Posts Tagged ‘Michael Porter’

Start-up Nation and Michael Porter on Clusters

June 23, 2016


drone - innovation


It was recently recommended to me that I read Start-up Nation (by Dan Senor and Saul Singer), the book on innovation and how it is executed in the State of Israel. Having been involved with start-ups here in the United States at several points in my career here in the US, it was amazing to me that this book had never broached my consciousness. While I can be oblivious at times, in fairness, I was working marathon weeks in an “intrepreneurial” start up at the time. But still…

There are several reasons why Israel has developed this capacity, but one of the factors brought back some thinking that captured my imagination over a decade ago…the idea of economic clusters. I recognized the value of this concept while in the Direct Mail business and growing up in an area that was an economic cluster for the pharmaceutical industry, I think this was a natural inclination.

This became one of the standards on which I judged potential partnerships or mergers when previously working in the consulting field. And it certainly impacted my thinking on interacting with the internal infrastructure when building and nurturing programs/

This was an idea that was formalized by Michael Porter, whose Competitive Advantage and Competitive Strategy books had formed a great deal of my early career thinking. In his work on clusters, he highlights three points that have impact:

1. Productivity
2. Driving Direction and the Pace of Innovation
3. Stimulate the formation of new businesses

These are all important, but I think the biggest takeaway at the time for me was the first point, productivity. All players in a cluster drive each other to be more productive, a factor that leads to greater innovation and higher business formation. The fact that they are geographically grouped also adds to the productivity. Clusters tend to create an overall environment where the whole ecosystem is greater the sum of the parts.

Clusters are typically intensely competitive, yet this also allows paradoxically for greater cooperation and closer ties to partners within the cluster. This is a reality that is often discounted in the virtual world we live in, however, it is still more comfortable to know that a partner closely tied to your business is an hour away by car as opposed to halfway around the world.

Of course, clusters can have downsides too. Instead of expanding and spawning new businesses, they can attempt to consolidate leading to an actual restriction of trade and innovation. They can fall prey to industry groupthink. This often happens in instances where the cluster turns oligopolistic rather than retaining its innovative roots.

I strongly suggest reading both Start-Up Nation and Michael Porter is you are on the strategy side of innovation.

Photo courtesy of: Pankaj Biswas