one group of people designing and making things that another group of people uses is out of date, he said. Users modify products they have purchased and then sell them to others, thereby creating value in an iterative loop. For example, Harley Davison motorcycle owners are famous for altering their motorcycles with custom parts and paint. The ability of individuals to design and produce is becoming easier. Individuals can now easily produce, share, and sell books with the rise of self-publishing. The same capabilities are emerging in manufacturing. With new technologies such as low-cost three-dimensional printers, everyone can be engaged in continual design, manufacturing, and innovation, said Norman. “The new model is that we are all producers, we are all designers.”

DOES INTEGRATION REQUIRE COLOCATION?

Does integration of the value chain require colocation of research, design, and manufacturing activities? A couple of breakout groups explored this question.

The importance of geographic colocation depends on the product, the production process, and the industry, said Chad Syverson, professor of economics at the University of Chicago Booth School of Business, who reported back from one of the groups. In general, colocation is more important when the production process is innovative, because process innovation requires learning by doing and trying to figure things out. For example, if the production process involves advanced materials, a new production process is often required for each new product, so close connections are needed between product design, process design, and production. Conversely, colocation is less important if a product is being made through a set of mature, codified processes, even if the product design is very innovative. For example, many semiconductors used in cell phones and computers are designed by companies that have outsourced the fabrication of these devices.

Improved communications technologies make it easier to operate at a distance than in the past, Syverson said. On the other hand, production technologies that are labor or capital intensive may create a greater incentive for colocation. There is no obvious trend one way or the other, Syverson said.

Even when manufacturing can be located in a different place from other parts of the value chain, it is important for designers and innovators to be engaged in the manufacturing process (Box 1-4). It is difficult



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