A Manufacturing Renaissance; Is the Tech/Software Boom Over?

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David ColeDr. David Cole is the Chairman of AutoHarvest (autoharvest.org), a web based tool to accelerate innovation in the auto industry. Dr. Cole is Chairman Emeritus of the Center for Automotive Research and a former Professor of Engineering at the University of Michigan where he taught courses related to the automotive field for over 25 years. He is a fellow of the Society of Automotive Engineers, Engineering Society of Detroit and Society of Manufacturing Engineers and was recently elected to the Automotive Hall of Fame.

We are in a period of amazing, almost transformational change like we have never witnessed before and all indications point to the pace quickening as we move forward from today. Clearly one dimension of this dynamic period is the incredible rate of change in technology that surrounds us from cars and housing to personal communication and healthcare.

For the past several decades the growth in technology is particularly evident in electronics with the control of just about everything shifting to electronic chips and their embedded software. These include cell phones and their multiple apps, the tools we use to design and manufacture goods of all forms, modern agricultural tools that enable farmers to optimize their business and the multitude of electronic items that pervade our lives.

It has been a great run and we have celebrated the enormous success of companies like Apple, Dell, Microsoft and Intel with very high evaluations and significant wealth creation for all involved. A new and really quite profound emerging question is what’s next? I’m not suggesting that these important companies will disappear nor will the technology they have developed but what they have produced and continue to produce may be becoming more of a commodity where the low cost provider wins. Many have seen significant declines in their value in the past several years. Have they peaked and, if so, what’s next?

I can site an example of sorts. A number of years ago I was on the board of a company, Mechanical Dynamic’s that produced a software tool called Adams that enabled the virtual design of dynamic systems like an auto suspension. This computer aided engineering (CAE) technology provided engineers with a way to optimize the design before making the actual part or system to test and validate. This was a huge step forward but we are very close to the optimum design methodology today and only a small fractional improvement is still available. In a sense what’s next is only a small improvement over what we already have.

This suggests that while we still think of the great technology around us a high tech, it is, in a sense, becoming commodity high tech. We marvel at the amazing high-tech electronic chips and the embedded software but there is less and less that separates the winners from the also ran’s.

If this is the case and high tech whatever is becoming commoditized, what is next? I think it is important to recognize that for past few years we have been awed by the products and trends in the tech, finance and service industries, but in reality we can get along without this very “cool” stuff but cannot survive without agriculture (growing stuff), mining (getting raw materials from on or under the earth) and manufacturing. Furthermore without manufacturing we would not have the amazingly productive agriculture and mining we see across the world today. Manufacturing enables life in a modern society with products such as cars, trucks, washing machines, houses, clothing, cell phones and television sets.

One basic conclusion I have drawn from this evolving story is that the next wave is a wave tied to “advanced manufacturing” which will create the goods to sustain and enhance life. Really the “real estate”, the things we manufacture that house the cool technology may be the new high ground.

Consider today the issue of connected or autonomous vehicles that are the rage of current auto discussions. We see stories every day in the press about how, what and who will be a part of this revolution. Keep in mind that exciting (and very rich) technology companies like Apple and Google that are in the middle of the action, can only make things happen if the technology is contained in cars and trucks. I would also observe that the hot technology is hardly a unique product of the Silicon Valley but is being developed across the world today. What I conclude is that the folks that produce the “real estate”, the products, may be the really big winners over the long haul.

Clearly the future of autonomous vehicle technology is very exciting and the potential value to individuals and society in general are enormous with dramatic improvements in safety, driving efficiency and personal mobility.

As a former and current board member of software companies, I love the business model; no tooling, ease of reproduction and a love affair with investors. Quite a contrast with manufacturing where there is enormous complexity to manage, expensive tooling and product to develop, costly manufacturing facilities and an extremely complex supply base.

The popular view is that the really rich tech companies like Apple and Google will be the new auto companies. One thing is clear and that is if they decide to get into the business of manufacturing the platform for their great technology, they can become “un-rich” very quickly. I believe the real “high ground” in future auto will likely continue to be the makers of the product not the tech providers. Also, I might add, the makers are becoming increasingly competent in the really “cool” technology.

In many respects manufacturing has fallen out of favor. The price multiples (value/revenue ratio) on a software or service companies are generally many times what we would typically see for manufacturing companies. Manufacturing is expensive (machines, tooling, highly skilled people….) and slow from starting an effort to the products arrival in the market place.

One of the keys to the success of any business is to do good strategic planning even as you do what is necessary to survive in the short term tactical world. Short term issues generally consume most of our time and money but good strategic thinking is critical to long term success. From this perspective, as I look at the future I see a significant reawakening of interest in making things. As we saw in the middle of the last century, manufacturing could once again become the centerpiece of our investments and economic vitality as well as being a very important and dynamic factor in our nation’s economy. We certainly have work to do (develop appropriate talent, secure investment, design exciting products, improve technology and more) to prepare for the manufacturing renaissance but the signs are very positive.

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