Homepage
From industrial districts to innovation ecosystems: how cooperation takes over value creation processes

From industrial districts to innovation ecosystems: how cooperation takes over value creation processes

There are many ways to define innovation. In a nutshell, however, it can be described as the act of producing something new, in order to obtain a sustainable competitive advantage that will in turn generate profit.

For decades, from the first industrial revolution all the way to the 1970s or 80s, corporations did keep their creative processes strictly internal. They were afraid competitors might steal their inventions, and thus created R&D departments, in which extreme secrecy and confidentiality were the rules. Neither outsourcing, nor sharing innovation was considered a credible alternative. 

 

Actually, cooperation already existed. In 1890, Alfred Marshall identified what he called “industrial districts”1. Those were (and still are) places where workers and firms, specialised in a main industry and auxiliary industries, lived and worked. The idea was to achieve economies of scale, through lower production and transaction costs, and on the basis of a series of relationships that could be financial – loans or funding schemes-, informal –exchanges of information- or conducive to the sharing of teaching methods, good practices or skills.  Marshall’s observations in industrial England were complemented in many other countries, including Italy. In 1978, an Italian economist called Becattini2 studied what he called “socio-territorial entities characterised by the activities of a community of people and a population of businesses in a single given geographic and historic area.” In such environments, the drivers for competitiveness were specialisation, division of labour and local know-how.

In the early 80s, however, as the economy became increasingly global, these small local communities were severely impacted. Concentration and the search for critical mass became the name of the game. But somehow, industrial districts managed to reinvent themselves, by integrating innovation and placing it at the heart of both creative and production processes. This is what, for instance, will give birth to the Silicon Valley.

From industrial districts to clusters and innovation networks

 

As the 90s approached, the concept of industrial districts was progressively replaced by that of “clusters”. The American economist and researcher Michael Porter defined clusters as “geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialised inputs such as components, machinery, and services, and providers of specialised infrastructure. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Finally, many clusters include governmental and other institutions—such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations—that provide specialized training, education, information, research, and technical support.”3 So, in sharp contrast to districts, which mainly gathered small businesses, clusters are economic and geographic concentrations in which strong interconnections are built between private, public and institutional players who share a common goal. And innovation is an integral part of the deal. By pooling corporate, academic and public resources and skillsets in one single location, clusters- such as the French “pôles de competitivité” (“competitive hubs”) 4– can truly foster creation and innovation.

But something else has been happening in recent years: in a world where economic borders tend to disappear, where ideas can be born on every continent and where competition is truly global, geographic concentration is no longer a necessity. In a 2012 piece for Le Monde ‘s “innovation” blog, Francis Pisani writes: “innovations almost always happen by semi-haphazardly assembling components we already know. It then provides society with products, processes, services that are objectively new or improved. Such is the example of NandiMobile.com, a Ghana-based company which brought together texts and AI to come up with a customer service which fits the needs of its African clients.” These unions, Pisani goes on, “also depend upon improbable encounters between people who share the same passion for assembling resources they do not control yet, with a view to turning what is still a dream into a service or product”. Everyone can then contribute, whether they are in it for the money or to give their fellow citizens a better life. And the places these people choose to exchange their ideas, share their projects and/or embark upon common entrepreneurial adventures can be found everywhere in the world, “from Kuala Lumpur’s shopping mall coffee stores – where providing free Internet access is mandatory-, to Dakar’s JokkoLabs, or on  Arabnet.me, which holds virtual conferences throughout the Arab world.”5

In the world of innovation, decentralised international networks, that need no particular logistics are gradually replacing formalised clusters. And the ever faster widespread access to technology makes it an even bigger trend. “Technology is indeed available to more and people, at an ever lower price. This provides men and women of all ages with new means to adapt to new services, and to optimise the use of these new services. Education is on the Internet. One can learn and train by themselves“, says Claire Cizaire, Mazars’ Chief Innovation and Technology Officer. “Society as a whole becomes more flexible: people can get a second chance, they have the freedom to reinvent themselves and to dare. This is a major innovation booster. It is of great value and the trend will only accelerate in the years to come.”

The rise of ecosystems

 

The very word “ecosystem” obviously comes from the biology universe. Economics is the same as nature: no species can survive without innovation and transformation. The September 2015 issue of the French magazine “Les Cahiers de l’Innovation” clearly explains the process6: “If resources abound and there is no pressure on selection, species can remain unchanged for long periods of time. Innovation is useless. There can be innovative mutations, but the new mutated individuals are not stronger or in any way improved compared to those who were already there, and they will disappear. The major problem with such a situation is that species then become unable to diversify and evolve, which can prove lethal to them as soon as resources get scarcer or new competitors appear.
When biological organisms are submitted to Darwinian evolution, innovation happens through random mutations which affect random parts of the reproductive genome. So the ensuing changes do not necessarily make for increased survival conditions. Actually, most of those changes can prove lethal. In very rare instances, however, they give birth to new organisms, that are more adaptable than their parents to new environmental conditions. If these new organisms can, in turn, give birth to new lineage, it can then be established that they are different from their ancestors. The process is one of innovation, as we are now dealing with new features, which did not exist before. But these innovations have no interest as such. They are only interesting if they help the new species survive and gain competitive edge.”

If one likens social organisms, such as corporations, to biological organisms, it then appears the former also absolutely need innovation, in order to adapt to a constantly changing environment and to the rise of new competitors. But if innovation should then be encouraged or promoted, it certainly cannot be planned or programmed. In truth, repeated attempts at creating are the only way to hopefully produce something really new, that will allow the organism to survive and grow. And the best way to foster these changes is to create the conditions for the permanent assessment of existing processes, for the survival and evolution of the organism itself and the territory on which it operates. For Jean-Lou Chalmeau, former CalTech chairman, this research-driven culture and all it entails – taking risks and accepting failure – are what make the best American universities so successful.7 And according to Nicolas Dufourcq, General Manager for France’s BPI (“Banque Publique d’Investissement”), innovation ecosystems must help detect “isolated islands of non-conformism in an otherwise very conventional society”. 8 Founder of Agrobolt, a Chilean start-up that provides information, data, and services for agricultural businesses, Geraint Lacy sees working with other partners as just plain common sense. “If you try to do it on your own, hire the right people, and develop your client-base, it is going to take considerable time and energy and you are going to burn a lot of cash. And when there’s more pressure because you’re spending a lot of money, you start focusing on not spending the money and not making the right decisions.”

Helping innovations cross the “Valley of Death”

 

So cooperation does make perfect sense. But it appears that, in order to succeed and play their role as innovation stimulators, these ecosystems must feature a number of specific traits. They must be flexible structures, with very limited red tape, to quickly attack targeted markets, and favour “collaborative competition”. They must accept, and even “celebrate” failure, while focusing their work on objectives that transcend the traditional divide between fundamental and applied research and help ideas successfully cross the so-called “Valley of Death”, where many potential innovations die for lack of resources needed to develop them enough to attract the interest of industry or investors that would be willing to market them. Which is precisely why effective ecosystems also involve numerous players ranging from academic researchers to industries, and including public institutions, small businesses, start-ups and venture capitalists. A variety of vehicles  – non-disclosure agreements, for instance- are put in place to ensure actual collaboration, while others, such as cross-disciplinary institutes or centres of excellence, are designed to improve the odds a venture will succeed.

Such structures also obviously promote an open culture. They are certainly not closed circles, even though some experts advocate carrying out due diligence on potential entrants. To be truly successful, however, they require a high level of interconnectivity between participants. An ecosystem that succeeds over the long term is “an ecosystem that nurtures itself”, says Yair Snir, who heads Dell EMC’s venture capital arm in Israel9. And that ultimately increases the sustainable growth of all of its components.

Search
Close
Reset