The Economic Context: That

was Then. This is Now.

Calibrating the

Commonwealth’s Innovation

Capacity

Setting the Table for a Science and

Technology Strategy Update

What’s There To Talk About?

Same As It Ever Was

The Approach and the Economic and

Innovation Context

Fundamental Strategy Issues

Incremental versus Transformational

Do You Go Wide or Deep?

The Perils of Success

A Disclaimer

“In the history of public discourse, never has a term moved

from obscurity to meaninglessness so quickly without an

intervening period of comprehension.”

Robert Reich on “competitiveness”

“Same as it ever was, same as it ever was, same as it ever

was…..”

The Talking Heads, “Once in a Lifetime”

Same As It Ever Was

Innovation is something newly put to use in markets

New value in the economy allows firms and people to earn more which in turn raises incomes and generates wealth

Innovation also describes the process of creating new value in the marketplace

A process driven by knowledge, know-how, creativity and capital

Its Always Been About Innovation

TBED, KBE, S&T, Creative Economy Strategies are all Innovation Strategies

Approach

Economic Context The Economy Then and Now

Innovation Capacity Assessment

Entrepreneurial Energy and Access to Capital

Progress Report on the Original Strategy: What Have We Learned?

Science and Technology Strategy Update Lessons and Considerations Moving Forward

Option Ranges

Strategy Draft

The Economy Then and Now FindingsThen (1998 - 2001)

Shift from historical staples and non-durable manufacturing to

durable/heavy manufacturing

Good News: Increases in average manufacturing wage due to

automotive industry gains (many of these jobs defined as high tech)

Bad News: KY ranked 48th in average high tech wage and by 2001

vulnerability concerns for automotive industry

Business startup rates well below national average

Very limited profile in knowledge-based industries such as

information technology, pharmaceuticals and bioscience

Transportation, logistics and warehousing viewed as

prospective bright spots

The Economy Then and Now Findings

Now (2002 - 2010)

Manufacturing - the largest non-retail sector and the highest paying sector - lost a lot of jobs. Transportation equipment led (14,000 jobs)

Who grew?- Government, Heath Care, Professional,Scientific & Technical Services (PST), Mining & Finance PST: Computer Systems Design, Management Consulting, Other PST

Health Care: Ambulatory Health Care led by wide margin followed by Hospitals and Nursing and Rest Care

Who did well in the face of the national downturn? Transportation Equipment - in spite of a 25% job loss the sector still

managed a slight gain in employment concentration relative to US

Water Transportation

Couriers and Messengers

Mining

The Economy Then and Now Findings

Now (2002 - 2010)

High Tech Presence Most pronounced high tech presence in computer & IT-related sectors or in

IT-driven sectors.

Computer Systems Design (16,000) and Architectural and Engineering (13,500) led the way.

Also in the mix: Wired Telecommunications, Data Processing and Hosting, Aerospace, Computers and Peripheral Equipment Manufacturing

Fastest Growing

Aerospace, Other Information Services, Other Telecommunication Services, & Pharmaceutical and Medicine Manufacturing

Highest Paying

Computers and Peripheral Equipment Manufacturing

All of the sectors (4 digit NAICS level) were under-represented in Kentucky’s economy compared to the rest of the country.

The Economy Then and Now Findings

Now (2002 - 2010)

High Tech Presence

Areas of Specialization Compared to US Economy

Audio and Video Manufacturing

Computers and Peripheral Equipment Manufacturing

Data Processing and Hosting

All lost jobs during the period

Sub-Sectors On-The-Move: Gaining Concentration Fast

Drilling down a bit further ( 6 digit NAICS)

Other Computer Related Services (software installation, disaster recovery),

Process, Physical Distribution and Logistics Consulting

Display Advertising.

These three sectors account for 400 companies and over 6,500 jobs.

Innovation Capacity

Talent Profile

Inputs to Higher Education

Upper echelon in science, improving in math (grades 4 & 8) and in upper half in fiscal effort for elementary and secondary

Higher Ed S&E Degree Production

Bottom quartile rankings for undergraduate and graduate S&E degree production but second quartile and growing for its percentage of advanced natural science and engineering degrees as a share of all degrees

Knowledge-Based Economy Workforce

Consistently ranked at or near bottom for percent of people with high school or college degree but 39th for percent with advanced degree

Bottom quartile for S&E degrees deployed but for computer specialists on verge of moving up to next quartile

Retention and Attraction - Who leaves? Who stays?

For net exporter or importer of S&E degrees Kentucky hovers around break-even (3rd quartile)

A “low magnet, high sticky” state

Innovation CapacityIndicators and Infrastructure

Innovation Indicator (Metrics) Findings

Normalized Non-Industry R&D (42) and Industry R&D (40)

levels are low.

Low normalized SBIR ranking but based on stale data (2006)

Many “pre-seed/seed capital poor” states rely on SBIR; KY’s

aggressive Phase 1 and 2 match program is major asset.

In spite of low academic R&D expenditures rankings KY has

obvious strength areas in biomedical sciences(24th) and life

sciences (26th).

Innovation CapacityIndicators and Infrastructure

Innovation Infrastructure Findings Significant level of innovation-targeted public financial resources

Advanced soft innovation infrastructure

The ICC network is a major asset - geographic reach to function as a distribution system into all the state’s local economies for innovation-targeted resources and services that originate at the state level.

It would not be surprising if these programs and activities induced more private seed and venture capital players into Louisville, Lexington (and perhaps northern Kentucky) markets.

There may well be more formal networking opportunities for the constellation of business incubators sprinkled throughout the state as well as between the ICC program-related centers.

Innovation-Infused Entrepreneurship

Good News Kauffman and Milken numbers taken together indicate a strong and

surging entrepreneurial climate in Kentucky.

National entrepreneurial ranking of 25 with a ranking of 7th for growth in activity over the last decade

Venture capital investment level ranking hovering around 40 BUT 6th in venture capital investment growth 2008-09 (most recent year available data)

Upsurge in both is probably not a coincidence

Bad News Sharp decrease in high tech presence for both employment and

payroll

2004: employment 27th, high tech payroll share 22nd

2009: employment 45th, high tech payroll share 47th

Risk Capital in The Commonwealth

Although it has a low VC investment level ranking, KY does not find itself buried in the lowest quintile like a number of predominantly rural (often southern) states.

With a group of private self-described VC providers (19, not counting the Cincinnati market) and its strong innovation infrastructure - including financing, KY has a good platform to build from and appears to be heading in the right direction.

KY Private VC Providers

Small to very small by institutional standards

Open to early stage deals with focus tendency toward medical, medical devices, biomedical and health care

Based on their web sites, comfortable as lead or co-investor but co-investing with each other not apparent (not networked)

Moving Forward

Fundamental Strategic Considerations

Incremental versus Transformational Strategies and

Targets

Where on this continuum do you invest public money?

Incremental will tend to be led by industry with universities in a

supporting role.

Transformational will tend to feature universities in a lead role -

especially in the early years.

Do We Go Wide or Deep?

Let a thousand flowers bloom versus picking winners and

funding superstars

Certainly has implications for Kentucky EPSCoR

The Perils of Success

If a new plan begins to work at scale, does Kentucky have:

The mix of talent not only to start but to grow companies

The culture(s) within and across university departments, colleges and campuses to

Support entrepreneurial behavior

Combine or link complementary talent and R&D resources to address new and emerging large technological opportunities

Access to risk capital past the earliest stages to keep high impact, high growth startups in Kentucky

The companies to license university IP when the qualified flow rate increases

This also begs the in-state versus out-of-state licensing issue for university technology transfer operations

Too many pieces of music finish too

long after the end.

Igor Stravinsky

Next slides for discussion session

4 Strategic Considerations

1. Which strategies and associated programs still make sense and

which should be altered or dropped?

2. Within strategies which programs are functioning at a high level

and well positioned for the next five years.

3. Are there new and/or significant gaps in strategies or program

responses that were not on the radar in 2000 that need to be

addressed?

4. Based on the findings to date, are there new opportunities and

challenges that beg new strategies and program actions?

Fomenting Discussion

As a starting point, are these the right key strategy areas? If not,

what would you change?

Enterprise Development

Manufacturing Modernization

Technological Infrastructure

People

Strategic Actions From the Last Plan

Pension Fund Investment

Authorization

R&D Vouchers

Kentucky Commercialization

Fund

Entrepreneurial Policy Audit

Manufacturing

Modernization System

Regional Technology

Service Corporations

Kentucky Science and

Engineering Foundation

Strategic Technology

Initiative

Dedicated Trust Funds for

Research

Premium Compensation for

Math and Science Teachers