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5 Ways to Win in the Innovation Economy

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5 Ways to Win in the Innovation Economy2 NO. 31©2013 SAP AG or an SAP affiliate company. All rights reserved.

Manufacturing Has Become a Commodity. So What’s Next?

We are leaving the industrial economy and entering the innovation economy, where manufacturing is a commodity and the idea – intellectual property (IP) – trumps all.

We see 5 ways that manufacturers will have to adapt.


The total value of intangible assets in the U.S. economy jumped from $5.5 trillion in 2005 to $9.2 trillion in 2011. There are three categories of intangibles:

1 Learn to Love Intangibles

Sources: Sonecon, A New Industrial Revolution: The Innovation Economy and Manufacturing

•Human capital. Individual employees’ skills, such as professional expertise and skills, social abilities, entrepreneurial engagement, and the ability to innovate and respond to changes, are an increasingly large slice of company value.

•Relationship capital. A company’s business relationships with third parties have become critical to overall value, including customer relationships, marketing and distribution partnerships, brand value, supplier relationships and networks, and manufacturing contracts.

•Structural capital. There’s immense value in a company’s collective knowledge, such as business processes and infrastructure, working methods, information systems, IP (patents, copyrights, trademarks), organizational design, and corporate culture.

$ 5.5 trillion in 2005

$ 9.2 trillion in 2011

Value of Intangible Assets (US Economy)

http://bit.ly/1d5t1gL


• Extreme commoditization and extreme customization. Depending on their passion for the product, customers will want it either exactly to their specifications or with the most common features at the lowest possible price.

•Customer input at every stage. Through technologies like social media and 3-D printing, customers will become part of the entire value chain.

•Production closer to customers. Manufacturers will also move production closer to customers around the globe to decrease product cycle times and increase their make-to-order capabilities.

Today’s consumers want their cars in the color of their choosing, with their handpicked options. And they want them now. Here’s how those demands will affect manufacturers:

2 Expect the Customer to Be Involved

Source: A New Industrial Revolution: The Innovation Economy and Manufacturing



•Additive manufacturing. Additive manufacturing is the method of making products and components by depositing thin layers of material using a digital blueprint (as opposed to traditional subtractive manufacturing, which uses machine tools, such as lathes or milling machines to remove material to produce an object). Examples include 3-D printing, laser sintering, and cold spray coating.

•Nanomanufacturing. Referring to manufacturing at the atomic level, nanomanufacturing can be either top-down (reducing larger materials down to the nano scale) or bottom-up (building things from molecular components).

•Self-assembling components. Components interact with each other spontaneously to build an ordered structure. A focus of research for years at the molecular level, it now holds promise at larger scales as well.

•Biomanufacturing. Biomanufacturing is the process of creating products out of biological materials, from pharmaceuticals and chemicals to paper and food.

•Robotics. Industrial robots have proven their worth on the shop floor for repetitive tasks, but future advances in machine learning and predictive analytics will enable a more proactive robotic workforce that could make it less cost prohibitive to move production facilities closer to customers.

New production technologies will enable advances in efficiency, flexibility, and overall productivity. Here are some examples:New production technologies will enable advances in efficiency, flexibility, and overall productivity. Here are some examples:

3 Master Innovation Economy Manufacturing Technologies




Companies must maintain a close connection to their ecosystem of partners in order to ensure that innovation continues to flow through the company.”

“4 Don’t Forget How to Make Things

Source: Q&A: What Happens When an Idea Becomes the Product?

– Olivier de Weck, professor of aeronautics and engineering systems at MIT and executive director of the MIT Production in the Innovation Economy Study

http://bit.ly/1seFOHV


5 Reorganize Around InnovationFor manufacturers to shift their focus to innovation as the primary driver of enterprise value, they must successfully manage a number of key trends:


•Track ideas, not just parts. Companies will need to revamp their systems to monitor their IP from ideation through a much more distributed production and logistics environment to maintain quality and meet local needs.

• Join the manufacturing web. The social manufacturing web will include connections to public research laboratories and universities, customers, suppliers, and networks of smaller, localized production facilities.

•Double down on efficiency in manufacturing processes. Manufacturers must squeeze every bit of productivity out of machines, people, and processes and outsource when others can better achieve the objectives of cost, quality, and speed.

•Shrink product life cycle times. Manufacturers will need to harness their global innovation processes to deliver IP to the customer as quickly as possible, whether in the form of a finished product or something that’s 3-D printed.

•Keep manufacturing local and innovation global. Resources, labor, and management should be local to get closer to the customer, while innovation processes will become collaborative and globally connected to better understand the customer in as many different geographies and contexts as possible.

•Monitor intangibles. As the value of intellectual capital eclipses that of physical and financial assets, companies must learn to track, measure, and manage them the way they have their financial and physical assets.



There’s MoreThe SAP Center for Business Insight is a program that supports the discovery and development of new research-based thinking to address the challenges of business and technology executives.

TO LEARN MORE, READ A NEW INDUSTRIAL REVOLUTION: THE INNOVATION ECONOMY AND MANUFACTURING, AN IN-DEPTH REPORT FROM THE SAP CENTER FOR BUSINESS INSIGHT.



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