Office-clusterThe last few years have seen a tremendous focus on clusters and their power to drive innovation by having a large number of complementary organisations located in close proximity to one another.

Projects like the Startup Genome aim to map some of these clusters and help startups and academics locate the best sources of expertise in particular fields.  There have also been prominent studies from organisations such as KPMG on the growth in clusters and their power in driving innovation.

The challenges facing clusters

Of course, we should not fall into the trap of believing that clusters are a path paved with gold and that once built they will instantly deliver tremendous gains in innovation.  A recent study from an incubator attached to Sussex University revealed that whilst many startups were drawn to technology clusters in London, the initial appeal quickly wore off as high rents began to bite.

Whilst in the initial period of operations, many startups strived to be in London, this enthusiasm rapidly waned.  Indeed, within a year, roughly 66% of startups wanted to move elsewhere, with a desire not to return until the business was roughly 8 years old.

These issues were addressed in the recent Brighton Fuse report, which sought to address several important issues including the overall resilience of the Brighton clusters, following their first report’s evidence of increased revenues, employment, economic growth and increased performance in STEM, arts and humanities.

The report reflected very high performance alongside national obstacles, with sn 87% survival rate for small firms, and 80% companies surveyed proving profitable over time.

How to thrive within a cluster

Some lessons can potentially be learned from a recent study looking at how startups can thrive within a cluster.  The study looked at the flow of knowledge within two Danish technology clusters (one in life sciences and one in telecoms).

In the life sciences cluster, it emerged that it was common for people to move (with their knowledge) to companies that were not direct competitors.  This free movement was reflected in the behavior of the companies as they engaged in pre-competitive collaborations with peers from different sectors.

This ready movement of people within the cluster helped the companies within it to meet the various challenges posed by radical shifts in technology.  The cross-fertilization of expertise allows companies to adapt more readily.

Things weren’t quite so positive in the second cluster however.  The telecom cluster was once a pioneer but fell on difficult times as the companies struggled to keep pace with the technical requirements of the industry.  Expertise was required that simply didn’t exist in the cluster, which led to large multinationals choosing to invest outside of the area.  In contrast to the life sciences cluster, most employees left the cluster rather than move within it.

The study provided a number of core lessons for clusters to absorb:

  1. The best clusters tend to span noncompeting sectors.  In life sciences, for instance, the skills they developed in fermentation were valuable to a range of other sectors.  These benefits tend to diminish when companies compete with one another.
  2. Knowledge is hard to control.  This constant flow of knowledge inevitably makes it difficult for things like IP to be controlled and locked down.  What is good for the wider ecosystem of the cluster may actually be harmful to the individual firms.
  3. Partners are key.  Growth is very difficult unless you build a strong partnership network.  Whilst there are various strategies you can use to do this, the authors recommend building a network that is non-competing.

Brighton Fuse highlighted some difficulties fully capitalising on opportunities to learn from the points above, for similar reasens to th telecom cluster. A decline in workplace training and a gradually expanding skills gap, is an ongoing problem which could lead to profitability and growth obstacles if left unaddressed. Even our more successful clusters will need to focus on the nature of innovation, to ensure talent and knowledge are able to thrive and sustain their most positive achievements.