Chapter 6

New Approach: Next Generation Strategy

Starting in 2007, and based on conclusions from numerous evaluations and assessments (described below), the Manufacturing Extension Partnership (MEP) has worked to develop a new strategic approach. This approach is based on an expanded vision of its role in the manufacturing sector, in which MEP seeks to help firms grow by becoming more competitive and innovative.1 MEP calls this the Next Generation Strategy, and it is built on findings from a business model study sponsored by MEP and conducted by a longtime MEP consultant, Mike Stone.

Published in 2010, the Stone study stated that:

“MEP needs to provide a broader range of services, especially services that foster growth, innovation and sustainability.2 These include in particular those that focus more on innovation, beyond the process improvements that were a traditional MEP focus.” 3

Based on this view, MEP has recast its mission statement:

Vision: MEP is a catalyst for strengthening American manufacturing—accelerating its ongoing transformation into a more efficient and powerful engine of innovation driving economic growth and job creation.

Mission: To act as a strategic advisor to promote business growth and connect manufacturers to public and private

________________

1NIST, The Future of the Manufacturing Extension Partnership, October 2008, p. 5.

2Stone and Associates, “Re-examining the MEP Business Model,” October 2010, p. 7.

3Stone and Associates, op. cit. p. 4.



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Chapter 6 New Approach: Next Generation Strategy Starting in 2007, and based on conclusions from numerous evaluations and assessments (described below), the Manufacturing Extension Partnership (MEP) has worked to develop a new strategic approach. This approach is based on an expanded vision of its role in the manufacturing sector, in which MEP seeks to help firms grow by becoming more competitive and innovative.1 MEP calls this the Next Generation Strategy, and it is built on findings from a business model study sponsored by MEP and conducted by a longtime MEP consultant, Mike Stone. Published in 2010, the Stone study stated that: “MEP needs to provide a broader range of services, especially services that foster growth, innovation and sustainability.2 These include in particular those that focus more on innovation, beyond the process improvements that were a traditional MEP focus.” 3 Based on this view, MEP has recast its mission statement: Vision: MEP is a catalyst for strengthening American manufacturing—accelerating its ongoing transformation into a more efficient and powerful engine of innovation driving economic growth and job creation. Mission: To act as a strategic advisor to promote business growth and connect manufacturers to public and private 1 NIST, The Future of the Manufacturing Extension Partnership, October 2008, p. 5. 2 Stone and Associates, “Re-examining the MEP Business Model,” October 2010, p. 7. 3 Stone and Associates, op. cit. p. 4. 103

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104 21ST CENTURY MANUFACTURING resources essential for increased competitiveness and profitability.4 A Change in Direction This new strategy represents a massive and ambitious change of direction for MEP. It orients MEP to the difficult task of encouraging small- and medium-sized manufacturers to adopt and implement growth-oriented strategies, seeking to encourage continuous innovation instead of just continuous improvement. In doing so, it relegates the core of existing MEP business—lean manufacturing—to a supporting role at best. Such a strategic shift will undoubtedly require time to implement, and will likely require the adoption of midcourse corrections. For now, though, MEP is focused on implementing its vision through the provision by MEP centers of new services, and the adoption of new metrics. In its new strategy document, MEP translates the new vision into five service categories:5  Technology acceleration.  Supplier development.  Sustainability.  Workforce development.  Continuous improvement. This chapter describes each element of this strategy in turn. Given that the new strategy is focused on improving the competitiveness and innovative capacity of SMEs, this chapter also addresses how MEP is helping SMEs enter the global marketplace by exporting more effectively and discusses the role of MEP centers in the development of innovation clusters and networks. While we describe each of these elements separately for analytical clarity, all of these service categories can and do overlap to a greater or lesser degree in practice. Each of the new initiatives is discussed in the following sections. TECHNOLOGY ACCELERATION MEP’s Technology Acceleration strategy has four principal components:6  Connecting manufacturer technology needs with technology sources. 4 MEP, “The Future of the Hollings Manufacturing Extension Partnership,” December 2008, pp. 7-8. 5 MEP, 2008, op. cit. 6 MEP “Technology Acceleration,” . Accessed July 20, 2012.

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CHAPTER 6 105  Technology scouting.  Supplier scouting.  Product development and commercialization assistance. We describe each of these components in turn below: Connecting Manufacturers to Technology Providers MEP’s signature initiative in the area of technology acceleration has been the National Innovation Marketplace (NIM).7 This is an online tool that MEP anticipates will connect manufacturers to technology and business opportunities by facilitating connections between technology requestors and potential suppliers. NIM is expected to encourage technology translation and adoption, and provide estimates for the potential for business growth. It is also expected to facilitate the building of technology-based supplier networks. Reaching Critical Mass While NIM focuses attention on the need for networks to connect SMEs better to technology and to business opportunities, there are real challenges in building tools that can do so effectively. Most importantly, all online markets require that they contain a critical mass of buyers and sellers. Once beyond the beta or pilot stage, online markets have only a very limited time in which to attract this critical mass. Without that, visitors will come to the site, try a search, find few or zero relevant results, and never return. This has been true of online information markets since the earliest online communities.8 Effective Service Delivery Moreover, online marketplaces must explicitly provide users with information and/or services that they cannot readily access elsewhere. To date, this does not appear to be the case with NIM. Currently, there are about 2,500 entries, with widely varied characteristics.9 For example, a search for a “magnetometer” vendor on the NIM website generated zero results, while on Google it generated 2.4 million hits and on eBay, 77 offers. While the concept of NIM appears to be sound, what matters is whether it works in practice. While this is only one example, this sample search suggests that NIM needs to mature further before it can serve as a unique and useful resource for manufacturers. The point here is that building successful online marketplaces is difficult, and usually requires considerable investment in outreach to potential 7 See . 8 For several examples, see Tharon W. Howard, Design To Thrive: Creating Social Networks and Communities that Last, Elsevier, 2010. 9 Accessed July 19, 2012.

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106 21ST CENTURY MANUFACTURING participants and partners. It would be useful to determine whether the NIM website is attracting significant repeat business from vendors or customers. Technology Scouting In 2009-2010, MEP partnered with RTI International to pilot a technology scouting program. Unlike traditional ”push-based” technology transfer in which the initiative comes from the technology provider, technology scouting is pull based, finding solutions for a small manufacturing client’s unmet technology need.10 NIST-MEP has been researching potential tools and services that can provide technology scouting support for SMEs by pulling technologies from government laboratories, universities, and private-sector sources. MEP is also testing the efficacy of a “light” version of technology scouting that utilizes a “self-service” technology needs write-up approach with subsequent distribution to technology sources. “This effort is intended to provide another Technology Scouting opportunity for clients, and possible service offering for MEP Centers, requiring fewer resources from both MEP Centers and client manufacturing companies.”11 Partnering with RTI12 MEP’s engagement with RTI has been implemented in four phases starting in mid-2008. It focuses on two core efforts, with one additional recent initiative:  Technology Scouting (TS): Helping clients find technologies they need.  Technology Driven Market Intelligence (TDMI): Finding markets for client technologies and technology-related products.  RTI is now introducing training in Lean Product Development (LPD). RTI began work on technology scouting for MEP in 2008 with pilot projects leading to a full series of Technology Scouting Training Workshops in 2009. The objective of the Technology Scouting Training Program is to train MEP center staff members to be able to acquire and undertake successful technology scouting mission assignments for MEP client companies. It is not yet 10 MEP, “Technology Scouting,” . Accessed July 10, 2012. 11 NIST, “Next Generation Strategy,” April 2011. Access at . 12 This box is based on interviews with Tom Culver, RTI manager to MEP center clients, and Kirsten Reith, RTI manager NIST to MEP, October 24, 2012, and on an RTI presentation, RTI Technology Acceleration Services Development: Supporting business growth and innovation initiatives for NIST MEP, September 2012.

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CHAPTER 6 107 clear what benchmarks MEP and RTI have in place to gauge the success of this training program: While some intermediate metrics have been identified—e.g., number of center staff trained—we do not yet have a clear view of the outcome metrics. Technology Driven Market Intelligence is a parallel effort focused on training center staff to provide enhanced marketing services to clients, focused on the sale of technology or technology-driven products. RTI staff note that TS/TDMI assignments require an entirely different level and type of engagement with client companies. Existing lean manufacturing assignments are largely based on sales to project managers and line supervisors; TS/TDMI assignments require connections to C-level executives (e.g., chief executive officers [CEO], chief financial officers [CFO]) prepared to discuss strategic issues. This in turn requires a very different set of skills for center staff. While RTI’s primary role is to train MEP center staff, RTI also provides more direct support for newly trained center staff, helping them to make sales and to implement projects. RTI staff indicates that to some extent at least, RTI’s role is evolving significantly beyond training to active support for centers. This may indicate that even where successful, training MEP staff is insufficient to support successful transition to the new services. As of September 2012, RTI had delivered a total of 14 workshops on TS/TDMI, had trained more than 300 MEP center staff, and had more than 25 pilot projects running at different centers (21 pilot TS projects and 5 pilot TDMI projects). Outcomes Two sets of outcomes will define the success or otherwise of the TS/TDMI component of the new strategy: 1. Can centers successfully train or acquire capacity to successfully engage client companies (and potential clients) at the C level? 2. Can centers successfully find and attract an economically sustainable market for these services? The first of these concerns the successful implementation of the program; the second relates to the successful development of a sustainable market for these services. RTI notes that the program is still rolling out and that it takes time to make what is a substantial transition in center staff capabilities and orientation. As of September 2012, RTI claimed the following outcomes:  6 TS MEP client-funded pilot projects running.  13 TDMI MEP client-funded pilot projects running.

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108 21ST CENTURY MANUFACTURING  Center success stories: o The Manufacturing Resource Center, a Lehigh, Pennsylvania, based MEP center sold more than $300,000 in projects to clients in 2010-2011. o The Texas Manufacturing Assistance Center sold more than $85,000 in projects to clients in 2010-2012. o Five other centers report selling a total of nine projects to clients in 2011-2012. RTI is also engaged in working on other aspects of Technology Acceleration with MEP. These include partnerships with Edison Nation, an online clearinghouse of innovative ideas,13 and with the U.S. Patent and Trademark Office on an IP Awareness Assessment Tool.14 Supplier Scouting In line with the new strategic emphasis on connecting SMEs to supply chains and networks, MEP is developing approaches to leverage MEP center- based knowledge of local manufacturer capabilities and even prequalify supplier capabilities.15 Pilots were under way in 2009 with the Defense Logistics Agency Defense Supply Center Columbus, and with BAE Systems, Inc. It is not entirely clear whether the objective of this strategic emphasis is to enhance the visibility of SMEs and other lower-tier suppliers to Original Equipment Manufacturers (OEMs) and tier 1 suppliers, or to engage OEMs and tier 1 suppliers to seek out SMEs with specific capabilities.16 Perhaps this will be clearer once the pilot projects are concluded and more documentation is available. The importance of supplier development in the new MEP strategy is discussed further in the section on supplier development below. Lean Product Development and Commercialization Assistance MEP is developing three sets of tools for supporting product development and commercialization related to the Technology Acceleration initiative:  Lean Product Development uses existing lean manufacturing tools to focus on product development to support a waste-conscious, disciplined approach. 13 See . 14 See . 15 MEP, “Technology Acceleration,” op. cit. 16 A tier 1 (or prime supplier) submits products and services and their invoices to the final customer, e.g., a major corporation or government agency. Lower-tier suppliers provide inputs to the prime supplier.

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CHAPTER 6 109  MEP has partnered with the U.S. Patent and Trademark Office to offer basic training in intellectual property for MEP field staff.  MEP is partnering with national organizations and other government agencies to help small companies identify financing options for product development and commercialization processes. Finally, aside from these initiatives, technology acceleration may also be considered to include MEP’s innovation engineering initiative, which is discussed in the context of workplace training below. SUPPLIER DEVELOPMENT MEP argues that it is well positioned to understand the rapid changes in supply chains now under way, and to help small firms position themselves as suppliers by providing assessments of industry dynamics and market intelligence. In recent years, SMEs have faced relentless price pressure, both domestic and especially from abroad. But this pressure has also brought opportunities. After dealing for years with tier 1 suppliers that monopolized all contacts with the eventual purchaser (e.g., a major auto manufacturer such as Honda or Ford), some SMEs are now finding that larger firms are increasingly seeking to partner with companies that can add value, regardless of their location in the supply chain.17 Irene Petrick suggests, moreover, that as higher-tier suppliers OEM-led vertical supply chains are challenged or even replaced by networks of collaborating suppliers, there will be more opportunities for SMEs to engage at levels from which they would previously have been excluded.18 Not only is negotiating leverage more widely distributed across the network, firms are increasingly valued for the specialized capabilities that they bring. Petrick also stresses that increasingly, value is driven by the ability to innovate, which references other aspects of the MEP new strategy.19 Honda of America, for example, is seeking ways to reach out beyond tier 1 suppliers, especially in the Midwest, where its suppliers are heavily concentrated: Almost half of Honda’s U.S. suppliers (308) and about 60 percent of its procurement from suppliers ($11.8 billion in 2011) are in Ohio, Kentucky, Michigan, and Indiana.20 OEM concentration geographically is matched by the way that some centers focus on particular industries, perhaps especially within supplier development. For example, while Ohio MEP assigns specific industries to 17 Irene Petrick, “Supply Chain Globalization,” in Alliance for American Manufacturing, Manufacturing a Better Future for America, 2009. 18 Petrick, op. cit. p. 291. 19 Petrick, op. cit. p. 295. 20 Fred Braun, Honda of America Manufacturing, The MEP in the MidWest, NAS Ohio workshop, “Diversity and Achievements: The Role of Manufacturing Extension Partnerships in the Midwest,” March 26, 2012.

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110 21ST CENTURY MANUFACTURING individual centers, in Oklahoma supply chain activities are focused on three industries in particular across the state: wind energy, aerospace, and petrochemicals.21 MEP now has a supply chain initiative, led by MEP centers in Illinois, Virginia, South Carolina, and Texas. This initiative has drawn on extensive research undertaken by NIST MEP into the needs of customers at the top of the supply chain. 22 It identifies areas of potential weakness as well as improvement among tier 1 and even tier 2 suppliers, for connecting tier 1 with lower-order suppliers. This research has included a substantial mapping and planning exercise, involving questionnaire replies from 49 manufacturing companies at various levels of different supply chains. The centers leading the study eventually proposed a series of possible activities that could address the needs identified in the course of the study. This approach is summarized in Table 6-1. In May 2012, the working group of MEP centers presented a framework through which to implement the supply chain initiative to the MEP Advisory Board. SUSTAINABILITY MEP’s signature initiative in this area is E3: Economy, Energy, and the Environment initiative. This is a collaborative effort of five federal agencies, including MEP.23 The concept is that each agency will bring specific tools and expertise to support innovation, energy saving, and job growth in manufacturing to support improvement at the firm level.24 Typically, E3 begins with a one-day energy audit and a two- to three-day lean and green assessment, after which specific steps for improvement are recommended to the company and tracked. Pilot projects were completed in Columbus, Ohio, and San Antonio, Texas, and about a dozen projects have now been completed. In Alabama, the E3 project is supported by a team comprising the Alabama Technology Network, Alabama Power, and the mayors of Montgomery, Huntsville, and Tuscaloosa. The projects have utilized more than $2 million in funding from multiple sources25 to focus on 40 automotive industry suppliers in the area that have committed to take part in the project. As of 2012, the project has identified $263,200 of potential energy savings and savings of more than 26,700 metric tons of greenhouse gases. The project has also lined up financing for 21 Oklahoma MEP, op. cit. Exhibit I-17—Key Products. 22 NIST MEP Supply Chain Development Initiative: Improving the competitiveness of U.S. supply chains, May 9, 2012. 23 The other agencies are Department of Commerce, Small Business Administration, Department of Labor, Department of Energy, and Environmental Protection Agency. 24 NIST, “Economy, Energy and Environment: Going Green in the Black,” July 21, 2010. 25 E3 “E3 Alabama,” . Accessed July 26, 2012."

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CHAPTER 6 111 TABLE 6-1 Supply Chains: SME Needs vs. Proposed MEP Offerings Supply Chain Needs (FMEA) Supply Chain Risk Mgmt Supply Chain Strategy Workshop Supply Chain Strategy Workshop Total Cost of Ownership Support Technology Scouting/Innovation Failure Mode Effects Analysis Demand Planning/Volatility Collaborative New Product for Supply Chain Partners Workshop & Services Development Engineering Reduction for Prime Supply Chain Opportunities Identify and Address Choke Points X X Increase ERP/MRP Effectiveness X Mitigate Global Risks X X Document Supply Chain Strategy X X Reduce/Manage Volatility X X Align Supply Chain Metrics with Long- X X term Business Focus Optimization of Supply Chain X X X Recognize Emergent Needs for Future Supplier Capabilities Expand Supplier Matching Capability X Better TCO Decision X Enhance Value Chain Collaboration X Among Suppliers Improve OEM/Supplier Product X Development Collaboration SOURCE: NIST MEP, op. cit. improvements from Alabama Saves, a $60 million program to provide low interest loans to support energy initiatives in manufacturing.26 As E3 suggests, lean manufacturing may provide a foundation for improving the environmental impact of the company or factory. As the High Liner case described in Box 6-1 indicates, many energy-saving improvements 26 E3 “E3 Project Summaries,” . Accessed July 25, 2012.

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112 21ST CENTURY MANUFACTURING result from incremental changes in operations. These may be facilitated by the ways in which lean manufacturing empowers front-line workers to take the initiative in suggesting improvements. At the same time, lean manufacturing provides tools through which senior management can focus on the details of the production process, e.g., through the Six Sigma toolkits. What is increasingly apparent is that there are overlaps between different elements of MEP’s new strategy, and with other aspects of individual center strategies. For example, Vadxx Inc., a Cleveland-based firm whose plants convert plastic and rubber scrap into synthetic crude oil, has implemented projects that address technology acceleration and green manufacturing, but also falls within the Ohio strategic focus on polymers. The company manufactures and sells crude oil made from polymer-based waste, such as scrap tires, scrap plastic, and medical waste. As with any startup, finding product development and marketing partners is a huge challenge. Jim Garrett, the Vadxx CEO, explicitly credits Magnet MEP Ohio with enhancing the company’s credibility, helping it to partner successfully with Rockwell International.27 There is direct overlap as well. Lean manufacturing emphasizes the reduction and elimination of waste, which is in itself a step toward greener manufacturing. Efforts to reduce waste are in themselves green initiatives, whether or not they are labeled as such. A recent study of companies that have implemented lean manufacturing practices suggests that there is substantial synergy between lean and green.28 Bergmiller and McCright found that there was a strong positive correlation between the introduction of green management practices and lean management outcomes. On reflection, this does not seem surprising. As the High Liner case, described in Box 6-1, suggests, many energy-related improvements are found through incremental improvements in production processes. The introduction of lean manufacturing also often has the effect of empowering workers on the factory floor to identify and recommend such improvements. At the same time, it encourages management to become much more vigilant in seeking out these opportunities. Some of the findings from Bergmiller and McCright’s paper further illustrate the synergies between green management and lean management:  “Substitution of less toxic, more recyclable, or more easily processed materials is significantly correlated to customer satisfaction, profitability, and improved cost performance.  Extending the life of products correlates with improved customer satisfaction and profitability.  Returnable packaging is highly related to improved cost performance. 27 Jim Garrett, Vadxx, NAS Ohio workshop, “Diversity and Achievements: The Role of Manufacturing Extension Partnerships in the Midwest,” March 26, 2012. 28 Gary G. Bergmiller and Paul R. McCright, “Are Lean and Green Programs Synergistic?” Proceedings of the 2009 Industrial Engineering Research Conference.

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CHAPTER 6 113  Waste segregation is significantly correlated to customer satisfaction and profitability and highly related to improved company cost performance.”29 The point here is that in some ways green manufacturing initiatives are a natural extension of—and complement to—existing lean manufacturing tools and programs. Green manufacturing is also increasingly tied in to “green” courses offered by colleges and universities—overlapping with workforce development. For example, Purdue University now offers three levels of “Green Ed,” including a certification as an SME Green Specialist, as part of its green enterprise development program.30 WORKFORCE DEVELOPMENT NIST MEP’s identification of workforce development as one of the five strategic dimensions signals an effort to reinforce and extend efforts already under way in some MEP centers. Under this strategy, MEP proposes to help firms take a more deliberate approach to developing their workforce as they adopt new technologies and new business models. This focus on workforce development also addresses a key challenge raised in recent studies, which show that manufacturing companies are behind those in other sectors on a range of workforce development criteria.31 MEP’s strategy for workforce development has focused on efforts to formalize and extend training programs for use within a company, as well as new efforts to partner with community colleges and other educational organizations—including professional organizations—to develop new certifications relevant to manufacturing and especially advanced manufacturing. MEP’s attention to workforce development has traditionally included management training in lean manufacturing. These programs, as implemented by MEP centers, however, did not result in additional certifications. A number of universities and management training programs, however, offer a range of certifications in lean manufacturing to middle management and production workers. In addressing this component of new strategy, MEP focuses on four core areas:32  Layoff aversion.  Skills standards and certification. 29 Ibid. 30 Purdue University, Green Enterprise Development, . 31 Sloan Center on Aging and Work, Talent Management Survey 2009. 32 MEP, “Creating an Innovation Practice Next Generation Strategies: Workforce,” briefing presented at MEP Advisory Board Meeting, May 6, 2012.

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126 21ST CENTURY MANUFACTURING The PRISM Initiative: Partnership for Regional Innovation Services to Manufacturers On the ground, these initiatives and others will need to be integrated and tap into further resources—for example, sources of capital—if they are to have the effect of powering up innovation in local SMEs. One ambitious attempt to provide an integrated approach is provided by Magnet Ohio though its PRISM initiative. The PRISM initiative can be seen as a means of focusing multiple resources on promising small companies, with the aim of moving the company into new markets, generating new growth and new jobs. It also has the powerful backing of one of the best innovative companies in the region, the Timken Company, whose CEO has been closely involved with Magnet for many years and strongly endorses the PRISM concept.62 PRISM aims to connect companies to the right resources in a faster and more systematic fashion by developing an engaged network of higher- education-based assets that link small- and medium-sized manufacturers (SMM) market knowledge and University research and development capabilities for the development of innovative new products, markets, and services. Magnet sees this as a having the following characteristics:63  MAGNET-managed and facilitated.  Curriculum and programs offering unique hands-on experience for associate, bachelor, and master’s degree students who want to “Make Things.”  Active network with northeast Ohio SMMs and support resources.  Mechanisms to apply university-sourced technologies, skills, facilities, and equipment in innovation.  Infrastructure for skunkworks, spin-offs, internal development, and market-based research collaborations.  Flexible capital pool tailored to projects. The four- to five-year objectives for PRISM are outlined below. PRISM is now well into the implementation phase. The first batch of eight companies are in the program, having paid PRISM $87,000 in fees and generated $314,000 in external funds. They are focusing on 8-10 products, which by 2014 they project to $233 million in revenue and 740 jobs. These are hugely ambitious goals. It remains to be seen whether PRISM can meet them. However, Magnet says it is meeting carefully designed metrics, and feedback from companies is positive. For one company, Magnet found initial funding: “The first $50-100,000 seed capital was critical. We wouldn’t be here without it” (client CEO); for another, early design assistance means that “The 62 James W Griffith, private communication, NAS Ohio workshop, March 2013. 63 Berry, op. cit.

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CHAPTER 6 127 CAD Models gave us credibility” (client manager). A further 25 projects are in the PRISM pipeline. CONNECTING TO C-LEVEL CLIENTS At the heart of the new strategy is a fundamental shift in the relationship of the center to its clients, along several dimensions:  From a focus on lean production and improving the bottom line to an emphasis on growth and expanding the top line.  From point solutions to continuous connection.  From a single line of services to a strategy that provides multiple offerings covering all aspects of company performances.  From connection to line supervisors and plant managers to continuing consultations with C-level executives (C level includes CEO, CFO, chief operating officer [COO] and other senior executives). The latter is perhaps the single pivotal point that will determine the success or failure of new innovation-based strategies. Without effective ongoing access to C-level executives, the new focus on top-line growth and company strategy is essentially irrelevant, given that plant and line-level staff do not typically have those responsibilities. .Indeed, there is a concern that MEP’s growing focus on C-level interaction, which calls on providing services to larger companies that actually have C-level executives, may have the unintended consequence of directing centers away from smaller firms with fewer resources for innovation, but as of yet, we have no evidence. This focus on the C level also created new challenges. As our interviews with center directors have made very clear, attracting and retaining the interest of C-level executives requires an entirely different type and level of marketing effort for MEP centers. In particular, it requires that MEP center staff gain competency in providing strategic advice to a firm’s leadership. This in turn requires either that existing center staff be heavily retrained, or that new senior staff with additional capabilities, especially in strategic marketing, be brought on board. It also requires new marketing efforts. Some centers have developed extensive executive education programs to make the initial connection. For example, the Manufacturers Resource Center (MRC) in Pennsylvania offers what is in effect a mini-MBA program through which executives meet at the center regularly for six months.64 Others focus on semiformal networking: The Delaware Valley Industrial Resource Center (DVIRC) in Philadelphia runs executive forums tailored to the size of the company, which provide executives with a sounding board of peers, and are facilitated by senior center staff.65 64 Interview with Jack Pfunder, director, MRC. 65 Interview with Barry Miller, director, DVIRC.

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128 21ST CENTURY MANUFACTURING Others have tried to develop low-cost introductory evaluations, and others still have adopted approaches from other organizations. For example, one center director said that “We follow a process we refer to as ‘Value-based relationships.’. It is a 10 step guide from first contact through project success and measurement.”66 A review of the information provided by center directors strongly suggests that most see this as a long-term project which requires painstaking efforts to connect and maintain the connection over time (see Appendix C). Finally, it should be noted that both the sales cycle and the impact cycle for strategic services is much longer than it is in general for lean services. Strategic services require the development of trust by C-level executives, which takes time and is often based in positive word of mouth from peers (perhaps accelerated by the development of forums or other groupings of C-level executives who can act as champions and references for center services). And outcomes can take much longer: For example, development and implementation of a plan to enhance global marketing might take many months, and the positive impacts of implementing the plan may take years to fully emerge. These kinds of impacts are therefore difficult to capture in center metrics. CHALLENGES IN IMPLEMENTING THE NEW STRATEGY The new strategy is a very ambitious set of objectives, taking a well- known program with a 20-year track record and turning it in an almost entirely Box 6-3 Attributes of leading MEP Centers Many of the MEP centers that appear to be embracing the initiatives of the new strategy share similar attributes. 1. They have developed or acquired services and strategies to help clients think broadly about how they profitably grow their company: not just focus on operational and lean services. 2. They have leadership with some level of for-profit business acumen. 3. They build client relationships at the C level. 4. They develop relationships to more broadly promote understanding of the value of manufacturing to their state. The overall system can and should build upon these “better” centers and leaders. 66 Responses to NAS Information Request. See Appendix C-1.

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CHAPTER 6 129 new direction. This new mission, however, imposes a series of significant challenges. Building the Required Capacity Each of the strategic components listed above will require development of new tools and capabilities for the MEP centers and in some cases for NIST MEP. It is certainly worth noting that new services required by both NIST MEP and other center funding partners place a substantial burden on what may be a small center staff. In Nebraska for example, Table 6-3 describes the requirements imposed on the center by the various funding organizations involved, with each requirement being mandated in some form. The MEP of Nebraska has 10 administrative staff and 8 customer agents.67 Developing New Markets Creating demand for the suite of new innovation-focused services is a key challenge for MEP. MEP centers face the need to provide services that clients are willing to pay for, in order to ensure that they meet matching funds requirements. At the same time, MEP performs a valuable public service in assisting companies to adopt new and often unfamiliar practices in order to improve their performance and, in the aggregate, the nation’s competitiveness. MEP thus faces an important challenge in encouraging the centers to be proactive given a largely risk-averse client base. Coping with the Decline in State Funding MEP centers require funding and/or revenue to stay in business. As state funding support has declined or vanished, centers need to offer services to larger companies and branch plants of large companies to pay their bills. This development, however, may be leading some centers away from fulfilling an important public role of serving those SMEs that private consultants do not cater to. Funding New Strategy Implementation The new strategy offers a substantial opportunity for centers to become much more important players in the economic life of their regions. But it also requires that they effectively build an entirely new business, providing new services to what will likely be new clients (or at least different staff at the same client companies). Typically, building a new business requires capital, and it is not at all clear in a world of shrinking state funding and limited NIST MEP 67 MEP of Nebraska, op. cit. 1-6.

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130 21ST CENTURY MANUFACTURING TABLE 6-3 Funding Organization Requirements—MEP of Nebraska Funding Organizations’ Requirements Near-term Responses Longer-term Responses Ind. Cluster  Cluster teams assigned.  Implement cluster Development  Advanced Mfg., Biosciences, developed strategies/goals. (DED) (NMEP) Wind Energy, R&D, Software clusters in development.  “Transportation Warehousing and Distribution Logistics” in place. Supplier  Implement Battelle  Integrate with Clusters and Development “Manufacturer to Mentoring initiatives. (NGS/Growth) Manufacturer” strategies.  Pursue more HMEP (NMEP) (DED)  Expand existing Supply Chain National Accounts. initiative (pilot in process).  Seek support to create a mfg. “core competencies database.” Technology  Gallup Entrepreneurial  In conjunction with a Acceleration Acceleration System (business University, State or Private (NGS/Growth) mentors). College, establish a (NMEP)  Continue Dawnbreaker prototyping capability. Commercialization.  Reapply for continuation of FAST grant & continue “Phase 0” SBIR funding assistance. Innovation  Implement Nebraska Business  Seek out new “innovation” (NMEP) (DED) Innovation Act components. partnerships.  Expand support/resources for SBIR/STTR services. Export  Continue efforts to deliver  Expand efforts to identify (NGS) (NMEP) ExporTech services. international business opportunities. Sustainability  Formalize partnership w/  Explore opportunities for (NGS/Growth) P2RiC Center a NBDC. implement and E3 (NMEP)  Establish an Energy Audit initiative. service and implementation program. Workforce  Partner with NE DOL to  Expand worker training (NGS/Growth) respond to identified worker services via the new (DED) training gaps. Nebraska Internship  Expand worker training Initiative.

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CHAPTER 6 131 services provided by Community College partners. Continuous  Maintain strong capacity to  Develop new strategies for Improvement deliver high-impact “Lean transforming existing (NGS/Growth) services.” mfrs. (NMEP)  Implement “Innovation Engineering and Jump Start” principles.  Continue to support the Nebraska Performance Excellence Center. SOURCE: MEP of Nebraska. NOTE: Organization abbreviations are as follows: Nebraska Department of Economic Development (DED); HMEP Next Generation Strategy (NGS); Nebraska Manufacturing Extension Partnership (NMEP). resources where that capital will come from. As one center director observed, “Centers are going to have to develop additional funding sources for some of the new initiatives from banks, state EDA funding, partnerships, etc.” Another indicated that success would require additional MEP and federal funding: “MEP and other public funding will be needed to launch new strategy services until they become self-sufficient from client revenue. The initial seed capital for these new services will likely be from federal and state grants, but only until self- sufficiency is reached. This may take 2-4 years.” 68 This is a major challenge in part because almost all centers rely on existing revenue streams to meet the require 1:2 MEP federal funding match. They cannot afford to allow existing revenue streams to decline without risking a spiral of decline with revenue shortfalls driving the withdrawal of matching money, triggering further cuts in services. Current revenues are tied to current consulting contracts. Most centers generate at least a third of their funding from consulting, which until recently has been almost all focused on lean. As no center has spare resources, it is difficult to see how centers can successfully perform the difficult tightrope act of shifting resources to generate new innovation- and growth-oriented consulting and hence funding, without reducing existing consulting revenue streams. The inescapable conclusion is that centers must find additional grants and investments. It is very telling that the centers which appear furthest along in developing innovation and growth practices—notably in Pennsylvania— benefited from a substantial investment of state funding some years ago, which effectively funded the transition. 68 Responses to center directors information request. See Appendix C-2.

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132 21ST CENTURY MANUFACTURING Developing C-level Relationships Centers will have to make substantial steps in developing numerous relationships with senior staff at clients and potential client companies. This will require a new level of effort, new tools and strategies, and most likely new staff. Based on our interviews with center directors, we believe that developing these relationships is the single most critical aspect of implementing the new strategy successfully. Again, it is important to stress just how big a jump is being asked of the centers. Organizations which have primarily been focused on day-to-day improvement, often in partnership with line supervisors, are now being asked to offer—and in fact sell—strategic advice services to C-level clients. This requires a fundamental shift in orientation, and likely a major shift in staffing. It is hard to see how the skill sets of existing lean consulting translate into innovation and growth strategy. Again, those centers furthest along have made substantial new hires with new skills, and have downgraded the resources focused on lean. It simply appears unlikely that most existing staff can effectively be retrained for the new strategy. At the same time, it takes a major effort to develop a substantial number of C-level relationships. Both of the successful Pennsylvania centers have developed extensive outreach efforts for C-level staff, including development of an entire new training curriculum for CEOs. The successes and failures drawn from this massive effort could at a minimum be shared much more widely with other centers as they attempt to tread the same path. Working with the Centers to Effect Organizational Change The centers are operated by a wide range of institutions including both university and non-university organizations. .Not only are the centers careful to defend their autonomy from MEP, in some cases it appears that they are comfortable with traditional lean manufacturing focus and are neither prepared for nor committed to a wider mission. MEP is now working harder to reach out to advisory boards, and especially fiduciary boards, to expand the network of stakeholders committed to new strategy. However, interviews with center directors indicate that the transfer of expertise between peers is very limited, and that this imposes unnecessary costs and strains as centers seek to move forward. A more proactive approach from NIST MEP to enhance peer-to-peer communication through a variety of formats would be very welcome, and we believe would be welcomed by many center directors and staff. Outreach and Expansion While the centers and MEP have good data on companies with which they have worked closely, these account for only a small percentage of possible support recipients. Centers report to MEP that they “touch” about 10 percent of

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CHAPTER 6 133 possible target firms (i.e., small manufacturers in their regions), but are apparently not required to provide further support for this claim (e.g., a list of contacts made). One key challenge for MEP is to expand its reach while working with flat or potentially declining budgets. Our analysis suggests that there are widely different outreach strategies in play, and that there does not appear to have been a systematic effort to identify and share best practice. This will be especially important as MEP centers seek to find not just new clients but new C-level clients. It should also be noted that traditional metrics for penetration are in some respects misconceived. Indeed they may be driving centers to adopt ineffective outreach strategies in order to meet goals imposed via metrics. For any business—and centers are best understood as subsidized consulting businesses that reach hard-to-serve but important populations—it is critically important to identify the market segments that can best be served by the local MEP organization. NIST MEP itself argues that only a fraction of small manufacturers—maybe 15 percent—are “innovation-ready.” Centers freely acknowledge that their sweet spot is with firms ready for innovation and with the capacity to invest. Thus, measuring outreach as percentage of all manufacturing SMEs in a region may incentivize centers to waste resources chasing contacts with firms that may never become clients. We believe that NIST MEP could serve centers more effectively by developing a much more narrowly drawn set of penetration metrics. Given that the new CORE metrics provide a more comparative framework for assessment, this should still impose pressure on centers to expand outreach—but it would allow them to focus their efforts and resources more effectively. NIST MEP Innovation and Growth Tools NIST MEP has invested a very substantial amount of money (apparently at least $30 million) in developing tools which when adopted and fully implemented are designed to help centers transition to the new strategy. This ambitious effort follows to some degree on a previous successful initiative at NIST MEP to develop a suite of lean-oriented tools in the late 1990s. However, there are some important differences between these initiatives. Lean consulting had emerged somewhat earlier with exhaustive analyses of changes in the automotive industry. Some of the core principles were well known and had been implemented at some companies (e.g., Toyota) for decades. That is not the case with the innovation and growth tools. In each case, these tools can at best be described as experimental: there is no track record of success, and early indications from the field suggest that gaining traction with them will be a long and difficult journey. Moreover, the inability of either NIST MEP or the most heavily funded contractor, the Innovation Engineering Leadership Institute, to provide any substantial analysis of program impacts is worrying. A center-piece program that has received substantial federal funding but provided no documented results indicates that, at best, the

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134 21ST CENTURY MANUFACTURING continued heavy reliance of the innovation and growth strategy on sole-source contractors could be reconsidered. Similarly limited outcomes appear to result from other initiatives even when implemented by more established providers, such as the supplier scouting tools developed by RTI. Here too, despite extended efforts, results appear underwhelming It is possible that there are problems with the tools and the consultants. However, it is also possible that the lack of results simply reflects lack of demand: There has been no study at NIST aimed at establishing the size and scope of the market for the new services. With regard to the new mantra of business in America of “fail fast, fail cheap,” NIST MEP should at a minimum be looking to develop benchmarks that will provide some objective information as to when experimental programs like those implemented in recent years are failing. All exciting initiatives carry the risk of failure: That is the case here. The issue is when and how NIST MEP will recognize it and make necessary adjustments. Existing Metrics MEP is considerably more advanced than agency Small Business Innovation Research (SBIR) programs were at the start of the National Academy assessment in terms of metrics.69 Each MEP center is required to report extensively on its activities, and undergoes an annual review and assessment. Each completed project is surveyed directly by MEP’s survey contractor. To date, the data collected are more extensive than the reports generated, so enhanced use of existing data would be appropriate and useful. Adjusting the New CORE Metrics While the CORE metrics describe in Chapter 4 are a substantial change and a real effort to capture the kinds of data needed to assess the new strategy, it is apparent that they will require close monitoring and ongoing adjustment as they are implemented. These may also require changes to the program’s data collection processes. CONCLUSIONS There is a need and opportunity to enhance and reshape the landscape of manufacturing support in the United States to address new competitive challenges and to take advantage of opportunities in emerging technologies. In general, the United States offers limited support for civilian manufacturing in comparison to many of its major trading partners. As described in the next chapter of this report, many advanced countries have significant programs to 69 National Research Council, An Assessment of the SBIR Program, C. Wessner, ed., Washington, DC: The National Academies Press, 2008.

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CHAPTER 6 135 support the development and commercialization of new technologies, including fostering innovation, scaling-up production, and the creation of related supply chains. MEP is one important element of a national manufacturing strategy. MEP centers are widely dispersed geographically, covering the entire country. They are in general well connected to their local economies, and to the small manufacturing sectors within them. Many have developed a positive record of achievement in serving their clients. In addition to the federal contribution, many MEP centers also enjoy support from their state government, as well as from a variety of state and regional organizations. MEP’s plan to enhance the innovation capacity and growth of small manufacturers under the new strategic orientation is in line with recent academic and policy analyses that call for U.S. manufacturers to become more innovative and more focused on growth and international competitiveness. At the same time, as this report documents, many MEP centers face significant risks as they seek to transition from a tight focus on lean production to a much wider range of services that require new clients, new contacts, new kinds of client conversations, new services, new toolsets and capabilities and, often, new staff as well. Some centers may also not realize sufficient demand for the new services. MEP’s transition is therefore likely to be uneven. Some centers—with strong state support—have already moved forward and have approached sustainability with at least half their revenue coming from these new services. Other centers with fewer resources may face significant difficulties. They are seeking ways to adjust their reporting to meet the new CORE metrics without taking, what are in their view, extensive risks with their core businesses. This differentiated take-up could, in the end, become an advantage for NIST MEP.70 If new modalities for sharing best practices—and failures—can be implemented effectively, the risks for adoption laggards can be reduced, and a catch-up phase can be encouraged. Thus, the inevitable spread between early adopters and late adopters can be used by the program to help smooth the path for late-moving centers. As NIST encourages the expansion of MEP centers into new growth and innovation services, it will be especially important to ensure that best practices from leading centers are widely adopted, and that center staff have more and improved capacities to share their experience and expertise. Looking beyond the challenges of this transition, NIST and the wider community of stakeholders in manufacturing and innovation should also consider how MEP centers might contribute to the emerging landscape for manufacturing support and hence to the development of robust innovation and 70 MEP has not provided—and may not have—accurate data on the take-up of innovation services at the center level. In some cases, centers may have relabeled what they already do as “innovation services.” For example, one center with a large information technology consulting business now calls this “growth services.”

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136 21ST CENTURY MANUFACTURING manufacturing ecosystems across the United States. For example, further consideration in national and state manufacturing support and innovation strategies is needed to address how MEP centers can fruitfully cooperate with other individual public and private organizations, including the institutes of the proposed National Network of Manufacturing Innovation, in translating research into commercial products, prototypes, and industrial production processes and in enhancing demand and capability among small- and medium-sized manufacturers for such engagements.