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Who will lead?

Ed Morison
Economic Policy Advisor
Purdue Center for Regional Development
February, 2009

We are confronting a fundamental transformation: the way in which wealth is
created is shifting. We are moving from vertically oriented business models
developed in our grandfather’s economy to business models based on open
networks. This shift has profound implications for how regional economies build
competitive advantage.

Our grandfather’s business models were designed to minimize costs. Traditional
practices of economic development spoke directly to the managers of these
business models by emphasizing low-cost land, labor and capital, bundled into a
good "business climate". The legacy of recruitment strategies and the deep (and
for the most part unproductive) economic development incentives that fueled the
strategy still dominate most economic development organizations.

Beginning about 20 years ago, new business models began to emerge based on
networks. In the 1980s, Fortune 500 companies began to build global
manufacturing networks. With improvements in telecommunications and logistics,
supply chain integration emerged as an important strategy. In the 1990s,
companies started connecting with their customers. Customer relations
management emerged a critical strategy. In the mid-1990's, the Internet exploded
with the invention of the Web browser. The interactivity of the Web made pure
network business models, like Google and eBay, possible.

We are now faced with some clear realities:

1. Traditional economic development strategies based on low-cost competition
are no longer effective. Low-cost land, labor, logistics and capital are increasingly
available anywhere.

2. Sustainable competitive advantage for a company or a regional economy is
rooted in the capacity to innovate. Innovation leads to business activities that can
sustain a higher value-added per employee and lead to higher incomes in a
region.

3. Increasingly, innovation is taking place in open networks. Collaborative
innovation emerges within regional economies among clusters of related firms
and supporting organizations, like community colleges and research universities.
These clusters form complex regional innovation systems to share information
and resources.

4. To accelerate regional innovation, economic developers need to focus on
building these regional networks. These networks emerge around complex
projects that fall outside the four walls of any one organization.

5. Open regional networks become the key feature of competitive regions.
Regions with thicker collaborative networks learn faster, spot opportunities faster,
and align their resources faster. In short, they are more competitive. Building
more entrepreneurial regions comes down to developing these networks with new
tools and resources targeted to the needs of high growth companies.

6. Competitive regions also need more effective networks for building
brainpower. The skill demands of high-value jobs are increasing, yet our
educational system has only made marginal improvements over the past 20
years. At the same time, the Baby Boom generation is retiring and creating
serious skill shortages in professions demanding post-secondary education. The
connection between educational attainment and economic prosperity is
irrefutable. Regions that learn to innovate in building brainpower and boosting
educational attainment will prosper.

7. New approaches to regional leadership are also emerging. In the past
communities and regions relied on a handful of regional leaders capable of
projecting a "command and control" presents to lead a strategy. Now, the
responsibilities of regional leadership are far more distributed and shared.
Regional leaders can emerge from almost anywhere, and they are just as likely to
lead from the rear, as well as the front.

8. Colleges and universities play a number of critical roles, as regions develop
innovating networks. They are obviously a source of brainpower to fuel economic
growth. They also often have access to expertise and technologies useful for high-
growth companies. In some cases, they provide strong entrepreneurial resources
to accelerate the volume and velocity of startup companies. Alumni networks
can provide informal capital networks to support emerging companies. Equally
important, colleges and universities provide a neutral space where regional
leaders can convene to conduct the often difficult conversations needed to shape
an effective economic development strategy.

At Purdue University and I-Open, we are developing the models and tools of Open
Source Economic Development to enable economic developers to understand and
accelerate the development of open networks within their regional economies.
(We are also working on a close cousin, Open Source Workforce Development, to
create innovating networks among schools, post-secondary institutions, and
businesses.)

We have identified the five key types of networks that regional economies need to
prosper. We have developed new disciplines of strategic doing to replace the
slower, more expensive practices of strategic planning. (In complex systems like a
regional economy, strategy becomes a matter of following a handful of simple
rules. Strategic doing is a simple, but not easy discipline of following some simple
rules.)
We are also evolving new protocols for making economic development investment
decisions. We are designing new data tools for business cluster and occupational
cluster analysis, so economic developers can understand the deeper systems
driving their economies.

In the workforce development, we are focused on two areas: 1) improving the
productivity of re-employment networks within regional economies; and 2)
accelerating education transformation through open innovation networks and
strategic doing.

Our overall prosperity within a regional economy depends not only on our
capacity to innovate. We must also be able to move people and resources from
older less competitive business activities to higher growth, higher value
opportunities. Our current workforce development system was not designed to
handle the magnitude of transitions that we currently face. At the same time, our
traditional secondary education system is broken, and we need new models to
leverage our secondary schools to meet the needs of business.

There's a big agenda out there. We are the leaders we have been waiting for.