Clusters: A framework for understanding the inter-linked challenges facing businesses and territories

I have been at the University of British Columbia’s Okanagan campus in Kelowna, Canada, for the last couple of weeks. It has been a great experience, teaching on UBC’s new Masters in Management programme, which is led by Mike Chiasson. This blended learning programme kicked off with a two-week intensive in-residence module that brought together a group of students from a diverse range of professional backgrounds across the public and private sectors. Rather than taking classes around typical management disciplines, they were challenged throughout the two weeks to think about those disciplines in the context of real-world issues, stimulated by a series of study visits in the Okanagan region.

The programme is built around an innovative methodology that encourages students to: (i) identify areas of interest (an organisational management issue, or a territorial development issue); and then (ii) to seek out different frameworks that might help them understand that area of interest; and (iii) specific methodologies that enable those frameworks to be usefully applied. My contribution was to lead sessions on globalisation, regional competitiveness and clusters. Clusters, for example, can be seen as one framework through which both business challenges and regional development challenges can be understood. There are then a series of methodologies – different approaches to cluster mapping, cluster policies, cluster organisations, etc. – that can be explored to put this into practice.

The use of clusters as a framework in this way was really brought to life by the field visits punctuating the in-residence module. In a form of ‘action learning’ we visited a range of firms and institutions related to the emergent Okanagan wine cluster, and had the chance to quiz them on their challenges and what they are doing to address them.

This case makes for a great example for learning about the link between business development and territorial development. On the one hand wine is an emerging industry in the Okanagan region, facing some specific challenges associated with being able to compete in a highly competitive global wine market. On the other hand there are strong links between those challenges and a range of wider regional economic development concerns such as sustainable use of land and water, and the rights of different groups of people (in particular the indigenous First Nations people).

It is also a case where the cluster approach really fits well. The wineries face a number of shared challenges where collaboration, alongside competition, is likely to be very important for finding the right solutions. These challenges include a limited and fragmented land base, the need for sustainable management of new diseases and of water usage, the development of a recognised identity (or identities), and the need to be continually improving quality. The latter appears to be perhaps the dominant concern because the Okanagan region is at the climatic limit of where it is commercially viable to grow grapes for wine production. This means that their strategy needs to be based on quality, as low yields make it impossible to compete on price.

On our field visits we saw an industry that is starting to work together around these sorts of challenges, for example through the establishment of a British Columbia Wine Leaders Forum, facilitated by UBC’s Okanagan campus and KEDGE Business School (Bordeaux) We visited the Pacific Agri-Food Research Centre (PARC), where the Director of their Wine Programme explained that they were trying to do the type of research that the industry wants/needs, rather than that which the PARC scientists might want to do per se. It is not always easy to achieve this change in research perspective, but in this case science appears to be a great example of where more effective collaboration could bear fruit, given shared challenges around issues such as grape quality, vine hardiness, and sustainability.

Taking a cluster approach also implies widening the lens to look beyond the immediate wine industry. In this sense the field visits sparked a series of discussions around how the grape-growers and wine-makers might collaborate with local barrel producers, steel container producers, marketing experts, tourism providers, etc. in seeking to build synergies and improve their collective capacity to compete.

The cluster lens can also be widened to take on a broader regional development frame, asking how the evolving activities of the cluster fit with the objectives and interests of the communities that make up the Okanagan territory, and seeking to build on the synergies and effectively address any tensions. That way it is possible to imagine a ‘golden scenario’ in which the economic development of individual businesses and the socioeconomic development of the territory are truly in tune with one another. It is going to be really interesting to see how these sorts of issues, that the student groups have started to explore in the last couple of weeks, develop into concrete projects and ideas over the coming months.

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Reflections on the Regional Engagement of Universities

A couple of weeks ago Orkestra and Deusto University hosted an international symposium on the regionally-engaged university. The idea was to stimulate reflection around the organisational and relational barriers that academic organisations face when they seek to be key, engaged players in their regional innovation ecosystems.

Around 20 participants from ten countries got together for two days in Bilbao to present and discuss their ideas in sessions organised around regional cases of university engagement and themes such as the role of institutions, culture and leadership and the effects of specific types of contexts (national HE settings, trans-border, less absorptive).

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The premise of our discussions was, of course, that the engagement of universities in their regions and cities is important. There is a widely recognised need for more effective interaction between academics and other agents in society, so that university research and teaching becomes more relevant for the pressing societal challenges we are facing. John Goddard and Ellen Hazelcorn talk of the need to re-assert the public good role of higher education in turbulent times, responding to challenges and opportunities created by the growing populist backlash against globalisation. Indeed, at the symposium we discussed a series of triggers that are opening more space for universities to play roles as place-based anchors. These include the politics of austerity, regional unemployment crises, the influential agenda around regional smart specialisation strategies, and the fallout from Brexit.

It is not easy to summarise two days of wide-ranging discussions in which we explored a whole range of issues around how universities can fill this space and play a more engaged role in their regions. One way of grouping together ideas is in terms of specific barriers for academics engaging more and better in their regions. In the cases that we discussed several key barriers were identified, including:

  • Lack of the time needed for deep engagement processes with regional stakeholders.
  • Fears among academics of loss of visibility of their research in the academic community, and/or loss of research control.
  • The dominant academic culture, and also specific place-based cultures, working against regional engagement of academics.
  • The career structures in universities, which tend to reward certain types of publications in certain types of journals, exacerbating the above barriers.
  • The national higher education policy frameworks (and associated funding mechanisms), which often mean regional engagement is ‘swimming against the tide’.

Another, more positive, way of summarising the discussions is in terms of what institutional changes are needed to move past these sorts of barriers. Much discsussion was focused on institutional design, both within existing university structures (for example departments as the ‘homes’ of academics, and the relations among departments and with other elements of university management), and in terms of the design of new new intermediary institutions (of which Orkestra itself is one example). More attention needs to be given as to how institutional design can create the spaces and the appropriate incentives for academics to engage with regional stakeholders around their research and teaching.

There is also a need to understand more about the possibilities of inter-institutional design, recognising the complementary roles that different types of institutions can play within a region and across regions. In this sense the development of effective multi-level mechanisms seems key to bridge the regional engagement of individual academics, with that of groups of academics, of their universities, and ultimately between universities that have complementary capacities for addressing specific regional challenges.

Educational programmes can offer interesting opportunities to build these mechanisms and spark research engagement, for example by using challenge-based projects and interdisciplinary teams to break down some of the traditional barriers among both students and faculty. The development of ‘blended professionals’ capable of playing multiple roles, and new types of ‘research facilitation’ positions, were also highlighted as potential steps towards more effective regional engagement.

Perhaps the best way to summarise the symposium, however, is in terms of the key questions that characterised the discussions and that form an agenda for ongoing research and reflection:

  • How do we design institutions in ways that foster an academic culture conducive to engagement in place? And that foster academics who are ‘citizens of place’?
  • How do we deal with the different levels that are involved in regional engagement processes (university management, research groups, departments, academics … )?
  • What funding models are most appropriate to foster more and better regional engagement?
  • What is it that switches the trajectories of institutions and breaks their usually strong inertias?
  • Is there a trade-off between academic excellence and regional impact of research? Is it binding? Can it be bridged?
  • How do we create space for and generate capacities among blended professionals?
  • How do we balance the local and the global (for example in universities’ contributions to regional smart specialisation agendas)?
  • How do we deal with issues of power and conflict in academic engagement processes?

In looking to explore these questions it is important to continue to bring together different experiences, and above all to be open to learning from other places. We learned, for example, that many of the social issues and challenges that European universities struggle to engage with often form the core of research agendas in Latin American universities. There is much to be gained from a more open-minded sharing of practices if we are to move towards regionally-engaged universities that make the best possible contibution to societal challenges.

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A Scottish adventure in cluster policy evaluation

This week I have been in Inverness on a learning journey with the Clusters3 Interreg project. This project, led by the Basque Business Development Agency (SPRI) and involving 9 partners from across Europe, seeks to improve the practice of cluster policies and their interaction with regional smart specialisation strategies.

This was the fourth Clusters3 project workshop, and was hosted superbly by Highlands and Islands Enterprise. The first day study-trip to Loch Ness provided plenty of food for thought around the particular challenges facing clusters and cluster policies in remote and rural areas (along with some wonderful scenery and great company!).

This theme was followed up in several discussions over the next couple of days, but the main focus of the learning workshop was on the monitoring and evaluation of clusters and cluster policies. This is a very challenging part of cluster policy practice because many of the impacts of working with clusters are intangible, only become visible in the long-term and/or spill-over outside of the cluster itself. Moreover cluster policies are extremely heterogeneous and typically have strong interactions with a wide range of other competitiveness policies. Hence attributing specific socioeconomic impacts to a given cluster or cluster policy is an extremely difficult task.

These are issues that we have been working on in TCI network for many years, bringing together experiences from around the world under the leadership of Madeline Smith. At the workshop, Emily Wise and I used some of the results emerging from the TCI cluster evaluation group as a springboard to facilitate a discussion around the monitoring and evaluation issues being faced by the Clusters3 partners. We started by asking them what they would expect to see in terms of results after 3 years from a €100,000 investment in a cluster initiative. The responses can be grouped into three broad types of results:

  1. ‘Harder’ economic results that demonstrate return on the policy investment in terms of increased sales, exports, private investment, jobs, etc.
  2. ‘Softer’, qualitative results in terms of improved capacity of firms in innovation, knowledge generation, entrepreneurship, internationalization, etc.
  3. ‘Even softer’ qualitative results in terms of changes in the underlying behaviour of firms with regards collaboration and collective action.

Each of these types of results has their own measurement challenges in terms of specifying the right indicators and then collecting accurate data on those indicators. Moreover it is important to acknowledge that the choice of indicators is likely to skew behaviour within the cluster. This led to an interesting discussion around the possible trade-offs between evaluation to demonstrate impact and evaluation to facilitate learning. There was a consensus that both are needed, and that we should look to strike a balance between hard economic data and softer aspects such as approaches that seek out the ‘voice of users’ (cluster members).

All of the partners are grappling with these issues in their day-to-day work managing cluster (or cluster-type) policies, and the workshop was a great forum for exchanging experiences and practices. While acknowledging that cluster evaluation is challenging and highly context specific, pooling together these different experiences over the two days led to the identification of several key success factors:

  • We should start by knowing what it is we want (from the policy, and therefore from the measurement/evaluation).
  • We should know who the audience of the monitoring/evaluation is.
  • We should design indicators and data collection to fit the evaluation requirements.
  • We should ensure continuity to data collection and monitoring, and real time monitoring (for example, through action research approaches).
  • We should work towards common understanding and dialogue with cluster practitioners (we rely on them for self-evaluation and data, and so need to create win-win situation).
  • We should only place realistic & user-friendly demands for information on cluster practitioners (it is important not to exhaust them).
  • We should position the evaluation as a learning process to engage firms/stakeholders.
  • We should make sure that evaluation feeds into change/action so that results are visible (if you ask, you must follow up with actions).

It will be interesting to see how the learning from this workshop feeds back into the cluster evaluation approaches of the partners over the course of the project, and there will be plenty more occassions to discuss and work on these issues collectively, both within the project and through TCI network. The next one comes as soon as September, when Innovation Norway will host the next TCI Cluster evaluation group workshop in Oslo.

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The Spanish Cluster Policy Buzz

Geographically concentrated clusters of firms and other related agents (universities, research centres, training institutes, etc.) have become an extremely popular basis for policies that seek to foster competitiveness. Indeed, it is difficult to find a European country or region that doesn’t have some form of support for clusters, even when they are not explicitly called clusters.

Spain is no different, and cluster policies here are going through an interesting phase of resurgence. Mature cluster policies in regions such as Catalonia and the Basque Country – both celebrating a quarter of a century of support for clusters – are being renewed and refreshed, and new policies are emerging in regions such as Navarra and the Balearic Islands, where clusters haven’t been a strong part of the policy scenario until now. I have had the opportunity to engage with policy-makers and cluster practitioners at events in each of these regions over the last few months, and it seems that there is a renewed buzz around clusters in Spain.

It is an interesting moment to reflect, therefore, on the reasons why clusters are an attractive focus for competitiveness policy. Indeed, amidst the vast panorama of cluster initiatives and cluster associations it is easy to forget the socioeconomic arguments behind the cluster concept and the associated principles that should guide the actions of these institutions.

The basis for clusters is a fundamental principle of economic geography: related economic activities naturally tend to concentrate in specific places. The English economist Alfred Marshall first wrote about this in the early 1900s, based on his observations of English cities. He argued that industries were localised in specific towns and cities because of manufacturers’ needs for human and natural resources and specialised markets, and also because their proximity to one another created a ‘special atmosphere’ that gave advantages to firms.

It is the potentially potent blend of competition and cooperation among firms and other agents working in related economic activities and in close proximity that cluster policies seek to foster. While policies do not need to – and should not try to – create clusters from nothing, they can play a role in provoking their emergence based on existing regional assets and capabilities. They can also play a key role in overcoming some of the barriers to cooperation that prevent existing clusters from becoming even stronger engines of regional competitiveness.

Support for cluster associations is the most popular policy instrument to facilitate these roles. Such associations have been a key part of competitiveness policy in the Basque Country and Catalonia for a quarter of a century now, and support for cluster associations is also the route that Navarra has recently opted for in seeking to strengthen its cluster dynamics. It is important, however, for cluster associations not to lose sight of the fundamental principle of cooperation as a complement to competition and route to collectively improving competitiveness. It is this focus that marks the difference between cluster associations and sector associations or chambers of commerce, for example.

Cluster associations should not be focused on lobbying around their members’ interests or providing specific services for their members, although the latter often fits as a complementary activity. Their primary mission should be to facilitate cooperation among the cluster so as upgrade their collective competitiveness. This means supporting members in identifying and tackling shared problems or challenges where different agents have different parts of the answer, or where scale is important for providing a solution.

These types of shared challenges most commonly emerge around issues related to innovation, internationalisation and the provision of cluster-specific training or infrastructures, where individual efforts in isolation are unlikely to be as effective as cooperative efforts. However the benefits of cooperation can be quite intangible and are not easy for firms to see initially. A long-term approach that gradually builds trust and social capital is needed so that cooperation can become embedded alongside existing competitive dynamics.

With a focused approach to fostering cooperation over the long term, cluster policy and cluster associations can play a key role in enhancing the competitiveness of a wide variety of clusters; from traditional value-chain clusters such as automotive or aerospace; to transversal clusters such as environmental technologies or industrial transformation; to quite specific newly emerging clusters such as functional printing or sports industries. What is more, working with a cluster approach also has the potential to lead to better policy-making in other areas through the strategic intelligence that cluster associations can communicate to government. Indeed, the most successful cluster policies tend to be those that are seen as key vertebra of competitiveness policy, linking into a wide range of other policies that support business competitiveness.

This post is an adaption of an opinion article published in Spanish in the Diario de Navarra.

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Strategies for Shaping Territorial Competitiveness

The issue of territorial strategy is currently extremely popular among regional policy-makers. In Europe this popularity has been stoked by the European Commission’s adoption of the smart specialization concept and insistence that all regions that want to receive structural funds related to innovation have in place a research and innovation strategy for smart specialization (RIS3). The debate is relevant more widely, however, as around the world today we see policy discourse dominated by territories – whether they be cities, regions, countries or cross-border regions – looking to develop, implement and monitor the progress of distinctive strategies to boost their competitiveness and economic development.

Despite this popularity, there is a strong sense in which policy practice is racing ahead of conceptual and empirical understanding in the academic sphere of what territorial strategy-making actually entails. Our recently published book on Strategies for Shaping Territorial Competitiveness aims to move forward academic understanding of territorial strategies, while explicitly recognizing that academic reflection must build from and work with the wealth of evolving practice. As Christian Ketels argues in his recent blog post for the TCI network, regional strategy is difficult. We are at a moment when the academic and policy worlds need to collide more effectively so as to generate real improvements in how we ‘do’ territorial strategy for competitiveness.

As with corporate strategy, the central issue when it comes to constructing a territorial strategy is the choice around the type of socioeconomic activities that should be developed, both now and in the future. In this sense the debate around territorial strategy overlaps with literature on science and technology policy and with previous and currently re-emerging debates around industrial policy. Moreover, as with previous surges in interest in territorial strategy, current popularity has corresponded with a context of deep economic crisis in many parts of the world that renders making choices both more pressing and more difficult.

What is perhaps most challenging is that territorial strategies should articulate these choices in ways that address the multilevel and complex nature of each territory, where different goals, agents and interests co-exist in mutual dependence. This requires taking systemic or holistic approaches. In this regard, territorial strategy and indeed ‘new industrial policy’ should not be about the articulation of choices ‘top-down’ from government. Rather, it should be the result of diffused processes carried out among different agents and organizations within the territory; what in the smart specialization literature is referred to as processes of ‘entrepreneurial discovery’. Yet there remains a large gap in understanding around how these processes take place and how they can be articulated towards coherent strategies capable of shaping competitiveness in the specific contexts of different territories.

The book takes steps to bridge this gap in understanding by asking questions around what a territorial strategy is for, what it is, and how it happens. These are explored in abstract and then through reflections on a series of cases representing very different contexts in Argentina, Canada, Denmark, Spain, Sweden and the UK. The case analysis is particularly important because there can be no one size fits all strategy. In their very nature territorial strategies are context-, place- and path- dependent, which demands holistic approaches with long-term perspectives. Indeed a key finding is that the question of how territorial strategy takes place conditions what the strategy is and what the strategy is for. What is more, the question of how territorial strategy takes place always comes accompanied with related questions around when it takes place and who is involved.

As an example of the timing issue, we observe that territorial strategies have appeared mainly as government-led responses to external shocks or to economic crisis: in the early 1980s in the Basque Country (Spain), for example, and in the early 1990s in Wales (UK), Øresund (Denmark/Sweden) and Rafaela (Argentina). In each of these cases crisis was seen as an opportunity for change and to formulate a vision for the territory and a strategy to be developed. When these external shocks are absent, or the need for a strategy is not widely perceived – as for example in the Okanagan region of Canada – it takes much more time and effort to initiate the process. Returning to the current European debate around smart specialization strategies, we perhaps shouldn’t be surprised therefore that rapidly promoting a particular, structured approach to territorial strategy-making has led in some cases to governments scrambling around to demonstrate the existence of a strategy amidst considerable confusion around what that really means in their specific contexts.

The question of how territorial strategy should be formed in different contexts is a very difficult one precisely because it takes time to develop the required ‘dynamic territorial capabilities’, which ultimately are linked to people. In the cases of Rafaela and the Basque Country it was visionary politicians with a long-term horizon and sufficient political power who played an initial catalyst role, whereas in other spaces with weaker or fragmented institutional structures, such as the Okanagan or the Øresund, other actors in the university, business and civil society spheres assumed or are assuming that role. In particular the engagement and alignment of different territorial agents around common goals, and associated capacities for shared leadership, are revealed as critical in all these cases. Yet they take time, requiring significant learning and trust-building. Indeed, the cases of Rafaela and the Basque Country show that processes that started around the early 1990s did not begin to bear fruits until ten years or so later.

What, then, are some of the key elements that might guide how places look to learn in their pursuit of territorial strategies? Much more detail can be found in the book, but we would point especially to the following:

  • the ability to make the time-horizon of strategy independent – or partly independent – of the political cycle
  • the need to establish ‘spaces’ for dialogue and exchange of views and ideas
  • the importance of developing social capital among implicated agents
  • the evolution from individual leaderships to shared leadership
  • the significance of the ownership of the strategy being truly territorial, as opposed to pertaining to government or to any other unique agent

Moreover analysis in the book also highlights the roles that different forms of training and research can play in all of the above, and it concludes with a ‘call to arms’ to academics and academic institutions to be more engaged and involved in territorial strategy processes.

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This post by Jesus Mari Valdaliso and James Wilson was originally published at Orkestra’s Socioeconomic Competitiveness Blog  

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Socioeconomic innovation for socioeconomic competitiveness

I have often found the concept of social innovation to be ‘fuzzy’ and confusing, largely because of the different ways in which it is used by different people. A couple of weeks ago I participated in a panel discussion on this issue as part of Deusto University’s UNESCO programme, which provided an interesting opportunity to reflect further on what innovation means for socioeconomic competitiveness. Continue reading

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Measuring territorial competitiveness: Why we should look behind the headlines

I was surprised to read in the newspaper earlier this week the headline that the Basque Country, where I live and work, has lost competitiveness since 1999. The surprise was not so much at whether or not this is true, but at such a simple headline for something that is in reality extremely complex and difficult to measure. What does it mean for a place to have lost competitiveness?

Looking in more detail at the article in question, it became clear that what was being measured in this case was a very crude form of ‘price competitiveness’. The article was based on this study by the Flores de Lemus Institute at the University Carlos III of Madrid. It compares the evolution of inflation in Spain’s 17 autonomous communities with the evolution of inflation in Spain as a whole, and finds that price increases over the last 13 years in most regions have been marginally greater than the average. The three exceptions are the Balearic Islands, the Canary Islands and Extremadura, where price increases have been lower. So does this mean that these three regions are now more competitive and the other 15 regions less competitive than they were in 1999? My answer would be a clear ‘no’, as the concept of territorial competitiveness is far more complex than any one measure can reflect and also depends critically on what the point of reference is.

Continue reading

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