Georgia Institute of Technology released its 2005 Georgia Manufacturing Survey today. The study showed that "companies basing their competitive strategies on the development of innovative products or processes enjoy higher returns on sales, pay better wages and have less to fear from outsourcing than do manufacturers relying on other competitive strategies."

Georgia manufacturers that rely on innovation for their competitive edge reported returns on sales 50% higher than companies that compete by providing low cost products – a gap that grew substantially since the last survey in 2002. Innovative companies paid workers a third more than the average Georgia manufacturer and were 40% less likely to lose work to outsourcing than were companies competing on low cost.

The sales figures reported by the companies following an innovation strategy are even more astounding because these companies made up only 8% of the total of 648 manufacturers who responded to the survey. Here's the breakdown of competitive strategies reported by survey respondents (adds up to more than 100% because some companies reported more than one strategy):

# Providing high quality products and services (53%)
# Offering the lowest price (20%)
# Adapting products to customer needs (14%)
# Providing quick delivery of products or services (12%)
# Including value-added services with products (10%)
# Developing product innovations and new technology (8%)

The idea that 53% of the companies surveyed believe that providing high quality prices and services is a worthwhile competitive strategy amazes me. High quality is table stakes, not a strategy. These companies, and the 20% that are competing on a low-price strategy, are the companies that are going to lose to outsourced competitors. Indeed, the survey also showed that 18% of Georgia manufacturers lost work to international outsourcing between 2002 and 2004.

So what public policy recommendations should flow from this? Certainly it seems to be a better idea to stimulate innovation rather than to restrict outsourcing. But how can that be done? If the problem is money, perhaps government grants could be made available to companies for investment in innovative strategies. I don't think money is the entire problem, though. The problem is more likely that companies don't realize the value of innovation compared to other competitive strategies. How to remedy that is a real quandary.

Source: Study shows value of innovation to manufacturers as outsourcing's impact