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Innovation and Entrepreneurship

  • Date: 09/21/2011
  • Author: Dr. Luis M. Proenza (President, The University of Akron)
  • Location: Akron Chapter, Institute of Management Accountants, Tangiers Restaurant
  • Thank you, Steve, for that kind introduction, and for the invitation to join you this evening.

    Before we begin, I want to recognize:

    • Mr. Nick Sucic, vice president and controller of the Davey Tree Expert Company.
    • Dr. Norm Meonske, professor emeritus at Kent State
    • And all of you who give so much of your time to the Akron Chapter of the IMA
    • Mr. David Cummins, our university’s Vice President of Finance and Chief Financial Officer
    • Dr. Il-Woon Kim, one of our professors of accounting and international business, whom I believe has…persuaded…several of his students to also attend.
    • And finally, although they are not represented here tonight, I also wish to acknowledge the good work of our faculty in Summit College, who no doubt prepared some of you for the CMA certification exam, either through classes on our campus or at various other locations in corporate settings.

    At a recent commencement ceremony, you must understand we have several ceremonies each spring, I told the graduates of a Kauffman Foundation report that stated "The primary determinant of which path our country will take. . . is our level of entrepreneurial activity. In terms of job creation, innovation and productivity, entrepreneurs drive growth.”[1]

    I followed that with the observation that in this highly competitive, knowledge-driven, economy, you may not have to be an entrepreneur to succeed – but you will have to work like one.

    It was a good, and even better message for business majors…unfortunately, at that particular commencement exercise there weren’t any there. The business college had its commencement the night before. I was speaking to graduates in education and health and human services. And although that message was just as appropriate for them, more than a few seemed to be deflated by my choice of the topic and the use of the word entrepreneurship.

    And that prompts the question: “Why might that be the case?”

    Why indeed are so many bright and ambitious people intimidated by that concept of entrepreneurship? I believe one answer is that entrepreneurship happens to involve risk, and far too many people equate risk with anxiety. But we should remember…risk and anxiety are two quite separate conditions, and I want to share with you a simple story will illustrate that point:

    The Surgeon General tells us that cigarettes kill more than 440-thousand people in the United States alone each year, [2] and automobiles kill more than 30-thousand people per year. [3] But, no one seems to be afraid of cigarettes or automobiles.

    However, according to the Deputy Director of the National Institutes of Health, everyone is afraid of sharks.

    It is estimated that there are, perhaps, 70 shark attacks worldwide each year. [4] The National Center for Health Statistics doesn't even keep a record of shark attacks because there are so few. (They know how many people are killed by bee stings, but not by shark bites.) [5] The best guess is that sharks kill two or three people each year in the United States.

    But, the fact is that if you went to a crowded beach and shouted "shark" - everyone would race out of the water, jump into a car, light up a cigarette, and drive home!

    That, ladies and gentlemen, is the difference between anxiety and risk. When reason and calm prevail, and people can tell the difference the between risk and anxiety, there truly is much that can be accomplished for the common good.

    Risk is inherent to entrepreneurship.

    Entrepreneurship drives innovation.

    And innovation is fundamental for economic growth.

    As Jeremy Seigel, professor of finance at The Wharton School of Business once observed, “Economic growth is based on advances in productivity, and productivity is based on discovery and innovation.” [6] And I would add parenthetically, if you don’t believe that, look what’s happening to manufacturing in Northeast Ohio. Contrary to political opinion, it’s growing by leaps and bounds, but it’s growing by productivity not by job growth.

    So this evening I want to take a few moments to consider where innovation has taken our nation, its effect upon global and regional economies, and how The University of Akron has leveraged innovation and entrepreneurship to become a very active agent for economic development.

    Now, you in the IMA are among the most financially sophisticated audiences that I have had the pleasure to address, I won’t try to educate you in the subtleties of your profession.  My goal tonight, is a little bit simpler, it is to provide information and arguments that you may use with friends and coworkers, to impress upon them the value of entrepreneurship and innovation.

    Earlier I said the mere mention of the word “entrepreneurship” was enough to disengage some members of a recent audience. What I should have enticed my audience with is by saying I want to talk about the ‘birds and the bees.’ About sex!

    Surely, all of you had this discussion with your parents, or may have recently had to use it with your children.

    Of course, in today's knowledge economy, chances are your children may have a thing or two to teach you!

    Please understand that nearly every economist agrees that the creation of new technological knowledge through research is our most direct economic avenue for acquiring added value.

     

    When that new knowledge is quantified in a market environment, it creates fuller employment, capital formation, growing profits, and surpluses for reinvestment.

    In other words, it is from research that new companies are born; that new jobs are created; it is from research that the economy expands and new wealth is created.

    This audience may not agree with me, but I believe that how new wealth is created is not a generally understood principle in our society, or indeed in most economic development circles. Go to almost any chamber of commerce across the country, and they clearly do not understand. They believe the only avenue for economic development is to go someplace else, steal their cookies, bring them back and forget about it. That’s fine in that it does add some measure of economic activity to our communities, but the ultimately result is that it’s a zero-sum game. It’s what Michael Porter of Harvard University would call locally traded activities, when we need globally traded activities to be successful.

    So, I would ask you, does anybody really know how new wealth is created? In simplest terms,, new wealth is created because research begets new companies!

    Sex is to babies as research is to new wealth creation.

    In both cases, conception is the common element.

    Even a cursory review of the history of the United States reveals the role that research and commercialization have played in building America’s global economic leadership.

    Americans invented the light bulb, the airplane, credit cards, the integrated circuit and the Internet.

    American ingenuity transformed agriculture with innovations ranging from the self-polishing steel plow and the cotton gin to today’s genetically modified crops and livestock. Agricultural productivity soared by such a scale that the percentage of the U.S. population involved in farming as a living dropped from 50% in 1899, to less than 2% today. And by the way, that’s exactly the same thing that’s happening in manufacturing.  Yet food is more abundant now than ever. In fact the average American family in 2006 spent about 10% of its budget on food, whereas in 1900 it was almost 50% of the budget of every American family. [7]

    Even when we aren't inventing something, it seems we Americans are always finding new ways to apply the discoveries others have made.

    We didn't discover penicillin, the Brits did. But during World War II Americans figured out how to produce it fast enough and cheap enough to make it available globally.

    We didn't invent the internal combustion engine, or the automobile, but Americans perfected the assembly line and mastered mass production with world-changing results.

    When you factor in the discoveries that ushered in the computing and wireless age, the effects are even more breathtaking.

    In 1965 Gordon Moore, a co-founder of Intel, predicted that processing power would double every 18 months, with corresponding price decreases. That prediction, which has come to be known as Moore’s Law, has taken us from the era of mainframes to PCs to what are today’s BlackBerrys and now iPads. And we still can’t see the end of that progression.

    Smaller, yet more-powerful computers have enabled innovative companies to introduce networks, linkages among networks, and the Internet. And all of that creates immense new value.

    How much new value? Mike Ruettgers, former executive chairman of EMC Corporation, noted that the IT industry has demonstrated tenfold-increases in wealth creation at each major stage of its evolution.

    It rose from $80 billion of wealth creation in the mainframe era to $800 billion in the wave of personal computers, to what is now rapidly approaching $8 trillion in the network/Internet era.[8]

    By leading the way, Americans have carved out a competitive position for themselves. It has been the envy of other nations for more than a century. But as you well know, envy and competition inevitably produces rivals.

    So here we are, at the dawn of the 21st century, and we find ourselves at a time when the primacy that America has long enjoyed around the world is increasingly challenged by the very same forces of technological innovation that America itself unleashed.

    We have brought about an Age of Globalization in which the peoples and markets of the world are moving increasingly towards each another. In this global, information-driven economy, the capacity to innovate and commercialize dictates economic growth. And in case you haven’t been paying attention, other nations have learned how to play this game, very, very well.

    In 2005, a landmark report was compiled to assess America’s ability to compete and prosper in the 21st century.[9]

    It was developed by a committee of 20 distinguished American CEOs, university presidents, scientists and many others.

    The committee chair was Norm Augustine, a retired CEO of Lockheed Martin and former Under Secretary of the Army, and someone with whom I was privileged to serve on the President’s Council of Advisors on Science and Technology in the most recent Bush Administration. The committee titled the report, “Rising Above the Gathering Storm,” and as you can infer, their findings were a little bit daunting.

    Ladies and gentlemen, that was six years ago. In light of the changes of the last six years, Mr. Augustine was asked by the National Academies to update the report. Just this past year, the academies released a new report entitled “Rising Above the Gathering Storm, Revisited.”[10]

    I encourage you to read it. It is quite well done, and it is sobering. The executive summary concludes with these words:

    “. . . in spite of the efforts of both those in government and the private sector, the outlook for America to compete for quality jobs has further deteriorated over the past five years.

    “The Gathering Storm increasingly appears to be…a Category 5.”[11]

    The authors point out that “…in the past, citizens of any one nation generally had to compete for jobs with their neighbors living in the same community…in the future they will increasingly be required to compete with individuals who live half-way around the world.”[12]

    And they offer this example to illustrate how challenging this environment is.

    You are presented with two job candidates. Candidate “A” ranks in the lower quartile of his high school class, but he expects to be paid $17 an hour and receive an additional one-third more in benefits. Candidate “B” speaks two languages fluently, ranks near the top of his class, and is eager to work for $1.50 per hour.[13]

    Which candidate would you hire?

    I’m reminded of the story of two corporate executives flying across the ocean in the first class cabin. They’ve begun to relax, and one says to the other, “You know, I’ve finally figured out what this global economy is all about.” His companion says, “Well tell me, I’m still working on that.” The first executive says, “I’m finally going to get paid for what I’m worth. And I’m scared to death about it!”

    It’s a little bit daunting in that regard. Just last week, several newspapers reported about the results of the latest organizational and economic development report. They noted that the U.S., which 30 years ago was the world’s most educated country, is now easily in the middle of the pack. That is a subject that we as a society have to be concerned about.

    The Gathering Storm committee concludes that America’s best, and perhaps only, hope to remain a dominant player in the world economy are those reliable twins, innovation and entrepreneurship. Listen to these final words from the committee report:

    “We must be the first to acquire new knowledge through leading-edge research;

    “We must be the first to apply that knowledge to create sought-after products and services, often through world-class engineering;

    “And we must be the first to introduce those products and services into the marketplace through extraordinary entrepreneurship.”[14]

    Why through entrepreneurship? Because, as Rich Karlgaard, publisher of Forbes Magazine so eloquently explained, “…entrepreneurs are not just a cute little subsector of the American economy. They are the whole game. They will give us tomorrow’s Apples (– the corporation, not the fruit –) and the multiplier effect of small businesses and exciting new jobs that go with them.
    “Entrepreneurs are necessary to keep our large multinationals on their toes. It is no coincidence that the entrepreneurial flowering of the late 1970s forced a managerial revolution in large companies during the 1980s and 1990s. Without Steve Jobs, there would have been no Lou Gerstner to reinvent IBM in the 90s. Entrepreneurs like Steve Jobs make everyone else better.”[15]

    Even within vast organizations, it is vital to think entrepreneurially…to challenge existing processes and procedures…to not only find a better way of doing things, but to put it into practice…and then to look for more. I can think of no other industry more in need of entrepreneurial thinking than my own.

    Colleagues, you have seen a lot of changes over the last decade in many industries. We have seen what’s happened in the newspaper industry, what’s happening to the publishing industry right now with the digital revolution and e-books, what’s happening to the music industry, again due to the digital revolution. In so many cases we’ve seen tremendous change.

    There are two industries that have remained almost impervious to major change. One is my own industry of higher education, and the other is health care. And I assure you, that change is coming. As Chuck Vest, the former president of MIT,  once said, seismic rumbles of change are upon us, they are sweeping and transforming every industry, and universities must understand that they have to adapt dynamic identities in their regions and become active agents of economic growth to be able to survive.

    So let me take just a few more minutes to share with you how, over the past decade, your University of Akron has evolved into a convener, developer and anchor for clusters of innovation.  We are growing a regional innovation ecosystem that involves many partners from industry, government, academia, community groups, school systems and other stakeholders.

    The University of Akron has gone far beyond the traditional, simple tools for technology transfer and commercialization to create a very broad-based and robust platform for economic development.

    We began that journey in 2001 by creating The University of Akron Research Foundation, or UARF for short.

    It is the core element in our economic development tool chest. This boundary-spanning organization links industry and the University. It supports entrepreneurial activities and expands existing industries. It stimulates new economic growth by commercializing technologies generated by industry as well as within the university.

    Let me review some of the achievements it has made just this first decade of its existence.

    It has more than 115 active, industry-sponsored, research agreements.

    It has created more than 50 start-up companies, half of them are our own technologies, half of them from industry that could be commercialized on their own.

    It has created a 500-member ARCHAngels investment network that has generated about $100 million in follow-on funding.

    It has 120 student assistantships with local businesses.

    And it has gone from zero assets to more than $16 million in assets and having been able to purchase three buildings, that now constitute our Akron Innovation Campus.

    Not long after we created the research foundation, we entered into another partnership that included three hospitals and a medical school. It was named the  

    Austen BioInnovation Institute in Akron. It is designed to build upon the strengths of The University of Akron in biomaterials. We started out with rubber, now we have this material called polymers. If you don’t quite understand polymers, I can tell you if you take the water and minerals out of your bodies, the rest of you is polymer extraction, including your DNA .

    So in our laboratories we are creating the materials that would substitute not only for structural materials, but also for functional aspects, including a polymeric material that could potentially serve as an artificial pancreas.

    We also created the University Park Alliance, a catalytic effort to try to revitalize the infrastructure of a 50-block area, about a thousand acres around the University. It has already resulted in significant grants, and well over $300 million in private investment.

    Let me share just a few other things.

    Through the New Landscape for Learning, we have transformed our campus with more than $630 million in capital investment.

    We have partnered with Lorain County Community College and Stark State College to create the Innovation Alliance, an 80-mile corridor of educational efficiency, knowledge creation and economic development including shared services.

    Let me mention another initiative. Do you remember the pejorative term “Rust belt,” that was applied to much of the Midwest? Well, rust and corrosion are a problem throughout the world, not just in the Midwest and it is a huge drain on our economies. Corrosion costs our country $400 billion a year, and the Department of Defense in excess of $40 billion annually, primarily in the form of equipment that must be decommissioned or simply breaks down. That’s just one department of the federal government.

    This clearly is an issue that must be addressed. Just a few years ago, I was approached by a local business leader, the Department of Defense and the National Association of Corrosion Engineers, which is an international organization. They asked, “Would you consider, given your expertise in polymers and engineering, creating the world’s first baccalaureate degree program in corrosion engineering?” I replied, “Why not! Let’s do that.” And so we have. And as a result of that, we’ve brought online a large number of companies, in addition to the Department of Defense. in an initiative called the Corrosion and Reliability Engineering program. That program has now brought in excess of $20 million of support from the Department of Defense, and significant support from companies involved in the area of corrosion suppression.

    The last thing I’ll mention concerns something you have probably read about: our collaboration with the Timken Company. Now this is a very, very different type of project. Typically, what we do is take some innovation we created and spin it out as a new company, or license it out to an existing company.

    In this situation, Timken had a piece of its company that needed continued development. Timken is outsourcing that piece to The University of Akron, linking it to our scientists and engineering and funding that collaboration. Eventually it will result in perhaps one or more spin-out companies, and that is an exciting proposition that is likely to serve as a model for the nation.

    I could tell you much more about our other collaborations. You know of our activity with the Akron Public School system to create a STEM middle school, and we’ll be creating a STEM high school before long.

    Let me just summarize what I have said this evening. I began with an analogy to the birds and bees concerning new wealth creation. I shared with you some thoughts about innovation’s role in creating that new wealth. We considered how innovation and entrepreneurship have produced waves of prosperity for America. I noted how two economic drivers have helped to create new international markets and given rise to formidable competitors at the same time.

    And finally I’ve shared with you just a few examples of the types of collaborations and innovations that The University of Akron has undertaken to create a brand new model of the University as a broad-based and robust platform for economic development in our community.

    I trust you understand that I deeply believe that innovation and entrepreneurism are central to our national identity, and to our own success as a community and Northeast Ohio.  We have been, and always be, a nation of risk-takers, innovators and inventors. There are indeed, many challenges in this knowledge-driven, global economy, but so, too, are there many opportunities.

    So, let us be cheerful and plunge ahead.

    Thank you very much.



     

    References

     

     

    [1] Stangler, Dane, “The Coming Entrepreneurship Boom,” Ewing Marion Kauffman Foundation, June 2009.

     

    [2] U.S. Department of Health and Human Services: How Tobacco Smoke Causes Disease. A Report of the Surgeon General.  http://www.surgeongeneral.gov/library/tobaccosmoke/report/full_report.pdf

     

    [3] National Highway Traffic Safety Administration. http://www-fars.nhtsa.dot.gov/Main/index.aspx 

     

    [4] Florida Museum of Natural History, University of Florida. International Shark Attack File 2007 Worldwide Shark Attack Summary. http://www.flmnh.ufl.edu/fish/sharks/statistics/2007attacksummary.htm

     

    [5] Centers for Disease Control and Prevention, National Center for Health Statistics/NIOSH Workplace Safety and Health Topics: Insects and Scorpions http://www.cdc.gov/niosh/topics/insects/

     

    [6] The Shape of Things to Come, Newsweek, April 8, 2010. http://www.newsweek.com/2010/04/08/the-shape-of-things-to-come.html

     

    [7] http://www.forbes.com/2006/07/19/spending-income-level_cx_lh_de_0719spending.html

     

    [8] Ruettgers, Mike. (2000, October 31). Information infrastructure: The new business accelerator. Presented at the workshop, Transitioning Into the New Economy, Cleveland, Ohio.

     

    [9] National Academy of Sciences, National Academy of Engineering, and Institute of Medicine of the National Academies, Rising Above The Gathering Storm, (February 2006 Edition). Washington D.C.: National Academies Press. p. ES-1

     

    [10] National Academy of Sciences, National Academy of Engineering, and Institute of Medicine of the National Academies, (2010) Rising Above The Gathering Storm, Revisited  Washington D.C.: National Academies Press. pp. ix-xi

     

    [11] (National Academies, Ibid, p.5)

     

    [12] (National Academies, Ibid, p. 18)

     

    [13] (National Academies, Ibid, p. 63)

     

    [14] (National Academies, Ibid, p. 43)

     

    [15] Karlgaard, Rich, Apple to the Rescue?, The Wall Street Journal, (2010, Jan. 27)

     

  • Topic Category: Importance of innovation and entrepreneurship to national, regional economies
  • Tags: innovation, entrepreneurship, Akron Model
  • Filed in:

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