive and more cost competitive than it’s been in the past to manufacture products.
Rassey: I think in some places we are. But the answer is nuanced. I think one of the things we’re finding is that manufacturing needs a bit of a redefinition before we can really answer that question. It’s not—two things. One, you can’t paint it with a single brush. There actually are many subsegments within the manufacturing economy, and the answer to this re-shoring question varies depending on those segments. So labor-intensive tradables like textiles, the likelihood of re-shoring is much lower.
If you look at some of the higher innovative products, like we will talk about today, I think the opportunity is greater. If we look at segments that are more regional in nature, like food processing, paper production, or energy-intensive like basic metals, there I would say we have actually seen much lower declines in employment in the past decade and opportunity for some stickiness to remain here.
So I think, to answer that question, we would say it really depends. And you have to think on a bit of a segmented view for what it’s going to take to win.
Hoover: If I can build on that, it’s this idea of manufacturing is now going to be broader than this idea of the machines and the people that make things, but the environment in which they are made. As some of this re-shoring occurs, the kinds of jobs are going to be very different.
So I think a great story example that I know is Ethan Allen, large furniture manufacturer, significantly downsized, offshored. They have now repatriated some of that because they have found competing surely on price with the cheap labor in the world wasn’t really what their customers wanted. They serve the mid- to high-end customers. So they now do much more customized work. And part of the people they hired are interior designers, to go out and work with you in your home and understand your needs and then help you select the furniture and even design some of it and have it manufactured in a customized way.
Now, those aren’t manufacturing jobs in the traditional sense, but they are again around this manufacturing ecosystem, because making things is important. It’s the basis of our economy. But the value proposition around customization, integration into my life is much higher. And so those jobs will be different.
Rassey: Yeah, Steve. I think there’s a lot of public debate that puts service and manufacturing jobs at tension. And I think you nicely described how actually these—the line between these are much more blurred and interconnected. I think that’s one of the other things both companies and policymakers need to embrace, a bit of a new definition in that respect, thinking about the end-to-end value chain of the business and that services are an integral part of it.
If we look at some subsegments service jobs as Steve described, actually are over half of the employment in that manufacturing value chain. And so that really resonates with what we’re seeing as well.
Howes: So the politicized statement that we don’t make anything anymore is simply not true?
Rassey: I think there are great examples where we are making things and we can be competitive. I think we would benefit looking forward to broaden our definition of what manufacturing is, to recognize that you need that competitive value chain; not just production jobs, although those are essential and important, but it’s the other pieces of the value chain, the front-end design, which I think Amar can talk to, and the innovation is happening there, but also through the life cycle to have customer service after-market sales and such.
Howes: In this town, we have a stereotype of what a manufacturing worker looks lie, what kind of education they have, what kind of training they may have, what they had 10, 15, 20 years ago, what they have today and the next few years going forward.
Amar, tell us kind of what you think the next generation or very-quick-coming generation of manufacturing employee in the United States is going to look like from education, age, expectation, compensation.
Hanspal: Okay. I’ll try to answer that. But let me—so to build on the context we’ve been setting so far, which is I think is the manufacturing jobs, not just of tomorrow but of today, already look different because of this collapsing definition between design and manufacturing and, you know, techniques such as mass customization.
I looked at monster.com and sort of the kinds of jobs that are being advertised in a couple of automotive companies. The kinds of people they look for today are skilled in robotic programming, skilled in CNC programming. They are skilled in lean manufacturing techniques. And I think those are different than what they looked for 15 years ago because, you know, manufacturing today is not just—I mean, even when they look for a spot welder, they are looking for people that can fix problems on the line, not just, you know, 50 times a minute, you know, weld something.
So I think that the requirements of the job are certainly expanding to include this sort of redefinition of manufacturing. And I think on the education side, this sort of integrated thinking of, you know, design or form and function and fabrication is going to have to start much earlier in the process so people can think about things holistically.
So I think five years from now, it won’t surprise me that you won’t have people doing only one functional job in the company.
Howes: So the paradigm is clearly shifting, if it hasn’t already shifted.
Hanspal: Right, exactly.
Howes: And so the question is, can a town or region or a state or part of the country that maybe is more traditional in its viewpoint—is it going to be able to respond to that competitive, that gearing, that competitive upset?
Hoover: I think it certainly has the opportunity. I mean, I think actually this discussion here in Detroit, right, and this partnership with Techonomy to come here with the Detroit Economic Club says people are starting to ask the questions. And I think that the skills are going to be radically different.
I actually worked in a company that made glass for cars, put myself through college in the summers. And it was a very repetitive job, made me really glad that I was going to go on and be an engineer.
But then I also started to teach people at community colleges, you know, technologists how do you do basic automation, right. And so, you know, the American worker is an incredible set of capabilities. We’ve got to create the context in which to give them the right training and the right education. I mean, these people can do amazing things, but it is going to be a different kind of skillset in the future.
And so I think that’s where government and industry have a real place to be clear about that, and to partner to make those things possible, to help.
Hanspal: What I sort of say to your question is I think Detroit did it once. I mean, if you think about where, you know, the center of manufacturing was and certainly a big part of the automotive history of this country, it was the place where innovation and the product line of sort of the big manufacturing line happened. And so I think it has a track record of doing things innovatively.
And, you know, even Silicon Valley used to be just orange orchards, right, before it became — but to make that transformation, there was an intersection of education, policy, and sort of entrepreneurial thinking.
And I think when you have that combination or you foster that combination, good things will happen.
I’ll just tell you one thing, there is no other place, at least I can think of in the United States, where there is so much wealth of knowledge about manufacturing itself. So the ability to sort of reimagine that into the future context, I mean, we come here to understand that ourselves. So I do think that there’s many important elements here that can be leveraged into that future.
Howes: It seems to me the biggest change, though, is the competitive set. I mean, when Detroit did it in Detroit 1.0, half the world was not in the competitive marketplace, at least, if not more. Now it’s a very different and a much more hypercompetitive kind of environment that we’re in. Did you have something to add, Lou?
Rassey: Our research is pointing to just this point, the importance of talent. If we look globally, there is a shortage of high-skilled talent in manufacturing that’s anticipated over the course of the next 10 to 20 years. And the regions that can solve that puzzle, it will be a big differentiator.
Similarly, the research points to a significant surplus of unskilled labor. And so folks who don’t have the capability or the talent to make it to that next level, so your question I think is one of the essential ones to get addressed.
I think there’s also an image problem that manufacturing does need to overcome. And I think that’s talked about a good bit now and I think that’s starting to change a bit. But I think the kinds of technology innovation like we’ve talked about today, I think there is a bit of a reimaging that’s necessary to appreciate the excitement and entrepreneurial energy behind manufacturing in nanotechnology, biotechnology, new materials, innovations. At the intersection of those two, information and big data and its implications to manufacturing businesses globally in a more competitive and exciting way and connectivity to social media. There’s no shortage of innovations happening in the manufacturing sector. But there’s a messaging challenge I think we have to get to draw people in.
Howes: Are there countries and cultures that are doing it better than we are, that are better prepared for this manufacturing transformation to manufacturing 2.0? I think I know the answer to the question, but I’d be interested in several of you riffing on that.
By the way, we do have microphones if any of you would like to ask a question of the panel here. Take a shot at that, guys.
Hoover: I think the U.S. in many ways is very well-positioned because many of these changes are coming from technology and innovation areas where we do have leadership. The applications of artificial intelligence, the Google driving car, etc., social media. So we have a strength there.
I think in many ways, though, it’s not unrelated to your point about image. When I think about — one of the things that I think about is actually in Germany. Germany really values making things. And the image of the engineer and the manufacturer is high in society. They have respect in ways we don’t have here. And they are pretty good at technology, too.
And they have made political decisions and investments to support that.
And so I think the threat if this change happens may not be in places where people think it is, you know, in China. I think there will be a piece of it and they are getting that they need to make these changes, too. But it may be in places like Germany, who really have a value system, an image and a strength in the early-stage technologies as well. So this idea of sort of Detroit as the Berlin, you know, is an interesting opportunity.
Howes: I have lived and worked there for four years. And I would say that partnership between government and business and the educational system exists kind of irrespective of where they are on the political spectrum.
Howes: If they are center right or center left, they still share some of the same kinds of values.
Any other countries, Lou, in your research?
Rassey: I think there are some common themes we are seeing across countries. One is they are being much more thoughtful about how to win and compete in the manufacturing sector. So much like we have talked about this context changing, as Steve articulated, the way governments are thinking about the manufacturing economy are also changing. And they are becoming more explicit and more thoughtful about how to compete.
There are some common themes we are seeing. One is this explicit strategy, what it is they want to do and how they are going to go about doing it in a very concrete and explicit way. I know here in the U.S., there are similar efforts both nationally and regionally to establish manufacturing strategies with teeth specificity and accountability for moving the needle. That’s one theme.
I think a second is this collaborative nature between the government entities and the public and private institutions, academia, and companies to mobilize behind that, recognizing the role to play there.
Interestingly, I was in another Midwest regional forum a couple of weeks back where government and businesses were coming together to talk about how to improve manufacturing competitiveness in the region. And what surfaces was really a bit of a disconnect in understanding what actually do the companies need in the region, what can community colleges and universities provide, and how do they create much greater transparency between those needs, what the opportunities are, and what the capabilities are to deliver them.
Even some of the basic blocking and tackling in creating transparency into how that collection of parties can work more effectively together is something we see other countries doing better in putting a lot of emphasis and energy on.
Howes: Who quarterbacks that where it’s successful? Is it quarterbacked by the politician, the governor, you know, the members of Congress? Is it quarterbacked by the most prominent CEOs in that state or that region? I mean, who really takes the lead where it’s successful?
Hanspal: I wanted to offer a slightly contrarian view before we go on the government path.
Back to your original question on, you know, what countries will compete with the United States and why the U.S. would win or might win, I mean, there’s China, there’s India, there’s Germany, and they all have their angles. But what I find in the United States is the advantage of being closest or understanding customers better than anywhere else, which leads to innovation and sort of the ability to enter it and develop insight into what the customers want.
And then the role of government in the other places is generally replaced by the free market here. So, you know, we have a thriving venture capital community. And it strikes me that, you know, software companies have benefited from venture investment. Manufacturing, venture capitalists traditionally don’t support and haven’t supported too many manufacturing start-ups. And that’s been because of the Industrial, you know, Revolution business model which requires a lot of capital, which is a thing that is changing.
So I’m a little optimistic that the quarterbacking in the United States and why it has the best chance of winning is we are more tolerant of risk. We are more tolerant of experimentation. We pay much more attention to understanding customer, customer needs than other places in the world, which then leads to all these better results down the chain.
I mean you have read the introduction of the iPhone 5 may add whatever—half a percent to the GDP of the United States. Well, that’s an example of innovation and insight bringing employment in some form.
Howes: Yeah, I don’t think there’s any question.
One final note on Germany, entrepreneurialism in Germany traditionally has been a dirty word. As a friend of mine used to say, you know, the people that are entrepreneurs are people that can’t get a job at any real company. And it’s a very different—here it’s very different.
Steve, did you have something to add?
Hoover: Just that I think that’s very true about Germany, as you say. But I think the point is: How do you take the best of each and not lose? Because the point is very valid. We don’t want to—it’s not about stifling the innovation in the entrepreneurial context.
But I think this point of trained workers is a really important one. And if you don’t have the people, the work will go to where the people can do the job, because that’s what innovators and entrepreneurs will do. Because they are not going to stop building their business because they can’t do it in the U.S. They are going to meet those market needs and they are going to do it.
So I think the role of government isn’t in framing the directions or making those investment decisions, but in providing the context for investment and training the people.
Howes: Do you see any return to any kind of a nationalist sentiment when it comes to manufacturing investment, as we come out of this long period of recession and decline and manufacturing? Like here in the auto industry, I mean, we’re seeing a lot of investment being brought back to the United States from Mexico, from Canada. You know, that’s a very deliberate decision that the auto companies are making. It’s not happening exclusively, but it’s happening more than any time I’ve been covering this industry since the mid-1990s.
Do you see any of that, or is that just more anecdotal than anything else?
Rassey: I think we see anecdotes of it and the trend. We’ll just have to see how it plays out. I think it goes back to the need to take a segmented view, Daniel, of the manufacturing economy. I think if you look at some of the auto investments and some of the players out of Japan and kind of the currency challenges they have had and looking at their global footprint and what footprint they need to have to be competitive over the next 30 to 50 years and how they think about the time horizon for their global footprint strategies, they are in fact making investments here to be close to that demand they anticipate being still substantial here.
So I think the short answer is that it depends and you need to take a bit of a more granular look at the different subsegments.
Hanspal: Yeah. I mean, I think your question about whether manufacturing is sort of a source of national pride, you know, is sort of a trend that’s coming back. I definitely feel—and earlier you asked this question. Sort of making is cool again. And whether that be at a small scale, large scale, I think, you know, there is more of a product culture coming back. And we all appreciate well-crafted products or customized products. And I do think that is slipping back into the consciousness in many ways.
And so I am very hopeful that as part of this sort of crawl back out of the recession, that, you know, there will be a lot more activity in the space. It will look different, as we have discussed, but I do believe that it will be a source of lots of jobs and pride for this country.
Howes: Traditionally, manufacturing and technology kind of saw themselves as opposite ends. One was located, generically speaking, in the Midwest and the tech people were on the coasts. And they really kind of didn’t have a lot of respect for each other. But I think one of the things, at least from my perspective, is you see that now tech companies are making cars, you know, like Tesla, and the VC people are getting into that and realizing that there are some payoffs and there’s some real challenges.
Is there more alignment between the tech world and manufacturing than any time since you guys have been doing this kind of stuff?
Rassey: There is a lot of excitement around the convergence of the technology and manufacturing, absolutely. I mentioned big data and advanced analytics early on in terms of how you manage global supply chains more effectively and — in a much more quickly and responsive to changes in consumer needs. I think we’re just at the beginning of tapping into the impact that’s going to have.
And so, yes, from a technology perspective of advanced analytics and data and also from these production technologies that do require much higher level of science to make things like nanotechnology and biotechnology work, there’s a lot of reason to be excited about the conversions.
Hoover: Yeah, I think a lot of it has been more social and cultural, which I think we need to get rid of. I think of manufacturing and farming even. Right. Has anyone been to a farm in the past 10 years? There are more computers, you know. A farmer doesn’t drive a tractor. Literally, it’s autopiloted under GPS, so they only overlap by 2 centimeters. Right. Every cow has an RFID printed in it, so they know how much milk it’s giving.
And look at an automotive plant. I mean, how many—how much—CNC machines? Manufacturing really through DARPA Investment—and this is another role for government in research, fundamental early-stage research—that’s what we do, so I’m kind of biased. But to invest in these areas, CNC machining, you know, started in America. Now, we have kind of lost a lot of that market.
So manufacturing has led to the adoption of technology in many areas. GM’s OnStar was an early, you know, early leader. But there’s been this different culture. Oh, I make things or, oh, those people, they don’t understand. Again, those conversations. Oh, you guys at Silicon Valley don’t understand where real money is made. You are just focused on the latest social app. Well, you know what, those social apps that bring people together like Quirky so you can make more stuff are pretty important.
So get rid of this either/or model. Don’t stick your head in the sand. The power is going to come from the integration of these two.
And that’s, I think, what we’re starting to see as some of those conversations.
Howes: Well, do you see—you know, one of you mentioned to me that GM and Ford have opened offices in Silicon Valley.
Howes: Do you think that the big old-line manufacturers are really understanding that convergence of technology? Or are they just doing this because they think it’s kind of a trendy thing to do and it’s a way to wave the corporate flag in a cool part of the country?
Hanspal: I think they are understanding. I mean, two reasons. One, I think if you look at the amount of content in their products, the software has become the dominant component. You look at an automotive car today and you look at Tesla. I think it’s basically—I don’t want to use the word P.C. But it’s basically a computer running a drivetrain. It’s mostly software.
So when you get there—and by the way, if you think it’s just automotive, if you use the thermostat called Nest, Nest is basically a little software program that’s controlling a thermostat that’s also connected to the Internet. It’s a very cool product that’s another example of product content becoming mostly software and electronics and not sort of the outside bit.
So I think online manufacturers are definitely—or traditional manufacturers definitely want to meld with technology because of that.
And, you know, it’s also because I think originally the implementation of technology was to solely drive productivity, which was we can do it in 10 minutes, now let’s do it in 9 minutes, 50 seconds. Now do it in 9 minutes, 40. I think a little bit of like the examples Steve was using was it’s driving innovation now. And how do you not—how do you drive innovation if you don’t really have it integrated right up-front? You know, that’s why I think people are trying to do that kind of—
Howes: Do you think these traditional manufacturers are going to be able to move quickly enough to compete? I mean, you’ve talked about the opportunities here. But they are going to be very competitive opportunities. There’s going to be a lot of people competing for it.
Do you see some of these older-line companies which have kind of defined this state and this region forever being able to compete that quickly?
Rassey: I think there are the assets to be able to do so. Time will tell if they move quickly enough or not. As we mentioned, around the world, others see these opportunities. It’s not just us sitting here.
Hoover: I’m sorry, go ahead.
Rassey: No, go ahead, Steve.
Hoover: It made me think of a phrase a friend of mine uses that I like which is never waste a good crisis, because that’s the part—big institutions.
Howes: We know that in this town.
Hoover: Big institutions change when they have to, right. And so this is the time. And so will they move fast enough? You know, the time will tell. But large organizations have in the past, but when faced with that kind of crisis. And there’s a crisis here.
There’s also opportunity that we’re trying to articulate here. My biggest fear, you know, yeah, they want it. It’s again, will they recognize it because it doesn’t look the same? It’s not all about nine more widgets off the line in a minute. It’s about that larger context. Will they understand what that means to their business?
Rassey: In our service to clients, this is a recognized need, but it’s also a new muscle. I am bringing these questions about innovation and technology into the manufacturing strategy discussions that they recognize they need to do it, but it is in fact a new muscle.
Howes: Who’s doing it really well? What manufacturer? I’m not looking for a Detroit name here, okay, necessarily. Who is doing it well and moving quickly and innovating? The obvious one would be Apple. I mean—
Hanspal: I’ll give you one from the traditional side. GE Medical Systems. Those guys, you know, they are also opening an office in the Valley. And they have had to contend with the emerging market trend where, you know, access to imaging, medical imaging equipment, you can’t sell $400,000 CT scanners or deploy them in rural villages.
And, you know, they had competitors crop up that were sort of local, challenging them. If you watch how quickly they move to build a better product, address those issues, that’s one example that definitely, you know, stuck with me. Here is somebody you’d say, yeah, GE, they do locomotives. But now they were behaving much like one of the examples that Mark might have used for Tech Shop, you know, like the dollo (phonetic) case guy.
Howes: We are out of time. Thank you very much. It’s nice to know that manufacturing is not dead. Thank you very much.