May 1995

Purdue University Center for Rural Development

Working Paper

The first industrial extension program was initiated at North Carolina State University in 1955, followed by a program at Georgia Tech in 1956 (Clarke and Dobson). Three states created university-based programs in the 1960s, at Iowa State University, the University of Tennessee and Pennsylvania State University. By the late 1980s, twenty-eight states had established technology assistance programs.⁽²⁾ Over 84 percent of the programs were initiated in the 1980s. Several states support three or more related programs. A number of programs have been initiated with up to 50 percent Federal support through the National Institute of Standards and Technology (NIST). Fiscal year 1991 funding was an estimated $83 million, with 45 percent and 24 percent coming from state and Federal sources, respectively. Other support came from industry contributions and user fees (Clarke and Dobson).

The initial programs were based on the Cooperative Extension Service model established decades earlier to modernize agriculture and improve the standard of living in rural areas. Experienced engineers were hired as industrial extension agents charged with assisting manufacturers with technology related problems. The agents were housed in regional offices across their respective states. The programs operated with a small core campus-based staff and relied on faculty and student assistance to address firms' specific requests (Clarke and Dobson; Shapiro, et al.). As the number of industrial extension programs increased in the 1980s, their mission has been broadened to provide manufacturing firms with a range of services related to total quality management, plant design and layout, quality assessment, equipment investment, strategic planning, computerization, information systems, networking and workforce development (Shapira, et al.; Clarke and Dobson).

The organization of industrial extension programs varies greatly across states. University-based programs account for about half of the programs (Clarke and Dobson). These programs are structured to have faculty and students, typically from engineering schools, assist firms in evaluating and solving a variety of technical problems. The applied experience complements students' classroom education and firms benefit through low cost consulting and access to current research of interest to the firm (Gray, et al.).

Operationalizing university-based programs, however, has not always been easy. Programs have had difficulty involving faculty (Ahlbrandt; Clarke and Dobson). Faculty evaluations often do not recognize productivity of faculty involved in applied industrial extension activities, generally requiring applications of off-the-shelf technologies. Professional recognition for faculty involved in assistance programs is therefore limited and provides little incentive for faculty involvement (Ahlbrandt; Clarke and Dobson; Shapira 1990a).

Non-university programs have varied administrative structures: state agencies, community colleges, and non-profit or quasi-public organizations (Shapira 1990b). New organizations were created to administer some programs. In other cases, existing organizations have assumed responsibility for program administration. Programs are most often initiated with state funding (Clarke and Dobson; Shapira 1990b). Program objectives are varied, although all focus on manufacturing competitiveness. Programs offer general technical assistance, specialize in specific technologies, or operate primarily as a technical referral service.

Industrial extension programs with locally based offices and/or local partners can build local ownership in the programs. This local ownership can be a source of continued program support because of keener awareness of specific local problems or opportunities and greater credibility within the community (Clifton, et al.). Indiana's industrial extension program is organized in multi-county regions to insure local ownership and input.

The Indiana Business Modernization and Technology Corporation (BMT), a state funded business technology institution, was created in 1989 in response to concern about competitiveness of Indiana firms. BMT, in turn, established Regional Manufacturing Extension Centers (RMEC) to address concerns about the viability of many of Indiana's small and medium-sized manufacturing firms. These firms generally have been slow to improve technology despite rapid changes in global competition that require firms to improve efficiency to stay in business (Ahlbrandt; Clarke and Dobson; Shapira 1990a). RMEC is a proactive, locally-focused program that helps manufacturing firms identify and implement new technologies and management practices that will increase their competitiveness. RMECs assist firms in technology, training, marketing, product quality, environmental standards, business operations and networking.

The RMEC program operates in 14 multi-county regions across the state. Each region is managed by one or more directors who generally have engineering and management backgrounds. The regional directors provide hands-on assistance to firms at no cost to the firm. RMEC regional offices are established in partnership with local business and/or development groups, such as a local Chamber of Commerce or economic development agency. The flexible structure allows the RMEC to be integrated into the region in a manner that improves understanding of the region and access to firms and resources.

The directors contact firms to offer assistance. The most comprehensive assistance is a complete business and financial assessment. The assessment examines all aspects of the firm's operations to evaluate how well the firm is performing relative to various measures of industry and regional performance. Assistance is also provided in specific problem areas, such as a safety or product design problem, either as a follow-up to the initial assessment or in response to a specific request.

Performance of industrial modernization programs is evaluated at several different and complementary levels. Most analyses focus on descriptive statistics which document resource allocation within the program. This type of analysis is generally called penetration analysis. Data are used to describe the type and size of firm assisted, the percent of total firms in a region contacted by a program, the type of assistance provided, and other data useful in tracking assistance efforts. While this type of analysis can provide useful program management information, it provides limited insight into the impacts the program has on firms and/or the economy.

Past evaluations (Gray, et al.) have focused on the technical side of industrial extension programs such as the type of technology provided, source of referrals, and other aspects of the technical assistance, with more limited analysis of the impacts on firm operations (Shapira, et al.). These studies provide insight into the performance of industrial extension programs as technology transfer programs, but not as a part of a state economic development strategy. At least in Indiana, the RMEC program is an integral part of state economic development efforts.

The linkage between the assistance industrial extension programs provide to firms and local employment and income growth has not been sufficiently explored by past evaluations. Firms can receive help solving technical or general management problems that may have limited growth or competitiveness in the past. However, it is very difficult to assess impacts on the firm simply based on employment and income changes. Assistance may lead to increased or maintained employment, or a decline in employment depending on a number of firm, sector, and industry level factors. State legislators need to understand the economic impacts on firms and the local economy as they attempt to allocate economic development funds.

Determining the impact of assistance provided by industrial extension programs requires that the affects of the assistance be isolated from other factors influencing a firm's economic performance. Establishment of baseline information for a firm would be useful, but it is costly to do on a firm by firm basis. Even with full client cooperation, it would be difficult to identify and control for market, human capital, and other factors that influence firms independent of program assistance.

Another method to measure impacts would be to evaluate firm performance relative to the performance of firms in a control group. However, it is difficult and costly to develop and use a control, because of both data collection requirements and obtaining firm cooperation. Even with a control group, however, it would be difficult to assume that performance across firms is due to program assistance, since no two firms have the same human capital or face the same markets. An alternative is to measure firm performance against industry or sector averages. While this approach has similar problems to those associated with a control group, it could provide a starting point, with lower costs and difficulty, from which to evaluate a specific firm's performance.

Another approach to assessing the public benefits of industrial extension programs is to measure the overall economic impacts associated with assistance provided to firms. This approach requires a two-stage process. First, the impacts of program assistance on a firm's operations are evaluated and quantified when possible. Second, the impacts on the economy from firm operations are measured by the sales, employment, and income generated by the firm. This manuscript discusses results of the first step, assessing Indiana's Regional Manufacturing Extension Centers firm level impacts. The analysis examines specific services received by firms with the manager's assessment of how the services impacted general business operations, and how the services have influenced their outlook for the future.

The firm level assessment will provide the basis for future research to assess the importance of the technical assistance activities of the RMEC program to the general economy. Improved operations and efficiency of individual businesses generate sales, income, and employment in the economy. The second phase of this research will link the findings presented in this paper to local economic impacts.

The primary objective of this project was to evaluate the impact of Indiana's Regional Manufacturing Extension Centers (RMEC) on manufacturing firms and, consequently, the economic impacts of these firms on the regional economy. Two RMECs that were well established and had contacted a large number of firms were selected for study. The directors in these regions agreed to participate in the study and help researchers gain access to the firms. This support was critical to the success of the method used in this study. Funding for the project is through a cooperative agreement with the U.S. Department of Agriculture's Economic Research Service. Seventy-six firms in two RMEC regions were interviewed for this study.⁽³⁾ A random sampling process was used to identify study firms from two RMEC regions.

The overall level of satisfaction with the RMEC program was very high. Most owners/managers were confident in the director, felt the director had the appropriate manufacturing experience to address the firm's needs, and felt the director was competent and professional in providing the assistance. Each owner/manager was asked to identify the type of service received from RMEC and indicate the level of satisfaction with that particular service. Eighty percent of respondents said they were "satisfied" or "very satisfied" with the service received. Another 18 percent indicated that they were "uncertain" about the service, typically because they had only recently been served by RMEC. And, only three percent indicated that they were "dissatisfied" or "very dissatisfied" with the RMEC service. A final gauge of satisfaction is whether or not the owner/manager would recommend RMEC to other firms. Ninety-seven percent of respondents indicated that they would recommend RMEC to other firms.

It is also clear from these interviews that the RMEC directors are viewed as an important "first source" of information for businesses. Many firms commented on the referrals RMEC directors had

made, linking them with other businesses or assistance providers to meet their particular needs. The RMEC director appears to be a central node in the business networking that occurs in these regions, providing information and assistance that links firms together. For many firms, this networking function is as important as any direct assistance that the RMEC director may provide. It is difficult to quantify the value of this service to business owners, although several interviewees indicated that the networking was the most important service received.

Responses to several key questions follow. These data provide a brief description of the firms assisted by RMEC, their outlook for the future, and the additional assistance they need to improve their competitiveness.

Description of Assisted Firms

The businesses assisted by RMEC were generally small to medium-sized, established enterprises. Firms in Region 4 were smaller, on average, in terms of employment, salary/wages, and sales, than those in Region 2 (Table 1). Most firms were organized as corporations and less than 10 percent were branches of larger corporations.

Type of Assistance Received by Firms

Over half the firms interviewed learned about RMEC through direct contact with the director. Almost 20 percent of firms were referred to RMEC by another agency in the region, e.g., financial institution or Chamber of Commerce. The director was the primary service provider for 95 percent of the firms. These results suggest that the qualifications of the director are important to the overall success of RMEC since the director is the first and, in many cases, the only contact a firm has with the program. The directors in the two regions studied brought years of manufacturing experience to their jobs and had earned the confidence of the firms interviewed.

The full company and financial assessment is the broadest tool RMEC directors can use in assisting firms. Four out of ten firms in this sample had a complete assessment done, while other firms received help on specific problem areas (Table 2). The highest percent of firms received assistance with quality issues, such as ISO 9000 certification. Assistance with environmental/safety issues or product design/engineering was received by only 18 percent and 10 percent of firms, respectively. As discussed below, these two types of assistance were cited by firms as areas where more assistance was needed to help them improve competitiveness.

Future Outlook of Firms

More than half the owners/managers interviewed indicated that RMEC assistance affected their outlook for the future. And, this outlook was generally very positive (Table 3). Most firms expected to increase capital investment and employment, to upgrade labor skills and physical facilities, and to remain in their current location or at least the region. These firms can be expected to continue to have an impact on the local and regional economy in the next five years. Most firms expect to become more competitive in their current markets and to expand to compete in new markets in the future.

It is important to recognize that the 44 percent who indicated their outlook was not affected by RMEC were satisfied with RMEC services, were confident in the directors, and in other ways benefitted from RMEC services. These firms may not have felt a direct affect on their outlook as a result of RMEC, but they received some service that helped their firm overcome a problem or take advantage of some opportunity. Although these benefits are not reflected in the responses above, they are important impacts of the program.

Specific Monetary Impacts of RMEC Assistance

Most past evaluations of industrial extension programs have asked firms to identify increases in sales or employment that result from the assistance. Most owners/managers interviewed for this study could not identify specific monetary impacts associated with RMEC services (Table 4). Specific monetary impacts experienced by 20 percent of assisted firms averaged $36,831, with a minimum of $2,300 and a maximum of $164,000. The examples are illustrative of the type of impact RMEC can have on some firms. These impacts could be potentially recurring over time, such as reduced labor needs or reduced rework rates. Others are one-time savings, such as for training grants or consultants.
 
 

Other Assistance to Improve Competitiveness

The interviews identified several areas where firms require additional assistance to improve their competitiveness (Table 5). Labor force issues, particularly training for employees and assistance managing employees, were mentioned by more than a third of respondents. Firms also require assistance meeting mandated requirements, such as those associated with ADA, OSHA, and EPA. Although nine percent of respondents cited help with regulations as a specific area for assistance, concerns about regulatory burdens were raised by many firms during the interview process. In each of these two areas, programs could be designed to provide assistance to a number of firms, through networks or other programs. While training needs may vary from firm to firm, groups of firms with similar needs could be brought together for RMEC training. The other area of assistance mentioned by 10 percent of the firms, technical, engineering, and design assistance, will likely require continued one-on-one counseling with RMEC directors and referrals.

Comments from smaller businesses suggest that establishing networks of smaller firms in each region and providing support to smaller businesses and entrepreneurs is needed. Although 11 percent of respondents indicated this type of assistance would improve their competitiveness, comments during the interviews suggest that small businesses desire peer networks to share ideas and insights into business management. Networks of larger firms exist in some Indiana regions, but small firms may benefit less from these groups where the focus is on problems common to larger businesses.

Business Networking

Business networking refers to the formal and informal interactions among business owners. RMEC assisted firms were asked to identify any formal business networks in which they participated. Forty-six percent of firms in Region 2 and 44 percent in Region 4 participated in some type of formal network. Almost 60 percent of firms in Region 2 that participated in a formal network were part of one sponsored by the Chamber of Commerce or RMEC. Seventy-six percent of firms in Region 4 that participated in a formal network were part of one sponsored by RMEC. Most business owners also interacted more informally, particularly by sharing information about technology and regulations and training. Eighty-nine percent of firms in Region 2 and 95 percent of firms in Region 4 networked informally with other companies.

These results suggest that RMEC directors fulfill two functions. One, they provide services to firms as needed, drawing on outside resources to address problems beyond their expertise. Two, they promote networking among the region's businesses through the creation and maintenance of formal networks and through the informal contacts they facilitate between firms. RMEC directors are actively performing the "gatekeeping" function described in the networking literature (Malecki and Tootle).

These results suggest that industrial extension programs can be critical components of state economic development programs. Indiana's RMEC program has been successful in providing assistance to the 76 firms interviewed for this project. Owners/managers expressed a high level of satisfaction with the services received and with the RMEC directors. In addition to providing specific services to firms, the RMEC program plays a role in linking firms within the region and providing information to help firms become more competitive. These activities are more difficult to measure and quantify, but they represent an important impact of the RMEC program. In short, RMECs have helped Indiana firms maintain and improve their competitiveness.

The interview results suggest several areas where RMEC programs might be expanded to meet firm needs. Labor training is a key concern for many businesses included in this study. RMEC has a role to play in helping firms, large and small, meet their training needs. Firms face an increased regulatory burden as they are forced to respond to government mandates. Many firms expressed concern about their ability to meet these mandates without some assistance in interpreting regulations and designing appropriate options for achieving new standards. RMEC has helped a number of firms with regulatory issues and could expand its programming to address these needs. Finally, these results suggest that small firms need more help in networking with other small businesses and finding the support groups of firms that their larger counterparts may already have. RMEC has been successful in some regions as a networking catalyst with larger firms. This experience could be used to focus on smaller firms and their unique assistance needs.

Ahlbrandt, Roger S. Jr. "Adjusting to Changes in Traditional Markets: The Problems of Small Manufacturers in Older Industrial Regions." Economic Development Quarterly, August 1988. 252-264.

Clifton, David S. Jr., Larry R. Edens, Harris T. Johnson and Robert W. Springfield. "Elements of an Effective Technology Assistance Policy to Stimulate Economic Development." Economic Development Quarterly, February 1989. 52-57.

Clarke, Marianne K. and Eric N. Dobson. Increasing the Competitiveness of America's Manufacturers: A Review of State Industrial Extension Programs. Economic Development, Science and Technology Program, Capital Resources Policy Studies, Center for Policy Research, National Governors' Association, 1991.

Gray, Dennis, Elmima C. Johnson, and Teresa R. Gidley. "Industry-University Projects and Centers: An Empirical Comparison of Two Federally Funded Models of Cooperative Science." Evaluation Review, December 1986. 776-793.

Malecki, Edward J. and Deborah M. Tootle. "The Importance of Networking to Business Survival and Growth." Paper presented at the 33rd Annual Meeting of the Southern Regional Science Association, Orlando, FL, April 1994.

McNamara, Kevin T. and Deborah M. Markley. Indiana RMEC Study Firm Questionnaire. Department of Agricultural Economics, Purdue University, West Lafayette IN. 1994.

Shapira, Philip. "Modern Times: Learning from State Initiatives in Industrial Extension and Technology Transfer." Economic Development Quarterly, August 1990a. 186-202.

Shapira, Philip. Modernizing Manufacturing: New Policies to Build Industrial Extension Services. Washington, D.C.: Economic Policy Institute. 1990b.

Shapira, Philip, Jan Youtie, and David Roessner. "Current Practices for Assessment and Evaluation of Industrial Modernization Programs." Background Paper, Georgia Institute of Technology, Atlanta, Georgia. June 1993.

U.S. General Accounting Office. Technology Transfer: Federal Efforts to Enhance Competitiveness of Small Manufacturers. Washington, D.C.: Government Printing Office, GAO/RCED-92-30. 1991.

Region 2

1993 employment: Average 136

High 1500

Low 1

1993 salary and wages: Average $2.4 million

High $28 million

Low $30,000

1993 gross sales: Average $20.2 million

High $48.9 million

Low $0
 
 
 
 

Region 4

1993 employment: Average 75

High 350

Low 1

1993 salary and wages: Average $1.6 million

High $14 million

Low $35,000

1993 gross sales: Average $10 million

High $122 million

Low $135,000

Full company and financial assessment 40%
 
 

Specific Problem Areas:

Quality 41%

General business operations 26%

Manufacturing operations 25%

Facilities 24%

Sales/marketing 22%

Financial affairs 22%

Management information systems 21%

Personnel 20%

Environmental/safety issues 18%

Materials management 17%

Product design/engineering 10%
 
 
 
 

Capital investment: Maintain 32%

Increase 66%

Decrease 1%

Labor force size: Maintain 23%

Increase 73%

Decrease 4%

Labor force skills: Maintain 19%

Improve 81%

Facilities: Upgrade existing 62%

Move to new 7%

Maintain existing 27%

Location: Stay in current 77%

Stay in region 16%

Move outside region

but in state 1%

Move outside state 1%
 
 
 
 
 
 

Yes 56%

No 44%
 
 

Yes 13 firms 20%

No 53 firms⁽⁴⁾ 80%

Average $ 36,831

Minimum 2,300

Maximum 164,000

Potentially recurring: $16,000 savings by making a personnel change

$9,000 savings in testing costs

$75,000 in increased exports

$22,000 savings in waste disposal cost

$3,000 savings by reducing insurance premiums

$100,000 savings through reducing supervisors' time

$80,000 savings by reducing rework rates

$50,000 savings by reducing labor needs

One time: $15,000 savings by not hiring an ISO 9000 consultant

$2,300 savings through a training grant

$20,000 savings in equipment costs

$10,000 savings in trade show expenses

$3,000 savings by reducing an audit fine

$9,500 savings through assistance complying with OSHA

standards

$64,000 savings through training grants

Labor management and training 15⁽⁵⁾ 34%⁽⁶⁾

Technical, engineering, or design assistance 10 23%

Assistance meeting regulatory, quality, or legislative mandates 9 20%

Planning and marketing assistance 7 16%

Network/support group for small businesses and entrepreneurs 5 11%

General management assistance 5 11%

Access to credit and location assistance 4 9%

Product development 4 9%

Information management 2 4%

1. The authors are rural development economists, Department of Agricultural Economics, Purdue University. The assistance and cooperation of Regional Directors Jim Hall and Wayne Reisinger and Business Modernization and Technology Corporation Staff Edward Burns, Delbert Schuh, and Johnnie Vaught is gratefully acknowledged. Funding for this research through a cooperative agreement with the Economic Research Service, USDA, is gratefully acknowledged.

2. A detailed description of industrial extension programs is presented in Increasing the Competitiveness of America's Manufacturers: A Review of State Industrial Extension Programs, a report by Clarke and Dobson published by the National Governors' Association.

3. Region 2 consists of Elkhart, Kosciusko, Marshall, and St. Joseph counties. Region 4 consists of Benton, Carroll, Clinton, Fountain, Montgomery, Tippecanoe, Warren, and White counties.

4. Only 66 firms were considered in this analysis. Ten firms did not receive assistance from RMEC that could be expected to generate cost savings.

5. Number of owners/managers indicating this type of assistance would help the firm.

6. Percent of total firms (44 firms) indicating some additional assistance required.