Friday, March 18, 2011

Innovation in Industry Business

Executive Summary:
As we lament how much of the U.S. manufacturing and technology industry has migrated south of the border and overseas, we might look forward to the probable rise of smaller, custom-offering-focused businesses enabled by the intranet and recent proliferation of contract services to replace what used to be internal functions.  Cheer on the rise of the small, nimble, U.S. businesses.

The Rest of the Story:
I was reading an article titled Fear and Loathing in Redwood City, posted by Product Design and Development1 (, and written by my good friend, Mike Rainone.  In his article he shares some observations from the FASTech conference in Redwood City, CA, and laments that all of the excitement about the latest and greatest technology, and likewise the money from venture capitalists, seemed to be focused on cellular and related communications technologies, which of course are primarily manufactured, and significantly engineered, in Asia.  I find that I must sympathize with Mike’s disgust that so much of U.S. manufacturing and technology industry, and the flow of money that goes with it, has been voluntarily sent to other nations over the last two-and-a-half decades.  However, I observe that the U.S. mindset is nothing if not innovative and relentless.  In fact, in addition to technological innovation, much of the innovation we are experiencing in our nation, driven to some degree by the economic recession, is innovation in business and the U.S. industrial model.

First, let’s look at some of the changes that are taking place in our industry, then I’ll point to an example of how these changes are fueling a whole new kind of business.  Here is a short list of some significant changes that have taken place with regard to the U.S. manufacturing and production industry that also enable a new business model.
  • Industrial businesses have shifted from doing everything themselves to engaging specialists to do business tasks for them.  Examples are contracted IT expertise, leased server and network solutions, contracted logistics and distribution, contracted facilities maintenance and management, specialty prototyping and manufacture, outside testing, contracted Human Resources and legal advice, and even contracted R&D (like my friend Mike Rainone of PCDworks2).  We can debate chicken-and-egg cause-and-effect on this phenomenon for years, but the result is a cornucopia of specialists we can all engage via the intranet.
  • When the recession began, U.S. manufacturing businesses straining to put out the volumes and efficiencies of offshore competitors suddenly found business dropping off greatly.  As sales demands dropped, buyers of the localized, quick logistics, manufacturing services could tolerate a little more slack in the supply chain, and the lower prices of offshore producers suddenly made it more economical to tolerate delays in shipping for lower cost orders.  So, as high-volume orders dropped off, the small specialty orders that manufacturers used to turn up their noses at, suddenly started looking like good business.  As a result, many small and medium, and a few large, U.S. manufacturing businesses have diversified to become very good at serving low-volume and one-off specialty orders.
  • The intranet has become an environment where information is free and connecting with specialized expertise is simple and quick.  Information that used to be the private domain of specialists is now freely available, and the specialized expertise to make use of that information is readily available.  After all, often it was the high-priced, tightly focused, niche-expert that was laid off when businesses had to take measures to remain in the black and continue to provide dividends to investors; especially if the business had more than one of the same specialist.
  • The U.S. public is particularly spoiled, especially when times are good and more of us approach affluence – even by U.S. standards.  Admit it, we like to have things just the way we want them.  Just look at your favorite fast food sandwich shop or burger joint advertisement if you need confirmation.  Large industries satisfied this U.S. obsession by providing endless variety and configurations of their product.  Ultimately though, it is a consumer desire that big industry, producing huge volumes of things, cannot perfectly satisfy, and it’s a small business opportunity.

There are many more changes we have experienced, but that is enough to allow us to see how some of these changes are enabling a whole new business model.

By way of example of the innovation in U.S. business I’m writing about, I will direct you to a U.S. start up named Local MotorsTM3.  Local MotorsTM offers a U.S. designed, developed, and built (more or less) automobile called the Street Fighter.  If I had $60,000 to drop on a new ride, I’d be standing on their doorstep with ants in my pants – it’s cool!  With the Street Fighter you can pick up the kids from school and get groceries on Friday and race the Baja 1000 on Saturday.  Yeah, the car is cool, but the business and how the car was developed are even more fascinating.  You see, the Street Fighter is assembled primarily from after market parts, but those parts that were custom designed for the car were crowd sourced.  That’s right!  Local MotorsTM set up a Web site where you could help them design a car, pick the components you wanted to design, design them on your own, and submit them to the Web site; may the best design win. The crowd also voted on its favorite designs, so the same people who might buy the car determined what they liked best for the design.  How’s that for customer data?  Think about the huge benefits of crowd sourced innovation.  You could look at a submitted design, think it’s good, but could be better, alter it and submit your improved version.  Not to mention the shear brainpower you can engage compared to what a small start-up business can hire.  A fresh art college graduate won the contest for the body design (and a job with Local MotorsTM).  Would anyone have known he had it in him from his resume?  To produce the custom parts, the Web site included a place where manufacturing businesses could bid on the production of the design.  They have no sales or distribution; it’s all done via the intranet.  You order a car with the features and modifications you desire, they order the parts for your car, the parts arrive at their “micro factory” assembly shop, you take a long weekend from work, go to Phoenix, and with the help of their specialists, assembly your own car.  When I checked their site at the time of this writing, they were inviting me to order car # 138. 

So it’s a cool car and a bold business, but what’s my point?  Well, even if Local MotorsTM has only produced 137 cars, it’s still, fundamentally, an American car company operated by a handful of people who are utilizing the power of the internet to access resources, expertise, and opportunities created when small, regional business connect.  They are a small business providing a product we might never look for except from an industrial giant.  And Local MotorsTM is just one example of recent start-ups that are enabled by engaging information on the intranet, specialists to handle tasks, and a market fundamentally interested in custom solutions instead of catalog choices.  These businesses may never need enormous facilities and armies of employees, even when they grow beyond “small” business revenues, because they will let other businesses serve them and they will remain small groups of people focused solely on defining and assembling the custom solutions their customers demand.  It’s the dream that every corporation has chased and failed to achieve:  big business revenues with small business nimbleness.  Of course we have yet to see if big business revenues can be achieved with this model.

From what I’ve been reading, some “experts” suppose this model of business could represent the industrial model of the future U.S., and some “experts” insist that it absolutely is.  I’m no expert, but I’m in favor of it.  Let the offshore industries go ahead and take over the mass-produced widgets of the day.  Right now they produce them at prices the U.S. enjoys, but let them find ways to produce them for their own populations while we here in the U.S. return to a market and industry focused on custom, localized solutions for those items we want.  Who knows, maybe instead of working for a corporate business, you will serve numerous businesses with your expertise and ideas, via the intranet, sitting in your custom home, with your custom car in the driveway, typing away on your custom personal computer, in your custom tailored bath robe, while secretly planning when to watch the latest episode of your favorite TV program because you no longer need to watch it when a network says so.  A guy can dream a little still, right?  I do live and work in the U.S. after all.

Stay wise, friends.

  1.  Rainone, Mike.  “Fear and Loathing in Redwood City.”  Product Design and Development, January 2011:
  2. Rainone, Mike.  Co-founder of PCDworks, Product Concept Development:
  3. Local MotorsTM:

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