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Cluster vs. ecosystem: How can we organize innovation today?

Innovation cluster and ecosystem: synonyms or two different phenomena?
Innovation cluster and ecosystem: synonyms or two different phenomena?

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Silicon Valley versus Detroit: What can we learn from the two innovation sites? What caused the former to flourish and the latter to decline? At PARK INNOVAARE we believe that one of the factors playing a major role in their development was the way the two sites were organized – one as an ecosystem, one as a cluster.

The first electronics company in Silicon Valley – Hewlett Packard, founded in a garage in Palo Alto – is a prototype of the start-up myth: two ingenious entrepreneurs and a garage, where they create a successful company. That’s the romanticism about it. The decisive factor in this story, however, is not the garage – it’s the surroundings: a world-leading university and research center, talent pool, booming industry, and accessible capital. These are all well-known Silicon Valley success factors that contributed to the development of the site. But Silicon Valley is not America’s first successful innovation hub. In the days when Californians spoke of an “apple” as an agricultural product, automobile production in Detroit, Michigan, was in full bloom. Detroit’s time has since passed, however. Where is the difference between the two sites? In their development path. The former developed as an ecosystem; the latter grew in a cluster.

Cluster vs. ecosystem

While the two terms are often used synonymously in relation to innovation centers, we are convinced there is a difference between them. A “cluster” is generally understood to mean a group of innovation actors in a specific industry, clustering at key locations. These are sometimes, but not always, strategically planned as part of large-scale industrialization processes and built around a dominant player. One example of such a site is the northern German city of Wolfsburg. Since the 1930s, it has been the site of the Volkswagen Group's main plant, as planned on the drawing board. Today, numerous supplier companies have settled here, and more than 100,000 people work in the automotive and supplier industries. In this case, everyone depends on one player.

With an “ecosystem” we stress a completely different structure: a network of many different players that are directly or indirectly connected to each other. In addition, there are a number of catalysts such as law firms, financial institutions, media companies, and other consultants who promote and support the active exchange of companies. In an ecosystem, all the players interact with each other in one way or another, in a self-organizing environment. In this case, everyone depends on everyone else. Such an ecosystem is robust and resilient precisely because there is no one dominant player and because it has the flexibility to better process internal dysfunctions as well as external shocks. And what is more, it can also work on smaller scales.

Input factors for a successful ecosystem

A successful innovation ecosystem consists of several integral elements:

  • One or more large scientific institutions,
  • Innovative technology companies working to commercialize an institute's research results, testing existing markets and developing new ones,
  • Specialized service providers and collaboration partners,
  • Excellent financing opportunities for start-ups and small companies as well as experienced, financially strong venture capitalists, and
  • Last but not least, enough space for growth and expansion as well as lean administration and a stable, legally secure environment.

An ecosystem needs to be managed

It is possible to ensure many of these features, for example by contributing to the creation of as many start-ups as possible and implementing intelligent spin-off strategies, or by improving the inflow of funds by means of specific instruments such as investment funds or loan guarantees. But it is not enough simply to bring all the players of an ecosystem to one location. Successful innovation parks are those that actively manage the ecosystems they create. This means ensuring that the young, innovative technology companies find an enabling environment that helps them break out of their own company's boundaries, network with other players, exchange knowledge and capital – perhaps also personnel – and obtain money and new employees. It means fostering interdisciplinarity.

Thus, a successful innovation site is a carefully managed, fine-grained structure of different types of players that depend on each other and cooperate with each other across company boundaries and industry boundaries. This is precisely the type of ecosystem that PARK INNOVAARE is striving to build next to the Paul Scherrer Institute, supported by multiple industrial partners. The site provides all the necessary elements for success, offering its resident companies the best conditions for creating innovation.