developing innovation production networks: a usa experience

Developing Innovation Production Networks:

A USA Experience

Peter PlastrikThe Innovation Network for Communities

Presentation at “Summer School for Social Innovation”San Sebastian, Spain

July 2008

Developing Innovation Production Networks

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Contents

• INC, Briefly, Assumptions, Governing Ideas

• Developing Scalable Social Innovations• INC’s Operating Framework• Innovation Production Networks• Lessons & Challenges• Transnational Opportunities• Appendix: Field Building


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The INC Mission is to develop and spread scalable innovations that transform the performance of community systems.

www.in4c.net

Pete Plastrik

231-448-3169

[email protected]

John Cleveland

616-240-9751

[email protected]


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INC, Briefly

• US nonprofit, est. 2007• $2.5 million in grants and contracts to date

– Kellogg Foundation, $200k concept development & $1.5 million prototyping

• Partnering with many NGOs and individuals in multiple sectors

• Working in selected communities– e.g., Detroit, Boston, Chicago, SF Bay Area

• Making international connections– UK (Young Foundation)– Brazil, S. Korea, Southern Africa


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INC Governing Ideas

The Mission:

To develop and spread scalable innovations that transform the performance of community systems.

The Vision:

To establish a national network of applied R&D innovation networks with the capacity to: •Develop next-generation innovations in collaboration with “laboratory” communities; and•Facilitate importing and exporting of innovations by communities.


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INC Assumptions• Community or place-based social innovation is an important niche within the

larger social innovation field. SI field tends to focus on individual entrepreneurs who don’t necessarily focus on places.

• Community innovation in us is missing critical infrastructure. CI needs supply, demand, and distribution infrastructure to achieve critical mass, efficiency, and scale; this is field building work.

• Innovation is not just “change,” “best practice,” or “continuous improvement. Innovation means dramatic leaps in performance that are economically feasible (e.g., cheaper), sustainable in the long run, and scalable.

• Innovation is a discipline. The process of social innovation in communities can be systematized into a replicable practice at the community level.

• Systems change requires integrated solutions. Systems change at the community level requires the ability to assemble an “ensemble” of innovations and integrate them together in a place.

• Complex social innovations require specialized capacity. Social innovation at the community level can be supported and accelerated by a set of well-capitalized innovation production networks that specialize in the design and development of social innovations for community systems.

• Communities tend to import & launch innovations, not produce innovations. Investing in innovation development and investing in community use of innovations are two very different processes with different requirements.


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Dynamics Driving Change in Communities

• Globalization of the economy, which is reordering and shrinking the fundamental nature of the local economy.

• Erosion of the public sector’s performance as a regulator and service provider, which is weakening the underlying “assets” of communities, from environmental quality to human health and education.

• Unprecedented large scale immigration of non-Europeans, which is raising widespread questions about the culture of community.

• The spread of “virtual” technologies, which is undermining the power of place to convey economic advantage and to build local identity and allegiance.

• The degradation and collapse of natural systems, including global weather, which is generating catastrophic local effects on community sustainability.

• The rise of the “cultural creative” class, which provides a powerful counterpoint to the prevailing cultures of Modernism and Traditionalism in the larger society.

• The rise of NGOs and philanthropy as large, formal civic force at the local level, which is shifting influence of local assets to unelected professional civil organizers.


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Developing Scalable Social Innovations


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Innovation Development Process

1. Concept Definition

2. Business Planning

3. Testing and Prototype

4. Production & Launch

An defined innovation concept, with a written

and visual description of the idea, including its primary features and

benefits; and how it would change the current

system.

A solid business case for the innovation, including

strategic, customer, market, technical, and

financial analyses.

A working prototype of the platform, with some history of demonstrating its core

features (innovative; financially self-supporting; scaleable; transformative) .

A completed set of business systems, that is ready for expansion, with

established pricing; marketing plan; distribution;

staffing design; governance; technology;

etc.

Key Resources:

•An entrepreneur with a vision

•Deep insights into the dynamics of the current system

•The ability to see untapped opportunities

Key Resources:

•Market intelligence

•Credibility with key constituencies

•Business and financial analysis capabilities

•Business design and structuring

Key Resources:

•Development capital

•Early stage customers

•Start-up entrepreneur & management team

•Systems prototyping capabilities

Key Resources:

•Expansion capital

•Additional entrepreneurs and management teams

•Systems standardization

•Quality management and data collection


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Key Questions in Innovation Development

Areas of Analysis Questions to Address

Innovation •Does the innovation create genuine improvements in performance over the current system? How large?•What are the features of the innovation that allow it to do this? Will these improvements persist over time? •Is it cost effective?•Is the system for producing the results stable and capable?•Is it at risk of early obsolescence?

Financial Viability •Who are the potential customers for the product/service and what evidence do we have that they will value it?•What are the sources of payment and how reliable are they?•What is the economic model? How much investment at the front-end is required? How long is the ROI period?

Scalability •What is the business design for the innovation?•Can the essence of the innovation be embedded in transferable systems?•What kind of intellectual capital or property does it involve?•Is there highly specialized human capital or relationships required to make the business design work?•Are the markets in other communities similar enough to the one in the “incubation” community to make it viable?

Opportunity for Transformation

•To what degree can the innovation change the nature of a core community system over the long term?


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INC’s Operating Framework


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Place-Based Social Innovation “Market” & INC Structure

Supply Distribution Demand

• Innovation Production Networks

• Individual innovations

• Community Innovation Infrastructure

• Charitable Asset Stewards

• Digital Media (Social Innovation “store”)

• Existing nonprofit & business distribution networks

• Innovation Communities book


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The Grand DesignCommunity Innovation

Infrastructure

Urban Sustainability Transnational

Communities

Etc., Etc., Etc.Urban

Education

Adult Workforce

Development

Civic Engagement

Double Bottom Line Investment

Early Childhood

Family Empowerment

A set of well-capitalized innovation networks with a defined innovation agenda for community systems

Living Cities Network

DetroitNorthern California

Etc., Etc., Etc.West MichiganBoston

Pittsburgh

Northern New Hampshire

NW LouisianaA network of communities that are intentionally building

community innovation infrastructures

Bay Area

Distribution systems that efficiently connect communities with innovation sources.


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Community Innovation Infrastructure

Place-Based Transformation of

Community Systems

Innovation Management•Scanning•Development•Importing•System Integration

Social Innovation Investing

•Investor networks•Shared standards & practices•Capital continuum --(Angel; Seed; Growth; Operating)

Community Leadership•Commitment to social innovation•Facing the “brutal facts”•Setting priorities•Organizing resources•Changing the culture•Broad-based representation

Social Entrepreneurs•Social entrepreneur networks•Innovation brokers•Entrepreneur development•Entrepreneur attraction


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Innovation Production Networks


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Definition

An organization or network of organizations that is focused on the identification of innovation opportunities within a sector, and the design, prototyping, incubation and scaling of innovations to meet those opportunities. An innovation network is the social equivalent of commercialization entities within the private sector.

An innovation net is part R&D lab; part best practice networker; part business incubator; and part intellectual property commercializer.


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Innovation Networks Under Development

Network Innovation Focus Lead Partners

Urban Sustainability

Innovations that simultaneously improve environmental performance and advance equitable economic development

Center for Neighborhood Technology (Chicago)

Urban Learning Systems

Transformation of urban school districts with low-income, minority and immigrant students

New Urban Learning (Detroit)

Double Bottom Line Equity Funds

Private equity funds for “double bottom line” investments in real estate and business development

Sustainable Systems (SF Bay Area)

Transnational Immigrant Communities

Innovations that improve outcomes for transnational immigrants in US and other countries

Alvaro Lima, Madeleine Taylor (Boston)

Workforce Development

Innovations that contribute to development of place- and sector-based integrated systems for adult WFD

Council for Adult & Experiential Learning; Jobs for the Future; National Association of Manufacturers

Market-Driven Community Economic Development

Community economic development approaches that expand economic activity in urban communities and reconnect underinvested assets, people, and places to the mainstream economy

RW Ventures (Chicago)


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Portfolio of InnovationsUrban Sustainability •Car sharing

•Community energy systems•Equity-based climate change mitigation

Urban Learning Systems •Urban learner “engagement schools”•College completion models•The “new urban school system”•School incubator

Double Bottom Line Equity Funds •DBL Investment Institute

Transnational Immigrant Communities

•Global immigrant social networks•Remittance-based immigrant development funds•Transnational Index for communities•English as Second Language delivery systems

Workforce Development •Sector-based talent development systems•Regional talent development systems

Market-Driven CED •Center for market-based economic development•Regional Development Models

Others •Community development philanthropy•Homelessness innovations•Local social innovator networks


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Innovation Network Design & Development

INC IP Net Development Process

1. Identify a lead partner in the sector.

2. Conduct or commission a sector innovation scan.

3. Develop a hypothesis about a sector innovation agenda.

4. Identify key innovation players in the field; meet with players individually.

5. Convene meetings of the key players to explore a shared innovation agenda.

6. If feasible, formalize the network/new enterprise.

7. Collaborate on raising capital for the innovation agenda and developing core competencies.

What An IP Net

1. Innovation scanning

2. Innovation assessment and due diligence

3. R&D portfolio development

4. Innovation development

5. Talent recruitment

6. Deal development and distribution

7. Capital raising


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IP Net Development–Urban Learning

Pre-INC

•New Urban Learning

•University Prep Academy

•Planned Math-Science High School (Detroit)

•Planned UPA Replication in Grand Rapids

INC-Supported Development

•National Urban Learning Innovations Scan

•More Good Schools Incubator

•Partnership with Steve Hamp, Henry Ford Learning Institute

•Collaboration with GVSU charter network on applied R&D agenda

•Collaboration with Jobs for the Future on Early College High Schools

•Partnership with ACT on support systems

•Integration with WFD innovations

Future Potential

•National network involving:

•KIPP

•Big Picture Company

•Green Dot

•New Urban Learning

•Other Innovators

•National funders collaborative

•Shared R&D agenda

•Shared practice standards

•Strategies for aggressive scaling

•Re-invention of the urban school district


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IP Net Development – Transnational Immigrants

Pre-INC

•Idea in Alvaro Lima’s head

•Alvaro’s Brazilian networks

INC-Supported Development

•Transnational research and concept development

•Background paper and articles

•Digaai design

•Diaspora Capital design

•Transnational index design

•Development of funder relationships (e.g. Western Union, Knight Foundation)

•Development of relationships in Brazilian, Arab (Dearborn) and Korean immigrant communities

Future Potential

•Dedicated transnational capacity

•Full portfolio of innovations

•Established funding partners

•Deep relationships in multiple immigrant communities

•Platform for social innovation exchange across countries


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Lessons about Innovation Production Net Development


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Learning About Innovation Nets

1. There are many different designs – no “one size fits all.”

2. In the social sector, applied R&D players will typically have a narrower range than in the private sector and be working on larger and more complex innovations.

3. A production network or collaborative membership organization is the right design in most cases.

4. Most innovations worth working on will typically take significant capital investment and require several years or more of iterative development.

5. Innovation development and management of a portfolio requires a rare skill mix – even rarer than the good social entrepreneur.

6. The investor market is not well developed:– Concept is not well understood– There are many things that sound like sector hubs, but aren’t – e.g. “affinity

groups,” “funders networks,” “think tanks”– Does not play to typical foundation interests (cycle time to impact is too long)

7. The funding model for innovation hubs is not well developed – but we know more than we used to.


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What It Takes to Develop an Innovation Network

Element Range of CostsInnovation Scan $50,000 -- $200,000

Hub Design:PartnersInnovation portfolioInvestorsEntrepreneur

$100,000 -- $200,000

Start Up Capitalization (2 yrs) $1,000,000 -- $3,000,000

Annual Budget $3,000,000 -- $5,000,000


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Challenges in IP Net Development

• Getting the boundaries right. It is often difficult to define the boundaries of a sector or content area at a scale that is most useful for revealing and acting on innovation opportunities.

– Many sectors are defined too broad to be useful (for instance, the “economic development” sector encompasses an enormous range of activities), while more narrow definitions miss opportunities for cross-disciplinary innovation.

– In other cases, it is tempting to define a sector in terms of its traditional constituencies (for instance the “workforce development” sector thought of in terms of training providers) that fails to encompass the likely sources of future innovation (e.g. changes in private employer practices; or the emergence of the Free Agent economy).

• Adequate capitalization. Most current or potential hubs are deeply under-capitalized and lack the development resources to really “push the envelope” on innovation in a sector. Many philanthropic and government investors do not really know how to invest in innovation, as opposed to investing in programs and activities.

• Leadership Talent. There are a limited number of NGO leaders with the combination of deep system knowledge; networking capacity; and rigorous business discipline required to manage a genuine “innovation pipeline.”

• Long-Term Perspective. Most serious social sector innovations take a decade or longer to go from concept to broad acceptance. This requires persistent strategic focus and patient investors – two elements that are often scarce commodities in the non-profit world. Innovation development not a “class” of investing that is well understood or differentiated from other kinds of philanthropic investments.


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A Field Development Agenda

• Innovation production networks are a special class of social innovation work. As such, we believe the work of collaboratively developing “families” of social innovations constitutes a “field of practice” within the broader field of place-based social innovation. We believe that building this field will require investing in the following kinds of work:

– Creating a robust network of Innovation Networks focused in the key area of social innovation (e.g. early childhood; K-12 education; adult workforce development; community economic development; community investing; urban sustainability; etc.).

– Establish Innovation Production Networks as a differentiated class of philanthropic investment, and educate funders about the requirements for success in making these investments.

– Develop distribution systems that connect the developers of innovations with places that have demand for them.

– Build a shared set of “best practices” for innovation development and management to advance the professionalism of the field.


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Transnational Opportunities

Create an International “Urban Learners” Innovation Network

Explore Transnational Social Innovation Development


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Appendix: Field Building

• Fields evolve in stages• Fields have some common elements; the work on

each elements changes over the stages• Building a field is not the same as building an

aspirational movement; nor is it the same as building a market, or building an innovation

• Healthy fields create the “ecology” out of which many innovations emerge

• Ultimately, clusters of innovation are the core of field development


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Some Elements of A “Field”

Element Description

Identity Definition of the “boundaries” of the field and the content it encompasses.

Frameworks Intellectual structures for organizing field content and knowledge, including core field hypotheses.

Practice Innovations New ways of doing things that emanate from the field hypotheses. These might be practices; processes; technologies; enterprises; or systems.

Standards Professional standards of quality that can be encompassed in Best Management Practices; credentials; certifications; etc.

Reward Systems Ways in which practice innovations are incentivized through public or private market mechanisms.

Networks Connecting, aligning and production networks of players within the field.

R&D Investments in field innovations.


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Evolution of “Practice Fields”Stage 1:

FRAMING. Stage 2:

NETWORKING. Stage 3:

MATURATION. Stage 4:

STANDARDIZATION.

Conceptual framing and isolated practice examples.

Networking of innovators and the

proliferation of practices. Practices are fragmented and

often considered “proprietary.”

Maturation of practices;

convergence around common methods

and tools; integration of

previously differentiated

practices; development of a

professional implementation

support network.

Practices become highly standardized, and incorporated into

formal training; credentialing and

certification systems. Practices are considered

“commodities.” Reward systems reinforce desired

behaviors.


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Characteristics of “Young” & “Mature” FieldsElement Young Fields Mature Fields

Identity Confused/multiple identities Well defined boundaries; easy to know what is “in” and “out”

Frameworks Lack of integration between multiple frameworks

Strongly shared frameworks (theoretical premises; principles; ways to organize knowledge)

Practice Innovations

Competing “gurus” each of whom consider their ideas and business models to be “proprietary”

Standardization of methods, tools, enterprises, etc. for implementation

Standards Lack of standards in all areas Well-defined professional standards for defining competence & quality (regulatory; skill certification; testing of innovations)

Reward Systems

No real feedback mechanisms from the market

Market feedback matches best practice thinking

Networks Isolated individual practitioners Well developed networks for sharing knowledge and best practice

R&D Investment happens on a haphazard basis

Well organized R&D infrastructure to support innovation


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Different Work At Different StagesEvery “system” goes through a natural evolution of stages – whether an organization, a natural system, or a field of practice. The typical stages include:

•Emergence

•Growth

•Maturation (equilibrium)

•Disequilibrium

•Either disintegrating or re-invention and re-emergence

The work that is required at each stage of a system’s evolution is slightly different.

The Cycle of Change

Emergence(PatternFormation)

Growth ThroughDuplication andImprovement ofthe Pattern

EquilibriumDescent into Chaos

Disequilibrium

Reintegration at aHigher Level ofGrowth andComplexity

OR

Invent Grow Improve ReinventStabilize

The focus of the systems change work is different, depending on the stage of development the system is at.