Category Archives: Systems

“Toward Future Peri-urban prosperity in the Knowledge Economy”


The production, distribution and application of knowledge are the three components of the knowledge economy. The knowledge economy can also be described as an innovation system. Of which both terms can apply to the local economy. With the increasing importance that knowledge plays in the goods and services we produce, it is of critical importance that economic development strategies reflect this shift. This is of particular concern to those living peri-urban zones. A path to addressing these concerns and preparing the local knowledge economy (or local innovation system) for what lies ahead is found in the application of strategic foresight methods.


While the prospective shifts in the job market, due to increasing computerisation, having been much commented upon in recent times, what has largely been missing from this narrative is this. Our economy is always in transition.

Image - CEDA Changing Australian EconomyThis was well illustrated in a recent CEDA “Australia’s Future Workforce” report from (2015), and in particular the chart (left) that Phil Ruthven used in his contribution. Where this chart, shown below, amply demonstrates the ongoing and dynamic nature of these workforce changes. Where in the 1960’s about 40% of our GDP came from primary and secondary industries (it is now around 30%), and where now about 60% of our GDP comes from the tertiary and quaternary sectors (it was about 50% in the 1960s’).

To further underline the changing nature of our economy there are two interesting charts (below) from the ABS. In 2011 they released a “50 Years of Labour Force: Then and Now” report (ABS, 2011). From this analysis of the data you can see that less of us are involved in producing physical things. In fact, most of us get paid to produce intangible goods and services rather than tangible products. We’re more likely to be employed using our brain than our brawn!

The question needs to be asked, will we always handle our economic transitions  well?

While the shift from a national economy primarily based on agriculture and mining, all those years ago, to one with a large manufacturing base was largely handled well. It seems as though we may not be as fortunate with the shift away from manufacturing to what lies ahead for our service-based (knowledge) economy.

For what is different with this transition is the advances concerning the technology that handles information. That is, there are many technological innovations that are improving the creation, flow and use of information within and between all sectors of the economy. With all manner of impacts.

For example, we see an impact in our daily interactions through social media. Where through this internet based communication technology we can share and receive information with more people more efficiently. We see an impact in education where with video and software technology we no longer have to be in a class-room to hear a lecture or participate in a tutorial. We see the impact at the supermarket checkout where we can complete our transaction with a machine and not a person. And we see it with call centres for large businesses offering instantaneous web-based chat services over interminably long wait times to talk with a customer service rep.

And more broadly, we can see these impacts in the types of successful companies that we are now witnessing. For example, Uber is the world’s largest taxi company yet it owns no taxis, Facebook is the world’s largest media owner yet it produces no content of its own, and Airbnb owns no real estate yet is the world’s largest accommodation provider.

It seems as though the “software is eating the world” proclamation in 2011 by the Netscape founder Marc Andreesen (2011) is coming true. It seems as though there are increasing impacts of information technology upon our economy and that our success in handling this transition will determine our future prosperity.

And for me, this transition to these industries of the future, particularly as it plays out in peri-urban regions, is of immense interest. For my PhD research is centred on finding appropriate development strategies for peri-urban regions with respect to the knowledge economy.

The Knowledge Economy

In a 1996 general distribution paper the OECD noted that “knowledge is now recognised as the driver of productivity and economic growth, leading to a new focus on the role of information, technology and learning in economic performance” (OECD, 1996).

Where, the OECD argued, economic outcomes were increasingly linked to the production, distribution and application of knowledge. And where these outcomes were tied to not only “traditional” investments such as research and development efforts and education institutions, but also to areas such as management practices.

Another perspective on the knowledge economy is from a paper that John Houghton and Peter Sheehan (2000) produced for the National Innovation Summit 16 years ago. They wrote about the knowledge intensity of economic activities. Where knowledge intensity involves both the increasing intensity of knowledge to produce goods and services as well as the growing importance of these particular goods and services to the economy.

And as we look around to our own local economies do we fully apprehend how vital the production, distribution and application of knowledge is to it’s success?

Now, one of the ways to apprehend how well our local knowledge economy is performing is to view these three components (ie. production, distribution and application) through an “innovation system” lens.

Soete (2010) defines what an innovation system is in his paper for the Netherland Bureau of Economic Policy Analysis. This definition states that the components of such a system are and how each of these components interact to produce outcomes.

Therefore, through the interactions between the people and organisations that play their part in one or more components of the innovation system, we can see how the knowledge economy is built. We can see how the production, distribution and application of knowledge occurs.

And we can start to understand how well our local economy is going to perform in the production of knowledge intensive goods and services.

Place-based economic development

In order to lay a foundation for the rest of this article I need to draw a couple of threads together.

The first is this. An innovation system is a system. And with reference to systems theory (Meadows, 2008), every system exhibits unique behaviours. This is because there are multiple components within a system and they all interact with each other to a greater or lesser extent.

For example, let us imagine an urban community that has a progressive teaching hospital as its main employer. Not only would you expect to see allied health services in the vicinity of that campus, but you could also see entrepreneurs building firms using health technologies.

Therefore, the particular behaviour of this unique urban community system can be linked to the existence of these components, their individual size and the influence they have on one another. Change any of these components or the nature of their interaction, and you will observe a change in outcomes.

The second thread is this. Place-based economic development theory is “de rigueur” and is the preferred approach. In essence, as many reading this article would know, it is a “long-term development strategy whose objective is to reduce persistent inefficiency and inequality in specific places through place-tailored public goods and services” (Barca, 2009). (Another approach, which has fallen out of favour, is the space-blind approach. This is where the same set of strategies and activities happen across all jurisdictions).

Now, to draw these two threads together.

Your local economy is a system and your place-based economic development strategy influences this system. Your strategy, as we have seen, is aimed at reducing inefficiency and inequality by using the goods and services you have at your disposal. Where these goods and services interact with the components of this system which you know as your local economy.

The question is this. Is your economic development strategy influencing the components of your local economy which together comprise of local innovation system? Can you define these innovation system components in your local community, and are they interacting with each other in order to bring about the benefits that flow from being a knowledge economy?

For if you are championing local inventions, supporting local research, fostering technical change in your area, and helping to stimulate learning and innovation in your community then you are developing your local innovation system. You are improving the production, distribution and application of knowledge. You are cultivating your local knowledge economy.

Application of Strategic Foresight

Even as a local knowledge economy is built, one must keep an eye on the future. There needs to be an awareness of the risks and opportunities that emerging trends may well present. For the downside of a lack of this type of awareness is that the public goods and services used to influence the local innovation system may well produce outcomes that are not conducive to exploiting prospective opportunities.

This is where strategic foresight, also called strategic thinking, comes into play. Now, invariably, when strategies are developed all the work that goes into their production answer just two questions: “what will we do?” and “when will we do it?” Where available knowledge is used to answer the first question, and matters of scheduling and impact answer the second.

However, in order to have better inputs into these two questions, the methods of strategic foresight are used to explore a range possible futures. They are a guide to exploring the risks and opportunities of emerging trends. For these methods are designed to answer the following questions:

  • What seems to be happening?
  • What might we need to do?

So, how can these two questions help in the preparation for place-based economic development strategies?

One way to answer these two “what is emerging” questions is through the use of the three horizon’s model (Curry, 2008) (below). Where the first horizon is the current time, Image - Three Horizons Modelthe third horizon is the mid to long term future, and the second or middle horizon is the period of time between the two.

That is, the first horizon is “now”, the third horizon is “to be”, and the second horizon describes the journey from “now” to “to be”. This middle horizon describes how we will get to the future.

This “now” horizon is what we currently experience. It’s how we “do things”, and, with respect to what has been talked about above, it’s how our current innovation systems operate. That is, this first horizon is made up of all of the components of the innovation system and how they currently interact.

In other words, this first horizon describes your current local knowledge economy. The third horizon describes how your local knowledge economy will look like in the future. And the middle horizon describes the transition between the two.

But what is important to note from this “three horizons graph”, is that the beginnings of how we will “do things” tomorrow are emerging today.

That is, the way your local innovation system will behave in 5 or more years is being established this year. The components of this system that you will have in the future, their interactions and the way they influence one another, are emerging now.


Where does all of this lead?

What is the relevance of the three horzions model to place-based economic development strategy? In particular, how does it relate to the local innovation system? How does all of this influence peri-urban prosperity in the knowledge economy?

The nub of this argument is what happens during the time of the middle horizon.

For it is during the transition from “now” to “what will be” that the legacy way of doing things gives way to the new way of doing things. It is in this messy middle horizon the various forces compete with each other to establish dominance in the third horizon. It’s in the short to medium term that current components of the local innovation system are replaced with new ones. Its during this transition period that the behaviour of the local innovation system changes.

And its where the tailoring of public goods and services, through place-based economic development thinking, can influence the future shape of the local knowledge economy. To paraphrase Barca (2009), the aim must be to improve the underutilisation of local knowledge economy resources by targeting strategic activities towards the production, distribution and application of knowledge.

Specifically regarding your local innovation system:

  • Either, what would you like it to look like, or what do you think it will look like, beyond 2020?
  • What inventions is your region capable of?
  • Can you shape the way research is undertaken?
  • What technical changes are either likely to happen, or that you would like to happen, in local firms over the next couple of years?
  • Is it possible for you to support new ways of learning?
  • And what emerging best practices in creating innovation can you attract to your region?

For the level of influence you have over these medium-term transitions will determine the level of prosperity that flows from the knowledge economy.


ABS (2011), “Australian Social Trends December 2011. Fifty years of Labour Force: Now and Then”. Australian Bureau of Statistics, Canberra
Andreesen M (2011), “Why software is eating the world”. The Wall Street Journal, August 20, 2011. Available from
Barca F (2009). “An agenda for a reformed cohesion policy: a place-based approach to meeting European Union challenges and expectation”. Commissioner of Regional Policy, Italy
CEDA (2015), “Australia’s Future Workforce”. Committee for Economic Development of Australia, Melbourne.
Curry A, Hodgson A (2008), “Seeing in multiple horizons: Connecting Futures to Strategy”. Journal of Future Studies, Aug 2008, 13(1) pp1-20
Houghton J, Sheehan P (2000), “A Primer on the Knowledge Economy”. Working Paper #18, Centre for Strategic Economic Studies.
Meadows D (2008), “Thinking in systems: a primer”. Chelsea Green Publishing Company, White River Junction
OECD (1996), “The knowledge-based economy”. OCDE/GD(96)102, Organisation for economic cooperation and development, Paris
Soete L, Verspagen B, Ter Weel B (2010), “Systems of Innovation”. CPB Discussion Paper 138, CPB Netherland Bureau for Economic Policy Analysis, The Hague


This article was first published in the journal of Economic Development Australia, Spring, 2016


How do you “win the future”?

Whilst the future is inherently unknowable, the path toward it is eminently discoverable. Reflect on the observation that today is yesterday’s tomorrow. That we are, in part, living out today what we dreamt of in times past.

As a thought experiment, consider the current ubiquity of Facebook, Twitter and other social media. Now, place yourself back in time to 2003 (the year when the “Matrix Reloaded” was released and when the Concorde made its last flight). And think about the technology trends in that year. Consider the growing spread of the internet and the increasing desire for mobile computing and communication technology. And attach these nascent trends to the basic human desire to be connected with others.

Thus we have the ingredients for mass virtual networking. With the opportunity afforded us through hindsight, we can see that these two technology trends in 2003 were used to great effect by people that understood that we are indeed a social being. And that technology and that understanding gave rise to the vision that these people had – that software applications would facilitate social interaction on a global scale.

Now, in futures work, this realisation of visions past being fulfilled can be explained by the three horizons model. Where the first horizon is called today, where the third horizon is tomorrow, and where the second horizon is that period of time between the first and third horizons.

Now, if you frame the current horizon in terms of “Business As Usual” and tomorrow’s horizon as an “Alternative Future”, one can make two inferences. Firstly, that the dominant characteristics of the third horizon are emerging today. And secondly, there are characteristics of today’s world that are no longer dominant in the future.

And it is through the tussle of this messy middle horizon that the winners of today’s competing emerging issues and trends will rise. It is these victors, who use to their advantage these issues and trends, that determine what the future will look like. They can see the weak signals of what is happening around them. And further, one notable characteristic of these victors is that they have an entrepreneurial mindset. They have a predisposition to be able to join the dots and to apply systems thinking to what is nascent.

Think about this messy middle in terms of the tussle between Facebook and MySpace from about a decade ago. Who took best advantage of the rise of the internet and mobile ICT to satiate our desire for connection? Facebook.

So, how does this apply to your situation? How can we relate this three horizons model to a current day circumstance. Well, how about the workings of government? What about how the direction of government is set. Think about this model in the context of say education policy? Or perhaps other areas like social, industrial or health policy? The application of this model is in terms of who can best take advantage of today’s emerging issues and trends in the context of a particular policy area.

One way of applying this three horizons model is by standing at that third horizon. What do you want the future to look like? What do you see around you? How do you describe this prospective landscape? Then, from this yet-to-be vantage point, what are the emerging issues and trends that you need to champion now, in today’s horizon, in order to bring about what you want to see?

For example, say you want to see, in a few years time, a situation where all homes have solar panels connected to a smart grid. What are nascent issues and trends that you could champion now to bring that to pass? Could you perhaps encourage one or more of: the acceptance of the sharing economy, the desire to do something for the environment, the increasing range of solar financing options? More completely, what are the embryonic political, economic, social, technological, environmental and legal developments that you need to support in order to successfully realise your policy objective?

The future is there for the winning, but it requires an understanding of what is emerging to shape the vision you see.

For more of what I have to offer, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, or review my IT-centric blog.

Systems thinking

Developing strategy is often not a simple linear process. Its not “let’s do A, then B, then C”.

For you need to consider what the impacts are upon A, and what the other areas are that A will impact. For it just might be that A influences something which in turn makes C irrelevant.

Its called systems thinking. Its a way of thinking that considers all of the relationships between all of the components. And further, it considers the level and direction of influence that each of those components have on each other.

And systems are everywhere. There are interconnections between different businesses and between individuals within a business. We have a system of roads, of air & rail transport, and so on. There are systems within hospitals, within universities, and within emergency services providers. Think of a sporting club also as a system, even your family!

But what marks out a system? Its the flow of information, its the time delay between action and outcome, its the feedback loop between the output and input. Its the complexity derived from many interconnected parts.

Regarding the flow of information. How does information move from one part of the system to another? What external information comes into the system? What information is prevented from making its way around the parts of the system. And thinking about the profile of the information – is it always the same, are do the makeup of the messages transferred change from time to time?

Regarding time delays and feedback loops. How long does it take for an effect to be noticed? Do any outcomes loop back and change the next input?

So when developing strategy, think of the flow of information and think of the time difference between when something is started and when it will be finished. For when that 1 year, 3 year, or 5 year plan has come to pass the context of that plan’s completed state will be different to the current one. And the difference will be in part related to the mix and flow of information and changing influences throughout that 1, 3 or 5 year period.

For more, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, or review my IT-centric blog.