Organizational Knowledge Beyond the Boundaries of the Firm: Clusters of Innovation

Organizational Knowledge Beyond the Boundaries of the Firm: "Clusters of Innovation"

Building a knowledge-intensive "network enterprise" is not simply a matter of digitizing existing business processes. It is a question of organizational structure and culture, and how working communities within and across organizations collaborate and co-create through the transformation of their knowledge into innovation and value. Organizational learning involves a systemic process of building working communities that transcend the particular skills and knowledge particular individuals posses, and intuitively internalize such knowledge in terms of routines and practices. One of the main challenges in building organizational learning capabilities and practices concerns the development of organizational cognitive systems or memories that preserve knowledge in a way that reduces organizational reliance on particular individuals that might hold specific pieces of knowledge. This is not to say that people are less central to the process of organizational learning, for the sharing knowledge—which is fundamental to the effective operation of networks—implies inter-subjective understandings and shared contexts that are critical for the collection of the "right" information within, between, and across networked organizational components (Castells, 2001).

It is synergy among these organizational networks—and their interaction with the business, regulatory, and institutional environment in which firms operate—that decides the innovative capabilities and competitiveness of organizations in the knowledge-driven economy. ICT and the Internet have long been considered as bringing about "the end of geography," since the transparency they introduce into the economic process makes location less important—organizations have access anywhere and any time. Yet the process of globalization is giving rise to the re-emergence of the strategic significance of locality and comparative spatial differentiation (Soja, 1985; Harvey, 1991; Corbridge, Martin, & Thrift, 1994). Indeed, recent research demonstrates a remarkable geographical concentration of not only the production process of technologies that presumably annihilate geography, but also the continuing concentration of significant ancillary services key to the new knowledge-driven economy, services ranging from finance to legal services and advertising. Why is this happening? Research shows that spatial concentration and geographical proximity continue to be of fundamental importance in fostering innovation. Innovation, in other words, is a function of processes and knowledge generated at the interface of organizations with the business, regulatory, and institutional environment within which they operate (Saxenian, 1994; Castells & Hall, 1994; Porter, 1998; Gambardella & Malerba, 1999; Saskia Sassen, 2000; Crouch, 2001; OECD, 2001).

A key element in this spatial concentration has to do with "clusters of innovation," which denote organizational, social, and institutional matrices that underpin accelerated paces of technological uptake, organizational knowledge creation, and their deployment for innovation. These matrices incorporate specific sets of relationships of production and management, embedded in social and institutional structures that support a culture of entrepreneurship and encourage the development of new business processes geared to innovation. The central feature of the institutional infrastructure of these spatial concentrations is the synergistic network relationships they foster among and across private firms and institutions of the public sector. Typical components of a "cluster" include companies that are networked within and through the cluster, venture capital firms, public institutions such as boards of trade and dedicated investment-attracting and promotion agencies (necessary for the creation of a business-friendly environment), universities, and research centers (necessary for the support of networked R&D activities and the generation of know-why, know-how, know-what, and know-when). The key in the competitive position of "clusters" is their ability to generate synergy, that is, the added value that results not from the cumulative economic impact of the critical elements present in the cluster, but from their interaction in a way that fosters innovation and value creation (Castells & Hall, 1994; Morgan, Rees, & Garmise, 1999; Castells, 2000; OECD, 2001).

Spatial proximity across organizations is a crucial condition that facilitates the emergence and application of organizational learning in processes of innovation (Storper, 1995). However, it is important to differentiate between "organizational proximity" and "spatial proximity." The former does not necessarily depend on the latter. The growing sophistication of ICT systems of inter-organizational collaboration processes opens up new possibilities for the growth of effective learning networks across organizations based upon spatially dispersed interaction (Castells, 2000). However, it remains the case that the critical elements of organizational learning continue to take place within networks of organizations that are spatially proximate. Spatial proximity may foster the creation of conditions that favor organizational learning through channels of social interaction. For instance, social interaction through frequent personal contacts among the agents of an innovation system may facilitate the emergence of organizational knowledge. However, more fundamentally, some of the key elements of knowledge that are generated and disseminated through personal interaction are tacit, that is they are embedded in particular local social systems of interaction. As a result, access to such fields of knowledge depends on participation in the local social system within which such knowledge is produced (OECD, 2001).

The importance of localized access to certain forms of knowledge highlights the centrality of local institutions, especially that of "social capital," in processes of innovation. In broad terms "social capital" comprises the social norms, values, assumptions, and beliefs that provide the organizing principles of everyday interaction within social networks in ways that enable the coordination of social action toward the achievement of desired goals (Woolcock, 1998). In other words, the interaction between the organizational entities comprising a "cluster of innovation" reflects not only market relationships, but also the broader social and cultural context in which such relationships are embedded. This institutional mediation is a crucial factor in structuring the relationships among the central entities within a cluster, since institutions are the main articulators of the social rules, norms, routines, and conventions that regulate the interaction between organizations. Institutions are also key instances in a cluster since they influence the behavior of organizations by putting into place constraints on or incentives for learning and innovation. Nowhere is perhaps the role of institutions in the structuring of clusters more noticeable than in the development of trust across organizations. Where interrelationships across organizations is marked by high levels of trust, that is, the expectation of honest, collaborative, non-opportunistic behavior, uncertainty with respect to knowledge exchange is reduced, stable and reciprocal interactions are developed, and consequently, innovative capability is considerably enhanced. The opposite tends to be the case in hyper-competitive environments that increase uncertainty and reduce trust in relationships across organizations (Edquist, 1997; OECD, 2001).

Thus, while there is accumulating evidence of structural changes that sustain trends toward the globalization of economic processes, this does not render the comparative difference among localities and regional constellations of competitive advantage any less significant. On the contrary, a critical issue in the growing importance of locality has to do with the modalities and patterns of organizational learning that are implicated in the complex interactions between global and local processes. The specific elements that structure the social and economic fabric of regions, that is, their economic structures, patterns of social and political relations, and cultural and institutional settings are critical factors that condition and shape emerging patterns of economic development and organizational forms. Hence a key question regarding a locality's economic trajectory is the extent to which its social institutions can operate as frameworks enabling responses to the challenges of the new knowledge-driven competitive environment (OECD, 2001). In other words, in order to benefit from the innovation and economic potential associated with "clusters of innovation" firms, institutional bodies and all the central elements that compose the cluster need to be "learning organizations" aligned around the requirements of the knowledge-driven economy (Morgan, 1997).