FEDA, Harvard, and UMN Economic Cluster Development Conference

Cluster Mapping Project

The Federal EDA, Harvard, MIT, and UMN had teamed up around big data analysis on US industry clusters.  This was a two day event (09/29/14 – 09/30/14)  showcasing a broad range of speakers and case studies of cluster development.  For a number of years they have been collecting data on the current state of industry across cities in the USA.   The high level data starts to identify strong concentration of cluster assets by geography and creates a basis for measuring the effectiveness and growth ( or decline ) of regions.  The Federal EDA and Small Business Association have created grant programs to help regions develop their clusters.    Already many cities have capitalized on these government investments and begun programs and have created innovation centers / parks to bring clusters together in new ways and around joint collaboration and co-opition.
Reshaping Clusters Porter
Harvard Professor, Micheal Porter, gave a presentation with practices for reshaping clusters and highlighted the work he has been involved with developing the Life Sciences cluster in Massachusetts.  Some of the best practices he highlighted included:
  • Focus on competitiveness, not job creation
  • Cluster-based, reflecting the core drivers of jobs and wages
  • Build on existing and potential strengths, versus rely on reducing
  • Weakness
  • Develop an overall strategy rather than a list of actions
  • Prioritized and sequenced, not treating all weaknesses equally
  • Data driven, not political or based on wishful thinking
See more in the gallery
Water Cluster
The case study examples where interesting and great to hear them presented directly the teams leading the initiatives.  Ecolab CEO Doug Baker presented a very interesting cluster collaboration that spanned multiple states and adjacent clusters that included water, energy, and agriculture.   This highlighted that the potential of clusters is just not within the scope of a single city, but in the interconnection of key partners that may span state boundaries.   This concept was reinforced later in the year seeing states applying for the federal grants together in unified proposals.   The example also highlighted the power supporting adjacent clusters.   This allowed corporations from adjacent vertical sectors to partner in new ways and create business opportunities through combining assets, technology, and processes.
Regional economic development practices where discussed and it highlighted the wide variety of approaches adopted by groups and some of the trade off to the approaches.  For example:
  • Some regions don’t have strong leadership and lack any regional development plan, much less a shared vision.   This is worst case scenario, but can be common
  • Regions that have long standing clusters,  but struggle to maintain their lead.   They focus on keeping parity though this tends to ultimate lose the lead and invest enough in creating competitive advantage
  • A region could focus on a new and emerging cluster,  but that is a very competitive space.   Success would really hinge upon the actual strength of regional assets to support that industry.   This can be a very costly investment only to not sustain the lead in the long run against another region with inherit more advantages
  • Regional investment in generic infrastructure can also be an expensive but unsuccessful strategy.   Building generic industry parks,  start-up spaces, and industry support systems can turn into a bust without a clear and focused plan.
  • The opposite of generic infrastructure though would be an approach to build cluster specific infrastructure that creates a unique and differentiated assets for the region resulting in a clear competitive advantage.   Example of these can be innovation center campuses that integrate industry,  start-ups, universities,  research parks, that have common infrastructure around shared labs, manufacturing, supply chain, education and commercialization.
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One aspect of cluster development that paves the way is the development of supportive government policy in the region to create business opportunities,  align government investment, and create incentives.  This can be a huge factor in terms of attractiveness to the region for internal and external investment and the attraction of talent and ideas.   While government plays a key role,  it doesn’t mean a region can only be lead by government agencies.   In most case the agencies are not staffed or funded for extensive economic development programs and these programs have to last past any given administration.   Some of the most success case studies of cluster development are lead by private organizations that are built and dedicated to the mission.   It still takes government, industry, education, start-ups, venture capitalists, etc to be all contributing,  but much of the facilitation can come from private firms.   Two red flags I’ll immediately raise in this conversation are as follows:
  1. There can be more than one private firm involved.  Regional transformation is an enormous,  and though a shared vision is required, the work and easily and probably be better severed by a number of focused organizations that can sustain long term.
  2. There is a difference between leadership and control.   A leading organization can lead through delegation.   A clear flag of a failing economic development organization is one that seems to take control of everything.   Its a stewardship model vs. dictator model that is needed for scalability and sustainability.
FF_CHEVAL_PARTNERS-01
CHEVAL insight looking into regional cluster selection also brings a variety of approaches:
  • One can begin by looking at what the region is already known for and has in abundance.  Next one would have to compare the regions current success and competitive differentiators against any other regions that are in that space.   In too many cases a region that pioneers a field becomes comfortable at the lead and fails to see others gaining on them until it is too late.   Keep in mind that the individuals who probably created the industry tend to retire and turn it over to the politicians in their companies, so its not surprising that the decline of industries sectors in a given region over time.
  • Studying your areas of strength,  then exploring the strength you have in adjacent industries could also be a opportunity in waiting.   In many cases these have grown up independently and could be at a maturation point where stronger cross sector integration can create dynamic opportunities in the marketplace.
  • Investing in a growing regional competency might make sense.   Really mature clusters don’t need much additional support.   They have already built their systems and partnership.   So a growing sector could be the place where the investments make a big difference.
  • Even though emerging markets might be risky,   if you region already has strong momentum in that entrepreneurial area and that mark may have the support of mature adjacent sectors,  then it could be a strategic play.  You really have to look at the competition before jumping in though.
  • Looking at cluster intersects can be a game changing strategy,  even for your mature sectors.   Combining a horizontal with a vertical sector could be a multiplier.   For example:   Add a IOT focus to a manufacturing or agriculture cluster strengthens both sectors in your region and could create dynamic opportunities.   Combining mobile into healthcare or supply chain could amplify all your mature businesses and share the cost of the innovation and R&D.

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20140926-US Cluster Mapping Launch Michael Porter- 1I was able to have several follow-up meetings with the Federal EDA and some of the analytics partners.   We where exploring some partnerships around the next level of economic big data that could be generated around innovation centers.   This could provide much greater insights into regional activities and innovation plus expand the language of cluster development and metrics.   This effort will continue as regional cluster planning comes into focus across a number of cities we are currently engaged with.   I should also mention that these innovation centers with clear focus clusters are key landing pads for the international corridors programs we are developing to connect global clusters and innovation.

2014 Rail-volution Conference

Railvolution 1I attended the 2014 Rail-volution conference   looking at trends in economic development and transportation oriented development.  This past year we worked with some large scale TOD projects that included high speed rail projects in North America.  It was interesting to see the different approaches programs in a variety of states where pursuing.  One key difference revolves around have the core of the funding be public or private backed.   Both options have their advantages and complications.   Public funding is very politically complicated, involving more effort in securing support, but possibly providing stronger alignment going forward.   Private funding tends to have deeper pockets and makes more ambitious projects possible.  The complications on the private side involves alignment to public interest vs. corporate and ultimately long term ownership and maintenance of the solutions.   Both have their advantages and can be combined into Public + Private ventures.

Another major variable involves the inclusion of foreign investment capital.   I’ve been involved in a number of regional investment conversations with foreign nations.   In today’s world climate,  north america represents one of the few stable regions in the world today for investing,  especially in infrastructure.   Many countries have strong capital reserves they desperately need to invest, but the idea of global markets is a risky proposition and north america is very attractive.  Have countries invest in America, its infrastructure, and its future is a great way to increase relationship with foreign powers.  In most cases,  foreign investors are very flexible no the ownership issues,  preferring regional ownership long term, and looking more at security of capital and returns.

These investments get more interesting and regional impact increases when multiple stakeholder groups come together.   When you combine transportation investments built around new innovation centers,  education centers,  industry parks,  research parks, conference centers, etc – then a multiply effect comes into effect where you are creating new capabilities for the region and career / lifestyle options that attract and retain the next generation of talent.  Again,  it also pays to look past ones primary project into parallel efforts.  For example:  Transportation projects also change adjacent real estate value and possibilities.  Combining efforts through joint ventures  with other real estate development groups can be a great multiplier for support and financing.

This event was a great showcase of projects and approaches.  Networking with economic development firms and state agencies was fantastic and factors into ongoing networking.  Looking forward to attending the next event.

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Future of Education Event: International Models

McNamera Center

The Future of Education event was hosted by the Office of University Economic Development at McMamara Center.
The event was welcoming a panel of speakers who had been on the delegation touring educational models in other countries.  This particular delegation was returning from Germany to share models and learnings from the trip.  The overall theme of the event was discussing how successful aspects of these models could be leveraged to reconfiguring Minnesota’s Talent Pipeline.    The conversation was lead by opening remarks from State Senator David Senjem and State Representative Kim Norton.   The delegation served as an interactive panel sharing insights and fielding questions from the moderators and audience.   Viewpoints differed in the application to our current system, but it was clear that the system needed to be reconstructed to better serve the competitive needs of the region and to keep pace to the rest of the world.
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To begin to see the applicability of other models,  and understanding the challenges of the current system helps frame the discussion.
  • The debt levels incurred by university students today is a major financial setback for youth just beginning their careers.   Student loan debt is one of the few forms of unforgivable debt that cannot be escaped through bankruptcy.   Given that employment rates are dropping for new graduates,  this creates a perilous position that universities are putting the youth into.
  • The speed of change in industry is far outstripping the pace that curriculum is evolved.   This is making current education systems less relevant to modern industry and requires extensive investment by employers into new hires from universities.
  • The gap between faculty and professions is constantly growing.   It centers on the lack of experience of teachers to actually apply the academic knowledge to the real world.   At best case study based programs bring real world experiences into the classroom, but the gross lack of actual experience by the professors is at the root of the problem.   While no-one would dispute the need for teaching the basic fundamentals of any discipline,  this is mainly refer enable materials.   Equally high quality methods of online learning can covey this rote information and it can be looked up at any time in ones career as we are no longer in the age of memorization but an era of concepts and problem solving.   What is needed is more experiential learning opportunities and deep integration of industry practitioners and internships into the systems.
  • Companies are becoming less interested in giving blank donations to university foundations and having no accountability to measurable results or value returned to the community.
  • Companies are finding they need more engineers, entrepreneurs, and business leaders.   The need for MBAs trained to aspire to middle management and report status of other is not that valuable and makes organizations more political and less agile.
  • The USA university system is primary focused on only the upper end of professions,  yet every society needs many more skillets to be functional than what is available in today’s institutions.
  • The tenure system was created to provide the security for extended research and this is an important concept not to be tossed or compromised for the immediate needs of business or urgency of instant ROI.    The problem of combining an incentive model of research with teaching is where is the priority.   While the world needs top class research institutes,  it needs world class education and the business functions need to be split.   Not that they can’t be integrated,  but researchers are not practitioners and lack the real world experience that is integral to training the next genrerations.  Should teachers rotate through education, research and industry iteratively in their career track?
  • The tenure system also creates hierarchies and political bureaucracies in institutions that are build to protect their sheltered model vs. produce real value to the community.   Our universities will not evolve until this system is disbanded.
  • The media needs to be more critical of large public grants being aware to universities that are simply using the money to pay off tenured faculty and financial bail out stale programs they are hiding in.
German Education System
The learnings and best practice from the German delegation brought forth a different model of an education system that seemed to address a broad swath of the challenges faced in the USA model.
  • Their education system spans the entire spectrum of the workforce.  This is from basic labor,  skilled vocation, and professional.
  • The system has three district layers and there are many paths through the system to meet the needs of the entire spectrum.
  • It is the integration of the entire system both institutionally, but more important culturally into society that is unique benefit.   A master electrician,  plumber, or engineer is as prestigious as a typical lawyer, doctor,etc.    Societally they realize that mastery must be achieved across the spectrum to have the most competitive workforce and economic advantages.
  • Career assessments and planning happen at a much lower age,  helping youth envision potential futures and the actual paths and options available to pursue them.
  • In the later stages of university,  industry is directly involved in the education curriculum.   Students are both going to school and working directly in industries for years during the programs.   This a number of impactful benefits:
    1. Students starting internships early get insights to their preferences for the industry sooner than later and can pivot as needed
    2. Industry is paying for the education during the internships because they are building their workforce.  Students graduation with no debt!
    3. Students are building real world skills and have a context for applying the academic knowledge immediately.
    4. Students are building a real world network of industry contacts in many companies throughout their time in school.
    5. Most already have a corporation waiting to hire them, because they are already trained in their companies and will be productive immediately.
  • In a world of constant change,  there are elements of life long education being built into their industry and this keep the workforce relevant and skills up to date as they age.
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The take aways:
  • Industry and Education need to be integrated.  Both for education/internships and in the financial models of how education is funded.
  • Lifelong learning must be a part of industry to assure the workforce stays relevant.   University is a part of your entire life and secures your career.
  • We have to build future universities to serve the entire spectrum of the workforce.
  • Old models of universities and tenure need to be torn down and rebuilt to support the new models.
  • Research and education are two important, but institutional separate missions.  They can support each other but should not be competing with each others.
  • How can you teach if you can’t do?
  • University financing needs to be investigated deeply for actually validity.
  • Our cultural values need to evolve.   We need to demand more from industry and universities – we should be able to do better for current and future generations than hanging onto centuries old and failing models.
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See images and event agenda in the gallery

Innovators International Event / Mayo Clinic

Innovators InternationalI attended the 2014 fall event of Innovators International as part of the delegation of the MN Secretary of State.   The event was hosted by Mayo Clinic and was attended by many corporations.   The event format is very diverse and collaborative in nature spanning several days.  The overall goal of the events are to build the community of innovation professions and inspire collaboration between the members.

Being hosted at Mayo the event included several tours of the Mayo campus and the Innovation Centers and Venture Groups.   Mayo continues to expand its own internal capabilities around acceleration and incubation while growing its network to external venture capital expertise.

The event had numerous speaker talk on various innovation topics and best practices.   This was blended with actual working sessions to apply the methods.  What was interesting was the workshops where applying them to the companies real business challenges.   In some cases a several corporate members had volunteered in advance to bring in a real world problem or case study that all the attendees would work on in separate breakout teams.   This provided the featured companies all the insights and suggestions from a wide diversity of companies, market perspectives, and experienced practitioners.   Problem sets varied from pure business cases to the internal challenges of building out  internal capabilities and culture.   These working sessions provided great relationship building both in your break out team,  but also hearing the experience from other companies would create follow up meetings to learn more during the social break out times or after the conference.

Another feature of the event is each member identified both areas of needs and strengths of their organization.   This provided a broad rolodex for on going collaboration between members.  I know my own experience continued well after the event connecting with members on areas of synergy and mutual benefit.   I think this event shined in the areas of community development and in having actual real world working sessions.

As I look at the growing numbers of innovation centers around the world I see the potential of have these experience being made available real time to any company vs. in the rare occurrence of an event.   If companies can access a center at any time and participate in an active community this can be  a strategic asset for the entire region.   Companies can share best practices,  experience, and ask for help – rapidly networking to other groups in the community with that experience or mutual interest.    Collaboration and Co-opition are at the heart of innovation and the companies that can do that the best will go the farthest.   Soon this will be the new norm of business.

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International Joint Ventures

Joint-Venture

A Joint Venture can be a strategic and required method for companies to enter international markets.  For the past several months we have been working with North American companies looking at employing that method strengthen their manufacturing and supply chain options in southeast Asia.   The engagement started early in the business lifecycle where some potential partners had been identified, but the entire process of defining the business model,  negotiation, and overall planning was yet to be pursued.   Determining the right type of partnership would be critical, because it would have long term implications around the development and integration of both organizations.
The work broke down to four major areas:
  1. Looking at the reasons and motivations behind pursuing the joint merger.   Knowing the goals, both short term and long term, was critical to the conversation.   There are a large number of options in SE Asia when it comes to manufacturing and supply chain partners and the long term goals can quickly rule out attractive short term options.    Looking at differences between China and Thailand where contrasts in trade offs and benefits.   Both in terms of the labor force, skill sets, and government policies,  but also from a supply chain perspective in terms of long term stability.   Thailand became the preferable country to seek partnership even in the face of its labor shortages.   Supply chain preferences also indicated Thailand as a better option based on government position and stability.
  1. Structure of the partnership proved to be the most complicated area of design.   Each company at the table is looking to protect their interests and maximize overall value of the partnership.   Fair practice would seem to be the golden rule,  but yet not everyone is bringing equal value to the table in many cases, but that doesn’t suggest that gouging is an acceptable behavior as well.   The best discussions look at combining assets to maximize the new business model.   In most cases the larger opportunity features many “sides” to the business.   Whether that is in the designing, building, shipping, selling, supporting, and etc lifecycle of a new product or services.  If each partner can see the upside of his side of the business, then they have a genuine vested stake in making that part of the model work,  grow, and succeed to the benefit of all.   Large partners,  who may the capability to do several parts of the model,  might want to consider the benefits to let a smaller partner focus on it or the regional benefits a partner may have in a new country of business.   Sharing and making the pie bigger is a much better strategy overall.   One aspect to consider is that as business grow, age, decline, and pivot.  All partners play different key roles.   The smallest partner of the first union, may be the key to the next pivot.  So seeking pure advantage in the first venture is a short sided perspective that will weaken future deals.   Once the roles each partner is playing is defined,  then it is possible to move to the next level of discussing investments, expenses, revenue, and equity in the venture.
  1. Building with the business model in place a more detailed look at operating processes can be defined.   These are critical success factors to the overall operations of the new venture.   Both organizations will need to create new internal capabilities for direct collaboration and potentially for operations in international markets.   Planning, Governance, Decision Support, and Knowledge Management will all need to be integrated across corporate boundaries as well as escalation paths.  This should be considered a learning effort that will need to iterate.   New forms of measurement will be required and a willingness to share data must exist between all partners.    Process and measurement lays the foundation for developing trust over time through consistent behavior and honoring commitments.   There are many types of trust in business,  whether it is based on performance, consistency, incentive building, (etc)  the point is that it is built over time and becomes a core component of your brand.   When another opportunity arises to pivot or you are disrupted,  the strength of trust can be a critical asset to respond and re-negotiate new business models.
  1. Building of cultural competencies and capabilities can be a very new journey for many organizations.   Every new market has a distinct culture and landscape.   Language itself may be an immediate barrier that will be a part of the partnership ongoing.   Differences in values across cultures also can make standard business practices un applicable in a different market.  Even basic colors can carry different meanings.   A strategic partner, from the region,  can help “decode” the cultural gap.   Bringing a foreign brand into a new market can be met with resistance.  In many cases the partnership involves rebranding, to leverage the brand trust of and existing company in the market.   Networking in international circles can also be heavily influenced by partnerships and the credibility they already have in the network.  This can be very important when dealing with government policies and regulations and during mitigation and arbitration of issues.  Above we talked about the importance of process and operating procedure.  Cross team emersion can be fantastic talent development opportunities and growing the depth of relationship across the partners.
Some reflections going through the experience.
  • During the work I integrated with several American Chamber of Commerce agencies in SE Asia.   I was impressed with the insights and networks they had access to that we could bring to the work at hand.
  • One of the “stickiest” parts of business models revolves around IP.   The full spectrum of IP protection,  shared IP,  new IP, etc.  While this landmine of a topic seems like a show stopper,  it usually is the multiplier in the business opportunity.   Usually combining IP to allow both companies to more into the market in different ways creates synergies to fuel all sides of the business and can create disruptions for competitors.
  • While all brands what to maximize profits and brand presence.  The more successful path can be down the road of Strategic Alliances and Joint Ventures.  Keeping focused on the long term growth and sustainability of partnerships seemed key to negotiations and creates a strategic asset when markets shift.   A company needs to develop its capabilities around Joint Ventures and be working on them all the time for strategic advantage.
  • In a world with ever more trends around Co-opition,  you no longer competing company vs. company, but consortium vs. consortium.
  • Its now about building a business ecosystem.