Harvard & global innovators

Corporate R&D labs used to be the key for companies to create competitive advantage. But now innovation is moving across the globe.

That’s why Harvard Business School professor, Alan MacCormack, believes that a real source of competitive advantage is skill in managing innovation partnerships.  

 Innovation is increasingly driven through collaborative teams due to product complexity, availability of a low-cost but highly skilled labor pool, and advances in development tools.

 Collaboration adds to the top and bottom lines by shortening development lead times, increasing capacity, and facilitating access to skills, capabilities, and IP that a firm does not possess internally.

 Many efforts at innovation collaboration fail because they begin with the goal of lowering costs.

 Successful collaboration programs develop a strategy aligned to their business needs. They also organize for effective collaboration and invest in building collaborative capabilities.

Previously many companies secured competitive advantage by investing in internal R&D. But today “not invented here” is becoming a badge of honor…and a source of competitive advantage.  

To design the 787 “Dreamliner” (initial flight in 2008) Boeing lashed together 50 partners in 130 locations. These firms aren’t just manufacturing partners – they design the components they make. “Boeing’s source of competitive advantage is shifting – its unique assets and the way it orchestrates, manages, and coordinates its network of hundreds of global partners.” 

Go to Innovation through Global Collaboration: A New Source of Competitive Advantage.

Source: Harvard Business School, via Superfactory.

Harvard pointers on global innovators

Corporate R&D labs used to be the key for companies to create competitive advantage.

But now innovation is moving across the globe.

That’s why Harvard Business School professor, Alan MacCormack, believes that a real source of competitive advantage is skill in managing innovation partnerships.

Innovation is increasingly driven through collaborative teams due to product complexity, availability of a low-cost but highly skilled labor pool, and advances in development tools.

Collaboration adds to the top and bottom lines by shortening development lead times, increasing capacity, and facilitating access to skills, capabilities, and IP that a firm does not possess internally.

Many efforts at innovation collaboration fail because they begin with the goal of lowering costs.

Successful collaboration programs develop a strategy aligned to their business needs. They also organize for effective collaboration and invest in building collaborative capabilities.

Previously many companies secured competitive advantage by investing in internal R&D.

But today “not invented here” is becoming a badge of honor…and a source of competitive advantage.  

To design the 787 “Dreamliner” (initial flight in 2008) Boeing lashed together 50 partners in 130 locations. These firms aren’t just manufacturing partners – they design the components they make. “Boeing’s source of competitive advantage is shifting – its unique assets and the way it orchestrates, manages, and coordinates its network of hundreds of global partners.” 

Go to Innovation through Global Collaboration: A New Source of Competitive Advantage. Source: Harvard Business School, via Superfactory.

Airline safety

The spate of airline crashes in Asia – most recently the Phuket crash involving a 24 year old airliner – has prompted considerable discussion about aviation safety.

We have therefore done some research. The Federal Aviation Administration (USA) says ‘there currently is no evidence in accident data that would support the ranking of individual airlines’.

We sensed a big cop out, and we searched and found www.planecrashinfo.com:  
§          Top of the list are US airlines (e.g. Delta, AA, Continental), despite each having a number of ‘fatal events’ – their substantial number of flights work in their favour.
§          Bottom of list are Cubana, China Airlines, Indian Air Lines, Pakistan International Airlines, Iran Air.
§          Clean sheets over the last 20 years are BA, Iberia, JAL, Air Lingus, Cathay, Qantas, Air India, El Al, Air Canada and Southwest Airlines. Air NZ is there too courtesy of the 20 year time frame. 

The considered opinion is that airline safety is largely determined by four factors – aircraft age; maintenance; pilot skills; flying conditions (mountains, ice, rain).

The first variable can at least be quantified – Qantas doesn’t fare well with an average aircraft age of 10.8 years (explains its recent splurge on new aircraft). Others at the high end are North West (13.4), Delta (12.2) and JAL (12.1).

Airlines with young fleets include Emirates (3.1), Virgin Blue (4), Singapore Airlines (5.3) and Air NZ (6). Happy contemplating! 

Coming to grips with oligopolies and market intervention

Silverhawk, our resident industry analyst, explains his current concern.   

There is an evangelical belief that if many companies and individuals are put into direct competition, the outcome is creative tension, a stronger work ethic and lower prices.  

But strong competition between a myriad of players does not necessarily deliver efficient resource allocation. A mass of strongly competing, ‘efficient’ providers of goods and services in any market – the so-called ‘market equilibrium’ – is a rare and unstable circumstance. The reality is that oligopolistic market structures – where a few large suppliers dominate – are now the norm.

There are strong forces driving the rise of oligopolies: 

• In global markets, where scale economies are important and investments are lumpy, oligopolies proliferate e.g. aviation petroleum, pharmaceuticals, telecommunications, automotive, motor vehicles, publishing. 
• In small economies, unfettered capitalism leads to the concentration of market power in a handful of companies, and oligopolies develop as a matter of course. In Australia, two Woolworths and Coles account for 80% of the Australian supermarket business.
• In markets where governments are influential, the stronger private sector players generally have the lobbying clout to further entrench their oligoplistic market power e.g. Halliburton, News Corporation.  

Given these developments, it is incumbent on governments of all persuasions to be much better informed of the implications of their actions. Government grants to companies, and policy changes that favour one company over another, can have profound long-term effects on the operation of markets. However the ability of governments to properly understand the consequences of their actions is limited. 

To be fair, governments are progressively introducing the concept of ‘competitive neutrality’ in respect of grants programs, to avoid or at least limit the adverse impacts on other companies. However this concept has not yet permeated into the realm of major government policy changes. The problem is privately acknowledged within government circles in Australia, with the most recent examples being the Optus telecommunications deal and uncertainty surrounding mandatory environmental targets. 

There are incredibly complex issues where commercial practices and public policies converge.  No government can be expected to fully understand all the competitive dynamics of an industry, and how its action will affect the competitive position of the different players as well as the overall industry settings.

But governments must make a greater effort to commission expert studies on market structures and performance, and better explain the rationale of its actions when it does intervene. Vigilance in terms of anti-competitive behaviour is also critically important.

Australia’s Top 10 ‘physical’ clusters

 

We are often asked to describe and explain a cluster.

 

The first thing to appreciate is the distinction between:

§          ‘physical’ clusters i.e. agglomerations of companies and support agencies that are dynamic hot spots of economic activity.

§          ‘collaborative program’ clusters i.e. where programs are implemented to drive collaborative outcomes.

 

The two groups are not the same! Many of the physical clusters have developed without formalised structures, and most of the players were never involved in formalised meetings.

 

Outlined below are our top 10 physical clusters in Australia – it is necessarily subjective, and we welcome correspondence if you agree or not! The common characteristics are lengthy gestation periods, champions, and triggers that generate further investment and economic spillovers. Interestingly, many of the triggers came from the public sector.

 

1. Cairns Airport/City Port (Qld) – infrastructure and local leaders have spurred tourism development and seafood and horticulture exports. The City Port project has transformed the foreshore and CBD. The trigger was Townsville winning state/federal government blessing in the 1980s as the regional aviation gateway. Bob Manning (then CEO of Cairns Airport) led the charge. The airline pilots strike and recession in early 1990s were further triggers.

2. Jervoise Bay (Rockingham, WA) – precinct designed to capture commercial opportunities associated with nearby defence and marine facilities, local engineering and shipbuilding companies, concrete platforms for the North West Shelf etc. The trigger was competition from Singapore, which led to visionary plans by WA Government, which then negotiated and matched an $80 million federal grant. 

3. Melbourne Docklands and Southbank (Vic) – transformed this area from an embarrassment to a highlight. It gels with the MCG, the Tennis Stadium and the parkland areas. The trigger was the commitment of a Victorian Planning Minister and his officials in early 1990s.

4. Port Lincoln (SA)  – a great example of industry putting its money where its mouth is. A network of professional fishermen saw the need to invest in R&D and training, and well-argued submissions backed by business plans attracted federal and state assistance for a multi-faceted Marine Centre.

5. Scone Equine (NSW) – local and overseas breeders are clustered here. The trigger was local government leaders who mapped out infrastructure requirements and an ingenious funding mechanism for a research centre. A world-class training track, a TAFE and a convention centre reinforce each other.

6. Canberra Airport (ACT) – the trigger was the sale by the federal government to the Snow family in 1998. This has led to a further $500+ million investment in the terminal, hangars, apron, roads, car parks, and Business Park. Consultancy businesses, freight forwarders, defence contractors etc. now operate on-site.

7. Shepparton (Vic) – a very strong food processing cluster involving around ten significant multinationals. The trigger has been water infrastructure installed in stages since the 1960s. A major road freight hub has also developed there due to backloading opportunities.

8. Barossa Wine Region (SA) – this cluster has been analysed on countless occasions. Local winemakers (Gramp, Buring, Blass et al), favourable soil and climate, Roseworthy Agriculture College.  

9. Gold Coast (Qld) – Australia’s largest-scale tourism cluster. A big champion was Alderman Bruce Small in the 50s and 60s – his bikini-wearing ‘meter maids’ (who put money in expired parking meters’) caught the attention of staid southern city dwellers. Climate, beaches, and proximity to Brisbane.  

10. Honeysuckle urban renewal project (Newcastle, NSW) – intelligent town planning and cocktail funding across three levels of government and the private sector. The trigger was exit of BHP Steel and job losses, which led to ‘Better Cities’ funding and a federal/state/BHP restructuring fund. 

Special mentions go to north Sydney ICT and life sciences, Torquay surfwear (Vic), Darwin defence/marine (NT), Salamanca Place (Tas), Bega dairy (NSW), Yarragon antiques (Vic), Brisbane Airport Qld), Virginia horticulture (SA) and Perth mining technology services (WA).  

Victoria goes cluster route

In 2003, the Department of Industry, Innovation & Regional Development (Victoria, Australia) released a very good discussion paper ‘Clusters – Victorian businesses working together in a global economy’ (40 pages).

It proposed a strategic policy framework to select, fund and evaluate clusters in Victoria. We were invited to comment on the document prior to policy decisions by the Victorian Government.

The DIIRD document usefully explains that clusters do not engage in anti-competitive behaviour – they are seen as open systems which encourage competition. Their purpose is not to fix prices, misuse market power by limiting competition, or engage in anti-competitive practices.

Cooperation via information sharing, R&D or export promotion – for the purpose of improving the firms’ competitiveness, not limiting competition.

Other interesting points follow.

Clusters commence and grow in different ways. No model applies to all circumstances.

Clusters may begin by exploiting a natural strategic location, specialised skills, exceptional research institutes, good infrastructure or as a result of the activities of a successful company.

Michael Porter notes that many clusters in Massachusetts owe their birth to the research conducted at the MIT and Harvard University. The Dutch transportation cluster grew out of the waterways of Rotterdam, its central European location and the city’s long acquired maritime skills.

Israel’s irrigation clusters began in response to adversity: desert land was irrigated and turned into agricultural land in order to feed the population.

Finland’s environment cluster emerged in response to pollution problems.

The golf equipment cluster of San Diego grew out of the technology developed by the aerospace cluster. The Omaha telemarketing cluster owes its existence to its central time location, easy to understand accent and a demanding customer in the US air force.

Clusters develop organically over time. However, Singapore (E-commerce) and Ireland (digital hub) are building clusters by attracting FDI with government support. Singapore is building an e-commerce hub around Hewlett Packard, mainly by encouraging the formations of new SMEs.

Letter from Singapore – rethinking development strategies

Our man in Singapore is Andrew Symon, a consultant/analyst and a visiting research fellow at the Institute of South East Asian Studies in Singapore. (www.iseas.edu.sg). Andrew has worked throughout Asia since 1992. 

Last year’s Sars influenza epidemic scare, combined with the Iraq war and fear of terrorism in SE Asia has underlined Singapore’s vulnerability to external shocks.

They resulted in a collapse of tourist and business visitors in the first half of 2003, badly damaging the island state. The loss of income was dramatic, revealing just how dependent the Singapore economy is on retail, hotel, restaurant, entertainment, conference and airline industries and the flows of foreign visitors that support them.

 The shocks may be one off events, and the government has been extremely effective in overcoming the health danger of Sars by stringent detection and quarantine measures, and severe policing against the threat of terrorism.

But the damage has frightened both policy makers and the public. Now, at the start of 2004, there is the spectre of the avian influenza virus outbreak having a similar impact.  The last few years, not just 2003, have been hard ones for Singapore. Economic recovery after the Asian financial crisis of 1997/98 was only patchy. In 2001, Singapore fell into recession. In response, the government established an economic review committee, which has recommended:
§          immediate reduction in costs affecting business,
§          longer term strategies to encourage professional services and high value added industries,
§          the inculcation of a more entrepreneurial spirit in locally-owned companies.  

Nothing here is a radical departure. Ever since the early 1990s, encouragement has been given to the development of biomedical, precision engineering, petrochemical and transport – aerospace – marine engineering clusters alongside the computer/electronics, financial and sophisticated services.

But there is a greater sense of urgency now. The goal of fashioning Singapore as a regional hub for professional services underpins the government’s enthusiasm to sign FTAs with Australia, the European Free Trade Association, New Zealand and the US. FTA discussions are ongoing with Canada, China and Mexico.  

Meanwhile, Singapore’s traditional strength as a regional shipping and aviation center continues to be challenged by Malaysia. Malaysia’s southern Johore port of Tanjung Pelapas has been boosted by use of its facilities by Danish shipper Mearsk and Taiwan’s Evergreen.  And, a frenzy of activity now in the emerging budget airline segment, led by Malaysia’s AirAsia, is also worrying Singapore as budget operators look to airports other than Singapore’s Changi to base their services because of lower costs.

Our top 10 regional investment projects

The forerunner to the Cockatoo Group was Clusters Asia Pacific Inc. and it

recently made a submission to the Australian Government when it was looking for

ideas to regenerate the Bush.

The main messages were: 

 §          Three golden rules in generating investment in regions – professionally-prepared financial analysis; networking and access to the right information and people; sheer persistence.

§          Networking aspect is particularly important – to connect the locals to external stakeholders – website addresses and information kiosks are extremely poor substitutes for face-to-face liaison. Networks can take various forms – regional development organisations, regional organisations of councils, industry associations, chambers of commerce, business cooperatives. But some of these networks fold because of cost-cutting measures, and the failure of businesses and the three levels of government to appreciate the importance of collaboration and the alignment of thinking. 

§          Particular constraints to business growth in regional Australia are insufficient critical mass in terms of world-class, dynamic companies; the lack of distinctiveness and the shrouding of local competitive advantage; and the delays and complexity caused by three-tier system of government.

We also provided examples of regional projects (urban and rural) that are instructive

pointers to how regional investments actually happen - each with common

characteristics e.g. lengthy gestation periods, champions, significant constraints,

and the triggering of further investment.

Cairns Airport/City Port – airport development spurred tourism development and

opened up new export markets for seafood and horticulture exports. The CityPort has

transformed the foreshore and CBD.

Honeysuckle urban renewal project (Newcastle) – excellent example of intelligent town planning and cocktail funding across three levels of government and the private sector.

Jervoise Bay (Rockingham, WA) – precinct designed to capture commercial opportunities associated with nearby defence facilities, local engineering companies, concrete platforms for the North West Shelf etc. Lobbying led to a $80 million grant from the Federation Fund.   

Melbourne Docklands and Southbank – transformed this area from an embarrassment to a highlight. It gels with the MCG, the Tennis Stadium and the parkland areas.

Tanunda Convention Centre – located within a Lutheran school complex in the Barossa. A great example of the blending of education, tourism and social needs. The project was going nowhere until a great networker connected the champions.

Yarragon (Vic) – was a nondescript village – a local businessman saw the potential for an antique shop and complementary businesses. Local council invested in some streetscaping and a toilet block. Business investment in food outlets, more antique shops, Bed & Breakfasts etc. resulted.

Port Lincoln Marine Centre – a great example of industry putting its money where its mouth is. A network of professional fishers saw the need to invest in R&D and training, and well-argued submissions backed by business plans attracted federal and state assistance.-

Scone Equine Research Centre – champions were local government and breeders – mapped out infrastructure requirements for the industry, developed an ingenious funding mechanism for the research centre. A world-class training track, a TAFE and a convention centre are other elements.

Canberra Airport – its sale in 1998 to a local business group led to an extra $400 million  investment in the terminal, hangars, apron, roads, car parks, and Business Park. Consultancy businesses, freight forwarders, defence contractors etc. now operate on-site.

Wimmera-Mallee water pipeline – underway for around 15 years. Involves the replacement of open channels with an extensive system of water pipelines. The project champions have accessed funding from numerous sources, and it now serves as a best practice model for other regions. 

Full article appeared in LG Focus magazine.