Ten Thousand Applicants Sought These Manufacturing Jobs At Siemens Factor In Charlotte, But 15 Percent Qualified

photo from Fast Company

photo from Fast Company

Writing in the New York Times, education expert Jeff Selingo described how 10,000 people applied for 850 production jobs at a Siemens factory in Charlotte, and only about 1500 were able to pass tests requiring 9th grade reading, writing and math skills. “In our factories, there’s a computer about every 20 or 30 feet”, said the recently retired chief executive of Siemens USA. Elsewhere in the article, Selingo describes the computer as the “tool box” of the factory floor, providing the diagnostics and adjustments that screwdrivers and socket sets previously done with screwdrivers and socket sets.

In order to find good people, Siemens has had to set up an apprentice program in mechatronics with Central Piedmont Community College, and recruit at 15 high schools in the Charlotte area. Graduates come out with no student loans and jobs that pay more than $50,000 per year. One recent recruit is Chad Robinson, who ranked in the top 10 percent of his high school class and was considering studying engineering at UNC . Robinson said, “A lot of my friends who majored in engineering in college told me they wish they had done the apprenticeship because my work experience will put me ahead of everyone else.” These days apprenticeships are just the beginning of the education process, not the end of it.

This high tech work isn’t confined to the factory floor. Consider farm machinery, which today can mean million dollar reapers in which the operator sits high above the crops in an air conditioned cab monitoring systems while GPS precisely turns them and take them down each row, bar coding what they have harvested. There is a lot at stake financially at keeping these machines running. Selingo describes a program in Walla Walla, where John Deere dealerships pay all the expenses for a two-year community college training program from which technicians move into $40,000 jobs, again, debt free.

This relationship between capital and skills is the subject of a larger study that Selingo references carried out by Ball State University in Indiana called "The Myth And The Reality Of Manufacturing In America". Researchers there showed that about seven out of eight job losses in manufacturing during the 2000's was due to automation, not outsourcing. Just as importantly, though, these researchers found that American manufacturing production has risen upwards along a geometric growth curve since 1920, and is now at its highest point in history. Not as many people work in manufacturing as they once did, but those that remain are producing far more. For durable goods, a particularly area of U.S. strength, production per job more than doubled between 1998 and 2012.

What's most interesting in the Ball State figures is how this productivity correlates with investment in plant and machinery. The highest productivity is in petroleum products, at $733,861 per job, followed by chemical products at $395,718 per job, and computer and electronic parts at $244,473 per job. The lowest productivity is apparel, at $45,930 per job; textiles, at $59,555 per job; and furniture, at $62,438 per job. Guess which industries saw some of the greatest declines in employment since 2000? You guessed it, apparel, textiles and furniture, which fled the American South, which traditionally sold itself based on low-cost labor.

Productivity correlates with investment in plant and equipment, and so do wage levels. Think of the hundreds of millions and even billions of dollars that go into refineries, chip fabrication plants and turbine factories. It takes a lot of engineering, fabrication and maintenance to first design these plants, keep them running, and update them to keep them ahead of competitors worldwide. You wouldn't hire an untrained driver to chauffeur a Rolls Royce, and you wouldn't hire someone who couldn't read technical manuals, write up job reports or make geometric calculations to run expensive and highly automated milling machines.

The mass production of commodities has gone to the Foxconn's of China. U.S. companies are moving to higher-value production in which constant re-engineering is a fact of life. Neither can wait for K-12 or higher ed systems to reform themselves, but must instead get in the training game and engineer new approaches that will deliver skilled people today. A third conclusion is that as manufacturing becomes more automated and re-engineering becomes a constant fact of life, salaries and production jobs will tend to merge in salary level. There will be fewer jobs per company, but those that remain will be higher paying. Forget Foxconn and thousands of workers repetitively moving like machines. The future is people with white lab coats and iPads, wearing hard hats, but doing math.

 

 

 

 

 

 

 

 

 

Why "Advanced Manufacturing" Is A Bogus Term We Still Have To Use

 

In Portland, there's a network of publicly-owned parking garages around downtown that have been branded with the same name and logos: Smart Park. Unfortunately, the logo of a parking attendant wearing a baseball cap and pointing his index finger to his temple makes him look kind of... dumb. In this case, calling something "smart" and trying to draw a picture of it makes it look exactly the opposite.

There are some of the same kinds of problems with the term "advanced manufacturing", the flavor of the month in economic development circles, which, is just as broad in its definition and use as Richard Florida's term "creative class" was ten years ago. Unfortunately, when it comes to making change, you want terms that everyone can understand connect with, but in this case "advanced manufacturing" is a term that may mean something to public policy types but almost nothing to industry.

 

The problem with "advanced manufacturing" is that it implies that there is also a kind of "backwards manufacturing" out there as well, the dull, dirty, repetitious, polluting industry that no one with any level of education ever wanted to work in. While that term may apply to a number of operations owned by the Koch Brothers, most manufacturing companies that are operating today have survived by ladling in just the right level of technology, not too much and not too little. Companies like GM that over-invest in technology sometimes saw those efforts go awry. Ironically, the most technologically
"backwards" are probably urban artisans making craft beer, bread and bicycles, but nobody seems to be complaining about them!

If the name doesn't mean a lot then, what is the intent of the term "advanced manufacturing"? Maybe the important concept is that of the use of advanced materials and machining methods, such as 3D printing, specialty alloys, and digitally-controlled milling machines. Another concept is that of high value-added products derived from customization and the use of special skills. A third concept is that of the complexity of production, of bringing together various complicated steps in one assembly. With these meanings, FoxConn is not an advanced manufacturer, since it is earning thin margins as a contract manufacturer, with the real profits going back to Cupertino. On the other hand, Boeing is, because of the integration of design and production, especially for specialized military orders.

Unfortunately, unless we're willing to use long-winded terms like "tech-based manufacturing" we're probably stuck with "advanced manufacturing" until policy types and real estate brokers get more immersed in the production world of manufacturing and understand how these companies operate day to day. For most communities, unfortunately, "advanced manufacturing" is still more a goal than a reality. When we get to the point when high school teachers know what geometry it takes to running a milling machine, when we teach chemistry as essential to laying up composite materials, then we will know that we have arrived in the new economy. For now, that new economy is elsewhere, in places like China and Germany.

 

 

 

 

 

 

Microbreweries Are Not Selling As Much Beer As We Think They Are

In developing the business plan for a craft brewing, distilling and cider center in Tumwater, WA, I've been reading a lot about the importance of "hip", "local" and "authentic" to younger consumers. The result is ever more artisanal products, sold as having a connection to the land and people and people around us. (Is that screaming child next to you a terror, or does he simply have terroir?). Here's some of what I have learned about craft beer.

 

  1. According to the Brewers Association, craft beer revenues increased 13 percent last year, compared to just .2 percent for the entire beer industry. By value, craft beer now accounts for 20 percent of total beer sales. There are now more than than 4200 craft breweries and brew pubs nationwide.

  2. The states with the largest number of craft breweries are California, Washington, Oregon and Colorado. The state where I live, Washington has more than 300. More and more small towns are getting their own miocrobreweries and brew pubs, even places like Quilcene and Shelton, logging towns here.

  3. Despite the huge growth in the number of microbreweries, craft breweries with a smaller scale of production, a relatively small number of regional craft breweries, just 4 percent of all craft breweries, sell more than 75 percent of all the craft beer made. Their tiny number shows up as the tiny blue line in the chart on the left above. Their big market share is shown by dominant  turquoise area on the right. We say we like to buy local, but the odds are that when you are cruising down the supermarket cooler aisle and reach for a six-pack of craft beer, that beer probably comes from out of state.

 

Why Millennials In Portland Are Willing To Pay $6 Per Quart For Nut Milk

This last Friday I was in Portland, visiting “The Redd”, a new food incubator there, and I fell into conversation with the owner of a start-up selling nut milks for six dollars per quart. I get that his product is healthful and good for the environment, but how, I asked, could he get his core market of Millennials, who is relative terms are marking far less than Baby Boomers did at the same point in the lives, afford to pay this much money? His answer told me a lot about the new combination of the power of place and social media.

Start with the fact that this is Portland, and that being green here is central to the identity that has caused many young people to move or stay here. There’s a starting level of knowledge about food here, especially about sourcing and the environment, far greater than in Seattle or the Bay Area. Next, many of the Millennials are still taking classes in or have recently emerged from university, where they connected to specialized sources of knowledge on things like the number of acres of rain forest cut everyday to make way for grazing. Third, friends are sending them updates every day through social media, so they are not having to scan the entire New York Times website to find a tidbit of fact buried in the 15th paragraph of an article in the food section.

My next question was how new companies can break out of the clutter, particularly when big chains like Kroger, which owns the huge Fred Meyer stores locally, now have organic sections. One answer to that is peer referrals. Small companies that already have a following are referring their customers to new brands that they like, just as professionals do on LinkedIn. The interesting question that is going to emerge is what values and principles these companies share in common, what defines and makes them different? Expect to see a lot more of this, particularly as the federal government weakens formal regulatory standards.   

What I Read To Stay Informed, Year End 2016 Edition

Getting the news and staying informed are not necessarily the same. News is the events of the day, what is happening in Syria. Staying informed is learning what is driving the news, the “why” of events made up of many stories.

For broad coverage, I rely on the New York Times and NPR, and, to a lesser extent, The Atlantic. The Economist is the only news magazine I know of that regularly provides both breadth and depth. Its red-edge special sections are worth keeping. Politico sometimes (but just sometimes) has good deep backgrounders.

For business, I read the Wall Street Journal, Fast Company and occasionally Bloomberg News. Fast Company used to be good, a kind of modern Forbes without the conservative bias, but lately it has become too fixated on design. Bloomberg News, the reincarnation of Business Week, seems to be getting better and better.

For technology, I read Technology Review, put out by MIT, and the business pages of the Seattle Times. I live in a tech region, and while much of the local reporting is a “he said, she said” of bland reportage, there is enough detail about why products succeed and fail to provide some understanding of software and biotech, two industries that are a source of growth nationally.

For urban development, I read Planetizen and the various clippings on real estate development that my colleague Greg Tung, an urban designer, sends me. (It may be that having a collection of smart colleagues like him is the only real way to stay informed.) I used to find Planetizen much more interesting, but now I find that it is too much focus on aspirational planning, like the latest plan for Buffalo, and not enough on why specific projects work. I occasionally scan The New Geography, but the libertarian and intensely pro-suburban biases there can be off-putting. My LinkedIn feeds sometimes take me to good articles by the Urban Land Institute. 

We are in an in-between time. The earthquake of 2008 shifted the tectonic plates of business and society, and the plants growing up in the cracks are still so young and small that they have yet to be noticed by most publications. There is no one hiker’s guide yet to the new economy, just a lot of short reports, and from a lot of scattered sources. If you have suggestions of where and what to read, please send them to me.

 

 

 

 

 

 

The Difference Between Incubators and Accelerators

Before 2008, the word of the moment was “sustainability”, as in worrying about the natural world and our place in it. Today the word is “innovation”, as in worrying about our own local economies, companies and careers. And amidst all this chatter, a number of communities and companies have been opening business “incubators and “accelerators”. What is the difference between the two, and which works better?

In a nutshell, “incubators” are generally publicly-funded co-working spaces where tenants pay below-market rents for shared space and limited administrative services, while “accelerators” are investor-funded programs where portfolio companies give up some equity in return for free space and intense mentoring. Incubator companies enter on their own and generally lease for one to three years. Accelerator companies enter through a selection process with a set of peer companies and leave after three months, usually after a demo day.

The Brookings Institute, Richard Florida, and some solid academic research says that almost all public incubators fail to better the odds of success, that most accelerators achieve no better than S&P returns, and that a few accelerators work. What makes for success? Connections and learning, catalytic events, streamlined regulations, and choosing the right people. But there’s something else: keeping it real when it comest so the product itself. Peter Relan, a programmer, serial entrepreneur, and angel investor, says that people and companies should be screened for solving compelling problems, avoiding those that simply add features to what already exists. There is wisdom in his advice, which implies that success comes not from the razzle dazzle but meeting real needs.

 

 

Why The Jobs Left

There's a great article on the Technology Review website by Mark Muro of the Brookings Institute titled, "Manufacturing Jobs Aren't Coming Back".  The gist of it is that automation, not trade, led to the loss of many manufacturing jobs.  One graphic pretty much says it all:

 

The one fallacy in this article is that just because these jobs aren't here now, they couldn't be here in the future.  Proportionately, more than twice as many people in Germany work in manufacturing as in America, and the wages of manufacturing workers in Germany and other Northern European countries are about 20 percent higher than ours.  

We give up on manufacturing because we assume that we can't replace the old low-skill jobs in which people were essentially part of the machinery of the assembly line, human robots that did things robots could not.  What we miss is the possibility of what we could have if we had a much more better educated and trained workforce, one not necessarily with more college graduates, but with better problem-solving skills; the ability to program, run and maintain machinery; and the writing skills to record events so that those coming on shift know what to do next, much as Apple workers on the support lines do with job logs today.  All this requires a much more pragmatic approach to learning, one in which "engagement" and "application" are the two most important words of education.  Until our workers can even begin to compete with those in Singapore, more and more of our workers are going to be sliding burgers at McDonalds.  

Down and Dirty in The BART Station

I've just returned from a four-day trip to the Bay Area, where Market Street has never looked so lively. The city is bustling with tech money, and especially the young people from other countries, especially India and China, that are flocking here to work for  rapidly growing software companies like Twitter and Salesforce, the latter soon to occupy the city's tallest building.

Imagine my surprise, then, when I went down the escalator to the Powell Street BART station, not far from both the Moscone Center and Union Square, to find trash blowing around the hallways and the white walls grimy with dirt.  Earlier that morning I'd boarded the train at the Ashby station in South Berkeley, where there was also trash blowing around.  The common element in both places?  Homeless people, living outside or in the walkways of the stations.

Being a Westerner, having grown up and gone to college in this region, it shocks me to find the kind of grime and unkempt qualities that we used to ascribe only to places like New York, Boston and Philadelphia, "worn out" places that could not maintain themselves. This is supposed to be the West, where everything is bright and new, where we keep things up.  But the BART system is now almost 45 years old, and they've let it slip.  More importantly, all that economic growth in the Bay Area has created a real "equity" problem, of not everyone sharing in the wealth, and the direct result is that a whole lot of people cannot afford the rent.  That was the real explanation for the dirt I saw in the BART system, that a fair number of people in our society have nowhere to go.  Yes, we need to create more affordable housing, but also yes, we need to raise incomes for people, by creating meaningful and value-added work.  

Things That Work

Amid the Trumpian doom and gloom ("Only I can fix it!"), I'm conscious of the things that work, that keep me moving.

Last week I was trying to get to Oakland Airport, and the BART fare would have been $8. Uber Pool was $5, and the time half. I'd taken Southwest down to the Bay Area, because the airline runs on time, its fare are cheap, and the ticket prices are fully transferable. The day before flying I'd been on the phone with Apple service, for which I'd gladly paid $300 for an extra three years of support. Apple keeps my my phone, my desktop and my laptop linked together, and every time I call I get great service, even at 5 in the morning.

In an otherwise chaotic world I love having things that I can count on and people who don't take me for granted. Like global warming, the pack ice of our institutions is breaking up, and we feel alone on our own little bergs. There's opportunity in this, for the places and institutions that show they care, and that will make themselves reliable to prove it.  

New York Times Poll: Nearly Half of All Chicago Parents With Children Want to Leave

Image from SimCity.

Image from SimCity.

In Sim City, your residents leave if you run the place poorly.  In real life Chicago, half of all parents want to.  It’s hard to think of a more biting metric.  The biggest problem is that many people can’t afford to.

Expect to see the media ask this question again in places like Bridgeport, Cleveland, Detroit, and Flint, where, even if there were great leadership, it will be hard to turn police and schools around.  Meanwhile, expect a 'great sorting' as people move to where they have hope for their kids.  That's what drove most families to America in the first place.

Chapel Hill Journal: A Brand Is A Promise Fulfilled

For the last year I’ve been working with the Town of Chapel Hill to take its place on the map as one of the country’s great research and development centers.  The others include Palo Alto, Berkeley, San Diego, Boulder, Madison, Austin, Pittsburgh and Boston.  Chapel Hill has world class bioscience and social science research at UNC, but not the jobs, and we are working to brand the place and create more room for business.

The question is how to identify Chapel Hill nationally as a place where the post doc can finally settle down and have a life.  It’s one thing to say Chapel Hill is the “Boulder of the South”, but Boulder stands for athleticism and the Rockies, and that doesn’t give Chapel Hill its own identity.  

If a brand is a promise fulfilled, what is the promise of this place? After a year of working on this, I’ve found that the image above conveys the right feeling:  stately trees, rock walls, and genuine conversation.  That’s not "hip",“urban”, and “innovative”, but in a world of digital everything, it is genuine people and place.   I find myself looking forward to my trips there, not just for the work, but for the good conversation at the end of the day.

Civil Society Retakes Modern Rome From the Vandals

Embankment along the Tiber with procession of historical figures created with templates and power washing.

Embankment along the Tiber with procession of historical figures created with templates and power washing.

In Rome, the Eternal City of chaos, citizens are creating a kind of reverse graffiti while cleaning up their city.  An April 27 New York Times describes how “Retake Rome”, a group with 30,000 volunteers, spends weekends cleaning up the streets and piazzas of the city, which have become filled with trash.  Its latest effort used stencils and power washing to selectively remove grime along the embankments of the Tiber, leaving a 500-yard procession of historical figures that includes Romulus and Remus, Cicero, Bernini’s (erotic) scene of St. Theresa in ecstasy, and characters from “Dolce Vita”.

The “Retakers” are led by Rebecca Spitzmiller, an American professor at a Roman university, who says that Italians have become accustomed to government dysfunction. The “are used to being told what to do and what not to do, and then breaking the rules in any case”. Maybe an American in Rome has something to teach us, about simply making things happen:  “Friends, Romans, countrymen, lend me your hands.” 

Chasing Your Tail

This week I spoke with a public official about whether to keep or redevelop an old exhibit hall.  A consultant claimed that every dollar spent there had six dollars of impact.  But with most of the spending from local people attending day shows, little of this “impact” was money new to the economy.  The “impact” number was like the RPM on an animal chasing its tail, and not a measure of how far or fast it was actually traveling.

Pride and prosperity--real wealth--comes from adding value in making and selling something to the world.  Several years ago the city manager of Port Townsend asked me to measure the economic importance of leading industries there, which include tourism and boatbuilding.  The single largest local private company is Safeway, which enjoys a good business selling beer and charcoal briquets to tourists.  Clearly, though, most of the money that comes in for this  goes back out to pay Budweiser and Kingsford for the cost of goods sold, a REIT for rent, and Puget Sound Electric for power.  Meanwhile, across town in the boatyard,  about 70 percent of  $500,000 repair contracts goes to local boatwrights, electricians, riggers, and naval architects.  Where do you think more of the spending stuck?  Which activity is really moving putting the food on the table for this place?  In practice, it takes both, but we need to give special attention to the “traded sector” activities that really bring the money in.

Sixteen Candles

Yesterday I was on the phone with Dwight Bassett, economic development director of Chapel Hill, who had just come back from Boulder.  Dwight and I have been working together the last year, trying to figure out how to bring more jobs to build on the the phenomenal, world-class research in his town.  (A professor at UNC won the Nobel last fall.)  Dwight had just come back from a site visit to Boulder and he was overwhelmed by number and diversity of good jobs there.  We talked briefly about “catalytic” actions, but soon enough gave up this line of reasoning, deciding that you cannot turn things around so easily, with just one or two actions.  Instead we latched onto the analogy of lighting up a dark room with candles.   Light one and  the room is no longer in darkness.  Light two, and now the pool of light extends beyond the table.  Light three and now you can see the details of your surroundings.  And so on until the room is bright.  The same is true with economic development:  there is no switch on the wall:  It takes simply takes a lot of candles and more than one person to light them.

The Sweat of Their Brow

In reviewing our family expenses, I’m struck by all the small charges for ITunes.  $2.71 here, $3.31 there.  These are intangible purchases, but the costs add up.  This made me think of the borax mines and 10-ton wagons I saw in Death Valley last week while vacationing with my family.  The temperature there was 80 degrees at 8 a.m., 100 degrees at noon, and, by 4 p.m. up one rocky canyon, 112 degrees, with no trees for miles.  But this didn’t stop people from mining there 100 years ago, with the borax going out in three-wagon teams pulled by 20-mule teams.  These headed up hot twisting canyons, the mule-skinners cracking their whips to direct the teams to pull around rocks.  That borax went into harsh laundry soap sold to factory workers, miners and other people who couldn't listen to iPhones as they worked.  The wealth of mining borax was built on the sweat of their brow.

 

Are Downtowns Dead As The Center Of Things?

14TH STREET IN WASHINGTON, DC IS NOW A HUB OF ACTIVITY AT NIGHT, BUT IS IT THE CENTER OF THINGS, "DOWNTOWN"?

14TH STREET IN WASHINGTON, DC IS NOW A HUB OF ACTIVITY AT NIGHT, BUT IS IT THE CENTER OF THINGS, "DOWNTOWN"?

In 1963, Petulia Clark’s “Downtown” hit the top of the charts. It described downtown as the center of things, its bouncy lyrics running “You can forget all your troubles, forget all your cares, and go…Downtown..Things will be great when you’re… Downtown…Everything’s waiting for you.”

Today, in many places, we are still trying to bring back the downtown, but can it ever be the place where "everything's waiting for you"?  Driving in Washington DC last week, 14th Street certainly looked like downtown, but Columbia Heights, five metro stops to the north, had its own kind of energy, with a Target, Staples, Best Buy, and Marshalls all stacked into one tall building, and plenty of new apartments and bars surrounding a plaza across the street.   And there are dozens of other places in the DC metro area like that one.   If downtown isn't the center of things now, where is?

Perhaps nowhere.  Baltimore’s Inner Harbor is a tourist zone anchored by a Cheesecake Factory.  Hipsters are moving to Brooklyn, not Manhattan.  Wall Street has become a place where people actually live.  Rather than one center, one downtown, we are now in the era of the multi-centered city, the network city.  The real model of the future may be less New York than Los Angeles, which was laid out as a network of places with towns and cities like Santa Monica, Long Beach, Pasadena and Glendale anchoring the hinterlands around them.  These used to be separated by farms and ranches, but today the gridlock on the freeways forms a new kind of separation, forcing people to go local in both their work and play, leading to the creation of more face-to-face places.  This isn't downtown, "where the lights are so pretty", but it is a very 21st century way of living, one we need to recognize both in how we position places and how we allocate the public investment.

GE and Industry’s Return to the City

(Written by Rod Stevens, this article first appeared on Planetizen.com)

On the surface, GE’s move from suburban Stamford, CT to the Seaport District of Boston seems like part of the now-established story of the corporate return to the city. For GE, however, this is not just another headquarters move, but part of a transformation from an old line manufacturing to a “digital industrial” company, a transformation that could add a trillion dollars to its stock value. Yes, you read that correctly: a trillion dollars.

GE’s move is part of a larger industrial renaissance in places like Boston, Pittsburgh, and the Bay Area, which are becoming home not only to software and biotech companies, but engineering start-ups as well. The industrial renaissance is redeveloping old factories factories and warehouses into “hardware” communities, with shared tools and expertise. This renaissance is also turning these places into some of the leading workshops of the world, and a magnet for manufacturing companies like GE.

A Quiet Blueprint For Change

alohadave / Shutterstock

About 18 months ago Marco Annunziata, GE’s chief economist, wrote a little-remarked upon white paper called “The Value of Connectedness,” in which he described the value to industry of creating networked devices to keep trains and planes moving. He described a vision of GE essentially becoming the Microsoft of the industrial world, connecting the world together with smart devices. But the word “value” in the title of this white paper had a double meaning, and toward the end of the white paper he described how repositioning the company as a “digital industrial” company might lead Wall Street to revalue GE’s stock more like Tesla’s. Annunziata wrote:

Market valuations currently indicate strong investor confidence in the ability that software-driven companies have to create value, especially when compared with traditional industrial companies. Price to sales multiples are in a relatively tight 1-1.5x range for traditional companies such as industrial conglomerates…By contrast, multiples for software-driven industries average around 5x… Companies that position themselves at the intersection of digital and physical within industry should see their valuations move closer to those of software-driven companies…[1]

At the beginning of 2016, GE carried a market valuation of about $300 billion. If the company can get itself revalued as a “digital” company, it could gain up to $1 trillion in value. That’s worth moving to Boston for.

A World Of Machines That Talk to Themselves

This is not just talk. The McKinsey Global Institute projects a total economic impact of the “Internet of Things” at a minimum of $3.9 trillion in 2025.[2] Rather than looking at value through the traditional lens of industry clusters (transportation, health care, manufacturing, etc.), McKinsey measured value in terms of “settings”—places where people use interconnected devices. This is where the surprises come in. While smart devices like Fitbit watches and Nest thermostats are getting the most of the attention today, the much greater value tomorrow will be in connecting factories and work settings (a minimum of $1.2 trillion in savings in operations, inventory control, and health and safety), rather than the home ($0.2 trillion, primarily for security and energy). Besides the workplace, the other major settings will be cities (about a $1.0 trillion in value for public safety, traffic control, and resource management), “outside” (as in rivers, skies, and highways—about $600 billion in savings on logistics and vehicle routing), and retail environments (about $400 billion in savings on inventory control, automated checkout and better layouts).

GE has already set up a central in-house software center in Pleasanton, CA, where it has committed a billion dollars and hired 1000 engineers. But to win big, GE needs outside developers and mechanical engineers to write for its Predix operating system. This means creating software and devices that don’t just find, locate, and control what moves around us, but also analyze and take action. Imagine the overheating wheel bearing on an oil tank car calling for help before it seizes up and spills oil into a nearby river.

In the DNA

Boston’s engineering environment is a good part of the reason it is moving there, but it isn’t the only “hardware” center in the country. (That’s “hardware” as in smart devices, not monkey wrenches and plumbing elbows.) Across North America, venture capitalists and big companies like GE are now hardware incubators not only in Boston (Greentown Labs and soon-to-open Mass Robotics) but also the Bay Area (Lemnos Labs, Highway 1, and Startx), Pittsburgh (alphalab), Los Angeles (Los Angeles Cleantech Incubator), and New York City (New Lab). These incubators typically share office space, a machine shop, a kitchen, and meet up space, to say nothing of the casual exchange of “how-to” help, financing and legal help, and personnel leads.

All of these places have major engineering schools, like MIT, Stanford, Berkeley, and CalTech. (New York City has effectively bought a branch of Cornell, now in Chelsea, which will soon move to Roosevelt Island.) Beyond these academic strengths, all of these places have a deep history of making things. In 1950, New York was America’s biggest manufacturing center, with Grumman anchoring a big base of industry on Long Island. Pittsburgh still has world-class expertise in alloy metals and machining. The Boston area still has a machining industry anchored by rich defense contracts. The difference is that today’s start-ups are focusing on smart, high-value, low-volume devices, for which the flow of people and ideas is vastly more important than freight costs.

Not Your Father’s Foxconn

For the last 50 years, industry has moved out to the suburbs, generally locating in big, tilt up boxes located behind landscaped berms along America’s freeways. But this new generation of hardware start-ups has gone back to the city, because this is where the young engineers want to live. Not coincidentally, many of the new hardware firms are within a ten-minute bicycle of a major university or gentrifying streetcar neighborhoods.

Generally speaking, these locations are not the “innovation districts” like East Cambridge or South Lake Union in Seattle, where well-established software and biotech companies can afford to pay top dollar rents for newly constructed lab and office buildings. To the contrary, they are often located in the overlooked-over old factories on the wrong side of the rail tracks near the cheaper neighborhoods, buildings that have sat empty or functioned as mini storage for the last 20 years. But as Jane Jacobs said, “new ideas often need old buildings,” and these start-ups are sparking the rebirth of these old industrial districts. It is not just the start-ups, but a whole ecosystem of uses that nurtures a new generation of talent and companies. Uses include gyms, cafes, and breweries.

Take Greentown Labs, for example, located a ten-minute bicycle ride north of MIT in the old factory complex of the old Ames Envelope Company, itself put out of business by the internet. Walk down the street there and you’ll find not only Greentown Labs but Artisans Asylum, a maker space where about a quarter of the tenants work on robots; Brooklyn Boulders, a rock gym with a work space on the mezzanine above; Aeronaut Brewing; a yoga studio and judo club; an Indian grocery store; Tasting Counter, a restaurant which wraps the seating around the food prep; and, AirCraft Aerial Arts, with slings, swings, and a trapeze for the circus-y inclined.

Greentown and Somerville are a peek into the future, a view not just of what we may be working on—hardware and tangible technology—but of how we’ll be working, the mixing and matching of different parts of our lives. Both companies and communities need to take note of this. GE already has, both with its sponsorship of Greentown Labs and its move to Boston. For that company, staying ahead of this change is a trillion dollar proposition. For communities, there is something equally valuable at stake: the pride and prosperity that comes with high-paying, value-added work. There are questions about how to translate this prototyping of new devices into production that puts more people to work, and how to find space for this growing industry in the city, somewhere other than expensive new office buildings. These are the practical questions that need to be answered next.


[1] Annunziata, Marco, “The Value of Connectedness,” page 11, undated but circa August 2014.

[2] Page 7, McKinsey Global Institute, “The Internet of Things: Mapping the Value Beyond the Hype,” June 2015 Executive Summary.