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[.]

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

Procedia CIRP 57 ( 2016 ) 98 – 103

ScienceDirect

49th CIRP Conference on Manufacturing Systems (CIRP-CMS 2016) Efficiency potentials and the extended regional infrastructure: requirements

for a management model

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

© 2015 The Authors Published by Elsevier B.V

Peer-review under responsibility of Scientific committee of the 49th CIRP Conference on Manufacturing Systems (CIRP-CMS 2016)

Keywords: Efficiency Potentials; Extended Regional Infrastructure; Literature Review; Complex Social Systems;

1 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

2 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

© 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 scientifi c committee of the 49th CIRP Conference on Manufacturing Systems

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

3 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 1 For each content category a brief synopsis

of various approaches is presented to provide a groundwork for

the current contribution

Table 1 Literature structured by content focus and applied methodology

Regions / Factories

as Systems

Regional Transition [7]-O; [8]-O;

[9]-O

[10]-EI; [11]-EI; [12]-[11]-EI;

[13]-SD;

[14]-WL

[15]-SD;

[16]-SD

Changeable

Production

[17]-SL; [18]-SD; [19]-[18]-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

[47]-WL; [48]-WL

[49]-TF;

[50]-WL;

[51]-SD

Competitive

Advantage

[4]-O; [52]-O;

[53]-WL; [54]-O; [55]-SL;

[56]-O; [57]-WL; [58]-SL

[59]-EI;

[60]-O

[61]-WL;

[62]-SD

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 production-related 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], bio-inspired 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 do 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

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

cognitive-related 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

industry-view 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]

4 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 2

Table 2 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 long-term 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

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 do 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 do 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 do 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

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

self-conception 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

short-term 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

5 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 coordinate complex social systems, some of which

using similar, others using dissimilar communication

structures Hence, the cooperation of systems of different

categories and different scales has to be recognized Secondly,

efficiency potentials in a regional context have to be structured

and systematized They can have either a short-term or a

long-term orientation both of which have to be considered in order

to account for an effective system The composition of the

different efficiency potentials can be regarded as an avenue to

regional performance Thirdly, ways have to be provided to

analyze and shape the institutional landscape of a region

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