Make it in Pennsylvania

Today's lesson in doublethink comes from the Deloitte & Touche consulting firm, which is responsible for this perspective piece in today's Post-Gazette, based on a study by Deloitte, commissioned by unspecified state agencies.

How do we turn around the state's manufacturing economy?

Deloitte says: "How do we shift manufacturing into a new dynamic? The answer is innovation. Pennsylvania companies need to make products that are more unique and bring extra value relative to their competitors'. Doing so will enable firms to command a higher price in the market, which in turn generates more revenue, jobs and higher wages."

So how do we do that?

Deloitte says: "Earlier studies show that companies assisted by an IRC outperform those that aren't, and Deloitte's analysis found that every dollar invested in the IRCs [Industrial Resource Centers, state-supported economic development entities designed to support in-state manufacturing ] yields at least $1.24 in state revenue. The challenge, though, is that the IRCs aren't designed to provide robust, cradle-to-grave product development services. Rather, they excel in helping companies make existing products more efficiently (among other competencies), using Lean Manufacturing and other techniques."

It's clear that Deloitte's work was supported at least by Catalyst Connection, the Southwest PA IRC, so it's grabbing the low-hanging fruit to criticize the report for recommending that the state hand more money over to the IRCs. It's also pretty easy to criticize the P-G for running this self-absorbed fluffball of a piece without explaining the background to the report.

But it's more important to point out the intellectual emptiness of the report itself. That's the point of my quotations above. The Report says--innovate, by funding novel, high end technologies. Then the Report says--we should "innovate" by funding companies that make existing products more efficiently.

Oops--Deloitte failed to read Innovator's Dilemma, by Clayton Christensen. Christensen's book is a devasting piece of analysis showing that successful firms have every short-term economic incentive to continue to do what they're doing. Same products, made ever more efficiency. So let's fund those IRCs! But that's a disastrous strategy as a long-term matter, because those same successful firms are structurallly unlikely to invest in the kind of real innovative product development that will support next-generation business success. Real innovation means new products and new markets.