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How “Business Clusters” Create “Collective Genius.”

The evolution of the successful 21st Century Business Enterprise – “Clusters”

By HBR.org – Courtesy Rich Bendis and innovationamerica.us

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Today when we talk about business “clusters,” we’re usually talking about the technology industry in Silicon Valley, the financial sector in London or New York, or automakers in southern Germany.

But clusters go back much further than these examples.  “Businesses have clustered into networks of various sorts throughout history,” writes the U.S. National Commission on Entrepreneurship.  “The medieval guild system was a primitive networking exercise.”

The most successful, enduring clusters are not stagnant.  A look back at long-lasting clusters highlights the importance of adaptation to keeping a cluster vibrant, and the catalysts that keep it moving forward.

“He that will not apply new remedies must expect new evils; for time is the greatest innovator,” stated Francis Bacon.  Nowadays, when a multitude of businesses are confronted with the leap from “dumb” products to creating smart, connected ones, and cities and regions are trying to make the leap from manufacturing to services, relying too heavily on past successes will only lock those clusters in the past.

[Bologna, Italy]

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This story shows that while clustering is an organic process involving a self-organized, self-sustaining, and self-reinforcing formation of interconnected businesses, this process does not start without a catalyst of some kind. That catalyst is what starts the “cluster reaction.”

An example of a cluster that has avoided what I call this “lock-in syndrome” is Bologna, Italy, one of the most remarkable and long-lasting clusters of history. Though many people know it for its packaging machinery cluster, they may not realize the deep historical roots of this industry, or how much it has evolved over time.

As with many clusters, a university sits at its center:  founded in AD 1088, the Studium of Bologna was the major educational innovation of Europe’s second millennium.  Europe’s first academic university was the epicenter of the guilds of wandering students (clerici vagantes).  Spanning geographical barriers and shrinking the world of education, the resulting exchange of ideas between students and professors in a climate of freedom generated interactive spaces for knowledge creation, dissemination, and sharing.  Those spaces were reservoirs rich in memories from which lessons for cluster formation would be extracted later.

About two hundred years later, towards the end of the thirteenth century, we start to see the first Bolognese silk mills, which became a major industry.  The major innovation lay in an extraordinary machine already in use in Lucca, about 150 kilometers southwest of Bologna. This round, mechanical spinning machine was capable of twisting dozens and dozens of threads at the same time.  The innovation of the Bolognese silk makers was to operate the Lucca machine with a hydraulic wheel, instead of by hand.  Thanks to this technological innovation—made possible by Bologna’s canals and ample supply of water—by the 15th century, Bolognese mills had expanded from small-scale production to busy factories that took up three or four floors. Long before the Industrial Revolution, Bologna used this combination of hydraulic power and technology to bring silkworm farming to Europe at scale. Bolognese yarns were sold to the doges of Venice or exchanged for spices and salt, and they were also exported to the large international markets, to France, Germany, England and even to the East.

But when the Industrial Revolution arrived it shook the Bolognese silk industry.  In Bologna at the end of the 18th century, changing consumer tastes, labor costs, and production technologies all led to the contraction of the industry.  The result was a deep and prolonged recession.

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Nonetheless, today, the Bolognese “Packaging Valley” stands out internationally for its ability to meet the specialized needs of manufacturers throughout the world.

Firms in the cluster design, manufacture, and assemble packaging machinery for a wide range of products, such as baked goods, confectionery, beverages, tea, tobacco, pharmaceuticals, and chemicals.  They are known for demonstrating a special sensitivity to the market needs of the specialized manufacturers who use their services. Systems and machines are tailor-made to fit the specific needs of their customers, using innovative techniques and new packaging materials.

How did the city make the leap? Scholars and historians trace it back to several vital turning points.  One key moment came when two pro-business academics—Giovanni Aldini, professor of Experimental Philosophy in the University of Bologna, and Luigi Valeriani, professor of Public Economy in the same University, visited the new technical and professional schools in France, Great Britain, Germany, and Belgium, learning the best practices of the new technical education and training on offer in Europe.  The fruit of their travel was first the gestation and then, around 1844, the foundation of a technical school named after them.  They advocated a mix of in-company “learning by doing” training and formal training, and offered new mechanical qualifications.  The Aldini-Valeriani School thus acted as the incubator of a number of new firms, with a good number of students who subsequently choosing to start their own packaging companies.

Several of the graduates of the school went to work for ACMA (Anonima Costruzioni Macchine Automatiche), a packaging company founded by accountant Gaetano Barbieri in 1924.  Their first major customer was Gazzoni, a local pharmaceutical company that made a powder called Idrolitina, which added sparkle to drinking water. Dextrous female workers measured the powder by hand, before stuffing it into individual paper packets.  In the early 1920s, as a result of a growing market for Idrolitina, Gazzoni decided to automate the packaging process.  From 1927 onwards, ACMA’s Bruto Carpigiani designed the packaging machines, one of many mechanical inventions he created. ACMA and Carpigiani are today both viewed as instrumental in the development of Bologna’s packaging machinery sector, and in the 1930s, a number of other additional machine packaging firms were founded by ACMA-influenced workers, technicians, and machinists.

This story shows that while clustering is an organic process involving a self-organized, self-sustaining, and self-reinforcing formation of interconnected businesses, this process does not start without a catalyst of some kind.  That catalyst is what starts the “cluster reaction.”

The catalyst might be a handful of skilled individuals, local entrepreneurial pioneers, or academic excellence—in different situations, all of these have acted as catalysts.  In the case of the packaging machinery cluster in Bologna, all three played a role.

But the catalyst won’t have much impact without a hospitable environment.  In Bologna, an informal community of knowledge-sharing supported the “cluster reaction.”  Blue-collar workers and technicians were used to meeting in cafés where, playing cards at small tables, they engaged passionately with each other in discussions on technical advancements and the new business models that could be adopted in their companies.  These interactions gave birth to new companies in new market niches.

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Moreover, a cluster can never be static.  It was the novel innovations of silk machines and tertiary education that gave rise to Bologna’s local excellence in mechanical engineering, but as the world changed, Bologna also had to adapt.  Today, with the rise of smart, connected machinery, Bologna’s packaging machinery cluster is changing again, this time from “industrial” to “cognitive”—its future again hinges on inventive entrepreneurs and educators responsible for new innovations. And again, both entrepreneurs and educators will have to share the responsibility. As argued by William Baumol, the education of the incremental innovator leads to mastery of the already available paths of scientific knowledge and methods. Breakthrough inventiveness requires unorthodox approach to education that favors the freewheeling exercise of the imagination.

That in itself will take a certain kind of breakthrough.  In Baumol’s words,  “We know little about training for the critical task of breakthrough innovation.”  This is a time for reinventing learning with the full involvement of Renaissance thinkers, as Steven Shapin, historian and sociologist of science at Harvard University, has defined those people who conceive of innovative ways of understanding education, breaking revolutionary paths – and moving away from dominant teaching orthodoxies.

Vibrant cities rely on clusters that can adapt; and cluster adaptability in turn hinges on learner-centered education, an “idea space” where the ideation process leads to useful knowledge both in business and society.  Value is created in the crucible of dialogue, through interactions between interdependent people whose adjacent ideas give rise to related entrepreneurial activities.

Dynamic clusters might seem to spring up by a happy accident meeting a prepared mind.  The role we all have to play in keeping cluster dynamics alive is in preparing the mind to look forward.

Edited By Doug Burson, Sphere Marketer & Analytics

Richard A. Bendis is the Founder, President and CEO of Innovation America (IA), a global innovation intermediary focused on accelerating the growth of the entrepreneurial innovation economy Internationally and in America.

Mr. Bendis is the “2017 Innovator of the Year” in Maryland, United States