2011 KIEC - Assessing Changes in Kentucky’s Economy and Innovation Capacity

Setting the Table for a Science and Technology Strategy Update

The Economic Context: That w a s T h e n . T h i s i s N o w.

Calibrating the C o m m o n w e a l t h ’s I n n o v a t i o n Capacity

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 Findings Then (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.  



Fastest Growing 



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

Highest Paying 



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

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 Capacity Indicators 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 Capacity Indicators 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 innovationtargeted 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