Global Collaborative Innovation Clusters

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Across many different types of industries, firms will succeed to the extent that they can use superior know-how and capabilities to create a continuous stream of innovative products and services for both existing and new customers. Unfortunately, however, most business firms in advanced economies today utilize only a fraction of their innovation potential.
Global collaborative cluster is organized to carry out its strategy of continuous innovation portrays organizational structures and processes that are well beyond the experience of most managers. Indeed, most firms today are organized to accommodate only limited, planned innovation. New product or service ideas that fall outside of existing markets are usually suppressed or discarded. In contrast, Global collaborative cluster is a self-managing network of firms that creates economic value on two main fronts. First, Global collaborative cluster treats information and ideas from all of its member firms as a common resource to generate product and service innovations for existing markets but also any new markets that can be developed. Second, Global collaborative cluster collaborative entrepreneurship model expects its network of firms to develop profitable markets for unanticipated product and service innovations. Thus, while most firms organize to facilitate efficient coordination and control, Global collaborative cluster organizational system,a collaborative multi-firm network, creates value through complexity—an approach that defies traditional management thinking.

Global collaborative cluster is multi-firm, self-organizing and self-managing, adaptable, global, and heavily integrated electronically—and all of these organizational features have been skillfully combined for the purpose of engaging in continuous innovation.

The creation and effective use of continuousinnovation organizations will require a sophisticated model or package of organizational strategy, capability, structure, and process. The new package must tie together an innovation-based market strategy, a new way of organizing human and other resources to support the strategy, and the essential capabilities to make both the strategy and the organization work.

Organizations today typically attempt to develop and apply their know-how outside their existing product and service lines either by acquiring new business units or by forming alliances with other firms to share product-market ideas and information. Global collaborative cluster organization is complex, and cannot be centrally directed or controlled. Moreover, the core of Global collaborative cluster operations depends on the widespread ability to collaborate—vertically and laterally within a particular firm and horizontally across firms in the network. Global collaborative cluster cannot support its business strategy of market exploration with a traditional organization structure. Instead, the widespread use of collaboration requires a self-managing organization that relies heavily on the competence of member firms as well as ad hoc organization structures specifically developed for each entrepreneurial initiative. Such self-managing organizations are not widely found in today’s global economy.


The Business Model
Global collaborative cluster expects to create and exploit both planned and unplanned innovations. That is, Global collaborative cluster not only wants to create value by providing new products and services for its existing markets; it also wants to create value from unanticipated product and service ideas that may or may not have value in its existing market(s). Global collaborative cluster encourages—and seeks to exploit—such innovations by pursuing a strategy that searches for and finds market opportunities for unexpected innovations. It is this explicit focus on capturing wealth outside the boundaries of existing lines of products and services that makes Global collaborative cluster business model so entrepreneurial.
Moreover, Global collaborative cluster business model is not just entrepreneurial; it is strategically entrepreneurial. It includes organizational mechanisms and capabilities for finding markets for unanticipated innovations that makes Global collaborative cluster entrepreneurship strategic.

Innovation can originate anywhere within this widely distributed network of firms. Information and ideas are constantly flowing through Global collaborative cluster intranet. Whenever a member firm perceives that a particular idea has potential commercial value, that firm can launch the innovation process. Often a virtual team is formed across several member firms that wish to participate in the venture, and its individual members are hooked together by customized computer software. If, in the judgment of the lead team, one or more non member network firms should be brought into the venture, then it is that team’s responsibility to do due diligence on the temporary new member firm.

New Business Units to Spark Innovation
traditional firms such as Hewlett- Packard and Johnson & Johnson carried their innovative know-how into new markets by creating divisions or acquiring new business units. Because each division or business unit was semi-autonomous, it could focus its resources on a particular market without day- to-day supervision by corporate officials. New ideas that did not fit the markets of existing divisions could be used to spawn a new division through a process whereby higher management authorized the formation of a new business unit. As long as the new division provided an appropriate return on the parent firm’s investment, while not interfering with the customers of other divisions, the corporation could continue to exploit its know-how by moving into new areas.

However, growth by sequential divisionalization is not a strategy for continuous innovation. Divisionalization is not designed to exploit both planned and unanticipated innovations wherever they may arise and wherever they may lead. Instead, the creation or acquisition of a new business unit is an important, costly, and time- consuming event, one for which most firms plan carefully and under- take only periodically.

Moreover, despite efforts to focus division resources on distinct markets or market segments, product and service lines may gradually spillover into the domains of other divisions, presenting higher-level managers with disputes that are difficult to resolve. Lastly, as divisions multiply, redundancies, whether real or imagined, also multiply. Many firms with multiple divisions begin to centralize support functions at the corporate level, and these firms face the constant temptation to centrally coordinate innovation across product lines and markets in the hope of achieving scale economies in sales, manufacturing, and research and development.

In a further attempt to avoid redundancy, progressive firms of earlier decades began to use cross-functional business teams to accelerate and streamline innovation without the need to create completely new divisions. In its appliance division, the General Electric Company honed the process of new product development through the use of product teams that learned to take ideas from the design stage to the production stage in a matter of months. Today, Intel Corporation has continued to improve its use of project teams in the development of each succeeding microprocessor design. Indeed, Intel’s organization accommodates overlapping teams so that the production of the current microprocessor model can proceed efficiently while a new model is being designed, tested, and readied for production. At that time, the production and sale of the preceding model is wound down to a profitable halt.

While the various matrix structures used by GE, Intel, and other firms are more efficient than creating autonomous new business units, they are not designed for continuous innovation. They, too, are intended for planned, sequential innovation. Moreover, because matrix mechanisms are centrally planned and coordinated, they leave little room for even that level of unanticipated innovation that may occur within the autonomous division. In short, the more innovation is managed, the narrower and less spontaneous it becomes.

Clearly, Global collaborative cluster organization structure has some features in common with the divisional and matrix forms. For example, its multi-firm network looks a bit like the multi-divisional forms at Johnson & Johnson and at Hewlett-Packard in previous decades, in the sense that there is a headquarters group and operating units (member firms) that have considerable autonomy. However, Global collaborative cluster individual member firms are completely autonomous, and they choose to associate with the Global collaborative cluster because it is in their self-interest to do so. Indeed, member firms are not only responsible for their own profitability; they are free to withdraw from the network after giving six months’ notice and satisfying their current inter-firm projects and obligations. This independence is essential to assure that each firm can operate without corporate constraints and is motivated to use its own resources to maximum advantage. Perhaps even more important, the fact that Global collaborative cluster member firms are truly independent means that they are responsible for managing their own relationships with their fellow firms.

The ability to self-manage inter-firm relationships is the key to Global collaborative cluster ability to create and capture economic value from innovative ideas that would be lost in most divisional and matrix organizations. Inter-divisional rivalry for capital and for performance-based rewards usually results in limited product-service development across division lines, and often motivates divisions to resist sharing ideas that might be valuable in the markets of other divisions. Corporate attempts to induce divisions to freely share information and to cooperate in systemwide projects frequently produce limited results. Inter-unit collaboration, when it occurs, is often the result of voluntary actions among divisional groups or projects initiated by corporate knowledge managers that temporarily suspend incentives for inter-divisional rivalry. However, unauthorized and/or bootlegged collaborative efforts are, by definition, not part of everyday firm or inter-firm practice and tend to be narrow, fragile, and difficult to sustain or grow over time.

Inter-Firm Innovation Alliances
Innovation outside of a firm’s boundaries can and does occur through various types of alliances involving two or more organizations. Innovation-focused alliances are regularly created to share research and development resources, particularly in fast-moving industries such as biotechnology, nanotechnology, and computer software. Indeed, in rapidly evolving technical areas, it is difficult for any firm to be able to develop and allocate innovation resources across all potential product-service markets.

Most contractual alliances are focused on a specific objective. Common alliance designs call for sharing research and development facilities and/or personnel, the creation of cross-firm marketing and/or design task forces, and joint efforts to establish common standards for key interface designs and specifications that will facilitate innovation and reduce design redundancies. Alliance goals are often narrow because the firms involved are concerned with gaining the benefits from cooperation and shared resources while carefully protecting their current market positions and preventing the inadvertent sharing of intellectual property outside of the alliance’s scope. Indeed, many alliances are short-lived because while firms see the benefits of shared information and resources, they develop concerns that their alliance partners may be gaining a disproportionate share of the technical or market benefits. Thus, for many firms, being forced to depend on trust and relational experience rather than measurable contractual obligations tends to inhibit vigorous alliance participation.

Historically, some firms have been especially adept at finding ways to create economic value across firm boundaries. For example, Corning Incorporated has gained widespread recognition for its myriad alliances.1Early on, Corning established a dominant research position in the ceramic sciences, and it usually had more innovation capability than it could profitably develop and apply in its existing markets. Such underutilized capability motivated Corning to seek partners to help it create economic value from product research and development outside of its own marketplace, and the firm presented attractive opportunities to potential partners to engage in joint ventures or licensing agreements. Over time, Corning created a reputation for trustworthiness and creativity in alliance building that gave it a growing outlet for its research and development expertise. In a period where most organizations managed their know-how to fit their own markets, Corning exploited its capacity for innovation by forming long-lasting joint ventures and other types of alliances.

During the 1980s and 1990s, many firms, especially those in high-technology industries, pursued innovation strategies by creating internal venture capital processes. Corporate-supported investment committees were set up to fund product-service innovations that fell outside existing market boundaries. Their intention was to facilitate promising innovations that were unlikely to proceed through normal development channels and to find a home for the resulting products and services either inside or outside the firm. The venture capital committee helped to create internal alliances across units or to facilitate the spin-off of an innovation through licensing, a joint venture, or the creation of a new, independent entity. While there have been numerous successes from utilizing the internal venturing approach, it is not yet clear that firms are using it to fully exploit their capacity for innovation.

Some firms have formed alliances with their key customers. For example, 3M has organized a lead user idea-generation process in which the firm selects, funds, creates, and markets new products in collaboration with lead users. The 3M lead-user process even offers tool kits that allow users themselves to improve products.

Recently, high-technology firms, especially Intel Corporation and Cisco Systems, have begun a process that cuts across both alliance and internal venture capital approaches. Innovation and growth through acquisition has long been a tradition in the hightechnology sector. Larger firms acquire smaller firms whose technological innovations can be incorporated into the larger firm’s products and services—in effect, the big firms simply buy a large portion of their research and development. Other firms expand their reach horizontally and find broader application for their technological know-how by acquiring smaller firms in related technologies and markets.
Intel and other hi-tech firms, however, have gone beyond these approaches by taking ownership positions in small downstream firms that may at some point become markets for the upstream firm’s future products. Intel is particularly motivated to explore potential outlets for its microprocessor design capability, which already far exceeds its application in existing computer markets. Intel’s informed guess is that microprocessors will become commonplace in a wide variety of products, and it wants to use its equity positions in small firms to help it search out the most promising markets. Alliances, joint ventures, and acquisitions are expected to follow those exploratory investments.

Continuous Innovation Organization
Global collaborative cluster horizontal network of firms also shares some features of the alliance approach to innovation. Global collaborative cluster member firms collaborate across firm lines, sharing common knowledge to create and exploit economic value through innovation. However, Global collaborative cluster knowledge and information sharing is broad and general-purpose. That is, neither the resources (knowledge and information) that are shared, nor the purpose for which they are shared (continuous innovation), is constrained. Instead, the expectation is that Global collaborative cluster member firms will share product-market ideas and perhaps even tangible assets in order to turn potential innovations into revenue producing realities. As noted earlier, ideas born in one firm may be expanded and developed in a second firm and taken to market by or with a third firm.

Global collaborative cluster is designed to exploit the know-how and capabilities of all of its members and to do so without the constraints of central planning or prespecified limits. To some extent, Global collaborative cluster network shares some features of another form of network organizing, the industry value chain. Since the 1980s, firms in a wide range of industries have learned how to cut market-response time and improve resource utilization by creating vertical networks of firms along the value chain. Beginning in industries such as book publishing, used on a global basis in automobiles and athletic footwear, and taken to new heights in the computer industry, value chain networks are now commonplace. In such networks, firms with downstream skills in distribution and marketing connect to upstream firms with skills in manufacturing and assembly, and together they optimize the use of their resources—a process that has been referred to as virtual integration. Just as Wal-Mart assists its upstream suppliers with information to guide their manufacturing and supply schedules, Dell Computer Corporation shares information and creates relationships with upstream suppliers of components and software so that Dell can supply customized computer models at ever lower prices.

Information sharing and cooperative relationships have increased the efficiency of many value chain networks to the point where product and process innovations are constantly expanding to the benefit of both upstream and downstream partners.
However, compared with Global collaborative cluster expectations, even the most advanced value chain networks are too restrictive. Global collaborative cluster interactions across its member firms flow in every direction and are shaped and reshaped as needed to carry innovations through to the market. At any given time, a particular Global collaborative clusterfirm may be operating at more than one point along several industry value chains. It may, for example, be playing an R&D role in one value chain and a marketing role in another. Further, some of the value chains may cut across traditional industry lines. Thus, Global collaborative cluster is dynamic both vertically and horizontally, and no member firm is forced to occupy only a single value chain position over an extended period of time.

Such complex, dynamic relationships do not imply that Global collaborative cluster resources are unfocused or stretched too thin. Indeed, for considerable periods of time, any given member firm may be engaged primarily in designing, producing, and/or marketing a limited set of products and services, and this firm may have organized a stable network of external suppliers and distributors. All of these activities may be highly focused and, at that moment, may be the most creative and profitable use of that firm’s know-how. The difference is that Global collaborative cluster firms are free to shift directions, using a portion of their resources to pursue ideas and innovations on their own or with other firms as opportunities arise. By making certain that what they are doing and discovering are visible across the entire Global collaborative cluster , member firms are always potential innovation suppliers, users, and/or development partners.

Collaboration: The Key to Success
Clearly, Global collaborative cluster way of organizing is a far more ambitious mechanism for producing innovation than commonly used approaches such as acquisitions, spin-offs, cross-functional business teams, alliances, and value chain networks. Therefore, shouldn’t we expect Global collaborative clusterto fall victim to the same sorts of management maladies that afflict those approaches? Why, for example, don’t Global collaborative cluster member firms protect their own know-how just as do divisions or subsidiaries? Why aren’t Global collaborative cluster alliances with other firms limited in scope and prone to only short-term success? Why don’t larger Global collaborative clusterfirms acquire their smaller partners so that they can control knowledge development and make the innovation process more efficient? These are reasonable questions given what we know about how existing organizations work. We believe that the

Global collaborative cluster is less susceptible to these kinds of problems not because its business model of market exploration is too new to be evaluated, or that its organizational model of a dynamic, horizontal network of firms is infallible, but because the entire system is driven by a crucial capability. That capability is collaboration. Global collaborative cluster member firms are different because they collaborate in creating innovation, and, equally important, they collaborate in capturing and distributing the returns to innovation. The capability to collaborate in the creation, appropriation, and distribution of economic wealth is neither well understood by, nor widely found among, today’s firms.

From tangible to intangible assets
During the last decade or so, economic and management research has focused on explaining why some firms appear to be able to earn excess profits because of their know-how and capability. That is, even among firms that are similarly organized and apparently pursuing similar strategies, some seem to have management expertise that allows them to do things better and/or quicker than their competitors. This theoretical focus has given rise to the resourcebased view of the firm. Moreover, according to this view, it is not the mere possession of resources that leads to competitive advantages; it is the uncommon ability to use those resources that is crucial. This rudimentary theory recognizes that resources are not spread evenly across firms in an industry, and more importantly, that putting resources together and applying them creatively goes well beyond the optimization of known production functions. Some firms are, in fact, more capable than others, and they are able to leverage their knowledge and abilities to appropriate an inordinate slice of an industry’s profits.
Interestingly, this general observation has led many firms in recent years to narrow their scope and to focus on particular aspects of the industry value chain where their core competencies can lead to a competitive advantage. Such value chain reconfiguration is reflected in the rise of strategic alliances and the current interest in supply chain management.

The overall idea is that firms can achieve abnormal profits by performing only certain value-adding functions and then contracting with other firms to complete the business offering. In theoretical language, the resource-based perspective is evolving into the dynamic capabilities perspective in which a firm is expected to continually develop its package of resources and skills so that the firm can both meet and lead industry change.