4

Creating a Prosperous Path Forward: Recommended Actions

To prosper in the 21st century, US companies and communities must take action to strengthen the country’s capacity for innovation along the manufacturing value chain. Businesses have opportunities to take individual action to improve their competitiveness. A variety of stakeholders also have important roles to play to ensure that the United States has a robust innovation ecosystem to support manufacturing value chains and the broader economy; these stakeholders include federal, state, and local governments; economic development organizations; educational institutions; and research organizations. This chapter presents the committee’s recommendations of specific actions for the various stakeholders in each of the fundamental areas described in Chapter 3 to ensure US leadership in making value along the manufacturing value chain.

ACTIONS TO FACILITATE THE ADOPTION OF BUSINESS BEST PRACTICES

Individual businesses can create value by coordinating their value chains and optimizing their operations.

Businesses across the value chain need to reengineer their operations and adopt best practices to improve innovation, productivity, and speed to market. While every business aims to optimize its operations for productivity, very few have implemented the advanced practices necessary to achieve world-leading productive operations. Businesses also need to leverage technology and talent to ensure a sustainable stream of new products and services, better understand customer needs, and identify value creation opportunities. To accomplish these aims, companies should actively encourage their employees to continually

improve operations, identify new market opportunities, and implement the resources needed to commercialize solutions.

Recommendations

• Businesses should establish training programs to prepare workers for modernized operations and invest in advancing the education of their low- and middle-skilled workforce. Employee training programs raise earnings potential and substantially increase productivity, profits, and innovation across businesses. Employers gain large returns from investing in the development of their low- and middle-skilled workforce, in some cases as high as 100–200 percent.
• Companies should examine their business models to search for missed opportunities to leverage distributed tools and coordinate manufacturing and product lifecycle services. Radical gains come from producing new solutions not provided by others. The ability to provide such solutions requires understanding customer needs and desires and developing an innovation strategy that differentiates a business’s offerings from those of its competitors. Organizations will attain a competitive advantage if they understand how economic forces are shifting and can both coordinate capabilities across value chains and leverage digital and distributed tools to generate innovative solutions.
• Manufacturers should implement principles and practices such as Lean Production that enable employees to improve productivity and achieve continuous improvement. Systems of best practices for production, such as lean manufacturing, have been shown to improve productivity, decrease time from customer order to delivery, and reduce costs. Best practices such as lean manufacturing can directly benefit a manufacturer’s bottom line and create a significant competitive advantage. They can also reduce energy and resource consumption and in some cases make domestic production for the US market more cost-effective than producing abroad.
• Researchers should further investigate and codify best practices for innovation and develop effective methods of teaching them. Additional research is needed to identify best practices for identifying unmet needs and commercializing solutions that apply to a wide range of companies and industries. Creating teachable systems of best practices and encouraging their widespread adoption will be important to value creation.

ACTIONS TO ENSURE AMERICA HAS AN INNOVATIVE WORKFORCE

The education and skills of the US workforce must be improved. Higher education and training are increasingly important to create an effective ecosystem for value creation.

Maximizing the ability of the United States to create value requires maximizing the development of its talent. The following actions can promote the education needed to prepare US students and workers to compete effectively in innovation and value creation.

Recommendations

• Businesses, local school districts, labor, community colleges, and universities should form partnerships to help students graduate from high school, earn an associate’s or bachelor’s degree, and take part in continuing education in the workplace. More needs to be done to advance the skills of lower-income Americans, and these partnerships can provide students from these families with the guidance, social supports, and education necessary to complete a college degree. State governments should facilitate connections between school districts, businesses, and other actors to form these partnerships.
       There are a number of successful public-private partnerships that can serve as examples to those interested in establishing others. The model that the committee believes is particularly promising is a collaboration of employers and school districts combining classroom-based learning with work experiences to help students graduate from high school and put them on track to a college degree and a skilled job.
• Congress and state legislatures should create incentives for businesses to invest and be involved in education programs. Congress and state governments should create tax credits or other incentives to encourage investments in educational partnerships involving businesses, community colleges, and universities to provide students and displaced workers with the knowledge and skills needed for higher-paying careers.
• Middle schools, high schools, universities, and local communities should provide opportunities for students to participate in team-based engineering design experiences and learn to use emerging digital and distributed tools. Students exposed to such team-based experiences are better prepared to contribute to today’s innovation workforce. Efforts to teach team-based engineering design skills, such as in the framework provided by the Next Generation Science Standards, should be widely adopted.

• Extracurricular programs that allow students to participate in team-based design experiences and use emerging tools that enable new business creation should also be expanded.

• Universities and community colleges should improve the cost-effectiveness of higher education. Reducing financial barriers for lower-income students will increase the level of talent across the workforce and thus stimulate value creation. Universities and colleges should facilitate students’ transfer from two-year community college programs to reduce the costs of a four-year degree. They should also seek opportunities to adopt new methods of teaching—such as online tutorials, computer-based instant feedback on homework assignments, open-access course materials for instructors, and credit-by-examination approaches (which allow students to test out of courses)—to support learning while reducing students’ costs.
• University rating organizations should track and make transparent the cost-effectiveness of degrees at higher education institutions. Students should have access to information comparing the cost-effectiveness of particular degrees at different universities and colleges along such metrics as the debt and earnings of graduates, attrition rates, and average time to degree. Colleges and universities should be encouraged to use these data to assess and, as appropriate, improve the cost-effectiveness of their degrees.
• Businesses, industry associations, and higher education institutions should work together to (1) establish national skills certifications that are widely recognized by employers and count toward degree programs, and (2) improve access for students and workers to acquire these certifications. Standard skills certifications will allow employers to identify the skills of job candidates using a consistent baseline. Credentials are also important to students who may not have completed all the requirements for a college degree but have acquired skills along the way. “Stackable” credentials (those that can be accumulated serially over time) provide an alternative qualification for such students to apply for higher-paying jobs; the Manufacturing Institute has developed a Manufacturing Skills Standard Certification System that recognizes stackable credentials. Manufacturers should recognize these credentials and education institutions should work with manufacturers to both provide access for students and workers to obtain these credentials and recognize them as counting toward a formal degree.
       National skills certifications can and should be established in other areas along the value chain, such as for software specialists. Businesses, industry associations, and education institutions should work together to define stackable credentials and skills certifications in new areas and establish methods of evaluating competencies.

In today’s globalized economy, US companies need the best teams in the world to stay competitive. Such teams will depend on not only creating and attracting top talent but also leveraging diversity to achieve better team performance.

The nation’s ability to create value will be enhanced by innovative teams that create new and improved products, services, and processes and bring them to market. The inclusion of diverse individuals and the attraction and retention of talent from around the world are critical to ensure that the best teams assemble in the United States. Some groups—particularly women, racial minorities, and people from low-income families—remain significantly less able than others to take advantage of value creation opportunities, whether because of unequal educational opportunities, the lingering effects of historical inequity, or discrimination. This inequity negatively impacts the nation’s prosperity, not only because fewer people can become the innovators that create economic growth and jobs but also because teams of people that have more women and people with diverse characteristics have been shown to be more innovative.

In addition to leveraging the strengths of its diverse population, America can improve its ability to create value by attracting and retaining talented people from other countries. The United States already attracts students from all over the world for postgraduate education in the STEM disciplines, but because of current US immigration policies not all of the graduates who wish to stay and work are allowed that option. Making it easier for them to stay could greatly increase the number of people who can contribute to value creation in this country, thus improving the economy for all.

Recommendations

• Businesses should implement programs to attract and retain diverse workers, including along gender, race, and socioeconomic background. Increasing this diversity is not only ethical; it is good for innovation and business success. Businesses should implement programs to improve equitable access in hiring and promotions. Efforts to encourage managers to support the career development of their employees and to ensure transparency in internal job opportunities and promotion criteria have significantly improved recruitment and retention of women and underrepresented groups.
• Universities and community colleges should act to improve the inclusion of traditionally underrepresented groups in science, technology, engineering, and mathematics (STEM) fields as well as other disciplines required for value creation, such as market analysis and design. Educational institutions should study and learn from approaches that have been successful in attracting these groups to university programs and businesses. STEM programs such as those at the University of California, Berkeley, Carnegie

• Mellon University, and Harvey Mudd College, all of which have achieved high enrollment of women and other underrepresented groups, can be used to guide others. All programs should implement known practices that help attract these groups, such as redesigning courses to emphasize the real-world relevance of the material.

• Congress must reform immigration policy to welcome and retain high-skilled individuals with advanced STEM degrees, especially those educated in the United States. Many of these individuals become entrepreneurs and the United States should ensure that their businesses are in this country. Unfortunately, however, these potential innovators are being turned away by a counterproductive immigration system. In both 2013 and 2014, the allotment of H-1B visas was filled the first week they were made available.

ACTIONS TO STRENGTHEN LOCAL INNOVATION NETWORKS

The United States needs to encourage new business creation across the value chain to stimulate innovation and job creation.

Business creation across the value chain and the broader economy is critical for the US economy. Statistics indicating that the rate of business creation has been declining in the United States for the past three decades are worrisome.

Recommendation

• Researchers, the National Science Foundation, and other research funders should put a priority on understanding the declining rate of new business creation. Data suggest that the rate of new business creation is declining. If so, researchers need to investigate the causes. They should examine whether barriers have increased for new business creation or whether the current environment favors established businesses. Researchers should also investigate the factors that encourage the formation of new businesses and increase their likelihood of success.

Local innovation networks are needed across the United States to foster the creation of new businesses and connect entrepreneurs and new businesses to the individuals, investors, tools, and institutions in their region and around the world that they need to grow.

For the greatest chance of success, potential innovators need to be able to connect with a wide variety of people and organizations, including other innovators, scientists and engineers, investors, workers with useful skills, organizational and management advisors, market analysts and marketing specialists, policymakers, and potential customers. They also need access to the tools, such

as prototyping or testing equipment, that enable value creation. The places most supportive of innovators—and thus most likely to see innovation-driven growth—are those that have well-developed networks of investors, academia, industry, sources of financing, sources of business advice, access to required tools, government agencies, nongovernmental organizations, and customers.

Recommendations

• Metro area and state governments, industry, higher education, investors, and economic development organizations should partner to create local innovation networks. Any one of these stakeholders can spearhead the creation of such a network. Innovation networks in Silicon Valley, the Boston-Cambridge area, the San Francisco Bay area, Seattle, New York state, Israel, and Singapore can inform efforts to create others. In addition to providing resources for innovators, these networks should support them by, for example, facilitating the sharing of best practices and helping small businesses learn how to export.
• Metro area and state governments should optimize their decision-making process for urban development investments and siting to facilitate the creation of innovation networks. In most metro areas, decisions on urban development investment and siting are the responsibility of individual units with different functional missions (e.g., housing, transportation) without the coordinating oversight of a single body. These units need to coordinate their decisions to nurture innovation networks. Cities, surrounding counties, and states should identify opportunities to better structure these decisions to serve the welfare of the entire area.

US programs that contribute to innovation should be directed and optimized as appropriate to facilitate the adoption of best practices and help young businesses to grow.

Recommendations

• Federal agencies and interagency offices such as the Advanced Manufacturing National Program Office should convene stakeholders to identify and spread best practices for value creation. AMNPO and other federal agencies should use their convening power to support collaborations that can help identify and spread best practices for 21st century value creation, particularly for software, user interfaces, and high-tech services, where best practices are less developed than production. Companies should be encouraged to collaborate in sharing and sharpening best practices and

• solving common problems, spreading the cost of finding solutions, and stimulating the movement of ideas across industries.

• The Small Business Administration should help more young businesses become globally competitive. The SBA should continue to help businesses become globally competitive, recognizing that young businesses in particular are some of the fastest-growing companies and are potentially the most responsive to influxes of financial capital. In particular, it should help young businesses connect with a local innovation network, and if one does not exist it should encourage the formation of one.

ACTIONS TO FACILITATE THE FLOW OF CAPITAL INVESTMENTS

US fiscal policy must incentivize long-term capital investments.

Increasing emphasis on short-term returns on investment has led to a decrease in the long-term planning and funding necessary to support many promising innovations. New models are needed to ensure the long-term investments necessary to develop groundbreaking innovations.

Recommendations

• Congress should modify the capital gains tax rates to incentivize holding stocks for five years, ten years, and longer. The current tax structure encourages a preference for quicker returns over the long-term investments needed to create new products and businesses. Capital gains tax rates do not provide incentives for investments longer than one year. Congress should create favorable tax treatment for stocks held for five years, ten years, and longer. It should also identify and implement additional opportunities in the tax code to enable access to both short- and long-term low-cost capital.
• Congress should make the research-and-development tax credit permanent to encourage businesses toward longer-term horizons in their investment decisions. The tendency of Congress to renew the tax credit for only two years discourages businesses from investing in longer-term R&D projects. A permanent tax credit would stimulate R&D spending, thereby increasing economic growth and fostering innovation.
• Federal agencies should facilitate industry and government cooperation to identify shared opportunities to invest in precompetitive research in long-term, capital-intensive fields such as next-generation batteries and biotechnologies, for which capital availability is scarce.

ACTIONS TO PROVIDE AN INFRASTRUCTURE THAT ENABLES VALUE CREATION

US infrastructure must be upgraded for both traditional systems (e.g., electricity, ports) and modern information systems. A world-leading infrastructure will attract businesses and facilitate the creation of new ones in the United States.

Infrastructure is crucial to innovation and value creation. Countries whose infrastructure is deficient (or even lacking) with respect to objective benchmarks with the rest of the world will find it more difficult to innovate and create value. A country that hopes to be at the forefront of innovation must be at the forefront in terms of its infrastructure.

Recommendations

• Local governments, state legislatures, and Congress should invest in a world-leading wireless infrastructure. Infrastructure that makes it easier for individuals and machines to communicate and process information is essential for innovation along the value chain. Innovation is almost always a team effort, which requires the seamless ability to exchange ideas and information. Furthermore, many emerging technologies and service improvements rely on real-time information collection, processing, and transmission.
• Federal information technology and computing programs should facilitate access to a world-leading infrastructure for high-performance computing. High-performance computing capabilities can drive improvements across the value chain and enable entirely new types of products and services. These resources require substantial investment and are therefore not always accessible, especially to small businesses. Federal agencies should work to improve access to high-performance computing.

ACTIONS TO IMPROVE METHODS OF MONITORING MANUFACTURING VALUE CHAINS

Federal programs and statistics should be modernized to account for the diminishing distinction and complex relationships between manufacturing, information, and services.

Modern value chains often involve a complex network of activities that span the classic economic sectors. The production of raw materials, goods, services, and software are interconnected along these value chains, and often carried out within the same business or even a single establishment. As businesses traditionally known for manufacturing move into software and service production, and

companies known for creating software and online services produce manufactured goods, it is increasingly difficult to meaningfully delineate operations as providing mainly goods or services.

Recommendations

• Federal agencies should develop methods of accounting for the complex relationships between manufacturing, services, and information and consider multiple ways of collecting and organizing national statistics. Agencies that collect economic statistics, such as the Bureau of Labor Statistics and the Bureau of Economic Analysis, should identify methods to (1) capture the complex relationships between industry sectors and (2) organize national statistics in a way that complements the current classification. The current method of organizing national economic statistics—classifying manufacturing, services, and information activities in distinct industries based on the primary activity at an establishment—is an increasingly unrealistic depiction. Such a system does not provide any information about services and information activities undertaken by manufacturers or production operations that are primarily carried out to support a software or service provider. It also does not allow for an understanding of value chains, such as the manufacturing, service, and information operations devoted to improving health outcomes or providing personal transportation. This is particularly problematic because these statistics influence policy decisions that affect innovation and education that would benefit from an understanding of these nuances.
• Federal programs that contribute to innovation should be directed and optimized as appropriate to assist software and service providers as well as manufacturers. Federal programs to revitalize manufacturing in the United States, such as the Advanced Manufacturing National Program Office (AMNPO), the Manufacturing Extension Partnership, and the Advanced Manufacturing Partnership, should not lose sight of the importance of software and service providers. Software and services are integral to manufacturing value chains and increasingly important to businesses’ capacity to take advantage of emerging digital technologies. The administration and federal agencies should review and optimize current programs to ensure that all activities across the value chain are appropriately supported.

Table 4-1 compiles the committee’s recommendations directed to businesses, the federal government, state governments, localities, education institutions, and other actors.

TABLE 4-1 Recommendations organized by actor