CBJ Special Feature: Why are we losing our manufacturing future
Canada’s future as an effective manufacturing global player depends upon innovation. Here’s how we are compromising innovation by adhering to preconditioned ideas, killing ourselves gently. We need informed thinking to support innovation.
For 19 successive years General Motors lost market share in North America. New models sported minor improvements touted as major innovation. But newly discerning consumers were looking for better fuel efficiency, higher reliability, longer life, greater safety, reduced cost.
When California legislated improved emission standards equal to China’s – among the lowest in the world – the big three automotive producers sued. The automotive giants followed other biggies such as pharmaceuticals, switching from high-cost risky innovation to conditioning markets to suit the product – not the other way around. Advertising interpreted minor innovations as radical new technology, and existing technology was cleverly adapted to more uses. The new marketing economized on true value added, avoiding long term high cost high risk investment. The policies which made these companies great were abandoned even as enlightened, more discerning consumers signalled their growing resistance to carefully orchestrated preconditioning of their perceptions. These policies inevitably applied to both Canadian and US markets. Corporate policies were set by five-year career move managers, not long-term strategic economic planners. Similarly, in the financial markets fast forward investors sought fast return fiveyear instruments. Long term business strategy lost out to the five-year modern model of invest, reap, and exit. Long term technology became suspect; high risk high reward investment was left to cranky frustrated entrepreneurs or wealthy visionaries stuck with long term projects like General Electric, Boeing, and Airbus. Financing dried up for long term innovation. Even insurance caught on. Liability insurance companies quake at the risk of newness, and policies became non viable for new entries in an increasingly litigious ocean of business predators.
Numerous organizations sprouted clever schemes for separating inventors from their ideas, while busines schools taught that the best thing that can happen to an inventor is to lose his ideas to someone who can take a business plan template and punch in numbers. Bankers embraced new software purported to assess viability of complex technical developments – good ideas became “two a penny” and Microsoft told us that software equals creativity – heck, we can buy top creativity in a package, then God help the competition!
Timidity, exposure, and the safe way to ruin
Cautious industry loaded with new management tools switched from the American dream mode of “I want to be first!” to “I want to be sure!” The adventurous 50’s depleted to the timid 90’s. Venture meant exposure and exposure meant risk of harm; nothing ventured converted from nothing gained to thankful risk avoidance. A new breed of “don’t stick your neck out” management evolved, and meetings became endless as personal responsibility was shunned, comfortably spread among many. Smart managers looked for means of distancing themselves from trouble spots if things went wrong…
Meanwhile leaders regressed from ex-captains of industry to naive ideological pedagogues who believe creativity begins in business schools, and philosophy and beliefs provide greater security than science. So now we are letting present industry go, because a new generation of well-educated business talent is expected to forge ahead and rebuild our crumbling infrastructure with highly creative developments within a few years. The fact that most current education diminishes creativity is irrelevant, and the few Canadian inventive engineers exporting their novel world class products seemingly have no place in setting future economics straight. Further, the future evolution of manufacturing is modeled as a spontaneous phoenix-like entity rising from an anonymous heap of ashes, when in fact industrial growth is more like a coral growing on the bones of its forbears, learning not to make the same mistakes twice. Without the base of prior experience we are finished for likely a half century or so, unless we emulate China, which, be assured, we cannot.
Confusion chases chaos
We are indeed a very confused society. Our main global challenger or future trading partner, depending upon one’s viewpoint, has no such confusion. Most China central committee members are graduate engineers.
Creativity has to be taught. It is a unique process requiring two opposing talents. One entails a rigorous open review of all the ways of approaching a given problem, even apparently “silly” and “unworkable” ideas. Key to success in this stage is not only intensive knowledge of the specialist field but also a keen awareness of ways of solving the problem using inputs from other fields. That is why newcomers to a given field are often most innovative – a principle mostly rejected by our world of specialist exclusivity. Yet a mere patent examiner established the numerical relationship between matter and energy; and more recently, an engineer derived a new treatment protocol for prostate cancer. Also this is why many university/ industry partnerships are successful. This is contrary to most employment ads requiring increasingly vertical experience. The second talent entails total focusing on the selected solutions rejecting all preconditioning. These conflicting processes require different mental attitudes and can’t be done well by the same team on the same day. Often two separate teams are required. True progressive creativity involves an increasingly imaginative state in the case of the lone inventor. He/she cannot fulfill both processes simultaneously. Innovation begins with the mind being capable of visualization from an entirely new aspect, and ends with highly perceptive focus and tenacity.
Most education is alien to this process because we are largely taught facts, learned by rote. Education should be more geared to exploring new ways of perception and problem solving. Meanwhile lack of perception at the top can result in huge areas of economic progress being scuttled. For example, the Bush administration’s cutting of nanotechnology funding to US industry was regrettable, based upon the uninformed belief it was “dead end” technology. Not so. Nanotechnology may result in a photovoltaic paint which could enable enough solar power to heat/cool cities from inexpensive desert solar generators, and superconductors to distribute power with near zero loss. (Exporters – read Gobi desert). Possibilities of accurate surgery by nano robotics are good, and selective annihilation of cancer cells becomes possible. Yet most recognized current accepted “experts” on innovation have zero patents. They teach accepted good analogies such as using a flashlight to seek ideas instead of just looking around the streetlight, but the people we need take the longer term broader perspective – await dawn and look through a telescope at the horizon – and use a microscope on the floor! Meanwhile, prolific inventors are passed off as mad nerds incapable of contributing to think tanks. We still face the professional jealousy firewalls of those who profess as opposed to those who do. We still see cultural roadblocks showing up as scientific achievements vs. engineering failures.
We mistake form for substance – we mistake pompous philosophy for truth, failing to see the real dynamics of a mysterious universe with dire penalties for bending nature to our needs without taking time to review all consequences. This macro hazard exists as much in evaluating prescription drugs as in deciding how we best can burn coal. The child’s tale of “The Sorcerer Apprentice” teaches a grim lesson. We will regret the demise of the multi disciplined, sharp, alert macro
project manager / leader. We place growing reliance on uninformed sham opinion and lobbyist short term policy manipulators who are perpetually proven wrong, all the while endorsing erratic policies perpetually forgiven by a myopic media dazzling a meek forgetful populace with trivia who trust all is well. Most people are too preoccupied with the daily task of living to see any hazards ahead.
This socio-political environment throws an almost impossible load on responsible leadership. Little wonder leaders grow grey within four years! Meanwhile The World Intellectual Property Organization opines that as much as 75 per cent of the value of Fortune 500 companies is directly attributable to their intellectual property. We can deduce from this that not only is it desirable – even essential – to introduce innovation as a national resource as precious or more precious than, say, oil; but also it must be sustained permanently to maintain a constant global lead, with perpetual ongoing invention. Once we stop innovating, progress stops and quality of life decays. General Electric owes much of its growth to “stacked” innovation perfected well in advance of market need or acceptance. Ideas were developed into products and improvements were injected into the items just enough to keep them ahead of competitive products, in programmed sequence. It was recognized that in some cases a too radically changed product can fail to gain market acceptance. We learn the management of innovation is as important as innovation itself.
Recognizing economic myths
The economic meltdown spreading from the subprime mortgage value collapse was preordained by years of flawed belief that true wealth can be generated by trading paper. Not so. True wealth is only generated by adding true value. Whether we buy a cabbage or a car, we should buy only because the item received is of more value to us now than the price paid. If we buy only because we believe the price will rise and we can resell at a profit, we are not buying value for expenditure. We are embarking on a fiscal gamble, and if enough do the same thing with the same item(s) without contributing real value, simple supply/ demand maths show all will face inevitable ruin. Direct capitalization of growth value added ventures drives innovation and adds further value. Speculative hedge funding is directed at gaining assets without adding value; there is a fundamental economic distinction which is seldom recognized.
Finance in general – in common with unsuspecting non informed leadership – has failed to distinguish between true value added and speculative perceived value. Finance in general has scorned investment in true long term technical innovation, yet ironically this is likely the only thing capable of saving the planet. Capital sources and banks in general have consistently lacked methods of correctly evaluating the payback potential of innovation. Even Warren Buffett learned he is no exception – economic reality is a tough teacher. Few experts are truly expert. When Bell Laboratories invented the laser, non dreamed of compact disk recorders and playbacks; few thought of cutting 125mm thick steel like slicing cheese. Space weapons were science fiction; 0.15mm wide precision tube and pipe seam welding and non contact eye surgery were unimaginable feats of technology. Underarm permanent hair removal for $85 was a cosmetic
dream. Our best futurists seldom guess right. But economics are changed overnight by innovation when we succeed. The process is of far greater economic
impact than relying upon non renewable natural resources. Investment in the latter must take a back seat to investment in innovation, not the other way around. Innovating a new product is magic; innovating new marketing is golden, however, a unique product alone is not good enough. It still has to be sold. The biggest growth market right now is China with six per cent estimated growth in 2009. The reason for growth is its big internal market accounting for 70 per cent of GDP coupled with a government dedicated to maintaining progress and growing public satisfaction at all costs. The thing China needs least is another revolution, and its leaders are totally dedicated to the pursuit of population stability. Despite the many differences, their mission profile is remarkably similar to the United States of America at the beginning of their climb to world leadership. Their backgrounds give them the advantage of technical savvy, but recently announced programs are directed at improving health care access and providing mechanisms for improving human rights. China is more politically stable today than at any time in its history. It is a superb export target. But how many US and Canadian small and medium sized companies sell to China? Not many. Yet 30 per cent of medium sized German companies did until recently. Why? Because we are not backing innovators, and much export counselling about penetrating China is flawed. For example we are told never to use humour in formal presentations, yet humour is a powerful influence in presentations and negotiations. Used properly, it defuses
tough situations. After one bargaining session when a tough lady customer negotiator told my China born negotiator to “shut up” I responded equally severely but then told her if she were in Canada she would likely be elected to Parliament!
The effect was immediate; her boss capitulated immediately, admitting he was under extreme pressure, and we left on best of terms after a wonderful dinner, with all having a clear mandate of what to do next to help each other. Contracts run to over 100 pages, but are tactfully ignored as trust and getting the job done transcends legalities. Once you have their trust, expect surprises like “You don’t have to be polite to us anymore – we are your friends!” And friends they will be, driving five hours to pick you up, then five hours driving you back to their town. Your bags will be carried aboard your train. You can talk about Tiananmen Square, the 30 million who died in the cultural revolution; cruel mistakes on the way to better lives, but don’t forget to mention China achievements such as the recent pig stem cell breakthrough, or the earlier synthesizing of insulin, or going back somewhat to the tuned bi tone bells from the Marquis of Yi, – all 10 meters of them, an acoustic miracle expertly made 2,400 years ago. Make a point of remembering Chinese achievements. You will be exposed to a large sign at the airport reminding you to abide by the laws of the People’s Republic of China, but you won’t be tasered to death because China police are unarmed. After your third or fourth visit you become treated like family. Expect wedding invitations, lavish cards every Chinese New Year signed by many people. Joint ventures will be broached, and slowly you will be introduced to eminent people. You will be accepted as part of a vast industrial network and you will never run out of projects to quote on. China may be challenging, but once people know and trust you, the fastest growing economy on the planet will not only greet you with open arms, but watch out you do not misplace your trust with the wrong group.
The main blocker to innovation is our own preconditioning. Most gut feel stems from ideas and beliefs inculcated since childhood. Some are good and some are bad, but innovation starts with habitual questioning of all we are bombarded with. A careful UK study a few years ago concluded cannabis is less hazardous to world health than alcohol. Drug legislation worldwide was unaffected; the social stigma of pot being dangerous is irreversible. We need to sift evidence of better approaches and certainty of truth. Innovation in metalworking and manufacturing is no different in discipline from new ideas in medicine, physics, marketing, law, or economics. And to succeed we need to be a mix of most of these. If we are to develop innovative players in a competitive global manufacturing environment Canada must initiate innovation in a supportive infrastructure; only then can we become a world resource of good ideas andnew concepts. Ignorance of the significance of new technology has long been excused while implying that being non – technical somehow endows other qualities surpassing those of mere technical mortals.
My experience has been that logical analysis has either been present or absent in all fields – this applies equally to a legal dispute or a missile system simulator. As Winston Churchill opined, the strong silent type is usually silent because he/she does not know enough to form an opinion. Let’s insist on logical decisions based upon reality when it comes to Canada’s future. We need to throw out partisan emphasis and legislate bold new policies which ensure the fiscal viability of long term innovation. If we don’t, expect other hungry smart global players to fill the void and reap the rewards. This is suggested by a recent survey done by Boston Consulting Group/Business Week. Only 44 per cent of US business will increase innovation this year as opposed to 66 per cent in developed countries worldwide. Canada’s will doubtless be even less than its cautious neighbour, forgetting new knowledge is still the major key to future power. A survey sponsored by Cisco with The Economist Intelligence Unit was released in May 2009, devoted to assessing world innovation. Canada ranked 13th, well behind most of continental Europe, the US, and Japan. Canada’s R&D expenditure as a percentage of GDP has generally dropped since 2001, being now only 1.89 per cent compared to the USA’s 2.68 per cent and Sweden’s 3.63 per cent. Canada’s patents per million of population are only a meagre 132 compared with the US’s almost 360 and Japan’s 1,274. Export Development Canada assisted more than $85 billion in export oriented business in 2008. Most clients comprised resources including forestry, mining, gas, oil, as well as agriculture and infrastructure. Only $15 billion applied to transportation and light manufacturing. The figures suggest few Canadian manufacturers have products readily saleable to overseas markets. A Canadian government initiative called Automotive Partnership Canada will support automotive related research and development from 2009 to 2014 to the tune of $145 million. However, this does nothing to start new products aimed at manufacturing at large. Meanwhile opportunities abound in India, China, Brazil, Africa and urgent needs such as the rebuilding of Iraq. Looking to the future, indicators are not good for North American technology. While 50 per cent of first degrees in China are in natural sciences and engineering, only about 25 per cent are in these fields Canada and about 20 per cent in the USA. In Germany it is about 33 per cent.
The way forward
A report with the lengthy title “US Energy Research and Development; Declining Investment, Increasing Need, and the Feasibility of Expansion” written by G. F. Neller and D. M. Kamm and released in 2007 examines research and development investments into energy fields from 1975 to 2005. It reveals an incredible 60 per cent drop in this critical investment sector since 1979. The recent stimulus packages will help, but 30 years of lost research is hard to recover. We hear many complaints about energy costs but we learn free markets alone cannot be entrusted to naturally align activities with critical national needs; any more than they can be entrusted to self stabilize. David Rotman writing in the MIT Technology Review June 2009 quotes the report but goes on to point out the paradox: “—the entrepreneurs and executives running renewable energy enterprises including solar, wind, and biofuel companies say they are struggling just to stay alive.” Neither consumers nor investors stay connected enough to see the needs and opportunities affecting future quality of life or even survival until it is likely too late to do much about them. In today’s convergent hazards in the face of continuing collective lack of knowledge and inability to focus on key issues, we face a dangerous threat to our standard of living and even our survival. On June 27 2009 The Economist published a special report on ageing populations. They summarize results as “scary.” A UN report entitled “World Population Prospects” shows by 2030 developing countries will have almost 15 per cent of their populations over 60 years old, but developed nations will face about 30 per cent. By 2050 these figures rise to about 20 per cent and 32.5 per cent. Further, 1 in 3 US females and 1 in 2 males are destined to be cancer victims at a current treatment cost of about $350,000 each with a permanent remission success rate of only about 2 per cent.
The reduced ratio of people able to generate wealth as opposed to those who will need support is alarming, and over 30 per cent of US residents currently lack healthcare insurance. This steep loss of wealth generating capacity coincides with the recent negative effects of a loss of pension fund assets and a steeply rising debt load. If the worst happened, a collapse of the US dollar would not only be disastrous to Canada; and European and oil dollar investors, but it would reduce China’s dollar holdings to worthless paper. It would be a global catastrophe. Despite the tremendous resilience of the US economy and its historic resourcefulness, recent events prove just how fragile a wildcat market can be – it can bring down nations merely by spread of investor fear.
What is the solution?
We need a North American combined government sponsored strategy which directs sustained support of key high export manufacturing ventures for the next 50 years, maintaining a global leadership with guaranteed exports in fields we are confident will fulfill an ongoing permanent global demand. Production must be highly automated, needing few workers – emphasis to be on staying ahead of the technology, producing a cost effective array of related products unmatched elsewhere. Such fields exist in energy products and also possibly in a longer term with new medicine, the latter field being an area of current North American neglect. A new world class cancer clinic is being built in Dubai – staffed with German New Medicine doctors.
China is completing a coal burning generating station about every 10 days. Global dimming is prevalent over most of China. This cannot continue indefinitely. China needs new methods of sourcing energy, and new cancer treatments. The potential for increase of lung and other cancers is of major concern. Traditional Chinese Medicine is near useless in treating cancers, and China has fallen back on Western medicine which is still far from effective. China is in the market for
alternative energy sources and new medicine which could be developed from new concepts being thought of daily in Canada and the US. We need urgent action with the magnitude and convergence of the Manhattan and Apollo projects to protect not only our own futures, but the future stability of our global trading partners.
We need to set up groups of proven innovators – not industry at large; it must be selective, not lobbyist – to help guide government direct national investment into strategic long term payback export projects which should embrace marketing innovation along with key product innovation. We need to publicize this initiative as a step toward guaranteeing continued wealth generation, increasingly high exports, and continued currency stability and worth. We have a selling job to do; permanently allaying rising fears of apprehensive investors who can’t see the economics of the future and in doing so could bring it down. It is time for governments to bury partisanship and see the need for combining talents for the war on economic instability – a war needing new weapons and methodology far more importantly than combating the threat of terrorism. This needs top level initiatives.
In parallel with the above, we turn now to shorter term measures to get things rolling in Canada on a more general quick fix basis. Here are some suggested early measures for helping restore national innovation and general manufacturing:
1. Increase tax incentives and promote them for aiding new product and process development. Make applications more hassle free so that 25 per cent or more is not taken by accountants, as is current practise. Include reasonable financial support for marketing. No research and development accrues benefits until it is effectively marketed. Few Canadian companies know how to market in India or China.
2. Introduce creativity and innovation as part of all school and university curricula. Formulate new curricula teaching new ways of looking at products
and processes and policies based upon guidance from proven innovators and successful product/process inventors.
3. Clarify the role of IT in innovation as part of education. (Good at gathering data; poor at interpreting it without accurate knowledge and modelling). We used to say in aerospace: “Garbage in, garbage out.” This still applies.
4. Increase grants to university students taking subjects related to increasing our future technological and manufacturing base. Find a creative solution to
the university policies of favouring foreign students, shutting out locals because of foreign students’ higher tuition fees.
5. Free up low interest expansion loan capital for innovation driven exporters. EDC (Export Development Canada) is doing a good job but the immensity of
required accounting documentation daunts small entities, and these are often the best growth bets if they are already exporting novel products. This is a better strategy than bailing out uncompetitive automotive companies at $1.4 million per job saved, even though there is spinoff for suppliers. But all manufacturers need a supply chain.
6. Revise the product mix/structuring/policy of entities like BDC (Business Development Bank Canada) to ensure usefulness in this area of scope. Currently they are unequipped to help.
7. Set up an ongoing national committee of proven innovators/exporters to generate ideas and develop a long term realistic evolving national innovation policy. This should not be a business school entrusted with tapping the ideas of industry at large. Canadian industry at large is not generally innovative as we saw above – that’s why we are losing it. And ironically the rising Canadian dollar, fuelled by selling our highly localized non renewable resources, is helping to rapidly destroy our long term bridges to future national prosperity. Our natural oil energy resources became a prized new investment coincidentally with migration of manufacturing to lower cost countries, and a financially driven global recession. The combination is proving deadly for most Canadian manufacturing.
8. An additional mandate of this committee should be ongoing forecasting/monitoring of the political, strategic/economic and sociological consequences of inadequate innovation as we progress. For example, concern arises from possibility of potential civil unrest in the event the standard of living is allowed to drop too far. Another is the effects of wealth shift as innovation emphasis is neglected for concentrated wealth generation, as for example the Alberta oil sands. The Canadian dollar rises as investment pours in and oil prices rise. This is providing high localized benefits but is potentially damaging to the overall future economic stability of Canada overall. We need better control of venture investments to ensure all of Canada’s opportunities are supported, and reliance for earnings is shifted from dependence upon a low Canadian dollar compared to the US dollar to better, more cost effective world class Canadian products.
An Innovative New Look
Penetrating China Durable Goods Manufacturing Markets
1. Get a connection – call on the local China Consul; locate a good representative in your field. Go see him/her. Draw up a formal contract with a reliable representative.
2. Deliver technical papers in your field at conferences – particularly at the Universities of Beijing and Shanghai. Take a 4 color ad. in all conference proceedings. List your local rep. address & web contact & phone number.
3. Distribute catalogues in Mandarin at all relevant shows and conferences.
4. Visit China and call on prospects. Arrange in advance. Your CEO should attend; this ensures they know you are serious.
5. Follow up hard, answering questions promptly, with photos, references, customer lists.
6. If you land a large order, attend a kick off meeting in China. Invite them to visit you in Canada. In delicate negotiations develop a humanistic yet firm stance. “You are doing your job; you are an excellent negotiator – you have a good heart – but in this argument you are dead wrong.” Keep the personal bond separate from the business motion.
7. Take small gifts – maple syrup, computer memory sticks, purses for the ladies, scientific calculators.
8. At formal dinners use chopsticks. Don’t talk business over dinner. Show wallet pictures of your family. Dress in dark clothing, not necessarily a suit, and don’t wear a tie. Don’t be afraid to open up and tell funny stories, but avoid “broad brush” humour. Tell British style jokes. Remember China was practically ruled by Britain for a while. Try a little of each dish served on the glass turntable.
9. Respond to toasts around the table, eventually catching everyone. If your host uses his chopsticks to dump food from one of the dishes saying “You have to try this!” you must accept it without worrying about hygiene. You may have gained a few new germs, but you will have gained a friend, also. If you drink, be sure to hold your beverages well. If you out drink and outlast your host you just scored 10 points.
By: Austen B. Barnes, Austen Barnes Advanced Technology, Inc.
Austen Barnes is an expert in engineering, project innovation and technology. He holds over 20 international patents and has a research career spanning over 30 years. Barnes holds a citizens award from United Appeal. He and his wife Karen live in Queensville, Ontario.