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


How to Make a Region Innovative

Universities provide a steady supply of highly skilled people and experiments that feed the constant hunger for new knowledge. Most universities are established enough to take a long view in their investments and activities, beyond the quarter-to-quarter focus of many firms. The university environment also provides a high quality of cultural life.

Nongovernmental organizations (NGOs) — a category that overlaps significantly with the nonprofit sector — provide a larger contribution than many people recognize, especially in emerging countries. They are the groups most familiar with conditions “on the ground” in rural and urban communities. The first Internet service provider in Brazil was a nonprofit called Ibase. Grameen Bank and other NGOs provide rural banking and telephony through microcredit. As the financial crisis continues, NGOs are picking up some formerly commercial functions, such as retail banking and publishing.

Businesses provide the cluster with its economic engine. Because they will close down if they fail to innovate successfully, they take the many risks that innovation entails. The private sector furnishes a large part of the capital needed to fund strategic innovation. Most fundamentally, it is a unique source of vitality and creativity, and the only sector that attracts customers in large enough numbers to support a growing economy. For all these reasons, business leaders have a particularly important role to play in moving an innovation cluster forward.

To bring these four sectors together, a quad cluster needs to nourish a high level of mutual trust. Leaders in all four sectors must work cooperatively, knowing that their interests will be protected well beyond the transaction at hand. You can tell when this trust is missing in a prospective cluster; in those cases, people act only on their short-term interests, transaction by transaction, ready to pull out quickly with the first faltering step. Trust must be built gradually, through social infrastructure such as professional associations, social clubs, and other forms of ongoing contact and exchange.

In Malaysia in the mid-2000s, I visited Cyberjaya, a new city carved out of miles of rubber plantations. At first glance it looked like Palo Alto or Cupertino. But it was a high-tech Potemkin village. Government leaders, under then Prime Minister Mahathir Mohamad, were politically heavy-handed and hostile, especially toward the universities; they feared student rebellions and faculty disloyalty. One professor told me, “Government pretends to support serious research and development, and we pretend to do it.” Collaboration was further blocked by Malaysia’s complicated social structure. The government was dominated by local bumiputra (people descended from indigenous Malaysians), whereas the economy was run largely by ethnic Chinese, and their relationships could be tenuous and fraught with mistrust. The government’s relationship with the NGO sector was also marked by mutual suspicion; the two sectors were potentially competing sources of power. As a result, Cyberjaya has never transcended its role as a mere electronic assembly center for global supply chains, vulnerable to external competition.

By contrast, one of California’s recent economic achievements started with a deliberate effort to build trust across the sectors. In 1999, a group of about 20 leaders from universities, research institutes, and state government gathered to discuss the then sizzling state economy, wondering how to spread the jobs and other economic benefits beyond Silicon Valley. Under the governor at the time, Gray Davis, the state set aside US$400 million of seed money for high-tech R&D. Universities and companies could submit proposals only by collaborating. Soon, four major new consortia, or quads, were formed: one each on biosciences and nanotechnology, and two on information and communication technologies. One of these latter two partnerships — the California Institute for Telecommunications and Information Technology (Calit2), based at the University of California at Irvine (UCI) and the University of California at San Diego (UCSD) — was especially successful. Its director, a physicist named Larry Smarr, set up incentives to foster greater collaboration inside UCI and UCSD, while forging external networks with leading private companies like Qualcomm, Akamai, Agilent, and DuPont. Calit2 also established relations with nonprofit business groups like Connect, which promotes high-tech investments in the San Diego area. Calit2 became a center of innovation for applying information and communications technology in healthcare, including new approaches for managing hazardous materials and disaster sites. One Calit2 project was Telios, an operating system that uses sensors and monitors to gather medical data, linking specialists at UCI with patients and medical staff in community clinics. Smarr himself became a leading figure in the “quantified health” movement, which encourages people to track their own medical statistics using technologies like those that Calit2 engendered.

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