Innovation Requires Global Pipelines Not Local Clusters

How can we make businesses more innovative? That’s easy isn’t it? We just group them together into clusters (preferably in science park developments) and it will happen… won’t it? The trouble with this cluster theory of innovation is that it confuses cause and effect. When we see a successful cluster like Silicon Valley it’s tempting to assume that the clustering made these firms successful. Jumping to the conclusion that clustering is a cause of innovation success has triggered a lot of government expenditure to create these ‘hot spots’, but what if clustering is an outcome of successfully innovating firms? Are clusters really an innovation ‘red herring’?

The trouble is that the evidence for cluster theory is really shaky. In a previous post I mentioned the cargo cult analogy for initiatives like clusters and the weight of evidence against clusters as a precursor to innovation. A recent study of 1,600 Norwegian firms concluded that:

“The results indicate that firm innovation in urban Norway is mainly driven by global pipelines, rather than local interaction. The most innovative – both in terms of basic product innovation and radical product and process innovation – firms are those with a greater diversity of international partners. Local and even national interaction seems to be irrelevant for innovation.”

The full paper is definitely worth reading. It is robust research and if you don’t enjoy the stats then skip to the conclusions. The findings make sense to me. If we are thinking of innovation as an open ecosystem then why should all the significant people and firms be in one city. The world is a big place. Australia, for example, is 2% of the global economy. Why would any firm want to prioritize connections in one city that is just a drop in the international knowledge pool?

The really interesting part of the study is the relationship between managerial mindsets and the deliberate formation of international linkages.

“…what this study has demonstrated is that the attitudes of individual managers play an important part in the innovative capacity of their firms. Open-minded managers without excessive regional orientations are often in charge of firms which develop a greater number of international interactions of the sort that promote greater innovation.”

This has implications for developing innovative industries. For most of the 20th century, Sweden was an economic backwater with low standards of living. One of the really smart things that the Swedish government did was to sponsor students and young professionals to work and study overseas. In developing connections through this program, they also encouraged firms to be more innovative.

I’m currently reviewing a research paper based on a sample of Canadian firms that also finds a link between innovation and internationalization. In a survey of firms in Brisbane, Australia (the Brisbane Innovation Scorecard) we also found a close relationship between innovative firms and connection to international markets. At least one study shows that international activity can precede innovation rather than the usual assumption that innovative firms grow to compete in international markets.

Travel broadens the mind…. and makes you more innovative too.

Editor’s Note: You may also want to check out Braden Kelley’s article Building a Global Sensing Network

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John Steen is a Lecturer in Innovation Management in the University of Queensland Business School. He blogs about innovation at the Innovation Leadership Network.