The role and underpinning principles of clusters: exploring the crowded space of the Australian Innovation Ecosystem

The term ‘Cluster’, as it relates to industry development, is not easy to define, particularly in Australia, because unlike other parts of the world, ‘clustering’ is not embedded in public policy. Timely, but unhelpful, is the use of the term to describe localised COVID-19 outbreaks! Nevertheless, ‘Clusters’ can play a pivotal role in supporting positive futures, as highlighted in the 2020 TCI Oceania online forums[i].

A clearer picture in Australia of what clusters are, how they evolve and how they fit in is long overdue, particularly in these turbulent times.

I’m often asked “are ‘peak bodies’ and ‘clusters’ the same thing?” The short answer is probably ‘no’, unless the peak body can demonstrate a dynamic mix of seven (7) key principles at work.

Australia is full of high-profile organisations all purportedly working to serve the interests and needs of industry – often with a big focus on innovation. This space has become so crowded, fragmented and political that one might reasonably ask is it time to review and reset? Or, given the increasing interest in ‘innovation ecosystems’, is there a need to comprehensively map and understand all the actors within ecosystems and thereby strengthen them and reduce the duplicated and often wasted effort?

The purpose of this paper is not to conduct that broader debate however sorely it may be needed. The intent here is to simply explore the landscape and seek to better understand and clarify the role and the inter-relationships of clusters within it.

According to Wikipedia a peak organisation or peak body is a uniquely Australian term for an advocacy group or trade association, an association of industries or groups with allied interests. They are generally established for the purposes of developing standard and processes, or to act on behalf of all members when lobbying government or promoting the interests of the members[ii].

Typically, peak bodies are an industry sector or community of interest which represents its interest to the government. Usually they are member based.

For example, the National Farmers’ Federation (NFF) describes itself:

The National Farmers’ Federation (NFF) is the peak national body representing farmers and, more broadly, agriculture across Australia. It is one of Australia’s foremost and respected advocacy organisations.

Since its inception in 1979, the NFF has earned a reputation as a leader in the identification, development and achievement of policy outcomes – championing issues affecting farmers and dedicated to the advancement of agriculture[iii].

Across Australia, in addition to the NFF, almost every primary produce commodity group also has its own peak body. Interestingly, peak bodies operate at state/territory levels too and are often affiliated with national peak bodies. Increasingly we see regional organisations seeking to operate as peak bodies. Some peak bodies have deep historical roots.

In addition to peak bodies, the industry support and innovation landscape is also busy. The Federal Government has created six (6) Industry Growth Centres and tasked them with leading cultural change in their respective sectors[iv]. There are fifteen (15) Rural Research Development Corporations (RDCs) across agriculture, fisheries and forestry industries in Australia. Each one is tasked with delivering tangible and practical improvements for their industries in terms of productivity and profitability, sustainability, and the community[v]. Cooperative Research Centres (CRCs) are part of an Australian Federal Government programme which supports Australian industries’ ability to compete and produce by helping industry partner with the research sector to solve industry-identified issues. 

Throw into the mix clusters, precincts, knowledge institutions, accelerators, incubators, innovation hubs, co-working spaces, hackathons, state/regional/local government economic and regional development policies/plans, consultants, investors, and so on, and the rapid rise and evolution of players evident in the innovation system becomes very apparent. The work of Chad Renando of Queensland University of Technology’s (QUT’s) Australian Centre for Entrepreneurship Research, and via ‘Startupstatus,’[vi] highlights the very busy space of just the startup innovation environment alone.

The intent to improve Australian innovation is laudable and definitely required. The poor performance of Australia’s national innovation system has been well reported – most recently in the 2019 Global Innovation Index (GII)[vii]. A 2015 report prepared for the Senate Standing Committee on Economics highlighted how poor innovation performance makes us increasingly vulnerable to global shocks[viii] - an unfortunate premonition in today’s COVID-19 crisis. A closer look at the GII is illuminating, but shows the story is not all bad. Whilst in 2019 Australia ranked 22 (out of 129 countries), in the area of ‘Market Sophistication’ we ranked number 8 and in the area of ‘Human Capital & Research’ we ranked number 10. In the area of ‘Business Sophistication’ we rank 26 but missing is strength in 2 of the 3 key elements within this innovation area: ‘Innovation Linkages’ ranked 39 and ‘Knowledge Absorption’ ranked 50. In the area of Knowledge and Technology Outputs we rank 36 and are undermined by ‘Knowledge Diffusion’ where we rank 88, and ‘Knowledge Impact’ where we rank 30. In the area of ‘Creative Outputs’ we rank 29 and perform poorly in the areas of ‘Intangible Assets’ where we rank 40, and ‘Creative Goods and Services’ where we rank 35.

Without further unpacking of the various elements measured, these results suggest that whilst our ‘innovation ecosystem’ is not as effective and efficient as it could be, a focus on strengthening key elements of the ecosystem could realise significant improvements and benefits. I use ‘innovation ecosystem’ here to mean the large and diverse nature of participants and resources/infrastructure necessary for innovation - that is all of the players mentioned above, plus some. The GII results suggest the existence of a strong base of hard skills associated with innovation, but that it might be the softer skills, providing the glue of social and human capital, which need to be strengthened.

Australia is also home to many ‘clusters’ – the majority of which are not well recognised. Nor are they well-resourced in the crowded and highly competitive operating environment, but they seek to make positive contributions to industry and innovation ecosystems in a unique way. 

According to Ifor Ffowcs-Williams, one of the world’s most influential cluster practitioners, “clusters are an umbrella concept. With variations in usage across industries and across geography, and variations between academics, public agencies and private sector groups, ‘clusters’ are not a precisely defined term. At its simplest level, a cluster is a group of businesses that are operating in the same sector and are in close geographical proximity to each other. A cluster may also have a range of support organisations such as trade associations, chambers of commerce, technical and training institutes, government agencies, universities and schools[ix]”.

This is consistent with Harvard’s Professor Michael Porter’s[x] early work which described clusters as “geographic concentrations of interconnected companies, specialized suppliers, service providers, businesses in related industries, and associated institutions (e.g., universities, standards agencies, trade associations) in a particular field that compete but also cooperate”.

Food Innovation Australia Limited (FIAL), one of Australia’s six Industry Growth Centres describes clusters as “groups of similar and related businesses in a defined geographic area that share common markets, technologies and worker skill needs”.

Ifor Ffowcs-Williams’ ‘Cluster Development Handbook - A practical guide to the development of clusters and smart specialisations, as centre-stage strategies for regional economies’ provides a practical guide to the development of clusters and draws insights from all over the world. As the title suggests economic development strategies, particularly in Europe, place emphasis on developing ‘smart specialisations’ whereby European Union policy is actively supporting the development of clusters, to support the inter-nationalisation of small businesses and differentiated regions, each with their own smart specialisations.

Smart Specialisation (S3) in the European context appears as unique and perhaps one of the most ambitious regional innovation policies ever introduced anywhere in the world – particularly given its scale and corresponding investment, and the general view that its experimental approach sees policy running ahead of theory. The S3 process seeks to connect place-based innovation with the evolving pattern of trans-national economic activity. It replaces traditional top-down approaches to policy with an interesting mix of top-down and bottom-up approaches to innovation and place-based development - where considerable power and decision-making is transferred to key actors within the regional innovation ecosystem. Clusters are an important part of the process[xi], and the S3 process itself can also generate new clusters.

Smart Specialisation appears to be gaining momentum around the world[xii] – including Australia; particularly in the Gippsland region of South East Victoria[xiii]. The latter is supporting an enabling/empowering environment whereby regional development opportunities are not driven from the top-down or are reliant on advocacy – but whereby there is active involvement across the quadruple helix of industry, researchers, government and community to identify and implement priority projects that can deliver maximum regional impact. This work is a practical test-case of the relationships between clusters and S3. 

Recognising that the term cluster will mean different things to different people, I draw on a combination of my experience as a cluster practitioner and many professional opportunities to deeply engage with the national and international cluster community to describe a number of principles which underpin clustering.

1. Co-location – businesses and other stakeholders will usually exist in close proximity. This is based on the premise that despite technology not only is it easier to cross corridors and streets than it is to cross borders and oceans, but there are shared interests, relationships, histories and/or cultures that draw businesses and groups together at local geographical levels. It acknowledges the benefits of concentrations of human and social capital, and that clusters tend to naturally evolve around this principle. This principle is also usually embedded within an objective to support regional/place-based competitiveness.
2. Collaboration – businesses and other stakeholders are willing to work together to solve shared problems or tackle opportunities that are too big and/or complex for one organisation to tackle on their own. This will also often acknowledge and respect that at times there will be competitive tensions to be respected and navigated.
3. Co-innovation – businesses and stakeholders innovate together to solve problems in unique ways that create shared value and can create efficiencies across value chains. This co-innovation is built on a strong evidence base, and will reflect strong principles of diversity and inclusion.
4. Connectivity – businesses and other stakeholders have deep connections such as supply chain relationships, and shared interests such as market access, technology and workforce solutions, which also foster knowledge transfer. Connections will extend beyond localised geographies, to national and trans-national levels.
5. Capability – businesses and other stakeholders leverage existing shared capabilities and specialisations to take these to new levels, as well as build new capabilities and plug capability gaps.
6. Communications – businesses and other stakeholders regularly communicate, and this is usually underpinned by strong and trusting relationships. The stories of innovation that come from clusters are changing narratives around what is possible.
7. Commitment to act – businesses and stakeholders involved in clusters are committed to action and make things happen. This includes public and private investment.

Whilst many of the above ingredients will be present within a range of organisations and initiatives, it is the interesting and dynamic mix of the trust and social capital within the above, combined with their agility to act, adapt and pivot, that underpins successful clusters. Through the global cluster networks, work is ongoing to better understand and evaluate this[xiv]. Clusters and cluster managers are however seen as the ‘glue’ or filling the ‘white spaces’ between other players within innovation ecosystems.

In consideration of the above, the table below provides a starting point for better understanding the actual, as well as potential, relationships between clusters and other actors within Australian innovation systems. Unless there is a dynamic mix of all seven (7) C’s within the other organisations listed, clusters should not be confused with them.

The above is not exhaustive, nor is there a ‘one size fits all’. However, understanding the broader context is essential. It enables us to better understand the connections and then consider where there is shared purpose. This can further support role clarity that can drive collective and collaborative leadership necessary for an efficient and effective innovation ecosystem.

Going back to the initial question which asked whether ‘peak bodies’, together with the many other organisations representing the interests of industry, and ‘clusters’ are the same thing, a simple answer does not really emerge. ‘Yes’, ‘No’, ‘Could be’ are all responses that can be applied depending on the extent to which the social and human capital that underpins the seven C’s discussed in this paper are present. It appears that Australia could benefit from more engagement with national and global initiatives to better understand the sometimes hard-to-pin down role, principles and benefits of clusters. It might just help us better understand and support the glue that could further unlock our innovation potential for collective impact. To build a positive future amidst COVID-19 and other significant disruptions, it’s never been more imperative to do so.

About the author

Dr Nicola Watts is a Strategic Management & Innovation Ecosystems Consultant/Project Manager, a former founder and leader of an Australian food cluster, a co-Chair of TCI Network Oceania Chapter (TCI is the global network of cluster practitioners), and an Adjunct Professor at Federation University’s Business School

The paper draws on Nicola’s own reflective practice and her extensive interactions with the Australian and international cluster community and other actors within the Australian innovation ecosystem.

REFERENCES

[i] TCI Oceania Conference 2020, Clustering For Positive Futures, retrieved 28th April 2020, <https://eventsbeyond.eventsair.com/tci-oceania-virtual-conference/>.

[ii]Wikipedia, Peak Organisation, retrieved 28th April 2020, <https://en.wikipedia.org/wiki/Peak_organisation>.

[iii]National Farmers Federation, retrieved 28th April 2020, <https://nff.org.au/about-us/>.

[iv]Australian Government Department of Industry, Science, Energy and Resources, retrieved 28th April 2020, <https://www.industry.gov.au/strategies-for-the-future/industry-growth-centres>.

[v]Rural R&D Corporations, retrieved 28th April 2020, <https://www.ruralrdc.com.au/about/>.

[vi]QUT: Australian Centre for Entrepreneurship Research, retrieved 28th April 2020, <https://research.qut.edu.au/ace/about/our-team/chad-renando/>; and Startup Status: Ecosystem Mapping, retrieved 28th April 2020, <https://startupstatus.co/category/map/> .

[vii]Global Innovation Index 2019, retrieved 2nd May 2020, <https://www.globalinnovationindex.org/gii-2019-report#>.

[viii]Senate Standing Committee on Economics, 2015, Australia’s innovation future: a report on the structure and performance of Australia's national innovation system, retrieved 1st May 2020, <https://apo.org.au/node/59936>.

[ix]Ffowcs-Williams, Cluster development handbook: a practical guide to the development of clusters and smart specialisations, as centre-stage strategies for regional economies, Cluster Navigators, Nelson NZ.

[x]Porter, M 1990, The competitive advantage of nations, Free Press, NY.

[xi]European Commission, Internal Market, Industry, Entrepreneurship and SMEs: Industry Cluster Policy retrieved 2nd May 2020, <https://ec.europa.eu/growth/industry/policy/cluster_en>; European Cluster Collaboration Platform: European Strategic Cluster Partnerships for smart specialisation investments, retrieved 2nd May, <https://www.clustercollaboration.eu/eu-cluster-partnerships/escp-s3>; European Cluster Collaboration Platform: Delivering Smart Specialisation investments through industrial clusters, retrieved 2nd May 2020, <https://www.clustercollaboration.eu/news/delivering-smart-specialisation-investments-through-industrial-clusters>.

[xii]Anastasopoulos, D, Br?chler, R & Kalentz, A L 2017, Smart Specialisation Strategy and the Role of Strong Clusters: As a Development Leverage Asia World, Technopolis Review, vol 6, no, pp 102-112, https://www.wtanet.org/download/wtr/20180126/wtr17a1217.17_Broechler_et_al.pdf.

[xiii]Gippsland Smart Specialisation Strategy, retrieved 2nd May 2020, < https://sustainable.unimelb.edu.au/research/research-projects/gippsland-smart-specialisation-strategy>, and Watts, N 2020, Smart Specialisation (S3) and authentic engagement for positive futures, retrieved 2nd May 2020, <https://www.dhirubhai.net/pulse/smart-specialisation-s3-authentic-engagement-positive-dr-nicola-watts/, 

[xiv]European Cluster Collaboration Platform, TCI Cluster Evaluation Working Group Meeting - Evidencing clusters' role in S3 and territorial systems, retrieved 2nd May 2020, <https://www.clustercollaboration.eu/event-calendar/tci-cluster-evaluation-working-group-meeting-evidencing-clusters>.