PCRD

INNOVATION - New Solutions for an Old Problem

It's said that it is the ability to innovate that gives regions and communities an edge in the global economy.  One way of innovating is to improve on or replace old ways of doing things.  In South Bend, IN, the city is test-driving new technologies for dealing with the old problem of combined sewer overflows (CSOs) that can contaminate groundwater, rivers, streams and lakes when storm water overflows into the regular wastewater system.  It appears that EmNet, LLC has developed "a number of tools, equipment, and infrastructure to address all the aspects of real time monitoring and real time control of CSOs. From radio enabled manhole covers with embedded sensors to advanced hydraulic and hydrologic models to test its patented distributed control system in any scenario."  South Bend is testing this system, which could be used in many different countries.  To learn more click here.

UK's Innovation Nation white paper

Every once in a while it makes sense to pick up our heads and look at what other countries are doing. We are not the only ones on the planet trying to figure out how to accelerate innovation, align our resources, and strengthen the connections among business, education, economic development and workforce development.

The UK recently released a white paper suggesting policy changes needed to accelerate innovation in that country.

The Innovation Nation white paper focuses on the linkages that are needed to accelerate innovation. You can read more about the white paper here and you can download a copy of the white paper here.

Innovation: Not Always High Tech

What is an "innovation economy." People in my business talk a lot about it but do we really know what it is? One definition of innovation has to do with the frequency with which a business introduces a new product, service, or process. According to a report (available here) from the Appalachian Center for Economic Networks only about 5-15% of all businesses in most economic regions are innovators.

That same report states that an "innovation economy" emerges when 50% or more of the businesses in a region become innovators and that to do that a region must create networks that strategically link less innovative firms to innovation leaders (innovative firms, innovation-focused universities, etc.) This is how an economy becomes increasingly prosperous and resilient with more and more businesses moving into the traded or export economy.

The report also points out that not all innovation comes only from the high tech sectors but that a true innovation economy emerges when there are breakthrough businesses in many sectors. Here are some examples:

• A BBQ restaurant moves into the traded economy by manufacturing and selling their BBQ sauce
• A dry cleaning business develops a new "green process" for cleaning and then liscenses that technology to dry clearners around the country
• A beauty parlor develops a new way to train stylists and spins of that training program to train employees at other shops.

This kind of innovation can occur anywhere - rural communities, urban neighborhoods, even those regions with few biotech or information ‎technology firms. When a couple of University of Seattle professors started a shop that sold Italian cappuccino machines, nobody would have thought of that as "high tech." Howard Shultz came along as a partner and told them they should actually start making coffee to sell in the shop - again not real high tech. Of course we now know that company as Starbucks. They had $7.8 billion in sales in 2006 and they've created over 145,000 jobs. If that can happen in Seattle it can happen anywhere.

Innovation Measurement

The U. S. Department of Commerce just issued an important report on how to improve the measurement of innovation in the economy. The committee that put the report together defines innovation as, "The design, invention, development and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm." For more information about this report go here.

New PCRD Project

PCRD will soon launch a new project, funded by the U.S. Department of Commerce Economic Development Administration. This project will develop data and analytic tools to help economic development practitioners explore the role of rural communities in America’s knowledge-based innovation economy. The study will include:

• the development of a framework to measure and assess innovation capacity in rural regions,
• the creation of a framework to identify and map occupational and industry clusters, and
• a model for prioritizing public investments based on regional competitive advantages.

U.S. Department of Labor's View of the University

Last week (April 10, 2007) Assistant Secretary for Employment and Training of the U.S. Department of Labor Emily DeRocco was on campus to speak to students and faculty of the Purdue University College of Technology. She had some insightful things to say about the economy, the role of the university in workforce and economic development, and the importance of regional strategies. For example - "Universities are unique in that they are not only educators and purveyors of ‎knowledge, they are actually knowledge creators. This was a field traditionally ‎dominated by big business, think AT&T’s Bell Labs or Lockheed’s Skunk Works, ‎but is now shared with higher education. The research and development ‎facilities located at nearly every major university, particularly those focused on ‎engineering, provide a tremendous asset to the regions in which they are located, ‎provided that that knowledge can be turned into intelligence and application."

Her remarks are available here.

Commercializing Unused Patents

As part of our WIRED grant, we are working with the Council on Competitiveness to explore ways to commercialize unused patents.

The Situation: The North Central Indiana region has a relatively high concentration of patent production per employee. Many of these patents are unused. Industrial companies hold many of these patents. Do these patents provide an economic development opportunity for the region? If so, what new type of intermediary should we put in place to exploit these assets? The Center for Advanced Technology and Innovation (CATI) in Wisconsin provides a model for exploiting unused patents. See this article.

Issues to Be Explored: Here are the questions we are currently exploring.

1. Is CATI the only model we should be investigating or are there others?
2. How does the CATI model work to evaluate the commercial value of patents, prioritize the best patents, and then market them? Are they operating, at this stage, similar to a university licensing office?
3. Delaware recently adopted a similar model to CATI. What are the major differences between the Delaware and CATI approach? What did Delaware receive for its $212,000 fee to CATI?
4. What does an effective regional policy for exploiting unused patents look like? How can we build the base of Inventrek with this strategy?

Use Economic Incentives to Build Knowledge Infrastructure

Here's another interesting recommendation from the Kauffman report mentioned in this post - In many cases, the most important incentives at states’ disposal are not tax breaks or ‎other firm-specific incentives, but public investments that not only support a state’s ‎knowledge infrastructure but also provide key inputs for targeted firms and/or industries. ‎Perhaps the best example of this approach was Texas’ $300 million investment in the ‎engineering program at the University of Texas used to help induce Texas Instruments to ‎build their next generation chip fabrication facility in Texas. Not only did the state ‎benefit by capturing a $3 billion high-tech investment, but TI benefited by gaining access ‎to a world-class electrical engineering department. Moreover, this infrastructural ‎investment benefited other high-tech firms in the region as well. This is because ‎knowledge is what economists call “non-rival,” meaning more than one party can use it at ‎once. In this case, the investment helps many firms in the region be more successful, ‎generating a much bigger return to the state than if they simply gave Texas Instruments ‎‎$300 million and hoped good things would happen.‎

Kauffman Points to Indiana's New-Economy Assets

The Kauffman Foundation's, The 2007 State New Economy Index (available here) ranks states using 26 criteria organized in five categories: (1) Knowledge Jobs, (2) Globalization, (3) Economic Dynamism, (4) Transformation to the Digital Economy, and (5) Technological Innovation Capacity. In the overall ranking, Indiana comes in at 31 (Massachusetts is #1 and West Virginia at #50). Things could be worse, but they could certainly be better.

Digging a little deeper, there are a few of criteria in which Indiana ranks #1 and in the top percentile. We certainly need to work on the areas where we are near the bottom of the list but we should also play to our strengths by leveraging our existing assets (those areas where we are already on top).

Value-Added Manufacturing. Indiana ranks #1 in this criteria. According to the report, this is important because value-added is the difference in value between inputs into the production process (e.g., ‎materials, energy) and the value of final products or services sold. Within manufacturing, ‎high value-added sectors tend to be those that are capital intensive and producing ‎technologically complex products. Within sectors, firms with higher value-added levels tend to invest more in new machines and equipment (including IT software), and worker ‎skills. These firms, all else being equal, are better equipped to meet competitive ‎challenges, both at home and abroad. Moreover, because their workers are more ‎productive, generating greater value for each hour worked, they in turn typically earn ‎higher wages than other workers.

Package Exports. Indiana ranks 6th. Many firms are becoming more international as they pursue new markets and establish ‎offices and supply networks around the world. International trade in services – including ‎goods transportation, royalties, financial, and business and technical services – has ‎increased significantly in the last decade. In fact, U.S. affiliates’ combined intra-firm ‎payments and receipts for international shipping have tripled since 1997, from $840 ‎million to $2.5 billion in 2005 (in 2000 dollars).71 The number of package exports is one ‎indicator that measures the extent to which a state’s firms have expanded‎ global linkages, capitalizing on this trend.‎

E-Government. Indiana ranks #3 in this criteria. The report points out that state governments that fully embrace the potential of networked information technologies ‎will not only increase the quality and cut the costs of government services, but also help ‎to foster broader use of information technologies among residents and businesses. State ‎governments have made considerable progress in using the Internet to allow individuals ‎to interact with government – from paying taxes to renewing drivers’ licenses. But the ‎next phase of e-government – breaking down bureaucratic barriers to create a ‎functionally oriented, citizen-centered government Web presence designed to give ‎citizens a self-service government – has only just begun.‎

The report concludes that the keys to success in the New Economy now and into the future appear clear: supporting ‎a knowledge infrastructure – world-class education and training; spurring innovation – ‎indirectly through universities and directly by helping companies; and encouraging ‎entrepreneurship.‎ Success in the New Economy requires that a whole array of institutions – universities, ‎school boards, firms, local governments, economic development agencies – work in new, ‎and often uncomfortable ways. At the end of the day, this is a challenge of leadership. ‎States with leaders who challenge their institutions and businesses and who follow ‎through with bold new policies focused on innovation, learning, and constant adaptation ‎‎– will be the ones that succeed and prosper.‎

Accelerating Regional Economic Growth by Reducing Healthcare and Energy Costs

Ask manufacturing CFO's about the financial concerns that keep them up at night and they will tell you that the costs of energy and healthcare top the list. A recent Bank of America report (available here) outlines these and other findings related to corporate leaders' perceptions of the manufacturing industry. North Central Indiana, through its WIRED initiative has set its sites on becoming a region where these two costs of doing business are significantly less than they are in other regions. They will accomplish this by linking area small and medium-sized advanced manufacturing firms with innovations from Purdue University. Here's how.

Healthcare Cost - The inability of employers to control healthcare costs is well-documented and motivates the exporting of jobs and the reduction or elimination of employer healthcare insurance programs. To address this issue, Purdue University is developing and delivering a program for small and medium-sized advanced manufacturing firms to control and/or reduce expenses related to healthcare costs and, in turn, increase manufacturers’ competitiveness. The program involves training and technical assistance related to a broad range of factors affecting the cost of healthcare including:

• Employee Health Improvement Programs
• Employee Incentives
• On-site clinics
• Prescription Management
• Disease Management
• Dental/Vision correlation to health
• Price Transparency
• Consumer-Driven Plans
• Wellness Incentives
• Profit Sharing and how it relates to insurance claims
• Supplemental insurance programs

A pilot program has been launched that includes 14 small to mid-size advanced manufacturing firms all within the same industry cluster. By focusing these efforts within a single cluster, the opportunities will emerge to identify and meet additional common needs and take advantage of common opportunities.

The program represents a great example of university-industry innovation transfer. Purdue resources engaged in this effort include the Technical Assistance Program, the Manufacturing Extension Partnership, School of Nursing, School of Pharmacy and Pharmaceutical Studies, and the Regenstrief Center for Healthcare Engineering at Discovery Park.

Energy Costs - Although this initiative has not been green-lighted yet, the concept is spot on and if successful, would be ground-breaking. Here's how this one would work. Like the healthcare cost effort, this initiative would again involve the transfer of university-developed innovations to area industry. This time the innovations involve technologies, technical assistance, and training related to increasing energy efficiency through a systematic approach to energy management.  This initiative will involve a pilot group of 28 energy-intensive firms (again in the same industry cluster) that will receive on-site training, in-plant mentoring by industry experts, and off-site workshops instructed by U.S. Department of Energy-qualified instructors.  Each employee who attends the off-site workshop will receive an Energy Efficiency Practitioner certification from Purdue University. Purdue resources in this effort include the Technical Assistance Program and the Energy Center at Discovery Park.

Here's the kicker on this energy project - the anticipated metrics. Over the eighteen months of this proposed initiative, it's estimated that on average, each company will identify $25,000 in potential energy savings by the end of the initiative.  Additionally, those same companies will report energy savings in excess of $1,000,000 by December 2009 as well as an additional $2,000,000 in economic impact that they had not foreseen. If something like this works, industry will be waiting in line to do business in North Central Indiana. Less money spent on emergy means greater productivity, more jobs to keep pace, and regional economic growth.

Both of these initiatives illustrate great examples of innovation-based economic development that will lead to high-performance workers, high-perfomance firms, and a high-performance regional economy.