A professor of operations management at Indiana University’s Kelley School of Business says he’s glad Carrier Corp. will remain a "fixture" in Indianapolis, but says he "sincerely hopes" the deal that will keep about 1,000 jobs from moving to Mexico does not become a model for the future. Mohan Tatikonda says if companies focus more on cutting manufacturing costs than sparking innovation, it could become a "race to the bottom." He says American businesses can make up the difference in international manufacturing costs by developing more "diversified and differentiating" product lines.
Tatikonda says, when he first heard about Carrier’s planned cuts in February, he was surprised because of the company’s long history in the city. However, as he began to research the decision, he says he found it was actually "somewhat remarkable" that Carrier had stayed as long as it had, in the face of many similar companies already shifting to international production.
He argues a "spot fix" like the Carrier deal is great news for the employees and their families, but doesn’t address the core problem, which is companies chasing lower manufacturing costs instead of higher innovation. In all, Tatikonda says it is a short-term fix that could create a longer-term problem.
The agreement, detailed Thursday by United Technologies Corp. (NYSE: UTX) leaders as well as President-elect Donald Trump and Vice President-elect Governor Mike Pence include a 10-year, $7 million incentive package from the Indiana Economic Development Corp. UTC says it plans to invest $16 million to turn the operation into what it calls a Center of Excellence for gas furnace production.
Tatikonda says, instead of a constant focus on costs, companies should work on creating a product line that " is differentiated" in the market, saying the larger profit margins generated by innovation can outweigh higher manufacturing expenses. In addition, he says policies promoting more worker ownership will give employees a greater voice in the company.
Tatikonda says an employee focus can help companies drive innovation.