Manufacturing a Methodology
The Nuts, Bolts and Building Blocks Behind Pennsylvania's Unparalleled Manufacturing Study
By Alan Houser
For more than 15 years, Pennsylvania’s Industrial Resource Centers
(IRCs) have been on the front line of helping small and mid-sized manufacturing
enterprises (SMEs) succeed.
The IRC program was established in 1988 to support SMEs across the state
in receiving consulting and other services that may not otherwise be
available, or might be too costly for smaller establishments, to help
them stay competitive. Seven IRCs serve different geographical areas
of the commonwealth.
The last complete analysis of the IRCs was a 1999 study that correlated
the support of the IRCs with the success of IRC client companies. The
report showed that the IRCs had a positive impact on the health of their
client companies. However, manufacturing had undergone tumultuous change
since 1999, having been buffeted by the U.S. recession and the migration
of manufacturing jobs from the U.S. to countries such as China and India.
In summer 2003, the Pennsylvania IRC network wrestled with these changes,
as well as questions faced by any other service provider. Are the services
they provide appropriate for their clients? Are their clients benefiting
from those services? Are there additional valuable services that the
IRCs might provide?
It was clearly time for another assessment of the IRCs. However, the
IRC directors wanted to do more. Instead of commissioning a simple report
to evaluate the effectiveness of the IRC program and propose future
directions, the IRC directors wanted to commission a far broader report,
useful not only for the IRCs but for the commonwealth.
A Changing Picture
The IRCs, in partnership with the Team Pennsylvania Foundation (TEAM
PA), recently released a detailed report on manufacturing in the Commonwealth.
The report, titled “Manufacturing Pennsylvania’s Future:
Regional Strategies that Build from Current Strengths and Address Competitive
Challenges” examines the changing role of manufacturing in Pennsylvania’s
economy at the state and regional levels.
Jack Russell is a past President of the Modernization Forum, a national
organization for manufacturing extension, and has served as a long-time
consultant for the IRC network. According to Russell, the IRC directors
went through a couple of “good hard months of thinking”
to determine the goals for the report.
“It would have been easy to commission a report simply to evaluate
the effectiveness of the IRC program and propose future directions,”
said Russell. “However, we wanted to go further. There was a general
consensus among IRC directors that we should look not only at our performance,
but to do that in the context of the state and nation’s rapidly
changing manufacturing environment.”
And go further they did. The IRC directors sought not only to document
the impact of the IRC network on manufacturing in the commonwealth,
but also to benchmark the state of manufacturing in Pennsylvania. In
September 2003, the IRCs commissioned a report with the following goals:
1. To document the past, present and future importance of manufacturing
to the Pennsylvania economy;
2. To analyze the main dynamics and forces that will shape the possible
futures of manufacturing in Pennsylvania;
3. To provide a robust current assessment of the economic impact and
return on investment of the Industrial Resources Centers program; and
4. To help identify a course of action that can achieve the preferred
future for manufacturing in Pennsylvania over the next decade.
The Consultant
After an RFP process that included verbal presentations in Harrisburg
by three finalists, the IRCs chose the Cleveland office of international
consulting company Deloitte to prepare the report.
Deloitte is the world’s largest professional services firm, with
80,000 employees in 120 countries. Deloitte has a dedicated manufacturing
practice that employs thousands in the U.S. and other countries. According
to Deloitte Consultant Pat Gammons, “We do quite a bit of strategy
work for governments at all levels, including local, state and national.”
Deloitte strengthened its team by bringing on Edward W. (Ned) Hill,
Professor and Distinguished Scholar of Economic Development at Cleveland
State University and non-resident Fellow at the Brookings Institute.
Hill also serves as Co-Editor of the journal Economic Development Quarterly
and is known for his work in manufacturing and public policy. Some of
his most recent work with Deloitte focused on product innovation, particularly
in small, closely held manufacturing companies.
According to Hill, the nearly 300-page report was the work of nine people
over four months. Although the methodologies used to identify driver
industries has been widely used, the use of driver industries in identifying
appropriate business strategies is unique, and of high value to the
IRCs and the commonwealth. “What’s new is how Deloitte took
the drivers and developed business strategies around them. This report
gives the IRCs strategic information that nobody else has,” said
Hill.
Methodology
The Deloitte study used the following approach:
• Identify key “driver” industries that contribute
in a most significant way to the state’s manufacturing economy.
• Identify key driver industries for each IRC service area.
• Categorize those driver industries by growth, specialization
(concentration in the commonwealth versus other states) and level of
technological intensity.
• From these categories, identify the mix of high-growth, specialized
and technology-intensive industries within each region, as well as low-growth
commodity industries.
• Recommend strategies for the IRCs and public policy leaders
in general to support the mix of industries in each IRC service area.
Identification of driver industries was based on statistical analysis
of data from the Harris Selectory Database for all manufacturing companies
in the state, combined with activity data for the Pennsylvania IRCs
from the federal Manufacturing Extension Partnership (MEP) database.
The statistical analysis was augmented with qualitative information
from workshops held in each of the seven IRC service areas, with 10-12
regional manufacturers participating in each workshop. According to
Gammons, “The most significant outcome and most important part
of what we did were the interviews and workshops.”
In addition to the statistical analysis and conclusions, the report
includes narrative information and recommendations about public policy
and other issues that are important to manufacturers in the state.
The Results
By analyzing not only the impact of the IRC programs on SMEs, but also
the external factors that influence the success of manufacturing, the
result was a far broader, far more impressive report that can provide
direction not only for the IRCs but for policy-makers and manufacturing
entities in the Commonwealth.
The report provides a detailed analysis of manufacturing not available
elsewhere. According to Steven G. Zylstra, President and CEO of the
Pittsburgh Technology Council and Catalyst Connection IRC, the report
is “potentially a model for other states.”
James K. Shillenn, Executive Director of the Industrial Modernization
Center IRC and Chairman of the IRC Network, agrees. “Unlike other
studies that analyze the health of an economy on the basis of simple
job counts or revenue numbers, this analysis followed a more comprehensive
criteria, including manufacturer output totals and output growth over
a 10-year period,” said Shillenn. “While this study took
into account employment numbers over the same period, it also was based
on a special wealth creation index that factored average output per
employee, average real wages, capital expenditures and shareholder value.
In this way, the study sought to measure manufacturing's impact on personal,
corporate and regional wealth.”
The State of Manufacturing
While the report showed significant declines in the manufacturing sector
based on several measures, there are many bright spots within the sector
in the form of manufacturing industries that have thrived in the recent
past.
According to Joseph Houldin, President and CEO of the Delaware Valley
IRC (DVIRC), the report demonstrated that the manufacturing sector is
“amazingly robust, even in this age.” He said the report
provided a “confirmation that manufacturing remains the most important
sector of the commonwealth’s economy. Manufacturing still contributes
more to the GSP than any other single
sector and contributes more in terms of wealth creation. While manufacturing
has fallen to third in employment, it has a significant economic multiplier
effect.”
The Future for the IRCs
The report provides significant data to help the IRCs continue their
mission of serving small and medium manufacturing enterprises in the
Commonwealth. “The importance of the report is to understand the
dynamics of what’s happening locally, nationally and internationally,
so that we can be opportunistic and respond appropriately,” said
Zylstra.
How are the IRCs responding to the recent trends in manufacturing? Part
of their strategy is to support manufacturers in coping with the new
economic realities of global competition. According to Zylstra, “Globalization
is here to stay; there’s nothing anybody can do about that. While
there are companies that are being significantly harmed by global competition,
there are also companies that are taking advantage of it. Companies
need to continue to ‘lean out’ and add even more value through
the product innovation process in order to compete in the global marketplace.
Commodity-driven manufacturing has gone off-shore. Unless manufacturers
can innovate, they’re going to have a tough time.”
Houldin added, “The IRCs have historically focused on bottom-line
issues, like quality, lean manufacturing and IT infrastructure. Given
the changes in our clients’ needs, we need to focus more on top-line
issues, like strategic planning and market development.”
David Andersen, Executive Director of the Erie-area NWIRC, agrees. “We
have historically focused on supporting our clients in doing things
faster, better, cheaper,” he commented. “In addition, we
need to provide more strategic services to support product development
and increased sales, both domestic and global.”
Andersen sees the IRCs as the “soldiers on the ground.”
He feels that the report “gives credibility to some of the things
we’ve been saying.”
Dennis Thompson, Senior Vice President of the Pittsburgh-area Catalyst
Connection IRC is pleased that the new report went further than examining
the impact of the IRCs. “Because it doesn’t have an IRC
focus, the report will be more widely used than if perceived to be just
about the IRC network.”
According to Andersen, “The report is a must-read for anybody
even remotely associated with economic development. It is important
that we get wide-spread distribution and buy-in.”
“This report confirms that the Commonwealth and the IRC network
is deeply involved in the process of recreating Pennsylvania’s
manufacturing economy,” Houldin concluded.
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