Exploring Innovation A Conference on Community Development Finance

1. Enabling a Distressed Rural Region Exploring Innovation A Conference on Community Development Finance Federal Reserve Bank of St. Louis May 3, 2007 3:15-5:00pm ViTAL Economy Alliance Stan Halle, HHCG Frank Knott, President ViTAL Economy, Inc. Fknottmd@earthlink.net

2. Agenda 3:00 – Welcome, Introductions, Session Overview and Objectives 3:10 – ViTAL Economy Approach, Key Principles and Tools 3:30 – Discussion of VE approach versus legacy economic development practices 3:45 –Case Study Review of Clallam Networks Experience 2000-2004 4:05 – Participant discussion of key lessons learned from Clallam Networks 4:15 – Connect SI — a 20-county ViTAL Economy work in progress 2006 4:45 – Participant discussion of key lessons learned from Connect SI 5:00 – Summarize keys to successful regional transformation and Q & A 5:15 – Adjourn

3. The World is Flat-10 Flatteners“Why We Must Change the Way We Organize to Succeed” Berlin Wall Comes Down November 1989 When Netscape Went Public, August 1995 from PC to Internet Based Platform Workflow software enables a global supply chain Open Sourcing-Shareware Outsourcing - Y2K-Using telecom to contract to another firm in another country Off Shoring - Moving a U.S. factory to another country Supply Chaining - Connected throughout the chain without owner control In Sourcing - UPS into your company Informing - The ability to build and deploy your own personal supply chain-a supply chain of information, knowledge, and entertainment. (Google, Yahoo, MSN Web Search) The Steroids - Digital, Mobile,Wireless, Personal and Virtual

4. Challenges that Define Realities for Regional Economies • Rural economies are competing against country strategies • Neighbors next door are no longer our competition • Perception that current economic pie of opportunity is limited not expansive • Knowledge is driving growth even in traditional resource sectors • To compete, businesses must become continuous innovators • Regional economies must become fertile climates for innovation • Need for sufficient critical mass to compete requires collaboration of business sectors, governments and community resources • Quality of life is key to knowledge work and workers, not just economics

5. Economic and Community Development Plan Integrated Finance & Funding Strategy Innovation Entrepreneurship Incubation A Unique Approach - IntegratingCommunity, Economic, and Environmental Prosperity Connectivity Enabled Strategy

6. 3 C’s for Transforming Your Regional Economy Collaboration Builds Sufficient Critical Mass to Compete Globally, while Emerging Cluster Strategies Assure Regional Growth + Connectivity Links Geographically Remote Resources to Increase Access, while Creating Opportunity, Building Diversification, Enabling Collaboration + Changed Spending Increases Productivity and Revenues Opens New Markets, Expands Opportunity, Establishes Measurable Benchmarks and Goals

7. Successful Regions Key to SuccessApplying Eight Steps for Managing Change • Establish a Sense of Urgency • Form Powerful Guiding Coalitions • Create a Vision • Communicate the Vision • Empower Others to Act on the Vision • Plan for, Create, and Communicate Short Term Wins • Consolidate improvements and Produce More Change • Institutionalize New Approaches Source: Harvard Business School

8. P C Friction is the Cost of Getting From P to C P C Economics 101 P=Producer & C=Customer Move Up the Value Chain, Capture Greater Share of Value Chain Margins, Increase Economic Prosperity

9. CLUSTER IDENTIFICATION APPROACH INDIGENOUS ASSET MAPPING ALLOWS CLUSTERS THAT MAY MAKE A FUTURE CONTRIBUTION SUCH AS TECHNOLOGY TO BE CONSIDERED PEOPLE LOCATION PRELIMINARY LIST OF REGIONAL INDUSTRY CLUSTERS FOR ANALYSIS INDUSTRY CLUSTERS FOR ASSESSMENT NATURAL RESOURCES FOCUSES INFRASTRUCTURE A SECONDARY SCREEN IS MADE AGAINST POTENTIAL IMPACT ON THE REGIONAL ECONOMY PRELIMINARY INDUSTRY GROUP LIST SCREENED AGAINST REGION’S INDIGENOUS ASSETS TECHNOLOGY ITERATIVE PROCESS Industry Cluster Niche Market Priority Filter

10. All Actions Are Measured & Tie Back To Intended Goals, Strategy & Vision Building towards Critical Mass (the “Tipping Point”) Why Setting Ambitious Goals is Essential • Focusing on Goals: • Opens up our thinking • Empowers us to make • critical changes • Drives priority & • tradeoff discussions • Is the basis for • tracking progress Action Plans Are Measurable Implementations of a Strategy Strategies Enable Measurable Accomplishment of a Specific Goal Goals Must Enable The Realization of the Vision and Be Measurable Measurement of Accomplishments Between Benchmarks and Vision Is Critical Benchmarks For Where We Are Today Must Be Established Your EconomicVision Must Be Achievable, Believable and Transforming

11. ViTAL Economy Collaborative Funding Model Collaborative Investment Builds Regional Ownership of Strategy

12. 5 Year Measurable Results Achieved by Client Communities Since 1992 Across Canada, Australia and U.S. • 30-40% increase in regional job base over five years • 25-35% growth in average wage • 30-40% reduction in rate of poverty • 20-25% of lowest wage jobs raised by at least $5,000/year • 20-30% increase in families with health insurance • 35-50% increase in average wage of new jobs • 50-90% increase in annual rate of new business formation • Above average acceleration in growth of gross regional product • Expanded KBE based innovation economy enabling broadband expansion • Improved economic diversification and lower economic risk • Increased access to capital for financing of innovation

13. Discussion: Traditional Economic Development Practices versus ViTAL Economy Approach

14. Creating a Climate of Economic OpportunityClallam County, Washington 2004 population estimate: 67,867 County size: 1,739 sq. miles

15. Establishing a Sense of Urgency

16. Clallam netWorks 2007 Goals Wages:$31,250 % of State Average: 69% Population: 70,750 Employed: 27,557 Unemployment: 5.9% Total Wages: $861.1M • Current - 2000 Wages:$24,597 % of State Average: 66% Population: 64,525 Employed: 23,030 Unemployment: 7.9% Total Wages: $566.4M Clallam netWorks Economic Impact By 2007 2,285 Jobs at $40k Increase 5,000 Jobs By $5,000/year = Increased Wages in Local Economy by $294,000,000/year Current Trend-> 2007 Wages:$26,678 % of State Average: 59% Population: 70,750 Employed: 25,272 Unemployment: 6.4% Total Wages: $674.2M Defining Measurable Goals

17. Clallam Networks Goals 2002-2007 2,285 New Jobs @ $40k/year & 5,000 Existing Low Wage Jobs Raised by $5,000/Year 7.9% - 5.9% Unemployed Rate AGRICULTURE TOURISM FOREST PRODUCTS MARINE TECHNOLOGY Economic & Community Development Plan Integrated Finance Strategy Results Business Incubator Putting the VE Approach to Work in Clallam County, WA Cluster Research & Action Plans Supported by Education & Training Cluster, ViTAL Economy Capital, and Connectivity Plan

18. September 2004 Progress Toward 2007 Goals Annual Wages Increased By $326.6 Million $210 MM 155% 9,310 New Jobs Created By Sept.2004 2,285 400% $43,337 Average Wage for 2,512 New Jobs $40,000 108.3% 7,489 Existing Jobs Improved by $7,500/Year 5,000 300% 2000 Unemployment Rate Down from 7.9% to 5.9% 5.7% 120% Average Wage at 70% of State Average Wage 69% 110% $667.8 Million Increase in Annual GDP $294 MM 227% Retail Sales Growth + Increase in Total Wages (No Spin Off Effects Included) Clallam netWorks

19. <--Increase in Business Starts Per Year--> Building A Climate of Economic Opportunity Supporting Innovation, Risk Taking, Entrepreneurship

20. Clallam Networks Case Study - May 2000 to Sept 2004 • 2003 — NGA Names Clallam Networks • National Model for Rural Transformation April 2005- Kiplinger Reports Names Clallam One of the Ten Best Locations for Entrepreneurs in the U.S.

21. Discussion: Key Lessons Learned — Clallam NetWorks

22. CONNECT SI Region20-Counties — Population 425,000 — Labor Force 195,000

23. Southern Illinois Sense of Urgency-Region’s Poverty Ranking- Source: IL Poverty Summit, “2004 Report on Illinois Poverty,” Based on US 2000 Census or IL Dept of Employment Security data & Atlas of Illinois Poverty Spring 2003

24. SI Has Been Losing Ground Every Year 5.62% Average Annual Growth Rate % 3.14% 2.19% 1.34% Why are we fighting each other, when together we can go for the GOLD! Source: “State of Working Illinois”, by Northern Illinois University (Nov 2005); “21st Century Workforce” (May 2004); IMF

25. What is Different About Connect SI • Collaborative 20-county economic and community development strategy — measurable, transforming and sustainable • Positions SI to compete globally against country strategies • Views neighbors as resource partners rather than competitors • Understands that knowledge based, small, & innovative firms are the growth engines of our future…adding to and transforming industries of our past • Broadband strategy focus enables all 20 counties to benefit • Sees economic development as the job of every citizen • Collaboratively funded rather than grant dependent ( $1.7 million to date) • Business plan based, action driven, results oriented • Bottom up — grass-roots driven (96 Leaders & 750 + participants)

26. Phase 1 Outcomes GIS Asset Maps Broadband Strategy Economic Benchmarks Regional Economic Strategy Healthcare Strategy Regional Economic Framework Five-Year Measurable Goals Implementation & Funding Plan Network Providers COI Strategy 27,298 New Hi-Wage Jobs 41,461 Existing Jobs >$5,000/Yr Greater Egypt COI Strategy Southeastern COI Strategy Southern Five COI Strategy Greater Wabash COI Strategy $642 Million New KBE Activity 1,600+ Firms Connect SI Regional CED COI Strategy >$2 Billion New Annual Wages +4500 Families with Healthcare Coverage Healthcare Providers COI Strategy Lift 10,000 Citizens Out Of Poverty GIS Mapping Team Supports COI’s $200 Million Information Technology Investment What Connect SI is Doing Different To Transform the Southern Illinois Economy 2012 Goals

27. Example of COI Goal Setting Process Determination of specific measurable, wage and employment goals from change in regional wages vs. 2012 trend NEW JOBS:* 10,468 WAGE: $43,500$455.4m NEW JOBS AT AVERAGE WAGE:* 6,979 WAGE: $40,765 $284.5m IMPROVEMENT OF EXISTING JOBS:* 26,937 WAGE: $5,000 $134.7m CLIMATE OF ECONOMIC OPPORTUNITY: 1,300 KBEFirms $538.4m * Jobs are the result of action plans related to industry cluster and workforce development strategies.

28. Celebrating Short Term Wins • >$24 million network provider broadband investments since launch of CSI • GIS mapping of broadband infrastructure assets and gaps in SI is leading state • Over 1,200 requests for broadband access being addressed by NP COI • Governor selects SI as priority for $5 million WIRED Grant from US DOL • Equity investor millions linked to entrepreneur opportunities in SE, & GW • Regional economic model developed and available to every county • Region wide healthcare collaboration leading to new initiatives and grants • Invest time, talent and treasure is making Connect SI a collaborative success

29. “We are proud to be taking a leadership role with Connect SI. We volunteered to do this because Connect SI is the most important economic development initiative I’ve seen in my lifetime in Southern Illinois.” Glenn Poshard, President Southern Illinois University Chairman, Connect SI Connect SISIU Office of the President Source: Southern Illinoisan June 25, 2006 & WSIU-TV InFocus Special Program January 2007

30. Discussion: Key Lessons Learned — Connect SI

31. Keys to Regional Economic Transformation • Implements a highly collaborative model — in funding, in diversification, in connectivity using unique regional assets • Employs a proven, grass roots-oriented, self-sustaining process • Builds a future generation of leadership • Grows a broad-base of empowered believers & doers • Creates a Starfish organization that no longer depends upon the traditional concentration of political power to get things done • Does not depend upon State or Federal handouts to thrive A Win-Win for the Region, the Economy and the People

32. Economic Transformation is the Job of Every Citizen “Never doubt that a small group of thoughtful committed people can change the world. Indeed, it is the only thing that ever has.” Margaret Mead