Designing a regional dashboard

For the past week, I have looked in more detail at the dashboard developed by the Fund for our Economic Future. The Fund's economists have done a good job in isolating factors associated with regional growth.

However, the Fund is, in my view, still a long way from a practical dashboard. Part of my concern has to do with the Fund's approach to constructing a dashboard and the limitations of economic analysis.

Regression analysis, the key tool used in the dashboard analysis, enables us to determine -- with varying levels of confidence -- whether two variables are correlated. But correlation is not causation, and so it is very difficult to determine what causes what.

Take, for example, racial inclusion. Prosperous regions are more inclusive. But is inclusion a cause of prosperity or an effect? I can construct plausible arguments both ways. Inclusion encourages diversity and creativity that leads to innovation and growth. Alternatively, prosperous economies are more welcoming and diverse because politics is not a zero sum game in an expanding economy.

Regression analysis -- which encourages us to think in linear, cause and effect thinking -- cannot answer causation questions.

Yet, a dashboard implies some key variables are important and worth monitoring. In short, a dashboard implies causation. Dashboards emerged in a business context where top managers are using a dashboard to monitor their "theory of change" -- in other words, their business model. Businesses (and regional economies) are complex adaptive systems not easily dissected with cause and effect, linear thinking.

Instead, business leaders construct models, generate hypotheses, and look for leverage points. These are points which a very small input can yield very large impacts. (The equation is usually expressed in some form of return on investment.) The business model embodies management's theory of change.

If the Fund wants to use a dashboard, it also should articulate a theory of change -- before designing the dashboard. As far as I can see, the Fund's theory of change has become muddled. The Fund began with a model articulated by the Alliance for Regional Stewardship [1]. (The Alliance's theory of change focuses on four factors: innovative economy, livable community, collaborative governance and social inclusion.)

This is a reasonable place to start. But I do not see this theory carried out in the dashboard. Instead, I see collection of reasonably related factors, but no clear, concise theory of change. This outcome is odd, because many foundations have been pushing on this point for some years. They want their grantees to have a clearly articulated theory of change.

As one recent foundation assessment of regional initiatives notes, "The (regional) organization's theory of change is critical to all that it does. This theory should be made explicit so it can be tested and adapted as needed. The theory of change may not be suited to all tasks, but whatever the theory is, tasks need to be feasible,clear, and manageable in scope."

The focus on metrics makes the point. In regional economic development, metrics are tools for alignment, not control. As metrics roll up through an organization (or a regional economy) they help explain and align. To be effective, metrics need to be practical, concise and clear. They need to focus on the leverage points that will accelerate economic performance.

(These leverage points shift over time. New ones emerge, as we learn more from economists and other social scientists. So, for example, advancements in brain science explain how investments in early child education have large potential payoffs in economic performance. See the work of the Minneapolis Fed on this issue here [2].)

In my view, the Fund's dashboard is too complex and confusing, and so it misses the opportunity to align our efforts across the region. (Simply put, my guess is that most elected officials, school superintendents, college and university faculty, and civic leaders would have a difficult time explaining where the Fund is leading us.)

Here is a simple alternative starting point. The Council on Competitiveness [3] outlines its theory of change as follows: Innovation --> Productivity --> Prosperity. It then encourages civic leaders to focus on regional innovation as the key to growth.

This approach is taking hold, and it is the framework that we are using at I-Open. Grounded in Michael Porter's work in clusters and Henry Chesbrough's work on open innovation systems, it is the basis of the new model of regional economic development that we have been developing and deploying at I-Open: Open Source Economic Development.

Simply put, we are understanding how to guide the power of networks to engage in complex development projects.

We are using this model in Indiana to promote the state's regional strategies. We are redesigning the strategy of Commerce Lexington in Lexington, KY to lead this new approach to development. In addition, I am using this approach to work with the Department of Labor to help the 13 regions across the country who recently received $15 million grants for Workforce Innovation in Regional Economic Development (WIRED).

The Fund is probably too far down the path for the Fund to alter its direction significantly. The Fund started as a promising initiative, and our region will likely generate some significant value from these efforts.

In my own view, the Fund should be focused like a laser on building a regional innovation system in NEO. This focus, I think, can lead us to a simple theory of change: "Our region will be transformed by open networks of innovation with colleges and universities embedded in these networks." This thinking leads to an equally simple vision: "We will leave to future generations a creative, innovative and sustainable economy with opportunities for all who are prepared to grasp them."

The Fund can then focus on key areas outlined in the Open Source model: building brainpower; developing innovation networks across the region; investing in quality, connected places; developing an effective brand; and reinforcing civic collaboration.

This is the approach that my colleagues and I used with Cuyahoga County. With it, we managed to distill over 200 ideas down to a handful of transformative initiatives in less than five months. We are now developing the metrics to align our efforts. (We will not use the term "dashboard" to avoid confusion with the Fund's efforts.) You can download our Cuyahoga County report from this page [4].

(A cautionary note: Given the difficult politics of Cuyahoga County, we still face some serious challenges in implementing this approach to open innovation. Entrenched habits of thought and action are slow to change.)

For an alternative perspective, look to Governor Daniels in Indiana. His vision: "To meet the national average in per capita income and average annual wages by 2020." He then articulates the "strategic activities" that will deliver these outcomes: talent initiatives, innovation initiatives, and investment initiatives. Taken together, his strategic outcomes and activities provide a clear theory of change. Download the Indiana strategy here [5].

There's another good approach in Puget Sound, WA. With some clarity and a solid process, they have quickly aligned their regional efforts. Learn more [6].

The Fund needs some clear thinking...and it all starts with a powerful, but simple theory of change. This theory should follow the guidance of The Council on Competitiveness and focus on the critical role innovation will play in transforming our regional economy.