Interfirm external networks often lead to industry clusters. These clusters are an agglomeration of people who embody the necessary skills and know-how to fulfill the demands of a particular sector. These relationships create conditions where transactions are more efficient and resources can be shared. They can arise through happenstance where a successful company or institution attracts other businesses to locate in the region around it. A growing core anchors spin-offs and inspires new firms that need to tap into the specific talent within the region. This dynamic results in more opportunities within a certain field and attracts more talent to the area. The more opportunities and support, the better an individual's chance to find employment if things go wrong at one company or a new opportunity arises. Clusters can also be the result of historical or geographic competitive advantage. While more difficult, they can also be brought about by intentional strategic planning. However they are formed, the fertility of the innovation ecosystem is incredibly important to cluster’s success.
Clusters are a result of time and the evolution of industry within a region. The knowledge embedded within it is greater than the sum of its parts. They create an efficiency and dynamic that cannot be easily replicated. They are an accumulation of the networks and knowledge. They are not easy to create nor are they easy to move elsewhere.
“…moving a complex industry is like trying to move a jigsaw puzzle from one table to another. The more pieces in the puzzle, the harder it will be to move it, as the puzzle falls apart when we fail to move all of the pieces at the same time.”
The majority of the knowledge within these clusters is tacit knowledge. It is the knowledge and know-how that cannot be easily codified and communicated outside of the cluster. It resides within the experience of individuals. Even with the knowledge spillover within clusters, the application of the tacit knowledge is difficult. Each actor within the network has their unique combination and employment of this knowledge. As a result, it remains a competitive advantage. Interestingly, the more tacit knowledge within the ecosystem the more spatially it needs to be concentrated.
This spatial concentration leads to increase of “buzz” within the community. The shorter the spatial and social distance between actors the greater the buzz generated. As economist Alfred Marshall recognized “The mysteries of the trade become no mystery, but are, as it were, in the air.” Buzz is a result of diffusing information via unplanned face-to-face communication within a network. It facilitates the diffusion and filtering of knowledge within an industry with little or no investment from those within the cluster. It is a benefit of being present within it. This filtering of information through the network is helpful in reducing information overload for all firms involved. The serendipitous nature of buzz is beneficial to innovation because it allows for the mutual interpretation and understanding of industry information within the cluster. In future posts, we will see this can be helpful in generating new ideas. When the cluster becomes stressed or begins to decline, these informal communication networks are even helpful for understanding how to collectively reposition the industry and transpose knowledge and know-how to new industries.
“ Buzz is a result of diffusing information via unplanned face-to-face communication within a network.”
While clusters are often economically beneficial, it is important they do not become isolated from the innovation ecosystem. Innovation within clusters is stifled when networks become overly embedded and internally focused. Like large successful companies; they can succumb to the innovator’s dilemma and become difficult for the cluster to assimilate and act on new knowledge. Clusters must be able to foster and maintain the required networks and friendly competition between all of the actors involved, as well as with the entire innovation ecosystem. Successful clusters aren’t always about efficiency. Innovation requires turbulence and chaos in the system to thrive. Understanding how these networks are formed and the conditions that increase their likelihood is helpful in managing the ecosystem. In upcoming posts we will explore the mechanics of innovation.
-Brian Phelps, Co-founder of the Nashville Innovation Project
