Catalyzing Innovation in the Commonwealth of VirginiaPrepared for the Virginia Economic Development Partnership

June 2008

Project Process: Logical Analytical Tasks

Virginia Industry Cluster Analysis

Economic and Innovation Foundations Benchmarking of Virginia

High-Growth Potential Technologies for Virginia

Best Practices from Successful Technology Investment Programs

Strategic Inferences for Virginia’s Economic Development

Virginia Industry Cluster Analysis

Like most states, Virginia’s economy is dominated by service industries:

Education & Government Retail Trade Construction & Real Estate Tourism General & Business Services.

Several technology and knowledge-based sectors stand out for their high levels of employment: Life Sciences & Medicine (336,535 workers) Research & Engineering Services (161,633 workers) IT Services (140,016 workers)

Virginia Industry Cluster Analysis

Several technology and knowledge-based sectors also have high levels of employment concentration in Virginia (compared to the national average): IT Services (2.69) Research & Engineering Services (1.96) Aerospace, Defense, & National Security (1.76) Telecommunications (1.32)

Clusters that have experienced high employment growth rates in recent years (2003-2005) include: Research & Engineering Services (26.6%) Construction & Real Estate (12.4%) Transportation & Logistics (8.1%) Tourism (6.7%) Business Services (6.5%)

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Employment By Cluster State-LevelAnalysis

The largest employer clusters are the labor-heavy service sectors, such as Education & Government, Retail Trade, Tourism, and Construction & Real Estate.

Virginia has high levels of employment (>100,000 workers) in several key technology sectors, including Life Sciences & Medicine, Research & Engineering, and IT Services.

The top 6 clusters account for over 60% of Virginia’s total employment in 2005.

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Employment Concentration RatioBy Cluster

State-LevelAnalysis

Several technology clusters are highly concentrated in Virginia, including IT Services, Research & Engineering, Aerospace-Defense-National Security, and Telecommunications.

A few traditional industries are also concentrated in Virginia, although their overall employment levels are quite low: Wood & Furniture, Auto. & Transport. Mfg., and Textiles & Apparel.

The Employment Concentration Ratio is the industry cluster’s share of total employment in the state versus its share in the country. Clusters with a ratio greater than 1.0 are more concentrated in Virginia than in the United States.

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U.S. Average Annual Pay By ClusterState-LevelAnalysis

Wages in technology and knowledge-based clusters far exceed the average annual pay for the nation and for Virginia.

Not surprisingly, less skilled jobs in the service sectors have pay levels that are below the national average.

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Virginia Industry Cluster Analysis

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Industry cluster data and trends were analyzed across

six regions in Virginia.

Regional Cluster Analysis

Common employment trends across all regions:

Retail Trade, Tourism, and Construction & Real Estate are major employment-generating sectors across every region. (typical throughout the U.S.).

Life Sciences & Medicine also dominates in employment, ranking in the top 3 clusters for every region except Northern Virginia. This is driven by its service component (the Health & Medical Services sub-cluster).

Business Services and General Services rank in the top tier of

clusters for employment across every region, but do not have especially high employment concentrations.

Regional Cluster Analysis

Significant variations across state’s regions:

Northern Virginia and Hampton Roads: Technology and knowledge-based clusters – Research & Engineering, IT Services, Aerospace/Defense/National Security.

Southwestern/Southside: Natural resource-based clusters such as Materials & Chemicals and Energy & Environment.

Rural Regions: Traditional industries such as Wood & Furniture (Southwestern, Southside, Valley), Paper (Southside, Valley), and Textiles & Apparel (Southwestern, Southside, Valley). But overall employment is relatively low.

Central region: Financial Services (strong in both employment and employment concentration).

Benchmarking Virginia’sInnovation Foundations

SummaryResults

Weakness Average Strength

FinancialResources

Human Resources

Innovation Resources

Innovation Economy Outcomes

VC investment ($) SBIR awards ($)

STTR awards ($)Small business loans ($)

Industrial R&D expenditures ($)

Academic R&D expenditures ($)

Federal R&D performance ($)Patents

Labor force growth

Real GSP growth

Advanced S&E degrees S&E degrees

NAEP Science & Math Scores

Exports ($)

Entrepreneurs

Business Start-Ups

R&D to GSP ($ ratio)

Tech Fast 500 companies

Academic R&D productivity

Innovation Resources Patentsper Capita

VA ranked last among the benchmark states for per capita patents awarded in 2006.

Innovation Economy OutcomesEntrepreneursPer Capita

Compared to other benchmark states, VA had the 2nd lowest level of entrepreneurs per capita in 2005.

Innovation Economy OutcomesR&D Shareof GSP

In 2004, VA ranked 6th among benchmark states for R&D as a share of GSP, slightly below the national average.

High Growth Potential Technologies for VA

High Growth

Potential Technologi

es

Virginia’s

Economic Base

Industry Transformi

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es

Virginia’s Existing

R&D Assets

Unique Factors

to Virginia

Suitable for Targeted

Policy Interventio

ns

Resources for R&D and technology

development are limited. Determining

where scarce

resources should be

deployed is a critically important

task.

Screening Criteria:

Industry Cluster Industry Sub-Clusters

Current Industry

Base

Growth Potential

Existing R&D Assets

Other Factors

National Security and Aerospace

Aerospace

National Security

Agriculture and Food

Agriculture and Processed Food

Biomedical and Health Care

Health Care

Biomedical Sciences

Chemicals and Materials

Chemicals

Materials

Energy and Environment

Energy

Environment

Information and Communications

IT Services Telecom

Electronics Transportation and Logistics

Transportation and Logistics

Technology Industry Selection

High Growth Potential Technologies

Technology-Based Industry Cluster

High Growth Potential Technologies

Biomedical Sciences andHealth Care

Point of Care Diagnostics

Computational Technologies

Information Technology Services

Health IT

Cybersecurity

Chemicals and MaterialsNanomaterials

Biopolymers

Clean Energy and Environment

Fuel Cells and Distributed Hydrogen

Carbon Capture and Storage

Transportation and Logistics

Radio Frequency Identification

“Smart” Roads

Biomedical Sciences and Health Care

Information Technology Asset Map

Materials and Chemicals Asset Map

Energy and Environment Asset Map

Transportation and Logistics Asset Map

Case Studies

Enhancing Research Excellence at Universities

Georgia Research Alliance University of Texas Eminent Scholars Program Ohio Third Frontier (Wright Mega-Centers)

Enhancing Collaboration Across Sectors/Disciplines

NY Centers for Advanced Technology MD Industrial Partnerships Program CA Industry-University Coop. Research Program NC Research Triangle

Enhancing Entrepreneurship and Access to Capital

MD Venture Fund GA Advanced Technology Development Fund PA Ben Franklin Technology Partners

Lessons Learned

Highlight collaboration as a central component of all programs.

Utilize industry and technology experts as key players in decision-making.

Seek to leverage multiple sources of funding.

Incorporate key economic development objectives and milestones.

Introduce and maintain strong systems of accountability.

Include flexibility to allow for corrections and to support longevity.

Measure innovation progress.

Summary Assessment

Global and national economic realities challenge forward-looking states to expand industries driven by technology and innovation.

Many of Virginia’s high-tech industries serve the Federal market. While important, this narrow focus limits the state’s diversity and overall ability to provide high value jobs.

Virginia possesses important assets and initiatives related to innovation, but the Commonwealth has not reached its potential.

An initiative to stimulate innovation and catalyze collaboration among industries, universities, laboratories, etc., can transform Virginia into a model innovation economy.

Engaging Private Sector Collaboration Across Sectors And Disciplines

Catalyzing Innovation

Strategic Focuses for Virginia

Recommended Approach for Virginia

Overall Strategic Goal:Virginia will become a Model

Innovation Economy- Crafted and directed by business,

government and university communities

Implementation Mechanism:

Virginia Innovation Alliance (VIA)- Public/Private Partnership- A structure to power collaboration- Catalyzes Virginia’s assets, addresses

liabilities- Introduces a seamless innovation

value chain

VIA Governance and Funding

Governance: Governing board (15-20) with a majority

industry leaders. Membership from government,

universities, research labs, etc. Advisory committees for technology

platforms. Small management unit.

Budget: Source & level to be decided Stable and sustained multi-year funding. Initial core funding from the

Commonwealth, with major support from industry.

To be successful it will require matching funds.

Monitoring Innovation Progress

Overall Progress in the Commonwealth: Scorecard or index to measure

performance of Virginia’s innovation enterprise.

Research outputs (patents, citations, outside funding, etc.).

Economic results (startups, VC funding, spinoffs, employment concentration, sector growth, etc).

Performance of specific VIA programs: Metrics to monitor program

performance. R&D and economic outcomes. Participants will be required to report

on progress.

Action Plan:→ Develop program structure, governance, and participants→ Identify prototype market for public/private collaboration

Target: TBD

Next Steps

PrivateSectorReview

Administration Review

StakeholderReview

Completed

11 CEOs→ Presented Overview→ CEOs were supportive

Review with Stakeholders:→ Economic Developers→ Universities→ Legislators

Target: September 2008

In ProgressCompleted

Reviewed with:→ Secretary of Commerce→ Secretary of Finance→ Secretary of Technology→ Secretary of Education→ Governor

OutlineActionPlan

In Progress