Against the backdrop of the economic downturn, many global manufacturers are shuttering or downsizing factories to cut operating costs quickly. That focus is understandable and, for some companies, necessary. Yet when senior managers make decisions about closing, opening, or relocating plants, today’s preoccupation with costs shouldn’t obscure the longer-term importance of other strategic factors—particularly the role of individual facilities in fostering and disseminating innovation across a manufacturing network.

Indeed, the strength of a multinational manufacturing company lies precisely in its ability to exploit a network of knowledge to spread process innovations and best practices and, ultimately, to create innovative products and services. Companies that make footprint decisions without considering the way individual factories fit into a broader knowledge network therefore risk sacrificing long-term innovation for short-term gains. A better understanding of the way factories interact to create and transmit knowledge can help senior executives not only to spark innovation by balancing portfolios of plants but also to maximize efficiency by locating production resources appropriately. Moreover, our research suggests that the importance of actively participating in the creation of knowledge is increasing for individual factories. Those that actively develop and share it offer their companies greater strategic flexibility and seem to have a more stable future.