Innovative Epicenters

Creative clusters like Silicon Valley continue to boom because of a community-wide willingness to experiment and take chances. Business and governments are taking note.

“What do you do?” is perhaps the most commonly asked question in social and professional situations. But I’ve often wondered why it isn’t “Where are you from?” I grew up in the Midwest and have since lived all over the world, and I’ve always been interested in different cultures and geographies. Recently, as a World Economic Forum fellow, I began exploring why certain cities or regions (such as Silicon Valley) seem to be hotbeds for innovation. Many studies explore “hard” data, such as access to financial and human capital, as reasons for why some locations are more creative than others. But I was after the “soft” factors, such as how attitudes toward creativity and risk-taking contribute to the development of so-called “innovation clusters.”

From an economist’s point of view, innovation clusters are unparalleled engines of value-added growth, employment, and prosperity. Given the current economic climate, they are of tremendous interest to both businesses and governments. Yet it can be difficult to sustain growth through innovation, which is why bureaucrats and investors alike need to understand all of the factors that influence invention, from the tangible to the intangible.

In November 2011, Thomson Reuters published a report, “Top 100 Global Innovators,” that ranked the most innovative companies in the world in 2011. The research used four criteria to measure “innovativeness”:

  1. Patent of an invention
  2. Patent protection in a global market
  3. Influence of the patent on other inventions
  4. Volume of patents filed

Interestingly, not a single company in China made the list, despite being the leader in volume of patents filed. The U.S. and Japan, on the other hand, led the world in innovation on the strength of their output and their influence on other inventions around the world. In other words, one unit of hard data—namely, patent volume—is not enough to explain why certain geographies have a higher propensity for innovation than others.

In fact, soft factors are crucial to innovation. During my fellowship at the World Economic Forum, I helped conduct a survey of global business and government leaders. One group mentioned the importance of a “cultural fit” when partnering with other entities. Another group concluded that “soft enablers” create an environment that inspires role models and allows people the freedom to experiment, which is critical to supporting emerging business models and innovation. All the leaders agreed that collaboration plays an increasingly important role, while flexibility and agility—two largely intangible qualities of leadership—are necessary for responding to external changes.

Thinkers like socioeconomic theorist Richard Florida have been exploring how a “creative class”—groups of artists, designers, writers, scientists, engineers, professors, etc.—migrate to specific geographies. They do so to collaborate more efficiently with like-minded peers in places where nontraditional behaviors and ideas are generally supported. It’s how Silicon Valley became the center of the universe for technologists and continues to attract and retain creative people who produce new ideas, products, and services.

Meanwhile, cities like Detroit, which once had ready access to financial and human resources, have been unable to sustain a culture of innovation. Why is Tesla Motors based in Northern California and not the car capital of the world? Detroit, of course, was at one time at the center of innovation in the auto industry. But it was unable to sustain its momentum because the city failed to attract a diverse and creative group of individuals who could continue to drive innovation in the automobile industry. Apparently, even clusters that foster innovation and economic growth have no guarantee that they’ll continue to cultivate talent without equal attention being paid to cultural factors.

Savvy companies are increasingly globalizing their innovation footprint by capitalizing on flourishing innovation clusters and abandoning areas where growth is declining. In response, similarly savvy local and national leaders have targeted innovation-driven economic development as a way of nurturing and sustaining national prosperity. According to World Economic Forum and McKinsey research, cumulative foreign direct investment in innovation centers increased by 15 percent per year from 2002 to 2008, distributed over developed and emerging regions. By globalizing their innovation networks, business leaders can enjoy regional competitive advantages: They can tap lower-cost talent and expertise in certain domains and cater to local market demands. Despite an increasingly globalized and connected world, individuals will continue to cluster in specific geographies with like-minded peers. The approach for both business and government leaders should be to recognize the value of hard and soft enablers in creating an environment that supports experimentation and collaboration. This requires investing not only in traditional financial and operational infrastructures, but in developing a cultural climate and organizational structure that will attract people who bring new and innovative ideas. So where am I these days? 10013 via 94107.

Nicholas Kim is a strategy director at frog.

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