Brookings report details how different industries innovate

Cities interested in bolstering their economies through innovation should look beyond the typical formalized processes. 

Instead, a new paper from the Brookings Anne T. and Robert M. Bass Initiative on Innovation and Placemaking pushes economic development leaders to recognize that different types of firms innovate through distinct actors and both market and non-market channels. As a result, regions require industry-tailored innovation-support strategies.

In “How Firms Learn: Industry specific strategies for urban economies,” Brookings Senior Policy Analyst and Associate Fellow Scott Andes examines how manufacturing and software services firms develop new products, processes, and ideas. He illustrates three archetypal innovation models, which correspond to three industry types:

• Classic Industries, such as pharmaceuticals, work primarily with universities and other traditional innovation actors and use market channels, including contracts and licensing agreements, as sources of invention.
• Unconventional Industries, exemplified by small-and medium-sized manufacturers, primarily source innovation from clients and suppliers and pursue informal innovation channels, such as joint research agreements and supplier contracts.
• Mixed Industries predominantly rely on non-traditional actors but formal market channels to acquire innovation. Example industries include semiconductors, chemicals, and textiles.

“In order to build strong regional economies, urban economic development leaders should stop carbon copying other cities’ approaches and instead align local economic strategies with the particular ways their dominant industries innovate,” Andes said.

Specifically, public, private, and institutional stakeholders should develop strategies that:

• Recognize that all industries can be innovative, not just software and medical technology startups, and identify the particular innovation pathways utilized by local firms.
• Eliminate institution-wide technology transfer practices at research universities that focus on licensing and allow specific departments and centers to cater to different industries.
• Establish partnerships with non-research colleges and universities to support firms seeking short-term process innovation.
• Modify the traditional accelerator model to respond to the innovation needs of startups in nontraditional growth sectors.
• Link designers, engineers, and software developers in urban centers to manufacturing supply chains in the surrounding regions.
• Advance appropriate place-based strategies to increase the density of innovative firms and support organizations.

Such industry-contextualized approaches will allow for urban economic development resources to be used to their best advantage and firms and other innovation actors to maximize learning and economic power.

Sources of innovation and channels by which acquired, by industry. Source: Author’s analysis of Arora, Cohen, and Walsh (2014) and Graham (2009). Click image to enlarge.