To foster economic growth, innovation
clusters need to draw on the power of an interrelated “quad” of sectors:
public, private, civil, and academic.
In
1893, J.R.N. Tata, the founder of Indian multinational company Tata, and the
maharaja of Mysore met by chance on a ship sailing from Japan to Chicago. They
agreed that science would be the path to successful modernization of India.
During the following years, Tata donated money and the maharaja donated 370
acres of land in order to build a “science city” near a town then called
Bengalaru, which had recently been struck by a devastating plague. The result
was the Indian Institute of Science (IISc), which soon became one of the
world’s great centers of science and technology education (and remains so
today). In the ensuing decades, graduates established other science-related
enterprises nearby. After World War II, the government of India located its
nuclear science program in the area, and an Indian space program followed.
By the
1980s, new businesses began emerging there, including Infosys (today the
second-largest exporter of IT services in India). Bangalore, as the growing
city was now called, became a center of commercial activity. It filled with
ambitious entrepreneurs and engineers, who used new, technologically
sophisticated business models to serve global clients. Yet for all its
accomplishments, the city lagged behind Silicon Valley in the United States.
Bangalore
seemed to have the right ingredients: It had many companies and banks, both
established and startup; a relatively efficient local government with ties to
the private sector; a large network of nonprofit organizations and cultural
institutions, and a group of renowned schools and institutes, of which IISc was
just one. Yet even with all these conditions in place, one more development was
needed before Bangalore could bloom. This was the dramatic shift by the
national government in 1990 away from the all-encompassing “license raj”
regulatory regime that had stunted Indian growth rates for decades. Once these
punishing levels of government controls on business were swept away, and
relationships between national government officials and new business leaders
became less antagonistic, entrepreneurship reached a critical mass. Bangalore
businesses accelerated their climb up the value chain toward product and
service innovation.
The
Bangalore story is not unique. The same scenario is found in California’s
Silicon Valley, Shanghai’s new high-tech centers, Boston’s Route 128, Seoul’s
Digital Media City, the biotech corridors around Washington, D.C., and the
pharma region near Basel, Switzerland. Other regions, seeking to emulate the
prolonged success and influence of Silicon Valley in particular, have been less
successful; their investments have not paid off. Most of them pursue a formula
that was codified by strategy writer Michael Porter in his book The Competitive
Advantage of Nations (Free Press, 1990). They set out to create an “innovation
cluster,” as it’s called: a network of interrelated organizations intended to
jump-start competitive industries at a regional scale.
But
many efforts to generate clusters never reach their goals. Innovation
researcher and Washington Post columnist Vivek Wadhwa pointed this out in a
July 14, 2011, column. He cited a Norwegian–British study of more than 1,600
companies in the five largest Norwegian cities, all of which have cluster-like
qualities. Most of the companies failed. This, says Wadhwa, makes “industry
clusters” the “modern-day snake oil.”
For the
last 15 years, I have studied innovation clusters in more than a dozen
countries. My own research findings echo Wadhwa’s conclusion. Clusters can be
vitally important to a country’s innovation and prosperity, but when they are
misunderstood, they do not realize their potential. Most efforts to create
clusters focus on one or two elements: the heroic innovators who champion their
creation, the co-location of companies that lets engineers switch jobs by
crossing the street, the business school spawning grounds with professors
sympathetic to their students’ entrepreneurial ambitions, the startups with
foosball tables in the conference rooms, or the provision of cash from an
earnest government funder seeking to bypass bureaucratic roadblocks.
These
factors, no matter how appealing, don’t make a difference unless they can add
up to sustainable serial innovation. To generate one groundbreaking
technological development after another, innovation must be embedded within
long-lived social institutions and networks. Four different sectors must be
linked together: government, business, civil society (not-for-profit
organizations), and academia. This is what I call “the quad.” In such an
environment, creativity needn’t wait for the unpredictable “aha” moment. It is
continually nurtured. The decisions made at every level — investment funds,
corporate engineering teams, regional planning boards, philanthropic councils,
academic faculty reviews, and many more — are naturally aligned.
In most
communities, this quad alignment can be deliberately developed if leaders put
three measures into effect. First, they should construct cross-sector networks
that are richer, more diverse, and more deliberately structured than those of
the past. Building Silicon Valley took 30 years and Bangalore took 100, but we
now know how to accelerate the process by drawing on the collective efforts of
leaders in all four sectors of the quad.
Second,
these leaders should continually reform the way their organizations are managed
— creating a climate that fosters innovation, and adjusting the incentives and
organizational structures to reward creativity and collaboration. That’s what
venture capitalists provided in Silicon Valley — and what the prohibitively
strict license raj managed to prevent in Bangalore.
Third,
leaders should invest in talented, innovative individuals, attracting,
retaining, and empowering the right mix of people who can foster serial
innovation. Both Silicon Valley and Bangalore benefited from having large
demographic cohorts of young, gifted entrepreneurs; other places sometimes have
to attract or develop them.
Cross-Sector Networks
Collaboration
between the public and private sectors is the most visible ingredient of a successful
quad system; it represents the heart of Michael Porter’s prescriptions. But the
variety and quality of the stakeholders involved can make all the difference.
Fairchild,
Intel, Hewlett-Packard, Apple, Sun Microsystems, and Cisco were essential to the
evolution of Silicon Valley, but so was the presence of great universities such
as Stanford and the University of California at Berkeley. Frederick Terman,
Stanford provost between 1955 and 1965 (and an engineering professor before
that), is sometimes called “the father of Silicon Valley” for encouraging his
students to start businesses. Two of his students were William Hewlett and
David Packard. Government also played a critical role. Indeed, Terman came to
Stanford in 1946 from the U.S. Office of Naval Research, where he had directed
the staff that developed jammers to block enemy radar. In the early 1960s, the
U.S. military was the market for the first wave of integrated circuits, which
were largely made in northern California. The nonprofit sector was less
visible, but it played a significant role in the 1990s — especially as computer
firms began to invest in clean and healthcare-related technologies.
When
all four sectors act together, they can pull and push one another into
game-changing collaborations, beyond what any of them could achieve alone. The
communities of practice that grow around them become creative havens where
people build careers that transcend any one particular company or organization.
At the same time, each plays a particular role:
·
Government
agencies provide the necessary infrastructure investment — for example, in
transportation, schools, power transmission lines, and land — that can make or
break a would-be center of innovation. In Bangalore, a government agency built
one of the first software parks for private companies. Governments also provide
the stable investment rules, regulatory incentives, and tax breaks that
clusters need. In the U.S. in the 1990s, the Clinton administration’s
insistence on keeping e-commerce tax-free buttressed the bottom line of
hundreds of innovative New Economy firms.
·
Universities
provide a steady supply of highly skilled people and experiments that feed the
constant hunger for new knowledge. Most universities are established enough to
take a long view in their investments and activities, beyond the
quarter-to-quarter focus of many firms. The university environment also
provides a high quality of cultural life.
·
Nongovernmental
organizations (NGOs) — a category that overlaps significantly with the
nonprofit sector — provide a larger contribution than many people recognize,
especially in emerging countries. They are the groups most familiar with
conditions “on the ground” in rural and urban communities. The first Internet
service provider in Brazil was a nonprofit called Ibase. Grameen Bank and other
NGOs provide rural banking and telephony through microcredit. As the financial
crisis continues, NGOs are picking up some formerly commercial functions, such
as retail banking and publishing.
·
Businesses
provide the cluster with its economic engine. Because they will close down if
they fail to innovate successfully, they take the many risks that innovation
entails. The private sector furnishes a large part of the capital needed to
fund strategic innovation. Most fundamentally, it is a unique source of
vitality and creativity, and the only sector that attracts customers in large
enough numbers to support a growing economy. For all these reasons, business
leaders have a particularly important role to play in moving an innovation
cluster forward.
To
bring these four sectors together, a quad cluster needs to nourish a high level
of mutual trust. Leaders in all four sectors must work cooperatively, knowing
that their interests will be protected well beyond the transaction at hand. You
can tell when this trust is missing in a prospective cluster; in those cases,
people act only on their short-term interests, transaction by transaction,
ready to pull out quickly with the first faltering step. Trust must be built
gradually, through social infrastructure such as professional associations,
social clubs, and other forms of ongoing contact and exchange.
In
Malaysia in the mid-2000s, I visited Cyberjaya, a new city carved out of miles
of rubber plantations. At first glance it looked like Palo Alto or Cupertino.
But it was a high-tech Potemkin village. Government leaders, under then Prime
Minister Mahathir Mohamad, were politically heavy-handed and hostile,
especially toward the universities; they feared student rebellions and faculty
disloyalty. One professor told me, “Government pretends to support serious
research and development, and we pretend to do it.” Collaboration was further
blocked by Malaysia’s complicated social structure. The government was
dominated by local bumiputra (people descended from indigenous Malaysians),
whereas the economy was run largely by ethnic Chinese, and their relationships
could be tenuous and fraught with mistrust. The government’s relationship with
the NGO sector was also marked by mutual suspicion; the two sectors were
potentially competing sources of power. As a result, Cyberjaya has never
transcended its role as a mere electronic assembly center for global supply
chains, vulnerable to external competition.
By
contrast, one of California’s recent economic achievements started with a
deliberate effort to build trust across the sectors. In 1999, a group of about
20 leaders from universities, research institutes, and state government
gathered to discuss the then sizzling state economy, wondering how to spread
the jobs and other economic benefits beyond Silicon Valley. Under the governor
at the time, Gray Davis, the state set aside US$400 million of seed money for
high-tech R&D. Universities and companies could submit proposals only by
collaborating. Soon, four major new consortia, or quads, were formed: one each
on biosciences and nanotechnology, and two on information and communication
technologies. One of these latter two partnerships — the California Institute
for Telecommunications and Information Technology (Calit2), based at the
University of California at Irvine (UCI) and the University of California at
San Diego (UCSD) — was especially successful. Its director, a physicist named
Larry Smarr, set up incentives to foster greater collaboration inside UCI and
UCSD, while forging external networks with leading private companies like
Qualcomm, Akamai, Agilent, and DuPont. Calit2 also established relations with
nonprofit business groups like Connect, which promotes high-tech investments in
the San Diego area. Calit2 became a center of innovation for applying
information and communications technology in healthcare, including new
approaches for managing hazardous materials and disaster sites. One Calit2
project was Telios, an operating system that uses sensors and monitors to
gather medical data, linking specialists at UCI with patients and medical staff
in community clinics. Smarr himself became a leading figure in the “quantified
health” movement, which encourages people to track their own medical statistics
using technologies like those that Calit2 engendered.
The Right Organizational Climate
Because
entrepreneurs are generally open to organizational reform and opposed to
unproductive bureaucracy, clusters can and should become seedbeds for organizational
innovation. 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. Infosys, for example, has created and spread a variety
of distinctive new management approaches, including internal networks that seek
out ideas. The company provides a variety of rewards — peer recognition as well
as money — to employees for such proposals. Some entrepreneurially minded
people within the organization are put on a fast track for promotion as a
result. This practice, unusual for India at the time it was launched, has
spread to other companies in Bangalore.
Sometimes
the spread of management innovation takes place through explicit contracts: “If
we work together, then you will have to make changes so that we can collaborate
effectively and efficiently.” Sometimes it happens more informally, as managers
and executives copy ideas and approaches on the fly from their fellow quad
members. It may also occur through formalized communication: In Washington,
D.C., the Government-University-Industry Research Roundtable of the National
Research Council seeks out best practices for public–private–university
partnerships, sharing them with its members and distributing them widely to
interested parties.
Managerial
innovation also spreads through funding institutions — either government-based
like the U.S. National Science Foundation or nonprofit philanthropies — which
increasingly require grantees to create partnerships across sector boundaries.
University researchers, for example, may be asked to work with local
communities, the private sector, and the media. This in turn requires these
organizations to recruit (and learn from) people with special skills and
experience in partnering with different kinds of institutions. In this way,
organizations that are not familiar with management reform — including many
government agencies and universities — discover that there are better ways to
make the most of their people and processes.
Investment in Individuals
Sustained
innovation flows from the ideas and actions of creative, capable individuals.
They are especially critical to innovative clusters. In my interviews with quad
leaders — senior executives and startup entrepreneurs alike — the same skills,
talents, and attitudes are repeatedly mentioned. People who can combine them,
and put them into action, are essential for the success of a cluster. These
attributes include:
·
Synthesis.
People need to “connect the dots,” making the relevant context of a complex
issue clear so everyone can move forward.
·
Perspective.
For sustained collaboration, people must analyze and understand the economic
and social environment — the “human ecosystem” — in which the quad operates.
·
Communication
skills. Working across sector boundaries, collaborators must negotiate with and
convince others, building pro-innovation coalitions that can be mobilized for
worthwhile goals.
·
Intellectual
curiosity. People must be passionate about exploring questions and alternative
solutions together, making decisions with urgency but also with an eye to the
long term.
·
Empathy.
Those working closely together need the unshakable willingness to listen to and
understand others’ point of view, even when that means operating outside their
comfort zone.
·
Substantive
knowledge. For those engaged in technical innovation, superior levels of
specialized knowledge are essential — and when combined with the other skills
and attitudes, they allow people to act strategically.
·
Cross-sector
experience. A successful quad cluster will feature many people with experience
well beyond their own silo, preferably in a different country or economic
sector. This is one positive side effect of the “revolving door” phenomenon, in
which people can move from one firm to another. The wider the range of
experiences, the deeper the empathy and the more finely honed an individual’s
skills of cross-border communication and negotiation are likely to be.
Taken
together, these attributes allow people to think, act, and move across all
sorts of borders — institutional and sectoral, as well as national and
regional.
Making Innovation Sustainable
At the
Annenberg School, we have seen firsthand the value of this type of
collaboration — and the intense, sustained effort it requires. We are deeply
involved in a quad-based effort to build an economic cluster in Los Angeles. To
accomplish this, we are partnering with top business leaders, senior city and
county government officials, presidents of startup companies, local
foundations, and think tanks. In our own university, we have set up new
practices and incentives, including grants to incipient innovators, courses on
innovation and entrepreneurship, and the new industry-supported Annenberg
Innovation Lab, where students from around the university can come to
collaborate and experiment. The laboratory’s 15 corporate partners include
Verizon, Warner Brothers, and the Brazilian oil company Petrobras. We are now
recruiting museums and other nonprofits.
We have
also explicitly set out to develop competencies — organizational and personal —
that can make these connections pay off. We have revamped our staff development
practices, recruited new professors who work in interdisciplinary ways to
produce innovation, and hired several new senior staff people with experience
in non-academic sectors — people who are good at building partnerships.
As with
all puzzles, the most difficult part is meshing together and leveraging the
separate pieces of the model to create an integrated, mutually reinforcing
whole. The quad becomes successful when a shared set of values and norms
emerges, forming a common culture that welcomes innovation. As Barry Jaruzelski,
John Loehr, and Richard Holman reported in their study of the business
innovation practices of 2010 (“The Global Innovation 1000: Why Culture Is Key,”
s+b, Winter 2011), the number one cultural attribute cited by successfully
innovative companies is “openness to ideas from external sources.”
Even as
communication technology makes it easier to connect with people around the
world, the value of clusters will remain. Regions will continue to vie to
become the next Silicon Valley or Bangalore. The ones that succeed will be
those that deliberately cultivate talented, creative people; foster management
reforms that promote innovation; and build networks among key leaders. By
focusing on those three leverage points, leaders of a cluster can bring together
the four critical sectors — public, private, civil, and academic — nurturing a
community that becomes, in itself, an engine of sustainable innovation and
economic growth.
Ernest
J. Wilson III
strategy-business.com
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