Use Open Services Innovation to Restore US Competitiveness

As the US economy begins to recover from the devastating recession of 2008 and 2009, our trade deficit with China is again growing.  The rise of China and other emerging economies is triggering reflection here in the US about how to restore our competitiveness.

An important perspective on this issue is how we plan to innovate in the future.  Some advocates of competitiveness seem to want to go back to the 1980s, when the US was facing a significant challenge from Japan.  In response, US industry finally got religion on quality, and passionately embraced total quality management, six sigma process control, and managed to dramatically improve the quality of many products.

In this new generation, though, I think that this is not the right conceptual model for us to restore competitiveness.  Our problem today is not poor quality, but rather our (relatively) high costs of making products in relation to the factories that have emerged in places like China, India and elsewhere.  We find ourselves in a commodity trap, where making more investments in product manufacturing and product innovation seems to yield little in the way of revenue growth or profits.  (See Richard D’Aveni’s work on commodity traps if you want to learn more about how they arise and how to escape them.)

A recent tear-down analysis of the Apple iPod provides some quantification of where we can obtain value, and where we can’t.

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Image via flickr.