Promising Practices in Promoting Regional Innovation National Governors Association Innovation America Initiative Task Force Meeting Randall Kempner December 5, 2006

2 © What is Innovation?  the generation, development and and implementation of new ideas that create social value  Improves on the existing way of doing things  Can be a product, process, service, strategy, etc. 21st Century Innovation  Faster  Multidisciplinary  Democratized  Collaborative/Open  Global A Simple Definition

3 © Why REGIONAL Innovation? “ Paradoxically, even as innovation has globalized, the role of regions as the critical nexus for innovation-based economic growth has increased. While national and state policies create a platform for innovation, the locus of innovation activities is at the regional level, where workers, companies, universities, research institutions, and government interface most directly.” -- Regional Innovation-National Prosperity Proximity Diversification Differentiation

4 © Regional Innovation Environment Competitive Assets Competitive Assets Linking Institutons and Networks Linking Institutons and Networks Attitudes /Culture Attitudes /Culture Competitive Assets: Educational system, research and development base, technical and scientific concentration, qualified workforce, quality of life, concentration of firms, land and building availability Formal and informal networks that generate key relationships and foster innovation: Associations, Chambers, Tech Transfer Offices Attitudes that support innovation: willingness to partner, risk-taking, tolerance of diverse people and perspectives, openness to new ideas Three levels of analysis are necessary to understand the dynamics that impact the success of regions and regional clusters.

5 © What is a Cluster?

6 © What is a Cluster? A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field Source: Professor Michael E. Porter, Harvard Business School

Omaha Telemarketing Hotel Reservations Credit Card Processing Wisconsin / Iowa / Illinois Agricultural Equipment Detroit Auto Equipment and Parts Rochester Imaging Equipment Western Massachusetts Polymers Boston Mutual Funds Medical Devices Mgmt. Consulting Biotechnology Software and Networking Venture Capital Hartford Insurance Providence Jewelry Marine Equipment New York City Financial Services Advertising Publishing Multimedia Pennsylvania / New Jersey Pharmaceuticals North Carolina Household Furniture Synthetic Fibers Hosiery Dalton, Georgia Carpets South Florida Health Technology Computers Nashville / Louisville Hospital Management Baton Rouge / New Orleans Specialty Foods Southeast Texas / Louisiana Chemicals Dallas Real Estate Development Wichita Light Aircraft Farm Equipment Los Angeles Area Defense Aerospace Entertainment Silicon Valley Microelectronics Biotechnology Venture Capital Cleveland / Louisville Paints & Coatings Pittsburgh Advanced Materials Energy West Michigan Office and Institutional Furniture Michigan Clocks Tucson Optics Minneapolis Cardio-vascular Equipment and Services Warsaw, Indiana Orthopedic Devices Colorado Computer Integrated Systems / Programming Engineering Services Mining / Oil and Gas Exploration Las Vegas Amusement / Casinos Small Airlines Oregon Electrical Measuring Equipment Woodworking Equipment Logging / Lumber Supplies Seattle Aircraft Equipment and Design Software Coffee Retailers Boise Information Tech Farm Machinery Where are Clusters? Everywhere... Source: Adapted from Professor Michael E. Porter, Harvard Business School

8 © What’s So Good About Clusters? Increase Efficiency – Efficient access to information, specialized inputs and employees, institutions, and “public goods” – Easier to achieve complementarities across businesses Facilitate New Business Formation – Easier to identify opportunities for new businesses – Lowers barriers to entry (including perceived risk) Spur Innovation – Improved ability to perceive and respond to innovation opportunities – More rapid diffusion of improvements Source: Professor Michael E. Porter, Harvard Business School A good way to organize firms for increased productivity A good way to organize economic development policy efforts

9 © How are cluster-based strategies different than traditional ED strategies? “ Let’s get a GM plant” Firm Industry Supply Chain Cluster “ Let’s get a Ford plant, too” “ Let’s get the auto part suppliers” “ Hey, let’s get all the related and supporting institutions”

10 © What Are Some Potential Difficulties with Clusters? As Analytical Tools – Many different ways to measure clusters Need national benchmarks AND local measures to reflect regional conditions Sometimes regions get stuck in analysis paralysis As Organizational Method for Economic Development Policy Initiatives – What if you aren’t in a chosen cluster? Need to convince local businesses that traded clusters will benefit all May lead to lack of focus on fundamentals (education, quality of life) As Indicators of Economic Growth Areas – Much innovation takes place at the intersection of clusters You might miss it – Bioinformatics, Agribusiness

11 © How Do Clusters Develop? Initial (Natural) Resource Base – Pittsburgh’s Steel Historical Legacy (Large Local Markets) – New York’s Financial Services Luck/Serendipity – Galveston’s Insurance Supportive Business/Regulatory Environment – Wilmington’s Credit Cards Consciously Designed Initiatives – Austin’s semiconductors Now, usually a mix of reasons

San Diego Pharmaceuticals / Biotech Cluster National LeaderNationally CompetitiveLess Developed Legal Services Specialized Support Services Accounting Firms Accounting Firms Banks Specialized Risk Capital Venture Capital Firms Angel Networks UCSD Community Colleges SDSU Human Capital Providers Cluster/University/ Government Relationship Providers Research BIOCOM UCSD CONNECT Science and Technology Council Specialty Chemicals Inputs Pharmaceuticals and Related Products Pharmaceutical Products (Manufacturing) Pharmaceutical Products (Manufacturing) Equipment Medical Devices Laboratory Instruments and Process Equipment Other Products Consumer Goods Containers Packaging UCSD Labs and Hospitals UCSD Labs and Hospitals Salk Scripps Burnham Kimmel Private Firms Source: Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project, U. S. County Business Pattern Data; Council on Competitiveness, ontheFRONTIER interviews

13 © Keys to Cluster Success: Five “shoulds” What should state government do to support clusters? 1.Recognize the Primacy of Human Capital – Focus on building world-class Pre through 16 educational system – Retraining and lifelong learning programs are critical 2.Understand Regional Competitive Advantages and Build on Existing Strengths – Build programs around regional partnerships and strengths – Matters more how the cluster competes than in what industry the cluster competes (innovation-based strategies) 3.Develop Integrated Economic and Workforce Programs focused on Clusters – Private sector should lead the creation of cluster efforts that leverage government programs – Government should address barriers, encourage cross-sector collaboration, and know when to say NO 4.Seek the Participation of Firms Seeking to Innovate in the Region – Promote retention, expansion, and entrepreneurship before attraction – If any preferential treatment to be given, make sure firms commit as well ( job targets, wage levels) 5.Seek to Win Globally – In this global economic environment, competition can come from anywhere – Seek to invest in sectors where firms can have a leading position globally

14 © Thank You! Randall Kempner Vice President Website: Randall Kempner Vice President Website:

15 © Five Pitfalls of Regional Economic Development Initiatives – Failure of Perspective Failure to understand position of region within a GLOBAL context Failure to identify/accept root causes of problems and barriers to change – Failure of Consensus Failure to develop a shared economic development vision Failure to translate vision into specific economic development goals – Failure of Design Failure to include participant learning as key aspect of project success Failure to include “short-term wins” within plans – Failure of Leadership Failure to involve right people throughout the process Failure to energize broad community support for action initiatives – Failure of Nerve Failure to make tough choices about priorities Failure to proceed with implementation in the face of criticism Source: adapted from Jeep (1993) and Segedy (1994) by Prosperity Strategies

16 © Keys to Cluster Success: Five “shoulds” What should state government do to support clusters? 1.Recognize the Primacy of Human Capital as primary source of advantage – Short term: Competitive advantage rests ultimately on the development and deployment of highly skilled human capital – Retraining and lifelong learning programs are critical 2.Understand Regional Competitive Advantages and Build on Existing Strengths – Build programs around regional partnerships and strengths – Matters more how the cluster competes than in what industry the cluster competes – innovation-based is best 3.Develop Integrated Economic and Workforce Programs focused on Clusters – Private sector should lead the creation of cluster efforts that leverage government programs – Government should address barriers, encourage cross-sector collaboration, and know when to say NO 4.Seek the Participation of Firms Seeking to Innovate in the Region – Promote retention, expansion, and entrepreneurship before attraction – If any preferential treatment to be given, make sure firms commit as well ( job targets, wage levels) 5.Seek to Win Globally – In this global economic environment, competition can come from anywhere – Seek to invest in sectors where firms can have a leading position globally

17 © Checklist for Developing Innovative Clusters – Inventory your Regional Assets (Networks and Attitudes) – Think Economically, Not Politically – Identify Private Sector Champions – Build on your Strengths – Develop the Talent – Invest in Research – Provide Seed and Venture Capital – Sustain your Infrastructure – Create Connections – Take the Long View

18 © Regional Innovation Initiatives Key Cross-Regional Issues Building and Retaining Talent Transitioning to Advanced Manufacturing Networking Knowledge Assets Energizing the Entrepreneurial Economy Regionalism

19 © “Ideal” Regional Integration Present Situation Workforce Development Organizations Economic Development Education Community Development Multiple organizations, at various geographies, focused on their specific areas General agreement on ultimate goal of community prosperity, but differing objectives Insufficient integration of strategies, with some conflicting or duplicative programs at local, regional, and state levels Multiple organizations, at various geographies, focused on their specific areas General agreement on ultimate goal of community prosperity, but differing objectives Insufficient integration of strategies, with some conflicting or duplicative programs at local, regional, and state levels Desired Situation Workforce Development Economic Development Education Community Development Develop coordinated regional level strategies for promoting prosperity Create alignment between the various organizations about objectives and roles Promote innovative responses to local challenges by removing government barriers and promoting public-private-non- profit collaboration Develop coordinated regional level strategies for promoting prosperity Create alignment between the various organizations about objectives and roles Promote innovative responses to local challenges by removing government barriers and promoting public-private-non- profit collaboration

20 © Representative Comments: The Regional Collaboration Challenge “We need streamlined permitting and zoning processes at the cities and counties. Less feuding among governmental fiefdoms would make this easier.” “Lack of collaboration among numerous overlapping community organizations is dividing our leadership and our dollars.” “We need our local media (TV and Radio) to heavily promote a unified regional community in sports, business, economics, education, and other activities. We need their support and a ‘positive outlook” literally pushed into our community” “Keep Washington politics out of Northern Idaho. This survey should be broken into Washington and Idaho,not count the region as one.”

21 © The Good News: Regionalism is taking hold INTEC West Michigan Strategic Alliance St. Louis Regional Chamber NextJobs-New Mexico Greater Rochester Enterprise Team NEO Fund for our Economic Future

22 © The Global Innovation Economy Regional Development Imperatives Focus on Building Talent, Not Attracting New Companies Protect Quality of Life, Vigilantly Get Connected: (Regional) Partnerships and Networks are Required Focus on Incorporating Technology, Not Technology Industries Attracting Talent is Easy, Developing it is Hard (But Worth It) Cultivate a Dynamic, Tolerant Culture

What Does a Cluster Look Like? Atlanta Information Technology Cluster Other Electronic Components Instruments Communications Services Software Peripherals Electronic Components and Assemblies Computers Source: Clusters of Innovation Initiative Report: Council on Competitiveness, Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project, U. S. County Business Pattern Data; ontheFRONTIER interviews DistributionRelated Services Parts Communications Equipment Universities and Training Institutions Georgia Tech, Emory Community Colleges Cluster Organizations Technology Alliance of GA; Georgia Research Alliance Among National Leaders (1–5) Competitive (6–20) Position Established (21–40) Less Developed (41+) Research Organizations Georgia Research Alliance, Georgia Tech Institutes, GCATT Specialized Risk Capital VC firms, Angel Networks Specialized Services (Banking, Accounting, Legal,) Government Policy and Regulatory Environment GRA, Yamacraw, ICAPP