Measuring the innovation climate: Innovation indicators dashboard

In the old economy, manufacturing led the way and regions competed largely by offering a low-cost environment in which businesses could operate. In the new economy, innovation and new technologies lead economic gains, and education takes on greater importance, since innovative economies are also knowledge-based. The Innovation Indicators Dashboard, produced by the L. William Seidman Research Institute with support from the governor's office through the Arizona Department of Commerce, is a new tool designed to help policymakers measure the state's competitiveness — particularly its capacity for innovation.

Innovation and competitiveness are essential to modern economies, particularly now that globalization has become a reality. The nation's ability to innovate and use new technologies will greatly affect U.S. productivity, competitiveness, economic growth and wealth generation in the 21st century.

According to Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School of Business, "Innovation is an essential ingredient in attaining and maintaining competitiveness in today's economy, and regions that are competitive will enjoy productivity gains that will foster individual prosperity."

Innovation is so important that Arizona Governor Janet Napolitano chose Innovation America as her year-long initiative when she was chair of the National Governors Association in 2006-07. "Our economic competitiveness as states — and indeed as a nation — rests on our ability to innovate ... The goal of Innovation America is a better America for the next generation," Napolitano said.

"Innovation is about making all of America more efficient, more effective and better equipped for tomorrow. This national initiative is about enacting real, tangible statewide solutions to enhance the economic capacity of states — and the nation."

A new project developed at the W. P. Carey School's L. William Seidman Research Institute (with support from the governor's office through the Arizona Department of Commerce) gives policymakers a tool for assessing various factors that affect innovation in the state. The Innovation Indicators Dashboard includes 12 categories representing the inputs contributing to innovation and the outputs that result.

The new economy vs. the old economy

Local, national, and international economies continue to undergo a fundamental change to what has been called the "new economy." In the old economy, manufacturing led the way and regions competed largely by offering a low-cost environment in which businesses could operate. In the new economy, manufacturing and low costs are less important.

Instead, innovation and new technologies lead economic gains, and education takes on greater importance, since innovative economies are also knowledge-based. The Council on Competitiveness summarizes the shift in economic development strategies needed in the transition from the old to new economies on its website: "In a global economy, U.S. regions can no longer primarily compete based on their natural resource endowment, low cost labor, or tax incentives.

Instead, regional prosperity depends upon a region's capacity to support innovative firms, institutions and people." According to the council, location — or place — is becoming ever more important. New ideas and talented people are becoming the most important drivers of economic growth. Regions that can attract and support innovative firms and talented people will support greater prosperity, while those that rely on the extraction of resources or low-cost labor will not.

"Addressing this challenge requires a shift away from traditional economic development models. Instead of low wage rates and tax incentives, regions in industrialized countries compete today on the quality of their skilled workforce and incentives that reward innovation." The regional challenge is to develop a business and socioeconomic environment that promotes innovation.

At a time when globalization is increasing, it may seem paradoxical that the economic focus is on smaller regions such as states or metropolitan areas. However, innovation is most successful when personal interactions — between workers, companies, universities, and governments — are easy to make.

Some areas have done very well at utilizing their resource advantages or developing into innovation hot spots. Regions such as the Silicon Valley, Boston, and San Diego have leveraged access to educated workers and have developed into strong and leading centers of innovation.

The Innovation Indicators

The first step in building an innovation-based economic development strategy is assessing the regional innovation environment.

According to Mariko Silver, director of strategic projects and special advisor to the president at Arizona State University, "Decision makers have insufficient access to the data necessary to make informed policy decisions. This is a challenge everywhere, but particularly so in Arizona. Many other states have a portion of state government that is specifically focused on vetting and providing data to legislators and other policymakers, as well as to the general public. We don't have this function yet in a developed way in our state government."

The Innovation Indicators Dashboard is an effort to develop this type of information. The Innovation Indicators project is a cooperative venture involving Governor Janet Napolitano's Council on Innovation and Technology (GCIT), the Commerce and Economic Development Commission (CEDC), the Arizona Department of Commerce, and the L. William Seidman Research Institute.

The dashboard provides a preliminary set of indicators to help decision makers measure the competitiveness of Arizona, particularly in terms of how innovative the area is. While the state is the primary geographic focus, some of the indicators are available by county as well. The indicators are organized into 12 categories, divided into the factors that act as inputs to innovation and those that are the outputs, or results of, innovation.

The seven categories that represent inputs are human capital, research and development, financial capital, industrial base, infrastructure, and costs to individuals and businesses. The five categories showing the outputs of innovation are idea generation and development, dynamism, productivity, and individual prosperity. Of course, assessing the environment is not enough. In order for a region to compete in the new economy of innovation and technology, action must be taken to correct deficiencies and to ensure that strengths are retained.

Impartiality essential

Hoffman explained that there was no agenda in presenting this information. "Of primary importance," according to Hoffman, "is that the indicators provide an impartial means of evaluating the state's progress against a set of measures recommended by the Council of Competitiveness. We offer no 'report card' or grade of performance, nor do we assign weights of importance to any particular attributes."

The indicator site has no analysis — it's up to the user to interpret the data and draw conclusions. The innovation indicators are part of the larger Arizona Indicators project, which includes innovation, education, sustainability, quality of life and economic indicators, and a section that compares the Phoenix area to nine other metropolitan areas.

Production of the first set of indicators was coordinated by the office of the president at ASU. Broad-ranging indicators were produced by experts throughout the university for the Arizona Republic. The Phoenix area is the geographic focus of these indicators, with comparisons added for nine competitor metropolitan areas. The second effort focused on the innovation indicators. The report, Arizona Innovation Indicators, published in September 2007, provides documentation and explanation, but not the indicator data.

Subsequently, the Arizona Department of Commerce provided additional funding to the L. William Seidman Research Institute to produce a set of indicators by county. The focus here is a set of indicators broader than the innovation indicators, resulting in the report County Indicators for Arizona.

Some of the information has been incorporated into the innovation indicators website and is the basis for the economic dashboard. The L. William Seidman Research Institute at Arizona State University and the Economic and Business Research Center at the University of Arizona also have collaborated on an indicator project.

Bottom Line:

• Modern economies must innovate in order to be competitive.
• Competitive economies are productive and prosperous.
• Innovation, new technologies and education are important in innovative economies.
• Place is becoming much more important even as globalization expands.
• Innovation Indicators provides data to make better decisions.
• Innovation Indicators is a cooperative venture involving Governor Janet Napolitano's Council on Innovation and Technology (GCIT), the Commerce and Economic Development Commission (CEDC), The Arizona Department of Commerce, the L. William Seidman Research Institute and the W. P. Carey School of Business.