Achieving the Competitive Edge in
the New Economy
NGA Center for Best Practices
October 9, 2005
Mary Jo Waits
Senior Fellow
Center for the Future of Arizona
Three Things to Understand
1.
The 21st century will be driven by innovation
2.
Most of the ingredients that give regions and states
an innovative edge are created—not inherited
3.
The new century will be a highly competitive one—
especially as places realize that key features are
“buildable” and thus can be had by nearly any place
that puts its mind to it.
21st century will be driven by
innovation
The first 100 years of our country’s history were about
who could build the biggest, most efficient farm.
The second 100 years were about the race to build
efficient factories.
The third 100 years are about ideas.”
Seth Godin, Fast Company, 2001
The Growth Theory
New Growth Theory
Stanford economists Paul Romer says ideas are the
primary source of economic growth.
“Recipes (new ideas) combine ingredients (resources) in
new and different ways to yield more valuable economic
results.”
The recipes come from the innovation process.
New Growth Theory
Stanford Economist Paul Romer’s Perspective
Ingredients
Recipes
Results
• Intellectual capital
• New ideas
• Productivity
• Human capital
• Entrepreneurs
• Prosperity
• Financial capital
• Networks
• Cluster vitality
“Recipes” combine resources
in new and different ways
• Nanotech: You start with building blocks like
nanowires, nanotubes, and nanoparticles. Put together one
way, these building blocks make a computer. Put together
in a different way, they make a biological sensor.
• Biology is another example. You have a limited number
of building blocks, like proteins and DNA. Depending on
how you put them together, you end up with a tissue, a
worm, or a human being.
Charles Lieber, Harvard Chemistry Professor & co-founder, Nanosys
Big Science : 4 Big O’s
New Business Model
Companies and entrepreneurs moving from
“closed innovation” (in-house research
capability) to “open innovation” model.
“Many companies are starting to innovate with
research discoveries of others.”
Harvard Professor Henry Chesborough, Open Innovation, 2003
Intel’s “lablets”
• Small-sized research facilities adjacent to
top university research centers
• Intel expects to benefit from proximity:
gain early access to promising new
technologies
Applies to all companies,
not just high-tech
• Procter & Gamble names director of external
innovation—Goal: 50% of its innovation from
outside the company in 5 years
• Why? Inside more than 8,600 scientists
advancing the industrial knowledge that
enables new offerings; outside are 1.5 million.
• “So why try to invent everything internally?”
Global Business Model
•Washington D.C.
•Boston
•Minneapolis
•Atlanta
•Phoenix
•Seattle
•Austin
Dublin
Budapest
Prague
•San Diego
•Portland
•Raleigh-Durham
Israel
•Denver
•Sacramento
•Salt Lake
Costa Rica
Moscow
Beijing
Shanghai
Shenzhen
Guang Zhou
Hong Kong
Bangalore
Bombay
Hyderabad
Chennaii
Pune
Hsinchu
Manila
Firms tap talent and serve markets globally, from their start.
San Diego: Rise of a BioTech Cluster
• Today: 3rd Biotech hub behind San Francisco &
Boston
• North Torrey Pines Road: Densely packed 2-mile
stretch w/ Scripps Research Institute, Salk Institute for
Biomedical Studies, UCSD
• “We can throw a rock and hit UCSD. I can hit a golf
ball and hit Scripps. Everything is within walking
distance. That means more heads get together and we
do a lot of collaboration.”
VP at Salk Institute
The Proximity Edge
For States: New Era is Best of Times
and Worst of Times
• The Good News--main Anchors of this century will be “Meds and
Eds”
• Big Science transforms universities and other research complexes –
loaded with top talent and research dollars - into the most highly
prized economic assets
• And these institutions are deeply embedded in American communities
and are not easily “outsourced” overseas—making them an excellent
bet for prosperity in 21st century
• Bad News—not all states are ready to face the “meds and eds” century
• And other states are making Bold Moves to leapfrog ahead
Big Money is being Invested
in Meds and Eds
• Palm Beach County, Florida: $200 M for East Coast
facility for Scripps Research Institute; state covers
operating costs for 7 years ($310 M)
• Kansas City: American Century Funds founder is
spending $1 B to build mega-biomedical research
complex
• Indiana: Lilly Endowment offers $100 M to recruit
“intellectual capital” to state colleges and universities
• California: $3 B for Stem Cell research
What’s Up?
Shifting Sources of Wealth
From:
Inherited Assets
• Geography
• Climate
• Population
To:
Created Assets
• Top universities
• Research centers
• Talented people
• Entrepreneurial
culture
• Networks
• Vibrant downtowns
Elements of a
Knowledge-based Economy
5 tangible elements:
• A strong intellectual infrastructure (universities and firms
generating new knowledge and discoveries)
• Mechanisms through which knowledge is transferred from personto-person / firm-to-firm
• Excellent physical infrastructure (high-speed internet)
• A highly skilled technical workforce
• Good sources of capital
2 intangible elements:
• Entrepreneurial culture
• Quality of life
Source: National Governors Association
National Governors Association
The Power of Strategic Moves
The tale of two regions:
The story of Austin: rise in the
physics/computer-based innovation era
The story of San Diego: rise in
biology-based innovation
Austin: Going for High Tech Gold
• Three decades ago: Sleepy University/Government Town (per
capita income 85% of US average)
• Today one of 20 “Cities of Ideas” (per capita income is 107% of US
average)
• Started with Vision: “Poised for Greatness” and focus: IT and
quality of life
• Attracts Motorola, AMD in 70s; MCC research consortium;
SEMATECH- 13-firm research consortium; many IT- related
firms follow
•
UT top 10 of engineering graduate schools (1989)
• Multiple startups: Dell and spin offs from UT
San Diego: Going for BioTech Gold
• Geography produces tourist & military town and
begets Scripps Institute (1912)
• North Torrey Pines Road: Densely packed 2-mile
stretch w/ Scripps Research Institute, Salk Institute for
Biomedical Studies, UCSD and others
• Today: 3rd Biotech hub behind San Francisco &
Boston
Rise of High Tech Cluster
• City gives land to General Atomics to increase HT
(1956); designated S&T zone; spawns 60 companies
• City gives land to Salk Institute (1960) Torrey Pines
Rd
• Leaders get a University (UCSD)—post-grad science
focus (1960); in 1990’s spawns 69 companies
• UCSD scientists founded Hybritech; UCSD
professor starts Linkabit becomes Qualcom & Leap
Wireless (1968)
• Salk Institute spawns 22 companies since 1980’s
• Scripps produces 45 companies in similar time
• UCSD CONNECT (1995) “meet the researcher”
• BIOCOM—informal network
• $1 B in private VC (2002); $ 500 M annually NIH
• UCSD opens graduate business school (PhD/MBA)
San Diego Pharmaceuticals / Biotech Cluster
Research
UCSD Labs and
Hospitals
Salk
Equipment
Inputs
Laboratory
Instruments
and Process
Equipment
Specialty
Chemicals
Scripps
Pharmaceuticals and
Related Products
Pharmaceutical
Products
(Manufacturing)
Other Products
Consumer
Goods
Containers
Burnham
Kimmel
Medical
Devices
Packaging
Private Firms
Specialized Risk
Capital
Human Capital
Providers
Cluster/University/
Government
Relationship
Providers
Specialized
Support
Services
Venture
Capital Firms
Community Colleges
BIOCOM
Banks
Angel
Networks
UCSD
UCSD
CONNECT
Legal
Services
SDSU
Science and
Technology
Council
Source: Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project , U. S. County Business Pattern Data;
ontheFRONTIER interviews
National Leader
Nationally Competitive
Less Developed
Accounting
Firms
If you’re competing on innovation,
San Diego is a good place to be
New Focus on Place
• Quality of Place draws talent
• Innovation is tied to place
• Entrepreneurship requires a “habitat”
Do Talented People Want
to Live in Your State?
“Arugula is how I define cities. I
go to a grocery store, and either
you can get arugula or you can’t.”
Cindy Crawford
international super model
The Calculation for
Quality of Place is More Complex
•
•
•
•
•
•
Natural environment counts for a lot.
But natural features aren’t enough. Places must
have distinctive urban amenities as well.
Choice (in lifestyle) matters in the talent war.
Being a smart, innovative place matters.
It’s not just about physical attributes. Intangibles
such as tolerance and entrepreneurial culture are
part of the calculation.
Speed is a vital amenity.
Waits, Which Way Scottsdale?, 2003
Building Expertise
• Focused Excellence: Georgia Research Alliance,
CA Institutes for Science and Innovation
• Talent: Lilly Endowment’s $100 M for
“intellectual capital,” Georgia's 100 eminent
scholars, USC’s goal of 100 high-profile
professors, Science Foundation Ireland recruiting
50 world-class scholars by 2008
• State-sponsored Research Funds: CA, TX, NJ,
NY, MI, AZ, OH
It’s not enough to say, capture more NIH
research dollars
The Bold Standard
California Creates Its Own Research Fund—Not
Once but Three Times
2004-voters approve $3 B over ten years. No state has
ever raised that much money for a specific type of
research
2000—Creates 4 California Institutes for Science and
Innovation at UC –taken together represent a billiondollar effort to focus research
1996—UC Discovery Grants--$60 M annually from
state, UC and industry
Orchestrating Interaction
• UCSD CONNECT “Meet the Researcher”
• ASU’s supercomputer; Engineering school
moves to “main street”
• Innovation Districts Atlanta’s Technology
Square, Torrey Pines, Research Triangle Park,
PA’s Keystone Innovation Zone, St. Louis’s
CORTEX 1,000 acres for medical research district
• Partnerships and Networks Georgia Cancer
Coalition, St. Louis Coalition for Plant and Life
Sciences, BIOCOM
Putting people from Diverse
knowledge fields and cultures together
• AZ Biodesign Institute—co-locates 3 O’s
• UC Discovery Grants
• NIH starting to encourage interdisciplinary
research
• Silo, Solo is Passé
Arizona’s Strategic Moves
• Three “Big Bets” on
an innovation future
Three “Big Bets”
• Big Bet No. 1
Target export-oriented, knowledge intensive
clusters to build strengths in:
–
–
–
–
–
–
Electronics/Information Technology
Aerospace
Software
Biomedical
Advanced Business Services
Optics
Three “Big Bets”
• Big Bet No. 2
Prop 301, a sales tax increase which citizens
approved in 2000, earmarks $1 billion over 20
years, distributed among the state’s 3 universities
Arizonans recognized that K-12, community colleges, toptier universities are a critical infrastructure for the 21st
century
In 2003, AZ legislature approved $440 million in research
facilities at 3 universities—12 new research facilities
Three “Big Bets”
• Big Bet No. 3
Genomics – $90M raised in 2002 to jumpstart the
bioscience industry with attraction of TGen and
IGC
Battelle Biosciences Roadmap to develop 3 areas:
– Cancer therapeutics
– Neurological sciences
– Bioengineering
Lots of Ownership
•
•
•
•
•
•
•
Biodesign Institute at ASU
BIO5 at University of Arizona
Technopolis – entrepreneurial support
Arizona Board of Regents - metrics for 301 funds
Arizona Biomedical Collaborative—3 universities
Legislature passes Angel Investor tax credit
Maricopa Community College district-- $1.5 M
training for bioscience
• Foundations continue to support TGen and top talent
• Greater Phoenix Leadership—Bioscience Task Force
Cities connecting to Big Bets
–
–
–
–
Phoenix Downtown “Knowledge Anchors”
Scottsdale Los Arcos, Mayo Clinic R&D
Chandler potential Intel and ASU Nano Institute
Tucson’s UA Research Park and new Critical Path
Institute
– Flagstaff’s NAU partners with TGen
– More Big Bets
– UA/ASU Medical School
– Maricopa Partnership for Arts and Culture
Playing a leading role in the
Innovation Century will take:
• New Era Thinking: Move from Cheaper Here, Made
Here, and Grown Here to: Invented Here. Discovered
Here. Started Here.
• Sustained, Resolute Effort: These new ambitious will
not be realized unless they serve as a long-term guide
for public policy. Top of the public policy list is to build
a dynamic combo of first-rate Meds and Eds.
• Exceptional People: There is no substitute for talent—
it’s the path to greatness.
• The Collaborative Gene. No more silos. New ideas
require collaboration. So does bold public policy.
Strategic, Sustained Effort
“There was no single defining action,
no grand program… no solitary lucky
break, no wrenching revolution.
Good to great comes about by a
cumulative process--step by step, action
by action, decision by decision, turn by
turn of the flywheel—that adds up to
sustained and spectacular results.”
Jim Collins, 2001