AN OHIO TECHNOLOGY-BASED ECONOMIC DEVELOPMENT STRATEGY

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INNOVATION—THE FUTURE OF

OHIO’S ECONOMY

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PREPAREDFOR:

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Ohio Department of Development

PREPARED BY:

Technology Partnership Practice

Battelle Memorial Institute

Cleveland, Ohio

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List of Figures

Figure 1: Ohio and U.S. Technology Subsectors...8

Figure 2: Ohio Technology Industry Groups...10

Figure 3: Ohio Technology Industry Groups (closeup)...11

Figure 4: Technology Subsector Employment by Metropolitan Region, 2001 ...15

Figure 5: Composition of High-Technology Workforce in Ohio, FY 2000 ...17

Figure 6: Ohio’s High-Technology Occupation Share of Total Workforce Relative to U.S. Average, FY 2000...18

Figure 7: Science and Engineering Occupations by Industry Subsector, FY 2000 ...19

Figure 8: Pasteur’s Quadrant...24

Figure 9: State Research Role to Exploit Federal R&D, Bridge the Innovation Gap...24

Figure 10: Ohio’s Areas of Core Competency...28

Figure 11: Venture Capital Funding by State, 1995-2001 ...53

Figure 12: Phases I and II SBIR and STTR Amounts and Awards for All Agencies, FY 1998-2000...54

Figure 13: Total R&D as a Percent of GSP, FY 1998 ...56

Figure 14: Technology-Related Academic R&D by Discipline, FY 1999 ...58

Figure 15: Educational Attainment, 2000 School Year ...60

Figure 16: Technology-Related Degrees Awarded, All Levels, 2000-2001 Academic Year...60

Figure 17: Per Capita Income, 2000 ...82

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List of Figures

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Figure 19: Drivers of Ohio’s Future Economy ...87

Figure 20: Linear vs. Nonlinear Models for Product Innovation...92

Figure 21: Critical Areas of Capital Fund Needs in Ohio...107

Figure 22: Strategic Continuum...132

Figure 23: Georgia Research Alliance Model ...137

List of Tables

Table 1: Ohio Technology Industry Group Strengths...9

Table 2: Technology Subsectors by Metropolitan Area, 2001 ...13

Table 3: Comparison of New Degrees Awarded in Technology Fields and Projected Annual Job Openings in Ohio...20

Table 4: National Employment Projections for Ohio Technology Strengths ...21

Table 5: Key Fields of Research Growth in Ohio: Percentage Growth in Research from FY 1995 to 1999, Ohio and the United States...26

Table 6: Technology Strategies in the Benchmark States...48

Table 7: Total Patents Issued, FY 1996-2000...50

Table 8: Ohio Universities’ Technology Transfer Activity, FY 1996-1999...52

Table 9: State Research and Development, FY 1998 ...55

Table 10: Technology-Related Academic R&D, FY 1995-1999...56

Table 11: Academic R&D in Technology-Related Disciplines, FY 1999...57

Table 12: Lessons Learned...64

Table 13: Ohio’s Current Investments ...67

Table 14: Academic R&D Per Capita, FY 2000...83

Table 15: Industrial R&D, 1998...83

Table 16: Utility Patents Per Capita, 1996-2000 ...85

Table 17: University Patenting, Licensing, and Spin-offs, FY 1996 through FY 1999 ...85

Table 18: Ohio’s Technology-Based Economic Development Strategies and Actions...88

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Executive Summary

Ohio is at a critical juncture in its development. Prospering during and since the Industrial Revolution, the state is now in transition from an economy where firms depended on natural resources, semi-skilled workers, and mass production to an economy driven by talent, tech-nology, and capital and characterized by constant innovation and short product life cycles. Technology offers Ohio a path for manufacturing modernization and growth, as well as spurring new technology firms and industries from its research base. Technology can lead to faster business growth, higher wages, and a larger multiplier effect for the economy. Ohio really has but one choice—either embrace and adapt to a technology-driven world or be left behind. Ohio’s path should be built on its manufacturing heritage to become the cutting-edge location for new products and processes through the application of research. Ohio can be a leader in advanced manufacturing and technology industries, such as biomedical and life sciences; information sciences; materials; energy; and instruments, controls, and electronics. The key to both advanced manufacturing and technology is product innovation—developing, designing, and manufacturing new products, and technology-driven production processes.

In 2001, the Ohio Department of Development initiated a strategic planning process to guide future public and private investment decisions in Ohio. A Steering Committee was established to oversee this effort, and Battelle Memorial Institute’s Technology Partnership Practice (TPP) was engaged. Innovation—The Future of Ohio’s Economy: An Ohio Technology-Based Economic Development Strategy is the result of these efforts.

The following strategies have been designed to be driven by industry and capitalize on Ohio’s current comparative advantages, while focusing its future investments on building the tech-nology, knowledge, and capital that will ensure Ohio’s success for years to come.

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The proposed vision for Ohio’s future economic direction is captured in the following paragraph, which both boldly and realistically describes the state 10 years from now:

Ohio is a globally competitive, leading-edge, high-value-added technology-driven state that develops, designs, and commercializes leading-edge products. Its world-class research capabilities in its private and public research organizations and its leading product design, development, and manufacturing capabilities in the private sector have established Ohio as a leading applied innovation state.

The state and its key public institutions are effective facilitators working with the private sector as Ohio’s job and wealth generators to ensure the talent, technology, and capital to maintain and increase their competitive position.

Ohio will need to strategically position itself based on its current comparative advantages as well as emerging areas of opportunities if it is to achieve this ambitious vision. The following

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ASE The overall technology sector in Ohio is already quite large, and is continuing to expand at a rapid rate. Using the federal government’s methodology, technology is defined by 31 SIC codes, which include advanced manu-facturing sectors as well as research intensive emerging technology fields. Using this definition, it is discovered that Ohio is 14 percent more concentrated in technology employment than the nation and its growth rate has exceeded that of the nation over the past six years.

There are causes for both optimism and concern, however, when looking at Ohio’s existing industrial base:

• On the positive side, advanced manufacturing remains a larger portion of the technology sector in Ohio than across the nation, accounting for nearly 20 percent of establishments and just over half of all technology employment.

• In addition, technology-intensive services more than doubled in employment between 1995 and 2001, whereas technology-intensive manufacturing employment grew by only 8 percent. • On the negative side, Ohio’s concentration in larger, older, traditional industries dominates

its industrial composition and is currently driving its economic future. The fact that the Ohio technology sector is disproportionately composed of older, more established firms, as well as firms that are not designing, developing, and making new products in Ohio, indicates a relative lack of innovation and entrepreneurialism, crucial components of a dynamic, fast-paced technology sector.

• In addition, technology employment in many cases is being managed by out-of-state firms. Branch sites account for a quarter of the establishments and nearly 55 percent of the

employment, which raises concerns about the ability of the state to guide technology development in accordance with state and regional conditions and preferences.

Figure ES-1: Ohio and U.S. Technology Subsectors

Ohio Technology Profile (2001) • 28,117 establishments • 819,300 employees • 45.0% employment growth, ’95-’01 • 51.8% establishment increase, ’95-’01 • Location quotient 1.14 20% 3% 5% 7% 48%

Ohio Employment U.S. Employment

18% 10% 9% 10% 17% 28%

Plastics & Chemicals ($62) Digital Infrastructure ($77) Bioscience ($71) Digital Services ($81) Advanced Manufacturing ($53) Aerospace ($60) 26%

Notes: Cross-hatching indicates that the subsector lost employment between 1995 and 2001. All six U.S. subsectors gained

20%

3% 5%

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18% 10% 9% 10% 17% 28%

Notes: Cross-hatching indicates that the subsector lost employment between 1995 and 2001. All six U.S. subsectors gained

20%

3% 5%

7%

48%

18% 10% 9% 10% 17% 28%

Plastics & Chemicals ($62) Digital Infrastructure ($77) Bioscience ($71)

Digital Services ($81) Advanced Manufacturing ($53) Aerospace ($60)

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When individual subsectors are examined, it is discovered that Ohio today is a leader in advanced manufacturing and an emerging participant in the nationwide phenomenon of technology-based industries. While advanced manufacturing forms the largest portion of the Ohio technology sector, plastics, chemicals, biosciences, and digital services are substantial and growing components as well. In addition, recent expansion in technology-intensive research and consulting provides a foundation for future technology industries.

As would be expected, employment in technology-intensive industries follows the distribution of the state’s population reasonably closely. Major cities, including Cincinnati, Cleveland, Columbus, Dayton, and Toledo, are prominent in technology employment. Figure ES-2 charts absolute employment figures for the larger subsectors within each major metropolitan area. In addition, those subsectors that can be regarded as a specialization (i.e., a location quotient greater than 1.2) are denoted in red text.

Figure ES-2: Technology Subsector Employment by Metropolitan Region (2001)

When Ohio’s technology workforce is examined, it is discovered that four percent of Ohio’s workforce is employed across the broad range of scientific, computer, and engineering occupa-tions. However, across all technology occupations, Ohio has a lower overall concentration of technology workers when compared with the nation. Consistent with Ohio’s emphasis on advanced manufacturing and advanced material industries, Ohio stands out in its concentration of engineers and technicians. However, a particular area of weakness in Ohio is its lower

Toledo Toledo

Adv. manufacturing- 20.1 Plastics & chemicals - 3.5

Youngstown Youngstown- -Warren Warren Adv. manufacturing- 10.6 Dayton

Dayton--SpringfieldSpringfield

Adv. manufacturing- 34.5 Digital services- 16.3 Digital infrastructure - 5.0 Aerospace - 2.8 Cleveland Cleveland Adv. manufacturing- 45.2

Plastics & chemicals- 22.3 Digital services - 14.5 Bioscience - 7.1 Digital infrastructure - 5.3 Aerospace - 4.3

Cincinnati

Cincinnati--HamiltonHamilton

Plastics & chemicals- 59.0

Adv. manufacturing- 27.0 Digital services- 23.9 Bioscience- 14.1 Digital infrastructure - 4.4 Columbus Columbus Digital services - 25.7 Adv. manufacturing - 21.7 Bioscience - 6.8 Plastics & chemicals - 4.4 Digital infrastructure - 4.2 Aerospace - 2.1

Akron Akron

Adv. manufacturing- 11.4

Plastics & chemicals- 5.1 Digital services - 4.6

Canton

Canton--MassillonMassillon

Aerospace - 2.1

non

non--metropolitan Ohiometropolitan Ohio

Adv. manufacturing- 66.7 Plastics & chemicals - 7.2 Bioscience - 4.9 Digital services - 3.6 Digital infrastructure - 2.4 Note: Numbers given are 2001

employment figures, in thousands. Only subsectors with at least 2,000 employees in the metropolitan region are included.

Toledo Toledo

Adv. manufacturing- 20.1 Plastics & chemicals - 3.5

Youngstown Youngstown- -Warren Warren Adv. manufacturing- 10.6 Dayton

Dayton--SpringfieldSpringfield

Adv. manufacturing- 34.5 Digital services- 16.3 Digital infrastructure - 5.0 Aerospace - 2.8 Cleveland Cleveland Adv. manufacturing- 45.2

Plastics & chemicals- 22.3 Digital services - 14.5 Bioscience - 7.1 Digital infrastructure - 5.3 Aerospace - 4.3

Cincinnati

Cincinnati--HamiltonHamilton

Plastics & chemicals- 59.0

Adv. manufacturing- 27.0 Digital services- 23.9 Bioscience- 14.1 Digital infrastructure - 4.4 Columbus Columbus Digital services - 25.7 Adv. manufacturing - 21.7 Bioscience - 6.8 Plastics & chemicals - 4.4 Digital infrastructure - 4.2 Aerospace - 2.1

Akron Akron

Plastics & chemicals- 5.1 Digital services - 4.6

Canton

Canton--MassillonMassillon

Aerospace - 2.1

non

non--metropolitan Ohiometropolitan Ohio

Adv. manufacturing- 66.7 Plastics & chemicals - 7.2 Bioscience - 4.9 Digital services - 3.6 Digital infrastructure - 2.4 Note: Numbers given are 2001

employment figures, in thousands. Only subsectors with at least 2,000 employees in the metropolitan region are included.

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concentration of scientific workers. This suggests that Ohio’s overall industry base is less research intensive than the nation.

Ohio’s institutions of education are producing large numbers of qualified technology graduates, yet the growth of Ohio’s technology industries is not sufficient to provide employment for all of them. Indeed, if current trends continue, the future is likely to bring an ever greater disparity between technology education and technology employment opportunities in Ohio as the state’s traditional technology industry strengths support constant or declining numbers of new

technology job openings.

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Ohio has a set of basic research drivers, found largely across universities, federal laboratories, and public and private research institutes, which helps define a set of core competencies upon which to build its technology future. A key role for states is to help bridge the gap in translating innovation between pure basic research and the more applied and development-focused tech-nology needs of industry. In other words, Ohio should focus on matching use-inspired basic research to the short-term, product-driven needs of industry to advance market-driven approaches to product development, as illustrated in Figure ES-3.

Figure ES-3: State Role to Bridge the Innovation Gap

Ohio has five areas of core technology and research strength:

• Advanced materials: The development of new classes of materials with unusual properties (e.g., strength, wear characteristics, and electromagnetic properties) is expected to open up a broad range of opportunities, including new product development, research leading to next-generation machines, improvements in product performance and cost, and waste-free

Federal Research International Sources Cross Industry Sources Researc h Univer sities Co llab ora_tiv e Res_earc h Corp orat e Labs Co rpo_rat e IR&D Global Outsourcing Catalytic role of government Unsupportable by industry alone Advanced Research (Strong U.S. position from federally sponsored research)

Product Development

Cycle Market Breakdown

(Major U.S. gap)

Customer Drives Integrate Product Unmet Needs

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products. The typical research activities include the processing of metals, ceramics, polymers and composite materials.

• Biosciences: The advent of biotechnology over the past 20 years has revolutionized biomedical and agricultural research, enabling the use of detailed information about the operations of cells and molecules to pursue more focused interventions on disease processes. One key aspect to the continuing advancement of the biosciences is its strong technology convergence with fields such as information technology, chemistry, nanotechnology, MEMS, and other engineering disciplines.

• Instruments, controls, sensors, and advanced manufacturing technologies: Major thrusts in the years ahead will be reconfigurable manufacturing systems involving adaptable, integrated equipment, processes, and systems, along with the ability to produce microdevices and undertake net shape forming and nanofabrication processes. Key advances will include novel design of machine tool components; reliable on-line, remote/wireless sensing tech-niques; enhanced metrology; and robust control technologies to improve the effectiveness and the responsiveness of the unit manufacturing processes. Key enabling technologies include robotics, MEMS, and advanced algorithm development.

• Power and propulsion: Power and propulsion systems are the basic drivers of the industrial age. But, this area is far from a relic of the past. From automobiles to aerospace to industrial combustion to device batteries to fuel cells, power and related propulsion systems remain critical technologies and continue to undergo significant advances.

• Information technology: The ability to collect, manage, process, interpret, present, deliver, and protect information in real-time involving large-scale data across distances and different media is becoming a ubiquitous requirement for our society. Continued fundamental

advances in research areas such as high-speed networking and large-scale data processing, data mining and data visualization, distributed computing, and software algorithm develop-ment for artificial intelligence and embedded systems are critical to ensure the benefits of our advancing information society.

These core areas translate into technologies that can be applied, used, and developed by a broad range of Ohio’s existing and emerging industries as seen in Figure ES-4. Ohio’s challenge is to improve its ability to develop, design, and manufacture, integrating the best of science into a new generation of advanced processes and products.

Figure ES-4. Ohio’s Core Research and Technology Strengths

Core Research Strengths Industry End-Users

Advanced Materials Biosciences

Instruments, Controls, and Electronics Power and Propulsion

Information Technology

Food Processing Auto Parts

Biotechnology Auto Assembling

Industrial Machinery Plastic Products

Engines, Motors, and Pumps

Pharmaceuticals _{Medical Devices}

Aerospace

Core Research Strengths Industry End-Users

Advanced Materials Biosciences

Instruments, Controls, and Electronics Power and Propulsion

Information Technology

Food Processing Auto Parts

Biotechnology Auto Assembling

Industrial Machinery Plastic Products

Engines, Motors, and Pumps

Pharmaceuticals _{Medical Devices}

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Key Success Factors

• Engaged universities with active leadership

• Intensive networking across sectors and with industry • Available risk capital

• Discretionary federal or other R&D funding support

• Workforce and talent pool on which to build and sustain efforts

• Access to facilities and equipment

• Stable and supportive business environment • Patience and a long-term

perspective

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Silicon Valley, Route 128, the Greater Washington Corridor, and Research Triangle Park are generally regarded as the nation’s premier technology-driven centers of commerce. An examination of the factors that have enabled these regions to succeed in growing their technology bases demonstrates that they share the following characteristics:

• Engaged universities with active leadership. Technology-driven economies have outstanding research institutions committed to building and sustaining technology-intensive industrial sectors. Successful states and regions depend on institutional world-class excellence in pertinent areas of applied science and engineering research to drive the economy.

• Intensive networking across sectors and with industry. Mechanisms that facilitate intensive networking within and between industry sectors cultivate a proactive environment. Included in this networking is the need to foster an entre-preneurial culture. The most successful technology regions facilitate extensive and intensive networking both across the academic/ industrial boundary and between companies in allied sectors or in a supply-chain relationship.

• Available risk capital covering all stages of the business cycle. Access to early-stage risk capital is a critical factor in

building a technology-driven economy. One characteristic shared by leading technology states is that they are home to a venture capital community, including angel investors, that is committed to early-stage local investment.

• Discretionary federal or other R&D funding support. Leveraging of substantial, ongoing, external, discretionary R&D funding can have a significant impact on a state economy. To build generic R&D assets into an effective attractor of technology investment requires leverage of substantial, ongoing, external, discretionary funding.

• Workforce and talent pool upon which to sustain efforts. A supply of qualified,

trained workers is critical to the development and sustainability of a technology-based/advanced manufacturing economy. Competing in the knowledge economy requires a population that is both highly educated and committed to life-long learning. Successful states and regions educate their citizens at a rate well above the average, attract educated individuals from other states, and have in place mechanisms for the continued education of workers at all levels.

• Access to specialized facilities and equipment. Technology-based emerging firms require access to specialized facilities and equipment. Facility costs are among the most significant expenses for many technology start-ups. States have sought to meet this need by developing accelerator facilities, helping firms to finance facilities and leasehold improvements,

providing access to specialized equipment, and developing incubators and research parks. • Stable and supportive business environment. Advanced manufacturing/technology-based

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are utilized to spur growth. Policies that recognize the long development cycle in technology can help firms maintain a sound capital structure and ensure a level playing field with respect to old economy industries.

• Patience and a long-term perspective. One final lesson from every successful technology community is that success takes time. Silicon Valley and Route 128 trace their origins in electronics to the 1950s and in the life sciences to the 1970s. Research Triangle Park

represents a 50-year strategy that only recently has found its footing in the biosciences and is still working to develop full capability in the entrepreneurial sector. Success requires a long-term perspective and patient commitment.

Table ES-1 provides the lessons learned from the benchmarking exercises of other states in technology-led economic development and compares these with an assessment of gaps currently facing Ohio in building a technology-driven economy.

Table ES-1: Lessons Learned

Lessons Other States Ohio Gaps

Engaged Research Universities

Best practice universities have a long history of engagement, going back 20 to 30 years

Universities demonstrate business-higher education connectivity throughout operations

Major investments in facilities, endowed chairs, and research capacity

User-inspired research permits both publication and firm formation and spin-offs

Increased higher education interest, with several public universities increasing their commitment in recent years

OSU cited as one such university in recent years; and Akron, OU, and KSU also moving in these directions

Insufficient state funding of research facilities, endowed chairs, and start-up packages to recruit star faculty

Both basic and applied research focused on industry needs and interests is needed Networking,

Collaboration, and Entrepreneurship

Technology councils with active memberships engaged

Entrepreneurial support organizations and networks well-established with many events and a broad set of services

Engaged business service providers

Most of Ohio’s regions established councils in recent years; more need to be membership driven or supported as found in other states

Most regions established entrepreneur-ship organizations with varying levels of resources and capabilities

Knowledgeable business service

providers generally, but without sufficient business in Ohio, necessitating serving firms outside the state

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Table ES-1: Lessons Learned (continued)

Lessons Other States Ohio Gaps

Available Indigenous Venture Capital

All stages of venture capital available in best-in-class regions and states

Aspiring states and regions generally establish, with state and other financial support, pre-seed/seed funds or are making plans to do so

Limited venture funding available and what is available is generally targeted at later stages

Considerable investing of Ohio-based venture funds outside state

Very limited pre-seed/seed sources of financing for technology entrepreneurs Discretionary

Federal Funding Successful states consistently secured federal discretionary and earmarked funds

States’ leading universities highly ranked in NIH and NSF funding Major federally designated centers or institutes established

State and Congressional Delegation increasing focus on science and technology investments for Ohio Continued increases in ranking and shares three Ohio regions in NIH funding Ohio has NASA Glenn, Wright-Patterson AFB, and EPA Research Labs

Workforce and Talent Pool

Becoming discriminating vehicle among states

States with high quality of life attracting talent from other states

Other states without similar quality of life must focus on in-state firm recruitment, internships and work/study experiences

Workforce Board working on issue

Continued migration of selective talent outside state primarily due to lack of opportunities

No organized and systematic internship/ work-study program or efforts to

encourage in-state firm recruitment of graduates

Facilities and Equipment Infrastructure

Best-in-class states offering research parks, incubators, accelerators, pilot plants, test bed facilities, and related access to university capabilities

Ohio has been a leader in incubator development; more limited efforts exist regarding accelerators

Few specialized facility developments underway in major population centers Stable and

Supportive Business Environment

Incentives to encourage growth of technology-driven firms through modernized economic development tool kit

Tax structures generally leveled to treat technology-driven and manu-facturing firms evenly

Established brand name/image around technology themes

While state’s economic development tool kit tilted toward traditional industries, internal review completed to make it more conducive to technology firms

No systematic review of state’s tax code undertaken to date

Limited statewide image Patience and a

Long-Term Perspective

Minimum time period of 10 to

12 years for success to be seen, and most states/regions have taken 25 years or more

Ohio has been addressing technology-led economic development since the mid-1980s

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This assessment of Ohio’s competitive position suggests that the state needs to focus on

addressing, among other items, key success factors, such as the need for technology transfer and commercialization mechanisms, pre-seed/seed stage capital, and discretionary research and development funding. Additional investments will be required to place Ohio on an equal footing with the nation’s leading technology-driven economies.

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Ohio has a strong history of technology investments that stem from the recession of the early 1980s, which hit the state’s manu-facturing sector particularly hard. In response to that recession, Ohio policy makers developed the Thomas Edison Program, a cooperative technology program for improving the competitiveness of its companies. Established in 1984, the Edison Program was a partnership of Ohio industry, government, and academia formed to

strengthen Ohio’s economy. Since that time, the Edison Program has evolved to undertake new challenges in an ever-changing climate; and the state has added to its arsenal of science and technology program activities under the Ohio Board of Regents, the

Governor’s Science and Technology Office, the Biomedical Research and Technology Transfer Commission, as well as activities at Ohio’s colleges and universities. However, the state’s approach to economic development has focused on programs instead of a strategic vision, thereby spreading small amounts of funds widely across the state, adversely affecting scale and impact.

Although there have been significant investments over the last two decades, Ohio’s overall economic base has coasted toward complacency as shown by the following trends:

• Ohio remains an important Midwest industrial state, but other states are slowly eclipsing it. The state still has, in absolute terms, a large number of firms, jobs, educational institutions, and other assets. But, its rankings on most measures of economic progress are moving in the wrong direction, forewarning its policy leaders that the time for action is upon them.

• While Ohio’s talent base has continued to improve, so has that of its competitors. Trained workers have had to emigrate to find the jobs for which Ohio’s educational system has prepared them. Partially as a result of its trained workers leaving the state, Ohio ranks poorly in terms of the literacy and educational attainment levels of its existing workforce.

• Ohio has not developed a robust entrepreneurial climate as evidenced by its various poor rankings related to start-up activity and technology commercialization.

Strengths on which to Build

• Ohio’s industry is perceived as making things well, which has enabled Ohio to cultivate an exporting strength in manufactured products. The supply chain for the industrial sector is world class. • There is a broad mix of research drivers, including

universities, federal laboratories, and research organizations.

• Ohio has a vast array of networking organizations. • Ohio is centrally located.

• Quality of life is perceived as high. The state encompasses a unique micropolitan market—Ohio has more small towns ranked with a high quality of life than any other state.

• Overall, the business environment is conducive to fostering development.

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If Ohio is to succeed in this new industrial age, it must ensure its competitive position by focusing on three key areas:

• Ohio must have a strong core set of

industries and firms that constantly innovate, not only the products that they make but also the technological processes that they use to make them—technology and technological innovation are key to both new and existing industries.

• Ohio must have the talent base of

knowledgeable workers at all levels—from technician to postdoctorate—that can develop and apply knowledge to the design of new products and their production. • Ohio must have capital markets receptive

and prone to investing in innovative firms and entrepreneurs developing and applying this cutting-edge technology to products and processes.

Weaknesses to Overcome

• The transfer of technology from the state’s numerous research institutions has not been as effective as would be expected, and as a result, has not reaped economic returns for the state. • Ohio’s historical base in traditional manufacturing

has led to complacency toward new product innovation, resting instead on traditional markets. • Ohio’s economic development efforts have been

project-oriented instead of strategically focused. • Ohio suffers from a seven city-state mentality. • There is a general lack of industrial awareness

regarding the state’s economic development efforts.

• There is a lack of new firm formation.

• There is a lack of seed and early-stage equity funds for investment in new companies. • While Ohio does well in employing technicians,

it does not provide sufficient employment opportunities for advanced degree workers from Ohio’s educational institutions.

• The state’s economic development incentives have not promoted the formation of a technology-based economy.

• Ohio’s population is stagnant.

• Ohio lacks a technology image in business and in the general population.

• The business tax structure needs modernized to

encourage and reward growth in product innovation.

Opportunities on which to Capitalize

• The state has many of the essential ingredients upon which to build a technology-driven economic future, including research, talent, and capital.

• The state must build on its manufacturing heritage by encouraging firms to undertake development and design.

• There is the opportunity to align existing state programs to strategically focus the state’s investments to build a technology-driven future.

• Ohio’s institutions of higher education are generating an excellent supply of technology graduates.

• The state’s significant efforts to support and invest in “technology infrastructure” can be further expanded to address such areas as research parks, accelerators, pilot plants and demonstration facilities, and joint ventures and consortia.

• The state and its various regions have made investments recently in programs and mechanisms to build a stronger entrepreneurial culture. There is the opportunity to leverage this momentum and invest additional resources into supporting emerging industries.

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Ohio can become a leader in the 21st century only if it addresses the following key drivers for building a stronger technology-driven economy:

• Increase business—higher education connectivity around talent and technology within and across Ohio’s regions.

• Increase the number of strong advanced

manufacturing firms and anchors throughout the state that represent leadership in product

development and applications.

• Build an entrepreneurial culture and climate in Ohio by increasing the birth rate of cutting-edge firms, reducing their death rate, and creating a climate and environment for entrepreneurial celebration and success.

• Reinvigorate state and local economic

development leadership to support a business climate in Ohio that recognizes excellence through strategic state and regional investments around core technology competency strengths and support tools and programs responsive to the needs of technology-driven firms.

• Strengthen the human infrastructure—the base of knowledgeable people that has replaced physical infrastructure as the source of economic strength.

S

TRATEGIES AND

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It is proposed that Ohio initiate a set of four strategies and an associated set of 16 actions to achieve its vision for the future. This “blueprint” has been developed to provide focus for strategic investments and, as such, should always be driven by industrial needs. These strategies and subsequent actions are based, in part, on best practices from around the nation. However, the key strategic elements that provide specific solutions to Ohio’s industrial needs are unique for the state and are built on Ohio’s specific attributes and resources. The four strategies are as follows:

• Build world-class R&D stature in areas of core competency that are relevant to the existing competitive advantage of Ohio’s industry and in which the state’s higher education and private research organizations can excel jointly.

• Create an entrepreneurial economy permeating the state’s public and private organizations

• Promote a proactive business climate with incentives conducive to development and applications in advanced manufacturing and technology industries.

• Develop, retain, and expand the state’s workforce to ensure a sufficient intellectual, entrepreneurial, and technical talent base.

Threats to Minimize

• Increasing international competition from offshore manufacturing—whenever a product turns into more of a commodity— threatens Ohio’s future.

• Geographic shifts in the transportation industry could impact Ohio’s viability as a key supplier—Ohio has less of a strategic advantage than it did a decade ago. • Expectations for supply-chain advanced

manufacturing capabilities are rising. • There is an increasing internationalization

of Ohio firms.

• Other states are making significant investments to diversify and modernize their economies around technology and people.

• Potential cuts in federal budgets could have negative impacts on the state’s efforts to build a stronger science, technology, and commercialization base.

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Table ES-2 summarizes the actions proposed under each of these strategies. It is anticipated that these strategies would be implemented over a five-year period. Immediate priorities are those that should be undertaken in the first year; short-term priorities are those to be undertaken in the one- to three-year period; and mid-term priorities are those to be implemented beginning in years three to five.

Table ES-2. Ohio’s Technology-Based Economic Development Strategy and Actions

Strategy Action Priority

Establish competitively designated Centers of Innovation around Ohio’s core technology competencies that have industry interest and support. Such centers will provide a range of functions from research to technology

commercialization.

Immediate

Strategy One

Build world-class R&D stature in areas of core competency that are relevant to the existing competitive advantage of Ohio’s industry and in which the state’s higher education and private research organizations can excel jointly.

Establish the Ohio Product Development Network (OPDN) to assist the state’s existing manufacturers to use, apply, and develop technology to improve their products and processes.

Immediate

Invest in additional pre-seed/seed funds geographically

focused among all major regions of the state. Immediate Establish technology-specific venture equity funds

around each Center of Innovation to address all stages of investment.

Immediate

Establish a full-fledged comprehensive one-stop entre-preneurial development center, targeted to advanced manufacturing and technology start-ups, in each major region of Ohio.

Short-Term

Strategy Two

Create an entrepreneurial economy permeating the state’s public and private

organizations.

Increase priority given by Ohio’s higher education

institutions to technology transfer and commercialization.

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Table ES-2. Ohio’s Technology-Based Economic Development Strategy and Actions (continued)

Strategy Action Priority

Energize industry-led technology councils/organizations to increase scale and intensity of networking and firm involvement.

Mid-Term

Make changes in the state’s tax incentives and laws to encourage technology infusion and applications into existing and new businesses in the state by a comprehensive review of its technology impact.

Short-Term

Ensure that Ohio’s public and private sectors are providing adequate technology infrastructure.

Short-Term

Revamp the state’s economic development tool kit of incentives and programs and form the Innovation Ohio Fund to represent a direct targeted program to support these efforts.

Immediate

Strategy Three

Promote a proactive business climate with incentives con-ducive to development and applications in advanced manufacturing and technology industries.

Initiate a focused and selective Ohio technology branding and image campaign.

Short-Term

Encourage the state’s educational system to offer minimum technology curricula for all graduates.

Mid-Term

Investigate the need for further integrating the state’s educational system through enhanced partnerships that provide seamless delivery.

Short-Term

Make Ohio’s higher education system first in the nation by “fast tracking” new multidisciplinary and emerging field curricula in areas of state core competency.

Immediate

Expand the scale and level of industry participation and sponsorship of internship and co-op programs available from the state’s higher education institutions.

Mid-Term

Strategy Four

Develop, retain, and expand the state’s workforce to ensure a sufficient intellectual, entre-preneurial, and technical talent base.

Improve the product of K-12 education as well as upgrade and retrain the existing workforce in technology-based skills and knowledge.

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Figure ES-6 illustrates how the 16 actions address in a logical and systematic fashion the gaps facing Ohio in becoming the leading applied innovation state. Each of the actions proposed is linked systematically to other actions, and the entire set of strategies is designed to help position Ohio for the future. In contrast to Ohio’s traditional state approach, investing in specific projects with the hope that individually and regionally they would result both in a vision and a strategy of success, this effort involves creating the strategic framework based on a stated vision from which individual projects and investments can be considered and assessed.

It is envisioned that state dollars will leverage significant private, philanthropic, and federal funds. This strategy is intended to be driven by industrial needs. As such, state funding should be utilized to fill the gaps for projects and initiatives that are being driven by nonstate resources.

Figure ES-6. Strategic Continuum

Ohio Research & Technology Alliance (ORTA) Centers of Innovation Multidisciplinary Curricula ORTA Centers of Innovation OPDN Technology Development Funds (Centers of Innovation) Pre-Seed/Seed Funds Tax Incentives Entrepreneurial Centers Technology Specific Venture Funds Tech Infrast.

Research

&

Development

Technology

Application

Firm

Formation

Firm Retention/

Expansion/

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OPDN Tax Incentives Tech Council Tech Infrast. Image/branding Interns/Co-ops Workforce Skills Ohio Research &

Technology Alliance (ORTA) Centers of Innovation Multidisciplinary Curricula ORTA Centers of Innovation OPDN Technology Development Funds (Centers of Innovation) Pre-Seed/Seed Funds Tax Incentives Entrepreneurial Centers Technology Specific Venture Funds Tech Infrast.

Research

&

Development

Technology

Application

Firm

Formation

Firm Retention/

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OPDN Tax Incentives Tech Council Tech Infrast. Image/branding Interns/Co-ops Workforce Skills

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I

MPLEMENTATION Critical Actions

Seven of the 16 proposed actions will ultimately determine the success of these strategies: • Establish competitively designated

Centers of Innovation around Ohio’s core technology competencies that are driven by industry interest and support. Such centers will provide a range of functions from research to technology commercialization.

• Establish the Ohio Product Develop-ment Network (OPDN) to assist the state’s existing manufacturers to use, apply, and develop technology to improve their products and processes.

• Invest in additional pre-seed/seed funds geographically focused among all major regions of the state.

• Establish a full-fledged comprehensive one-stop entrepreneurial development center, targeted to advanced

manufacturing and technology start-ups, in each major region of Ohio.

• Initiate a focused and selective Ohio technology branding and image campaign.

• Encourage the state’s educational system to offer minimum technology curricula for all graduates.

• Make Ohio’s higher education system first in the nation by “fast tracking” new multidisciplinary and emerging field curricula in areas of state core competency. Immediate Work Plan Priorities

Immediate work plan priorities are those steps the state should undertake in the first 12 months of strategy implementation:

• Initiate Centers of Innovation process, including RFP guidelines as funding becomes available from the legislature. Capital budget dollars may be available before operating funds, but the process of designation can be initiated.

• Issue guidelines and accept proposals from consortia to establish the Ohio Product Development Network (again, capital budget dollars can be used).

Centers of Innovation

• Centers will be competitively selected in areas of state technology core competencies over the coming decade, which will provide the core technology base for Ohio’s industry to make Ohio the leading applied innovation state.

• Centers are expected to become both world class research and development centers and places where new products are designed and developed in cooperation with Ohio’s current and emerging industries

• State funding will include operating support for Eminent Scholars, recruitment packages, expanded research, technology commercial-ization and related areas, and capital funds for facilities and equipment.

• Centers will be funded in five-year intervals with a review at year three and an assessment of renewal or termination at year five.

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• Encourage public institutions of higher education to reallocate internal funds to technology transfer and commercialization activities as resources permit and encourage the

development of stronger linkages of these offices to other parts of the state’s technology infrastructure.

• Continue to make investments from the Technology Action Board in additional pre-seed/seed funds as appropriation levels permit.

• Begin discussions and encourage state pension funds to invest in a Fund of Funds or Strategic Funds related to potential Centers of Innovation core technology areas. • Establish an entrepreneurial center pilot program to provide assistance to advanced

manufacturing and technology firms. • Explore ways to increase company

participation and the scale of net-working activities in Ohio’s regions and statewide.

• Establish a blue ribbon tax review commission to assess Ohio’s tax structure and laws as they affect advanced manufacturing and technology enterprises.

• Initiate a work group to begin discussions regarding needed invest-ments in technology infrastructure, ranging from specialized facilities to dark fiber.

• Assess whether existing state and regional promotion and marketing funds can be redirected at least partially to focus on making Ohio the applied innovation state and develop a “brand name” for this initiative. • Assess and plan minimum technology

core requirements for all students.

• Begin planning for expanded co-op and internship programs in concert with industry throughout Ohio.

• Identify revised and new multidisciplinary curricula in partnership with industry at Ohio’s institutions of higher education.

• Identify both initiatives and sources of funds to improve K-12 education as well as upgrade the incumbent workforce to better use, adapt, and deploy technologies.

Ohio Product Development Network

• The network will build on Edison manufacturing centers and other problem-solving capabilities in the state’s education and public and private sectors. • The network will focus the efforts of these

organizations on expanding the product design, development, and manufacturing application in-depth support provided to Ohio industry to enable modern-ization and enhanced product innovation.

• Network application centers will focus on specialized areas and offer design, fabrication, testing, and manufacturing product assistance to industry throughout Ohio.

• Network centers will have design labs, pilot plants, and demonstration facilities available for industry use; and each center of the network will specialize in a specific area.

• One-time state funding will provide the capital funds to expand the facilities and equipment that these centers can offer Ohio industry.

• Each network-designated center must reallocate some portion of existing state funds to this specialized new role.

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Performance Goals and Measures of Success and Accountability

It is important that the State of Ohio assess and monitor the strategic investments’ impact on Ohio’s economy. Key measures to monitor progress include

• The level of Ohio citizens’ personal income

• Ohio’s relative rankings in research funding in core technology areas

• Ohio’s ranking in key entrepreneurial performance measures, including the number of new firms, IPO valuation, and venture capital investments

• Funds leveraged by the new investments.

C

ONCLUSIONS

Ohio has the potential to become a leader not only in manufacturing, but increasingly in

developing and designing products. Product innovation is more than just making things. It also involves their discovery, development, design, and prototyping. By focusing on the entire innovation cycle, Ohio can retain its talent, increase its future talent base, and make its current industry base more competitive.

If Ohio is to be successful in these directions, it must

• Build on strengths and competencies when investing scarce state resources.

• Actively bring higher education into partnership with industry by focusing on those areas of advanced manufacturing and technology that offer growth prospects, well-paying jobs, and a receptive industry base on which to build.

• Encourage Ohio’s regions to emulate and replicate this statewide, multiyear strategy in developing complementary regional strategies that enable regions and the state to work from a common framework with common understandings of directions, emphases, and operational expectations.

• Build champions in government, industry, and higher education behind these strategies and encourage their leadership to make things happen.

• Connect the state’s assets in true private-public partnerships and give these time to mature and blossom.

It is recognized that Ohio is making significant investments in science and technology programs through the Department of Development, the Board of Regents, and the Governor’s Science and Technology Office. The actions that have been proposed in this strategy, and the resources that will be required, should not operate as separate activities that constitute new investments. The state will need to align its current activities to this new vision for Ohio. This will entail devel-oping new consortia and improved partnerships. Those existing programs and organizations that choose to remain separate from these activities should find a market for their services that can stand financially independent of future state investment.

Ohio is at a critical juncture, much as it was at the beginning of the Industrial Revolution when Ohio’s know-how and innovative spirit ushered in the century of mass production of autos, steel, metals, and materials. Ohio’s pioneering spirit can be rekindled to usher in the age of information and knowledge and apply the brainpower of Ohio’s citizens to new fields of

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nanotechnology, energy, biosciences, advanced manufacturing, and others. It is a legitimate role of the state government to serve as a catalyst and facilitator. However, it is the private sector that will need to make the investments, develop the collaboration, and design and produce the

products that represent cutting-edge opportunities for economic growth and prosperity. Ohio state government must co-invest with its private sector and educational institutions to build a bright future for its children and grandchildren. It is not too late.

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Introduction

The character of the nation’s economy is changing at a dramatic pace as technology continues to significantly impact the economic growth and wealth of the country. The future is likely to be even more profoundly affected with the development and emergence of new fields derived from both the digital and biological revolutions. The competitive marketplace is global; consequently, factors of comparative advantage are changing. Twenty years ago, traditional comparative advantage factors included natural resources, low-cost labor, and capital. In the New Economy, comparative advantage will not be measured by tangible assets, but instead in terms of ease of access and timely control of knowledge-intensive, value-added capabilities to produce leading-edge, next-generation discoveries, breakthroughs, and systems.

Manufacturing has benefited significantly from the overall advances in technology. Through embedding technology advancements in existing products, significant improvements have taken place in the quality and features of even standard products, such as automobiles and refrigerators. Moreover, the manufacturing process itself has undergone significant improvements with the application of technology advances such as computer-aided engineering, computer-controlled machinery, and supply chain management.

Technology is essential to the growth and success of the modern economy. The automation and customization of manufacturing processes are a precondition for efficiency and profitability within manufacturing enterprises around the globe. Computers and communications technolo-gies have become ubiquitous throughout the industrial and business world. The biological and life sciences have become a leading research field and economic investment for the coming decade. More broadly, globalization of the modern economy is transforming the traditional concept of regional comparative advantage into technologically enabled notions of information, accessibility, and rapidity.

The technology sector is inherently diverse, combining an extensive variety of occupations and expertise, ranging from materials engineering and computer programming to architectural design and biochemistry. The United States is a world leader in researching, designing, and applying technology in industries as diverse as organic chemicals, motor vehicles, and data management. In addition, numerous firms within the business support and service sector have specialized to serve the particular needs of technology-intensive industries.

Technology can play a prominent role in Ohio’s economic development for decades to come and, as such, Ohio is at a critical juncture in its development. Prospering during and since the Industrial Revolution, the state is now in transition from an economy where firms depend on natural resources, semi-skilled workers, and mass production to an economy of knowledgeable workers, constant change and innovation, and short product life cycles. If Ohio is to succeed in this new industrial age, it must ensure its competitive position in three ways:

• Ohio must have a strong core set of industries and firms that constantly innovate, not only the products they make, but also the technological processes they use to make them—

technology and technological innovation are key not only to new industries but also to our current industries.

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• Ohio must have the talent base of knowledgeable workers at all levels—from technician to postdoctorate—who can develop and apply knowledge to the design of new products and their production.

• Ohio must have capital markets receptive and prone to investing in innovative firms and entrepreneurs developing and applying this cutting-edge technology to products and processes.

For a number of years, Ohio has coasted toward complacency. The good manufacturing wages of the industrial age have not made the state’s firms and industry leaders hungry enough to change or to grasp new technologies. Nor have they encouraged private capital markets to flow to such ideas and leaders. While Ohio’s talent base has continued to improve, so has that of its competitors. In addition, this talent base has often had to emigrate to find the jobs for which it was trained. As a result, Ohio ranks poorly in terms of its existing workforce and the literacy and educational attainment levels of that workforce. Ohio remains a large, important Midwest industrial state; but, others are slowly eclipsing it. In absolute numbers, Ohio still has a large number of firms, jobs, educational institutions, and other assets. But, its rankings on most measures of economic progress are moving in the wrong direction, forewarning that now is the time for action.

Ohio has a window of opportunity. It need not slide into being just average. A leader in the Industrial Revolution and post-World War II, the state has many assets on which to build its future, including major research organizations; a major private sector research and development base; a large workforce; and a potential to become a technological leader in an economy driven by talent, technology, and capital. Technology offers Ohio a path for manufacturing moderniza-tion and growth, as well as spurring new firms and industries from its base. Technology can mean faster business growth, higher wages, and a bigger multiplier effect for service and other industries by creating wealth and disposable income to hire workers in these industries. Ohio really has no choice—either embrace and adapt to a technology-driven world or be left behind. Governor Taft has proposed that Ohio enter its Third Frontier. Settlers transformed Ohio from wilderness into civilization 200 years ago; Thomas Edison and the Wright Brothers conquered the frontiers of light and flight 100 years ago, helping make Ohio a powerhouse of the Industrial Revolution. Now, Ohio’s Third Frontier Project is an opportunity for exploration and discovery where knowledge and technology can make Ohio a pioneering state in applied innovation, taking advantage of the biotechnology and information revolutions. Much of what could be considered part of this Third Frontier Project is contained in the strategies and actions specified in this report.

Ohio’s path is neither one of “high technology” nor “manufacturing.” Ohio’s path is to build on its strong base in “making things”—its manufacturing heritage—and in becoming the cutting-edge place for applications of research through product innovation. Ohio can be a leader in such new industries, driven by new technologies such as biomedical and life sciences, information sciences, and industries that link high tech and manufacturing (materials; energy; and instru-ments, controls, and electronics). Ohio can differentiate itself by doing well both in developing and applying technologies to build advanced manufacturing growth and in using a critical mass of private and public research, capital, and entrepreneurship to create new firms and new industries. The key to both advanced manufacturing and technology is applied innovation— developing, designing, and manufacturing products.

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In 2001, the Ohio Department of Development initiated work on this Technology-Based Economic Development Strategy to guide future public and private investment decisions in Ohio. A Steering Committee was established to oversee this effort, and Battelle Memorial Institute’s Technology Partnership Practice (TPP) was engaged to develop the strategy. Battelle is recognized worldwide for technology development, management, and commercial-ization, as well as for the development of industry, academic, and government partnerships. Founded in 1929 by Gordon Battelle and his family, Battelle has been a worldwide leader in the development, commercialization, and transfer of technology for industrial and governmental organizations for more than three generations. Battelle’s TPP, which includes leading analysts and practitioners in technology-based economic development, helps clients develop, implement, and evaluate technology strategies, policies, and programs.

This strategy was developed with input from technology and manufacturing companies, Ohio’s universities, private research institutions, and other public and private leaders throughout the state. The Battelle project team collected and analyzed data on Ohio’s research and industry base; assessed Ohio’s competitive position vis-à-vis a number of competitor and peer states; and interviewed academic, research institution, and business and civic leaders to gain an under-standing of Ohio’s existing strengths and capabilities and to gather input on the types of activities needed to position Ohio as an economic leader in the future.

This report includes

• An economic analysis of the current strengths, dynamics, and changes in the state’s industry base

• Identification of the core competencies of Ohio’s research institutions, including an assessment of Ohio’s research base that examines trends in technology funding flowing to Ohio’s research institutions

• An assessment of the key factors needed to support the development of technology industries and a review of Ohio’s competitive position vis-à-vis other states that have or are trying to develop their technology sectors

• A situational analysis that reports findings based on interviews with many of the state’s public and private sector leaders in regard to strengths, weaknesses, opportunities, and threats (SWOT) facing Ohio in its effort to position itself for the future technology-based economy • Proposed strategies and actions to position Ohio to become a leader in the technology

revolution

• An implementation plan that outlines initial steps for executing the strategies and actions.

Technology Strategy Methodology

• Economic analysis

• Core competency analysis • Benchmarking analysis • SWOT review

• Interviews of academic, business, and community leaders

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AN OHIO TECHNOLOGY-BASED ECONOMIC DEVELOPMENT STRATEGY

INNOVATION—THE FUTURE OF

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Table of Contents

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List of Figures

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Executive Summary

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