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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers 5 Conclusions and Recommendations Smaller manufacturers play an important role in the competitiveness of American industry. They comprise the bulk of manufacturing establishments, are integral parts of the supply chain for both commercial and defense products, and provide the vast majority of manufacturing employment. Many of these smaller firms, however, are operating far below their potential. Their use of modern manufacturing equipment, methodologies, and management practices is inadequate to ensure that American manufacturing will be globally competitive. This situation in which the thousands of smaller manufacturers who comprise the foundations of U.S. industrial strength are slow to modernize their manufacturing operations has prompted significant public response. State and local governments have created industrial assistance services, the federal government has multiple programs aimed at helping small businesses, and there is strong interest in the Clinton administration in creating a national network of industrial assistance centers. Expanding the NIST Manufacturing Technology Centers (MTCs) program is one mechanism for creating such a national assistance network; other possible mechanisms, described in the Technology Reinvestment Project (TRP) information package, include Advanced Technology Centers at community colleges, industry specific consortia, and expansion of state-based industrial extension services (U.S. Department of Defense, 1993). Although the specifics of a national industrial assistance system have yet to unfold, it is clear that significant resources, both federal and other (since 50 percent matching funds are required for all TRP proposals), are being mobilized to create a national industrial assistance system.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Based on the committee's discussions with smaller manufacturers and with staff at the MTCs and other industrial assistance programs, a majority of the committee has concluded that a national industrial assistance system is justified. The barriers to manufacturing performance improvement in smaller firms and the opportunities to overcome those barriers, as described by manufacturers in the committee's workshops, define roles for public sector assistance programs. The committee majority's assessment of the current MTCs is that they are well-placed to address many of the barriers facing smaller manufacturers. In particular, they can create communication networks and facilitate much greater information sharing among companies, technology providers, educators, regulators, and other members of the manufacturing community. The federal government, through the MTCs, is learning to help firms adjust to the rapid changes taking place in manufacturing. In many respects, the diversity of the MTCs has provided valuable insights into what needs to be done and how to do what is needed. The MTCs have also discovered that some features of the manner in which they are organized are obstacles to further progress. Despite these lessons, it is crucial to emphasize that there is no consolidated model at NIST or elsewhere of how to provide assistance to smaller firms most effectively. As initiatives unfold to create a national industrial assistance system, the need to remain flexible, to fund experiments, and to adapt accordingly must be a guiding principle. Even if highly successful, it must also be recognized that industrial assistance is not a panacea. Improvements in technology and changes in firms' internal organization of work are elements in overcoming the challenges and barriers that block or impede the development of globally competitive manufacturing capabilities in smaller U.S. firms. Innovation within manufacturing must be understood as inextricably linked to macroeconomic initiatives, trade impediments, antitrust concerns, education and training, energy, regulatory actions, public infrastructure, cost and availability of capital, and a host of other external factors and policies. RECOMMENDATIONS With these caveats, but with the full recognition that initiatives to construct a national industrial assistance program are well under way, the committee majority offers the following recommendations to help guide
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers the implementation of such a program. A dissenting set of conclusions is presented by a committee minority of two members in Chapter 6, page 95. 1. Develop a long-term strategy. Efforts to create a national system of industrial assistance to improve the manufacturing performance of smaller companies should recognize the importance of creating a coherent system and not just increasing the number of assistance facilities and service providers. Appropriate elements of centralized coordination and control, in conjunction with decentralized and distributed management and direction, are needed to create an efficient, comprehensive system of assistance resources. Although many of the elements of a national industrial assistance system exist, and initial steps at coordination and cooperation are developing—for instance, through NIST's State Technology Extension Partnership (STEP) program—the reality of a cohesive national system is a long way off. To be effective, a national system of industrial assistance must become an integral part of the manufacturing community, which requires continued support over many years. A long-term strategy for deploying, operating, and funding a national system, in the context of changing economic and political realities, must be developed. The goal of the system should be to ensure that assistance is available to any company that requests it. 2. Expansion should be governed by ''quality, not quantity.'' A national system of assistance can only be successful if it is supported by and responsive to the customer base, and manufacturers will only support it if they believe the advice they get is high quality. With the long-term objective in mind of providing access to assistance for any manufacturer who wants it, the emphasis must remain on ensuring that high-quality assistance is provided. Too rapid expansion of the MTC program or other forms of industrial assistance programs risks compromising service quality for two main reasons. First, the complexity and constant change confronting manufacturers means that attempts to anticipate appropriate needs based on present knowledge and understanding will not be effective. Rapid replication of a single uniform model of an assistance center will not
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers work. Second, the number of organizations available and capable of providing high-quality assistance is relatively small. A mechanism is needed to initiate the development of future assistance centers by building on the experience and lessons learned from current MTCs and other programs. Recognizing these constraints, the committee recommends that expansion of the current MTC program and other federal initiatives should be planned carefully with the aim of developing a comprehensive national industrial extension system within 3 to 5 years, based on a strategy of "learn as we go." 3. A national system of industrial assistance must strive for balance among local responsibility, regional coordination, and national direction, support, and cohesion. The combination of rapid changes taking place in manufacturing and major differences across industries and localities calls for a system with centralized coordination and decentralized, distributed management and control. To remain responsive to customers in the manufacturing base, local and regional programs must have the ability to implement change and deliver services in the most effective, efficient way for the demands of their local customers. It is critical that any national system of industrial assistance accommodate the complexity, diversity, and economic idiosyncracies for each location served. It must permit the development of alternative models that best address those unique qualities and differences. There is no one model or organizational structure that will suffice as a template suitable for all situations. National goals and objectives must be tempered by the environment of each locale, and regional efforts should respond as appropriate for their predominant industrial sectors, private and public resource base, and real potential for matching funds (Fogarty et al., 1993). Within this organizational structure, there are clear roles appropriate for federal, regional, and local components of the system. The federal role must be to provide a stable funding environment, to facilitate learning among local and regional providers, to nurture new providers in areas with unmet needs, and to provide services that are best done at the national level. Specific examples of appropriate federal activities include:
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Provide funding for resources that are best developed nationally, such as marketing to build awareness that assistance is available, training and certifying extension agents, developing and refining educational materials and programs for clients, and creating a consistent set of performance metrics for assistance centers. Develop a national benchmark database and identify a relevant suite of metrics for evaluating and comparing the performance of manufacturing companies within and across industry groups.1 Develop comprehensive information resources, such as databases, software, and computer-based tools for training, tracking, and evaluation, and electronic bulletin boards to provide user-supported problem resolution.2 Investment in the development of a suite of assessment tools and methodologies is one example where resources are duplicated but where the opportunity exists for significant benefits of scale if these resources are made broadly available. For instance, the Industrial Technology Institute has constructed an extremely comprehensive Manufacturing Assessment Methodology, or MAM Tool Kit, that its staff uses with clients. These kinds of tools also contribute to the creation of a common set of terms and language for both service providers and the clients they service. Considering that there is likely to be increasing communication among members of the manufacturing community and the assistance organizations, the need for a dictionary of standard terminology would be an appropriate goal of the assistance system. Serve as a clearinghouse for company needs and convey them to appropriate sources of help. A specific example is the use of federal laboratories to help smaller firms comply with pending environmental regulations on solvent-based paints. Facilitate cooperation among regional and local programs by convening workshops and conferences and creating electronic linkages. Such cooperation should encourage sharing of problems and solutions 1 The Foundation for Industrial Modernization has recently undertaken, with the Midwest Manufacturing Technology Center, an effort to identify the data and information needed to properly measure and compare the performance of smaller U.S. manufacturing companies, considering the technology used, their productivity, and their ability to respond quickly to customer requirements. See, Foundation for Industrial Modernization, 1993. 2 An example of such a network is TECNet, a database for small and medium-sized companies that includes information " . . . about government regulations and programs, requests from large firms for bids and quotations, directories of used equipment for sale, import-export information, and training opportunities." See Rosenfeld, 1992.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers encountered by assistance providers to speed the learning process nationwide. Provide a linkage between smaller manufacturers and other federal policies that may affect their business, including regulatory, trade, research and development, and tax policies. The role of the regional component is to ensure the development of a cohesive system of assistance in the area represented. The genesis of such a system begins with identification of the problems whose solutions are crucial to regional industrial success, followed by development of relevant strategies and plans for addressing those issues. The range of activities and mix of organizational expertise should reflect the principal industries of the area and be informed by regional interests, issues, and concerns. The system's strategies, direction, and oversight should be provided by members of the community within the geographic constraints of the organization's charter. Regional centers should: Supply the necessary coordination, standards, and administrative facilities to minimize duplication and inconsistency of programs and structure among the local service organizations. Support scale efficiencies by pooling the needs of the local assistance network in areas such as computer services and databases, and by organizing and sponsoring regional events in areas of broad industry interest (e.g., ISO 9000). Provide common legal, accounting, reporting, evaluation, and marketing support required for each service group. Function as contract administrators for federal agencies and ensure compliance with the terms and conditions of federal funding awards. Recruit and educate (with federal assistance) new service providers (field agents, service center directors). Note that "regional" can mean a single state or an area more or less than a state. For states with very high manufacturing density, "regional" may refer to one geographic area within a state. Likewise, a region may be industry-sector defined, in which case it would probably cross state boundaries. In those cases, attention must be paid to insuring equitable coordination and representation of interests that extend across state lines.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers The role of the local assistance program is to help firms develop their own capacity to grow and improve (as exemplified by the tenets of continuous improvement and total quality management). The responsibilities of local assistance organizations include offering a clearly delineated menu of services and facilities appropriate for the local industrial economy, partnering with and brokering of existing local services to solve companies' specific problems, encouraging private sector provision of needed services, helping manufacturers define needs by assessing performance and identifying improvement potential, providing leadership for the local manufacturing community, and working with the regional organization(s) of which it is a component to fill the needs of its community in the best and most efficient manner possible. Success at the local level depends significantly on the ability to integrate diverse local conditions in terms of industry needs, demographics, and available resources to create a service organization that fits the situation, rather than wholesale adoption of a "national model." The details and emphases of each local assistance network are contingent on the circumstances of each locale. For instance, agent-provided problem-solving (technical fixes) may be the only practical means of assisting smaller firms when local vendors and consultants are not available to the client firm. In contrast, regions that have a high density of smaller firms are more likely to have an accompanying industrial infrastructure. In those cases, the local assistance organization will be most effective by devoting its efforts towards identifying and coordinating the needs of smaller manufacturers with suppliers of assistance in the private sector, facilitating linkages and information exchanges among companies sharing similar problems, and providing services to groups of manufacturers addressing common challenges. Local assistance providers must balance the "push" of education and programs that promote new strategies and performance criteria for manufacturing against the "pull" of customer-specified requests, predominantly technical fixes and short-term problem-solving. The assistance efforts must be concerned with addressing the improvement of all processes throughout the firm and not focus just on those that take place on the factory floor. As much as practical, services should be provided to groups of manufacturers sharing common problems to satisfy collective needs, such as rationalizing standards across several large OEM customers. For example, Beech Aircraft and many other OEMs now require electronic data interchange with suppliers and vendors. Coordinated efforts are
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers needed to develop common standards and protocols to eliminate the need for smaller firms to make multiple hardware and software investments. The local assistance providers must also endeavor to encourage private sources of assistance. Because of manufacturers' desire to have a "one-stop shop" source of assistance, the local component of a national assistance system could function as a broker of other assistance providers. It could provide referrals to companies of providers with appropriate expertise for specific problems and keep private assistance providers abreast of the kinds of problems raised by manufacturers. The Upper Midwest MTC plays this brokering role in its region. It is important that the local industrial assistance center not function as a subsidized competitor in the market. For many of the services that should be provided by the organizations, such as facilitating networks, convening forums, supplying information, and encouraging practitioner interaction, manufacturers are often unwilling to pay fees that are sufficient to support the service organization. Conversely, many of the services that could be supported by fees are already provided by private consultants and other businesses. Local assistance providers must learn to balance these conditions so that they do not displace private service providers through subsidized competition but remain vibrant and responsive to their customer base. The appropriate balance is likely to be unique to each locality. On an operating level, the committee believes the best way to achieve the requisite balance of local responsibility, regional coordination, and national direction and support is for the federal government, as a condition of funding, to require that assistance organizations conform to "governance principles." Arguably, the current requirement in both the MTC and the TRP program for matching funds is such a governance principle aimed at ensuring local or regional commitment to the industrial extension organization. Other examples of governance principles might be to have representatives of local industry serve as the organization's board of directors, and to demonstrate that existing service providers, such as universities, community colleges, consultants, and industry organizations, support and will cooperate with the organization. While allowing the necessary flexibility in local strategies and operations, applying these kinds of governance principles can ensure that local assistance centers remain responsive to their customers and encourage them to build on available strengths rather than creating duplicate, fragmented assistance resources.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers 4. Federal financial support should recognize different needs, abilities, and capacity to apply funds effectively. It should focus on spending modest amounts wisely, with flexibility in the amount of funds for which an organization must apply. Rigid criteria that constrain competitive awards to high, fixed levels often discourage applications for programs which, appropriately, should be smaller scale efforts. Funding support should fit the abilities of organizations to use the money effectively. Awards should be commensurate with the size of the market for assistance, availability of matching funds, and other resources. A two-stage funding approach should be adopted to support and encourage strong proposals. Substantial effort is needed to organize properly and present a coherent strategy for local or regional development. "Seed" grants to assist in development of comprehensive plans, identify and catalog resources, determine goals and objectives, design organization structures, and review similar efforts would improve applicants' chances for success in obtaining major funding. Such support may also help stimulate new programs by state and local governments or by private industry groups. The STEP program provides some support for development and implementation of state-wide extension programs, but greater provision is needed to help organizations mobilize the resources and support necessary to operate an MTC effectively prior to receiving a full MTC award. 5. Coherent measures and guidelines should be developed for evaluation of federal, regional, and local assistance efforts. For programs that are not performing, remedial action needs to be taken quickly by a local board of directors. The set of metrics for evaluating accomplishments of the programs must be tied to their missions, and the connections between those metrics and goals must be clear. Counting the number of projects undertaken— the number of doors knocked on—provides almost no evidence of influence on improved manufacturing capabilities. Evaluation of the services provided to manufacturing clients must be an integral part of the overall judgement process. This evaluation should be administered by a governing or advisory board with broad membership, particularly local industry participation.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers The committee believes that a positive evaluation of assistance organizations should reflect financial success by their manufacturing clients. The measures adopted, however, must be informed by the differences in objectives, jurisdiction, and availability of quantitative and qualitative data for each component of the system. Furthermore, publicly funded assistance organizations should improve the capabilities and infrastructure of the local and regional industrial economy and not compete unfairly with or replace commercial sources of assistance. The success of the assistance organization in accomplishing the development and improvement of private sector capabilities can be measured by the growth in numbers of service providers and the creation of easily identified linkages among groups in the manufacturing community. In fact, a declining demand for public sector assistance can be an indication of private sector self-sufficiency. The complexity of performing effective evaluations of MTCs and other industrial assistance programs should not be underestimated. Although an independent advisory board with local membership, which is therefore cognizant of local conditions, is the best approach to evaluation, issues such as composition of the board, specific sources of information and questions to be asked, and reasonable expectations all need to be addressed. 6. A consistent and coherent funding policy, accompanied by appropriate metrics for evaluating performance, should be established to assure a stable assistance environment. Current MTC funding policies requiring local matching funds and elimination of federal funding after six years can be counterproductive to the goals of a national system of industrial assistance. There may be examples of regions with significant industrial concentration that do not qualify for state matching funds but nevertheless should have a MTC. Similarly, there may be compelling circumstances in which priority should be given to regions of geographic industrial concentration and demonstrated or special industry needs, perhaps due to defense conversion or major trade adjustments (such as NAFTA); these regions may or may not have access to matching funds. Federal funding should be made available in such cases, though it is critical that specific criteria be established for reducing matching-fund requirements. Self-sufficiency is another difficult issue needing reassessment. Many of the activities instrumental in improving the proficiency of smaller
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers companies—facilitating networks, convening forums, supplying information, encouraging practitioner interaction—do not generate adequate income to sustain the organization. While it is reasonable to expect that the rigors of market competition should be applied to the MTCs, self-sufficiency of the programs is contingent on offering services for which manufacturers will pay; in many but not all cases, these are services for which a private provider exists. Therefore, self-sufficiency of MTCs, while not competing with the private sector, has a low probability of success. Consequently reliance on user fees alone is not an appropriate basis for supporting necessary assistance activities, and continuing support should be available to manufacturing assistance programs that meet the performance criteria for continued funding. 7. Periodic self-examination of all the elements of a national system for manufacturing assistance is essential to remain flexible and adaptable in the face of rapid changes in the manufacturing base. Any assistance system must be able to examine its own effectiveness and adjust specific objectives as circumstances change. Periodically, as the economy, technology, needs of manufacturers, and the positive influence and effects of the assistance program itself are felt, the specific objectives and certainly the metrics for measuring performance need to be reviewed. The issues that will challenge manufacturers in the future are not readily discerned from the environment they face today, characterized by complexity, interdependence, widespread availability of technology, and intense global competition. Whatever kind of performance improvement system is designed must, therefore, incorporate the means for evolving the services and delivery mechanisms to accompany the new challenges and conditions that will confront manufacturers. This system must provide an efficient means to respond in a timely manner. 8. Long-term political support is essential. An infrastructure to help significantly improve the manufacturing competitiveness of smaller companies must have consistent support and visibility in the political process that go beyond partisan politics. Manufacturers will not support a program that is perceived to be the latest fad or an outlet for political favors.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Strong management of the federal effort is also essential. The Department of Commerce has the appropriate background to understand the issues, to formulate a coherent strategic vision, and to attract the necessary resources to accomplish the national goal of strengthening U.S. manufacturers. The Department of Commerce should be given responsibility for undertaking the coordination and rationalization of the broad, and largely disjointed, federal effort now under way to help American manufacturers improve their performance and global competitiveness. It is crucial that the resources made available for such improvements, whether through the MTC and other programs at NIST, other programs in the Department of Commerce, or programs in the Department of Defense and other agencies, be applied in an efficient and rational manner. By recommending that the Department of Commerce be given such a leadership role, the committee is drawing attention to the need to maximize the benefits to the customers of these various government programs, U.S. manufacturers. Because the MTC program is, and will continue to be, a federal-state partnership, and because state governments have been leaders in establishing industrial assistance programs, the need to maintain state political support cannot be understated. By helping to provide the regional and local input essential to effective assistance programs, states play a critical role. CONCLUSIONS The majority of the committee concludes that, viewed in their totality, existing sources of industrial assistance provide a portfolio of services to help improve the competitiveness of smaller manufacturers. However, this existing set of programs, institutions, and businesses is organizationally fragmented and limited in scope of services and reach of clientele. Within this fragmented network of assistance sources, the MTCs have begun to carve a niche that, at least within their geographic regions, has brought some degree of order to the community and has raised the awareness of smaller companies that useful help is available. The MTCs are still experimenting with different mechanisms for marketing, ensuring responsiveness to the local customer base, working with other sources of assistance, and building the intercompany networks and information resources that many smaller firms need. This process of experimentation and learning should be encouraged, and the lessons broadly disseminated. This is the only way to increase effectiveness in
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers a necessarily diverse environment, and to keep expectations realistic, as the MTC program is expanded and other initiatives begin in the context of a national manufacturing assistance system. Realistic expectations are critical to effective policy in this area. The purpose of publicly provided technical assistance is not to absolve manufacturers of responsibility for their success. And the intent of assistance organizations is not to become a collection of subsidized consulting firms competing with private sector providers. Rather, the goal should be to provide immediate attention to the issues and problems that threaten survival of smaller manufacturers by helping them manage the set of challenges with which they are confronted: regulatory compliance, upgrading worker skills, assimilating new technologies, meeting quality expectations, and organizational restructuring. This broad set of challenges requires a diverse set of assistance programs. Some companies may need help finding sources for appropriate work force education and training. Some may need help identifying opportunities to improve current production processes. Others may need help selecting vendors and suppliers for new machinery, computers, and software, and some may need help gathering the data and completing the documentation to support capital investments and expansion. There will also be situations in which companies will require more extensive hand-holding to learn how to use effectively the modern methods and best practices they have been encouraged to adopt and the technologies in which they have invested. The public policy objective should be to provide the means and motivation for companies to build their own capacity for finding and using improved business and production methods and for sustaining an awareness of new technology and market information. In the long-term, public support should create an environment in which companies can learn to help themselves and encourage the growth and development of private sector resources by identifying needs, defining appropriate services, and strengthening market efficacy.
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