by Gary P. Pisano and Willy C. Shih
HBR, March 2012 Magazine
This is a fascinating article that discusses the underpinning issues that should be determining your sourcing decisions in the context of promoting innovation and growth. The posting should wet your appetite to read the full article. Note, ALTHOUGH THE TITLE FOCUES ON AMERICAN COMPANIES, IT IS GERMAIN TO ALL COMPANIES.
Too many American companies base decisions about how to source manufacturing largely on narrow financial criteria, never taking into account the potential strategic value of domestic locations. Proposals for plants are treated like any other investment proposal and subjected to strict return hurdles. Tax, regulatory, intellectual property, and political considerations may also figure heavily in the conversation. But executives, viewing manufacturing mainly as a cost center, give short shrift to the impact that outsourcing or offshoring it may have on a company’s capacity to innovate. Indeed, most don’t consider manufacturing to be part of a company’s innovation system at all….… Part of the problem is that it’s devilishly difficult to determine when manufacturing is critical to innovation and when it can be safely outsourced to lower costs and reduce capital outlays. In this article we’ll provide a framework that will help business leaders and government policy makers navigate this issue. Our hope is that it will lead to better sourcing decisions that will reinvigorate America’s innovation-driven economy.…. How can you tell if moving production halfway around the world, far from R&D operations at home, will hurt a company’s ability to innovate over the long term? You need to look at 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.,,,… Viewed through the modularity–process maturity lens, relationships between manufacturing and innovation fall into four quadrants