In previous blog postings, I lament the fact that governments are slow to pick up on implementing Innovation Zones.  On reflection, I realize –as is often the case – the problem perhaps related in our groups inability to provide a more precise vision of what  an Innovation Zone could look like.

Compounding the problem is the fact that Innovation by its nature implies risk-taking.  Government entities (and some philanthropic institutions) tend to be risk averse.

I have struggled with the question how can philanthropy play a role in galvanizing the community around the idea of implementing zones where we can do something about the many glaring inefficiencies we see in our local governments.  I continue to be intrigued by Innovation Zones.  Some municipalities have introduced Innovation Zones but these are typically involve tax incentives between public and private entities to attract new businesses into towns.  The Innovation Zone I propose of are not to attract new business, but change the ineffective ‘business as usual approach to public management.  These Innovation Zones  engage the public, private, university and nonprofit sector in a zone (virtual and real) to demonstrate new collaborations that will result in cost savings and produce greater efficiencies in service delivery.  I hope that soon philanthropy will help to develop just one as a demonstration site that can be replicated in many other communities across the country.

I am going to attempt to answer for myself the following questions.  Anyone reading this blog is welcome to comment and perhaps provide answer I cannot see at this point.

• What is an innovation zone mean?
• How does one create and foster innovation zones?
• What is the goal of an innovation Zone?

Innovation is an approach to a problem.  Foundations and the nonprofits they serve, have a huge problem on their hands – an economic recession unlike any in recent memory. Philanthropic dollars no matter how large constitute a mere fraction of what it actually costs for non profit organizations to do business. Government monies in one form or another constitute the bulk of operations for schools, state agencies and the non-profits we work with each day.

The economic meltdown of 2008-2009 had a catastrophic effect on State budgets.  The Ohio 2009-2010 budget shows unprecedented cuts in social services and in education. A local school superintendent told his school board last night, “What hit Wall Street a few years ago, is only now beginning to hit us.  We are in a crisis.”  Even though the market seems to be making modest recovery, the government and nonprofit sectors are in a crisis that demands new and creative approaches to the way things have always been done.  The Cleveland Plain Dealer reported on a recent survey by the Business Volunteers Unlimited (BVU) that  revealed

… of 103 local nonprofits, conducted by Business Volunteers Unlimited and the Nonprofit Finance Fund, found that 36 percent reported ending the most recent fiscal year with an operating deficit, and 32 percent predicted a deficit for the current year. The survey represents a tiny slice of the thousands of nonprofits registered in Cuyahoga County.

To stay afloat, 34 percent of the nonprofits expect to dip into reserve funds this year. Thirty-one percent said they’ll freeze hires and salaries and 28 percent intend to reduce or eliminate programs.

In reaction to the budget crisis, nonprofits as well as government agencies now approach foundations with requests for funding that will serve as “stop-gap” funding to replace lost government dollars.  There is a presumption this money will be a temporary fix until things get better.  It is becoming quite evident that things will not get back to normal as state and local governments scramble to find new revenue sources through taxes.

The economist Jeffrey W. Sachs has an article in the October 2009 issue of Scientific American addressing The Crisis of Public Management.  The rider to the title states, “Nothing less than an overhaul of the systems that implement federal policies will suffice.”  Sachs cites a litany of government “failures” including the lack of coordinated intelligence prior to the 9/11 attacks, the Hurricane Katrina debacle, the U.S. occupation of Iraq as well as, “Government regulatory agencies (that) completely dropped the ball while overseeing the surge of dangerous financial instruments that underpinned the reckless lending that eventually burst in the Great Crash of 2008.  Mr. Sachs suggests,

“we need a better scientific understanding of these pervasive system failures.  Other nations’ governments more successfully manage infrastructure investments, health systems and environmental resources, apparently with greater flexibility, less corruption, lower costs and better outcomes…

…today’s challenges cut across specialties and institutional divisions.  In health care and energy for example, the private sector holds the key technologies, but only the public sector can finance R&D, regulate sustainable practices, and ensure access for the poor to resources and services.”

Although I agree with Mr. Sachs,  I worry that he overestimates the virtue of the government designated to oversee the R&D and regulatory abilities.  Cleveland has been witness to an unfolding drama of government corruption which involves sordid greed mongering among elected officials and business people.  I would hope that his definition of the public sector would go beyond elected officials. The inspiration is there, but the challenge for those of us in philanthropy and the non profit sector is how to make efficiencies happen in the communities where we live.

In my experience I often hear of cases where politics gets in the way of creative solutions to budgetary problems.  Recently, I spoke with two mayors who said that the county could save more than $1 million dollars a year in tax dollars by rationalizing a 911 dispatch service to route emergency calls directly to  the police and emergency departments in each city, rather than routed through a county managed dispatching agency.  The county administration is reluctant to give up budgetary control of the centralized system.   Giving up control would mean downsizing jobs often involving friends or political supporters.  Budgetary transparency is not the norm in this county.

I would argue that the greatest success with public officials is secured when one can demonstrate success. The best models have a solid financial model with demonstrable buy-in from a community that understands what the model is trying to achieve.

Unfortunately, nonprofits and government agencies have never had the funds or the idea to invest monies into developing such models and prototypes.  Government certainly does not have the funds to conduct this type of R&D modeling.  Philanthropy can be the only source for funding prototypes that will simulate new ways of doing business.   Most nonprofit and agency directors complain about the budgetary constraints and negative effects on their services.  In the next breath however, they can also provide suggestions on how the process could be improved .  Few have ever had the time or opportunity to participate in modeling solutions in virtual or real worlds.  In a web 1.0 world problems are addressed by in-gatherings of the interested and concerned.  Consultants are called to help map solutions that are translated into paper reports that rarely effect significant change to the problems at hand.  Even fewer result in any meaningful legislative change.

For years now, businesses have made effective use of web-based tools to prototype and/or simulate changes in product design and/or management that yield great greater value for the company and increase the bottom line.  The auto industry moved from using clay to prototype the automobile to three-dimensional virtual environments, the financial industry moved from pen and paper to spread sheets, and think of the innovation that has taken place in increasing knowledge and understanding in physics, biology, chemistry and astronomy by use of virtual simulation environments.  It is only the social sciences that have left this magnificent tool untapped and with the result being a woefully inefficient and overly expensive public system. In his book Serious Play, How the World’s Best Companies Simulate to Innovate author Michael Schrage, of the MIT Media Lab says, “The conventional interpretation – in science, academia, and businesses alike – is that we build ‘virtual worlds’ to better understand the problem to be solved of the opportunity to be exploited.  This is accurate without being true.  It fails to recognize where the bulk of the value may actually be realized.  The real reason we need to build and seriously play with prototypes is to get a better understanding of ourselves and our priorities.”

The current budgetary crisis places increase obligation on both the public and philanthropic sector to make better use of  the myriad of modeling tools that can positively apply to the public sector.  Simulating new ways of delivering public services and provide local, State and the Federal government with new models for finding efficiencies in service delivery and cost-savings to the tax payer.

Better and more effective use of web-based technologies and even gaming programs make that prototyping not only possible but quite feasible.  Regulating the number of “players” can allow an entity to not only guarantee transparency, but create several prototyping “teams” to come up with a variety of solutions to the same problems.  Philanthropy can serve an important role by providing some of the early-stage funding to trip-start these games for the public.  Philanthropy can also ask questions that are often difficult for government officials to ask and hard for invested parties to answer honestly. Question like: In this day and age do we really need 14 separate school districts, each with its own superintendent, curriculum director and top-heavy administration to deliver effective education in this community of 280,000 people?  Do we really need to have three separate fire departments in a geographic radius of five square miles?

Philanthropy can not only provide early financing, it can help find the partners.  To begin, you need a place to build the virtual world.  Typcially a university-based system will be a good start.  For example the New Media Consortium would provide an instant web of any number of computer gamers who would jump all over the opportunity to create a project of this scope.  In Cleveland, OneCommunity and its Knight Center provides a perfect platform to convene the public to initiate engagement in the modeling process.  Philanthropy can easily convene any number of constituents from a variety of sectors.

Innovation zones are an area where philanthropy and the public sector can explore new ways of doing business. Communities can begin to ask questions they were unable or unwilling to ask before.  The right tools will enable the community to model various alternatives and develop budgets that will demonstrate the feasibility of alternative ways of doing business.  Ultimately an innovation zone should have as its goal new models of doing public management that produce cost savings and greater efficiencies.

One of the most exciting models of this approach to better government can be found in Cleveland with the Fund for Our Economic Future and Advance Northeast Ohio’s introduction of Efficient Government.  A brief description from their website explains the idea:

The Fund for Our Economic Future, a collaborative effort to strengthen regional economic competitiveness in Northeast Ohio, has announced a new competitive awards program, EfficientGovNow.

Under the program, local governments in the region are encouraged to submit government collaboration and efficiency proposals to the Fund, which will provide a total of $300,000 to as many as three projects. Project proposals will be posted online for public review, and the residents of Northeast Ohio will ultimately select which of the collaboration projects will receive funding.

The name EfficientGovNow was chosen because it explicitly tells elected officials and the public the purpose of the program.

“The Fund wants to support government collaboration efforts that will result in more efficient government now,” said Brad Whitehead, president, Fund for Our Economic Future. “The EfficientGovNow program isn’t for studies or planning. The public is eager to see greater government collaboration and this program is designed to encourage such efforts.”

Throughout the region, numerous government entities have increased governmental collaboration and efficiency. Projects like shared fire halls or combined city-county buildings, shared school superintendents, shared emergency dispatch services, and other such collaborations are gaining momentum. The Fund sees this program as a means to accelerate more collaboration, added Whitehead.

Efficient Government project demonstrates not only a wiliness on the part of the public to meet the challenge to find more effective ways of doing business but, by a creative use of the public radio, created a competition among cities and invited the public to judge the merits of each city’s proposal to create a more efficient system

An Innovation Zone takes Efficient Governments use of both competition and fun a step further. If it makes use of virtual environments readily available, a citizens from communities across NE Ohio can develop a prototype of their proposal in a simulated virtual environment and not only study, but test the budgetary theories in that environment.  The first level of an Innovation Zones in a virtual environment can test civic-based prototyping for new ways of addressing the civic needs in community.  If it works, those citizens can petition their legislators  to establish a real-life Innovation Zone having demonstrated how the model can work.  A virtual prototype may serve to convince the most risk-adverse legislator to approve the application.

In Serious Play – How the World’s Best Companies Simulate to Innovate, Michael Schrage writes:

Innovation requires improvisation.  It means innovation is not about rigorously following the “rule of the game” but about rigorously challenging and revising them.” Schrage says that his book, “is a journey from ethnography to ethology, from describing cultures of prototyping and simulations to the behaviors of people who build and use models together.

Written more than ten-years ago, the book holds relevance to how technological developments can re-form the way humans behave when given the change to apply them to their tasks.  Two chapters trace the way the invention of the spreadsheet transformed the way people not only conducted business but spawned ways of trading money, stocks and mortgages which were unimaginable prior to the invention of this rather simple application.

The story of the financial innovations and financial engineering that transformed the business landscape of the 1980’s is written in the cells of spreadsheet software.  Every major deal was touched by this technology. From Michael Milken’s high-yield “junk-bond” financing  to Kohlberg Kravis Robert’s leveraged buyouts to the global explosion of “synthetic securities,” spreadsheets functioning as the computational catalysts accelerating the intensifying the dynamics of deal making, Venture capitalist, investment bankers and mutual-fund managers enthusiastically embraced them for their ease and power.

Spreadsheet software enabled organizations to ask themselves questions they had never been able to ask before.  And the same spreadsheets could be used to help answer those questions.

In the ten-years since this book was written there has been an explosion of many types of technological tools that – if put into the appropriate ‘teams” of workers challenged with  prototyping applications of these tools to the government – there is high probability that new value can be brought to the challenges that plague our state and city administrations. The same could be said for schools and school districts.

The Orton Family Foundation has developed a fascinating program called CommunityViz™ which allows many players to simulate community land-use issues.  With modest adaptations, CommunityViz could likely have many other applications that could simulate alternative public management systems.  Other games such as SimCity are commercial applications of gaming options for community involvement with more exciting graphic interface.

An innovation district could start as a virtual world, as a means of testing various options for planning.  Teams could compete for to prove the greatest cost-saving.  Once devised, the foundations, and collaborating government officials could petition to legislature to declare a government “innovation zone” that would impose a moratorium on the “old way” of distributing state and federal funds to nonprofit and government agencies, and allowing for better distribution of funds.

Let’s use the example of the 911 emergency call number referenced above.  Suppose the cities of Lorain and Elyria, along with the County Administrator could simulate a more efficient use of 911.  The system could be simulated and an attached budget sheet could test the hypothesis that $1 million could be saved each year.  A team would include parties from the police departments, EMT’s as well as dispatchers and so called friends who are involved in the project.  The mayors and several citizens would be appointed to sit on a panel to judge the modeling strategies.  In a simulated environment a team could test the model over a five and ten year period.   As in the case of spreadsheets, the modeling could allow city managers to ask themselves questions they had never been able to ask before and the games could provide answers to those questions.

In the midst of a terrible budgetary crisis in public education, foundations have asked the question, “Why in a county of 280,000 people do we need 14 separate school districts each with its own superintendent, curriculum director and host of highly-paid administrators?”  “What does this antiquated managerial system cost the taxpayer?” and finally, “With communication technology the way it is, can there not be a more efficient way to manage schools across the county?’ The reaction is general discomfort at best because everyone asks the same questions but few are brave enough to ask it openly.  Fewer still have any expectation that “the public school system” would change.   In an innovative zone, one could simulate the 14 districts and empower a couple of civic teams to model new ways of dealing with the issue and see what savings could result to the State educational budget.  The simulation could factor in successful charter and non-profit schools and factor in their costs and outcomes into the model.  The team that wins the prize could be rewarded with a civic engineer award with a dollar amount established by one or a group of foundations who have an interest in finding more efficient use of public dollars.

Once the “game” is proven, the legislature could provide an official designation of Innovation Zone which would enable the community to have voice in allocating the state and federal dollars.  Philanthropy could have a better sense of where it’s dollars could yield higher impact in the equation.

I can submit one final example.  Lorain Count has two tertiary-care charity hospitals and three separate public health systems: one for the City of Lorain, one for the City of Elyria and yet another for the County areas not in the Lorain or Elyria city limits.  These administrations were established at the turn of the century when the cities were more densely populated and when the primary public health challenge was prevention and management of infectious diseases.  Today, most primary health care clinics and an ever growing pharmacopoeia can treat infectious diseases.

These expensive administrative institutions serve as distribution depots to Federal and State funds that try to deal with what amounts to chronic diseases.  They were never set up for that problem and as a result are not the most efficient means of addressing that public health challenge.  In a previous blog post, I discussed a grant in which our foundation convened more than 35 citizens who were engaged in some level or another in health care delivery in the county.  Participants included physicians from the charity hospitals, directors of the Drug and Alcohol and Addition Boards, the board of Mental Health, the free clinic as well as the local public health agencies.  Each of these people would happily take part in modeling a new way of doing business. They realize that the way things are now will only exacerbate a dismal state of health care in the county.

Innovation zones are really a means for a public entity to provide the platform for greater citizen engagements.  If you listen to Michael Schrage’s comment on Innovation and shift the mental framework from his discussion of business to government, you can imagine how innovation can shift the way citizens (customers) engage with their public institutions.

Philanthropy can play an important role in stimulating this level of civic engagement.  I welcome thoughts or examples from colleagues.