TABLE OF CONTENTS

FOREWORD........................................................................................................................... iii

EXECUTIVE SUMMARY..................................................................................................... vii

CHAPTER 1: ORGANIZATIONAL ALLIGNMENT WITHIN THE

DEPARTMENT OF COMMERCE................................................................................. 1

Technology Administration........................................................................................................... 1

National Institute of Standards and Technology............................................................................ 2

Manufacturing Extension Partnership Program.............................................................................. 2

CHAPTER 2: CURRENT MEP BUSINESS MODEL......................................................... 7

Management System.................................................................................................................... 7

Operating System........................................................................................................................ 8

Funding Systems........................................................................................................................ 11

CHAPTER 3: BASIS FOR NEW BUSINESS MODEL .................................................... 15

Background—State of Manufacturing........................................................................................ 15

Underlying Need to Expand Services......................................................................................... 16

Center Performance................................................................................................................... 17

Improving Center Performance.................................................................................................. 18

Conclusion................................................................................................................................ 19

CHAPTER 4: PROPOSED MEP BUSINESS MODEL..................................................... 21

MEP Service Mix...................................................................................................................... 22

Management System.................................................................................................................. 29

Operating System...................................................................................................................... 35

Funding System......................................................................................................................... 38

CHAPTER 5: WHAT MEP CAN LEARN FROM OTHER

BUSINESS MODELS...................................................................................................... 41

Recommendations Based on Other Models................................................................................ 46

CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS...................................... 49

Recommendations..................................................................................................................... 50

FIGURES AND TABLES

Figure 1-1: MEP Program Management Staff Office Organization Chart................................... 3

Figure 2-1: Current MEP Business Model................................................................................ 7

Table 2-1: Manufacturing Extension Partnership Services....................................................... 10

Table 2-2: Breakdown of Technical Assistance in FY 2003 by Substance Codes................... 10

Figure 4-1: Proposed MEP Business Model........................................................................... 22

Figure 4-2: Manufacturing Extension Partnership Planning Model and Schedule....................... 31

Table 5-1: Federal Agency Model Matrix............................................................................. 47

APPENDICES

Appendix A: Executive Summary and Methodology: Report 1—Re-Examining the

Core Premise of the MEP Program...................................................................................... 53

Appendix B: Other Federal Agency Models with State-Based Operations .............................. 57

Appendix C: Organizations with Whom MEP Could Enhance its Partnering and

Collaborating Relationships ................................................................................................. 83

Appendix D: MEP Center Performance Assessment................................................................. 93

Appendix E: Statistical Analysis of Performance and Center Profiles ...................................... 101

Appendix F: Communities of Practice..................................................................................... 105

Appendix G: Panel and Staff................................................................................................... 109

Appendix H: Glossary............................................................................................................ 113

EXECUTIVE SUMMARY

Phase I of the Study

The first phase of this study^{^[1]} found that small manufacturing firms, which account for 7 percent of the U.S. Gross Domestic Product, face enormous challenges in their efforts to remain competitive in today’s global economy. For the last 15 years, the Manufacturing Extension Partnership (MEP) Program has operated as a partnership among federal, state, and local organizations and institutions (including the private sector) to help small manufacturers improve their performance.

The initial phase of this study found that although there are still barriers to improving small manufacturers’ productivity that were identified in earlier studies, their relative impacts have changed. These barriers include: the regulatory environment creating a disproportionate burden for smaller firms; the relative unfamiliarity of smaller manufacturers with changing technology, production techniques and business management practices; the general isolation of small manufacturers which allows for little interaction with other companies in similar situations; small company owners and manager’s difficulty in finding high quality, unbiased advice and assistance; and, the difficulty small and medium-sized manufacturing firms have obtaining operating capital and investment funds to modernize.

Additionally, several other factors have grown in importance. They include rapidly increasing competition from low cost countries in terms of the number of competitors and the quality of that competitive output; the explosion in the availability of information and information technology; small manufacturers’ insufficient access to knowledge workers , and the high cost of providing employee health insurance,

On balance the Panel found that the MEP Program performs capably and effectively, and that the core premise of the Program remains viable as it is fulfilling its mission by leveraging both public and private resources to assist the nation’s small manufacturers.

There were two principal findings in the first phase of this study:

· Barriers to productivity and performance improvement continue to challenge small manufacturers.

· The small manufacturing market is underserved in terms of assistance with productivity and performance improvement efforts.

The Panel also noted that given the wide range of performance and capabilities among MEP centers, there are opportunities to improve the Program’s service delivery, organizational structure, and outcome and performance measures. This observation provided the focus for the second phase of the study, which considers alternative business models for the Program.

The Panel believes that the National Institute of Standards and Technology (NIST) leadership made the right decision in the early years of the Program to change its focus from technology transfer to providing technical and business assistance to small manufacturers. Data collected from clients supports the fact that MEP centers have had a positive impact on companies that have availed themselves of the Program’s services.

Perhaps the most important aspect of the current MEP Program is its recent efforts to provide a holistic approach to services, offering help with process improvements, quality control systems, business and management systems, human resources, and market and product development. A second aspect, and perhaps the Program’s greatest strength, is the trust that small firms have in the advice they receive from the experienced shop floor engineers who work for MEP. According to one Academy Panel member, “There are only two (federal) programs that work well with the states—FEMA and MEP.”[2]

Phase II of the Study

As Phase I of this study concluded, the needs of U.S. small manufacturing enterprises (SMEs) have changed. The Panel believes the MEP Program has evolved to the point where it needs to consider how it can have a much broader impact on an industry that has suffered significant losses in jobs and business to foreign competitors. While the Program has performed well delivering the services in its current model, the Panel believes a fundamental change in the mix of the types of services it provides as well as the structures for delivering them needs to be considered.

As the only federal program designed specifically to help small manufacturers, MEP is uniquely positioned to help create an infrastructure for supporting these firms as the U.S. economy undergoes an enormous economic transition. The Panel finds that the time is right for a change to the basic services and approach employed, including: an expansion of technology diffusion as a basic function of the Program; the expansion of product development and supply chain integrations services; increasing the brokering of business and technical services through contracts with private sector consultants and training organizations; and, building an integrated national network of assistance with deeper technology and industry knowledge to support small manufacturer’s competitiveness.

The Panel also finds that aspects of the Program which have contributed to its achievements including its funding formula, performance measurement system and structural changes should be revised to put the Program in a better position for a new approach to its mission. The MEP headquarters’ role also needs to shift as these changes are undertaken. The revised role needs to include serving as a facilitator of the new integrated network; developing nation-wide technology and service provider partnerships; supporting supply chain and industry-wide initiatives; developing strong knowledge management capabilities; and providing firm direction to state centers on Program requirements.

The findings from this phase of the study have led to the following Panel recommendations:

1. Emphasize technology diffusion, product development, and supply chain integration services as basic services of the Program in addition to providing technical and business assistance to small manufacturers. The mission to improve the performance of small manufacturers would remain the same, but the mechanisms for doing so would take a significantly different shape.

2. Build an integrated national network of assistance for small manufacturers. The Program has done a good job of establishing the basic framework for a national system; however performance can be significantly improved by better integrating the efforts of state centers, by increasing partnering activities at the national level, and by collaborating on specific industry needs as well as technology trends.

3. Improve the coordination and partnering by MEP headquarters with other organizations that assist small manufacturers. Several organizations provide similar or complementary services to the manufacturing industry. While there are numerous examples of partnering at the state center level, there needs to be a more centralized linkage with the efforts of these other organizations.

4. Adopt some of the business practices used by other programs that operate federal and state/local partnerships. The Panel found no program that could serve as an “off-the-shelf” model for the MEP Program. However, important aspects of other federal programs could be of benefit to the Program.

5. Improve the system-wide sharing of knowledge and information and the systems for measuring performance. The MEP Program has developed several innovative approaches to managing information and measuring performance, but changes to existing systems and alternative approaches should be considered.

6. The Department of Commerce should consider aligning and integrating the various organizations within the Department that have manufacturing assistance responsibilities. With the creation of a new “manufacturing czar”^{^[3]} position within DOC, consideration should be given to manufacturing assistance organizational realignments and responsibilities to improve coordination and efficiency.

7. MEP Program officials should consider several structural and operational changes including reestablishing a strategic planning process and seeking authority for more flexible Program funding.

Adopting these recommendations will be both an important and difficult undertaking. It will require the full support and commitment not only of the people who work within the MEP Program but also those who have management and oversight responsibilities for the Program. Such changes will also take time and should be approached in an evolutionary fashion. Building the organizational and human capabilities envisioned in the recommendations of this study will take a great deal of skill and patience.

The extraordinary changes occurring in the manufacturing industry coupled with the tremendous opportunity presented by the profusion of technological innovations in the United States provide the bases for these findings. A national, integrated network which provides technological solutions to the performance challenges facing small manufacturers would be a tremendous national asset.

The report is organized as follows:

Chapter 1: provides a brief overview of the organizational structure of the Department of Commerce, the Technology Administration (TA), NIST and the MEP Program

Chapter 2: describes the current MEP business model

Chapter 3: discusses the changing environment in the manufacturing sector and rationale for the changes in the MEP model which could enhance the impact of the Program

Chapter 4: describes the alternative business model recommended by the Panel

Chapter 5: describes what the MEP Program can learn from other government organizations’ business models

Chapter 6: summarizes the conclusions and recommendations of the Panel

CHAPTER 1

ORGANIZATIONAL ALIGNMENT WITHIN THE

DEPARTMENT OF COMMERCE

The mission of the Department of Commerce is “to foster, promote, and develop the foreign and domestic commerce” of the United States. Over its one hundred-plus year history as a Department, the mission has evolved to encompass the responsibility for fostering, serving, and promoting U.S. economic development and technological advancement. Among the methods it employs are:

· promoting progressive domestic business policies and growth

· ensuring effective use and growth of the Nation’s scientific and technical resources

· acquiring, analyzing and disseminating information regarding the nation and the economy to help achieve increased social and economic benefit

· assisting states, communities and individuals with economic progress

Technology Administration

As one of the elements of the Department of Commerce, the Technology Administration includes the National Institute of Standards and Technology (NIST), the Office of Technology Policy (OTP), and the National Technical Information Service (NTIS). The mission of the Technology Administration is “to maximize technology’s contribution to economic growth, high-wage job creation, and the social well being of the United States.”

Congress established the Technology Administration in 1988. Its functions include:

· advocating technological innovation in the government policy arena and other key national and international organizations

· analyzing factors that affect U.S. technological innovation and competitiveness, including R&D investment, business climate, technology infrastructure, and workforce technical skills

· developing and promoting measurements, standards, and technology to enhance productivity, trade, and the quality of life. This includes conducting research to advance the U.S. technology infrastructure, promoting excellence and quality achievement in U.S. business and other organizations, providing technical and business assistance to the nation’s smaller manufacturers, and supporting the development of technologies for broad national benefit

· providing access to information that stimulates innovation and discovery. This includes serving as the largest central resource for government-funded scientific, technical, engineering, and business related information [4]

National Institute of Standards and Technology

The National Institute of Standards and Technology (NIST), which is one of the three major sub-elements within the Technology Administration, is responsible for providing U.S. industry with measurements, standards and information services which increase competitiveness and facilitate trade. Through the Advanced Technology Program, NIST stimulates economic growth by providing grants for the development of high risk and enabling technologies.

NIST operates the following national laboratories:

· Electronics and Electrical Engineering Lab

· Manufacturing Engineering Lab

· Chemical and Science Technology Lab

· Physics Lab

· Materials Science and Engineering Lab

· Building and Fire Research Lab

· Information and Technology Lab

Each National Laboratory has the mission to conduct state of the art research, maintain national physical standards, provide a focus for research and development, and develop and provide the results of these activities to the scientific community, the consumer and industry.

NIST administers the National Quality Program which helps industry develop technology and new procedures that improve both the quality of the products and services companies provide as well as their competitiveness. As part of the National Quality Program, NIST manages the Malcolm Baldridge National Quality Award Program.

Manufacturing Extension Partnership Program

NIST is also responsible for the Manufacturing Extension Partnership (MEP) Program. The mission of the MEP Program is to strengthen the global competitiveness of U.S. based manufacturing by providing information, decision support, and implementation assistance to smaller manufacturing firms in adopting new, more advanced manufacturing technologies, techniques, and business best practices. The Program is also tasked with helping state governments plan for the development of statewide industrial extension. It was also envisioned that MEP would create and maintain partnerships across the federal government and within industry to develop and integrate new and existing resources which support a national delivery system of manufacturing consulting services. The intent of the national system is to make these services readily accessible to small manufacturing firms at an affordable cost. The MEP Program is also expected to develop strategies and execute programs which explore innovative, alternative approaches for improving small manufacturers’ competitiveness.

The current structure of the MEP Program offers both distinct advantages and disadvantages in terms of Program performance. One strong advantage is that it provides services in partnership with state governments and others. The federal government provides a one-third share of operating resources to the centers as well as policy and program guidance. By law the other two-thirds must be generated by centers through a combination of public and private sources.

MEP Program Management

The MEP national program management functions are performed by a staff of approximately 53 employees in Gaithersburg, Maryland. The establishment of an MEP center in a state requires negotiations with the program management staff. Each state must develop a written agreement encompassing a mutual understanding of priorities and respective roles and responsibilities.

Recently, the MEP program management staff was restructured. Currently, it consists of five staff offices and the Office of the Director. The Director’s office is responsible for planning, directing, and implementing the program, and for the evaluation of the state centers. The five staff offices that report to the Director are:

· Center Strategies and Support Office

· Manufacturing Systems and Technology Office

· Management Information Systems Office

· Marketing and Communications Office

· Business Operations Office

The current organizational chart for the MEP program management staff offices and a description of the functions performed by each are provided below.

Figure 1-1. MEP Program

Management Staff Office Organizational Chart

The Center Strategies and Support Office designs strategies and provides support for the continuous improvement of MEP centers. It promotes the adoption of extension service best practices and is tasked with taking corrective action on “problematic” centers which are not effectively providing services to SMEs. The office also deploys universal solutions, including tools, techniques and training to address common center problems and opportunities. It also has a research and analysis function that focuses on local and national market needs.

Through the Manufacturing Systems and Technologies Office, the MEP staff identifies, develops, and deploys business knowledge and supporting technologies and related products, as well as services and information to assist the centers in helping transform SMEs into high performance enterprises. It is in this office where new pilots, initiatives, and products are developed for eventual adoption by centers. Its goal is to transform SME production by analyzing technological bottlenecks, identifying opportunities for learning, assessing the potential impact of technology, increasing the rate of technology adoption, and thereby stimulating innovation. This office also maintains the MEP nationwide learning system which includes the MEP University. The objective of the MEP University is to address the learning needs of those engaged in providing manufacturing extension services at the MEP centers. Its stated purpose is to increase the capabilities of staff in the MEP system by transferring knowledge and skills that increase firm competitiveness. The MEP University provides learning opportunities organized around four programs of study:

· Lean Enterprise

· Consulting

· Center Operations

· Strategic Consulting

Both new and experienced specialists comprise the target audience.

The Marketing and Communications Office is responsible for developing and implementing system-wide marketing and communications strategies. These efforts focus on promoting awareness of the MEP network among small and medium sized manufacturers. The office serves as the MEP liaison to the NIST Public and Business Affairs Division

The Management Information Systems Office develops the architecture and manages the information infrastructure for the MEP systems.

The Business Operations Office manages the legislatively mandated review process and administers all MEP Program business processes with respect to cooperative agreements and contracts. The office performs legislatively mandated reviews of MEP centers, evaluates performance, and serves as the contracting officer’s technical representative (COTR) for cooperative agreements, contracts, and interagency agreements and joint project agreements. It is also the office that provides the primary interface between the MEP Program and center financial managers.

Although formally organized into the five staff offices described above, the MEP Program management staff leadership team stated that the program in reality is focused on three functional areas: center support, ensuring operational integrity, and developing future US small manufacturing scenarios.

There is also a Manufacturing Extension Partnership National Advisory Board. It was established in October of 1996 by the Secretary of Commerce to provide guidance to the Program. The Board has nine members who are industrial extension customers, partners and service providers. The Board provides advice and feedback on MEP programs, plans, and policies. The nine members each serve three year terms.

State and Local Management

The MEP Program links 59 centers with more than 400 satellite offices serving 50 states and Puerto Rico. Each state has at least one center. Pennsylvania, Georgia, California, Wisconsin, and Illinois have multiple centers. There is also a center in Puerto Rico. For the most part centers operate as semi-autonomous state-based business units with an office director. In two instances, however, offices from different states report to a single director. While the program management staff is responsible for funding, evaluating and providing strategic direction to state centers, several of the directors interviewed indicated that they did not view the Gaithersburg office as headquarters but rather as one of several funding sources for center operations.

Management System

The management system is driven by the goals and objectives of the federal governments as well the goals and objectives of 50 states (plus Puerto Rico), numerous local governments, and 59 fiduciary and advisory center boards.

The primary activities of the federal component include selection and evaluation of participating state-based centers; maintaining and evaluating overall system performance with respect to the federal goals and objectives; and providing strategic direction for continuous improvement.

State and local management systems are focused on state level economic development and firm- level manufacturing competitiveness. Local management systems are driven by fiduciary and advisory boards that focus on the financial viability of their respective center and customer satisfaction.

These varying systems with potentially different goals and objectives can result in tension between a state’s economic development mission and the MEP national competitiveness mission and center business sustainability mission. The most significant federal component of the management system is the outcome-based metrics used to evaluate the centers’ ongoing funding on a semi-annual basis.

Operating System

The operating system has 59 different models. They range from a broker model in which center staffs predominately provide project management services and partnering organizations provide direct services, to consulting models where project management and service delivery is provided primarily by center staff. Centers are free to determine how to market the services of the center, which clients to target, which services to provide, how long to work with each client, and what to charge the client. They are also free to determine what type and how many staff to hire. However, the decision of how much service to provide is driven predominately by the federal funding level and its 2 to 1 matching requirement.

Center Staff Expertise

Centers are staffed with employees who are knowledgeable and experienced in manufacturing process improvements and business practices. The employees who work at the centers are not federal employees. They are employees of either a “501 (c) (3)” non-profit organizations, an educational institution, or the state, depending on the organizational structure of the center.

Where gaps exist in center staff expertise or availability, centers can call upon private consultants, state university or college staffs, as well as other federal and state agencies to assist small manufacturers. Centers work directly with area manufacturers to provide expertise and services that are tailored to meet their critical needs. These needs range from process improvement and worker training to business practices and applications of information technology. Specific product offerings include: Lean Enterprise, Strategic Management, Quality Systems, Industrial Marketing, Environmental Health and Safety, Human Resources/Organizational Development, workshops and events, and business tools. Centers provide solutions to manufacturers’ needs through a variety of methods either through direct assistance from center staff or through brokered agreements with outside consultants.

Partnerships

The MEP program management staff does a good job of encouraging centers to partner with other organizations. Centers are required to develop and report on a quarterly basis new and ongoing formal relationships with other organizations. These partnerships are defined as ones where organizations contribute or align resources (human and/or monetary) through a long-term formal agreement and participate in the management of a portion of the efforts to achieve common objectives with the center. The importance of these partnerships is demonstrated by centers that can reach beyond their own resources to obtain additional resources to help SMEs become more productive.

Current Service Mix Provided by MEP Centers to Clients

MEP headquarters requires centers to report on the types of activities that they engage in with manufacturing firms in their region. The MEP staff is primarily concerned with substantive interactions that result in measurable impact. A “measurable interaction” is defined as an interaction in which the primary objective of the center’s service is to facilitate measurable changes in a firm’s operations, which in turn affect the firm’s bottom line performance.^{^[5]} “Projects” are defined as a set of interactions with a single client and “events” are defined as a set of interactions undertaken with a group of clients that pertain to the same type and substance.

There are three broad categories (Activity Types) of projects and events:

· Assessment—an interaction or set of interactions in which a structured diagnostic analysis is performed on a client and feedback is provided to the client

· Training/Education—an interaction or set of interactions in which a client learns how to employ general or industry—specific business tools or methods to build skills

· Technical Assistance—an interaction which involves technical services and /or information to help a client improve a specific aspect of its business

These projects or events are further segmented into the areas (described as Substance Codes) of the business that the project is designed to improve. The six most frequently targeted areas are defined in the following chart from the MEP Management Information Reporting Procedures Manual.

Table 2-1: Manufacturing Extension Partnership Services

Title	Definition
Business Services	Includes services delivered to business owners, executives and managers in the areas of strategic and long range planning, business development, company financing, market research, industrial marketing, product development, sales planning and sales/distribution management.
Quality Systems	Assistance in assuring that manufacturers have repeatable, error-free processes. This service area includes the development of management systems, teaching companies how to use statistics to measure variability, and cause and effect thinking.
Manufacturing Systems	Includes services delivered to identify and eliminate waste (non-value-added activities) through continuous improvement by flowing the product and information at the pull of the customer.
Information Technology	Assistance in selection, assessment or implementation of information systems, communications networks, or computer-based technology related to design engineering, or automated manufacturing.
Human Resources and Organization Development	Includes work organization, employee involvement and empowerment, compensation and benefits, management methods, and organizational culture.
Engineering/ Technical Services	Includes technical services delivered to solve specific manufacturing process or R&D challenges

In FY 2003 the centers reported 5,705 Technical Assistance projects, 4,350 Training/Education projects^{^[6]}, and 992 Assessment projects. The technical assistance projects were further broken down into the following types of services (substance codes):

Table 2-2. Breakdown of Technical Assistance in FY 2003 by Substance Codes

Substance Code	Count	% Total Technical Assistance Activities
Business Services (11)	546	9.6
Quality systems (12)	954	16.7
Manufacturing Systems (13)	2172	38.1
Information Technology	240	4.2
Human Resources and Organizational Development (15)	227	4.0
Engineering/Tech Services (16)	622	10.9
General/Other (20)	339	5.9
Business Services and or Information Technology (C)	559	9.8
Manufacturing Systems, Information Technology , and/or Engineering/Tech Services (G)	48	0.8

The data indicate that in FY 2003, 39 percent of centers activities involved training, while 46 percent of the “technical assistance” activities involved business services, quality systems, human resource and organizational development, general activities, or information technology related to business services.

The NAPA study team also reviewed 115 of the 1300 “success stories” that the centers have posted on the MEP intranet site (http://www.mep.nist.gov/) to see how many involved training and business support services as opposed to technology related solutions. These stories provide a short description of successful projects with clients and are arrayed by state and center. The team reviewed the narratives to determine the type of service that was provided. Only 12 (10.4 percent) of the 115 stories reviewed involved improving product engineering or technical services. Lean training accounted for 51 (44.3 percent) of the projects, and quality training accounted for 26 projects (22.6 percent). Six (5.2 percent) of the projects involved training in automation, and the remaining 20 dealt with various miscellaneous issues.

Changing the Current Service Mix

While the MEP Program performs well in areas in which it currently focuses, these services are overwhelmingly devoted to technical and business assistance. These services can be, and often are, provided by third parties. Currently 46 percent of MEP services are brokered through third parties. The Panel recommends an increase in the use of brokered services so the Program can focus on new services. The following chapters will discuss shifting the current service mix to one which also provides services for technology diffusion, product development, and supply chain integration services as basic Program elements. Such a change also has broad implications for the current structure, organization, and strategic management—i.e., the business model—of the Program.

Funding Systems

MEP provides services in partnership with state governments and other partners. The federal government provides a one-third share of operating resources to the centers along with policy and program guidance. By law, the remaining two-thirds must be generated by centers through a combination of public and private sources.

The states provide one of the public revenue sources, and, in some cases, more than half of a center’s costs. In three states the MEP centers are part of a state agency. However, most centers are non-profit organizations and a smaller number are university-based. The amount of resources contributed by the states varies significantly from state to state. Support from most of the states include what is referred to as “in-kind” services which cover the costs for office space and equipment as well as shared employees. The cost of these “in-kind” services can be used to help meet the federal matching requirements. This type of funding obviously does not afford center managers with the same flexibility that they have in using unencumbered real dollars to meet the centers’ program priorities. In some instances, state contributions are minimal or non-existent, a circumstance which can be an important predictor of center performance.

Centers also generate revenue from service fees charged to small manufacturers and work in partnership with a variety of public and private organizations to deliver these services. Almost half (46 percent) of the services provided in FY 2002 were contracted to these other providers. The in-house staff of centers provided the remaining services.

Advantages and Disadvantages of the Current Model

This state and locality-based model has a close-to-the-customer structure that allows for a great deal of service delivery flexibility and adaptability. It also provides strong support and buy-in for the program at the state and local levels. Performance measures have been developed which focus on important outputs and outcomes as they relate to the services provided to small manufacturers by state centers.

With a locally-based structure that encourages centers to operate as small businesses (that is, with balance sheets, cash flows and receivables and other characteristically private sector features), aggressive performance measures and the requirement to leverage two dollars for each federal dollar invested, the MEP Program seems to adhere closely to the key principles of the President’s Management Agenda[7] which calls for organizations to be:

· citizen-centered, not bureaucracy-centered

· results-oriented

· market-based, actively promoting rather than stifling innovation through competition

The disadvantages of this system stem from some of the same factors that make it strong. For example, the decentralized nature of operations makes it difficult to consistently apply best practices nationwide. Correspondingly, there is a considerable amount of “reinventing the wheel” in each of the centers and often, higher management and administrative costs, given the need for each center to be able to operate as a “stand-alone” entity.

The ability to capitalize on the strengths of one center to improve the performance of other centers is limited. Also constrained is the ability of MEP to function as a network, a critical need in a time when manufacturing supply chains work across geographic and political boundaries. Creating a nationwide market identity and the marketing of the program beyond individual localities also become problematic.

Of particular importance is the need to systematically and comprehensively exploit the knowledge and capabilities within the MEP network. With limited mechanisms to link-up and build on the knowledge, skills and capabilities that reside in the state centers, the ability of the Program to perform at an optimum level is seriously constrained.

The result is a system which performs well at one level but has significant opportunities to improve at another. Thus, the challenge is to design an organizational model which can continue to capitalize on its existing strengths while developing new capabilities. This is no small task and will take a significant commitment of time and resources to make this difficult, yet necessary, transition.

The barriers that the current model was designed to address are discussed in the next chapter along with a brief discussion of the state of manufacturing.

CHAPTER 3

BASIS FOR A NEW BUSINESS MODEL

Text Box: BARRIERS

• Regulatory burdens
• Unfamiliarity with technology and management practice
• SME isolation
• Finding consultants
• Obtaining capital
• Low cost global competition
• Skilled knowledge workers
• Health care costs In the Phase 1 Report, “Re-examining the Core Premise of the MEP Program”, the Panel found that the barriers facing small manufacturers in their efforts to improve productivity and performance that existed when the MEP Program was established continue to exist today. Three new barriers were added to the list namely, extreme pricing pressures from “low cost” countries, finding enough skilled knowledge workers, and rising health care costs. The study also concluded that SMEs face an explosion in the availability of information and information technology which could be both a barrier as well as an opportunity for improvement. The report also found that the MEP Program is uniquely positioned to create the national network and infrastructure that can provide systematic and comprehensive assistance to small manufacturers.

However, the Panel has concluded that global competition and pricing pressures bring into question the sufficiency of the current MEP services. The Panel believes the MEP should expand their service offerings beyond providing technical and business assistance and emphasize technology diffusion, product development, and supply chain integration services as basic services of the Program. The productivity and cost improvement focus of the current services should continue but should be brokered-out to third party providers whenever possible in order to incorporate new services into the Program’s portfolio. Such a change represents a significant strategic shift for the MEP Program that will challenge the current business model.

Moreover, the Panel believes that the current MEP business model should be challenged to improve operating efficiencies at the center level. Center level performance data indicates significant variation in performance among participating centers. The Panel attributes much of this to funding, staffing, and partnership variations at the local center level.

The rest of this chapter includes a brief overview of the changes taking place in manufacturing; a discussion on the underlying needs to expand services; and a discussion of the opportunities for center level performance improvement.

Background—State of Manufacturing

The manufacturing sector of the U.S. economy has experienced tremendous changes in the past few years. Global competition has become fierce resulting in tremendous downward pricing pressures and most recently substantial job losses in the United States. In January 2004, there were 14.3 million manufacturing jobs, 3 million (17.5 percent) less than in July 2000 and 5.2 million less than the historical peak in 1979. In that same month (January 2004) employment in manufacturing was its lowest since July 1950. In a recent report,[8] the Congressional Budget Office said that much of the decline in manufacturing employment since 2000 reflects the recession that began in 2001 and the relatively weak recovery in demand that followed The recession was particularly hard on the manufacturing sector, as the demand for goods weakened in both the United States and the rest of the world. Other contributing factors include productivity increases in the manufacturing sector, as well as competition from foreign producers with lower compensation costs. It is also due to what the CBO refers to as a statistical artifact in that manufacturers are increasingly using contract and temporary labor. In the past these jobs would have shown up in the statistics as manufacturing employment but they are no longer included in the computation of manufacturing employment.

The dramatic downturn in manufacturing output, profits, and employment has been under the national spotlight. Economists and industry experts may debate the reasons for the decline as well as the pros and cons of outsourcing, free trade agreements, and competition from “low cost countries.” In undertaking this study, however, the Panel accepted the fundamental premise that maintaining a healthy manufacturing sector is essential to the nation’s overall economic performance and defense capabilities.[9] Consequently, its primary considerations were whether the current MEP services and corresponding business model are meeting not only the needs of individual companies, but also broader national needs.

Underlying Need to Expand Services

As stated earlier, the MEP Program provides a breadth of services that help SMEs reduce operating costs and increase product quality. These improvements help increase their clients’ productivity by reducing the input or denominator component of the productivity equation (Productivity = Output/Input). If the MEP Program continues to focus the preponderance of their services on the input component, it would make a positive contribution to manufacturing competitiveness. However, the Panel believes that the health of U.S based small manufacturers is dependent on increasing the output component of the productivity equation, as well as decreasing the input component.

Additionally, two new barriers identified in Part 1 of this study—extreme price competition from “low cost countries” and a shortage of skilled knowledge workers—suggests that SMEs will continue to struggle to increase their overall productivity. The barriers of SME isolation and their unfamiliarity with new technologies practices compound the productivity improvement problem. For these reason the Panel believes that MEP should broaden the services provided to SMEs to specifically address product development and supply chain integration, both of which focus on increasing output, and technology diffusion services, which address increasing output as well as decreasing costs.

Chapter 4 covers the recommended services in more detail. However, it is important to understand the ramifications of broadening the service offerings with respect to the business model as a precursor to evaluating the recommendations. For the most part, current MEP services are delivered by a MEP center independent of other centers or NIST/MEP involvement. The current business model supports the autonomous operations of each center where product development, staff selection, training, partner selection, and marketing are executed to optimize the output and revenue of the local center.

The proposed services are different in several respects. First, technology diffusion services will require more in-depth industry specific knowledge and broader connection to technology providers and will necessarily include national partners. Likewise, supply chain integration will require in-depth industry knowledge and broader geographic connectivity. Product development services can be delivered via center-centric processes; however, product development is driven by innovation that is typically fueled by broad multi-disciplinary involvement as well as technology infusion. Because of the limited resources of most MEP centers it is unlikely that product development services can be effectively delivered independently. In short, these new services cannot be effectively delivered to local companies using predominantly local service providers.

Therefore, the Panel believes that these new services will need to be developed and delivered through an integrated interdependent business model rather than the current center autonomous business model. New partners at the local and national levels will need to be developed and maintained on behalf of the entire MEP system. This will place new demands on the NIST/MEP staff as well as the centers. Information and knowledge management systems as well as staff training systems will also need to be managed on a system-wide basis.

Center Performance

The Panel also believes that there are sufficient opportunities for efficiency improvements that warrant examination of the business model. This conclusion reflects an analysis of center based performance data. The MEP Program has developed a robust evaluation system that is far advanced compared to the outcome measures used by the other federal programs that the study team examined. The Program has developed a comprehensive set of metrics that are results (outcome) oriented and which estimate the impact of the centers’ engagements on the bottom lines of SMEs. While it is virtually impossible to isolate the impact of an MEP engagement from the multitude of other economic, management, employee expertise, and business related variables that have an impact on a company’s performance, the MEP Program has used an independent survey to develop a “best available methodology” for assessing the program’s impact as envisioned by the Government Performance and Results Act.

An analysis of the MEP centers’ performance, based on the program’s measurement system, indicates that changes are needed in the business model to improve the performance of several centers. The study team found a significant gap between the top and low end performers. An explanation of the MEP performance assessment system and the Performance Management Index that was used by the study team to evaluate the centers performance is provided in Appendix D.

The study team also found a wide variation among the centers in the way they were organized, their funding levels, the use of third party consultants, market penetration, and several other indicators. Before looking at alternative business models in other organizations, the study team worked with the MEP staff to see what, if any, correlation existed between the high and low performers. The objective was to determine whether there were patterns that suggested organizational and business practices that were consistently present in high performing centers and absent in low performing centers. The statistical analysis of these variations among high and low performing centers is provided in Appendix E.

Improving Center Performance

The current system for evaluating center performance can also be improved by making it more exact. One of the limitations of the current measurement system is that it does not allow for meaningful distinctions in center performance. If a center achieves the minimum score for one of the indicators, they receive all of the points allocated for that measure, while a center that far exceeds the minimum level receives the same number of points. The MEP staff is developing a revised system that would allocate points based on a graduated scale. This proposed system would begin to make the kind of distinctions that the Panel believes are necessary to adequately distinguish among the various performance levels that exist throughout the 59 centers today.

The wide performance variation among state centers offers an opportunity for raising system-wide performance by focusing on improvements in the lower performing centers. This will require changes in the management system of the business model that will involve a broader national management role in analyzing the reasons for excellent and poor performance. Based on this analysis the national program management staff will need to be more active in providing advice, guidance, mentoring, action plans and or training to low performing centers on what they need to do to improve their performance. Under the current business model, the national program management evaluation function is primarily focused on determining eligibility for continued funding of each center based on a pass/fail system tied to achieving at least a minimum performance standard. Providing assistance to poor performing centers also has implications for the funding system in that it will require more flexibility in the availability and use of centralized funds to provide the resources needed to help centers improve performance.

Current state budget difficulties notwithstanding, the state funding level issue is an area MEP program managers should focus on as an important driver of performance. This is not only an important predictor of performance, it also may be an indicator of the amount of state and local support individual centers have. The reasons for funding shortfalls and the potential measures for dealing with them should be explored. Determining optimal staffing levels for centers would also provide helpful guidance to centers in developing their staffing plans. Also, while the leadership and management capabilities of state directors and other managers undoubtedly are major drivers of center performance, the MEP program management staff does not currently assess these skills. The Panel encourages the development of a mechanism for measuring these skills and a training program designed to improve management and leadership skills throughout the system. These training programs are widely available through both public and private sources.

Conclusion

The current MEP business model is no longer sufficient to address the barriers that were discussed in Report 1, which now include intense global competition from low cost countries. Manufacturers can no longer concentrate on cost reductions alone to remain competitive, which has been the primary focus of the type of services provided by MEP centers. Companies must be able to increase their output by offering new products, or by applying new technologies; or by expanding their markets. The Panel believes that the MEP Program should address this need to improve the output side by offering new services to support new product development and entrance into supply chain markets. To help facilitate and accomplish this, the program must become more involved in technology diffusion and infusion activities. The significant differences in center performance based on the program’s own measurement system also point to a need for changes in the business model’s management, operating (staff expertise) and funding systems. While the program has a very good performance evaluation system, the national program management staff needs to play a more active role in helping centers identify weaknesses and develop improvement plans and by providing the resources (e.g. training, mentors, products and tools) necessary to improve the performance of individual centers and ultimately the entire network.

MEP Service Mix

The discussion begins with recommendations for changing the MEP service mix because the services provided represent the program’s contribution to overcoming the barriers SMEs face in today’s market place. The MEP Program could continue to add value to small manufacturers’ ability to increase their competitiveness if it continued with the current strategy, i.e., by focusing primarily on training, helping companies implement lean manufacturing, and quality assurance. The potential, however, for having a broader and more fundamental impact on manufacturing in the United States lies in expanding its services and emphasizing technology diffusion, supply chain development and new product development.

While most MEP centers have effectively addressed the needs of clients who seek help with business management practices and production process and quality improvements, a gap still exits for many SME’s between the availability of new technologies and the application of those technologies to improve production and develop new products.

Dr. Philip Shapira, who has studied and written extensively on the MEP Program and manufacturing extension programs in other countries, recommended that the Program adopt a new strategic orientation that would require it, “… to adjust its service mix to offer assistance that goes well beyond short-term problem solving for individual firms.”^{^[10]} Specifically, Dr. Shapira recommended that MEP:

· increase services that focus on new product design and development and forge even stronger links to R & D centers.

· support more initiatives that help suppliers and buyers talk to one another; and expand pilot projects that offer specialized expertise in cross-cutting fields to stimulate the adoption of emerging technologies and practices, the exploitation of new materials and the use of new communication technologies.

· put greater emphasis on promoting local networks of small firms to speed the dissemination of information and encourage collaborative problem solving, technology absorption, training, product development, and marketing.

The MEP Program can have a greater national impact on the small manufacturing sector by facilitating the accelerated diffusion of technology to small manufacturers, by providing support for new product development and by actively supporting supply chain integration. Several Panel members, however, stressed the importance of continuing to assist manufacturers improve their business practices in the areas of marketing, human resource management, capital formation and other organizational issues. The Panel believes that one of the strengths of the program is that it takes a holistic approach in assessing how companies can improve their bottom line and become more competitive.

Technology Diffusion

To maintain the U.S. manufacturing industry’s position as a leader in new product development and in the application of advanced technologies in production techniques, the Panel believes that the MEP Program needs to be more engaged in technology diffusion activities.

According to the Department of Commerce report, Manufacturing in America: “Robust research and development activities are essential steps in reinforcing the process that has provided U.S. manufacturing with its competitive edge. These activities, however, should be matched with an equally vigorous effort to ensure that the technology developed is diffused broadly throughout the manufacturing sector, particularly to small and medium-sized manufacturers, which will benefit most because of their own limited capacity for independent research and development.”[11]

Similarly, an Organization for Economic Cooperation and Development paper quoted a report by the Congressional Office of Technology Assessment which stated that, “In the context of rapid international flows of information and capital and increased global competition, it has also been argued that strategic national and regional efforts to maintain industrial competitiveness depend not only on innovativeness per se, but more than ever on the diffusion, effective application and further incremental improvement of known technologies.”[12] Although that report was published in 1990, it is just as relevant if not more relevant today. Technology diffusion in this context involves the dissemination of technical information on the availability, cost, and potential impact of new and existing technologies to SMEs. Technologies include both hard technologies that involve tangible physical components and materials, as well as soft technologies that involve new manufacturing processes. The technology diffusion role is a subset of the more complex technology transfer process.

The National Coalition for Advanced Manufacturing (NACFAM) released a White Paper in May of 2003 in which it said, “Manufacturing has the potential to take a great leap forward in being able to provide the products we want or need, when we want them and at an affordable price. There are various technologies currently in various stages of development that can dramatically alter the way products are designed and made.”^{^[13]} The report cites technology examples that involve: solid free form fabrication, micro-fabrication, advanced sensors, modeling, simulation, visualization, smart systems, and designer materials. If the MEP Program was appropriately organized with the right skill sets in the centers and the program management staff, it could help facilitate the industrial transformation or “great leap forward,” alluded to by the NACFAM, through an active role in technology diffusion.

As noted in the first report of this study: “Over the last decade, the importance of leveraging technology has become even more critical to improving the performance of small manufacturers. The MEP Program needs to better focus its corporate strategy on facilitating technology implementation, technology integration and technology transfer for small manufacturers.”

The Panel is not suggesting that the MEP Program begin a technology transfer program (as the original legislation intended) by trying to take advanced technology developed in the labs and implementing it on the shop floor. As Gerald Eldering, Director of the Technology Transfer Office for the MITRE Corporation pointed out, the problem or challenge of getting technology from labs to manufacturers is finding a way to fill the gap between the raw state of the technology and the stage at which it is ready to be implemented on the shop floor.[14] That is not a role that the MEP Program is currently positioned to fill. Rather the Panel believes that the Program can make a significant contribution to U.S. manufacturing by diffusing information to SMEs about new and existing technologies which have already been or are ready to be adopted for commercial use. The Panel also believes the MEP Program should have a stronger role in the infusion of technology, which includes all of the activities necessary to successfully implement and integrate new technology into a company’s manufacturing processes.[15]

The technology infusion function includes the follow up support needed to implement the technologies such as providing assistance in locating financing for necessary capital investments; training for SME employees; and technical assistance at the shop floor level in integrating the new technology into companies’ manufacturing processes. These implementation support activities are already an integral part of the services provided by most MEP centers.

The role the Panel envisions for the MEP centers also encompasses capturing information about SME needs and manufacturing problems and channeling that information to the technology development communities in the federal labs, universities, and private sector. The MEP agents in the field would play a key role in collecting and reporting this information to the program management staff. A Panel member noted, however, that it is unlikely that simply providing information to federal and university labs on the technology needs of small manufacturers will produce positive results. Experience suggests that it is unlikely to occur unless there is a contractual commitment by those organizations.[16]

In the paper on Technology Diffusion Polices and Programs cited above, technology diffusion is contrasted with technological innovation. The later emphasizes the development of new knowledge, products, or processes, and government oriented technology transfer, which frequently seeks to shift advanced technology from the laboratories to commercial use. Furthermore, the authors state that in many cases, diffused technologies are neither new nor necessarily advanced “although they are often new to the user, and they may be acquired from a variety of sources….”[17]

Knowing both the technology needs of SMEs and the kinds of technologies that are available from labs, universities, and other technology producing entities would create a system with enormous potential for improving SME performance. An example of this type of support is the case of a company in Maine which with the help of MEP staff, developed smart pipes that used fiber optic technology to alert customers about leaks and the specific location of those leaks.[18] While this type of technology implementation assistance is occasionally provided by the MEP centers, it does not represent a significant part of their work as indicated in the analysis in Chapter 2 of current services that centers provide.

Clearly, an emphasis on technology diffusion/infusion will require a significant change in the types of projects and events which the centers undertake in the future as well as the skill sets of their staff. It also will require establishing relationships with many of the organizations described in Appendix C of this report which offer commercially viable technology and the means to export it to SMEs. This type of fundamental change also has implications for systems that provide information on existing and emerging technologies, and the industries in a region that could benefit from the infusion of new technology. The MEP program management staff and the MEP centers will also need to be very familiar with the grant and loan programs available from other federal, state, and private sector programs which can help finance the capital goods usually required when SMEs decide to implement new technologies.

New Product Development

One of the strengths of manufacturing in the United States has been the leading role it has taken in innovation and the development of new products. However, it is becoming more difficult for U.S. manufacturing to maintain this competitive edge with the worldwide spread of information technology. The Department of Commerce report on U.S. manufacturing stated that “From the perspective of manufacturers, there is a need for continuing investment in research and development of new products so that manufacturers remain one step ahead of the competition.”[19]

In his testimony before the House Committee on Science, Larry Rhoades, President and CEO, of Extrude Hone Corporation, and an Academy Panel member provided an analogy of how the United States was able to build the world’s largest and most productive agricultural industry: “Agriculture which was once a very labor intensive activity changed in America to become highly automated and highly scientific. The technology of the equipment used in agriculture today, combined with an infrastructure of technical support in the most modern methods, made this so. We can do the same in manufacturing. But we must find new methods, new approaches, new technologies, and we must understand how those new manufacturing technologies can be used to make new and better products that deliver more value to their buyers. We must drive the ‘manual’ out of ‘manufacturing’ and capture America’s innovative spirit to transform it into ‘innofacturing.’”[20]

The Panel believes the MEP should consider developing and implementing services that are specifically designed to help SMEs develop new products. This will require new skill sets and new partnership. The Panel also recommends that this should be undertaken through an integrated service network which leverages current knowledge and information management tools. The MEP successfully developed and implemented a national program to help SMEs overcome Y2K problems. (See Chapter 5 for a fuller discussion of this development effort.) The methodologies, training tools, project management process and integrated networks of the Y2K project should serve as a model for the development of SME-focused product development services.

Active Participation in Supply Chain Management

Through stronger ties with regional and national supply chains, the program management staff would be positioned to provide current information to centers and their clients on the emerging needs for parts, assemblies and new finished products that larger manufacturers require from their supply chains. According to a National Academy of Sciences (NAS) study, not all Manufacturing Extension Centers (i.e. MEP Centers) are fully capable of helping SMEs compete successfully in a rapidly changing integrated supply chain environment, and not all of them are consistently proficient at guiding SMEs that want to integrate their own supply chains.[21] The NAS study also says that the MEP services must be of uniformly high quality because supply chain integration typically involves multiple companies in scattered locations; and inconsistencies among local programs and levels of support can make integration efforts difficult. The MEP program management staff could lead the development of a standard set of supply chain best practices for SMEs and supply chain support programs at each center.

The MEP program management staff could also assist centers in three other specific areas—supply chain collaboration, supply chain integration and supply chain management. The NAS report stated that supply chains are typically composed of geographically dispersed facilities that provide a wide variety of services. Once again the national staff can play an important coordination role in working with Original Equipment Manufacturers (OEMs) with geographically dispersed companies in their supply chain and with the MEP centers in helping their clients enter and participate in these supply chains. One tool which the National Academy of Sciences suggests could be used by MEP centers to help SME’s become more competitive in supply chains is “mapping.” Specifically, the report states that MEP centers should help SME’s map critical segments of the supply chain in terms of organizations, capabilities, and functions, paying special attention to critical and sole-source capabilities. Ideally, these maps should extend to every key capability and function required to design, manufacture, distribute, sell, and support the product line.[22]

According to an article on “Supply Chain Collaboration,”[23] large corporations like Ingersol Rand, Dell and Proctor & Gamble, leverage the internet by employing specialized web-based applications to improve communications with their supplier companies. The goal is to work together to build new mutually beneficial business processes that can be changed on the fly to smooth out kinks across the supply chain. MEP centers can support OEM/SME collaboration by helping small companies access OEM systems and develop their own web-based communication systems. They can also help SMEs develop strategies based on OEM forecasts and demand for specific products.

MEP centers can also support SMEs as OEMs begin to adapt a strategic partnership approach (Supply Chain Integration) by helping both parties recognize that sustainable benefits can accrue from long term relationships, especially when the total life cycle costs are computed. By assisting SMEs in understanding relationships and agreements and negotiating the complex partnerships with OEM’s, MEP staff can help overcome barriers that impede integration.

MEP’s role in supply chain management can be achieved by helping supply chain managers overcome the traditional inward focus on operational cost control and adopt a more strategic focus on customer service and building relationships based on trust. Web-based applications and E-commerce have accelerated and facilitated exchanges with all participants in supply chain activities. With MEP center assistance, OEMs and SMEs can leverage the scale and coordination inherent in large companies with the potentially low cost and creativity of small companies.

There have been attempts by MEP centers to cross state lines and facilitate supply chain collaboration among SMEs and OEMs. One example is the Manufacturing Supply Chain Consortium (MSCC) sponsored by the six New England Centers, EASTEC. This group along with the Society of Manufacturing Engineers sponsored a May 2003 Advanced Productivity Exposition (Defense Industry Supply Chain Opportunities).

SMEs also require a more through understanding of the complex interrelationships inherent in shared agreements. MEP centers can help them work together, share activities, processes and information. By working with SMEs to overcome the four traditional barriers that impede integration—SME technology that only works for the company that developed it with no regard for efforts of other supply chain participants; poor communications; incompatible communications and/or electronic design techniques; and government procurement policies and regulations—the MEP centers can significantly improve SMEs successful participation in supply chain activities.

Potential Resistance to Adding New Services

The Panel understands that MEP system participants might question where the resources will come from for the development and implementation of these new services. The resources question is beyond the scope of this study; however the Panel has several observations about the issue.

First, while centers would continue to provide technical and business assistance to SMEs, the bulk of this type of work should be brokered out to private sector companies whenever possible. Centers have partnerships with local service providers who are and can be trained to effectively provide many of the services. Increasing this type of activity would free-up center resources to undertake the development of new services.

Secondly, the retention of this work by some centers is directly related to the fact that it represents an important revenue source for meeting their matching requirements. The need for revenue from fees becomes especially critical when state funding drops below the one-third level as it has in many states. Although fee generation is a worthwhile requirement in terms of ensuring that the services provided are market driven, the need to generate fees also discourages centers from spending time on activities like technology diffusion and supply chain development, which may have broader market enhancement implications for the small manufacturing sector.

Lastly, adding these recommended services will challenge the supporting functions of the current business model—namely the management systems, partnerships, staff skill sets, and funding systems. It is important to note that the proposed services differ from most of the current services in that they will require national partners, more in-depth industry knowledge, and they will have to cross geographic boundaries. The supporting systems of the current model allow centers to operate autonomously. These supporting systems must be augmented to support an integrated national network.

Management System

One of the findings of the first phase of this Study was that:

“The MEP Program is uniquely situated to create the nationwide network and infrastructure that can provide systematic and comprehensive productivity improvement assistance to small manufacturers.”

The study team found, however, that the system has not sufficiently capitalized on the knowledge that exists at the local level, both in terms of identifying the needs of manufacturers as well as in sharing innovative solutions developed by field agents in helping companies solve technological and process related problems.

The MEP Program has demonstrated that it can and does provide services to small and medium sized manufactures that have a positive impact on the companies’ bottom lines. It has done so, however, through a loosely organized collection of semi-autonomous centers rather than through a nationally recognized integrated network of services and expertise. During the study team’s interviews with Center directors, it was clear that several consider the MEP headquarters to be primarily a funding source. Center directors are not even required to attend or send a representative to the MEP National Conferences. The headquarters’ emphasis on its “stewardship” role—overseeing centers’ performance to insure that they meet the minimum performance goals—needs to be supplemented by an effort to build a more cohesive national network of service providers.

The lack of strong network affiliation is reflected to some extent in the fact that “Manufacturing Extension Partnership” appears in the name of less than half of the centers. Some Center directors stated that they purposely avoid being linked to a federal government program, because it could create a negative perception in the minds of some potential clients. The MEP program management staff has attempted to address this lack of national identity by establishing what is referred to as the “360 vu” branding strategy. One objective was to standardize the suite of products and services provided by the centers. It was also intended to ensure that the manufacturing specialists in the field, who are referred to under the 360 vu as “Professional Business Advisors,” have the expertise they need through a training and certification process. Acceptance of participation in “The Brand” is, however, voluntary.

The Panel recognizes that there are many valid reasons for MEP officials to allow great flexibility in center operations that work closely with state and local programs. However, if a nationwide network is built that supports technology diffusion, product development, and supply chain integration services, it will require a stronger emphasis on operational consistency and knowledge and capability sharing. While the type of organization at the center level (non-profit, university based, or part of a state agency) does not appear to be a significant factor in determining center performance, the organizational design and functions performed by the MEP headquarters are critical in determining the future role and impact of the program on the small manufacturing sector. The MEP Program will not have a significant impact on the overall productivity of the small manufacturing sector unless it takes a more direct role in building the organizational infrastructure that is needed to support a consistent integrated national system for the delivery of services to small manufacturers. The current management approach to state centers which relies on persuasion and encouragement needs be supplemented by an approach which sets specific expectations that are monitored for effectiveness and compliance.

The Panel recommends that two functions, strategic planning and knowledge sharing, be strengthened as key components to the management system.

Strategic Planning

A missing element in the MEP Program that will be needed to drive the proposed changes in MEP’s business model is an ongoing strategic planning process. Consequently, the program should reestablish the strategic planning process it developed in 1997 and rolled out in 1998. The plan was developed using a very methodical process that produced a plan that included vision and mission statements, long term goals and strategies for achieving those goals and objectives. A depiction of the planning model and process that was used to develop the 1998 plan follows.

In retrospect, a missing component in the planning process was input from key external stakeholders including Congressional staffs and the Office of Management and Budget (OMB). One of the first steps that the MEP program management staff should take in the planning process is to develop a shared vision of the mission and goals of the program with all of the principal stakeholders. One of the difficulties the program faces is the lukewarm support that it has received in the budget process. As a result, Program officials have been forced to focus on survival tactics more than on the presentation of annual initiatives that are developed to support the mission and to achieve the programs goals and objectives.

While top program executives can clearly articulate their vision, there is no formal process in place for the development, promulgation, and execution of a strategic plan for the MEP Program that has the support of a broad base of internal and external stakeholders. To be effective the plan must be developed in concert with key program management staff members as well as respected staff members in the field with input from the MEP National Advisory Board, relevant congressional committees, OMB, the Department of Commerce, and the manufacturing community.

A recent series of focus groups conducted with employees from the MEP program management staff points to the need for an integrated strategic planning process that ties all of the operating plans together. The report on the focus groups provided the following well crafted “desired outcome” for the implementation of a strategic planning process:^{^[24]}

“MEP is a more strategy-focused organization. One operating plan drives all the activities of all MEP divisions. This plan ‘translates’ our organization’s near-term and long-term goals into actionable, coordinated strategies and tactics to be implemented by divisions and individuals. All individuals use the plan to track progress toward critical objectives, reinforce accountability, guide priorities, and focus attention on actions that move us toward our goals. MEP uses the plan to make almost all decisions—policy, financial and strategic—and to mobilize change, make strategy a continual process, make strategy everyone’s job, align the entire organization to the strategy and translate strategy into operational terms. The plan enables individuals to:

· Understand and describe the overall strategy of MEP

· Articulate the annual goals of their divisions and their performance plans

· Understand and explain the linkages between strategy, their division goals and their individual goals”

Reestablishing a strategic planning process should begin with an environmental scan of internal and external stakeholders. For example it was clear from discussions with top executives in the Department of Commerce that they want to see the program build stronger ties to other programs like the Trade Adjustment Agency and Small Business Administration to leverage the combined impact of the programs rather than duplicate the services that are provided. This type of input from all of the key stakeholders must to be considered in the development of a strategic plan for the future design of the MEP Program.

Developing consensus on the mission and vision statements for the future role that the national program is expected to play in supporting U.S. manufacturing may be the most difficult aspect of the strategic planning process for the MEP. If consensus on the long term role of the program cannot be reached and clearly articulated, the program will continue to operate with a short term, ad hoc focus that shifts and changes based on the views and pressures that predominate at any one time. Recent Administration budget submissions have a vision for the Program which includes self-supporting state centers and significantly reduced funding. A fully funded federal program with operational standards for service delivery, strong ties to the federal and university technology labs and development community, an integrated information knowledge network, a national training and accreditation program, and a standard suite of products and services would produce a very different vision and mission statement. Which of these two scenarios represent the future of the program is an issue that must be decided through the political process.

Although a strategic plan is never written in stone, a well crafted and vetted plan could provide a focus and some stability in the decision making process about the future of the program. The plan should also provide the proposed initiatives that need to be accomplished in order to achieve the goals of the organization. The test of any initiative becomes: Is it consistent with the plan and will it help us achieve the program’s goals and objectives?

As part of the strategic process, the program also needs to establish appropriate metrics to measure how well they are achieving their goals and objectives. If the goals and objectives of the MEP Program are modified to include an emphasis on technology diffusion, product development and supply chain development an additional set of metrics will be required. These measures may include the number of successful engagements or center activities that resulted in new product development, the application of new or existing technology to a company that resulted in improved performance, and the number of interventions that resulted in a company becoming a part of a large manufacturer’s supply chain.

Knowledge Management

Knowledge sharing is a fundamental component of any management system. Indeed, sharing best practices is essential in helping small manufacturers embrace change. SME success stories have appeared in articles, on the MEP web site and in MEP headquarters reports, and there have been several surveys conducted by MEP centers or their contractors on the major challenges facing small manufacturing companies. There is, however, a less than optimal method for consistently collecting this information in a national database that can be used as a research tool for field agents. There is a process that allows field agents to submit questions via e-mail to headquarters about potential solutions to problems they are encountering. The program management staff screens these e-mail questions and sends them out to centers for a potential response. Questions and answers are organized and retained in the system for future reference. While this system represents a good starting point, the tool could be significantly enhanced through a more systematic process for collecting information about successful applications of existing technology as well as information and research on emerging technologies.

An independent contractor is developing a new customer relations management system for the centers that are part of the 360 vu Brand. The system is designed to allow professional business advisors to exchange information about clients, deliverables, personal expertise, and information on opportunities for National Accounts. While the description of the system seems to support the objective of an advanced information system to support the network, the rollout plan and access restrictions demonstrate one of the underlying shortcomings of the current business model. Initially, the NIST and MEP staffs will not have access to the data base. The sharing of information across the network will also be limited and will occur only “over time,” according to the contractor who is developing the system. During one of the roll-out conference calls, the contractor stated that the cross sharing of knowledge will require a cultural change and to achieve that objective a working group on knowledge transfer was being formed.

That cultural barrier which makes centers reluctant to share information is tied to their view of themselves as independent business units or companies with only a limited role in a nationwide network. Acceptance of the new CRM system was strongly encouraged, but not mandatory. Absent a change in this accepted isolation and autonomy, the potential for taping and leveraging the knowledge of 1,000 + manufacturing specialists in the field will go unrealized.

The Panel recommends that MEP program managers build a network which can capitalize on knowledge and information sharing. This would involve the reestablishment of a strategic planning process as well as the creation of a systematic process for collecting information on successful applications of existing technology as well as information and research about emerging technologies.

Program Management Staff Functions

This broadening of the program’s service delivery mix will require the program management staff to be more pro-active as a resource to centers by performing the following functions:

· researching potential technology solutions that manufacturing specialists can provide to clients who have specific process or product development problems or needs

· recruiting or developing subject matter experts for each of the major manufacturing industries who are knowledgeable about the needs of each industry segment and with the existing and emerging technology that is available for commercial application

· establishing stronger ties with federal, university, and commercial labs, and the locator services that exist to link manufacturing needs with potential technology solutions

· establishing and maintaining relationships with large manufacturing supply chains to identify their needs for new parts, assemblies, or products

· developing and maintaining a knowledge network system that links the needs of clients, the knowledge and experience of manufacturing specialists in the field and the knowledge of the industry subject matter experts among the program management staff

· being more active in identifying the training needs of staff at MEP headquarters and the centers throughout the network and becoming more involved in developing and evaluating training programs

· providing information about new product opportunities and the technology needed to produce these products.

In the area of research, there is a new Manufacturing Futures Group which has been tasked with researching the future of U.S. manufacturing. The examples of the issues they will be researching, however, are at a more macro level and include: manufacturing strategies for the future; manufacturing and the rural economy; manufacturing in China and other outsourcing issues; the future of mass customization at the firm level; and the role of supply chains on the national defense system. Presumably, the scope of this group’s function could be expanded to include research on specific applications and opportunities for the application of existing and emerging technologies.

Organizational Alignment of MEP within the Department of Commerce

The original placement of the MEP Program within the National Institute for Standards and Technology was consistent with the intent of the enabling legislation (Public Law 100-418) which was to make the advanced technology developed in NIST labs available to small manufacturers. As reported in the first phase of this study, MEP Program managers quickly realized that objective was not realistic since there was too large a gap between the technology developed in the federal labs and the capabilities of small manufacturers to use the technology.

The mission of NIST as stated in their 2010 Draft Strategic Plan is “To develop and promote measurement, standards and technology to enhance productivity, facilitate trade and improve the quality of life.”^{^[25]} The NIST mission is only loosely aligned with the MEP mission. According to MEP’s most recently published Strategic Plan, its mission is “To strengthen the global competitiveness of U.S.-based manufacturing by providing information, decision support, and implementation assistance to smaller manufacturing firms in adopting new, more advanced manufacturing technologies, techniques, and business best practices.”^{^[26]}

Several organizations within the Department of Commerce (DOC) have manufacturing assistance responsibilities (see Appendix C). With the establishment of an Assistant Secretary for Manufacturing (“manufacturing czar”) position and, presumably, support staff, the potential exists to realign the MEP Program and other manufacturing support programs within DOC into a single organization with a primary focus in manufacturing and a mission that is clearly linked to enhancing the manufacturing sector of the economy. The Panel believes the Department should consider such realignment and integration of these programs as a means of strengthening the program.

Operating System

The Panel recognizes that adding the proposed new services will impact the skill mix and roles of center and MEP Program office staff. The following section focuses on the knowledge sharing and training needs of all staff, and changing roles of the program staff.

Capitalizing on Knowledge Management Capabilities

If efforts are undertaken to build a national network, as recommended above, an important concurrent and reinforcing effort would be to leverage the knowledge and experience of the individuals working in the MEP Program throughout the country. The recommended shared information system would serve as a resource for field agents to help them identify technology solutions and process improvements that have been successful and which can be replicated. To be effective, the Manufacturing Specialists or Profession Business Advisors need to populate the knowledge base with their learnings and experience in helping companies find and implement technology solutions that improve their work processes and develop new products.

The role of the MEP Program Staff needs to expand to help research and identify technology and process solutions that Manufacturing Specialists can apply to help manufacturers improve their competitiveness. This will require reestablishing or building new partnerships with federal laboratories and the technology locator services that the Federal Labs Consortium and labs such as the National Aeronautics and Space Administration provide. It is important to note that many of these organizations have a fundamental mission to support and promote technology transfer (or diffusion). Therefore, they have strong incentives to work closely with MEP. Information gathered about supply chain needs for new products, parts or assemblies should also be shared on a systematic basis up, and down, and across the network.

Communities of Practice

Having a sophisticated knowledge based information system is not a guarantee that it will be used. One way to improve the effectiveness of such a system would be to integrate it into a network of “Communities of Practice” or similar types of knowledge network. In “Knowledge Networks and Communities of Practice,”^{^[27]} author Verna Allen quoted John Seely Brown, Vice President and Chief Scientist at Parc Xerox describing communities of practice as “peers in the execution of real work. What holds them together is a common sense of purpose and a real need to know what each other knows.” What sets them apart from other workplace teams is that communities are defined by knowledge rather than task. Ms. Allen also notes that there are important distinctions between work groups, teams, communities of practice, and knowledge networks.

The MEP program management staff has attempted to create Communities of Practice but their focus has not been on building a national knowledge network. The Communities of Practice that the Panel recommends would directly link the centers’ manufacturing specialist practitioners and internal as well as external subject matter experts who have knowledge about specific manufacturing sectors, new technologies, process and quality improvements, the development of new products and markets or export and trade issues.

In its research the study team consulted with Dr. William Snyder, an expert in the theory and practical application of Communities of Practice. Dr. Snyder noted that in order to succeed in this era of globalization, where knowledge drives innovation and value creation, companies need to have a strategy that leverages distinctive competencies, and establishes alliances with external partners (e.g., along a supply chain). There is also a need for new structures for ‘smart companies’ and knowledge networks are such structures. The MEP Program and the federal government are positioned to convene this type of network. However, there is much to learn about playing this role well and it is important for MEP to take the time to learn much more about this style of knowledge management. Communities of Practice and Dr. Snyder’s insights on the functions involved in organizing a knowledge network are discussed in more detail in Appendix F.

The study team believes that the greatest potential assets of the MEP Program are the knowledge and capabilities of the people who work within it. By fostering the development of Communities of Practice, MEP could begin to tap the enormous potential of this knowledge base. While the Program has begun to apply community of practice concepts in working with center staffs, the efforts have been limited.

Training and Leadership Development

The MEP Program provides some training for center staff through the MEP University but does not have comprehensive training and certification programs for manufacturing specialists, administrative staff, marketing and sales representatives, or for center managers. The 360 vu Brand has plans for a certification program for the position of professional business advisor but they have not been implemented yet.

If the recommendation to change the basic emphasis of the Program is adopted, then there will be a need to develop training programs that support the skills necessary for technology diffusion and supply chain participation. Training more than a thousand people will take a considerable commitment in time and money.

In past iterations of their management information reporting procedures, the MEP program management staff provided centers with the ability to report on the training and experience of each member of the center staff. This report was not carried forward in the new reporting requirements.[28] The study team believes that the MEP staff should reinstate this report and require periodic input on each employee at each center. Reporting this information would allow the MEP program management staff to identify and manage the training needs and accomplishments of center employees as they transition to the many new skills required in their technology diffusion and infusion roles and responsibilities. In addition, center and MEP Program management staff could use the reported staff skill levels and training as a valuable organizational performance indicator.

The Program also should consider establishing an executive development program for its center managers and a performance evaluation system that would support career development. While there are many factors that contribute to the successful performance of an organization, the leadership skills of the director are a critical element. The Executive Core Qualifications (ECQs) developed by the Office of Personnel Management for Senior Executives[29] would provide a sound basis for evaluating the performance for center directors on an annual basis. The Executive Core Qualifications are required for entry to the Senior Executive Service and are used by many departments and agencies in selection, performance management, and leadership development for management and executive positions. The five ECQs are as follows:

· Leading Change

· Leading People

· Results Driven

· Business Acumen

· Building Coalitions/Communications

Partnerships

The Panel recommends that MEP leverage its success in developing local partners to build national and industrial partnerships to support the new services. The MEP staff at the national level could do more to improve and expand its own partner relationships with the organizations discussed in Appendix C. The MEP Program at the headquarters level does not work with or has limited interaction and cooperation with the Federal Laboratory Consortium, the NIST SBIR Program, the Small Business Development Centers, or the Trade Adjustment Assistance Centers.

The study team met with several organizations (the National Technology Transfer Center, the Federal Laboratory Consortium, the National Science Foundation’s Small Business Innovative Research and Small Business Technology Transfer staffs, the Trade Adjustment Assistance Centers and the Cooperative State Research and Education Extension Service) which were charged with a technology transfer/diffusion mission. All seemed more than willing to have MEP staff partner in their mission to assist SMEs. Program management staff should expand their efforts to establish formal partnerships with other federal programs that support manufacturing. Cooperative relationships with other programs in the Departments of Labor, Energy, and Education, plus the Economic Development Agency, International Trade Administration, and the Small Business Administration should be aggressively pursued. One of the Academy Panel members, Jay Brandinger, pointed out the importance of maintaining and building ties to state technology transfer and diffusion programs. He cited several examples of successful partnerships such as those that have existed between New Jersey Institute of Technology and the MEP center in New Jersey and the Ben Franklin/Advanced Technology programs in Pennsylvania.

Additionally, the MEP system needs to expand its partnerships with industry OEMs and industry associations in order to support supply chain integration services more efficiently. The Panel recognizes developing and maintaining these partnerships is not a trivial undertaking. A critical success factor for the MEP Program, which has a broad national mission, but a relatively small budget is its ability to leverage the resources and expertise of a wide variety of organizations in both the private and public sectors.

The MEP Program management staff can also help address the problem that SME’s have in access to skilled knowledge workers by working with American Association of Community Colleges and other training organizations in identifying the type of skill training that is needed in the manufacturing sector.

Funding System

While the MEP Program tries to achieve a 1/3 (fees), 1/3 (state) and 1/3 (federal) funding stream, the authorizing statue calls for a maximum federal contribution of one third of the centers’ expenses and 2/3rds from any combination of other sources. In some cases the federal funding represents less than a quarter of a center’s funding.

In order to facilitate the recommended changes in the MEP mission and the services it provides, a change in the funding formula will be required. Under the proposed business model described above, centers would be expected to spend more time working with manufacturers in their region to identify their technical needs and research the solutions to them. They would also be more involved in identifying and developing supply chain and new product opportunities. Consequently, it may not be reasonable to expect them to generate as much in revenue from fees. To the greatest extent practicable, they would be expected to broker out or refer clients who need traditional business or technical services (e.g., lean manufacturing training, process improvement training, or ISO 900X certification) to private sector companies which can provide the same training products and services as MEP centers. In FY 2003, 56 percent of all the services were provided by MEP center personnel. The remaining 44 percent was brokered to a third party.

The current funding mechanism for the MEP program also contributes to the limited authority that the program managers have at their disposal. Unless the program management staff has more flexibility concerning center funding, their ability to build effective network capabilities will continue to be limited.

In order to determine a reasonable formula, the Program should consider establishing several pilot centers to demonstrate how a new service mix that focuses on technology diffusion, new product development and supply chain development could benefit small manufacturers in several regions. A new set of metrics would be needed, including ones that measure the number of successful engagements or center activities that resulted in new product development; the application of new or existing technology to a company that resulted in improved performance; or the number of interventions that lead to a company becoming a part of a large manufacturer’s supply chain. Legislative authority would be required to provide federal funds to the pilot sites without requiring a matching two thirds amount from fees, the state governments, or other sources. Centers that are not part of the pilot would continue to be funded under the existing formula.

The MEP program staff should analyze what supporting systems the Program could furnish as part of each center’s operating agreement. Functions like the development and maintenance of the knowledge management system, training, and marketing could be performed through and paid for by the national program office. This would not only relieve centers of these administrative burdens, but would also support the goal of integration. Federal funds and matching funds received by the centers would be focused on service delivery not administrative functions.

Additionally, the MEP program staff should aggressively explore funding from other federal agencies such as the Departments of Labor, Defense, Education, and Homeland Security, and the International Trade Administration, and Economic Development Agencies.

Summary of the Steps Needed to Transition to the Proposed New MEP Business Model

1. The MEP Program should broaden its service mix to include an emphasis on technology diffusion/infusion activities, supply chain development and new product development.

2. The MEP centers should continue to provide business services, but this work should be brokered out to private sector companies to the greatest extent practicable.

3. The MEP program management staff should more directly establish national policy and initiatives that can forge a national, integrated network of services and expertise.

4. The MEP Program should re-establish its strategic planning process and expand the participation in the process to include input from all stakeholders. As part of the planning process, NIST/MEP should articulate a clear statement of what programs are designed to accomplish and how those accomplishments will be measured.

5. The Department of Commerce should consider aligning and integrating the various programs within the Department that have manufacturing assistance responsibilities under one organization. The establishment of a manufacturing czar position creates an opportunity for this type of reorganization.

6. The MEP program management staff should sponsor the development of an enhanced knowledge management information system that captures and facilitates sharing knowledge and information among all centers.

7. The MEP headquarters staff should consider using Communities of Practice as a mechanism for building a national knowledge network.

8. With an emphasis on technology diffusion and infusion activities, new product development and supply chain development, there will be a need to develop training programs that provide the skills to deliver these services. The MEP headquarters should also consider establishing an executive training program and performance standards for center directors.

9. The MEP headquarters should establish/re-establish relationships and cooperative agreements with other organizations that are involved with supporting small manufacturing or technology diffusion

10. Authorization for a change in the funding allocation should be sought from Congress for several pilot centers.

CHAPTER 5

WHAT MEP CAN LEARN FROM OTHER BUSINESS MODELS

As part of the research for this study, the following six government agencies which partner with state and local entities were reviewed to determine if there were practices they have put in place which could provide a basis for a future MEP model:

· Department of Agriculture

Cooperative State Research, Education, and Extension Service

· Small Business Administration

Small Business Development Centers

· Environmental Protection Agency

· Department of Labor

Unemployment Compensation

· Social Security Administration

Disability Programs

· Department of Veterans Affairs

State Approving Agencies

There are many examples of Federal programs that operate in partnership with state and local governments as well as private entities. To a greater or lesser extent, they all deal with issues concerning the need to balance national requirements that flow from federal law, regulation, policies, and national priorities with the need to provide these other entities with enough autonomy to capitalize on local strengths and address local needs. There is no magic formula for doing this. Practices vary widely and have evolved based on the type of program, the length of the partnership, and the history and organizational culture of the program.

Appendix B has a brief history and a description of the organizational structure and mission for each of the six programs that were reviewed. Clearly, there is no “off-the-shelf” model in these other programs that applies directly to MEP. The histories, cultures, legislative mandates, funding formulas and missions of the respective agencies require them to take some different approaches to business. However, there are aspects of these other program business models that could benefit MEP. (Conversely, certain aspects of the MEP model, such as strong outcome measures, close-to-the-customer structure, and flexible information systems could benefit the other organizations.)

One Program that is worth considering is the Department of Agriculture’s Cooperative State Research, Education, and Extension Service (CSREES). While MEP is fifteen years old, has a $106 million annual budget (FY ’03), and focuses on manufacturing, Agricultural Extension began in the 19^th Century, has a budget that is an order of magnitude larger (more than $1 billion) than MEP and focuses on agriculture. Agricultural Extension provides funds mostly in the form of grants while MEP funds only one-third of the costs of operation and requires its extension agents—MEP centers—to come up with the remaining two-thirds, much of it the form of fees charged to clients.

Despite these and other differences, the programs have some significant similarities as well. Both are organized around key sectors of the economy—agriculture and manufacturing—and both are focused on the diffusion of information, through an extension program, to the practitioners in those industries to help them improve their performance and productivity.

While much of what CSREES does is not applicable to MEP, the agricultural extension model has two key aspects which are important to its success and which could prove to be just as helpful in a manufacturing setting: a strong link to programs of higher education; and, strong research and development programs.

Linking With Community Colleges

Currently, while individual MEP centers have relationships with colleges and universities, including the handful of MEP centers which are university-based, there is no national partnership between MEP and schools. There is the potential for the MEP Program to forge its own unique relationship with the community college system. An American invention, community colleges provide close-to-home educational opportunities to the maximum number of people. There are 1,171 public and independent community colleges in the United States. When branch campuses of community colleges are included, the total is about 1,600. Flexibility in reacting to changes in the economy is one of the strengths of the community colleges system.

As the American Association of Community Colleges (AACC) notes:

“Historically, there has been little lag time between an economic change or population shift and its impact at community colleges. During their first century, community colleges responded adroitly to the demands of the times. When World War II veterans using the GI Bill packed campuses at the same time industries needed skilled workers to convert from armaments to consumer goods, community colleges added workforce training to their academic repertoire.”[30]

In his most recent State of the Union speech, President Bush advocated providing additional federal funding to community colleges to help with job training: “I propose increasing our support for America's fine community colleges. I do so, so they can train workers for the industries that are creating the most new jobs.”^{^[31]}

The AACC membership represents close to 95 percent of all accredited U.S. two-year community, junior, and technical colleges. Economic and workforce development is one of six AACC strategic action areas.

AACC is also a member of “The Six” large, presidentially-based associations. It collaborates with a wide range of entities within the higher education community to monitor and influence federal policy and to collaborate on issues of common interest. The association has ongoing interaction with key federal agencies and departments including the National Science Foundation and the Departments of Labor, Education, Energy, Homeland Security, and most importantly for the purposes of this study, Commerce.

Regardless of whether there is additional federal funding of the community college system, the MEP could play an important role in workforce development by helping to facilitate the creation of programs of manufacturing job training. By working with organizations such as AACC, MEP could help design appropriate programs by serving as the collective voice of the needs of small manufacturers. The U.S. Departments of Education and Labor also could be important partners in such an effort. A natural fit appears to exist between the effort to improve small manufacturing and the role of the community college system. MEP officials should strongly consider researching the possibility of fostering a partnership with this important national resource.

Research and Development

Research and Development is the second aspect of agricultural extension that could benefit the MEP Program. During its brief history, the MEP has had experience in developing three significant products for export to small manufacturers: lean manufacturing technology, quality assurance (QA) programs, and the “Y2K Toolkit,” which was used to help SMEs deal with Year 2000 information technology conversion issues.

The first two products “lean” and QA took significant time and resources to develop because they were not approached systematically or in a centralized fashion. Instead, each center was permitted to design its own version or decide which version to adopt. As one MEP manager characterized it, “We reinvented the wheel literally hundreds of times,” with various centers using “their own product.” While these efforts ultimately resulted in a successful product, the same results could have been achieved with less time and expense if they were pursued more systematically.

The development of the Y2K toolkit took a different approach. This was a centralized effort, modeled after agricultural extension research and development and done in partnership with CSREES and the Small Business Development Center Program (SBDC) within the Small Business Administration at Commerce. Driven by firm “drop dead dates” for delivery of the products, it was done well, at a reasonable price and on time. Ultimately, the International Trade Administration (DOC) adopted it for use in other applications and was converted into eight languages and exported to numerous countries as a promotion to increase demand for U.S. manufactured software. Both USDA and SBDC adopted the tool kit, and used it extensively to assist their clients.

The Panel believes the MEP Program should have a limited research and development capacity to develop products for SMEs. It is not recommended that MEP develop a large in-house R&D program; size, budget constraints and other considerations make this impractical. However, the selected use of this centralized approach should be considered when circumstances allow.

An even more important R&D role MEP could play would be to initiate knowledge groups/communities of practice[32] that focus on manufacturing technology issues and capitalize on the R&D efforts of federal labs, universities, and other technology creating entities. For example, the Program could consider sponsoring groups of MEP employees (headquarters and the field) who are organized around specific market segments (e.g. specific technologies, types of manufacturing, business processes, etc.) and who are knowledgeable about their segment and who work with technology creating organizations. This could provide a systematic and deliberate approach to knowledge management in the Program. (Appendix F has a fuller discussion of Communities of Practice.)

Adopting this approach also would have a direct impact on issues of organization, staffing and employee skill sets. Recognizing the difficulty of implementing wholesale change in a complex organization, it is strongly suggested that if the decision is made to change the strategic goals of the Program (the mission would remain the same) to include technology diffusion, then the changes need to be carefully planned through a structured strategic planning process and phased-in over a reasonable time frame. This would have to be an evolutionary process.

Funding Mechanisms

An additional consideration in reviewing these other models is how the programs are funded. As noted earlier in the report, MEP provides one-third of funding to state centers with the centers being responsible for generating the other two-thirds, including charging fees to customers. While the SBDC program requires state SBDCs to furnish one-half of their funding, for the most part, other programs do not require such matching efforts.

The MEP funding formula is an important driver of behavior at the state center level because it requires a strong focus on revenue generation. To be successful, centers must closely focus on generating revenues from clients. This is a positive aspect of the current model and helps the program continue to develop new customers and expand efforts with existing customers. The downside is that this approach discourages efforts which may be important but which divert time from revenue generation activities such as researching new technologies or building networks that span across state lines.

The current funding formula also reduces the ability of the Program to have a strong central policy approach. because federal funding represents only one-third of a center’s revenue, the ability to create a more integrated national approach on issues will not approach that of programs where there is full funding of state operations (e.g., SSA, VA). If the MEP Program moves into technology diffusion, tries to create an integrated national network and break down the geographic barriers between centers, it should consider requesting a change in the law to allow it to alter its funding formula.

This is not to suggest that the current one-third/two-thirds formula be abandoned. Rather, funding requirements should be supplemented with a provision that allows program officials to allocate “no-match” money to selected entities that are involved in important program activities which do not necessarily generate revenues.

Regionalization

All of the other programs examined during this study have some type of regional field-based structure staffed by federal employees. The officials interviewed uniformly view this structure positively because of its proximity to field offices; its ability to scale down budget, policy, and program implementation issues; and its ability to relate to both the headquarters’ policy and programmatic needs as well as the operational needs of field offices.

Except for some multi-state operations, the MEP structure is comprised of stand alone state centers which have similar administrative and managerial needs. All federal employees work at the MEP headquarters in Gaithersburg, Maryland.

There is an opportunity for the Program to create a more efficient and effective organization by moving towards a regional structure. In light of budget issues and other concerns, this is not a recommendation to duplicate the structures of the other organizations discussed above. Although state centers cannot be required to adopt a regional configuration, the MEP Program can encourage and offer incentives to centers to create regional coalitions that could capitalize on common services agreements, IT platforms, and other opportunities for improving efficiency. Realigning headquarters staff into regional arrangements could also provide some advantages.

Providing More Specific Requirements to Centers

The MEP Program has done a nice job of focusing center efforts and outcomes through a “market pull” strategy which includes well-designed center performance requirements. While some of the other programs studied have much more control over state operations, this is a result of stronger law and regulatory requirements as well as much higher funding levels. Other programs do not have the same degree of success as MEP when it comes to influencing the outcomes of the state offices. However, the MEP Program might achieve more if it took a more directive approach in some areas, including its fundamental contract with the state centers.

In many ways, the SBDC program operates very similarly to the MEP Program. Its fundamental mission, approach to funding centers and relationship with state and local organizations are very similar to those of the MEP Program. SBDC’s mission, however, is broader (i.e., helping all small businesses) and the assistance it provides to individual companies is less extensive. SBDCs spend an average of 4.7 hours per client while MEP center projects average about 60-70 hours in length. Nevertheless, the SBDC program offers some examples worth considering.

One is the use of an annual Program Announcement which tells centers what is expected of them in the upcoming year and requires a written proposal from each center which explains how it will meet the Announcement’s requirements. Also worth considering is the use of jointly negotiated goals between SBA and the SBDCs, based on SBA’s Government Performance and Results Act (GPRA) goals. (See also, DOL’s use of annual State Quality Service Plans.)

Having specific requirements for SBDCs to acknowledge SBA’s support; displaying the SBDC logo in offices and on web sites; and defining how SBDCs will refer to themselves are practices that can build network and brand identity, something that the MEP Program is also trying to accomplish through its 360vu initiative. (It should be noted that, based on a review of SBDC web sites, several centers do not follow SBA’s guidelines). Nonetheless, the practice is one which the MEP Program should consider.

An annual program announcement process could be administratively expensive for both MEP headquarters and state centers. Nevertheless, an annual announcement program, if designed carefully, could help clarify and strengthen headquarters-center roles and responsibilities without undue administrative effort.

Using Cooperative Agreements is also worth considering. These are not grants or contracts but awards which cover a three year period with an initial twelve month budget period and two twelve month option periods. By signifying provisional intent to support the center for the award period but creating no legal obligation to do so underpins the need for satisfactory center performance.

Using annual Program Announcements or Cooperative Agreements would require a change in current law that requires a panel review[33] of every center every two years.

Recommendations Based on Other Models

· Build a partnership with the community college system to help with manufacturing workforce development

· Create a research and development capability within the MEP program

· Seek a legislative change that would provide more flexibility in the center funding formula

· Consider a more regional approach for the MEP system