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How do businesses learn?

By Tarryn Landman

“How do companies create new products and services?” A new report from the Brookings Institution explores this question and reveals some useful answers for economic developers and city policy makers.

How Firms Learn: Industry Specific Strategies for Urban Economies contrasts the formal processes through which research institutions (e.g. universities, federal laboratories, independent inventors, and young technology firms) develop scientific breakthroughs and transfer these to companies. The formal transfer of technologies takes place through market mechanisms like licenses, mergers and acquisition, and contracts.

Using academic research and other surveys, How Firms Learn argues that firm inventions are more industry specific than most economic studies propose, coming from a range of sources beyond research institutions. Informal sources include other firms, customers, reverse engineering, the hiring of workers with specific knowledge, and partnerships with suppliers. While economic developers are aware of these informal channels, the report argues that these “nonmarket” innovation channels are more important than has generally been acknowledged in policy and practice in American cities.

While the report looks primarily at the manufacturing and software industries, it highlights that unique innovation pathways exist in other industries. The report categorizes industries into four groups based their use of traditional or non-traditional technology generators and formal or informal channels of technology acquisition.

Based on these four types, the report shares recommendations to help public and private stakeholders understand innovation at the industry level in their communities so that they can facilitate local economic growth. These recommendations, along with real-world examples, make How Firms Learn a useful read for economic developers and policymakers across the Unites States and beyond.

This post first appeared in TINAN 73. Subscribe to TINAN for the latest economic development news and resources.