MICROSOFT IRELAND:We must begin building an innovation economy to accelerate our exit from the downturn, writes PAUL RELLIS, managing director of Microsoft Ireland

AS INSTABILITY continues to ripple through the global economy, it's clear that no one is immune to the effects of tighter credit and slowing consumer and business spending. However, while it's practically impossible to predict how long the current uncertainty will last, or what the final impact will be on jobs and growth, I am optimistic about Ireland's long-term economic prospects.

In Ireland the effects of the slowing global economy are being exacerbated by our transition from a low-cost, low-value location - which was one of the main economic drivers for much of the past decade - to a high-cost location.

This rise in costs, without an accompanying rise in the levels of indigenous productivity, has resulted in reduced national competitiveness and growing uncertainty about what the foundation for future growth will be.

Of course we are facing into a difficult period, but there are also opportunities. Rather than focusing on how we cut costs and ride out the storm, I think we need to focus on how we can position our country, our economy and our industry so that we can address the current difficulties and make investments to ensure we're better positioned to compete globally, both now and when the economic climate improves.

There are no easy answers or solutions to the current challenges facing the economy. However, addressing issues such as productivity and competitiveness in both the private and public sectors will put us in a better position to address our long-term capability to compete.

Innovation will be central to our success in these areas. There's much debate around finite natural resources, yet innovation is a virtually unlimited resource that can help us to deliver more efficient public and private sectors while addressing many of the social issues facing Ireland.

When I talk about innovation I refer to it in the broadest sense possible. Innovation is about how we can encourage, support and incentivise managers in the public and private sector to consider how they can introduce innovative work practices, an innovative approach to financial management and an innovative approach to driving efficiencies in the longer term.

We need to focus on both economic innovation and social innovation; together they will determine how well we emerge from the current economic downturn.

Economic innovation concerns modernising the public sector to drive the delivery of new and improved citizen services. It addresses private sector competitiveness and helps to create an environment that fosters innovation and entrepreneurship to create the new companies that can be the engine of our economy.

Social innovation on the other hand, is about changing how we think about issues such as education. We need to move to a model of 21st century learning, we must encourage everyone in our society to adopt an approach to lifelong learning and we must ensure that we look after the most vulnerable in society.

From an economic innovation perspective, Ireland's rising labour and energy costs mean that new measures need to be taken to maintain the country's competitiveness. The factors that traditionally made Ireland such an attractive location for investment, in some cases, no longer apply. Now, it is imperative that we look at what needs to be done to ensure we can compete globally in the future.

Microsoft's operations in Ireland provide a great illustration of how our economy can evolve. When we first opened our doors in Ireland in 1985 we had a low-tech manufacturing and assembly facility that employed 150 people involved in packing product boxes.

Over the intervening period we've transformed our operations, moving away from low value activities and instead are focusing on where we can innovate and add value to the company. We now employ over 1,200 people in high-value activities, from research and development to supply chain management, analytics and finance. Ireland is a great location for Microsoft because although it's a high cost location, the company gets a high value return.

Competitiveness isn't about slashing costs, it's about managing them. By focusing on innovation and migrating to higher value products and services we can move the discussion from cost to value. The future growth of our economy depends on it. Innovation is at the heart of that transition.

Modernising the public sector by harnessing innovation requires a focus on increasing value for taxpayer's money, by improving productivity in the delivery of public services and improving the overall working of government. It's about engaging citizens at the point of delivery of government services. It's about providing citizens with the opportunity to rate services, provide feedback and participate in making the delivery of government better for them, their families and their communities.

Innovation in the public sector is about government leading and taking a new approach to education, training, access to technology - and making the policy decisions required to breathe real life into the concept of the "knowledge economy", ensuring that it doesn't just remain a concept.

We must develop programmes and infrastructure to assist in the delivery of the social and economic goals of government through public services. We must focus on having the management capability and skills to do the job efficiently.

From a social standpoint, education remains the single most critical factor for our future success. We have a young population which is an amazing resource and something our partners in Europe envy. If we want to create an innovation economy, then we need to take a serious look at our approach to education.

I don't believe we are currently equipping our children with the skills that they will need to function effectively in the workplace of the future.

Government and industry must work together to look at creative and innovative solutions to ensure that our children have access to the skills and technology in schools that they will need to thrive in the future.

We also must address the issue of life-long learning. For most people, the idea of a single job for life, with the same skills and responsibilities is a thing of the past. The reality is that, in the new economy, our jobs and our responsibilities are changing rapidly. The skills we have entering the workforce will not remain the same, instead we must focus on constantly updating those skills, to ensure that we remain valuable and productive.

This demands a new approach to lifelong learning. If we wish to support a successful innovation-driven economy, then we must ensure that our work force has the skills to actively participate and succeed. It requires staff to be open to learning and for employers to provide learning and development opportunities.

This focus on people is critical. Ultimately, economic growth depends on innovation, and innovation is built on the ability of people to transform new ideas into products and services that deliver new value to customers.

We still have some way to go in creating an innovation economy in Ireland, but if we focus on how we can address the economic and social challenges we face, we will emerge from this downturn in a far better position to compete on the global stage then when we entered it. That should be our goal.