Manufacturing and services – part 4 (what customized really means)

I was recently at a conference where Klaus Hoehn, the VP for Advanced Technology and Engineering for John Deere spoke. He made a very interesting off hand comment. He said that Deere was in the business of providing functionality — and was moving toward providing integrate customer solutions.
His comments recalled to mind a story of innovation in Christensen’s The Innovator’s Dilemma about steam shovels (see summary). One company was in the business of building bigger shovels with greater power. And the best technology was the cable system. Another company, however, developed the new hydraulic system was not as good as the steam cable system — but was very suited to narrow spaces. They got in the business not of providing big powerful shovels but of digging narrow trenches (such as for pipe laying or house foundations). Functionality – not a specific product.
The Deere quote is similar to what we keep hearing from a lot of companies. The mass production model (of more and more of the same) is giving way to the customization model. This is a trend we have been talking about for some time — and that helps define competitiveness in the I-Cubed Economy. But we are just beginning to bring our mindsets around to what it means. Originally, customized manufacturing meant the flexibility to run smaller batches of mass produced goods or to add certain features to a basic product. Hence it was also know as flexible manufacturing.
However, at its heart, customized manufacturing really means providing the customer with a product uniquely suited to their needs. The phrase “just-in-time; just-for-me” has been used to describe this level of customized goods. It is not about the product; it is about the customer.
From that perspective, distinction between manufacturing and services begins to blur. What business am I really in? Is my business making backhoes? Or is my business selling contractors ways to make holes in the ground? With that question comes a change in orientation from making the product better to providing “integrate customer solutions.”
The classic case is Rolls-Royce as noted before. The aviation division of Rolls doesn’t sell jet engines, they sell thrust in the form of hot air out the back of airplanes. The monitoring and servicing of the engines is as important as their manufacturing. And the servicing works because they designed and built the engines in the first place.
By the way, the same shift is happening in “services” — at least in some areas. What does the customer need rather than how to I make my particular service faster, better, cheaper. It is really a shift from efficiency (the focus in the industrial age) to customer-focused innovation. (Note: I have to use that clarification of “customer-focused” since most of our view toward innovation is still on making the product the faster, better, cheaper).
That is not to say that faster, better, cheaper is not a factor. But faster, better, cheaper is not any of those if the product really doesn’t suit my needs. If what I want to do is travel a mile from my house to my office, a bicycle or a bus may be a better solution than a Ferrari.
The switch in focus from the product (good or service) to the customer needs is a move beyond the age of mass production/mass consumption. The switch is well underway in the economy. Businesses, like Deere, understand this.
So, what are the public policies appropriate to this new era?

Patent ratings and France’s state bank

There was an interesting piece over in Joff Wild’s blog at IAM Magazine about an Ocean Tomo ratings deal with France’s state bank. According to the piece:

The Chicago-based merchant banc has agreed a working protocol with Caisse des Dépôts, the development bank owned by the French state, that is expected to lead to the creation in the autumn of the first ratings platform for European patents. This would be an OT/Caisse des Dépôts joint venture based on the ratings platform that Ocean Tomo already has for US patents.

Wild implies that this is a move toward setting up a European IP transactions market. In other words, the joint venture will be a patent analytic service.

I wonder if this might be headed in a different direction. One of Caisse des Dépôts responsibilities is the development of French SMEs — especially helping to find financing. Could it be that this new patent rating system is the beginning of IP-based lending on behalf of the bank? Given the need to have such a rating system in place to underpin any lending program and given the bank’s basic mission, it seem like a logical fit.

Anyone out there have any additional information?

Finding the new growth model

Here is an interesting bit from a recent article by James Fallows interviewing Nouriel Roubini – Dr. Doom Has Some Good News:

“The question is, can the U.S. grow in a non-bubble way?” He asked the question rhetorically, so I turned it back on him. Can it?
“I think we have to …” He paused. “You know, the potential for our future growth is going to be lower, because of the excesses we’ve had. Sustainable growth may mean investing slowly in infrastructures for the future, and rebuilding our human capital. Renewable resources. Maybe nanotechnology? We don’t know what it’s going to be. There are parts of the economy we can expect to lead to a more sustainable and less bubble-like growth. But it’s going to be a challenge to find a new growth model. It’s not going to be simple.” I took this not as pessimism but as realism. (emphasis added).

I have to somewhat disagree. The new growth model has been in front of us for some time — we have just chosen to ignore it and take the easier path of asset bubbles. That growth model is based on innovation and fueled by intangibles.
As I have noted often (including yesterday), the new model is slowly taking hold. It is a model where there is less consumption of mass produced items and more of customized solutions — which mistakenly show up in our economic statistics as “services” even though they are based on goods. It is a model where American production of goods (which we currently label “manufacturing”) and services are revitalized using knowledge and intangibles — where our trade accounts return to a sane balance.
Seen from a macroeconomic point of view — where all consumption is one big aggregate — Roubini’s question makes some sense. Seen from a microeconomic view, however, the answers are more discernable in the structural transformation.
But let us be clear. We are talking a major transformation. The new growth model is not a return to the economy of the 1950’s or even the 1980’s. It can’t be. The days when a young person could finish high school and get a good paying job on the assembly line with almost no skills is gone forever (as a recent New York Times story highlighted). The days when all a business had to worry about was how to increase efficiency are over.
The fact of the transformation is clear. It will happen. Whether the US takes advantage of the transformation to ensure economic prosperity is another matter. The policies we put in place will determine the outcome. To the extent that we stick with the policies of the industrial age, we will not prosper. To the extent that we miss read the transformation using an industrial age mindset (i.e. its all “services”), we will not prosper.
Thus, our first task it to change the mindset – and understand the transformation. By doing so, we will create the new growth model Roubini and other macroeconomists are searching for.

Networked innovation – and innovation markets

The Knowledge@Warton website has an article Innovation: Sometimes It Takes a Village that summary of a recent conference on innovation networks. The article covers the issues and opportunities of what we generally label “open innovation.”
Part of that discussion focused on the importance of collaboration — and how to manage that collaboration.
Part, however, was focused on a more arms’ length approach of what might be characterized as innovation markets — where a question or challenge is throw out for anyone to try to solve (FYI – the company InnoCentive runs a web-based service to administer this market).

Case in point: Twenty years after the Exxon Valdez oil spill in 1989, as many as 80,000 barrels of oil remain on the floor of Prince William Sound because the oil has been frozen by sub-arctic temperatures, making it difficult to pump to the surface. The Oil Spill Recovery Institute, established by Congress after the spill, ran a $20,000 challenge with InnoCentive in 2007 to try to solve the dilemma, which had perpetually stumped the world’s oil experts. After three months, a construction engineer from the Midwest came up with the winning answer, surmising that vibrating the oil could keep it in a semi-fluid state, in the same way cement is kept flowing while it is poured into a form. Modify the drilling equipment, vibrate the oil and you’ll be able to pump it, he suggested. It worked.

So — what is the public policy needed to stimulate these innovation networks — both collaborative and “market”?

The troubles at USPTO

Much of our focus on patents recently has been on the substance of the reform proposals. Not getting as much attention is the fact that the budgetary wheels are coming off over at that US Patent and Trademark Office (USPTO). In fact, the situation has gotten so bad that according to a story in Tech Daily, Senate Judiciary Chairman Patrick Leahy and ranking member Jeff Sessions last night introduced a bill to allow USPTO to borrow money from its trademarks operations (a fund that is in surplus) to pay for its patent operations. (FYI – the bill has not yet shown up in the Congressional Record).
And how long can we continue to delay fixing this system?

Revising GDP

The BEA released its final numbers for 1st quarter GDP showing that the economy declined by 5.5% January through March. Since BEA already released data indicating the depth of the decline, these numbers are in many ways old news. What is new news, at least to me, is the size of the adjustments. The “Advance” estimate (issued in April) had GDP declining by 6.1%. The “Preliminary” (issue in May) had a drop of 5.7%. Today’s “Final” number is 5.5%. According to BEA:

The upward revision to the percent change in real GDP primarily reflected a downward revision to imports and an upward revision to private nonfarm inventory investment that were partly offset by downward revisions to exports and to personal consumption expenditures for services.

So trade (including trade in services) and consumption of service were three of the four reasons for the revisions.
I note that this will not be the last revision to the data. BEA is scheduled to release the 13th comprehensive (or benchmark) revision of the national income and product accounts (NIPAs) at the end of July. More information about the changes is available on their website.
All of this should remind us of the difficulties on measurement in the Intangible Economy — and the reason we need to support BEA’s (and the other statistical agencies’) efforts to improve the data. After all, economic data is a key government provided intangible asset.

Climate change bill moving

The House climate change bill looks like it will be moving soon. The House Rules Committee has announced the next steps for a bill that could go to the floor possible as soon as this weekend. The Committee set a deadline of Thursday morning for the submission of proposed amendments. The Committee also released the text of the bill – the American Clean Energy and Security Act of 2009 – that will be considered.
There is a lot in the 1201 page bill that is worth of commentary — such as the provision requiring a report to Congress (and the media) as to whether India and China have standards as strict as the US, the new energy efficiency standards, the creation of yet another narrow worker adjustment assistance program, the provisions to promote exports of clean energy technologies and protect intellectual property rights, and the actual set up of the emissions rights auctions. Already many of my friends are scrambling to digest the bill’s contents. I will wait for their analysis of what is in and what is out and who is up and who is down.
However, I want to draw attention to just one provision. Section 124(d) creates a domestic manufacturing incentive program similar to the provision in the stimulus bill I mentioned earlier. The difference being that the climate change bill uses emission allowances to pay for up to 30% of the cost of the manufacturing facility.
Maybe with such actions we won’t end up losing our green technology industries.