Building Innovative Capacity Among SMEs

Recent research by MIT’s Production in the Innovation Economy (PIE) commission[1] highlighted two important points for today’s small and medium-sized advanced manufacturing companies. First, there is an important relationship between the U.S.’s ability to innovate and its manufacturing capabilities. Advanced manufacturing capabilities are essential for developing new products, processes and services across a range of industries. The loss of such capabilities can lead to the transition of industries to other countries as the innovation follows the manufacturing (as has been evident in a number of industries[2]), and an inability to develop capabilities in new, emerging industries.

Second, the large, vertically-integrated corporations of the 1980s have deverticalized over time to focus on core competencies, outsourcing much of their production and often relying on smaller firms for their innovation. This process has left “holes” in the industrial ecosystem, with many of the important investments and spillovers that used to flow from the large corporations to smaller firms (e.g., in training, technology adoption, and R&D investments) no longer being made.  The result is that many advanced small and medium-sized manufacturing enterprises (SMEs) have been left largely on their own to figure out how to find and train new workers, adopt new technologies, and develop and scale new products and services.

These findings underscore both the importance of advanced manufacturing SMEs to the country’s ability to innovate and grow, and the need for a more intentional and systematic approach toward developing SME capabilities to the needs of the larger original equipment manufacturers (OEMs) that are typically their customers.

This is especially important in a state such as Massachusetts, given the diversity and sophistication of the industries in which the over 7,500 advanced manufacturers in the state are engaged (e.g., aerospace/defense, semiconductors/electronics, medical devices, biopharmaceuticals.[3]) Massachusetts has a long and illustrious history in manufacturing and in product and process innovation[4], and has built advanced manufacturing capabilities that have allowed companies and workers to transition into new or emerging industries as market conditions change. Over 70% of the  manufacturers in the state are SMEs with under 20 employees, the vast majority of which are part of regional, national or global supply chains.  However, increasing global competition, the development of new generations of advanced manufacturing technologies, and new ideas about the organization of manufacturing facilities and how workers are enabled within them are creating both opportunities and challenges for the Commonwealth’s advanced manufacturing SMEs going forward.

This project, Building Innovative Capacity Among Massachusetts Manufacturers: Pathways and Opportunities for SMEs, examined these new developments and assess the response of Massachusetts SMEs to them. By looking closely at the demands on SMEs today through the lens of OEMs, as well as important advanced manufacturing technologies that are being diffused and adopted, this research will identify the key innovative capabilities that are required of SMEs today and the ways in which these are acquired.


[1] Suzanne Berger, Making in America, MIT Press, 2013.

[2] Gary Pisano and Willy Shih, Producing Prosperity, Harvard University Press, 2011.

[3] Barry Bluestone et al., Staying Power II: A Report Card on Manufacturing in Massachusetts, 2012. The Boston Foundation, 2012.

[4] David Hounshell, From the American System to Mass Production: 1800 to 1932, Johns Hopkins Press, 1984.