Death-spiral - preoccupations of efficiency, cutting costs and outsourcing

Why Amazon Can't Make A Kindle In the USA

http://www.forbes.com/sites/stevedenning/2011/08/17/why-amazon-cant-make-a-kindle-in-the-usa/

An economist is someone who knows the price of everything and the
value of nothing.

Old joke based on Oscar Wilde's quip about a cynic.

Yesterday I noted how conventional cost accounting inexorably focuses
attention of executives on increasing short-term profits by cutting
costs.

The same thing happens in economics. Take a recent economic study that
set out to shed light on role of Chinese businesses vis-à-vis American
consumers. Galina Hale and Bart Hobijn, two economists from the
Federal Reserve Bank of San Francisco, did a study showing that only
2.7 percent of U.S. consumers purchases have the "Made in China"
label. Moreover, only 1.2% actually reflects the cost of the imported
goods. Thus, on average, of every dollar spent on an item labeled
"Made in China," 55 cents go for services produced in the United
States. So the study trumpets the finding that China has only a tiny
sliver of the U.S. economy.

So no problem, right?

Well, not exactly. The tiny sliver happens to be the sliver that
matters. What economists miss is what is happening behind the numbers
of dollars in the real economy of people.
How whole industries disappear

Take the story of Dell Computer [DELL] and its Taiwanese electronics
manufacturer. The story is told in the brilliant book by Clayton
Christensen, Jerome Grossman and Jason Hwang, The Innovator's
Prescription :

ASUSTeK started out making the simple circuit boards within a Dell
computer. Then ASUSTeK came to Dell with an interesting value
proposition: 'We've been doing a good job making these little boards.
Why don't you let us make the motherboard for you? Circuit
manufacturing isn't your core competence anyway and we could do it for
20% less.'

Dell accepted the proposal because from a perspective of making money,
it made sense: Dell's revenues were unaffected and its profits
improved significantly. On successive occasions, ASUSTeK came back and
took over the motherboard, the assembly of the computer, the
management of the supply chain and the design of the computer. In each
case Dell accepted the proposal because from a perspective of making
money, it made sense: Dell's revenues were unaffected and its profits
improved significantly. However the next time, ASUSTeK came back, it
wasn't to talk to Dell. It was to talk to Best Buy and other retailers
to tell them that they could offer them their own brand or any brand
PC for 20% lower cost. As The Innovator's Prescription concludes:

Bingo. One company gone, another has taken its place. There's no
stupidity in the story. The managers in both companies did exactly
what business school professors and the best management consultants
would tell them to do—improve profitability by focuson on those
activities that are profitable and by getting out of activities that
are less profitable.
Amazon couldn't make a Kindle here if it wanted to

Decades of outsourcing manufacturing have left US industry without the
means to invent the next generation of high-tech products that are key
to rebuilding its economy, as noted by Garry Pisano and Willy Shih in
a classic article Thus in "Restoring American Competitiveness"
(Harvard Business Review, July-August 2009)

The US has lost or is on the verge of losing its ability to develop
and manufacture a slew of high-tech products. Amazon's Kindle 2
couldn't be made in the US, even if Amazon wanted to:

The flex circuit connectors are made in China because the US
supplier base migrated to Asia.
The electrophoretic display is made in Taiwan because the
expertise developed from producting flat-panel LCDs migrated to Asia
with semiconductor manufacturing.
The highly polished injection-molded case is made in China because
the US supplier base eroded as the manufacture of toys, consumer
electronics and computers migrated to China.
The wireless card is made in South Korea because that country
became a center for making mobile phone components and handsets.
The controller board is made in China because US companies long
ago transferred manufacture of printed circuit boards to Asia.
The Lithium polymer battery is made in China because battery
development and manufacturing migrated to China along with the
development and manufacture of consumer electronics and notebook
computers.

An exception is Apple [AAPL], which "has been able to preserve a
first-rate design capability in the States so far by remaining deeply
involved in the selection of components, in industrial design, in
software development, and in the articulation of the concept of its
products and how they address users' needs."
A chain reaction of decline

Pisano and Shih continue:

"So the decline of manufacturing in a region sets off a chain
reaction. Once manufacturing is outsourced, process-engineering
expertise can't be maintained, since it depends on daily interactions
with manufacturing. Without process-engineering capabilities,
companies find it increasingly difficult to conduct advanced research
on next-generation process technologies. Without the ability to
develop such new processes, they find they can no longer develop new
products. In the long term, then, an economy that lacks an
infrastructure for advanced process engineering and manufacturing will
lose its ability to innovate."

The lithium battery for GM's [GM] Chevy Volt is being manufactured in
South Korea. Making it in the US wasn't feasible: rechargeable battery
manufacturing left the US long ago.

Some efforts are being made to resurrect rechargeable battery
manufacture in the US, such as the GE-backed [GE] A123Systems, but
it's difficult to go it alone when much of the expertise is now in
Asia.

In the same way that cost accounting and short-term corporate profits
don't reflect the true health of corporations, the economists'
reckoning of the impact of outsourcing production overseas misses the
point. Americans are left with shipping the goods, selling the goods,
marketing the goods. But the country is no longer to compete in the
key task of actually making the goods.

Pisano and Shih have a frighteningly long list of industries of
industries that are "already lost" to the USA:

"Fabless chips"; compact fluorescent lighting; LCDs for monitors, TVs
and handheld devices like mobile phones; electrophoretic displays;
lithium ion, lithium polymer and NiMH batteries; advanced rechargeable
batteries for hybrid vehicles; crystalline and polycrystalline silicon
solar cells, inverters and power semiconductors for solar panels;
desktop, notebook and netbook PCs; low-end servers; hard-disk drives;
consumer networking gear such as routers, access points, and home
set-top boxes; advanced composite used in sporting goods and other
consumer gear; advanced ceramics and integrated circuit packaging.

Their list of industries "at risk" is even longer and more worrisome.
What's to be done?

With such a complex societal problem, it's hard not to start from
Albert Einstein's insight: "The significant problems that we have
cannot be solved at the same level of thinking with which we created
them." Many actors will have to play a role.

Company leaders: Business leaders need to recommit themselves to
continuous innovation and the values and practices that are necessary
to accomplish that. i.e radical management. As Pisano and Shih write:
"Whether you're the US firm IBM [IBM] with a major research laboratory
in Switzerland or the Swiss company Novartis [NYSE:NVS] operating in
the biotech commons in the Boston area, sacrificing such a commons for
short-term cost benefits is a risky proposition."

Accountants: Accountants need to get beyond the mental prison of
cost accounting and embrace the thinking in throughput accounting that
puts the emphasis on how companies can add new value, rather than just
cutting costs.

Management theorists and consultants: stop rearranging deck chairs
on the Titanic of traditional management (e.g. by finding new and
ingenious ways to cut costs) and start understanding and disseminating
management theory that is fit for the 21st Century.

Investors: Investors need to realize that the companies of the
future are those that practice continuous innovation as Apple [AAPL],
Amazon [AMZN] and Salesforce [CRM], as compared to companies
practicing traditional management, such Wal-Mart [WMT], Cisco [CSCO]
OR GE [GE]. Investors need to realize that short-term financial gains
are ephemeral: the companies that will generate real value are those
that do what is necessary to continuously innovate.

Government: Government has a role to play in protecting and
promoting fields of expertise or what Pisano and Shih call "the
industrial commons". Thus: "Government-sponsored endeavors that have
made a huge difference in the past three decades include DARPA's VLSI
chip development program and Strategic Computing Initiative; the DOD's
and NASA's support of supercomputers and of NSFNET (an important
contributor to the Internet); and the DOD's support of the Global
Positioning System, to mention a handful."
Politicians: At a time of poisonously divisive political debate,
in which candidates recite anti-government mantras and call for
"getting government out of the way of the private sector", it is time
for serious politicians to step up and examine which parts of the
private sector are fostering, and which parts are destroying, the
economy of the country. They must stop embodying e.e. cummings
definition of a politician as "an ass upon which everyone has sat
except a man."
Economists: Economists need to realize that merely adding up the
numbers is not enough. They have to look at the meaning behind the
numbers. When they trumpet their finding that "Chinese goods are only
1% of the U.S. economy", it's akin to saying "we kept the house but
gave away the keys."

Part 2: Does it really matter whether Amazon can make a Kindle in the USA?

My article a few days ago on the Amazon's inability to manufacture a
Kindle in the USA and the decline of manufacturing attracted a lot of
interest, many supporting comments and a number of questions.
Does it matter?

One question was: does it really matter? For instance, one reader
("ssaikia") said that my article reflected "Flawed Logic." He wrote

If another country is able to manufacture at a lower cost companies
such as Dell are doing absolutely the right thing to outsource to a
foreign manufacturer. I would rather that the US focus on high-value
work such as design, marketing and sales.

This notion of attributing the shifting of industries to foreign
countries to cost accounting, management short-sightedness is
absolutely flawed.

Here is an optimistic view of where the US should be and IS focusing:
Marc Andreesen in the Wall Street Journal, Why Software Is Eating The
World.

The view that the migration of mature manufacturing industries away
from developed countries like the USA is just part of the healthy
natural process of economic evolution that allows resources to be
redeployed to new, higher potential businesses is certainly
widespread.

It is however mistaken. As Pisano and Shih point out in their HBR
article, "It ignores the fact that new cutting-edge high-tech products
often depend in some critical way on the commons of a mature industry.
Lose that commons, and you lose the opportunity to be the home of the
hot new businesses of tomorrow."

For instance: once silicon-processing and thin-film deposition
capabilities are gone, it's hard to become a major player in solar
panels. (Thus President Obama can go on talking about solving the jobs
problem in the USA by investing in solar, but what his advisors don't
always grasp is that most of the jobs created will not be in the USA.)
Is software the answer?

Marc Andreessen's article in the Wall Street Journal, Why Software Is
Eating The World, is certainly right to point out that software
development is a huge part of both the present and the future economy.

The successful firms that I frequently cite, such as Apple [AAPL],
Amazon [AMZN] and Salesforce.com [CRM], are certainly firms that have
exploited software and the Internet as key parts of their success,
while those that are struggling, like GE [GE] and Wal-Mart [WMT], have
been slow to respond to the opportunities.

But software per se is not the solution. The firms that I cite were
successful in seemingly mature sectors like music, books and mobile
phones. Saying that "software is the solution" is like saying that the
winning firms of the early 20th Century were successful because of
electricity. The difference wasn't electricity. The difference was
more imaginative management that took advantage of the opportunities
that electricity presented.

In any event, the idea that software development is immune from the
experience of being undermined by disruptive innovation from low cost
producers is a comforting but dangerous illusion, particularly in
fields where software and hardware development is intimately
intertwined.

Similarly, the idea that the USA has a perpetual lock on software
development is as solid as the idea that Detroit owns auto manufacture
or that the IBM [IBM] owns the PC. The reality is that "ASUSTeKs" of
the software world are already beginning to emerge.

The issue is not hardware or software. The issue is how the firm is
managed. Traditional management is killing both the firm and the
economy. The statistics of the decline are well-documented.

There is another way. Unless we diagnose the problem right, we are not
going to find it.

It is true that software firms are often better placed to practice
radical management, because most of them have some experience with the
subsets of radical management known as "Agile" and "Scrum". But for
all the successful examples of Agile being extended to the whole
organization, like Salesforce.com, there are many more examples of
traditional management effectively killing Agile and Scrum.
Understanding the kind of management that is adapted to the needs of
he economy of the early 21st Century is key to the future.
Is cost accounting the problem?

One reader ("justin431") wrote:

I think it's a bit shortsighted to say the issue is cost accounting.
Dell's problem wasn't that it's method of attributing cost was flawed,
it was that it's business model wasn't globally competitive anymore.
If they didn't take the cost savings from ASUS, competitors like
Gateway, HP, Lenovo, etc., would have and Dell would have lost market
share until they lowered cost or exited the marketplace.

This comment is in fact an illustration of the mental guide-rails
generated by cost accounting. There is an automatic assumption that
when faced with a market challenge the way to be more competitive is
to cut costs. The possibility of adding more value is unconsciously
eliminated.

It would be wrong though to say that cost accounting is the main cause
of these problems. But it is a contributing factor. With decisions and
thinking and values based on cost-accounting and short-term profits,
Dell's fate was sealed. If decisions and thinking and values had been
based on how could Dell deliver more value to customers sooner, the
outcome would not have been predetermined, as Apple [AAPL] has shown.
Did Dell do the right thing anyway?

Another reader ("dismayed") wrote:

The real challenge, in my mind, is that outsourcing is rational. If
Dell hadn't done it, they would have lost market share sooner to
competitors that did outsource. Yes, I suppose that Dell could have
focused more on great hardware design to become the Apple of PC's. But
that could be copied by the companies that outsourced.

I agree that there was no easy course for Dell. (I never promised that
radical management was easy.) It involves a wholly different mindset,
and in effect different lens for understanding and interacting with
the world. That lens will tend to suggest that short-term financial
gain at the expense of core capabilities is a very dangerous way to go
if the company wants to survive.

Part 3: Amazon & Kindle Part 3: It's not just manufacturing!

In many of the generous retweets of my articles, Why Amazon Can't
Manufacture A Kindle In The USA, and Does It Really Matter?, I saw
comments like "a sad review of American manufacturing's decline" or
"disturbing piece on the loss of US manufacturing."

These comments, while being correct as far as they go, miss the key
point of the article, which is only partly about the decline of
manufacturing. The main thrust of the article is the decline of
management. Outsourcing and the loss of whole sectors of the economy
are the consequence of anachronistic management in the Fortune 500
that is ill-adapted to the needs of the modern economy.
The decline is also occurring in software

Thus it's not just manufacturing. it's every sector of the economy,
including software.

For instance, in an interesting video, Jeff Sutherland describes the
pressure to outsource software development overseas when he was
working at Patientkeeper, a Boston-based firm that delivers solutions
that enable doctors to get information about their patients on mobile
devices.

Our board wanted us to do outsourcing at Patientkeeper for years, As
long as I wasn't outside the company running around, I could prevent
it. But then one time, I was teaching Scrum in Europe and our VP of
Engineering was holding down the fort. He agreed to do it.

So we sent a couple of million dollars to India to a team doing
software [in the traditional bureaucratic fashion]. But he kept
careful track of what happened.

He found that at the end of a couple of years, that if Indian software
developers [doing software in the traditional fashion] cost 10% of an
American developer using Scrum, the firm would break even. But they
didn't. They cost 30% of what the American developers were costing. So
he had sent $2 million dollars to India and he had to pay $6 million
to get it back. In a venture-funded company, that's a pretty dumb
thing to do. When we showed the board that data, they agreed. It was
really stupid. They stopped all outsourcing.
Distributed software development can be productive

This doesn't mean that all outsourcing of software development is
uneconomic. As Jeff goes on to explain in that video, a Dutch firm,
Xebia, has successfully grown hyper-productive teams using Scrum that
are geographically distributed.

But Xebia's teams, some in The Netherlands and some in India, are set
up in a counter-intuitive way: instead of having complete teams in
each country, each team is split between the two places, with half its
members in The Netherlands and half in India. The dispersed teams were
at least as productive as colocated teams and sometimes more
productive than the teams located wholly in the Netherlands.

Apparently splitting the teams geographically forced more
conversations among the team about what the client really wanted.
Being forced to explain to the developers in India each day what the
client wanted helped everyone get clearer and so the teams as a whole
tend to become more productive.

Xebia manages the process of dispersion carefully. It grooms the
entire team in Netherlands first. It is only when the team is working
well that they send half the team back to India. Achieving high
productivity in such circumstances requires highly sophisticated team
management.
Learning from Xebia: the centrality of the customer

We can learn several things from the Xebia example:

The problem in outsourcing to India at Patientkeeper wasn't that
the team was Indian. The problem was that the team in India was being
managed in a traditional hierarchical bureaucratic fashion, rather
than using the radical management practices of Scrum.
When the Indian team is also managed with the radical management
practices of Scrum, as demonstrated by Xebia, it can also become
highly productive.
What can't be easily outsourced is knowledge of the customer. The
intimate understanding of what the customer wants and needs depends
upon on-the-ground familiarity with the world of the customer. (For
instance, when Toyota was designing the Lexus, it had to bring its
engineers to the USA to live with the customers for extended periods
so that they would have some understanding of what the customers might
need or want in a car.)

Developed economies and their companies will always lose out to the
emerging economies and their companies if the battle is fought on the
basis of lowering cost (which is where traditional management
generally tries to compete.)

Developed economies and their companies can only win in the long run
if they compete on the basis of adding more value, through superior
understanding and mastery of the world of the customer (which requires
a radically different kind of management).
Is Apple a counter-example of outsourcing?

This finding helps us respond to the question raised by another reader
("tomh") who wrote:

I am missing the point of Apple as an exemplar of Manufactured in the
USA. Apple outsourced the manufacture of iPhones and iPads to Foxconn
(China). How is this fundamentally different from the Dell model? To
the extent that the "chain reaction of decline" cited by Pisano and
Shih is correct, what is the basis of Apple's exemption?

As Pisano and Shih point out in their classic HBR article, Apple
[AAPL], "has been able to preserve a first-rate design capability in
the States so far by remaining deeply involved in the selection of
components, in industrial design, in software development, and in the
articulation of the concept of its products and how they address
users' needs." (emphasis added)

But beware! The difficulties of mastering design while outsourcing all
production to other countries are not to be underestimated. As the
Dell experience, among many others, shows, familiarity with the
intricacies of production can be a key source of innovation in design,
that enables the outsourcee to out-innovate, and ultimately destroy,
the outsourcer.
It's not just the USA

Another reader suggested that my article was "jingoistic" by
suggesting that the USA needs to give more thought to the implications
of shipping key industrial sectors to other countries.

However the article doesn't just apply to the USA. I had similar
conversations in Germany recently, and another reader noted the
applicability of the arguments to the UK.

Still another reader ("barmonster") noted a similar phenomenon in Russia:

Here in Russia we had similar problem with electronics manufacturing
for awhile. Dispute having all critical equipment made entirely on
domestic production facilities (which are modern, but expensive to use
compared to China), consumer electronics production shifted mostly to
China.

What we are talking about is the process by which companies and
economies—wherever they are located—advance or decline. In a
globalized economy, the challenge for all—wherever they are located—is
to keep on innovating.

The USA-a high cost producer–has begun falling behind because the
prevalent approach to management in large companies—hierarchical
bureaucracy—is badly anachronistic and is not adapted to the economic
environment of the early 21st Century, where delighting the customer
through continuous innovation is needed to survive, let alone thrive.
We need different management

Hierarchical bureaucracy is constitutionally unable to innovate on a
continuous basis. Despite what many professors in business schools and
writers in management journals say, hierarchical bureaucracy cannot be
"mended" to generate continuous innovation.

One hundred years of history have shown that hierarchical bureaucracy
can't be adjusted with a fix here or there. It has to be dumped. It
has shown itself remarkably resistant to any and all attempts to
adjust it. It bends a little but triumphantly springs back to its
original shape, with ease.

What is needed is radically different management that has continuous
innovation built into its DNA, with a different goal (delighting the
customer), a different role for managers (enabling teams), a different
of coordinating work (dynamic linking) and different values
(continuous improvement and radical transparency) and different
communications (horizontal conversations). A single fix is not enough:
we need systemic change.
What about the worker?

This finding is relevant to the concern of another reader ("mamamich")
who wrote:

Where in this article are we addressing one of the key factors (IMHO)
in many companies outsourcing or moving wholesale overseas: the
American worker. I managed up to 75 employees for over 15 years and
the lack of work ethic in our employee base is astonishing (and not
getting better with the younger generation I might add).

The statistics about the role of workers are well documented and
deeply shocking: only one in five workers is fully engaged in his or
her work. It may well be true that some workers are inherently poorly
motivated. But it is also true that decades of top-down
command-and-control management in which the talents and the creativity
of the workers are routinely ignored or crushed, management has to
accept responsibility for creating work environments that inspire low
motivation.

The evidence is that when management inspires workers to contribute
their talents, through radically different management, most workers
respond positively, as the experience of Intuit [INTU] or
Salesforce.com [CRM] shows. Those workers who don't respond will need
to move on and take lower paying jobs elsewhere, if they can find
them.

Will everything all work out anyway?

Some Panglossian readers still harbor the hope, despite what they see
on a daily basis in the newspaper and the financial markets, that
everything will work out anyway. As a result of cheaper and better
products becoming available, people will be better off as a result of
all this innovation and firms will appear to be making profits.

What they are overlooking is that if the short-term profits destroy
the firm, as at Dell, and if the process of outsourcing involves the
irreversible destruction of the huge areas of the economy, the end
result will be not just the inevitable death of those firms but also
the impoverishment and joblessness of consumers who will no longer be
able to afford to buy even cheap products.

For instance: once silicon-processing and thin-film deposition
capabilities is gone, it's hard to become a major player in solar
panels. President Obama can talk about investing in solar as a way of
addressing USA's critical problem of lack of jobs. What his economic
advisors don't always grasp is that, because of the traditional
management practiced in this country, most of the jobs created in
solar are unlikely to be in the USA.

Hence the type of management being practiced in the economy and its
consequences become legitimate subjects of fundamental economic public
policy. This however will require deeper and wider understanding than
the economists of Federal Reserve Board of San Francisco have so far
demonstrated.

Part 4: Amazon & Kindle Part 4: Some good news (finally)!

"Sad!" "Depressing!" "Disastrous!" These were just a few of adjectives
with which readers greeted Part 1, Part 2 and Part 3 of my articles on
Why Amazon Can't Make A Kindle In The USA.

Now for some good news!

Emily Maltby has a wonderful and timely article in this morning's Wall
Street Journal, Where the Action Is. She points out that seven cities
across the USA are already fostering the kind of industrial commons
that have been disappearing so fast. "Across the country," she writes,
"new industry hubs are drawing entrepreneurs and investors—and
offering start-ups support and safety in a turbulent economy."

Contrary to popular mythologies that "the earth is flat" or that
'geography is dead," some public and private sector leaders have
grasped the modern implications of the ancient truth: location
matters. Being close to one's peers makes a huge difference.
Forward-looking cities are nurturing entrepreneurs with funding,
mentors and facilities so that they can flourish even in the teeth of
a bleak economy.

1. Indianapolis: Life Sciences

Indianapolis—a quintessential Rust Belt city—is now the center of a
statewide boom in the life-sciences business. It's home to Eli Lilly &
Co. [LLY] and WellPoint [WLP], the largest health plan company in the
Blue Cross and Blue Shield Association. Indiana has added over 8,000
jobs in the life sciences in recent years. Over 800 medical-device
companies, drug manufacturers and research labs are located there.

Big firms are leading the transformation, but they're also helping
smaller companies get started, by spinning off businesses and by
investing in start-ups. Eli Lilly has contributed roughly $60 million
to seed and venture funds that support entrepreneurs. Firms help each
other, with employee referrals, work space suggestions and tax and
financial ideas.

Maltby quotes Ron Ellis, CEO of Endocyte Inc., a 65-employee firm
that's testing a cancer treatment: "We have access to companies in
Indiana where we can outsource functions like toxicology, analytics
and clinical supply."

2. San Antonio TX: Cyber-security

Jeffrey Logsdon moved his cyber-security firm from Phoenix to San
Antonio five years ago and saw revenue double within three years of
the move. Logsdon told Maltby: "I'd attribute a lot of our success to
the location. I think the availability of cyber-security talent and
the low cost of doing business here has helped us. And because there
are so many different cyber-security companies, we have improved each
other's business through partnerships."

There are now more than 80 information-technology and cyber-related
businesses in San Antonio, and that figure is increasing rapidly,
according to the city's Chamber of Commerce.

"The quantity of people here allowed us to show more discernment in
our hiring," says Logsdon. "It was the best place for us to find
qualified and certified cyber-security professionals."

3. Albany NY: Nanotechnology

Albany now has more than 4,000 people in the nanotechnology industry,
centered on the College of Nanoscale Science and Engineering at the
University at Albany. The school doubled in size during the recession
to its current 800,000-square-foot complex. Dozens of nanotechnology
companies have established a presence there to take advantage of
research facilities and business incubators; since 2008, nearly 50 new
start-ups have launched within its walls.

The development was part of a state plan to revive the economy in
upstate New York. Financing came partly from the state and partly from
corporations like IBM [IBM]. which now have offices there alongside
entrepreneurs. Companies share the cost of equipment and labor—and
start-ups get to associate themselves with big names.

"The prestige of being here and the credibility is amazing, which
helps when you are talking with VCs and investors and large
companies," Primal Fernando, CEO of Resource Management Technology
Systems Inc told Maltby. "And the equipment available here is not
available elsewhere."

"Venture capital has been growing to feed the innovation," Alain
Kaloyeros, a physics professor and senior vice president of the
college told Maltby. "Suppliers and law firms are moving to the region
to support this ecosystem, so it will be quite an exciting venture to
watch."

Maltby's article goes on to describe similar developments in

4. Kansas City: Information Technology
5. Asheville, N.C.: Beer Brewing
6. Nashville, Tenn: Health Care
7. Ogden, Utah: Outdoor Sports

Maltby writes: "All in all, these clusters can be ideal spots for an
entrepreneur in the field. Being there means getting access to a much
wider range of suppliers, customers, employees and industry experts.
What's more, industry peers are often willing to support each other as
they get off the ground, sharing recommendations about staffers,
potential sales leads and attractive office space, or giving each
other guidance and insight about the industry."

Who would have thought? Being there actually matters. Duh!

Even more important is the recognition that the problems of
manufacturing and economic growth in the USA are soluble. Decline and
decay are not inevitable. A different future is possible if we do what
is necessary to grasp it.
Taking advantage of location

Location matters, but then, so does management. These regions are
flourishing because of the focus on innovation. If the firms in these
locations ever succumb to the traditional management preoccupations of
efficiency, cutting costs and the outsourcing death-spiral, these
promising industrial hubs will die as quickly as they have been born.

Fortunately we now know what's involved in the kind of radical
management that fosters continuous innovation at firms like Apple
[AAPL], Amazon [AMZN] and Salesforce [CRM] and Intuit [INTU], just as
we now know why traditional management is failing at famous old firms
like Wal-Mart [WMT] or GE [GE]. Knowing how to manage in the 21st
Century is not any more a question of finding out how. We know what to
do. It's an issue of having the courage to get on and do it: setting
aside 20th Century management thinking and moving into the future.

Public sector leadership is also needed for these hubs to flourish.
Politicians, instead of spending their energies on scoring political
points, attacking the public sector as a matter of principle, and
devising wedge issues to divide the electorate, need to spend more
time doing what leaders in these cities have done: understanding the
key role that the public sector has to play in nurturing the economic
future of the country.

Their economic advisers at agencies like the Fed also need to spend
more time understanding what's behind the numbers and begin to
comprehend the people-related issues that will determine the economic
fate of the country.

_________________

Steve Denning's most recent book is: The Leader's Guide to Radical
Management (Jossey-Bass, 2010).

Follow Steve Denning on Twitter @stevedenning

Join the Zurich Gathering For C-Suite Leaders with Steve Denning
Zurich Sep 12, 2011

And join the Jossey-Bass webinar series, "Why Management Still
Matters": Sep 22-Oct 20, 2011: To register, go here use discount code
JBMSD