Why U.S. Manufacturers Need to Put People First

American manufacturing isn’t exactly a growth sector, even though it has staged a comeback from the last decade when it looked like China was headed to produce nearly everything U.S. consumers wanted.

U.S manufacturing remains 12% of GDP, but employment is low. The U.S. lost 2.5 million manufacturing jobs between 2007 and 2009, and gained back 600,000 as of the third quarter of this year, according to U.S. Labor Department data.

“I tell CEOs all the time that technology is the easy part; it’s people that are hard; but if you don’t get the culture right, I have two words for you—Wells Fargo.”

But do manufacturing leaders have what it takes to steer the industry into longer-term renewal?

Technology—particularly robotics, sensors and cloud computing—have automated many of the processes, making a large resurgence of employment unlikely. But the sector’s critical struggle today is attracting skilled talent. Manufacturers must compete with Google, Amazon, Facebook, and Microsoft for software engineers. Big manufacturing companies such as GE, Boeing and IBM have been busy repositioning their companies to be more appealing to young tech grads, but what about the vast mid-market and smaller companies?

Steven L. Blue, CEO of Winona, MN-based Miller Ingenuity, a mid-size supplier of mission-critical systems and engineered products for the global railroad industry, thinks his colleagues in manufacturing are still missing the big lesson of the last 15 years.

In a just-published book, American Manufacturing 2.0: What Went Wrong and How to Make it Right, Blue said the great majority of manufacturing company leaders continue to focus on the wrong things—what he calls the hard stuff (joint ventures, mergers, technology)—when they should be focusing on the  “soft stuff”—people and culture. “I tell CEOs all the time that technology is the easy part; it’s people that are hard; but if you don’t get the culture right, I have two words for you—Wells Fargo,” said Blue.

Core values are the things that differentiate a company from others that have the same equipment and allow it to do something different and better, even when they may be up against an offshore producer.

Blue points to Northern Woolen Mills of Fosston, MN. The U.S. wool industry ranked fifth in 1940, but plummeted to 11 after foreign producers were able to cut prices owing to low labor costs. Stephanie Anderson and her team cobbled together $755,000 to buy the defunct mill, thinking new design and creativity could capture a niche in the market. For Anderson, the critical key was employee empowerment. When competing with producers in China and India who are paying cents per hour to its workers, while Northern Woolen is paying real wages to its workers, it is incumbent on Anderson to get real feedback from employees to be efficient and add value.

“The salvation of American manufacturing is in the human spirit,” Blue wrote in his book. “Many societal and technology trends have influenced the need for employees to be a free spirit. Their lower-level needs on the Maslow hierarchy have been met. They long for something more. And they long for it in the workplace.”

Blue believes that the ideal culture CEOs should strive for is what he called the “Cirque du Soleil” employee workforce. He admits Miller Ingenuity hasn’t achieved it, but it’s something to strive for.

Another example is Google, where employees feel fired up to come to work, and which was the inspiration for the “creation station”—a high-tech innovation space he built on his company’s premises at a cost of half a million dollars. He expects workers to spend 20% of their time there creating new ideas or perfecting existing ones. (A chief creativity officer helps guide people in their structured activities.)

One result of this was a device that allows railroad controllers to automatically switch rail cars from one track to another without human intervention in rail yards. The product reduces fatalities owing to switching accidents. Another product reduced the excess oil that railroad engines tended to lose in the normal course of operating thus greatly reducing such deposits into the environment. “Every process improvement idea that came out of there paid off in two years,” he adds.

Many CEOs he has spoken with about his idea told Blue he was crazy to spend the money on something so soft. “Just tell people what to do and they’ll do it,” they would tell him. It was this dismissive mantra that prompted Blue to write the book. He wanted to instill in them the importance of creating an employee-centered culture.

“They don’t seem to be aware of the death spiral they face,” he said. I tell CEOs that if they put people first, profits will follow.” Elsewhere in his book, Blue noted that if every company improved its operations by only 1%, “the overall health of manufacturing and the U.S. economy would be staggering.”

J.P. Donlon :J.P. Donlon is Editor Emeritus of Chief Executive magazine.