Clusters and Competition Review


In case you are at this moment enjoying your morning coffee and (1) eagerly anticipating my blog musings while (2) meditating on your strategy as it relates to competitive advantage, (which you are now) the next ten minutes will, I hope, get your day off to a thoughtful and productive start.

What is a cluster?  

Michael E. Porter fittingly defines clusters as “geographic concentrations of interconnected companies and institutions in a particular field,” and “critical masses - in one place - of unusual competitive success in particular fields.1”   The thesis of Dr. Porter’s article, more or less, is that clusters are critical to competition because clusters (1) increase productivity; (2) drive innovation; and (3) stimulate the formation of new business.  This, argues Dr. Porter, allows cluster members to reap the benefits of greater scale while maintaining flexibility.

In his article - Clusters and the New Economics of Competition, featured in the November-December 1998 issue of Harvard Business Review - Dr. Porter identifies a variety of industry examples, describes the advantages to clusters in accessing various resources (e.g., specialized talent and supplies), and then maps out a strategic agenda.  

What are the implications?  My goals today are to encourage you to read the article (click on the image below) and to cause you to consider how you are engaging within your cluster. Your coffee is getting low, and you must get back to the work of changing the world, so I want to highlight my favorite portion of the article, Dr. Porter’s four issues related to his strategic agenda.  I have framed Dr. Porter's ideas as questions for you to evaluate.  Dr. Porter cites productivity as the foundation of competition, and that depends on “how companies compete, not on the particular fields they compete in.”  How are you competing?  

1.  Location.  Is the infrastructure in your location improving your productivity, or are you selecting your location to cut costs (such as wages and taxes), at the expense of productivity in terms of cutting-edge suppliers, labs, and labor, for example?

2.  Local engagement. Are you actively establishing participation and a local presence?  Are you developing personal relationships more widely in your cluster?  Are you investing in the local government and schools that will foster the best training to sustain a growing cluster?  Are you engaged with the people, local institutions, and government bodies that can affect your industry?

3.  Cluster upgrades.  What expertise is your industry lacking, and how can you solve the shortfall?  What enhancements or innovation can you inspire, pursue, or develop yourself to improve on a specialty within your cluster?

4.  Collaboration.  Dr. Porter encourages new approaches to collective action in the private sector, specifically with regard to trade associations as a forum ripe for “overcoming obstacles to productivity and growth.”  What are the conditions within your sector that are being discussed and addressed with a view toward improving the cluster’s competitive advantage?  How are you leading and facilitating the dialogue and initiating action?

Laura Neeson