Promoting Innovation: A Systems Approach

In the world of economic development, there is a priority placed on attracting innovative businesses and people. The heavy manufacturing sector is no longer the crown jewel of the economic developer’s kingdom. It is now the innovative business that has the greatest impact on the community’s well-being. The joke that circulates among economic developers is that the idea is created in America, developed in Japan and mass produced in China. Attracting innovative businesses is the key to blunting the unpleasant truth that lurks in that joke.

At the apex of the innovation culture is “translative innovation.” This kind of innovation, often referred to as “translative research,” applies findings from basic science to enhance practical solutions and products. For example, in the field of healthcare, this is referred to as “bench to bedside.” The process of translating pure research into applied concepts requires both the capacity for basic research and the ability to see and design products that are enabled by the research findings. Both research and application design rest on a substantial skills base and require the services of highly skilled knowledge workers.

Industries engaged in this kind of innovation employ a well-compensated, well-educated workforce. Beyond the value of their compensation they produce economic benefits in terms of research and development activities as well as outcomes in the form of practical applications. All of these factors contribute directly to the economy. This is a main driver in making them a highly prized capture for economic developers. However, recruiting such businesses is a complex process requiring the application of systems thinking to the creation of the socio-economic environment conducive to the location of the businesses and their sophisticated employees.

The environments that attract innovative businesses create areas known as clusters. “Clusters are geographic concentrations of interconnected businesses, suppliers, and associated institutions. They can contain anchor institutions, small firms, start-ups, business incubators, and accelerators.” (Montalbano/Baily 2018, 1) All of these businesses employ the kind of knowledge workers that are desirable in the economy of the cluster or region.

It is in building these clusters that economic developers must think systemically. Traditional business recruitment incentives (tax breaks, siting assistance, infrastructure etc.) are no longer sufficient. Businesses depend on their workforce and the ability to recruit and retain them. For a community to be successful in attracting businesses it must provide the environment that will enable that.

Increasingly, knowledge workers are placing a premium on “quality of life” factors. As Richard Florida explains in his book, The Rise of the Creative Class—Revisited: Revised and Expanded, “Creative people do not move for traditional reasons. The physical attractions that most cities focus on building—sports stadiums, freeways, urban malls, and tourism-and-entertainment districts that resemble theme parks—are irrelevant, insufficient, or actually unattractive to them. What creatives look for are abundant high-quality amenities and experiences, an openness to diversity of all kinds, and above all else the opportunity to validate their identities as creative people.” (Florida 2014)

It is not enough to create an attractive environment for few creatives. The creatives look for a community with whom they can interact. They particularly prize diversity. This stands to reason, since diversity itself promotes creativity and innovation, and “validat(ing) their identities as creative people” turns on community interaction.

This entails creating a community of innovative businesses. “The value placed on geographic proximity is of high importance given that innovation is a deeply human and creative endeavor that requires personal networks and trust that can be built more easily with diverse and talented people close together.” (Montalbano/Baily 2018, 1) It takes the mix of “anchor institutions, small firms, start-ups, business incubators, and accelerators” to make the community that can sustain the creatives and their businesses.

When such a community can be created, businesses can count on successful recruiting and retention efforts that will sustain their viability and competitiveness. The economic developer cannot count on a direct appeal to the business organization through an incentive package. Just as businesses must think about the environment that will attract and keep the employees they need, the economic developer must see systemically and promote the policies necessary to create that environment.

Florida, Richard. The Rise of the Creative Class—Revisited: Revised and Expanded. Basic Books. 2014.
Montalbano, Nicholas and Baily, Martin, Clusters and Innovation Districts: Lessons from the United States Experience. The Brookings Institution, May 2018.

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