Bill Kerr: Supply chain disruptions have become the norm amid a global pandemic, climate disasters, and international conflict. Market forces and technological change, meanwhile, continue to reshuffle relationships between producers and consumers. What impact is this having on the workforce in terms of overall employment, job categories, and talent supply?

Welcome to the Managing the Future of Work podcast from Harvard Business School. I’m your host, Bill Kerr. Throughout the supply chain crisis, my HBS colleague Willy Shih has been an indispensable expert source. A guest during our podcast’s very first season, Willy rejoins me today. In 2018, he shared insights from his cross-country study tour of retraining programs for older workers. In 2012, Willy co-authored Producing Prosperity, which is remarkably prescient for post-Covid efforts to bolster U.S. competitiveness. Willy’s back to fill us in on the supply chain situation and whether we can expect a shift in the geography of supply and manufacturing and what that might mean for businesses and workers. Welcome back to the podcast, Willy.

Willy Shih: Well, Bill, thank you for having me.

Kerr: Willy, for listeners who did not catch our very first conversation—of course, they should go back and maybe find that podcast and listen to it as well—but tell us about your background and what’s your focus area at HBS?

Shih: Well, my focus has been on operations management, production, manufacturing, and more recently, ever since the beginning of the pandemic, has been on supply chain, because there have been so many changes to the normal operating procedures that everybody is used to. We’ve seen a lot of disruptions. We’ve seen labor shortages, we’ve seen all kinds of material shortages. And between the pandemic and some of the aftermath of that—including China’s zero-Covid policy, for example, and then of course the Ukraine War—we’ve seen really massive disruptions to supply chains, to energy supplies, and things like that, which have widespread consequences across the global economy.

Kerr: There’s going to be a lot for us to unpack there, but a helpful framing is to think about the things that you were looking at before the pandemic for the supply chain and what got accelerated by the pandemic, what got stopped, reversed, and put going back the opposite direction. What just got bent? Talk through some of the big things you think about the supply chain and where Covid had its impact.

Shih: Well, Bill, from a big picture, I would say we have been in a relatively benign environment—as far as global trade and supply chains go—for probably about 30 years, up until probably the 2015, 2016 timeframe. It meant a lot more movement of production from high-cost countries, like North America—the United States, in particular—and Europe to the Far East—China, in particular. Right? We’ve had this benign environment where trade barriers have gone down, tariffs have gone down, shipping costs have gone down. And in some sense, it was a Golden Age of Globalization. Now starting in 2016, 2017, we started seeing, first, a lot of this trade war between the United States and China, and then, of course, the pandemic. And all of these things have really changed the tone on that environment in terms of, does it still make as much sense to manufacture things far away and then have to rely on what apparently were fairly fragile links for shipping goods halfway around the world. Right? And, of course, that has very broad implications for manufacturing location choices and, therefore, the impact on workers, potentially.

Kerr: When you say “apparently fragile,” was some of this a surprise? Was the size of the event just too much for the supply chain to be able to handle?

Shih: Well, in some sense, the magnitude of the pandemic and the breadth of its impact, it shouldn’t surprise anybody that that should affect a lot of things. If you wanted to step back and say, big picture, what was the impact of the pandemic, what it did was it caused very rapid changes in demand for a lot of goods. Right? Things that were in high demand before the pandemic suddenly fell off a cliff, like automobiles. So we had these dramatic shifts in demand patterns—from what was normal to a locked down work-from-home economy. And when you have those kinds of shifts over such a broad range of products and services, it’s not surprising that we saw a lot of the dislocations that we did.

Kerr: Now, let’s bring it forward to today. You mentioned China and the zero-Covid policy. Tell us a little bit more about its implications for the supply chain in 2022.

Shih: What was very interesting about China, at the beginning of the pandemic, of course, we saw a supply shock, because so many people were dependent on China for finished goods, but also a lot of intermediate goods, in their products consumed around the world. Now, as the pandemic moved through 2020 and 2021, what was interesting is China’s initial ability to get the spread of Covid under control made them the preferred manufacturing location choice, because if you needed to get product made, that was one place you could go to get it made. We saw this enormous wave of imports coming out of Asia—China, in particular—coming into the U.S. West Coast, which really overwhelmed the ability of import terminals and distribution centers and the whole distribution network in the United States to handle that. What we saw in 2022 was China trying to implement their zero-Covid policy in really a rather draconian fashion. And that, if anything, really changed the tone on manufacturing in China, because there was such uncertainty and unpredictability. And that caused a lot of manufacturers—not only domestic U.S. manufacturers, but also European manufacturers—who are heavily reliant on China to suddenly say, “I have got to diversify.” So I would say, in the last six to nine months, we’ve seen really a whole change in tone around diversification of supply chains. That’s been really a sea tide change in how people have been thinking about their global production networks.

Kerr: Willy, you have a multi-decade career working in supply chain issues, both as an executive and as a board member and so forth. Taking today’s vantage point, how well is the playbook understood? Like, at the board level, when you’re discussing these issues, the need to diversify, is each company trying to find its own way and we’re going to see lots of experimentation, or is it everyone has got a playbook that is pretty standardized?

Shih: Well, Bill, I think what we are seeing is that many people grew up during this very benign environment of the last 30 years. So if you weren’t working in the 1970s or 1980s, what we’re seeing is really a whole new world order, where you can no longer assume that many sources of supply are as reliable as we predicted. We haven’t seen the scale of warfare that we have in Europe since World War II and the dislocation to energy markets. Those are going to be really dramatic. I would say most of the managers that I talk to, that I work with, for most of them, this is new territory, having to deal with these kinds of disruptions at this scale. They haven’t experienced things like that. So a lot of experimentation will go on. There’s a lot of trying to hedge risks, but it’s a very challenging environment right now.

Kerr: Do you have anything that you propose to them—and this is the Managing the Future of Work podcast. That management side’s very important—as a way to come up the learning curve faster? They can’t go back and have worked in the 1970s, so what’s the way they can do the best they can with that experience?

Shih: I think understanding a little more history and understanding some of the roots of disruption in the past and how supply chains have become structured allows you to start reasoning out how I can produce a more robust strategy. I think understanding some of the assumptions that were made in the waves of offshoring that went on in the United States is useful to understanding, what is it going to take to diversify my supply base and really have a more robust ability to handle some of these challenges in the future.

Kerr: Willy, early on you highlighted and put a circle around the labor force as an important part of the supply chain, its operations, its reconfiguration. Help us now think a little bit about, we see these businesses wanting to diversify. We see the reasons why—whether due to war or due to Covid policies or just the desire to have more redundancy and resiliency—governments and businesses want to make the changes. How ready is the workforce? And what’s the path if there’s a gap for that being prepared?

Shih: Well, Bill, I think you identify really one of the key aspects of any kind of location choice for a manufacturer, as a manufacturer thinks about, where do I want to set up a new plant, whether it is for diversification of my supply or just normal growth. And so, that question is workforce availability. We see in the last two years a huge push in the United States to bring semiconductor chip manufacturing back to the U.S. And you see states competing with each other on that. And, of course, much of the competition is based on subsidies. But a large part of the competition is based on, where can I get the workers that I’m going to need to staff these facilities. And that’s going to be an ongoing challenge. We’ve seen that across the supply chain over the duration of the pandemic, when we’ve had workforce shortages, the importance of having people with the right skills for the jobs that need to be done—whether it’s in trucking and a shortage of people who have commercial driver’s licenses to building a semiconductor fab, where I need enough engineering talent. So we see that, across the board, the centrality of having the right workers before you can really locate one of your operations in that region.

Kerr: And is there a typical time to build if there’s a gap that exists? One thing is, we may want to go find the locations that have the workers and measure that and prioritize it. But if you have lost some of that capacity and need to regain it, what would be your expectation of how long that process might take?

Shih: Well, let me answer that in two parts. One is finding where the talent is. One of the interesting things about companies like Taiwan Semiconductor Manufacturing Company [TSMC] moving to the U.S. is, because they were hiring such a large percentage of the engineering graduates in Taiwan, that they needed to have a larger pool of talent, as well. So that’s one aspect: Where’s the raw material? Depending on what industry you’re talking about, training programs can take several years. I recently visited one new silicon carbide factory in Marcy, New York. And it turns out, in preparation for that facility going up, they had worked with local community colleges for several years to establish programs that would train workers, who would then be prepared to work in that facility. These things take years. You need to have a source of students. But having that kind of educational infrastructure … and it doesn’t necessarily need to be a four-year college. I’ve seen many of these operations have partnered very successfully with community colleges to develop that kind of technical talent that they need for these very sophisticated operations that they’re trying to establish.

Kerr: Willy, I want to come in a second to the CHIPS Act and the modern efforts to bring more jobs and infrastructure and supply chain into the United States. But to set that context, I want to dial us back to even before our previous podcast, to when you wrote a book with Gary Pisano, Producing Prosperity, that was decrying the loss of the manufacturing base, particularly advanced manufacturing, in the United States and some of the implications that had for our economy. Maybe set a little bit of the theme of that book so that now that we can come forward and talk about the most recent.

Shih: The original paper, which came on in 2009, traces its thematic roots to time I spent in Rochester, New York, working at the Eastman Kodak Company, where I made the discovery that the offshoring of electronics manufacturing in the 1960s and 1970s—to, first, Japan, and then other parts of East Asia—really made it very hard for me to manufacture electronic products in the United States. And worse than that, it made it very hard for me to design them in the United States, because the skills that were embodied in the workforce and the supplier networks and all those things had withered away, because they weren’t being used. And what we likened that to is Garrett Hardin’s “Tragedy of the Commons,” which was this shared resource base that the community drew upon when they needed to do new things—we called it the “industrial commons”—of the skills and the suppliers and all those capabilities that you need to move the ball forward in many, many advanced technologies. Going back to the 1980s, when the United States really lost its semiconductor manufacturing lead to Japan, we developed what was called the “fab-less model,” which is, we’ll focus on the design of our chips, and we’ll push the production offshore to countries like, first, Japan, but then Taiwan, primarily, and we’ll let those people make the chips for us, and we’ll focus on the design. We had companies like Qualcomm and Nvidia, who were very successful designing chips for phones or graphics processors and later machine-learning applications, where they would focus on the design, but they would contract out the manufacturing work, which was risky, capital intensive, and frankly, we didn’t want to do it. What’s changed in the last couple of years is, there’s been an appreciation of how important it is to be able to actually manufacture those most-advanced semiconductors in the United States, both for national security purposes, and also from the standpoint of global competition. But we’ve had only a few manufacturers in the U.S. who have continued to do that manufacturing. In the high-profile, high-performance logic segment, really the only company who continues to manufacture in the United States is Intel. And over the last decade, they went from being perhaps two generations ahead of TSMC to being two generations behind. And that has caught the attention of people in the defense establishment and policy makers about the future competitiveness of the U.S. in the semiconductor industry.

Kerr: Producing Prosperity was remarkably prescient in terms of thinking about this “industrial commons.” So, Willy, let’s come now forward to the fall of 2022, and we’ve had several efforts to bolster the domestic microchip industry, the CHIPS Act. I know that you have even a recent role that you’ve taken on connected to that. Tell us about your view of the policy. And what change can we now make?

Shih: Well, the CHIPS Act is a major investment by the United States in trying to secure R&D and manufacturing of advanced semiconductor chips in the United States. It represents a massive amount of money—$52 billion directed at manufacturers in the U.S., and several hundred billion more directed at advancing R&D and a whole range of other facilities and capabilities. Now, while that seems like a lot of money—let’s look at the $52 billion, which will be mostly targeted as subsidies to firms who are going to build in the U.S.—my take on that is, that’s a nice down payment, because if you look at Taiwan Semiconductor Manufacturing Company, for example, this year they alone will invest around $44 billion in capital, and Samsung is investing around that amount, as well. We need to not forget the scale of investment that is required in the semiconductor industry, how costs in the United States are higher than abroad, which is why people feel compelled to grant subsidies and tax preferences, and also the level of complexity and interdependency that we see in the global supply chain. So just because you can make the chips in the United States, if we can’t package the chips in the United States, or if we can’t make all of the production tools and all the raw materials in the United States, I’m not sure that that guarantees us the resiliency that many people are promising. It is a globally interdependent industry, where every manufacturer is dependent on: software tools that are predominantly developed in the United States; a lot of manufacturing tools that come from the U.S., Japan, and Europe; many raw materials that come from Asia, including China; and packaging, which the center of the world is in Southeast Asia. So I think many countries, many regions, around the world right now are looking to, how do they increase their self-sufficiency. I think that is a much harder problem than most people want to recognize at this point.

Kerr: So if I had to put you on the spot here, is it a 5 percent down payment, 10 percent, 25 percent? What would be your estimate of the size of additional investment that needs to come in?

Shih: Well, that’s a hard number to guess at. I would say, more than money, what will be required will be persistence over time. If we want the U.S. to be a global leader in this area, it might take two decades to get back to that point, because we should not forget that the rest of the world is investing like crazy, as well.

Kerr: Chips are not the only supply chain issue that’s kind of top of mind right now. Recent legislation has been around the use of electric vehicles, renewable energy—both trying to bolster domestic consumption of that, but also then have sourcing fall within the U.S. Tell us a little bit about your perspective on those policies and also the workforce development jobs aspects that go alongside it.

Shih: I think the U.S. has made a number of moves recently with tax credits for EVs and for the energy transition, which will really foster a lot of growth. Now, we still face some challenges in the U.S. in that regard, because we, as do the Europeans and many other incumbent automakers, have a workforce that is oriented around internal combustion engines, which are complex mechanical devices. So one of the challenges we will have is, how do we transition that workforce into new energy vehicles and new energy technology. I think that falls again to retraining, because we’re going to need a lot of different skills, and we’re going to need flexibility among workers who are willing to move on and learn to do new things.

Kerr: Willy, that can maybe circle us back to 2018. At that time, you and a set of HBS students had done a bit of a cross-country tour—particularly in the Appalachia region, but beyond as well—looking at some of the innovative programs that were trying to help with worker retraining. Tell us a little bit about where your mind is in terms of that, which is a common subject to our podcast, but as you’re highlighting, very essential for the supply chain, itself, to be able to rebuild.

Shih: Well, Bill, one of the things that I continue to be very enthused about is, when I go to some of these factories, and I talk to the workers … I visited a semiconductor fab in Malta, New York, run by Global Foundries. We got a tour, and the fab manager and the lead automation engineer took us around. At the end of the tour, I just paused and asked him, “Tell me about your training.” Well, they had both gotten associate’s degrees at one of the local schools, and then they had had some on-the-job training. But this was, to me, one of the most gratifying things. These guys were terrific. They were excellent engineers. They were really on top of their game. And what it did is, it pointed out to me how having the right training and support could really produce this type of capability. Then, of course, you have a work environment where you’re using this all the time, which is very important. But it told me what’s possible, because these were very sophisticated jobs. These things are possible. You go to places like Upstate New York, Wisconsin, the Carolinas, and you see these community college programs who are partnered with manufacturers to develop curricula and instill the skills that workers need for particular jobs, and I think there’s great hope in that.

Kerr: So, Willy, those community college themes certainly echo with our listeners. Let me broaden that sort of talent supply chain sweep a little bit and look at apprenticeships, unions, other ways that we can work on the worker re-skilling front. What are some of your observations there?

Shih: Well, I think worker re-skilling is really important. I think it requires a flexible mindset, both from the standpoint of workers, unions, and employers. Flexibility and, as I shift to new jobs, making new products or services, how am I going to do them. As technology advances, what’s the best way to do things? What’s the most effective way to organize those workers? What’s the most effective way to train them? And what are really the priorities in terms of meeting the needs of the country and the population at large?

Kerr: Willy, I think the thing that has most impacted me of your writings, and I’ve read a lot of your writings, was an article, it was called “Raising the Level of Abstraction”—so how technology can be made simpler for those. And we see a lot of this now in no-code and low-code software development. So I’d love for you to introduce a bit of that concept. And then, also, how much do you think it can help with this re-skilling process or lower the amount of re-skilling that even needs to be done?

Shih: The notion of “level of abstraction” is: How do I kind of build an environment where I can allow people to think at a higher level? Let me give you primitive building blocks that you can assemble and allow you to not have to be mired in the details. Now, level of abstraction is a concept that goes back to software engineering from the earliest days. What innovators did is, they came up with things that were called “higher-level languages,” okay? And what higher-level languages did is, allowed you to express a problem in, for example, a simple algebraic statement or a simple logic statement, which would then get translated into those ones and zeros, okay? Now, people who are familiar with software development would tell you that the entire history of software development has been about progressively creating more and more tools that bring up that abstraction level. These days, when you go to writing an app for, say, an iPhone or an Android phone, you’re provided with a library of tools and an environment that allows you to just write a few instructions and then do all kinds of amazing things. Raising the level of abstraction, I think, is quite generalizable. So, for example, if you look at some of the most-advanced machine tools these days, what they will do is, they’ll handle all those details on adjusting speeds and feeds and things like that. What it does is, it makes complex problems more accessible to more of us, which says there’s a lot of possibilities in that in terms of re-skilling people.

Kerr: Great. Willy, as you think about the geography of economic activity, be it manufacturing, innovation and so forth—and we’ve had a number of people on this podcast from Simon Johnson and Jonathan Gruber for Jumpstart America, Richard Florida, and similar—a big question for everyone right now is how the rise of remote and hybrid work will reshape kind of that geography, that landscape. What’s your perspective?

Shih: I am more mixed on remote and hybrid work. I mean, in some sense, the pandemic has forced us to learn how to do those things. And in some areas, I think I’ve already seen big changes, for example, in the media business, right? And again, this goes back to kind of level of abstraction and capabilities that are available in ordinary tools. And in the media business, it used to be, you’d have to go to a remote studio if you wanted to be on a live interview on CNBC or somebody like that. And these days, with the pervasiveness of Zoom technology and others, all of those things are possible. On the other hand—and I should say remote collaboration has dramatically improved with all these tools, which became popular during the pandemic—on the other hand, I don’t think we should discount the value of in-person learning or in-person work for many activities, especially when it comes to exchange of ideas and innovation and learning to work together. So I’m maybe a little more mixed on it than many people.

Kerr: So, Willy, as we think about this learning curve for managers, beneath that, there’s lots of skills that are required for supply chain forecasting, development, and so forth. What’s the state of play there?

Shih: Well, Bill, I think one of the things that the crisis we’ve all been through the last few years has highlighted is, a lot of supply chain management had become very transactional. I’m going to goal and reward my supply chain leaders based on productivity, which means you’re going to give me cost every year. I’ve always been more in favor of what I call a “strategic approach,” which is, I’m going to work with my suppliers as partners. And that means I may need to expose more of my business to them, so they understand what my longer-term needs are and what’s behind my forecast. I always hold out Toyota as an example here, who have long held a much more strategic view of their supply chains, actually fared much better. So that requires, perhaps, a new approach into how in the C-suite we think about procurement and the supply chain, overall.

Kerr: All right. Well, maybe we’re toward our final question here. As you think about the year ahead, what’s top of mind for Willy Shih? What are the things about how work is changing that you are wanting to investigate, that you want to keep a real pulse on?

Shih: Well, we’ve seen huge constraints on supply chains in terms of capacity, shipping times, and so on. We are, just this week, starting to see—here it is, the beginning of October 2022—and we are already seeing shipping rates on the eastbound transpacific plunging to below where they were before the pandemic, okay? We are seeing automakers suddenly having much more supply of chips. And the big worry in my mind right now—we were talking earlier about the CHIPS Act and the commitment to investing in chip production in the United States—the big worry in my mind right now is, how will we feel about that in two years, when there is a glut of chips on the market, excess production, companies losing money because they can’t fill their factories. Will we have the stamina to make that 10- to 20-year multi-decade investment to regain leadership? Or will we throw in the towel?

Kerr: Well, I look forward to that podcast in a little bit to reflect upon that question. Willy, thank you so much for joining us today.

Shih: Well, Bill, thanks for having me.

Kerr: We hope you enjoy the Managing the Future of Work podcast. If you haven’t already, please subscribe and rate the show wherever you get your podcasts. You can find out more about the Managing the Future of Work Project at our website hbs.edu/managingthefutureofwork. While you’re there, sign up for our newsletter.