Local Economy: The Journal of the Local Economy file:/ Policy Unit

Exploratory Techniques for Examining Cluster Dynamics: A Systems Thinking Approach

Madeline Smith and Ross Brown Local Economy: The Journal of the Local Economy Policy Unit 2009 24: 283 DOI: 10.1080/02690940903026811 The online version of this article can be found at: http://lec.sagepub.com/content/24/4/283

Published by:
http://www.sagepublications.com

On behalf of:
London South Bank University

Local Economy Policy Unit

Additional services and information for Local Economy: The Journal of the Local Economy Policy Unit can be found at: Email Alerts: http://lec.sagepub.com/cgi/alerts Subscriptions: http://lec.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav Citations: http://lec.sagepub.com/content/24/4/283.refs.html

Downloaded from lec.sagepub.com by guest on February 4, 2011

Local Economy, Vol. 24, No. 4, June 2009, 283298

FEATURE

Exploratory Techniques for Examining Cluster Dynamics: A Systems Thinking Approach

MADELINE SMITH & ROSS BROWN

EKOS Ltd, St. Georges Studios, Glasgow, UK Scottish Enterprise, Glasgow, UK

ABSTRACT Economic development agencies worldwide have eagerly embraced clusters as a strategy to boost local economic development. When implementing cluster-based interventions, one of the main issues encountered by many public sector bodies is that the majority of cluster analysis and measurement techniques only give a partial overview of how they actually operate. Often it is the dynamics of collaboration within a cluster that has the biggest influence on overall success. This paper adopts a system thinking approach to help us understand cluster development and inter-firm collaboration. The outcome of this work was the development of a basic five stage conceptual model that helps explain how a cluster develops, together with the changes in company behaviour and company interaction that might be seen at different stages of this developmental trajectory. Using Scotland as an empirical test case, this article highlights the model and examines the problems associated with the adoption of this approach. This methodological approach was shared with other regions working to support clusters to ascertain the relevance of this approach elsewhere. Overall this paper concludes that the model proves to be a useful tool in assessing the varying stages of a clusters development both within and outside Scotland.

Introduction Although the concept of industrial clusters has a long intellectual lineage that can be traced back to Alfred Marshalls work on industrial districts at the beginning of the 20th Century (Marshall, 1920), it was Michael Porter (Porter, 1990) that succeeded in popularising the concept beyond

Correspondence Address: Madeline Smith, EKOS Ltd., St. Georges Studios, 9397 St. Georges Road, Glasgow G3 6JA, UK. Email: madeline.smith@ekos.co.uk
ISSN 02690942 Print/ISSN 14709325 Online/09/04028316 2009, LEPU, South Bank University DOI: 10.1080/02690940903026811 Downloaded from lec.sagepub.com by guest on February 4, 2011

284

Madeline Smith & Ross Brown

academic circles. In fact, some observers claim Porters work on clusters has, without question, profoundly altered the way policy makers view the process of local and regional economic development (Colgan & Baker, 2003). Clusters represent a new way of thinking about government intervention and have consequently become a central thrust of local economic development policy making (Porter, 2000). Whilst the precise merits of these policies are now being hotly contested (see Martin & Sunley, 2003; Motoyama, 2008) there is no doubt that the enduring nature of the concept owes much to its simplicity and inherent appeal to the policy-making community. According to some observers, the cluster concept has shifted attention away from individual industries and the outcomes of the competitive process, focusing instead on the linkages between industries and firms (Rouvinen & Yla-Anttila, 1999). This re-orientation has re-aligned the previous orthodox focus of regional policy away from predominantly supporting individual firms to a more holistic approach whereby firms are viewed as interdependent entities that are both territorially and sectorally embedded. According to some observers, cluster-based innovation policies aimed at increasing the competitiveness of clusters offer a powerful alternative to the partial and rather outdated interventionist technology and industrial policy making (see Roelandt & Hertog, 1999). As a consequence of this cluster, interventions are receiving a growing interest from policy makers across the globe. In the European Union, Directorate General (DG) Enterprise has shown a keen interest in clusters, noting the strategic importance of clusters for enhancing innovation and global competitiveness across the EU. The recently developed EU Clusters Memorandum proposed that clusters be part of the solution to Europes competitiveness challenge by helping to leverage investment, human capital development and innovation (EU, 2008). There are similar calls for a coordinated approach to cluster development in the US, Canada and across much of the rest of the OECD (see OECD, 2007). Regions have also been eager to embrace cluster strategies, programmes and interventions. For example, through the work of Scottish Enterprise, the main economic development agency within the country, Scotland, was one of the earliest adopters of clusters as a policy tool within the UK (Brown, 2000). Scottish Enterprise commissioned the Monitor Group in 1993 to identify the most important clusters in the Scottish economy. A total of eight clusters in Scotland were originally identified (Reid & Ujjual, 2008). Following this exercise, four pilot clusters were selected for strategic development: food and drink, semiconductors, biotechnology and oil & gas (Scottish Enterprise, 1998). Given the cluster approach has now been operating for over a decade, and as such the policy has continued to be developed and adapted over the intervening years, Scotland provides a fertile empirical environment for examining cluster analysis techniques. One of the main obstacles encountered by governmental agencies when developing cluster strategies is gathering the right evidence to
Downloaded from lec.sagepub.com by guest on February 4, 2011

Exploratory Techniques for Examining Cluster Dynamics

285

undertake systematic cluster analysis (see Raines, 2003). Arguably, much analysis of clusters only gives a partial snap shot of a clusters parameters (and performance), often ignoring the varying developmental trajectory a cluster can take over time. Similarly, traditional static approaches (location quotients, shift-share analysis, inputoutput analysis etc) often fail to explain how clusters actually operate and how the component parts relate to one another (Held, 1996; Brown & Smith, 2008; Motoyama, 2008). We would argue that the dynamics within a clusters component parts are highly complex and very difficult to measure and assess. Often it is the systemic nature of the cluster as a whole that has the biggest influence on success or otherwise of the sector. Therefore, the dearth of useful cluster assessment techniques leaves policy makers bereft of practical advice in terms of possible future interventions. One way of overcoming this evidence gap is through new methods for understanding cluster dynamics. Within this paper we propose a systems thinking approach to aid our understanding of the cluster development process. Scottish Enterprise identified this aspect of cluster development as an area requiring further investigation and, in the autumn of 2006, worked with systems thinking experts to build a systems theory approach to aid its understanding of the cluster development process (Hodgson, 2006). Following the adoption of this framework a basic five stage theoretical model was developed to help explain how a successful cluster would develop and the changes in company behaviour and company interaction that might be seen at each stage. This model has two twin aims: first, to provide policy makers with a practical approach for assessing the dynamics within any given cluster and second, to help inform the clusters theory on how collaboration and inter-firm relations evolve over time. This model, including the accompanying descriptions and methodology, has been implemented on a number of Scottish clusters. This has proved to be a very successful tool for Scottish cluster practitioners and policy makers in assessing the stage of development of their clusters. One potential limitation of the model is that it may just portray a specifically Scottish process of cluster development. If the model was shown to be transferable, the applicability of this tool to many clusters in different regions could potentially be used to aid their cluster development efforts. Therefore, the method was adopted in five other regions to ascertain the relevance of this model to different spatial contexts. This paper begins by outlining the cluster literature and the limitations of the current body of knowledge for policy makers attempting to implement cluster policy. We then examine the literature surrounding systems theory to explore how this can aid our thinking in terms of cluster development. A basic five-stage model of cluster collaboration is then briefly outlined. We then explore some of the problems encountered when putting the model into practise. The penultimate section examines the relevance of this approach in other geographical contexts. The final section provides some conclusions and policy recommendations.
Downloaded from lec.sagepub.com by guest on February 4, 2011

286

Madeline Smith & Ross Brown

Clusters and Collaboration Revisited There is a large and varied literature on clusters that has examined the emergence of clusters, their evolution and governance. Given the existence of good comprehensive critiques there is little merit in rehearsing these arguments (see Martin & Sunley, 2003). It is well accepted that the depth and breadth of clusters (see Enright, 2000), their stage of development and industrial sector are all factors affecting the performance of clusters in complex ways (see McDonald et al., 2007). Initial studies on clusters typically focused on agglomeration, where concentrations of firms in the same sector were identified to give rise to economies of scale or scope; the development of general labour markets and pools of specialised skills, enhanced interaction between local suppliers and customers; shared infrastructure; and other localised externalities (Ketels et al., 2007 p. 3). The existence of these Marshallian agglomeration externalities has been the cornerstone of most early cluster and industrial district analysis (see Harrison, 1992). This standard agglomeration theory aligns with standard neoclassical economic theory, which views local economies as collections of atomistic businesses mediated through the market mechanism (Newlands, 2003). Traditional agglomeration theories were relatively poor at explaining the success of some industrial groupings and the failure of others. Neither do they adequately explain the role of trust and non-market relations in the agglomeration process. Drawing on the early work examining the industrial districts of the so-called Third Italy, researchers began to challenge these traditional neo-classical theories of agglomeration (see Brusco, 1982; Harrison, 1992). Saxenian (1994), for example, in her highly influential account of Silicon Valley and Route 128 highlighted the vital role of social behaviours, cooperation and collective learning in the successful growth of a cluster. This led to the development of the social-network model of clusters (Gordon & McCann, 2000) where firms were thought to engage in higher risk collaboration for mutually beneficial goals. The concept of the social network in clusters was conceived as reciprocal trust- and cooperation-based linkages between members of the cluster (Cooke, 2001), and other writers began to adopt this more interactive analysis of clusters. Moulaert & Sekia (2003) in their review of territorial innovation models highlight the similarity between some of these models (including Saxenians model of clusters of innovation), where networking, social interaction and a culture of trust and reciprocity are common themes. There is a growing consensus that clusters prosper because of their internal dynamics, whether through competition or cooperation (Padmore & Gibson 1998). There have been many studies on clusters that highlight how firms form ever-changing inter-firm alliances and coalitions in order to innovate successfully (Gordon & McCann, 2005). These studies find evidence of the benefits accrued by clustering in terms of trust, cooperation and non-market relations (Cook & Pandit, 2007). In addition, it is not just the components of the cluster that are important, but also the number and
Downloaded from lec.sagepub.com by guest on February 4, 2011

Exploratory Techniques for Examining Cluster Dynamics

287

strength of the links between these components and the quality of the interactions between them. However, although the social network model and notion of clusters as innovation systems has gained ground, it is acknowledged that this is an area that is difficult to measure. Some agencies, for example, Scottish Enterprise and National Research Council of Canada, have used tools such as Social Network Analysis to provide information on the nature, extent and quality of ties and interactions between actors in the cluster (Cassidy et al., 2005). These approaches are still very much in their infancy and require further methodological refinement. Wolfe & Gertler (2004) highlight that cluster analysis may have been hampered by the narrow methodological focus of some previous cluster studies. They maintain that the growth and innovation dynamics of clusters can only be properly captured using qualitative research techniques including accounts of the clusters evolution. Others have called for greater attention to be given to the historical processes shaping clusters (Motoyama, 2008). Collaboration between organisations has also been a fertile ground for research, as the need for collaboration both for businesses and the public sector becomes increasingly important. Partnerships, alliances and other forms of inter-organisational collaborative arrangements are now a commonplace aspect of institutional life (Huxham & Vangen, 2000). The rise of the importance of open innovation for businesses acknowledges the requirement for organisations to collaborate beyond their own internal organisational boundaries (Chesbrough, 2006). The central idea is that companies that look outside their internal resources for ideas and technologies have better access to ideas, expertise and technology than those solely relying on in-house support. Organisations must develop and leverage open relationships with customers, competitors and suppliers to successfully compete. An open innovation strategy deliberately brings in people from outside the organisation and from the closed circle of specialists and experts into the innovation process itself, drawing in ideas from users, suppliers and competitors (see Dames et al., 2008; and OECD, 2008). Huxham & Vangen (2000) in their work on collaboration argue that trust is a necessary precondition for such collaboration and that, in practice, mistrust is frequently the starting point in the bulk of business relationships. As such, they propose a trust building element when examining cluster development (see Figure 1). Within this conceptual approach trust is viewed very much as a cumulative phenomenon emanating from repeated traded and non-traded interactions (see Harrison, 1992; Huxham & Vangen, 2005).

Systems Thinking in Policy Making Systems thinking is a process of estimating or inferring how policies, actions or changes influence the state of neighbouring actors within a system (OConner & McDermott, 1997). Systems theory has developed
Downloaded from lec.sagepub.com by guest on February 4, 2011

288

Madeline Smith & Ross Brown

Figure 1. The cyclical trust building loop (source: Huxham & Vangen, 2005)

over the last half century, initially looking at system dynamics (stocks and flows or hard systems) but more recently focusing less on the systems individual components, and more on describing their interconnectedness, i.e. inferring that the whole is greater than the sum of its parts (see Checkland, 1985). Systems thinking is an analytical framework that envisages that the only way to fully understand why a problem persists is to understand the issue in relation to the system as a whole rather than in isolation (see Capra, 1996). Systems thinking is increasingly being used to tackle a wide variety of subjects in disparate fields such as computing, engineering, health, epidemiology, management. Recent authors on government policy have called for a new approach to policy making using systems thinking due to the pressure on social policy to be more holistic, the connectedness of systems (often leading to unintended consequences) and the need to be able to cope with ambiguity (Mulgan, 2001). Chapman (2004) suggests that increased complexity makes it even more difficult to predict the outcomes of policy intervention, especially in systems that do not behave in straightforward, linear ways. He argues that systematic understanding allows governments to focus policy on tackling the core of the system, developing innovative networks and relationships, and helping policy-makers understand structural or institutional weaknesses otherwise missed when using conventional market failure approaches. Few researchers have explored systems thinking in relation to clusters. Where it has been investigated the results have been ambiguous. For example, Buenda (2005) developed a conceptual framework of causal loops, including both reinforcing and balancing feedbacks. Eissa & Wahba (2005) used systems thinking and business dynamics to propose a model
Downloaded from lec.sagepub.com by guest on February 4, 2011

Exploratory Techniques for Examining Cluster Dynamics

289

for policy makers to analyse, design, simulate, test and validate the effect of different policy scenarios on clusters in Egypt. Both of these models were very complex. The Buenda model had 66 feedback loops, and identified nine key leverage causal loops. The proposal was that the effect of policy could be simulated by computer modelling. Whereas this is an interesting analytical process, it is potentially too complex and time consuming to be of practical use for those involved in managing clusters. Policy makers tend to prefer more user-friendly methods of cluster analysis (see Brown & Smith, 2008). While the clusters literature is gradually developing to encompass a more dynamic analysis, where collaboration and social capital are seen as key drivers in a clusters development, there still remains a lack of practical tools to aid policy makers in undertaking empirical analysis. While a systems thinking approach is having a growing influence on policy making in general, it has only been used in a limited fashion within cluster analysis and is indeed often unsuitable for practical application. There has also been a significant gap in terms of research in the area of social capital, collaboration and inter-firm dynamics in determining the development and performance of clusters. Therefore, combining systems thinking with cluster analysis offers a potentially fruitful avenue for future cluster analysis in this respect.

The Cluster Dynamics Model Informed by systems thinking, the authors developed a basic framework in order to help describe and understand the dynamics within clusters. This basic model attempts to explain how a successful cluster might develop and the changes in cluster behaviour and company interaction that might be seen at each stage. This is now being used as practical methodology (including descriptions and a structured questionnaire) for cluster teams in Scotland to assess the stages of a clusters development. The results obtained from this analysis feed into future policy making and intervention decision making. Due to the fact that this assessment exercise was undertaken closely with Scottish Enterprise and members of the cluster itself, the approach is very much an action-based methodology (see Yin, 2003). The objective of the work is the development of a practical tool for cluster teams and cluster managers. Figure 2 outlines the main components (or loops) of this model. Figure 2 reveals how the different stages of a clusters development affects the performance of individual firms and all firms in the cluster. For the purposes of describing the model the loops should be viewed as a sequential process from 1 to 5, although it is likely that, especially for the later stages (3, 4, and 5) they potentially develop in non-sequential ways. It also illustrates the interrelated nature of the loops in that each part of the system is connected to other parts within the overall environment. Inter-firm rivalry (Loop 1) and inter-firm cooperation (Loop 2) are sometimes seen as
Downloaded from lec.sagepub.com by guest on February 4, 2011

290

Madeline Smith & Ross Brown

Figure 2. The cluster dynamics model (source: Scottish Enterprise)

conflicting forces. We would argue that these two forces are in fact frequently interconnected, entirely reconcilable and necessary for promoting cluster competitiveness. Without these forces operating in tandem it would be impossible to engender the appropriate level of cooperation needed to trigger collaborative advantage (i.e. Loop 3) and the sharing of critical knowledge in Future Focus (i.e. Loop 5). Plus, it is important to stress that these loops are not independent and often clusters exhibit some characteristics of each component without them being fully developed. For example, many clusters have highly developed elements of Loop 5 without well-developed elements of Loop 3. Being heavily driven by the Higher Education research base and featuring a small corporate sector (approx 650 companies), broadly speaking, the Scottish life sciences appears to correspond to this situation. However we could argue that this strength in elements of Loop 5 is potentially not sufficiently feeding back into the growth of the overall cluster a challenge for many cluster practitioners. Each element in the cluster dynamics model is described below in greater depth.

Loop 1. Inter-firm Rivalry One of the main sources of competitiveness within clusters is the role of inter-firm rivalry (Porter, 1990). Firms can react to this pressure so that it becomes an internal driver for innovation in that firms strive to outperform their local rivals. The pressure to improve drives new product and process
Downloaded from lec.sagepub.com by guest on February 4, 2011

Exploratory Techniques for Examining Cluster Dynamics

291

innovation as the companies compete to win new orders and market share. The main driver here is competition and, although there may be some companies who are unable to compete effectively and fall victim to the market, in general this is a positive impetus for group of companies within a cluster.

Loop 2. Inter-firm Cooperation Another response to global competition is for firms in the sector to start to work together. This is an aspect that has received a vast amount of attention within the academic literature surrounding clusters. There is a degree of shared response to common challenges that can help the performance of the group of firms. This may be evidenced by such things as shared transport issues, joint approaches to common suppliers to leverage buying power, or presenting a common identity for the group or region. Importantly, it is possible to have too much cooperation, where the group becomes too internally focused and unchallenging. For a cluster to thrive, elements of both loop 1 and loop 2 inter-firm interactions are therefore essential. Much cluster analysis describes this balance between inter-firm rivalry or competition and cooperation (often described as co-opetition).

Loop 3. Collaborative Advantage As the culture and trust evolves, building upon the success of cooperative initiatives in level 2, this may lead to the sharing of critical knowledge and assets: successful past cooperation can create social capital and high levels of trust that produce a virtuous cycle of collaboration (Ansell & Gash, 2007, p. 11). This collaboration is focused on areas that are core to the business and therefore higher risk. The potential for collaborative advantage leading to a new level of competitive performance can make the rewards much greater, however. Examples may include joint development of new product areas, or sharing and trading of critical assets such as proprietary intellectual property etc.

Loop 4. Venture Attractiveness Due to the attractiveness of the cluster, a number of positive externalities begin to emerge. Through a cumulative process the factor endowments inherent in a cluster begin to become self-perpetuating. In global terms the cluster is seen as a significant player in the international marketplace. This leads to the attraction of new players through endogenous entrepreneurship, increased inward investment through new firms relocating to the cluster and an influx of human capital and talent attraction, and new money
Downloaded from lec.sagepub.com by guest on February 4, 2011

292

Madeline Smith & Ross Brown

for investment. Once again this can be challenging for some of the existing firms, but overall it is good for the cluster.

Loop 5. Future Focus The final loop is when the cluster begins to focus on structural issues that can foster longer-term competitiveness. Amid a climate where untraded interdependencies, high levels of social capital and collaboration flourish (see Storper, 1995), the cluster actors begin focusing on future transformational breakthroughs that distinguish the cluster from others. This may involve collaboration on the generation of relevant research agendas to inform the next stage of development, to enable the cluster to be truly distinctive, ensuring that future growth areas are being developed ripe for exploitation. Often this level of cooperation is done in conjunction with other key institutional actors within a cluster such as HE and government, the so-called triple helix (Etzkowitz & Leyersdorff, 2000). (Although it is important to note that these players can and should play a role at all stages of cluster development.)

Implementing the Model Methodological Approach A detailed methodological framework was developed to help cluster teams analyse their particular clusters performance, including detailed descriptions of each phase of the model.1 In order to use a regular and repeatable process for this analysis, a structured assessment questionnaire was developed to help assess a clusters stage of development. The assessment questionnaire was based on the dynamic loop model (Figure 2), which seeks to understand the behaviour of clusters over time. The questionnaires were completed with various members across the cluster in a workshop format and the results were collated by Scottish Enterprise.2 The question set helps to challenge perceptions where the temptation had been to assess the sector as performing well in a certain level, but on reflection there was a lack of evidence. The role of the facilitator in this challenge process is key. This is also why a workshop
1

This analysis was carried out in addition to more traditional indicators of sectoral growth and performance, e.g. employment, number and size of companies, exporting levels and Gross Value Add (GVA) from the sector. 2 It was found that the most successful approach was if the process was undertaken during a workshop format. This helped the participants analyse the sector using the questionnaire, giving examples from the cluster. The questionnaire helped challenge perceptions and reduce any optimism bias that can sometimes occur. At the end of the session the completed questionnaire was able to identify the level of performance of the cluster and to have captured evidence of the scoring. The team involved would then reach consensus on this assessment through discussion and challenge.

Downloaded from lec.sagepub.com by guest on February 4, 2011

Exploratory Techniques for Examining Cluster Dynamics

293

format rather than filling out the questionnaire in isolation proved more useful. The answers in the questionnaire are rated on a five point (or Likert) scale. In general, the rating scores these elements from Absent (1) to Very Strong (5). The general pattern is that a higher score indicates a greater systemic strength and hence performance. Lower scores indicate weaknesses within the cluster. The questions are essentially self assessment, and are based on basic behaviours that would be observed within the cluster. Evidence and examples are looked for to substantiate the mark given and these should be recorded as they provide valuable evidence of the reasons behind the assessment, which proves very useful when planning subsequent interventions. There are some more detailed descriptions of behaviours seen at each stage of cluster development, which informed the development of the questionnaire and act as background information for the respondent. It is worth highlighting the limitations of this type of self-assessment and the bias that this technique can sometimes produce (Pickernell et al., 2007). It is therefore important that the data produced by this process is verified or triangulated through other research techniques. It should be remarked that this analysis was carried out in addition to more traditional indicators of sectoral growth. Performance indicators gathered by regional development agencies are one such source of data, which can be used either to confirm or to refute the findings from these types of subjective exercise (see Brown & Smith, 2008). There is also considerable debate in the clusters literature as to how important size and geographic proximity are for cluster development (see Martin & Sunley, 2003). What is apparent is that clusters come in many shapes and sizes, and the range of policy support in different areas from very localised to national cluster programmes reflects this variety (see Raines, 2003). The cluster dynamics model outlined is sufficiently generic to be applicable to many different spatial levels. However, if the group is too localised there is unlikely to be sufficient richness in the interactions to be able to confirm or verify these different elements (density and critical mass are also an important element). Therefore, too wide a definition of the cluster and the businesses involved will not view themselves as defined by that larger group and the linkages will be difficult to identify. In addition, clusters in different regions are organised in different ways according to the policy context of the area. Some have cluster teams within or funded by regional development agencies. Others are driven by organisations set up by groups of businesses, a format particularly germane to North America (see OECD, 2007). To an extent, it is a decision for the cluster or cluster management to define at what level the most use can be gained from this assessment tool, and this helps to define the group to undertake the assessment. In addition, there is an issue on group size. Too large a group and the process is highly unwieldy. Too small and the breadth of knowledge is potentially insufficient to give a good overall view of the clusters dynamics.
Downloaded from lec.sagepub.com by guest on February 4, 2011

294

Madeline Smith & Ross Brown

In the final analysis, as long as the consultation group is knowledgeable about the cluster characteristics (including at a subsector level) and can help inform potential future strategy, it is envisaged that the tool should be of use, and the group would be suitable for the analysis.

Initial Findings This methodology has been implemented within some Scottish clusters. One of the first teams to use such analysis was the life science team. Using the methodology outlined above, a workshop was held to populate the model using the questionnaire and to show progression through the framework from the life science sector in Scotland. Evidence and examples at each level were discussed. From the analysis they were assessed to be performing well at loop 1, progressing at loop 2, but stalling at loop 3 (i.e. looking for deeper levels of collaboration). The cluster members could identify examples of certain behaviours for the earlier levels, but these became more sporadic for loop 3 and rare for loops 4 and 5. There was some early indication of loop 5 activity, but this was mainly concentrated around the Higher Education research base. Other Scottish cluster teams also used the model. It is interesting to note that within those clusters, some subsectors are performing at a higher level than others. For example, within the Energy sector the oil and gas elements perform strongly, and within the food and drink sector, the whisky sub-sector exhibits high levels of collaborative working, and even future focus activity. Other subsectors, for example micro-renewables in energy, or bakery in the food and drink industry, are much less well developed, and more likely to be exhibiting competitive rivalry behaviour at the expense of even small amounts of cooperative working. The initial evidence from the adoption of this approach in Scotland has been largely positive. Much greater assessment and refinement of this methodology is required before the overall usefulness of the model can be fully verified however. The findings generated from this research exercise were found to be useful for the cluster teams, not least because it emphasises the need to devise different interventions for the different subsubsectors. This type of analysis is developing a language and understanding of cluster development, helping ensure strategy formation and policy making is suitably targeted. It is also a useful communication tool, helping wider discussions on cluster behaviour across and between participants within the cluster. In order to further test the model and to explore its applicability further afield, it was proposed to share this methodology with other economic development agencies working to support clusters. Scottish Enterprise worked with economic development agencies in Denmark, Finland, Switzerland, Sweden and California. Ten different clusters were examined using the cluster dynamics methodology outlined. In partnership with Scottish Enterprise the model, detailed descriptions and methodology were
Downloaded from lec.sagepub.com by guest on February 4, 2011

Exploratory Techniques for Examining Cluster Dynamics

295

shared with partner organisations. Studies and analyses were carried out in each of the clusters in their regions. Then a focus group workshop was held to share learning and to ascertain the applicability of the model in these wider geographies. The main focus of the international comparator study was to answer the key research question: does the model work for clusters outside Scotland? The output from each of the studies was largely positive. Different geographies have different cluster strategies, actors and frameworks. While some were highly geared towards facilitating networks and research collaborations; others are built from research strengths; and some are driven by strong industry and may have one or two dominant players. All of these aspects were represented in the international study. The fact that they had all successfully implemented the model and the process for analysis suggested that this tool could be useful in many different clusters beyond the boundaries of Scotland. More exposure internationally would undoubtedly be required before this could be rigorously verified however.

Conclusions and Policy Recommendations While clusters have been a heavily researched topic for a number of years, paradoxically, the level of insight that this volume of research has yielded is disproportionately small compared with the effort expended. From a practitioners perspective there appears to be a dearth of analysis available that usefully articulates the intra-cluster dynamics within different types of industrial clusters. As a consequence, few practical tools exist that can help assess the various stages of a clusters development. The basic model outlined within this paper hugely simplifies the complex ecosystem constituting a functioning industrial cluster. Nevertheless, it has proved an extremely useful tool during its implementation within Scotland and within other regional environments, not least because of its simplicity and ease of adoption. One key benefit of the model is the ability to track changes over time within clusters. Other studies of clusters tend to be static, whereas this model allows the temporal story of cluster development to be explored. The cluster dynamics model was designed to fill the gap of analysing complex cluster interactions, organisational collaboration and inter-firm interactions, which are extremely difficult to measure. It should not be seen as a replacement for traditional monitoring and evaluation approaches however (see McCann, 2007). The analysis using systems thinking helps understand how interactions within the cluster can be improved to help the cluster grow. The incorporation of a systems thinking approach within a traditional spatial analysis of clusters has proved a useful way of enhancing our understanding of clusters. Further inter-disciplinary work in this area may yield further fruitful results. Good performance indicators have yet to been properly developed for measures of inter-firm and inter-organisational
Downloaded from lec.sagepub.com by guest on February 4, 2011

296

Madeline Smith & Ross Brown

collaboration; this is another potential future area of research. One way of progressing this research agenda would be to collect case study evidence so that we can explore how clusters change and evolve over time. This could prove insightful, especially where interventions have been confirmed to be beneficial to cluster development and could enable us to begin to explore the link between good cluster performance and strong economic performance. Although there remains a large degree of scepticism on the efficacy of clusters as an economic development mechanism, a more policy-relevant cluster research agenda would, without question, produce more effective policy formulation in this area. In order for a clusters approach to be successfully implemented, a good understanding of the dynamics, interrelations and influences of different participants needs to be fully understood. Government policy interventions can then be targeted to help the specific requirements within each of the clusters multifaceted elements (McDonald, 2007). Some have suggested that an emphasis on competitive processes implies a more macro-economic role for public agencies in seeking to raise investment in innovation while the fostering of cooperation implies measures to support decentralized publicprivate research collaborations (Newlands, 2003). More research is required to better understand the precise policy interventions required at the various stages of a clusters evolution. Further refinement of this exploratory approach could potentially help practitioners intervene more effectively to support the cluster development process. At the heart of cluster development are deeper forms of collaboration that benefit numerous actors. In order to advance our understanding of these complex processes, new approaches to understanding collaboration are needed. Furthermore, in order to understand clusters more generally, greater collaboration between all actors involved in clusters (policy makers, business people, trade unions and academics alike) is also necessary. In order to facilitate this process, we would therefore like to make a plea for greater policy relevance in future especially academic cluster analysis. It is our hope that the development of new exploratory approaches, such as the exploratory framework outlined within, may be a small step in this direction. Approaches such as these may also help reconcile those who see the clusters concept as a malign force within the regional policy arena and those in the policy world who view the concept as a positive (albeit a very rough one) for aiding regional economic development.

Acknowledgements The authors wish to thank Scottish Enterprise for their support during this research exercise. They wish to acknowledge the extremely valuable comments received on an earlier version of this paper from David Newlands and Ron McQuaid. The usual disclaimer applies.

Downloaded from lec.sagepub.com by guest on February 4, 2011

Exploratory Techniques for Examining Cluster Dynamics References

297

Ansell, C. & Gash, A. (2007) Collaborative governance in theory and practice, Journal of Public Administration Research and Theory, November, pp. 129. Brown, R. (2000) Cluster dynamics in theory and practice with application to Scotland. Regional and Industrial Policy Research Paper, No 38, European Policies Research Centre, University of Strathclyde, Glasgow. Brown, R. & Smith, M. (2008) Polishing a rough diamond: developing systemic approaches towards cluster evaluation. Unpublished paper for Scottish Enterprise, Glasgow. Brusco, S. (1982) The Emilian Model: productive decentralisation and social integration, Cambridge Journal of Economics, 6, pp. 167184. Buenda, F. (2005) Increasing Returns to Economic Activity Concentration. University of the Americas, Puebla, July 2005. Capra, F. (1996) The Web of Life: a New Scientific Understanding of Living Systems (New York: Anchor Books). Cassidy, E., Davis, C., Arthurs, D. & Wolfe, D. (2005) Measuring the National Research Councils technology cluster initiatives. CRIC Cluster Conference. Beyond Cluster Current Practices and Future Strategies, Ballarat, June 30July 1, 2005. Chapman, J. (2004) System Failure Why Governments must Think Differently (London: Demos). Checkland, P. (1985) From optimizing to learning: a development of systems thinking for the 1990s, The Journal of the Operational Research Society, 36, pp. 757767. Chesbrough, H. (2006) Open Innovation: The New Imperative for Creating and Profiting from Technology (Boston, MA: Harvard Business School Press). Colgan, C. & Baker, C. (2003) A framework for assessing cluster development, Economic Development Quarterly, 17, pp. 352366. Cook, G. & Pandit, N. R. (2007) Service industry clustering: a comparison of broadcasting in three city regions, The Service Industry Journal, 27(3), pp. 466469. Cooke, P. (2001) Regional innovation systems, clusters and the knowledge economy, Industrial and Corporate Change, 10(4), pp. 945974. Dames, M., Robson, D., Smith, M. & Tumulty, T. (2008) Innovation 2.0 redefining the boundaries between producers and consumers, The Journal of the Institute of Telecommunications Professionals, 1(2), pp. 1522. Eissa, F. & Wahba, K. (2005) Developing Cluster Based Economic Policies in Egypt: Systems Thinking Approach (Cairo: Schneider-Electric). Enright, M. (2000) The globalization of competition and the localization of competitive advantage: policies towards regional clustering, in: N. Hood & S. Young (Eds) Globalization of Multinational Enterprise Activity and Economic Development (London: Palgrave). Etzkowitz, H. & Leyersdorff, L. (2000) The dynamics of innovation: from national system and Mode 2 to a triple helix of university-industry-government relations, Research Policy, 29, pp. 109118. EU (2008) EU Clusters Memorandum (Brussels: European Union). Gordon, I. R. & McCann, P. (2000) Industrial clusters: complexes, agglomerations and/or social networks?, Urban Studies, 37, pp. 513532. Gordon, I. R. & McCann, P. (2005) Clusters, innovation and regional development: an analysis of current theories and evidence, in: B. Johansson, C. Karlsson & R. Stough (Eds) Entrepreneurship, Spatial Industrial Clusters and Inter-Firm Networks (Cheltenham: Edward Elgar). Harrison, B. (1992) Industrial districts: old wine in new bottles? Regional Studies, 26(5), pp. 469483. Held, J. (1996) Clusters as an economic development tool: beyond the pitfalls, Economic Development Quarterly, 10, pp. 249261. Hodgson, A. (2006) A Dynamic Approach to Facilitating Cluster Development (Glasgow: Report for Scottish Enterprise). Huxham, C. & Vangen, S. (2000) Ambiguity complexity and dynamics in the membership of collaboration, Human Relations, 53(6), pp. 771806. Huxham, C. & Vangen, S. (2005) Managing to Collaborate: The Theory and Practice of Collaborative Advantage (Abingdon: Routledge).

Downloaded from lec.sagepub.com by guest on February 4, 2011

298

Madeline Smith & Ross Brown

Ketels, C., Lindqvist, G. & Solvell, O. (2007) Clusters and Cluster Organisations, Centre for Strategy and Competitiveness, Stockholm School of Economics, June 2007, at URL: http://www. clusterobservatory.eu/upload/ClustersAndClusterOrganisations.pdf Marshall, A. (1920) Principles of Economics (London: Macmillan). Martin, R. & Sunley, P. (2003) Deconstructing clusters: chaotic concept or policy panacea, Journal of Economic Geography, 4, pp. 535. McCann, P. (2007) Observational equivalence? Regional studies and regional science, Regional Studies, 41, pp. 12091221. McDonald, F., Huang, Q., Tsagdis, D. & Tueselmann, H. (2007) Is there evidence to support Portertype cluster policies?, Regional Studies, 41(1), pp. 3949. Motoyama, Y. (2008) What was new about the cluster theory? What could it answer and what could it not answer? Economic Development Quarterly, 22, pp. 353363. Moulaert, F. & Sekia, F. (2003) Territorial innovation models: a critical survey, Regional Studies, 37, pp. 289302. Mulgan, G. (2001) Systems thinking and the practice of government, Systemist, 23. Newlands, D. (2003) Competition and cooperation in industrial clusters: the implications for public policy, European Planning Studies, 11, pp. 321332. OConnor, J. & McDermott, I. (1997) The Art of Systems Thinking: Essential Skills for Creativity and Problem-Solving (San Francisco: Thorsons Publishing). OECD (2007) Competitive regional clusters: national policy approaches, OECD Reviews of Regional Innovation (Paris: OECD). OECD (2008) Open Innovation in Global Networks (Paris: Organisation for Economic Cooperation and Development). Padmore, T. & Gibson, H. (1998) Modelling systems of innovation: a framework for industrial cluster analysis in regions, Research Policy, 26, pp. 625641. Pickernall, D., Rowe, D., Christie, M. & Brooksbank, D. (2007) Developing a framework for network and cluster identification for use in economic development policy-making, Entrepreneurship and Regional Development, 19, pp. 339358. Porter, M. (1990) The Competitive Advantage of Nations (New York: Free Press). Porter, M. (2000) Location, competition, and economic development: local clusters in a global economy, Economic Development Quarterly, 14, pp. 1534. Raines, P. (2003) Cluster behaviour and economic development: new challenges in policy evaluation, International Journal of Technology Management, 26, pp. 191204. Reid, G. & Ujjual, V. (2008) Firms in Scottish High Technology Clusters: Software, Life Sciences, Microelectronics, Optoelectronics and Digital Media Preliminary Evidence and Analysis on Firm Size, Growth and Optimality (Centre for Research into Industry, Enterprise, Finance and the Firm, University of St Andrews). Roelandt, T. & Hertog, P. (1999) Cluster analysis and cluster based policy making: the state of the art, Boosting Innovation: The Cluster Approach (Paris: OECD). Rouvinen, P. & Yla-Anttila, P. (1999) Finnish Cluster Studies and New Industrial Policy Making, In OECD Boosting Innovation: The Cluster Approach (Paris: OECD). Saxenian, A. (1994) Regional Advantage: Culture and Competition in Silicon Valley and Route 128 (Cambridge, MA: Harvard University Press). Scottish Enterprise (1998) The Clusters Approach: Powering Scotlands Economy into the 21st Century (Glasgow: Scottish Enterprise). Storper, M. (1995) The resurgence of regional economies, ten years later: the region as a nexus of untraded interdependencies, European Urban and Regional Studies, 2, pp. 191221. Wofle, D. & Gertler, M. (2004) Clusters from the inside and out: local dynamics and global linkages, Urban Studies, 41, pp. 10711093. Yin, R. K. (2003) Case Study Research: Design and Methods (3rd edn) (Thousand Oaks, CA: Sage).

Downloaded from lec.sagepub.com by guest on February 4, 2011