Two of my favorite management thinkers, John Hagel and John Seely Brown, have just released an important new study, The Big Shift. I’ve read the research, which expands on some of my own constructs, and had a chance to talk with Hagel about it at length last week. One of the most important findings is that return on assets for American companies has been declining for decades. Here’s a short-form version that appeared over at Harvard Business Review online.

The 2009 Shift Index reveals a disquieting performance paradox in the US corporate sector. On the one hand, labor productivity has nearly doubled since 1965. During those same years, however, US companies’ Return on Assets (ROA) progressively dropped 75 percent from their 1965 level.

How can firms be getting lower returns even as they’re becoming more efficient? The answer resides in the heightened competition among firms. Competitive intensity nearly doubled between 1965 and 2008, forcing firms to compete away the benefits of productivity gains, which were instead captured by creative talent in the form of higher compensation and numbers of consumers through increasing performance/price ratios and wider choice.

It’s little surprise to find also that the highest-performing companies are struggling to maintain their ROA rates and are increasingly losing market leadership positions. Taken as a whole, the findings portray a U.S. corporate sector in which long-term forces of change are undercutting normal sources of economic value. “Normal” may in fact be a thing of the past: even after the economy resumes growing, companies’ returns will remain under pressure.

To respond to this performance challenge, U.S. companies will need to let go of industrial- era organizational structures (and the reporting relationships, incentive systems, and managerial processes that go with them) and operational practices in favor of the new institutional architectures and business practices needed to create and capture economic value in the era of the Big Shift.

Companies must move beyond their fixation on getting bigger and more cost-effective to make the institutional innovations necessary to accelerate performance improvement as they add participants to their ecosystems, expanding learning and innovation in collaboration curves and creation spaces. Companies must move, in other words, from scalable efficiency to scalable learning and performance. Only then will they make the most of our new era’s fast-moving digital infrastructure.

The full report is here. The section on creative cities begins on p. 60. It shows strong relationships between cities with high scores on the Creativity Index and economic output (measured as GDP), returns to talent and economic freedom, as well as a large performance gap between high and low scoring cities on that index.

This graph is the initial installment of Martin Prosperity Institute research updating the Creativity Index. The work has developed a matched data set on the 3Ts of economic development – technology, talent, and tolerance – for 374 North American metro regions. The study shows that while some Canadian metros like Ottawa compare favorably to their U.S. counterparts, Canadian metros tend to lag on talent. More here. And lots more to come in the future.

The bizjournals network of local business newspapers recently published a study of the best cities for small businesses. They overlap closely with cities high on the Creativity Index in “Rise of the Creative Class.” Raleigh, Seattle, Austin, and Denver make both lists (Portland is #11, squeezed out by our smaller namesake Portland, Maine.) I suspect an updated creative list might show more overlap in places like Boise or Charlotte.

The highest scores in Bizjournals’ study went to areas that have prosperous economies, are expanding rapidly, and are densely packed with small businesses. (Bizjournals defines a small business as any private-sector employer with 99 or fewer employees.) Seattle ranks third in the overall standings, putting it just behind Raleigh and Charlotte in terms of small-business vitality. Austin and Boise, Idaho, round out the national top five.

The South and West offer a definite advantage for entrepreneurs, accounting for all but one of the 10 metros with the best small-business scores. The South is home to five of the leading markets, the West to four. The sole exception in the top 10 comes from the East – Portland, Maine, which ranks 10th. The highest-rated Midwestern market is Des Moines, Iowa, in 22nd place.

The bottom five? Perennial losers Detroit; Toledo, Ohio; Modesto, California; Dayton, Ohio; and Rochester, NY.

Your thoughts?

About two-thirds of the nation’s 381 metro regions are deemed to be in recession and another 20 percent are at risk, according to these maps from Sunday’s New York Times.

But regions with high scores on my creativity index, a measure of long term economic potential based on the 3 Ts – technology, talent and tolerance – are much more resilient than others on average, according to an analysis by Charlotta Mellander and Patrick Adler of our MPI research team.

Not surprisingly, many, if not most, of the “contracting” metros are older industrial centers, like Buffalo, Detroit, St. Louis, and Cleveland; or service, retirement, or tourist centers like Miami and Phoenix. Their median score on the creativity index score is rather low (.598). The “at-risk” metros include a mix of older industrial metros and some creative performers like San Diego and San Francisco. Their median creativity index score is .698.

Metros with high creativity index scores dominate the list of the “expanding” metros – Seattle, San Jose, Austin, Washington, D.C., Boston, and Raleigh, along with resource-oriented metros in Texas and Oklahoma. The median creativity index score for these metros is .750.

We then conducted a statistical correlation analysis between the Moody’s economic rating and the creativity index. The correlation was positive (0.36) and statistically significant.