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 / Spring 2012 / Issue 66(originally published by Booz & Company)


How to Make a Region Innovative

These factors, no matter how appealing, don’t make a difference unless they can add up to sustainable serial innovation. To generate one groundbreaking technological development after another, innovation must be embedded within long-lived social institutions and networks. Four different sectors must be linked together: government, business, civil society (not-for-profit organizations), and academia. This is what I call “the quad.” In such an environment, creativity needn’t wait for the unpredictable “aha” moment. It is continually nurtured. The decisions made at every level — investment funds, corporate engineering teams, regional planning boards, philanthropic councils, academic faculty reviews, and many more — are naturally aligned.

In most communities, this quad alignment can be deliberately developed if leaders put three measures into effect. First, they should construct cross-sector networks that are richer, more diverse, and more deliberately structured than those of the past. Building Silicon Valley took 30 years and Bangalore took 100, but we now know how to accelerate the process by drawing on the collective efforts of leaders in all four sectors of the quad.

Second, these leaders should continually reform the way their organizations are managed — creating a climate that fosters innovation, and adjusting the incentives and organizational structures to reward creativity and collaboration. That’s what venture capitalists provided in Silicon Valley — and what the prohibitively strict license raj managed to prevent in Bangalore.

Third, leaders should invest in talented, innovative individuals, attracting, retaining, and empowering the right mix of people who can foster serial innovation. Both Silicon Valley and Bangalore benefited from having large demographic cohorts of young, gifted entrepreneurs; other places sometimes have to attract or develop them.

Cross-Sector Networks

Collaboration between the public and private sectors is the most visible ingredient of a successful quad system; it represents the heart of Michael Porter’s prescriptions. But the variety and quality of the stakeholders involved can make all the difference.

Fairchild, Intel, Hewlett-Packard, Apple, Sun Microsystems, and Cisco were essential to the evolution of Silicon Valley, but so was the presence of great universities such as Stanford and the University of California at Berkeley. Frederick Terman, Stanford provost between 1955 and 1965 (and an engineering professor before that), is sometimes called “the father of Silicon Valley” for encouraging his students to start businesses. Two of his students were William Hewlett and David Packard. Government also played a critical role. Indeed, Terman came to Stanford in 1946 from the U.S. Office of Naval Research, where he had directed the staff that developed jammers to block enemy radar. In the early 1960s, the U.S. military was the market for the first wave of integrated circuits, which were largely made in northern California. The nonprofit sector was less visible, but it played a significant role in the 1990s — especially as computer firms began to invest in clean and healthcare-related technologies.

When all four sectors act together, they can pull and push one another into game-changing collaborations, beyond what any of them could achieve alone. The communities of practice that grow around them become creative havens where people build careers that transcend any one particular company or organization. At the same time, each plays a particular role:

Government agencies provide the necessary infrastructure investment — for example, in transportation, schools, power transmission lines, and land — that can make or break a would-be center of innovation. In Bangalore, a government agency built one of the first software parks for private companies. Governments also provide the stable investment rules, regulatory incentives, and tax breaks that clusters need. In the U.S. in the 1990s, the Clinton administration’s insistence on keeping e-commerce tax-free buttressed the bottom line of hundreds of innovative New Economy firms.

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