Manufacturing Products—and Relationships

It was the first day of herinternship when a Wharton undergraduate informed the president of a 94-year-old manufacturing company that he had incorrectly identified the market for its products.
    Jaws dropped. But later that day, the executive conceded that she was right. The outspoken intern, whose classmates spent the summer fetching coffee on Wall Street, went on to produce fresh ideas and $75,000 in sales for this small Philadelphia firm.
    It’s stories like this one that Dr. Gregg Lichtenstein C’81 GrW’92 likes to tell when he discusses his work with the Urban Industry Initiative, helping to boost and retain Philadelphia’s neighborhood-based manufacturing jobs.
    Since the project was started three years ago by the Philadelphia Industrial Development Corporation, using a grant from The Pew Charitable Trusts, Lichtenstein has served as a hands-on project consultant and something of a visionary, dreaming up ways to help the companies work together and then seeing them through. He owns his own private consulting business, Collaborative Strategies in Margate, N.J., but has devoted a significant portion of his time to the Initiative.
    So far the target zone has been a 10-square-mile section of Northeast Philadelphia which is home to more than 330 firms employing 13,000 people and selling more than $3 billion in products and services. More than half of these firms have less than 25 employees, and as Lichtenstein has tried to demonstrate, to flourish they must build what he refers to as social capital.
    “Our [past] strategy in many cases had been one of helping inner-city companies become more profitable—and then they would leave. We felt the best way of helping them become more successful, and then rooting that success in the community so they are motivated to stay, was to create networks of relationships.”
    Since the project began, Lichtenstein says, “We’ve gotten companies to engage in a lot of improvement efforts, both individually and collectively. When companies get to know one another and see what is possible, it opens their eyes.”
    In early meetings, Lichtenstein learned that 11 companies were seriously considering leaving the area over the next five years. So he started helping them connect with each other, a few firms at a time, to improve local manufacturing conditions.
    Since then, for example, one group of about 40 small companies has banded together to clean up their properties and eventually build a new industrial park. The initial leaders of that project met with former city mayor Ed Rendell C’65 to request funds for a security force and cleanup crew. “He looked at the group and said, ‘You’re not asking for enough money,’ and gave them 40 percent more.”
    According to Lichtenstein, the mayor explained, “Most people walk in here and complain. You walked in here representing a group of companies, and you analyzed all of your problems, had a solution and had budget numbers next to that solution.”
    The Urban Industry Initiative has placed interns from Wharton and other local business schools in marketing positions with some neighborhood manufacturers to expose the companies to fresh ideas and the students to potential places of employment they otherwise might have overlooked. 
    Lichtenstein is also encouraging companies to jointly accept contracts that they can’t complete by themselves. “It requires a changed mindset,” he explains. “Most of them are not direct competitors, but they don’t work together typically. Someone has to come in as neutral third party; otherwise they’re distrustful.”
    Other firms have pooled together to bid on electricity service, taking advantage of their “power in numbers.”
    In addition, about a dozen companies are developing new products with assistance from the urban initiative. One of them is a 109-year-old manufacturer of rope-twisting equipment, for which, Lichtenstein explains, “there has been no technological advancement in at least 90 years.”
    The owner had told him, “‘I’m going to die if I don’t get into a new application or business.’ So we hooked him up with the technology center at Drexel University; professors at the center had produced a design for a composite reinforcement bar [a synthetic, rust-resistant building material]. But the problem was, they were braiding it, and braiding is very slow, so it was not commercially viable. When they walked into the plant and saw how twisting works, they realized that if they could twist the material, they would be in business.” Since then, the company has licensed the design for this material from the professors. It is now working with the Urban Industry Initiative to pursue federal funds for product development. One future application may be the production of light-weight and rust-resistant car bodies.
    In the meantime, the company has landed a contract to produce composite materials of another kind in a joint venture with the Drexel professors, using this twisting technology.
    “These companies were on the leading edge a hundred years ago,” Lichtenstein says, “so we’re trying to help them reinvent themselves.”
    Have these strategies been successful? Lichtenstein certainly believes so. To date, none of the companies that had initially considered leaving the area have moved.
    Though other cities have experimented with networking, Lichtenstein says, “We’re probably the first place in the country that has tried such an intensive, multipronged approach. Out of 330 companies, we’re working with 120 companies. As we get more money, we’re going to expand that penetration rate.”
    Perhaps the best sign of the project’s effectiveness is that companies are beginning to take the initiative to network. “We’re excited,” he says, “that companies have begun meeting with each other without us.”

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