“Universities, Innovation, and the Competitiveness of Local Economies” Richard K. Lester, Industrial Performance Center, MIT, December 2005 Purpose:  Show how universities can support local economic development through their contributions to local industrial innovation processes.

Vigor and dynamism of local economies depends on the ability of local firms to adapt to changing markets and technologies by innovating successfully – continuously introducing commercially viable products, services, and processes. 

How do universities contribute to this innovation?  In a variety of ways:
• The most important contribution is education
• A major focus on tech transfer – patenting and licensing their intellectual property to local firms
• Help attract new human, knowledge, and financial resources from elsewhere and adapt it to local conditions
• Help integrate previously separate areas of technological activity
• Serve as a public space for ongoing local conversations

Key Finding:  The University role in local innovation processes depends on what kind of industrial transformation is occurring in the local economy. New industry formation, industry transplantation, industry diversification and industry upgrading are each associated with a different pattern of technology take-up and with a different set of university contributions.

Universities need a stronger awareness of the pathways along which local industries are developing and the innovation processes that are associated with those pathways.  They should seek to align their own contributions with what is actually happening in the local economy.

What must local communities do to deal with the challenges of globalization?
• Build infrastructure
• Improve educational performance
• Strengthen cooperation between public and private institutions

Capacities for Innovation – Ability to
• Conceive, develop, and/or produce new products and services
• Deploy new production processes
• Improve on what already exists

Patenting and licensing is only one of a number of pathways for the transfer of knowledge from universities to industry.  Firms may alternatively:
• Exploit recent university research results published in the open literature
• Use university scientists as consultants
• Collaborate with university scientists and engineers
• Recruit students from the leading university researcher in the field
It is often said that the best form of technology transfer is the moving van that transports the PhD form his or her research laboratory to a new job in industry.

Typology of industrial transformation processes:
I. Indigenous creation – local creation of an entirely new industry
II. Transplantation from elsewhere – importation of new industry from elsewhere
III. Diversification into technology-related industries – core technologies of an existing industry are re-deployed to provide the basis for the emergence of a related new industry
IV. Upgrading of existing industries – upgrading through the infusion of new production technologies or the introduction of product or service enhancements.

Universities may provide important cultural, intellectual, architectural, aesthetic, artistic, athletic, recreational and medical resources to their communities.

A university’s contribution to local innovation processes is only part – often just a small part – of its local presence.  But even within this relatively narrow frame universities have multiple forms of engagement that can be grouped into four broad categories:
• Education and Training – important contributions to local human capital development at the undergraduate, masters, doctoral, mid-career and executive education levels
• Adding to the stock of codified knowledge – This includes publication in the technical literature, patents, and software and hardware prototypes
• Increasing the local capacity for scientific and technological problem-solving – support for the creation and development of technology-based enterprises, such as venture mentoring programs, start-up clinics, incubators, contract research, cooperative research projects, faculty consulting, technology licensing, and access to specialized instrumentation and equipment
• Providing space for open-ended conversations about industry development pathways and new technological and market opportunities – university hosted meetings and conferences, standard-setting forums, forums for potential investors (pre-seed, seed, angel, and venture capital), business plan contests, industrial liaison programs, alumni networking activities, and visiting committees and curriculum development committees involving local industry practitioners

Even for global research universities, the economic impact of their activities is skewed towards their local economies.  For other universities the economic impacts are even more heavily skewed to the local.

The most important finding from our cases is that the university role in local innovation processes depends on which industrial transition pathway is being followed in the local economy. 

See Figure 2, p. 28, for a discussion of university roles in alternative innovation-led local/regional growth pathways.

It is important for university administrators to be clear about the goals they are seeking in the economic domain and how they intend to achieve them.  It is equally important for administrators to be clear about what they do not seek to achieve.  In this domain, as in others, universities cannot be all things to all people, and a failure to formulate and clearly articulate an institutional strategy for economic development risks underperformance in this domain, interference with other institutional goals, increased conflict within the university, and disappointed external constituencies. Finally, an economic development strategy is important because – at least within the decentralized, competitive American Higher Education system – universities compete with each other for faculty, students, and research funds.  Competing successfully depends partly on being able to do the same thing that rivals do only better, and partly on being able to differentiate oneself from one’s rivals.  A well-designed, effectively implemented strategy for engaging with the local economy can contribute to both goals.

Findings from this study regarding how universities can strengthen local innovative capabilities:
1. Universities have multiple ways to contribute to local innovation processes directly.
2. In most cases, the indirect support provided by universities for local innovative processes is likely to be more important than their direct contributions to local industry problem solving.
3. The conditions, practices, and attitudes that lead to successful technology take-up and application in local industries depend on the specific characteristics of the industry and its development pathway.
4. Universities should approach their role in local innovation processes strategically.
5. A strategic approach to the local economic development role is compatible with the pursuit of excellence in the university’s traditional primary missions in education and research.