Porter's Theory of Clusters and Creative Spaces
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In this lecture, I discuss Porter's Theory of Clusters and how does that compare with the Creative Spaces.
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Porter's Theory of Clusters and Creative Spaces
- 1. Creativity#10: Creative Spaces Tathagat Varma Knowledgepreneur http://thoughtleadership.in
- 2. Porter’s Theory of Clusters In the world where everything’s increasingly online, does location matter? Today’s economic map of the world is dominated by what I call clusters: critical masses – in one place – of unusual competitive success in particular fields. Examples – Silicon Valley (Tech), Hollywood (Entertainment), Wall Street (Finance), Japan (Consumer Electronics), etc. Clusters are not unique, however; they are highly typical – and therein lies the paradox; the enduring competitive advantages in a global economy lie increasingly in local things – knowledge, relationships, motivations – that distant rivals can’t match. Clusters and the New Economics of Competition, Michael Porter, HBR, Nov-Dec 1998
- 3. Cluster Geographic concentrations of interconnected companies and institutions in a particular field, including suppliers, channels, customers, manufacturers and government and other institutions like universities, etc. Clusters promote both competition as well as cooperation, and offer advantages of efficiency, effectiveness and flexibility. Clusters help in innovation in a field and new business creation. California Wine Cluster: 680 commercial wineries + thousands of grape growers + vendors + university + wine institute +…
- 6. Are these Indian clusters? Movies: Bollywood TV Serials: NOIDA Finance: Mumbai IT Hub: Bangalore IIT Coaching: Kota, Super30 Pic: http://www.slideshare.net/tarunramgupta/deloitte-maverick-regional-finals
- 7. Case Studies Corporates: 1943: Lockheed’s Skunkworks 1948: 3M’s 15% Program 2004: Google’s 20% Program 2016: Facebook’s Area 404 Government: Build 20, MIT Bletchley Park, WW2 Industry: Silicon Valley Investors: Florence, Italy (Medici Effect) – we discussed in an earlier class Nation: Israel India
- 9. SkunkWorks Origin In 1943, the U.S. Army’s Air Tactical Service Command (ATSC) met with Lockheed Aircraft Corporation to express its dire need for a jet fighter to counter a rapidly growing German jet threat. One month later, a young engineer by the name of Clarence "Kelly" L. Johnson and his team of young engineers hand delivered the XP-80 Shooting Star jet fighter proposal to the ATSC. Quickly the go-ahead was given for Lockheed to start development on the United States' first jet fighter effort. It was June of 1943 and this project marked the birth of what would become the Skunk Works® with Kelly Johnson at its helm. The formal contract for the XP-80 did not arrive at Lockheed until October 16, 1943; four months after work had already begun. This would prove to be a common practice within the Skunk Works. Many times a customer would come to the Skunk Works with a request, and on a handshake the project would begin, no contracts in place, no official submittal process. Kelly Johnson and his team designed and built the XP-80 in only 143 days, seven less than was required. http://lockheedmartin.com/us/aeronautics/skunkworks/origin.html
- 10. The name Skunk Works® It was the wartime year of 1943 when Kelly Johnson brought together a hand-picked team of Lockheed Aircraft Corporation engineers and manufacturing people to rapidly and secretly complete the XP-80 project. Because the war effort was in full swing there was no space available at the Lockheed facility for Johnson’s effort. Consequently, Johnson's organization operated out of a rented circus tent next to a manufacturing plant that produced a strong odor, which permeated the tent. Each member of Johnson’s team was cautioned that design and production of the new XP-80 must be carried out in strict secrecy. No one was to discuss the project outside the small organization, and team members were even warned to be careful how they answered the phones. A team engineer named Irv Culver was a fan of Al Capp's newspaper comic strip, "Li'l Abner," in which there was a running joke about a mysterious and malodorous place deep in the forest called the "Skonk Works." There, a strong beverage was brewed from skunks, old shoes and other strange ingredients. One day, Culver's phone rang and he answered it by saying "Skonk Works, inside man Culver speaking." Fellow employees quickly adopted the name for their mysterious division of Lockheed. "Skonk Works" became "Skunk Works." The once informal nickname is now the registered trademark of the company: Skunk Works®. http://lockheedmartin.com/us/aeronautics/skunkworks/origin.html
- 11. SkunkWorks® Approach What sets the Skunk Works® apart is its unique approach created by founder Kelly Johnson. ‘Kelly’s Rules’ are still in use today as evidenced by the small empowered teams, streamlined processes and the culture that values the lessons learned when you are bold enough to attempt something that hasn’t been done before. Our unique organization started in 1943 when visionary Clarence “Kelly” Johnson got the green light to create an experimental engineering department to begin work on the secret XP-80 Shooting Star jet fighter. Johnson and his team designed and built the XP-80 in only 143 days, seven less than was required. It was this project that marked the birth of what would become the Skunk Works with Kelly Johnson at its helm. What allowed Johnson to operate the Skunk Works so effectively and efficiently was his unconventional organizational approach. He broke the rules, challenging the current bureaucratic system that stifled innovation and hindered progress. His philosophy is spelled out in his "14 rules and practices.” http://www.lockheedmartin.co.in/us/aeronautics/skunkworks/skunk-works-approach.html
- 12. Kelly’s 14 Rules 1. The Skunk Works manager must be delegated practically complete control of his program in all aspects. He should report to a division president or higher. 2. Strong but small project offices must be provided both by the military and industry. 3. The number of people having any connection with the project must be restricted in an almost vicious manner. Use a small number of good people (10% to 25% compared to the so-called normal systems). 4. A very simple drawing and drawing release system with great flexibility for making changes must be provided. 5. There must be a minimum number of reports required, but important work must be recorded thoroughly. 6. There must be a monthly cost review covering not only what has been spent and committed but also projected costs to the conclusion of the program. 7. The contractor must be delegated and must assume more than normal responsibility to get good vendor bids for subcontract on the project. Commercial bid procedures are very often better than military ones. 8. The inspection system as currently used by the Skunk Works, which has been approved by both the Air Force and Navy, meets the intent of existing military requirements and should be used on new projects. Push more basic inspection responsibility back to subcontractors and vendors. Don't duplicate so much inspection.
- 13. Kelly’s 14 Rules 9. The contractor must be delegated the authority to test his final product in flight. He can and must test it in the initial stages. If he doesn't, he rapidly loses his competency to design other vehicles. 10. The specifications applying to the hardware must be agreed to well in advance of contracting. The Skunk Works practice of having a specification section stating clearly which important military specification items will not knowingly be complied with and reasons therefore is highly recommended. 11. Funding a program must be timely so that the contractor doesn't have to keep running to the bank to support government projects. 12. There must be mutual trust between the military project organization and the contractor, the very close cooperation and liaison on a day-to-day basis. This cuts down misunderstanding and correspondence to an absolute minimum. 13. Access by outsiders to the project and its personnel must be strictly controlled by appropriate security measures. 14. Because only a few people will be used in engineering and most other areas, ways must be provided to reward good performance by pay not based on the number of personnel supervised.
- 23. Minnesota Mining and Manufacturing Co. (3M) 3M was born in 1902 as a small-scale mining venture. The five founders had a simple goal: to harvest a mineral known as corundum from a mine called Crystal Bay. Ultimately, the mine didn’t produce much corundum, but something more important was born that year: the spirit of innovation and collaboration that forms the foundation of today’s 3M. The fledgling company turned to other materials and other products, building up sales little by little. Technical and marketing innovations began to produce success upon success. Today’s 3M is responsible for 60,000 products used in homes, businesses, schools, hospitals and more. One third of 3M’s sales come from products that were invented within the past five years. http://solutions.3m.com/wps/portal/3M/en_US/3M-Company/Information/Resources/History/
- 24. McKnight Principles William L. McKnight, who served as 3M chairman of the board from 1949 to 1966, encouraged 3M management to "delegate responsibility and encourage men and women to exercise their initiative." His basic rule of management was laid out in 1948: "As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. This requires considerable tolerance. Those men and women, to whom we delegate authority and responsibility, if they are good people, are going to want to do their jobs in their own way. "Mistakes will be made. But if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it undertakes to tell those in authority exactly how they must do their jobs. "Management that is destructively critical when mistakes are made kills initiative. And it's essential that we have many people with initiative if we are to continue to grow.” https://solutions.3m.com/wps/portal/3M/en_US/3M-Company/Information/Resources/History/?PC_Z7_RJH9U52300V200IP896S2Q3223000000_assetId=1319210372704
- 25. 15% Program 1948: “15%” program was born, allowing employees to dedicate almost a full day a week to their own projects, following their ideas and seeing what came of them. 1974: Art fry came up with “Post It” – the most famous outcome of its 15% program Many of its 22,800 patents came from this program It is available to everyone. Who knows who will come up with the next Post It? However, the success is not due to the “15%”. It is the culture – embrace new ideas, tolerate failures. https://www.fastcodesign.com/1663137/how-3m-gave-everyone-days-off-and-created-an-innovation-dynamo
- 26. What happened when Six Sigma came to 3M? Six Sigma was popularized in the late 1990's and introduced into 3M by former CEO James McNerney, a former GE executive. It involves a set of process tools designed to eliminate production defects and wastage, and raise efficiency. "The Six Sigma process killed innovation at 3M," said Nicholson. "Initially what would happen in 3M with Six Sigma people, they would say they need a five-year business plan for [a new idea]. Come on, we don't know yet because we don't know how it works, we don't know how many customers [will take it up], we haven't taken it out to the customer yet." However, the 3M ambassador pointed out he had nothing against the Six Sigma, but felt it was not ideal for the creative process. http://www.zdnet.com/article/six-sigma-killed-innovation-in-3m/
- 27. Building 20, MIT A temporary wooden structure hastily erected during WW2 on the central campus of MIT Housed the radiation lab (“Rad Lab”) and worked on electromagnetic, microwave, etc. at one time 20% of the physicists in UR and 9 Noble Laureates work at Building 20 No one department onwed it…it hosted Acoustics, adhesives, Air Science, flight Control, Nuclear Science, Lighting Design, Plastics Lab, Radiological Lab, and later…Ice Research, Railroad, Lingustics, Electronics Photography, Humanities, Atomic Energy, etc...and eventually... Music, Biotech, Graphic Arts, Anthoropology, etc... After WW2, continued as “magical incubator” till it as shut down in 1998 Amar Bose and Noam Chomsky were among its famous occupants https://en.wikipedia.org/wiki/Building_20
- 28. What made it special? It was the worst building – it leaked, thin plywood walls, froze in winters, scorching in summers, confusing to navigate, bad acoustics, poorly lit, had no fire-clearance, etc…It was only a temporary will WW2 but continued... But....development of high-speed photography, modern- theory linguastics, single-antenna radar, microvawes,... Its “limitations” became its strength for collaboration and innovation. There were no divisions, no class distinctions, A 1945 statement by the Department of Defense noted that the research in the Rad Lab ”pushed research in this field ahead by at least 25 normal peacetime years.” http://djcoregon.com/dailyblog/2012/06/19/building-20-what-made-it-so-special-and-why-it-will-probably-never-exist-again/
- 29. Bletchley Park, WWII Until 1989, Britain’s best-kept secret from WW2! Government Code and Cypher School (GC&CS) studied and devised methods to enable the Allied forces to decipher the military codes and ciphers that secured German, Japanese, and other Axis nation’s communications. The result of which was the production of vital intelligence in advance of military operations. Bletchley Park also heralded the birth of the information age with the industrialisation of the codebreaking processes enabled by machines such as the Turing/Welchman Bombe, and the world’s first electronic computer, Colossus. The most famous of the cipher systems to be broken at Bletchley Park was the Enigma. https://www.bletchleypark.org.uk/content/hist/
- 30. Bletchley Park… Operation Ultra was designed to break Enigma. German’s cypher machine Enigma changed the code daily – so there were 159 million million million possible settings! Starting Aug 1938, the first success came on 23 Jan 1940 when the German Army administrative key was unravelled, known as “The Green” The process of breaking Enigma was aided considerably by a complex electro-mechanical device, designed by Alan Turing and Gordon Welchman. The Bombe, as it was called, ran through all the possible Enigma wheel configurations in order to reduce the possible number of settings in use to a manageable number for further hand testing. Eventually build “Colossus” – world’s first semi-programmable electronic computer a full two years before Americans built ENIAC! http://www.encyclopedia.com/topic/Bletchley_Park.aspx
- 31. Operation Ultra Employed 12,000 code breakers and staff! (3/4th were women) Heavily recruited from Oxford and Cambridge Got help from the Polish who has broken some earlier codes Led to sinking of Bismarck, the German destroyer It is believed that the success of Bletchley Park shortened the duration of WW2 by 2-3 years!
- 32. Google Founder’s Letter 2004 “Google employees have “20 percent time” - effectively one day per week - in which they are free to pursue projects they are passionate about and think will benefit Google. The results of this creative effort already include products such as Google News, Google Suggest, and Orkut - products which might otherwise have taken an entire start-up company to create and launch.” https://abc.xyz/investor/founders-letters/2004/
- 33. Google 20% Key successes: AdSense, Gmail, Google Transit, Google Talk, Google News, Google Now, Project Cardboard (“Mockulus Thrift”), Google Sky, Google Art Project, Google.org, … Changed in 2012…not killed but made a bit more stringent? (some people mock it by saying it is 120% program)
- 34. Facebook Area 404 “These labs have all served their respective teams well, but over time we started to see that when engineers from different teams came together and shared their expertise, we could make even faster progress on the projects they were working on — engineers in the Connectivity Lab learned from our experts in failure analysis to create high-quality prototypes early in the testing process, the networking team worked with the FSO team on breakthroughs in wireless transmission of data, and so on. We wanted to create more opportunities for these teams to come together; we needed a big, open space to complement our custom labs. So we built one, and we call it Area 404 — named for our teams wanting a space just like this one, but one wasn't found; now it's found, and we lovingly refer to the space as Area 404.” http://code.facebook.com/posts/561611824036387/inside-facebook-s-hardware-labs-moving-faster-with-more-collaboration/
- 35. Facebook Area 404… This new 22,000-square-foot lab is located in our Menlo Park office, and it's outfitted with state-of-the-art machine tools and test equipment. With this new space, we can now handle the majority of our modeling, prototyping, and failure analysis in-house, decreasing each iteration of the development cycle from weeks to days. Even more important, the space has room for all teams, with more than 50 workbenches in the main area. Connectivity Lab, Oculus, Building 8, and our Infrastructure teams can now work collaboratively in the same space, learning from one another as they build.
- 36. 1939: Stanford engineering graduates, mentored by their Stanford professor, HP founders pooled in $538 and created Silicon Valley foundations?
- 41. Start-up Nation: Israel Highest concentration of engineers and R&D spending in the world Highest density of startups in the world – 1 per 1,844 Israelis Per capita venture capital investments were 2.5x of US (and 350x of India) More patents per person than any other nation Most scientific papers per capita than any other nation – 109 per 10,000 people. In 25 years, Israel increased its agricultural yields 17 times. Start-Up Nation: Dan Senor and Saul Singer, 2009
- 42. History Adversities since its creation Fight for survival was key Immigration from 70 countries (2x population in first two years) Contrary to popular belief, defense and security tech is less than 5% of Israel’s GDP
- 43. Culture Persistence, especially in the face of hostile neighbors, inclement climate. Perhaps this led to more in telecom and internet because there was no “border” stopping here. Informal and nonhierarchical cultures, not very disciplined – they are educated to challenge the obvious, ask questions, debate everything, innovate. IDF is deliberately understaffed at senior levels – leading to more initiative at lower levels. Cultural tolerance for “intelligent failures” – all performance, good or bad, are value-neutral IDF Reservists created a whole new network of people without class hierarchies – you are not defined by what your rank is but what you are good at.
- 44. Culture… The Israeli military tradition is to become traditionless. Don’t be wedded to an idea just because it worked in the past. Military past is more important than academic past Thanks to conscription, by the time you come to workforce, you have already had incredible experiences, responsibilities, maturity, etc. Due to military experience, everyone knows everyone!
- 45. Why not Singapore or Dubai? Singapore’s leaders have failed to keep up in a world that puts a high premium on a trio of attributes historically alien to Singapore’s culture: initiative, risk- taking and agility (In Korea) fear of losing face…one should not be exposed while failing...Israelis seem to be on ther other side of the spectrum. They don’t care about the social price of failure and they develop their projects regardless of the economic or political situation. Dubai has built large successful service hubs...but not thriving innovation clusters.
- 46. “Rosh gadol” vs. “Rosh katan” Rosh gadol = big head Following orders but doing so in best possible way, using judgment, and investing whatever effort is necessary. Emphases improvisation over discipline, and challenging the chief over respect for hierarchy. Rosh katan = little head Interpreting orders as narrowly as possible to avoid taking on responsibility or extra work This behavior is shunned! Everything in Singapore runs counter to rosh gadol! Singapore differs dramatically from Israel both in its order and in its insistence on obedience. Singapore’s politeness, manicured lawns, and one-party rule have cleansed the fluidity from its economy.
- 47. Factors Kibbutzsim. Tough land. Led to innovations in water recyling and fish farming! Immigrants. Law of Return. Many were well-educated. Immigrants = entrepreneurs. Immigration is a national priority. Diaspora, Brain drain => brain circulation Govt support for startups. Yozma. Arab block and betrayel by Charles de Gaulle lead to self-reliance, improvisation, multiskilling,
- 48. India
- 53. Recap Creative spaces, throughout history, have been extremely successful in shaping the economic climate of those regions. Clusters create a robust interlock of companies, universities, markets and talent and catalyse the innovation and entrepreneurial activities. Creatives spaces are the force-multiplier that can significantly boost up and transform creative initiatives into serious economic clusters.