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GE2-135-I

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CITIES, INNOVATION AND TALENT
Originally written by Professor Borja Santos Porras at IE University in partnership with Fomento San Sebastian
Original version, July 23, 2018. Translated, November 5, 2018. Last revised January 17, 2018 (LR).
Edited by IE Business Publishing, María de Molina 13, 28006 – Madrid, Spain.
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©2018 IE. Prohibited the total or partial reproduction without the written permission of IE.
This document is one of the 15 copies authorized for use only by professor Andrea de Paramo in

THE CITY, THE IDEAL ECOSYSTEM FOR INNOVATION AND TALENT

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Innovation has taken on special importance today, when rapid technological changes are generating
a disruptive paradigm change that affects all agents of society. According to Harvard professor
Ricardo Hausmann, the main component of technology is know-how. The greater and more unique
a territory’s knowledge, the more complex its economy and therefore the better its economic
development prediction 1. Therefore, innovation has become an inevitable attitude for knowledge
generation, job creation, and finding solutions that either add value or help resolve new global
problems.

Innovation is dynamic and multidisciplinary, and therefore requires ecosystems in which various
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factors converge for the generation of ideas, products, methods or processes as well as foster
entrepreneurship. Cities have become emerging spaces in which these factors converge in an
innovation ecosystem. With over half of the world’s population living in urban spaces, cities - with
their higher density of people, services and products - foster a greater exchange of resources while
acting as knowledge generators and places with a more attractive and dynamic lifestyle for
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entrepreneurs. For this reason, there has been a change in trend, and the innovative technological
centres are moving from suburban parks to the cities (MPI, 2014). The paradigmatic case is San
Francisco, which now welcomes more financial venture capital for entrepreneurship than Silicon
Valley (World Bank, 2015). The same occurs in New York (second recipient of financial capital for
entrepreneurship in 2013 – Endeavor Insight 2014), and a large number of cities that have become
complex innovation ecosystems.

In these urban ecosystems, the importance of human capital is vital. Human capital enables
innovation and productivity to be increased and therefore enables competitiveness. Human capital
is more efficient when there is an ecosystem that nourishes it and takes advantage of it so that its
effect multiplies. If technological innovation is being sought, talent and human capital is a must.
Therefore, the prestigious Global Talent Competitiveness Index (GTCI, ADECCO/INSEAD) has
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included a specific index for cities since 2017, understanding their significant emerging strategic role.

WHAT IS TALENT AND HOW IS IT ASSOCIATED TO HUMAN CAPITAL?

Human capital refers to the skills and knowledge accumulated by the individuals of a society and its
organizations, which is essential in a knowledge economy (Carolina Cañíbano Sánchez, URJC).

Talent is considered to be any person who has the capacity to produce a significant difference in the
current and future of the performance of the organization (Lynne Morton, 2005). This concept is
associated with the generation of value, not only with skills, such as intelligence or aptitude.

1
http://atlas.cid.harvard.edu/

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CITIES, INNOVATION AND TALENT GE2-135-I

We could divide the keys of talent into the following four variables:

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 Skill (Know-how): Tangible and identifiable (not to be confused with potential)
 Capacity (Ability to do): Turn it into value
 Attitude (Desire to do): Willingness and motivation
 Circumstances (Be allowed to do): certain external conditions

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The Human Capital Index published by the World Economic Forum predicts human talent as the
most important factor to achieve growth, competitiveness and innovation in the 21st century.
Particularly in a more volatile, uncertain, complex and ambiguous world 2, critical thought and capacity
to resolve complex problems is essential.
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WHY IS TALENT IMPORTANT FOR THE INNOVATION ECOSYSTEM AND

ECONOMIC GROWTH OF A CITY?
This document is one of the 15 copies authorized for use only by professor Andrea de Paramo in

The existence of human capital with talent is associated with different advantages for a territory:

o
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More human capital with talent, more productivity and innovation

As knowledge is accumulative, more human capital with talent means that knowledge can
grow exponentially. The conditions to accumulate more human capital arise when it is
already there. Individuals are more productive when they are immersed in an atmosphere
with high human capital.

o The higher the educational level, the greater the possibility of increasing the productivity of
the available technology, technological diffusion and the capacity to adapt to innovation
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(Nelson and Phelps), which influences production and innovation.

o More highly educated individuals are in better conditions to discriminate between good and
bad ideas, resolve problems and face entrepreneurial activities with less fear and in such a
way that they further foster innovation in companies and are more willing to assimilate
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innovation from outside (Carolina Cañíbano Sánchez, based on Nelson and Phelps).

o A shortage of qualified human capital may be detrimental to innovative dynamics, or in other

words, the development of new products and new production processes (Schenker and
Brady, 1989).

o Innovation is an activity that is markedly intensive in human capital (Fernández-Rodríguez &

Giménez, Zaragoza University).

 Human capital is essential for economic growth

o In the introduction to the economic growth models known as growth accounting, growth rates
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of human capital (educational levels) were identified as one of the economic and differential
growth factors between countries.

o Ricardo Hausmann, director of Harvard University’s International Center for Development,

identifies the know-how of a region as a predictor of economic development. This know-how
depends essentially on human capital.

 More human capital, more positive externalities

o A more qualified and talented population extends the innovation generation possibilities and
the possible social and economic repercussions.

2 http://www.oxfordleadership.com/leadership-challenges-v-u-c-world/

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CITIES, INNOVATION AND TALENT GE2-135-I

o A more qualified and talented population extends the possibilities of entrepreneurship and
creation of new companies, products or processes.

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o Due to increased productivity and competitiveness, salaries are better.

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Human
Capital
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Competitiveness
and Growth
This document is one of the 15 copies authorized for use only by professor Andrea de Paramo in

Innovation Productivity

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WHAT ARE THE NECESSARY ASPECTS FOR A CITY TO HAVE AN URBAN
INNOVATION AND TALENT ECOSYSTEM?
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The following model represents and describes the five essential dimensions for an innovation
ecosystem: economic resources, human capital, policies and government, infrastructure and finally,
networks, which connect them all.
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