At its simplest, economic activity is driven by ideas – ideas that get turned into a product or a service that is then brought to market. As technology has become more ubiquitous (helping to reduce labor and material costs), the “idea” part of the equation has become an increasingly larger share of the value. It is for this reason that governments around the world have focused on the role of innovation. Regions that can facilitate this translation of ideas to the market place are likely to have more economic activity than those who do not.
Innovation and Productivity
There is a strong relationship between innovation – doing things in a new or different way – and productivity – doing things more efficiently. Technological innovations, most notably the extraordinarily fast adoption of the Internet by individuals and businesses, were responsible for much of the acceleration in productivity in the 1990s. Innovation typically helps companies cut costs, allowing existing companies to deliver an existing product better or create new products. It can also help new firms break into an existing market or create a new market. And in today’s fast-moving environment, innovation is necessary for existing firm’s survival by allowing them to maintain market share and grow revenues.
Innovation and the Art of the “Next Big Thing”
Our clients want to know what is “over the horizon.” Our answer to this question is not to turn so quickly from the horizon you’ve just crested. Innovation rarely comes out of the blue. More typically, what we think of as innovation is actually an incremental advance of an existing idea or technology. This advance might represent a functional change (like an improvement to a piece of equipment or machinery) or a change in the application of technology (like the use of computer chips in other devices, like smart phones or even smart textiles).
Over the last 60 years, there have been a handful of “game-changing” innovations; the integrated circuit and the sequencing of the human genome are prime examples. These transformative innovations have formed new industries and created demand for new products and services across multiple sectors and multiple decades. Such high-impact innovations change the conversation, overhaul entire sectors of the economy, and literally invent new spaces for future advances.
SOURCE: 2008 California Green Innovation Index
Although success stories like Google remain the exception, this process of constant invention and re-invention serves as a powerful economic engine. Communities that hope to harness the power of innovation for economic development can begin by establishing and maintaining a healthy ecosystem of resources for existing businesses as well as entrepreneurs.
An Innovation Strategy
Innovation drives productivity gains, fosters new business development, and bolsters existing businesses. As a result, “brokering” innovation can be an effective economic development strategy. The essence of an innovation strategy is connecting companies and entrepreneurs with sources of innovation and intellectual capital.
How to can a community broker innovation? For regions fortunate enough to have access to a university, leveraging university research and expertise is the logical starting point. This can be done by creating a network that links university assets with local entrepreneurs capable of commercializing new ideas and technologies and local companies that are looking for solutions to address the challenges they face. Such an approach can have benefits for new business formation, industry recruitment, and business retention and expansion.
However, even the most successful commercialization strategy does not necessarily translate to investment in a particular geographic area. And, more importantly, vast stretches of the country don’t have access to a research university. For these communities, an innovation strategy often translates to an entrepreneurship strategy. The entrepreneurs who avail themselves of this strategy will themselves form connections to universities, international businesses, and a new and creative workforce.
The Entrepreneurship Engine
Research suggests that small businesses and entrepreneurial activity stimulate job creation, spur innovation, and diversify the economic base. Communities – particularly those in rural areas – recognize that a “grow your own” strategy has a higher probability of success than recruiting a major employer to the area. In addition, entrepreneurship strategies that encourage new business creations often prove more cost-effective than incentives paid to recruit businesses to a community. As a result, building an entrepreneurial support system has become a vital economic development strategy.
Successful entrepreneurial development involves a strategic, organized, and community-wide support system that provides the physical and social infrastructure entrepreneurs need. Entrepreneurial development programs also connect entrepreneurs to capital, training, and technical assistance needed to start and grow their businesses. Ensuring that entrepreneurs feel valued – such as helping them establish relationships and recognizing their successes – contributes to a community’s entrepreneurial climate.
While economic development professionals may consider business creation to be difficult and resource-intensive, the benefits a community reaps from a successful entrepreneurship program can be immense. Fostering an entrepreneurial climate can help a community retain local innovation and talent, build and keep wealth in the area, and contribute to the community’s character. Ultimately, an entrepreneurial-friendly environment can help a community achieve economic diversity and economic sustainability.