Innovation Heat Maps and the Mystery of Regional Economic Development

by Melba Kurman

Innovation Heat Maps and the Mystery of Regional Economic DevelopmentRegional economic development is a buzzword these days in discussions about our faltering economy. Even more popular is the concept of an innovation economy that somehow U.S. universities will fuel with their brainpower and innovative technology. Both of these critical but slippery goals — regional economic development and an innovation economy — are usually presented in a fuzzy way without solid data or convincing strategies on how we will get from here to there. The consulting firm McKinsey, famed for its creative approach to looking at problems, partnered with the World Economic Forum, crunching large amounts of economic data to find out exactly what essential ingredients are needed to grow and sustain regional innovation hubs. The result is an “Innovation Heat Map” that places cities and countries on a bubble chart that predicts their innovation-based economic future, sort of an “innovation health index.” Working with 700 variables including business environments, government regulation, and the number of patent applications, McKinsey found patterns in the data that may help us better understand why some regions fail and some succeed in developing innovation-based economies.

The article is here and includes a picture of the innovation heat map.

McKinsey’s analysis indicates that innovation hubs develop along three primary paths:

  1. Heroic bets: this is when the government leads the way by focusing on a specific industry sector and providing substantial support in the form of subsidies, tax breaks and direct investments.
  2. Irresistible deals: regions that have a significant local advantage (e.g. cheap labor) are able to attract established companies. To be successful, the location builds on this base to move up the value chain from manufacturing or services to design and innovation.
  3. Knowledge oases: this is where university towns come into play. These locations have a critical mass of local, specialized talent who are able to translate scientific breakthroughs into commercial successes.

Not surprisingly, their analysis shows that while the critical drivers of innovation vary from sector to sector, the single common factor in play across all industries is the availability of talented people. So that’s not a surprise but still leaves us with a lot of unanswered questions.

I think universities are put under too much pressure to prove their economic value to their regions. Maybe a data-driven analysis could help state funding bodies set more realistic expectations of what university technology can and can’t do for the local economy. A data-driven model would also enable people to play with variables to see the effect of proposed changes. I wonder whether McKinsey would let universities take a look at the inner workings of their innovation heat map model…

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Melba KurmanMelba Kurman writes and speaks about innovative tech transfer from university research labs to the commercial marketplace. Melba is the president of Triple Helix Innovation, a consulting firm dedicated to improving innovation partnerships between companies and universities.

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  1. The work by McKinsey demonstrates that slicing data can be interesting and create graphics that seem meaningful until the data is truly parsed. Here’s one example:

    In the “heat map” London is represented in the lower middle quadrant. Relatively low diversity, relatively low momentum, and a moderate sized cluster. Immediately adjacent to London is Madison Wisconsin, with basically the same scores.

    As a person who has been in both cities within the last few months I can assure you that London is far more innovative, and will remain far more innovative, than Madison. Madison is rated as highly as it is because of the capability of the university there to generate patents and intellectual property. However, Madison is land-locked, has little traffic beyond the academic environment and isn’t a center of world trade, finance or language. London, conversely, is an international cross roads where trends originate. For some reason it does not generate a lot of patents, but between the two there is no comparison. People will flock to London, while they will attend college in Madison and then move on to other locations. This isn’t to say that Madison isn’t attractive, but to place the two side by side on a heat map indicates the data are inaccurate or don’t say anything meaningful.

    Beyond this interesting insight, I was unable to find any data on innovation clusters in Asia outside of Japan and Korea. Apparently India, Hong Kong, Malaysia, Indonesia, Viet Nam and Thailand don’t have any innovation. Even though the populations of these countries are growing and the influx of people and ideas is increasing rapidly, over say older population centers in Europe, the data indicates you are more likely to be innovative in Vienna than in Kuala Lumpur. This is rear-mirror driving at best – let’s look forward to the possibilities, not backward to history.

  2. While it might be true that too much pressure is being placed on certain universities to prove their value to the regional economy, it’s also true that this isn’t a universal. If it takes pressure on the university to make the technology generated by their professors and graduate students suitable for transfer, then I say so be it. Universities shouldn’t be as interested in “owning” a professor and her or his research as in advancing knowledge, even if that knowledge results from the practical application of academic ideas within a real-world marketplace.

    Another nit to pick with an article that I basically liked: the value of a university to innovation in a community isn’t completely tied up in technology. In fact, the poets and the musicians might have a great deal to contribute to innovation if only interaction patterns made for an open space where the collision of ideas and cultures across disciplines made for truly something new.

    Basically my experience with innovation in business and government leads me to conclude that innovation can be taught and caught, and that there are many ways to spur innovation. But here are some ways to tamp down innovation: dumbing down the population, a news media to lazy to dig up any facts, a society that values slogans as opposed to thinking, and gadgetry for the sake of being cool more than to increase communication and knowledge.

    So I do believe in an innovation economy and don’t apologize for that. It’s just that we must define innovation broadly enough and nurture it widely enough to make a difference.

  3. Mentioned here on Braden’s site, and elsewhere online has been our 2thinknow Innovation Cities Index: https://www.innovation-cities.com/innovation-cities-top-100-index-top-cities/

    Our approach is not based on patents, and takes into account many factors raised in criticism of other rankings. to innovation metrics is our 31 segment approach to measuring conditions for innovation that is a more broad-based ranking of cities.

    Here’s the 31 industry and community segments:
    https://www.citybenchmarkingdata.com/city-performance-metrics/industry-and-community-segments

    This covers more industries, and recognizes innovation beyond patents — or the corporate clients of firms like McKinsey. It also includes other factors not included because of their patent and research focus. This recognizes what many of us know as innovation in other sectors, and fertile focus for the innovation industry.

    As our framework undergoes adjustment each year, and will continue to evolve and grow, any member of the innovation industry is welcome to email us any time (https://www.2thinknow.com/feedback) and tell us where they feel we’ve got it right in the classification and ranking, and where they feel a city is under-rated.

    Obviously this is 47,000 points of data, which is costly to develop so the underlying data is commercially available, but in the longer-run we’ll be providing more free resources.

    Keep innovating

    Christopher Hire
    Executive Director
    2thinknow ICP

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