Here is an excerpt from the transcript of a conversation involving Asutosh Padhi, Gaurav Batra, and Nick Santhanam, led by Lucia Rahilly, for the McKinsey Quarterly, published by the McKinsey blog. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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McKinsey reveals 35 cutting-edge companies in the industrial tech sector, highlighting a robust “titanium economy” that creates American jobs and fuels innovation through sustainable, inclusive growth.

McKinsey Global Publishing’s Lucia Rahilly chats with McKinsey senior partner Asutosh Padhi and coauthors Gaurav Batra and Nick Santhanam about their forthcoming book, The Titanium Economy: How Industrial Technology Can Create a Better, Faster, Stronger America (Public Affairs, October 2022). You’ve probably never heard of the companies they cover — under-the-radar makers of a range of industrial products. But these companies make up a burgeoning sector that Padhi, Batra, and Santhanam say is just beginning its best years, and that has the potential to reinvigorate American manufacturing—sustainably and inclusively—in the process. An edited version of the conversation follows.

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What problem were you hoping to solve with this book?

Asutosh Padhi: I believe titanium economy companies are not well understood and not well appreciated. I was hoping to shine a spotlight on what I think is truly an amazing set of companies that drive a lot of innovation and therefore job creation. Ultimately, these companies are going to be critical in creating a more inclusive economy in the United States

Nick Santhanam: The problem we were trying to solve is lack of awareness. If you look at the industrial sector, it is truly a diamond in the rough. I would even go further and say it’s truly a diamond—maybe not even in the rough. When you talk to folks, you realize that there is a huge difference between what people believe about the industrial sector and what is reality. We wanted to fix that perception gap.

Gaurav Batra: When I was growing up, and even in the early years of my career, the industrial sector was not always viewed as a rosy picture, but my personal experience over the past two decades with the industrial sector is nowhere close to that perception. In reality, there is immense value being added to companies, to employees, and to communities—it’s really the heartbeat of an economy. My personal hope from this book is that we are able to bridge the gap between perception and reality and have folks see the value of the sector.

What surprised you in the research or writing?

Asutosh Padhi: Eighty percent of the titanium economy companies are private; therefore they tend to have a longer-term orientation. But the thing that surprised us was the high degrees of employee retention in these companies in the middle of the Great Resignation.

As we looked underneath, we could understand why: the compensation levels are different. They’re much higher in these companies. The amount of care and concern for the employees is different. People actually get access to different development opportunities, and I think there’s a culture and a purpose that comes from being part of that setup. It’s a combination of factors that brings it all together.

The importance of the talent proposition and how well the titanium economy companies intuitively understand that—not just today but for the past 50 to 100 years—was one of the things that really struck us.

Nick Santhanam: Two things surprised me the most. I spent almost north of 30 years in the industrial sector, and I knew it was a great sector, but I did not realize how many companies out there were doing so well in the stock market. When Gaurav showed me the list, I fell out of my chair.

I said, “This can’t be true. You can’t have this many companies who are doing better than S&P 500, who are doing better than Nasdaq-100. Wow.”

The second thing, which in a lot of ways provoked us to write the book, is that this is not an industry that is dead. We knew it was a good sector, but we went in thinking “this was a sector that was stolen. This was a sector that was given away. This was a sector that was taken away from us.”

We realized all of that was false—this sector was not stolen, it was not taken away, and it was not given away. It’s a great, vibrant sector that creates a lot of jobs and a lot of livelihoods. As we talk about it in the book, the best of days are yet to come.

I thought we were going to be telling a story of the past or, at least, saying, “Hey, these are our best days.” As we finished the book, we walked away saying, “Boy, we are in the first innings.”

Gaurav Batra: We discussed the book with about 50 to 70 CEOs in the ecosystem, and they all agreed with the messages. The surprising thing for me was, if you agreed with them, then why didn’t you act on them? We also talked about how so many of the titanium economy companies are private, so they’re not really worried about quarter-over-quarter or how investors are looking at them.

I would say that was the biggest surprise for me, how the alignment with the key messages of the book—the potential of titanium economy—was pretty widespread.

What in your own background inspired you to undertake this research?

Asutosh Padhi: I’m a mechanical engineer by background, but I never practiced mechanical engineering. I went to business school and then joined McKinsey directly out of campus, but deep inside me there’s always been a mechanical engineer. The thing that’s always fascinated me is the importance of innovation and how much of it resides in places that we would not associate with innovation.

I saw that in the course of my work at McKinsey. I saw a set of companies that everyone talks about, that is known for innovation, and that is great at innovation: I saw software, I saw technology. The thing that surprised me was that there is an equally great set of companies that are great at innovation, that are manufacturing oriented, yet no one associated innovation with this set of companies.

Gaurav Batra: A couple of personal experiences were transformational in terms of my own thinking about the sector. I’m a mechanical engineer by training, and one of my first jobs was as a manufacturing manager for a detergent powder factory back in India.

The India factory was in a tribal area—the government used to give tax incentives—so my workforce was made up of about 200 people who probably couldn’t even write. They were coming to the factory daily, producing tons of detergent powder, which was getting distributed all through the country.

That was the first time I really saw the human value of what a healthy manufacturing organization can do: 200 people were relying on it for their daily needs. It was a vehicle for social mobility for them. They came from really underprivileged backgrounds and being able to earn a healthy salary gave them a chance to take their families to the next level, put their kids through education, give them proper training, and have better lives themselves.

That was one of the first personal experiences that transformed my thinking about the industrial sector and what it could do for not just for the companies but also for a broad swath of people who were involved with that ecosystem.

Nick Santhanam: I’m a chemical engineer. I came to this country in 1991, and my very first job was for a company called Johnson Matthey, where I did a lot of work on the manufacturing line. Then, I worked for a company called Arlon, which was a printed circuit board company, and then a company called Taconic, which was also in that space.

This was the time of Y2K, when everybody was a computer programmer. I believed that I added more value because products were needed. These were real products being shipped, affecting people’s real livelihoods, and yet people did not know what Johnson Matthey did, or Arlon, or Taconic.

That, in a lot of ways, provoked me to say, “This is a great story. It’s a great truth, and I think it’s worthwhile for people to know. Then people can make their own decisions, but let’s get the facts out there.”

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