As institutions, large companies, and small firms dedicate tremendous resources to strengthen their innovation potential, many fail to realize that their office design can be a key building block or a barrier for achieving their goals. 

Author

Julie Wagner

Nonresident Senior Fellow and Co-Director - Anne T. and Robert M. Bass Initiative on Innovation and Placemaking

wagnerjk

The Anne T. and Robert M. Bass Initiative on Innovation and Placemaking studies the role of well-designed public spaces in strengthening collaboration between people in innovation settings. As the majority of innovation occurs indoors—in offices, wet labs, and other spaces—this article highlights how office design influences organizational culture and a firm’s ability to innovate.

Organizational culture is commonly described as a company’s set of values, assumptions, attitudes, and behaviors, the invisible code that makes one company soar and another one sink.  Peter Drucker, management consultant for companies such as General Motors, General Electric, and IBM, put it succinctly: “culture eats strategy for breakfast.”

In their book, “Change Your Space, Change Your Culture“, Rex Miller, Mabel Casey, and Mark Konchar argue that although companies may have departments or teams devoted to innovation, they often lack an innovation culture.  Like rungs of a ladder, innovation is tied to collaboration and collaboration is tied to engagement, and the first rung of an innovative culture is an engaging workplace, “the vital barometer and tool for creating that culture.” So even if companies go to great lengths to express a culture of teamwork, diversity, and empowerment, their designed spaces may express hierarchy, control, or even fear.

To fix this, new teams of thinkers have emerged to help firms find the right alignment between people, processes, and place. For instance, Workplace Strategies Inc., in Winston-Salem, N.C., helps companies think through changes in organizational culture as they undergo timely and expensive efforts to build office spaces.  Peter Marsh, Workplace Strategies’ vice president and principal project manager, told me: “We tell our clients that this is a unique moment in time. Large amounts of capital are about to be used and, for this reason, this is one of the most important leverage points to transform their culture.”

Marsh cites the Competing Values Framework as providing a useful tool. The framework, outlined in this brochure by the Haworth workspace design firm, sets out four quadrants—collaborate, create, control, and compete. Each represents a set of characteristics describing the culture types that commonly drive innovation and effectiveness.

The Competing Values Framework

In a control culture, an organization devotes considerable effort to “doing things right” through internal procedures and protocols.  Office spaces reinforce a control culture when they have fixed and closed individual spaces, which can be either high-walled cubicles or offices enclosed by drywall.  The answer to the quiz is Photo A, which illustrates a controlled environment where it may be difficult to catalyze creative, team-oriented work.

In a collaborate culture, an organization focuses on long-term internal development and team building.  Office spaces reinforce a collaborate culture through a more informal environment with few individual spaces and a greater emphasis on group areas.

In a create culture, an organization concentrates on differentiating itself from others externally with a high degree of experimentation and individuality or creativity.  Spaces facilitate a create culture with easy-to-change environments, more open spaces, and a low ratio of individual spaces.

In a compete culture, an organization is focused on a results-oriented work dynamic, with private areas for work and concentration but also informal spaces for rapidly sharing ideas and resolving problems collectively. Office spaces that encourage this include a medium ratio of formal and informal spaces, with a mix of individual and group spaces.

For companies serious about cultural change, workspace consultants guide employees and leadership teams through a phase of self-discovery, articulation of a desired culture, and, ultimately, an agreed-upon approach to realizing organizational change. Workplace Strategies blends field trips for staff into the mix.   “We take them to showrooms or to completed projects to show how different designs influence culture,” explained Peter Marsh.

Although profound cultural change can take years to achieve, altering the physical design of a company is an important catalyst in facilitating a desired organizational culture.  As Haworth notes, “Successful organizational cultures are intentional by design, not the product of default or serendipity.”

      

 

 

On Tuesday, November 15, the Leonard D. Schaeffer Initiative for Innovation in Health Policy, a partnership of the Brookings Institution Center for Health Policy and the USC Schaeffer Center for Health Policy & Economics, will host the 21st annual “Wall Street Comes to Washington” Roundtable to explore the broad market trends shaping the health care system and how the political climate affects the outlook for health care companies. An expert panel of Wall Street analysts, moderated by Paul B. Ginsburg, director of the Center for Health Policy at Brookings, will discuss ongoing health reform implementation; open enrollment in the health insurance marketplaces; the growing Medicaid managed care market; regulation of insurance markets; insurance market consolidation; provider payment reform and integrating care delivery; underlying health care spending and insurance premium trends; hospital pricing and consolidation; hospital-physician relations; the outlook for Medicare; and other issues.

All speakers will take questions from the audience. The event will be live webcast.

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The mission of the Leonard D. Schaeffer Center for Health Policy & Economics is to measurably improve value in health through: evidence-based policy solutions, research excellence, transformative education, and private and public sector engagement. The Schaeffer Center is the result of a unique collaboration between the University of Southern California Sol Price School of Public Policy and the School of Pharmacy.

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Established in 2007, the Center for Health Policy at Brookings is dedicated to providing practical solutions that achieve high-quality, innovative, and affordable health care throughout the United States. To achieve its mission, the Center conducts research, develops policy recommendations, and provides technical expertise to test and evaluate innovative health care strategies. The Center also leverages the USC Schaeffer Initiative for Innovation in Health Policy, a collaboration with health data and analytical experts at the University of Southern California.

      

 

 

By way of background, Shimon Peres was born in Poland in 1923 and immigrated with his family as a child before Israel was even a state, let alone a startup nation. Like many émigrés, Peres became part of the immigrant story of innovation, creating change in their adopted lands.

Peres learned business and finance even before politics. In Israel’s War of Independence, he was responsible for arms purchases and recruitment, and in 1948 was appointed head of the naval services. In 1949, he headed the Defense Ministry’s procurement delegation to the United States—an early indication that he was destined to participate in the global commerce of ideas and inventions.

Peres later became a Member of the Knesset and served as Deputy Minister of Defense from 1959-1965. But he also learned the art of information and international relations, becoming Minister of Immigrant Absorption in 1969 and Minister of Transport and Communications from 1970-1974. In 1974 he was appointed Minister of Information and later, Minister of Defense (1974-1977).

Fast forward to the late 1980s and you find Shimon Peres serving as Vice Premier and Minister of Finance. The rest, as they say, is history.

But it is the last years of the life of Shimon Peres that reflect his true spirit of entrepreneurship. Just this summer Israeli political leaders and high-tech entrepreneurs celebrated the launch of Israel’s Innovation Center at the Peres Peace House in Jaffa, Tel Aviv—a major hub of activity that will not only provide entrepreneurs with the opportunity to know more about Israeli innovations, but also to meet like-minded inventors, technologists and scientists from other backgrounds. It will have exhibits, touch tables, and interactive games, a digital library, the only one in the world that will allow people to ask questions and get answers about Israeli innovations.

“The Innovation Center that will be established here will showcase our national pride and will advance peace between people,” said Peres, who founded both the Peres Peace House and the Innovation Center. “Our innovative spirit has been recognized all over the world and, of course, my heart swells with pride when I see how many nations turn to the tiny State of Israel to learn from our bold innovations and to learn how to turn the impossible into the possible,” added Peres as he expressed hope that his new project can advance peace through collaboration. “Innovation enables dialogue between nations and between people,” Peres said. “It will enable all young people – Jews, Muslims, and Christians – to engage in science and technology equally.”

Israel’s high-tech entrepreneurship is not a recent discovery. Decades ago, the government encouraged start-up activity. For example, in the late 1970s, Israel and the United States established the BIRD Foundation (Binational Industrial Research and Development), an endowment that gave, and still gives, about twenty grants each year of $500,000 to $1 million for R & D aspects of joint ventures between Israeli and U.S. companies. Companies that win BIRD grants keep their equity, pay no service charges, and make repayments only in the event revenue from the projects are realized. That joint venture angle helped Israel’s fledgling tech companies learn about the vast U.S. market, and BIRD’s $250 million worth of investments over the past decades has generated more than $8 billion in sales for recipient companies. Then, in the 1990s, the Israeli government gave the venture capital (VC) industry a jumpstart that has led to the astonishing growth and development of Israel’s tech sector that we see today. The Yozma program offered VC firms matching funds such that for every two dollars raised by a firm for a Yozma fund, the government would invest one dollar and offer extremely favorable buy-out terms after five years. The ten original Yozma funds raised $200 million and today, completely privatized, manage $3 billion of capital. Yozma was in effect a de-risking tool—not a small matter in the Middle East—and the leg-up to the VC industry soon led to widespread investing activity that had no need for Yozma crutches.

Israel, today, has more startup companies per capita than any other nation, according to data from the Tel Aviv-based IVC Research Center, which tracks the industry. The number of active high-tech companies operating in Israel has jumped from 3,781 in 2006 to 7,400 in mid-2016, according to IVC. “The West needs innovation; Israel’s got it,” wrote Dan Senor and Saul Singer, in “Start-Up Nation: The Story of Israel’s Economic Miracle,” noting Israel, with a population of 8 million, trails only the United States (population approximately 316 million) and China (population approximately 1.36 billion) as one of the world’s top three sources of NASDAQ-listed companies. Senor and Singer profile several Israeli inventors, investors, and entrepreneurs to provide insight into the resilience of the country’s business sector. They conclude that innovation is the reason for Israel’s economic success. “Making innovation happen is a collaborative process on many levels, from the team, to the company, to the country, to the world. While many countries have mastered the process at the level of large companies, few have done so at the riskiest and most dynamic level of the process, the innovation-based start-up.”

As we think about Shimon Peres and his legacy, let’s not forget the enterprising man who imagined a country, not only strong in democracy, but inspired as an innovator. He helped build the ecosystem of entrepreneurship that today fuels the economy and makes Israel the most respected high tech country in the region. That’s a legacy that will guide Israel into the future and for which Peres can be proud.

      

 

 

Executive summary

Our nation’s infrastructure facilities are aging, overcrowded, under-maintained, and in desperate need of modernization. The World Economic Forum ranks the United States 12th in the world for overall quality of infrastructure and assigns particularly low marks for the quality of our roads, ports, railroads, air transport infrastructure, and electricity supply. It is abundantly clear that to be economically competitive in today’s world, adequate investment in infrastructure is critical. And yet, U.S. spending on infrastructure has declined over the past five decades. 

Complacency is not an option for the next president, should he or she hope to avoid a presidency marred by collapsed bridges, increasing traffic congestion, and overworked power grids. Rather, it is essential that the presidential candidates develop strategies for utilizing the federal government to: address our basic infrastructure needs and shore up existing programs, especially in support of surface transportation; enhance existing public financing mechanisms; and leverage private capital to fund lucrative infrastructure projects.

By closing the infrastructure investment gap, the future president will not only improve our nation’s most critical assets. He or she will also be responsible for boosting job creation, enhancing economic growth, connecting households across metropolitan areas to higher quality opportunities for employment, health care, and education, and finally, reducing greenhouse gas emissions and helping to protect the nation from an increasingly unpredictable natural environment.

Introduction: Why infrastructure matters

Since the beginning of our Republic, infrastructure—starting with transportation and water management—has played a central role in advancing the American economy. From the railroads that linked the heartland to industrial centers to the interstate highway system that forged regional connections, a sharp focus on prioritized, strategic, and rational infrastructure investments underscored periods of regional growth and national prosperity. But what the our country once understood, we seem to have forgotten. During the past three decades the United States has significantly underinvested in infrastructure. This shortfall has made it difficult to maintain existing infrastructure assets and impossible to create a globally competitive system. Our failure to meet long-term infrastructure requirements has impaired economic efficiency, impeded the creation of stable middle-class jobs, and slowed our response to the threat of climate change. It also is imposing direct costs on individuals and businesses. Several studies have documented sharply higher costs for vehicle maintenance and have attributed much of that increase to poor road conditions.

Our nation’s infrastructure is in desperate need of upgrading and modernization.

From highly publicized bridge collapses and levee breaches to airport delays and traffic congestion, every American has experienced the frustration—and in some cases the dangers—of aging, overcrowded, under-maintained facilities.

Closing the infrastructure investment gap would have at least four beneficial consequences. First, it would boost the creation of jobs that often provide middle-class wages and opportunities to workers with modest levels of formal education. Second, it would enhance economic growth by decreasing overhead cost to business while efficiently moving people, goods, and ideas. Third, it would better connect households across metropolitan areas to higher quality opportunities for employment, health care, and education. Fourth, it could reduce greenhouse gas emissions while helping to protect the nation from an increasingly unpredictable natural environment. For these reasons, among others, presidential candidates would be well advised to address infrastructure issues.

The problem

“In a growing economy,” a Congressional Research Service paper notes, “infrastructure should hold its own, but other data show that that has not been the case. While total government spending on infrastructure adjusted for inflation increased from $92 billion in 1960 to $161 billion in 2007, it actually declined from $1.17 per capita in 1960 to $0.85 per capita in 2007.”[1] According to one expert, “from 1950 to 1970 we devoted three percent of GDP to spending on infrastructure….[s]ince 1980 we have been spending well less than two percent, resulting in a huge accumulated shortfall of needed investment.”[2]  Just since 2002, CBO estimates, inflation-adjusted spending for highways at all levels of the federal system has fallen by 19 percent.[3]

Political wrangling and dysfunction mean that the federal government has ceased to be a reliable partner and effective leader.

The problem runs from top to bottom. Political wrangling and dysfunction mean that the federal government has ceased to be a reliable partner and effective leader. Furthermore, the rise in federal interest payments, the increase in entitlement spending, and the decline in traditional sources of government revenue, such as the gasoline tax, mean that competition for limited resources is fierce.

By contrast, some cities and states now see budget surpluses due in part to increases in property tax revenues and state level sales tax collections. However, it will take years for most localities to build back their reserves, repay debt incurred during the Great Recession of 2007-2009, and pay for deferred maintenance on a range of infrastructure assets. Cities and states typically rely on the bond market to finance long-term projects. But even though interest rates remain at historically low levels, the ability of many governments to borrow from the capital markets is hindered by debt caps and weak credit ratings. And because virtually all state and local governments have balanced budget requirements, they must establish their ability to repay before borrowing. In addition to managing the lingering effects of the Great Recession, many states and localities must confront a limited fiscal capacity as they are squeezed between soaring costs for health care and for criminal justice but slowly growing revenue sources.[4] Combined, these circumstances constrain their ability to self-finance projects, leading officials to scale back, delay, or cancel projects altogether.

This shortfall renders the United States less competitive in the global market. The World Economic Forum’s 2014-2015 Global Competitiveness Report ranks the overall quality of U.S. infrastructure twelfth in the world, down from seventh place just eight years ago. We rank poorly in every category, with especially low marks for the quality of our roads, ports, railroads, and—the most precipitate decline—air transport infrastructure and electricity supply.[5]  As the Urban Land Institute succinctly put it: “to be competitive in today’s world, it is imperative to invest in infrastructure.”[6]

Possible responses

1. Fix the basics

First, the next president must determine how best to use the federal government to fix the basics and shore up existing programs, especially for surface transportation (roads, bridges, and transit).

The Highway Trust Fund. Funded primarily through the federal gas tax, the Highway Trust Fund distributes grants to the states to support the interstate system and other highway projects.[7] These grants, however, are not subject to scrutiny, competition, or even basic calculations to assess need. Instead, they are allocated based on formulas, yielding not only inefficiencies, but also perverse incentives. The U.S. Government Accountability Office found that the federal transportation program is functioning to some extent as a “cash transfer, general purpose grant program.”[8] The federal government must lead in those areas where there are clear demands for national uniformity to match the scale or geographic reach of certain problems, such as global logistics and freight movement. 

The gas tax, which currently stands at 18.4 cents per gallon, has not been increased since 1993—despite the fact that project costs have gone up significantly. As cars and trucks become more efficient and infrastructure ages, revenues cannot keep up with demand. But public resistance to a federal gas tax increase to support the current program is intense.[9]  The result: an endless series of short-term funding patches that make planning and completing long-term projects much harder than it should be. If raising federal gas taxes is politically infeasible, the next president and Congress should propose viable alternatives.

Passenger facility charges. The federal government should allow greater flexibility for states and cities to innovate on projects that connect metropolitan areas. For example, passenger facility charges, which are used to fund airport modernization, are artificially capped at $4.50 and do not come close to covering many airports’ operating and long-term investment costs. The busiest passenger airports need to be empowered to meet their larger-than-average congestion and investment costs without federal impositions or caps.

Tolling and pricing mechanisms. The archaic restrictions on interstate tolls should also be lifted. Acting in conjunction with the states, metropolitan and local leaders are in the best position to determine which interstate roadway segments are the strongest candidates for tolling strategies.

2. Innovation and financing

Second, the next president should determine how to use the federal government to enhance existing innovative financing mechanisms.

Tax-credit bonds. Tax credits bonds such as Build America Bonds (BABs) are a cost-effective means of subsidizing borrowing because every dollar of federal revenue forgone by the tax credit is transferred directly to the borrower (states or localities) rather than the investors (purchasers of the bonds). They also offer a more generous subsidy of interest costs and have the added benefit of broadening the pool of investors to include those that do not normally hold tax-exempt debt, such as pension funds (which are already exempt from taxes) and sovereign wealth funds (which also have no U.S. tax liability). By attracting new investors, BABs have eased the supply pressure in the municipal bond market and brought down borrowing costs. Tax-credit bonds could also be used to support a wide array of infrastructure investments, among them transportation, water and sewer projects, environmental and energy projects, public utilities, and the renovation of schools and hospitals.

Transportation Infrastructure Finance and Innovation Act (TIFIA). TIFIA bonds leverage federal funds with local and private investment by providing credit assistance through direct loans, loan guarantees, or lines of credit. While TIFIA assistance must be repaid through a dedicated revenue source (such as tolls, user fees, and other special assessments such as sales taxes), the terms are very favorable. Unfortunately, arguably the greatest strength of TIFIA—the competitive nature of the process and strong selection criteria—was eliminated in the 2012 transportation bill—a retrograde action that should be reversed.[10]

Other financing mechanisms. There are a handful of other federal programs that have expanded funding for transportation infrastructure and encouraged private sector participation in major projects. These programs include the Transportation Investment Generating Economic Recovery grants, Railroad Rehabilitation and Improvement Financing loans, and Private Activity Bonds. One benefit of these programs is that they can be combined with TIFIA loans as well as local and private investments to further leverage federal dollars. Additionally, each program takes an innovative approach to funding and does not rely on the classic formula-based grant distribution that defines the majority of federal investments in this area.[11]

Although these programs are helpful, they are not sufficient to meet the United States’ 21st century infrastructure demands. The public funds available for appropriation fall far short of the needs, and as long as the ongoing squeeze in federal discretionary programs continues, significant increases will remain unlikely at best. In addition, all of the innovative funding strategies reviewed in this section (save for BABs, which have expired) deal primarily with surface transportation and are unable to address other areas that require investment—to our aviation system, electric grid, and so forth.

Technical assistance for states and localities. State and local governments often lack the technical capacity to ensure project quality and to protect the public interest. For that reason, the next president should consider creating a national-level Public/Private Partnership Unit. Housed within the Office of Management and Budget, the largest component of the Executive Office of the President, the Unit would provide states, cities, and metropolitan entities with support and technical assistance, create an environment that encourages private infrastructure investment, and begin the process of forging an integrated national infrastructure agenda.

3. Selecting Projects

Third, the next president could push for a new mechanism to select projects that make economic sense and finance them with mostly private capital.

Numerous legislators and policy experts have suggested that the creation of a National Infrastructure Bank (NIB) would attract private investment for public purposes while ensuring that projects are funded on the basis of economic and social benefit, not political gain. Despite differences of detail, many proposals employ the same basic elements. The NIB would be a financially self-sustaining government-owned corporation established to provide a market-oriented service. A modest amount of public seed capital would secure substantial private capital. An analytical staff would provide policy entrepreneurship identifying unique opportunities to leverage private capital for public needs. Once such possibilities are identified, bank executives could convene the necessary parties and work to broker agreements among them. This approach would encourage creativity in solving infrastructure needs. And by insulating the selection of projects from the political process, it would better align infrastructure investments with real social and economic needs.[12]

Conclusion: Structural difficulties and strategic directions

If the expert estimates are correct, between now and 2020, we should be investing an additional $150 billion annually

Infrastructure does not typically garner headlines—until a bridge collapses or a dam bursts. It is, however, the foundation of a healthy economy and society. And it is an issue that leaders at every level of our federal system, including the president, will have no choice but to address, hopefully sooner rather than later. The need is great and growing. If the expert estimates are correct, between now and 2020, we should be investing an additional $150 billion annually in transportation and port projects, water and sewage systems, the energy grid, and much else besides.

In the current political and fiscal environment, this will not be easy. Raising general revenues by $150 billion each year for infrastructure is politically out of the question. There are four structural obstacles. First, citizens are being asked to pay now for investments that will yield a return over a lengthy period. But when household budgets are squeezed, patience to wait for future returns on spending is limited. Second, different regions have different needs: some rural and small-town voters often must drive long distances to work and shop and are highly resistant to gas tax increases. Third, it is hard to explain why tax dollars should travel to Washington, only to be returned to the states and localities. Why not just cut out the middleman?  And finally, a basic difference between the federal government and other jurisdictions—Washington’s ability to borrow readily for public purposes—is diluted in times when the people disapprove of budget deficits, whatever the purpose.

These difficulties suggest that the next president should consider two very different responses. First, public pressure may support a presidential proposal to reallocate responsibilities within our system of federalism. States and localities may be more willing to tax themselves for projects if they can expect to reap the benefits directly, rather than shoring up broad national objectives. This is especially relevant today, as governments closer to the people enjoy higher levels of trust than the federal government.

Second, it may be time for a new partnership between the public and private sectors. Individual investors and large investment pools are flush with cash seeking a reasonable return at a bearable level of risk. Mobilizing private dollars for public purposes should be an easier sell than is commandeering those dollars through our system of taxation.

The devil, as always, is in the details. But the bottom line is this: an efficient modern economy cannot be sustained without public goods that the market, left to its own devices, will under-supply. As always, governments face the challenge of mobilizing public support for these goods. The art of legislation is finding the path of least resistance to reach these essential public goals. And legislators will be more motivated to seek that path when they enjoy sustained leadership and support from the executive branch. Working with governors, mayors, and the private sector, the next president must break the logjam and create a new model of infrastructure finance for the 21st century.

[1] Claudia Copeland, Linda Levine, and William J. Mallett, “The Role of Public Works Infrastructure in Economic Recovery” (Washington: Congressional Research Service: 2011), 3.
[2] Sherle R. Schwenninger, “A Capital Budget for Public Investment” (Washington: New America Foundation, 2007), 61.
[3] Congressional Budget Office, “Public Spending on Transportation and Water Infrastructure, 1956 to 2014” (Washington: Congressional Budget Office: 2015), 2.
[4] Copeland, Levine, Mallett, 1-2.
[5] Klaus Schwab and Xavier Sala-i-Martín, “The Global Competitiveness Report 2014-2015” (New York: World Economic Forum, 2014), 378-379.
[6] Jonathan D. Miller, “Infrastructure 2009: Pivot Point” (Washington and London: The Urban Land Institute and Ernst & Young, 2009), iv.
[7] While most of the federal gas tax accumulates in the Highway Account of the trust fund, the remainder is distributed to the Mass Transit Account and supports public transit systems.
[8] U.S. Government and Accounting Office, “Federal-Aid Highways,” GAO-04-802, 2004, 5.
[9] A recent poll found that a majority of voters would support a gasoline tax increase if it were targeted to roadway maintenance. See: Keith Laing, “Poll: Voters Would Support 10-cent Gas Tax Hike,” The Hill, April 29, 2015, http://thehill.com/policy/transportation/240527-poll-voters-would-support-10-cent-gas-tax-hike.
[10] William A. Galston and Korin Davis, “Setting Priorities, Meeting Needs: The Case for a national Infrastructure Bank” (Washington: The Brookings Institution, December 2013), 7-8.
[11] Ibid., 8-10.
[12] Ibid., 18-19.

Read more in the Election 2016 and America’s Future series.