Efficiency potentials and the extended regional infrastructure: requirements for a management model

Efficiency Potentials and the Extended Regional Infrastructure Requirements for a Management Model Available online at www sciencedirect com 2212 8271 © 2016 The Authors Published by Elsevier B V This[.]

Available online at www.sciencedirect.com ScienceDirect Procedia CIRP 57 (2016) 98 – 103 49th CIRP Conference on Manufacturing Systems (CIRP-CMS 2016) Efficiency potentials and the extended regional infrastructure: requirements for a management model B Kucha* a Graduate School of Excellence advanced Manufacturing Engineering (GSaME), University of Stuttgart, Allmandring 35, 70569 Stuttgart, Germany * Corresponding author Tel.: 0049 711 970-1977; fax: 0049 711 970-1220; E-mail address: benjamin.kuch@gsame.uni-stuttgart.de Abstract This article addresses the question of how efficiency potentials within a regional production network can be identified and levered The industry and geographical focus is on the manufacturing sector and Southwest Germany, respectively Against this background, especially the sophisticated technical consumer goods and investment goods contribute greatly to the competitive advantage of the region as a whole The contribution combines considerations of different theories and examines the field from multiple angles: (1) regions and factories as systems, (2) proximity, (3) competitive advantage A systematic literature review (SLR) methodology is applied in order to substantiate each of the three pillars The work results in a set of characteristics describing requirements for an analytical framework or management model in order to successfully shape a regions future by the systematic identification and leverage of efficiency potentials The scope of action is the extended regional infrastructure, which comprises elements of various systems, such as economy, politics, administration, and science It is argued that the different systems, as well as their subsystems (e.g organizations within the economic or scientific sector), have to be recognized as generally independent and self-organized Therefore, a key task is related to the coordination of systems which can be understood as the formation and configuration of a structural coupling © 2016 The Authors Published by Elsevier B.V This is an open access article under the CC BY-NC-ND license © 2015 The Authors Published by Elsevier B.V (http://creativecommons.org/licenses/by-nc-nd/4.0/) Peer-review under responsibility of Scientific committee of the 49th CIRP Conference on Manufacturing Systems (CIRP-CMS 2016) Peer-review under responsibility of the scientific committee of the 49th CIRP Conference on Manufacturing Systems Keywords: Efficiency Potentials; Extended Regional Infrastructure; Literature Review; Complex Social Systems; Introduction The mechanical engineering industry is one of the most vital industries in regard to Germany and especially its southwestern part, accounting for approximately 1,000,000 and 300,000 jobs, respectively [1] The regional orientation of production can have important benefits compared to a strict globalization strategy [2] which is why recent trends are indicating an economic regionalization [3] A factory possesses a variety of linkages to different systems within a region, all of which contributing to its efficiency and clearly exceeding the linear supply chain The total of these systems is referred to as the extended regional infrastructure Efficiency, for the purpose of this study, is used in a rather generic way to describe the internal relationship between inputs to outputs [4] The extended regional infrastructure is seen as the scope of action within which efficiency potentials are to be identified and addressed Hence, the current research task is to conceive of requirements for an analytical framework which shall serve as the basis in order to analyze the extended regional infrastructure Methodology The methodology of the article is twofold A systematic literature review (SLR) is presented in order to build an argumentation basis On this basis, a synthesis of the different strands helps to reflect critical success factors for the management of regions and to derive requirements for an analytical framework a region can use in order to systematically identify and lever efficiency potentials A systematization of literature reviews seems to be vital in order to ensure a transparent and replicable process [5] Hence, the SLR methodology was built upon a structured approach [6] and was 2212-8271 © 2016 The Authors Published by Elsevier B.V This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Peer-review under responsibility of the scientific committee of the 49th CIRP Conference on Manufacturing Systems doi:10.1016/j.procir.2016.11.018 B Kuch / Procedia CIRP 57 (2016) 98 – 103 composed as follows: An initial set of search terms for each literature pillar was developed and keyword-combinations were randomized using an MS-Excel environment A particular keyword-combination was then applied to several databases, including: ScienceDirect, EmeraldInsight, SpringerLink, Taylor & Francis Online, and Wiley Online Library Scanning the abstracts of the articles helped to develop a set of contributions for full-paper review The reviewed papers also served as nuclei for the deduction of further impulses and keywords In addition to the systematic search, well-known classics were considered, especially in the fields of factories and competition Results of the literature review This section gives an overview over the reviewed literature which is structured by focus of content and methodology and is depicted in Table For each content category a brief synopsis of various approaches is presented to provide a groundwork for the current contribution Table Literature structured by content focus and applied methodology Main focus Methodology Conceptual Empirical Review Regions / Factories as Systems Regional Transition [7]-O; [8]-O; [9]-O [10]-EI; [11]EI; [12]-EI; [13]-SD; [14]-WL [15]-SD; [16]-SD Changeable Production [17]-SL; [18]SD; [19]-SD; [20]-O; [21]O;[22]-O; [23]SL; [24]-O; [25]-EI; [26]-EI [27]-SD; [28]-SD; [29]-EI; [30]SD; [31]-EI; [32]-SD; [33]-SD [34]-WL; [35]-EI; [36]-SD; [37]-O; [38]-SD Social Systems Theory [39]-O; [40]-O; [41]-SD; [42]-O [43]-WL [44]-WL [45]-TF [46]-SL; [47]WL; [48]-WL [49]-TF; [50]-WL; [51]-SD [4]-O; [52]-O; [53]-WL; [54]O; [55]-SL; [56]-O; [57]WL; [58]-SL [59]-EI; [60]O [61]-WL; [62]-SD Proximity Competitive Advantage Synergies [63]-O; [64]-O; [65]-TF Innovation [66]-SD; [67]WL [68]-SL; [69]EI; [70]-SD; [71]-SD; [72]-SL; [73]SD [74]-SL; [75]-TF; [76]-SL Databases: WL (Wiley Online Library); SL (SpringerLink); SD (ScienceDirect); EI(EmeraldInsight); TF(Taylor&Francis); O(Other) Factories, as well as whole regions are frequently described as systems in the literature [7,14–16,20–22] Reason for this are that systems theory allows for a generic perspective, is able to link different domains, and provides the possibility to model evolution and change processes In regard to factories, there are multiple concepts and approaches referring to productionrelated change, e.g flexibility and agility [25,26,32], strategic flexibility [23], factory fitness [31], resilience [38], reconfiguration and changeability [20–22,24,33,37], bioinspired systems [36] On an abstract level, however, these concepts can be consolidated along two basic dichotomies (based on [20]): firstly, a shop-floor or production-based focus against a holistic factory or enterprise-based focus including structural elements; secondly, a rather passive utilization of an existing scope of action against the proactive generation of future opportunities It can be stated that the approaches have evolved over time towards both a holistic and proactive focus Besides the internal production processes strategy, human resource management, and linkages to customers and suppliers are building blocks of an effective changeability concept [31] An important extension, however, is that not only systems along the linear value chain (suppliers and customers) are relevant Rather there is a multitude of lateral systems which influence the performance of corporate change [7] A vital feature in this context is to recognize those systems and to ensure compatibility among them Modern systems theory has its general origins in the scientific disciplines of biology and cybernetics of the 20th century [39] Subsequently, systems theory has proliferated in numerous research fields including communication theory, social theory, and management theory [7] In regard to sociology Parsons’ theory of action shows that personalities not simply sum up to the social system but develop a new order of system which describes their interactions on the basis of roles and mutual role-expectations [40] Luhmann built upon Parsons’ theory but did not assume defined functions within social systems [44] He rather focused on the dynamic operations of systems and included the concept of autopoiesis [42] which was introduced by Varela et al [41] in biological systems The major deliberation was that systems define, organize, and reproduce themselves while continuously performing their own operations Everything being part of the operations defined by the system belongs to the system, everything else belongs to the environment This characteristic of operational closure is also used to describe and model economic organizations [43] Proximity is a multi-facet concept that covers but goes well beyond geographical distance Geographical proximity is measured as either agglomeration or dyadic distances [50] and partly considers also natural constraints, infrastructure or object-specific characteristics [45,51] Organizational proximity is described by Torre and Gilly [45] as a certain arrangement of system relations and subsumes the similarity of reference systems and knowledge bases under it A refinement of this structure distinguishes the field of organizational relations from the field of references and knowledge bases and extracts the latter as cognitive proximity [47,49] Knoben and 99 100 B Kuch / Procedia CIRP 57 (2016) 98 – 103 Oerlemans [50] found a constituent element of organizational and other forms of proximity to be the coordination of economically separated actors Furthermore they considered technological proximity as a complementary dimension to cognitive proximity in order to differentiate between the pattern of communicating and learning, and the actual content or the knowledge itself In this train of thought cognitive proximity moves much closer to organizational proximity whereas the central concept of absorptive capacity is ascribed to technological proximity Social proximity can be understood as the social embeddedness of an organization’s agents and therefore operates at the micro level [49] It describes the position of individuals within a network of interpersonal relationships and is often seen as an enabler for mutual trust and the exchange of knowledge [46,50] As opposed to social proximity, institutional proximity functions at the macro level and constitutes stable conditions for interactive learning [49] Institutions are seen as sets of common habits, routines, practices, rules, laws etc that structure the interaction of agents and organizations, manage conflicts and cooperation, and provide motives and incentives [77] While establishing a framework in which economic, political and social interaction can take place they provide efficient solutions to problems of organization [78] Yet another term is relational proximity which is not unambiguously referred to in the literature Knoben and Oerlemans [50] see it as a form of social proximity, whereas Basile et al [48] use it in a more cognitiverelated way In combination with the more recent approaches in strategic management, especially the institutional dimension will be an important building block for the discussion about the extended regional infrastructure Reviewing strategic management literature reveals several avenues to identify and achieve competitive advantage Modern strategic thinking basically started in the 1960s with Ansoff [61], who addressed the reductionist character of the former concept of strategic planning [58], and from there developed many facets, orientations and focuses The industryview focused on external factors like bargaining power between different market players [52] Since resources, tangible and intangible assets [53], are neither homogeneously distributed nor are all of them completely mobile a reduction to external factors seems insufficient [54] The hereupon evolved approaches with a strong orientation towards resources have been further developed ever since [55] Another essential argument in this context was the vital character of relational rents stemming from relation-specific investments, knowledge transfer, complementary resources, and efficient governance [56] The latter is also an interface where transaction cost theory and the resource-based view conflate, e.g in regard to outsourcing decision making [57] The relational view leads to two additional perspectives: innovation systems and synergies Being innovative is crucial for many firms, especially for those from the machinery and equipment industry The innovation process is highly dependent on coordination mechanisms arranging, shifting and assembling parts of complementary knowledge [49] Hence, it somehow occupies the interface between all three literature pillars presented in this study Synergies can also refer to innovation, however, are not limited to it [63] They are highly relevant to the mechanical engineering sector [63] and can occur between business units or elements of the value chain [64] Requirements for a regional management model This section presents several literature sets and their arguments, insights and controversies which have been synthesized in order to be able to derive requirements for a regional management model The synthesis sets are depicted in Table Table Synthesis sets from the literature Synthesis-Set Controversy or Insight Proximity; Regional Transition; Changeable Production; Social Systems Theory Insight: The coordination of social systems is a generic process relevant to a multitude of applications and it is facilitated by the proximity of system elements Proximity; Innovation Controversy: The role of geographical proximity in regard to the effectiveness of innovation systems Changeable Production; Social Systems Theory; Proximity Controversy: The constituting and limiting factor of geographical proximity in regard to location-independent production (or: limits of changeability) Competitive Advantage; Proximity; Insight: Institutional proximity and the institution-based view on strategy establish a building block on the interface of factories and their extended business environment Competitive Advantage; Synergies; Changeable Production; Regional Transition Insight: The spectrum of efficiency potentials contains a short-term and a longterm perspective, both of which are to be considered in a thorough analysis The literature considers coordination to be a vital challenge in regard to several fields The effectiveness of innovation systems, production networks, supply chains, and factory planning highly depends on coordinative action [17–19,34,49] and particularly the social systems are of essence in this context [17] Proximity, i.e a composition of its various dimensions, is a solution approach to the coordination problem, albeit geographical proximity, at least for innovation systems, is considered to be an exchangeable factor [46,49] This, however, might be subject to several conditions in regard to the technology development framework It seems conclusive that two systems, if they are communicating with the same patterns and are perceiving and evaluating occurring issues in very similar ways, are likely to be detached from spatial boundaries [69] This argument is even more plausible if the communication is somewhat standardized, e.g if a modular concept is implemented Moreover, through a resource dependence lens [4], organizations compete for effective business partners in the technology development process and the rarer they are the less important geographical proximity might be Hence, the role of geographical proximity as a prerequisite for knowledge-intensive collaboration and B Kuch / Procedia CIRP 57 (2016) 98 – 103 innovation is challenged by some authors in the literature [71,72] However, especially early milestones of the innovation process are characterized by tacit knowledge transfer and binary collaborations making physical distance an important parameter to consider [73] Therefore, albeit for the innovation process conceivably not essential, if physically close technology networks are available combining economic and scientific systems they provide a basis for participating firms to obtain competitive advantage [67,68] Some approaches of the literature on flexible and changeable production try to establish a groundwork for particular forms of mobile manufacturing which detaches from the spatial dimension The basic concept is to physically shift production capacity between different locales in order to serve various projects and markets [28] Within this spectrum also low-cost factories with inexpensive equipment and simple production materials are considered in order to dispose of the facilities if market requirements change [29] However, these are reductionist approaches neglecting that factories are embedded in regional networks and vital linkages not only cover suppliers and customers but also lateral systems This argument does not seek to challenge the basic idea of changeable production which is a fundamental theoretical framework against the backdrop of highly uncertain and volatile markets [30,35] Flexibility and changeability of factories should rather be considered as critical success factors in regard to modern production However, complex social systems cannot simply be separated into technical modules which are subsequently analyzed independently Hence, unless the products are rather simple and basic production conditions like infrastructure are rudimentary [27], substantial change to production will always involve an evolutionary process within the regional extended infrastructure Besides the relations to customers, suppliers and service providers this does comprise the institutional landscape as well An industry orientation as well as a resource orientation for the explanation of competitive advantages not explicitly account for the institutional environment in which firms are operating This theory gap was addressed by more recent contributions conceptualizing an institution-based view on strategy, which considers dynamic relations between organizations and the institutional landscape [62] This development in strategic management theory in combination with the deliberations on institutional proximity seems to be vital in regard to the research field of the extended regional infrastructure An important insight from the literature in regard to synergies, which basically describe surplus-effects from collaborating systems, is that they may address both short-term and long-term potentials This is reflected on a micro- as well as on a macro-economic level [63,79] Hence, this dyadic perspective should also be projected to the management of regions Especially change processes, mostly contributing to the long-term viability of an organization or system, is recognized as an economic imperative for current and future manufacturing businesses [30] Again, this argument does not only apply to manufacturing firms and their factories It holds true also for strategic considerations of whole regions There is a wide basis of literature dealing with conditions for regional transitions most of which addressing sustainability-related challenges which can be understood as long-term efficiency potentials These challenges are pivotal for the mechanical engineering industry in Southwest Germany [80] Briefly summarized the main features of both empirical observations and developed concepts on transition contain the following: Transition processes are recursive ones and outputs most frequently are fed back into the system in one way or another [15] Furthermore, it is crucial to recognize that different systems possess different logical patterns which impact and align the systems’ operations [43] and hence that an immediate control of change processes is not possible as social systems can only be influenced by impulses and coordination mechanisms [8,9,43] Besides the economic system, this concerns for instance the political system within which particularly the local level has a great impact on sustainability transition processes [10–12] The established institutions constitute a basis to operate on and hence must not be neglected in a regional management model Since geographical proximity influences organizations from quite different systems (e.g the distance of constituency districts is influencing the strategies of selectively entering parties [13]; economic and technological clusters are driven by proximity [59,60]) it seems vindicated and even necessary to build upon existing approaches in order to propose an effective and coherent regional management framework for the coordination of complex social systems From the synthesis of the aforementioned literature focuses several requirements for a regional management model were deduced The first main requirement concerns the coordination of complex social systems An analytical framework has to enable regional actors to communicate effectively and efficiently Hence, it has to account for the various communication patterns and must deliver tools for the translation between them This rather generic argument can be unfolded considering different levels of coordination: Firstly, multiple subsystems with similar communication structures, e.g departments within a single firm; Secondly, systems which communicate within the same basic medium, e.g a factory and a service provider, both communicating with money within the economic system; Thirdly, two systems that not share the basic communication medium, e.g a composition of organizations from the economic, scientific, and political system The second main requirement points at the category and level of efficiency potentials The literature presents efficiency potentials, in the generic understanding of this paper, either as short-term or long-term potentials Short-term potentials, for instance efficiency measures in a classical comprehension, are gradually contributing to competitive advantage Long-term potentials, from a manufacturing industry point of view, refer to either focal factories or the extended regional infrastructure Besides production capacities, changeability of factories includes personnel, customer and supplier relations etc each of which constituting 101 102 B Kuch / Procedia CIRP 57 (2016) 98 – 103 an interface that has to be shaped Depending on a firm’s competitive strategy, innovation processes also contribute substantially to its level of changeability since the ideas what to change are generated here Moreover, some essential changes, e.g in regard to sustainability, address not only production itself but also a region’s extended infrastructure (e.g physical infrastructure and internet access, scientific institutes, political and administrative departments, pools of service providers and craftsmen) and a society’s selfconception which in turn affect a firm’s strategic management decisions The long-term potentials can be understood as the basis that has to be shaped in order to address and lever shortterm potentials in the future The third main requirement addresses the institutional landscape of a region Considering both institutional proximity and the institution-based view on strategy, it becomes clear that an effective regional management framework must account for the institutional structure within the region On the one hand, the existing set of institutions has to be coherent and aligned This requirement applies to the inner structure of the region as well as to the structural coupling towards other regions On the other hand, the set of institutions has to be continuously scrutinized, challenged and shaped Conclusion The current study presented an overview over three literature fields, i.e regions and factories as systems, proximity, and competitive advantage In each field a synopsis of the various contributions and approaches was performed and junctures were identified for which a synthesis of the respective subset of thoughts and arguments was achieved This delivered the basis for subsequent theoretical deliberations on how an analytical framework has to look like if it is to support and structure the identification and leverage of regional efficiency potentials The three main requirements an analytical framework has to meet are: firstly, it has to provide effective ways to 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