In the private sector, a robust innovation infrastructure has developed to support process, product, and business design innovation. Systems for identifying, screening, developing, prototyping and launching (“commercializing”) private market innovations are well developed and well financed.  Rewards for success are competitive and businesses attract some of the best human talent in the marketplace.  Systems for due diligence and screening have been well honed over many years of trial and error. Commercialization enterprises have relationships with many different sources of capital to match the stages of development of an innovation. A robust set of different business designs for innovation commercialization constantly evolves.

In contrast, the process for developing social innovations is far more fragmented, less disciplined, slower, and lacks clear financial incentives.  Except in exceptional situations, social entrepreneurs are isolated from each other and the means for scaling up ideas; are undercapitalized; have weak due diligence and market-testing processes; have weak connections to private businesses and markets; and depend substantially on the philanthropic sector’s idiosyncratic and relatively small “capital markets.”

With only some modest exceptions, the social sector lacks a robust applied R&D function.  Design, development, and prototyping work is either done by “think-tank” oriented enterprises that lack practical connection to the field; by individual social entrepreneurs who lack access to a historical knowledge in the field; or by poorly capitalized NGOs that lack the technical discipline or resources needed to do the development well, and whose funding drivers too often create incentives to take something to the market before it has really been proven successful.

The federal government has a well-defined system for investing in key applied R&D sectors – through its network of national labs and a number of federal agencies that fund key research (such as the National Science Foundation).  These investments are focused on the areas of the physical sciences and life sciences.

We think the field of workforce development is a field where a national applied R&D function could have a potentially large impact on economic productivity and national competitiveness, and sent a proposal for one to the US Department of Labor transition team. Despite the fact that the federal government annually invests over $12 billion in workforce programs, the innovation capacity for this sector is fragmented and undisciplined. Many observers have noted that these public programs were “designed for an economy that no longer exists.”  And the recent stimulus bill will pump over $4 billion in new money into this sector.

A reasonable target for an R&D budget in the private sector (what they call “unfunded R&D” – meaning in comes out of net income, not customer payments) is 5%, although many innovative companies spend more.  So let’s be modest here -- if a mere 1% of the annual budget of $12 billion were committed to a “federal innovation lab” for workforce development, that would make an annual budget of $120 million for serious R&D in this sector.

What would the lab do? We see it as having seven functions:

• Scanning for innovations in the field
• Conducting due diligence on promising innovations
• Investing in the development of innovations – primarily through partners in the field
• Moving proven innovations into the market
• Developing partnerships with key national innovators
• Partnering with targeted communities on applied R&D relationships (“testing out” innovations in a place)
• Helping raise capital for each stage of innovation development (from the private, NGO, government and philanthropic sectors)

Let us know what you think of this idea – and what the other areas are where a “federal social innovation lab” makes sense.