Will the city of the future be a hyperlocal manufacturing cluster?

(Image by Rob Boudon)

I’ve become really excited recently about the ability of three trends to transform city economies: improving bandwidth and connectivity; the increasingly intimate way that information technology can be connected to the physical environment; and the relationship between industry convergence, localism and the creation of economic value.

Together, they lead me to the question in the title of this post: will the city of the future be a hyperlocal manufacturing cluster?

(They also lead me to a serious challenge. But I’ll return to that at the end).

Let’s take each theme in turn:

How increasing bandwidth improves the quality of user experience to the point of industry disruption

As the bandwith available for communications has increased over time, the quality of user experience we are able to provide online in advertising, shopping, music, telephony and video has in turn lead to disruptions that disintermediate traditional industry structures – epitomised by Craig’s List, Amazon, iTunes, Skype and YouTube. Business and technology innnovators are constantly looking for new opportunities to cause disruptions and take controlling stakes in the new markets they create.

How the digitisation of materials and physical processes will transform manufacturing

Digitisation and mass customisation are now sweeping through manufacturing. Intelligent materials and components capable of storing information will communicate instructions to the production machines processing them to indicate what product they should be fashioned into. New “apps” will be downloaded to those machines to change their function. Small versions of such “Smart machines” – the evolution of today’s 3D printers – will be distributed throughout cities, and even in our homes, along with a stock of raw smart materials. This wave of change is already known as “Industry 4.0” and is emerging as a strong theme of Germany’s economic strategy, as described by Professor Wolfgang Wahlster of the German Research Centre for Artificial Intelligence.

As these incredible advances in the ability of information technology to control physical materials take place, for some products it is becoming more important to be able to manufacture customised items locally in immediate response to individual demand – i.e. to perform in-market innovation – than it is to globally source the lowest cost manufacturer for large numbers of identical items.

How convergence between industries creates economic value

All of the examples above represent convergence between related industries such as technology, communications, publishing and consumer electronics. The theory of economic clusters states that such convergence is necessary to maintain profit margins, because over time those margins otherwise diminish through competition and innovation in supply. To maintain profit margins, products and services need to be adapted by adding additional features, often produced by capabilities associated with related industry sectors.

Convergence is usually caused by the exploitation of newly availabe – or newly cost-effective – technology in response to, or in order to create, market demand. Amazon’s appropriation of consumer device technology in the form of the Kindle is an example. This convergence at the level of individual capabilities takes place constantly, in addition to the industry disruptions in my original examples. From time to time, a combination of the two effects creates entirely new markets such as search, which was captured very effectively by Google following the initial successes of AltaVista and Yahoo.

Why the Smarter City of the future will be a low carbon hyperlocal manufacturing cluster

The near-future ideas of Industry 4.0 represent a convergence between the technology, communications and manufacturing industries. To an extent they’ve been here for some time in the form of highly configurable car factories such as the Nissan plant in Sunderland, where up to 6 models have been produced from just two production lines over the past 2 years. It is the most productive car plant in Europe.

The spread of Industry 4.0 to localised application in city environments and even homes will be transformative. The carbon footprint created by transportation in the supply chain will be reduced; and new careers (such as some of those suggested by Google’s Futurist Thomas Frey) will be created to exploit the capabilities of these new manufacturing platforms.

The use of social media to turn product design into a collaborative process (as Zuda did for Comics and Threadless did for T-shirts) could be applied in the home to more physically complicated goods such as confectionary (for example using 3D printers for chocolate).

I was lucky enough this week to speak at the 3rd European Summit on the Future Internet at the University of Aalto in Espoo, Finland. Speakers such as Wolfgang Wahlster, Jean-Luc Beylat (President of Alcatel-Lucent Bell Labs in France), and Ilkka Lakaniemi (Director of Business Environment Strategy for Nokia) all spoke on themes related to the ideas in this post.

The challenge for society in the Industry 4.0 era

To temper the excitement associated with these profound changes, considerable concern was also expressed at the summit for the effects on mass employment. Whilst the “re-shoring” of manufacturing is already bringing some manufacturing employment back to developed economies as global wage differentials reduce, there’s no doubt that less people, and with considerably different skills, will be employed in the process of making things as Industry 4.0 gathers pace.

Our challenge as a society and individuals is to continue to create new exchanges of value between each other, in new forms. My observation in the UK is that hand-made products and locally sourced food are in increasing demand, for instance. And there’s no doubt that the quality of our lives would in many cases be improved if more effort were expended maintaining and improving the physical environment around us.

Indeed, there’s some evidence to suggest that growth in the so-called “DIY economy” of freelance employment across trade and professions is accelerating following the recession, supported in some cases by technology platforms for “micro-entrepreneurialism” (such as Etsy‘s online market for handmade goods). These can also be seen as examples of convergence and disintermediation.

I hope we turn out to be as innovative and determined in addressing this social challenge as we are in exploiting the advances of technology for economic reasons.