A New Industrial Revolution: The Innovation Economy and Manufacturing

The factors that led to economic success in the industrial era are well known: access to land, labor, raw materials, capital, machinery, and innovation. Today, all of those traditional advantages are falling away except one: innovation. We are leaving the industrial economy and entering the innovation economy, where manufacturing is a commodity and the idea […]

MANUFACTURING, BY DEFINITION, IS THE PRODUCTION OF THINGS ON A LARGE SCALE. FROM HENRY FORD ONWARD, THE ABILITY TO MASS PRODUCE PRODUCTS HAS GENERATED UNTOLD AMOUNTS OF WEALTH AND TRANSFORMED THOUSANDS OF COMPANIES INTO HOUSEHOLD NAMES. BUT THAT ERA IS COMING TO AN END.

The factors that led to economic success in the industrial era are well known: access to land, labor, raw materials, capital, machinery, and innovation. Today, all of those traditional advantages are falling away except one: innovation.

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

Those ideas won’t be limited to the products or services that you sell, either. Amazon’s 1-Click idea (now patented) has nothing to do with the products that Amazon sells, only with how they are purchased. Indeed, managing innovation throughout the value chain – from research and design to delivery and aftermarket service – has become the key to corporate success.

Companies that own and leverage the rights to products and services – rather than those that manufacture, sell, or distribute them – will be the most highly valued. Calling cards such as “Designed by Apple in California,” will become much more common as the value shifts from making things to dreaming them up (see “What Became of the Factors of Production?”).

Instead of designing, manufacturing, and delivering products, companies will design, manufacture, and deliver IP. Current and emerging production technologies, including mass customization, nanotechnology, and 3D printing, are already letting manufacturers rethink their traditional approach of producing enormous quantities of highly standardized products.

Customers will be at the center of this new economy. Today manufacturing is designed for manufacturers. In the innovation economy, manufacturing will be designed for – and in part by – customers.

The customer relationship will no longer be simply about better customer service or more targeted marketing initiatives. In the innovation economy, companies will have to incorporate customer feedback directly into the value chain. No matter what the channel, whether in-person, social media, or apps and devices, customers will become active participants in all parts of the value chain, from development to delivery.

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About the author:

Rob Hand is vice president of business development and innovation at SAP Labs.

Ruediger Eichin is research manager and innovation coach at SAP.

Reiner Bildmayer is a senior researcher at SAP.

Stephanie Overby is an independent writer and editor, focused on the intersection of business and technology.

Tags:

Innovation Economy