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To Cluster or Not to Cluster Is Not the Issue: It’s about Leadership

March 31, 2019

The world economy is in a competitive street-fight, with a no-holds-barred struggle for market share, and indeed for supremacy within a market.

Over several decades, economists have developed and advanced their theories on how to develop cities and regions. When I studied urban economics and regional development in the late seventies and early eighties, growth poles were the hot topic. Companies would be drawn to specific locations that had desirable amenities, taxes, talent, etc. This would create an agglomeration effect over time.

Later on, people such as Harvard’s Michael Porter marketed his concept of innovation clusters. His 1990 book The Advantage of Nations became a best seller. During the subsequent years Porter’s reputation grew as he further elaborated on his ideas, where he became the de facto guru on clusters and their role in creating wealth and jobs.

Ideas come, and ideas fade. Whether it’s because the empirical proof never fully arrives to support a concept, or because people desire a new fad with fancy terminology, can be debated. What’s at stake, however, is how national and local governments address the global economy’s growing complexity and intense competitiveness. (Above photo: Singapore)

Strategy+Business, an online newsletter from booz&co., featured an excellent article by Ernest J. Watson III (University of Southern California) entitled: How to Make a Region Innovative.

The rest of this post provides some of the main highlights.

Watson describes innovation clusters as networks of organizations whose purpose is to “jumpstart” industries at a regional level and which are able to compete internationally. He then notes that many of these attempts never achieve their goals.

His research over many years has found that cluster initiatives typically fail because of the misguided belief that a heroic innovator has the solution. Or that government throws cash at the initiative. Or that business schools become blinded by supporting their students’ entrepreneurial ambitions.

If the aim is to create a chain of innovation that can be sustained over the long-term, then a new way of thinking is needed. In Watson’s mind, this means embedding innovation within established social institutions and networks. To do this effectively requires connecting together four sectors. Watson calls this “The Quad.”

1) Business
This is the cluster’s economic engine, where much of the needed capital is raised and risk-taking is concentrated. Business leaders play a vital role in the Quad.

2) Government
The needed infrastructure investment is provided from government, whether physical, broadband, schools, transportation, etc. It also provides regulations, tax breaks and investment rules.

3) Universities
An ongoing supply of talented graduates is necessary for a cluster. In addition, a steady stream of ideas from research is key to the creation of new knowledge.

4) Non-Profit
This sector spans a wide variety of non-governmental organizations (NGOs). They play an important role in the Quad because they typically have their feet on the ground, understanding the pulse of the community. For example, these organizations are moving increasingly into such areas as banking and finance (e.g., microfinancing in developing countries or small business in North America).

And to accomplish this form of innovation hotbed of activity, one word rises to the top: LEADERSHIP

Leadership is key if cross-sector networks are to be created and used effectively.

Leadership is essential if an organizational culture is to emerge where innovation is a way of being.

Leadership is mandatory if talent management is to be managed properly: from recruitment to employee development to retention to knowledge transfer.

Human beings are impatient, with a strong tendency to dismiss history. We want instant results, and when they don’t arrive fast enough we move on to a new fad or concept.

Watson reminds the reader that it took 100 years for Bangalore, India, to evolve into a strong cluster. It took Silicon Valley in California over 30 years to achieve its international reputation.

Canada and the United States no longer have the luxury of time to experiment with new concepts, with academics debating endlessly about their merits or deficiencies. If we’re to stop the slide in our respective global competitiveness, then we’d better learn quickly how to tear down the barriers and rules that hinder collaboration across the four Quads. JT

A successful quad system needs organizations that are willing to continually reform themselves, and to collaborate on building the cluster’s capabilities as a whole, spreading good management practice from one organization to another.
– Ernest Watson

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