Knetter: UW Biz School Tackles Changing Economy

MADISON – One of the biggest challenges facing Wisconsin’s changing economy is turning out entrepreneurs and managers to run emerging companies.

So says Michael Knetter, who has been dean of the UW-Madison Business School for the past four years. staff writer Colleen Flaherty spoke with Knetter recently to talk about what Knetter and his colleagues are doing to prepare graduates to cope with the shifting business landscape.

Colleen Flaherty: What are your thoughts on how Wisconsin’s economy is moving to one based on knowledge rather than manufacturing, and how is the busines school adapting?

Michael Knetter: There are a few things that are implicit in your question. One is to what is the extent that the economy changing? And why is that happening? How’s the Wisconsin economy doing in general? There’s a broad question of the role that education is playing in helping the economy improve in the state. What role is the business school playing?

There’s a heck of a lot of education in Wisconsin and as much as I’d like to say we have a huge impact in the business school, we’ve got (just) 70 faculty here. It’s a big state; we’re not going to push it that far. The whole collection of higher education throughout the state has a huge impact on what happens. I can give you some examples of the business school but I just wouldn’t want to overplay that.

Flaherty: How is the economy doing?

Knetter: It’s not really keeping up with the national average. It’s not keeping up so well with certain neighboring states, like Minnesota. So that’s challenging for a lot of reasons because the state has obligations to state employees. You’ve got to fund their retirement benefits, their healthcare packages and those keep going up at a pretty rapid rate. That puts a lot of pressure on the state budget and that’s what we see happening.

Flaherty: Why do you think a state like Minnesota would have a leg up on the Wisconsin economy?

Knetter: The reason Wisconsin’s not keeping up, in my opinion, is for a variety of good historical reasons. Our competencies were really in manufacturing and agriculture and that’s what most people in the state did.

That was perfectly fine in the ’50s, ’60s, and ’70s. (But) energy price changes and globalization have really made life difficult for manufacturing in the U.S. (It was) mostly globalization and that’s something people never could have predicted. I’m not saying we were in the wrong industry or anything like that. It’s just the way things evolved.

There came to be tremendous pressure on manufacturing companies in the United States. We have a lot of auto parts suppliers and other folks like that here.

Flaherty: Did globalization hurt agriculture as well?

Knetter: Yes. That varies a bit by segment. In some areas we’re in a position were we have a competitive advantage. So actually the prices of the products went up due to global trade but in other sectors they probably went down.

It’s a little more complicated with agriculture, but I think the case is it’s been tough on both sectors. So what that means tangibly is that you get this international competition that drives prices down, that drives profits down, and that drives wages down. (Then) employment growth starts to struggle and that’s, in a nutshell, the pressure that’s been put on the Wisconsin economy.

Minnesota didn’t have quite as big an exposure and for whatever reason Minneapolis became a bit more of a financial center so there’s more big financial institutions based in Minneapolis than, say, what we have in Milwaukee. Globalization’s actually been very good for that part of the economy. The other thing Minnesota has going for it is a pretty big position in health care and medical instruments, so you have companies that have sprung up that are very big in R&D. Companies like that haven’t been hurt as much by overseas competition because they’re in a different product space.

Flaherty: How do other states in the Midwest compare?

Knetter: Other states look a bit more like Wisconsin. Michigan probably lost more relative ground than Wisconsin because it’s such a tough time for the auto industry. It’s also very interesting that the whole northern tier of the United States seems to be losing population relative to the rest of the country.

We’re just not growing as rapidly in population, per capita income, anything. It’s a reflection, a little bit, on the fact that the manufacturing economy is hurting. A lot of companies needed to be located near natural resources because it was too expensive to ship those resources anywhere else to make the products. You’ve got all these paper mills up here because they were near the forest. You don’t need that any more because now they make pulp product that reduces the weight and then you ship that, you add water, it makes its own sauce and now you’ve got paper anywhere.

Now you’ve got a lot of paper mills in the south where wages are lower. So you see even the paper industry changing location that way within the country. The whole northern tier is having this problem. I think it’s because manufacturing has come under a lot of pressure.

A lot of manufacturing was located in the northern tier, but we’re now shifting as a country to other knowledge-based companies. Some of them would be in biotech, computing information technology, telecommunications. Those companies can locate anywhere because they’re not dependent on natural resources, they just need people.

Flaherty: What incentives does Wisconsin offer to have knowledge-based companies to come here?

Knetter: Before we even get to that, it’s interesting to ask why the knowledge companies are located in certain places and where are they?

Silicon Valley; Austin, Texas; the Research Triangle in North Carolina and Boston are all prominent areas. It’s more diffuse than that, but those are concentrated areas. If you look at it all you’ve got better weather, on average.

Where are you going to get these knowledge workers to congregate if they can be anywhere? A lot of people will go to a place with better weather. The other thing that is going on is a lot of those areas have a high density of highly educated people because there’s major research universities in all those places.

Those are talked about as an integral part of the economy. If you’re going to have a knowledge company, it’s nice to have a university that’s turning out people that can slot into the knowledge companies and hopefully want to stay in that area.

So what do we offer? We do have this great higher education system that does turn out a lot of people, so we have that ingredient. We have a good quality of life but again I would put that caveat in there that not everyone likes the weather. I don’t necessarily think the weather is better in the south but for some reason people would rather move from the north to the south than the south to the north.

Flaherty: So how has the business school been adapting to the change in the economy?

Knetter: I think the big change is that, in a knowledge economy, we don’t think a person’s education ends when they graduate and go off and start working because we’re in a very dynamic economy with a lot of changes in technology.

When they are adopted in firms, they are big organizational changes. And when you have big organizational changes going on, there are a lot of managerial problems. So the biggest thing that you would see that’s different is that we’re a very big player in executive education.

We’ve always had some role, but now we have our own building, the Fluno Center for Executive Education, a top ranked facility. That’s a big way we’re trying to connect with existing companies in the state to make them better at what they do.

The other thing is that we want to play a role in the creation of new business to help the state’s economy. Within the business school in the last decade we launched the Weinert Center for Entrepreneurship. Within the Weinert center we have something called the Weinert Applied Ventures and Entrepreneurship program.

That’s a course that students take where they work on their own business plan and also on improving business plans for startup companies in the area. So we connect with the startup companies already here.

We’ve started a new program within our MBA called Strategic Management in the Life and Engineering Sciences which we hope will connect with a lot of the emerging biotech here.

Flaherty: How does Madison compare to the rest of the state in adapting to this emerging knowledge-based economy?

Knetter: Very well. So to the extent there is a transformation in the Wisconsin economy, we are creating a lot of jobs in knowledge companies. By that I mean a company where almost all the employees have advanced degrees.

There’s nowhere that’s happening at a faster rate than Dane County and it’s because of the connection to the university.

In general, it’s just a very interesting social phenomenon. When you have an economy like Milwaukee’s that was really manufacturing-based, you’ve got a relatively small number of highly educated people that are driving these businesses that need a lot of people with not a lot of education.

It’s hard to form knowledge companies out of that mix. It’s a difficult problem. You’ve got all these research scientists here around Madison that have some ability to play a role in business here.

I’m not just talking about faculty, but people who work in labs also. We’ve got a stable of people who are working on interesting problems with commercial applications and when something interesting gets developed you can pull it out and start a company.

You’ve got a bunch of graduates you can put in these companies. Having a major research university to feed that is critical. The university is devoting a fair amount of energy to thinking about how we can be better at this.

Flaherty: What changes are you making to improve this?

Knetter: Well I think that everyone agrees that the science infrastructure in this town is fine. The question is: Are we getting the right access to managerial talent and capital to start companies with these local inventions?

We have big information barriers. Someone may have a great idea in a lab, but they may not be the person who can really assess the potential. Or they may not know how to go about fusing managerial talent, capital and ideas. All three of them have to be joined to have this thriving startup culture. I think the university can play a big role in helping make those things happen.