The knowledge economy

Where innovation comes from is changing significantly

Most of us are aware that we are not just in a global economy, but a knowledge economy as well. Yet, traditional metrics used by government entities at the local, state and federal levels remain wedded to metrics that were instituted in the first half of the last century, when tangible assets were the sole basis on which to judge the health of our economy. But a lot has changed since then and it is time for us rethink what is most important to business success.

Arguably, the new era of knowledge driving economic opportunity goes back to the emergence of the microelectronics industry on the heels of the 1947 discovery/invention of the transistor by William Shockley and his colleagues at Bell Laboratories. However, I think the knowledge economy truly began with a 1970 paper by Herbert Boyer and Stanley Cohen demonstrating the feasibility of genetic engineering. In a flash, Genentech, the first biotechnology company was founded and marked the beginning of the biotechnology industry. Together with the ongoing growth in information technology, biotechnology and other new research-intensive industries, such as nanotechnology, are continuing to drive the economy today.

Of course, many “new” ideas had previously led to profitable business ventures, but what distinguishes the current environment is the speed with which discoveries from R&D laboratories are quantified in a market environment and how much more frequently they are coming from universities. What is more, every business, every industry, is increasingly high-tech and depends not just on incorporating new technologies, but also on the knowledge and skills of its people to a degree never before seen. Indeed, the lament we hear from today’s CEOs is that their most important assets “go down the elevator and out the door every night.”

Success is no longer just dependent on discoveries made within a company. The age of “open innovation” is upon us as well, meaning that companies are in constant search for relevant ideas, regardless of where or by whom they might be developed. Procter & Gamble, for example, is now expecting that half of all of its innovation will come from outside the company. There are even specialty companies, such as InnoCentive in London and Massachusetts, that crowdsource solutions under contract. And right here in Northeast Ohio, the firm of Nottingham Spirk has worked successfully with numerous companies to spur their innovation and product design in ways that has created significant added economic value.

All of this means that while physical assets remain an important component of economic measures, they no longer suffice. New ways to think and account for intangibles must be found. While not every idea has value, nor any patent, a company’s asset portfolio must increasingly include its knowledge base in the form of talent, relevant R&D networking and intellectual property.

On a practical basis, businesses in Northeast Ohio should be increasingly aware of their own knowledge base, augment their talent, and seek ideas from collaborators and competitors alike. A good way to begin is perhaps also to seek advice from the open innovation marketplace in our region.

Luis Proenza serves as a Distinguished Fellow at the U.S. Council on Competitiveness and co-chairs the Innovation Policy Forum as a member of the Science, Technology and Economic Policy Board (STEP) of the National Academies of Science, Engineering and Medicine.