Manufacturing and services - the fusion

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In my posting of new reports back in January, I included Bill Bonvillian's article "Reinventing American Manufacturing: The Role of Innovation". The piece is a good discussion of the state of policy on manufacturing, including a number of excellent recommendations. I would like to highlight step #4 of his 9 steps toward manufacturing innovation: the fusion of manufacturing and services:

The 21st-century firm increasingly fuses services, production, supply-chain management, and innovation. Many of these capabilities are knowledge intangibles rather than fixed assets, and will require learning to tie advanced manufacturing (including new technologies, equipment, and processes) with IT-informed service models.

IBM was probably the first large firm to create the modern fused model. When CEO Lew Gerstner arrived at IBM to pull it out of a financial crisis, the prevailing approach at the time was to carve up firms into smaller focused units and sell them off.52 Gerstner decided to do the opposite, electing a unified firm with great breadth, keeping its historically strong R&D with a range of IT hardware offerings, and tying both to a new services effort, which offered customers not only technology but what IBM called "solutions" to IT challenges. The result was one of the great business turnaround stories in the late 20th century. IBM's fused model subsequently was emulated throughout the IT sector.

It should be noted that the fused production/services model doesn't have to be vertical and integrated into single firms; it can be horizontal and include links between firms that have a range of services and production capabilities, thereby leveraging specialized capabilities from particular partner companies. Moreover, the model is not only about business organization; there are increasing numbers of merged products with both hardware and services features. Apple's iPod is emblematic of this approach, as it combined a capable MP3 player with a new highly efficient and low-cost system for delivering music, and now other applications. When the "business model" stage of advanced production is being planned, the fused services/production approach must be considered.


Well said.


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