November 2010

It's coming like the tidal flood
beneath the lunar sway,
imperial, mysterious,
in amorous array:
Democracy is coming to the U.S.A.”

Leonard Cohen

Abstract

As our global economy shifts from one dominated by production to one based on knowledge, governments are looking for new ways to add value to the people they serve. Open Government initiatives have emerged as one response to these new economic realities. In this article, we discuss how the theory of a multi-sided stakeholder platform can be applied to create an innovative engine of regional economic development. We describe that engine, its parts, and the value that the participants realize from it.

Introduction

A new form of Democracy is coming. It is riding on a tide of new technologies that will bring “the people” much closer to their elected representatives and, through an architecture of participation, will provide them with the means to be more personally and pervasively connected to the decisions of their government. And governments are responding. A growing number of towns, cities, states, provinces, and countries are embracing Open Government and Government Open Data initiatives. The global movement marked a milestone when President Obama, on his first day in office, signed the Memorandum on Transparency and Open Government.

The 3 basic principles of Open Government (transparency, participation, and collaboration) have been used in effective and innovative ways by many businesses and other non-government organizations for much of the past decade. New technologies and innovative business models have changed the landscape of personal interactions, creating more varied forms of global connectedness. In 2010, there are an estimated 50 million Skype users, 500 million active Facebook users, and almost 5 billion people who use a cellphone. The cost of reaching around the globe to connect with someone at any time has been reduced to a level that the average 14-year-old Canadian can afford. New technologies are making it possible to create game-changing innovations by people who think differently about how to use technology. For example, Wikipedia’s global platform, available in 273 languages, allows anyone to contribute to a growing body of knowledge. The contributions of one person on one subject represent an input into a continual, living process of validation and change by others. Over a handful of years, Wikipedia has disintermediated the 110-year-old Encyclopaedia Britannica as the go-to reference source and is widely accepted as an accurate representation of the current state of knowledge on a particular topic.

When citizens are quickly and regularly self-assembling into formidable, politically relevant groups around every kind of issue, from local ones (like neighbourhood traffic congestion and graffiti) to global ones (like free trade agreements and illegal immigration), governments will have to function differently. How will technology-enabled connectedness change the role that stakeholders play in influencing government actions? The Open Government movement is examining this question and others that deal with the role of the individual. What mechanisms, technological and otherwise, will be used and how will they be used? In the Technology Innovation Management program (TIM) at Carleton University in Ottawa, students and faculty are studying these questions and others as they relate to business formation and growth and to regional economic development.

This work at Carleton is part of a larger initiative to dissect and examine several, newly-emerging business models to understand how they work and how they can be applied to create new business models. In particular, one of these new business models, the multi-sided stakeholder platform, shows tremendous potential and was recently described in articles by Bailetti in the June 2010 and September 2010 issues of the OSBR. The essence of this model can be summarized as follows: First, the model is based around a platform which is a product, service, or technology that delivers value to two or more groups of people (stakeholders). Second, the platform enables multiple groups of stakeholders to co-create unique things of value that they could not do one their own. In the context of this article, co-creation would yield innovative solutions to economic development problems, more effective and efficient ways of executing economic development actions, and more business deals for economic development stakeholders. Third, the value of the platform to the people who belong to one stakeholder group increases as more people who belong to the other stakeholder groups increase. This is known as a network effect.

Here, we describe the creation of a multi-sided stakeholder platform to serve as an innovative engine of regional economic development.

The Problem

Decision makers in matters of regional economic development face several challenges:

1. Effective economic development policies and initiatives typically take a long time before measurable and meaningful results are available. However, elected officials need to show tangible progress quickly (certainly before the end of their elected term) in order to prove to their constituents that they are doing good things for economic development.

2. The traditional approach to economic development has been to create clusters of companies who do business in the same industry. This approach dates back to 1890, when Alfred Marshall published Principles of Economics. Marshall’s book was one of the first attempts by an economist to discuss the advantages of "industrial districts.” This notion made sense when collocated companies would have easier and cheaper access to the physical inputs of their production process. However, a resource-based approach is much less relevant in today’s “information age.” After over a century of traditional cluster-based economic developement activity, the time may be right to look for alternative approaches. A recent study by Sal Kukalis on clusters in the semiconductor and pharmaceutical industries, found that there was no advantage to companies that were part of an industry cluster.

3. There is a large number of stakeholders that are affected by economic development policies and initiatives, and their input is required or desired to make the best possible decision. The knowledge and insight that these opinions are based on must somehow find their way into the decision-making process in order for the outcomes to be seen as legitimate.

4. Most economic development decisions have some basis in objective, quantitative data. However, different data often are presented by different stakeholders, resulting in confusion and decisions that are difficult to defend or support. Different versions of the truth can taint the entire process.

5. There is great uncertainty regarding what metrics should be used to measure the economic health of a region. In researching just 12 North American cities, the author of this article found that there are over 100 metrics in common use to measure and report on the economic health of a community.

The Solution: A New Engine for Economic Development

In the September 2010 issue of the OSBR, Bailetti describes one of the main benefits of a multi-sided stakeholder model: “it enables organizations of different types to rapidly co-create products, services, and solutions.” The multi-sided stakeholder platform proposed here defines a new approach to economic development. This new approach seeks to first establish a common understanding of the inputs to the decision-making process and second to democratize, through the direct participation of stakeholders, the way that decisions, or outputs, are derived.

More specifically, the economic development platform described here will overcome the five challenges to economic development described above:

1. The platform makes it possible for all stakeholders to have equal access to the same relevant economic development information and to have the ability to provide insight, context, and observable results of the consequences of economic decisions. Essentially, it is a real-time system for capturing and conveying what is happening at the lowest level of granularity. As the lag between a decision and the impact (or consequence) of the related actions is reduced, the decision-making process becomes more effective and timely. Rapid feedback is good. If a business owner has been able to win new business or access a new market opportunity because of a particular economic development policy or funding initiative, the platform will not only capture that information, but will make it readily available and highly visible to all stakeholders, including elected decision makers.

2. The platform changes the focus of economic development from a traditional, industrial-cluster-centric view to a global view that is focussed on the fundamental drivers of economic health: finding new customers, earning new revenue, and creating new jobs. The cluster-based approach does not need to disappear. Perhaps we can maintain their economic development value by defining them differently (through innovation-based clusters, for example) and leveraging the social networking capabilities of the platform to help us to find them.

3. New and already widespread technologies have made it possible for large numbers of people to have direct input into the processes that interest them so that they can achieve their desired outcomes. The tools and techniques that enable mass coordination and collaboration are in the public domain and are being used by innovative people to create new business paradigms. Examples include Threadless, an online t-shirt company that has thousands of people donating their time and creativity to design t-shirts, and the tens of thousands of open source software developers contributing to create some of the world’s most widely-used software, such as Linux, Apache, and MySQL. The platform described here is yet another example. Our multi-sided platform will provide the collaboration tools and capabilities so that all stakeholders can play an equal role in co-creating new decision-making process around economic development. The knowledge that lives in the heads of the participants will be brought together enhanced through a process of validation and modification to create a body of new, searchable knowledge that could not have been created otherwise.

4. A single version of the truth must be the starting point for data-driven decisions. No game can be won if the different teams cannot agree on the rules of the game and where the goal posts should be placed. Whatever that single version of the truth is, it can only be achieved through a process of shaping and validation by the various stakeholders using some mechanism of coordination and cooperation. Our platform provides these mechanisms by capturing stakeholder contributions that are qualitative and binding them to the data that they relate to. Truth is the end result of a process that captures and organizes the insight and context from many people from all sides of the issue. The starting point of an issue is not as important as the process that is used to come to a collective understanding.

5. Finding metrics to measure different aspects of the economic health of a community is not a problem. The issue is finding the metrics that are most relevant and reliable for measuring the things that matter. But what makes one measure more relevant or reliable than another? Once again, the collective wisdom of the participants to this process is the key to validating and assigning meaning to the specific metrics so that the usefulness of each one can be understood by everyone. In fact, it is this process that promises to discover new metrics and new approaches to measuring economic development.

The Multi-sided Platform

Figure 1 illustrates the multi-sided stakeholder approach described in this article. The economic development platform is located in the centre and is surrounded by each of the different groups of stakeholders. The platform is shown at the centre of the diagram because it is the capabilities of the platform that make it possible for all of the players to participate in a process of collaborative production. This process, also known as co-creation, means that people are able to come to the platform, access the same data using the same tools, and make collective choices in the face of several different decision paths. The decisions made and the resulting actions taken would not have been possible without the value provided by the platform. Elected decision makers will be able to see and explore the health of their specific constituency, to see their part of the city benchmarked against other parts (both urban and rural), and will be able to engage in a dialogue with their electorate to make their positions clear and supportable.

Figure 1. The Regional Economic Development Platform

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The platform uses web-based tools and makes them freely available to all so that everyone has the same capability to explore and understand common sets of data and thus to make sense of a single version of the truth. Also, the platform leverages social networking tools so that insights or understanding from an individual can be vetted and validated by many other people. Specific insights that are deemed by others to be particularly useful and relevant rise to the top, where they become key inputs into a deliberation process that feeds collective choices. The resulting body of new, collective knowledge is then made searchable using the platform's social networking tools.

Although each side of the platform shown in Figure 1 is classified by the type of stakeholders it represents, they represent distinct sides only because they derive unique benefits from participating, as examined below:

1. Regional Governments: In most cases, regional governments provide the money to fund economic development initiatives and will often also fund other economic development groups. However, it is the decision makers (both elected and non-elected) at the level of regional government who face the full ferocity of all stakeholders for decisions made (or not made) and for the actions taken (or not taken). Similarly, disharmony usually erupts within the walls of the regional government if one elected official feels that they are not getting their share of economic development resources to be used to improve the community that elected them.

The economic development platform will provide regional governments with value in the following ways: i) providing access to a process for creating a collective understanding of the relevant issues; ii) reducing the time it takes to get feedback on the impact of actions taken; and iii) overcoming skills barriers that prevent non-technical users from using data analysis and exploration tools to understand and share important data.

2. Business Owners and Entrepreneurs: As a group, business owners and entrepreneurs are on the front line of economic development. At its most fundamental level, economic development is about creating jobs within the community and paying for those jobs with revenue or capital from outside of the community. Whether it is from tourism, conventions, venture capital funding of startup businesses, or businesses winning new customers in new markets, the net inflow of capital into a community is the single biggest driver of economic development and the largest contributor to a healthy business community.

However, business owners and entrepreneurs have their share of problems with the traditional paradigm of economic development. Competition, as everyone knows, is not only becoming more intense, but it is coming from further away geographically and it is crashing on their shores in unanticipated waves of new technologies. Business owners are at the forefront of the need for better access to a workforce with the right skills and better access to capital and to new markets. This group, more than any other, can prosper and grow or wither and die by the economic development decisions made (or not made) by regional governments.

The economic development platform will provide the members of this highly motivated stakeholder group with value by overcoming barriers that limit or delay access to the decision makers and that limit input into the decision-making process. It will also provide greater access to money, either from investors or from business growth. As investors are attracted to the platform as a place where they can find more businesses and thus do more deals, the platform becomes more attractive to the business owners and entrepreneurs looking for investment money.

3. Service Providers: These stakeholders represent a fairly diverse group of people who provide a service to other stakeholders. Service providers in the context of this regional economic development platform can be global. It does not matter where they come from as long as they can add value to the platform and in turn receive value from their participation in it.

As an example of a service provider, economic development consultants, and in fact many different kinds of consultants and experts, have a very important role to play within this platform ecosystem. As experts in the field of economic development, they have an incentive to establish and even to enhance their own brand and reputation through insightful and valuable contributions in the public discussions. The platform's vetting and validation mechanism ensures that value (useful insight from an expert) is rewarded with value (enhanced profile and reputation of the expert by the community). The economic development platform will provide service providers and complementors with value by enabling contributions of ideas, opinions, expertise, or products (for free and or for a fee) to a community consisting of many different groups, including possible customers. The platform also reduces the time and cost that it would otherwise take to reach individual members of the community outside of the platform.

4. Complementors: As with the service providers, complementors represent a diverse and potentially global group. As the name implies, complementors have something (an asset such as a product or piece of software) that adds value to the platform itself. The platform adds value to complementors by providing them with access to the platform and to potential customers who will use (and maybe even pay for) access to that complementary asset. An example of a complementor would be an individual who has developed, with proprietary or open source software, some new charting capability. If this new charting feature is useful to some other member of the platform, the complementor may choose to provide it for free or, if it provides sufficient value to that member, they could charge a fee. The platform also reduces the time and cost that it would otherwise take to reach individual members of the community outside of the platform.

5. Academics: This stakeholder group has resources and assets that can help to solve real-world problems. These resources include students, who study and apply theories on innovation and then observe the results and compare the results to expectations, thereby adding to our understanding and capacity to innovate. Academics also contribute intellectual resources that can enhance the capabilities of economic development agencies. The platform provides value to academics by reducing the time required to advance academic thinking around innovative business models through the study of their application in real-life situations.

6. Investors: This stakeholder group is quite diverse and includes venture capitalists, angel investors, corporate venture funds, universities (research funding), and governments (local, provincial, and federal funding). Capital has never come quickly to new, innovative companies. The criteria for capital are still based on a production-centric view of business. But as companies achieve success and profitability using innovative (and non-traditional) business models, investors are taking notice. Savvy institutional and private investors are getting better at sniffing-out opportunities for deals. Similarly, research and development funding sources naturally seek out places of innovation as they provide them with the best chance for a home-run success.

Investors receive value from the platform through access to a community of businesses and information about businesses and trends in a particular region. Ultimately, they receive a greater number of potential deals, and thus a greater potential for profit. These stakeholders save time by creating relationships in a many-to-one fashion, relative to the one-by-one processes that occur without the platform. The potential savings of time and money are particularly important when the investor does not have an operation in the region.

Conclusion

As our global economy transitions from an industrial economy to a knowledge economy, businesses, institutions, cities, and governments need to be able to meet the demands of their customers and their constituents while they adapt to their new environment. In the arena of economic development, those regional governments who do not or cannot innovate will surely become competitive weaklings compared to those quick and clever governments who wield new business models and processes to collaborate with their stakeholders to overcome big challenges. While the often heard cry of "innovate or die" may be a tad extreme in the case of regional economic development, it would not be an exaggeration to say that governments and the other stakeholders must "innovate or suffer greatly."

We have described an innovative approach that could serve as an engine for regional economic development. We have also described the different stakeholders involved in regional economic development and discussed the value that each group would receive from their association with the platform. We conclude that a multi-sided stakeholder platform consisting of tools for exploring and understanding data, as well as social networking tools for collaboration, holds potential for solving some of the biggest challenges for regional governments.

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