Regional cluster strategies are the new must-have business accessory. The basic theory is that clustering offers a method where companies can form highly beneficial relationships with other businesses, suppliers, education institutions and the wider community. Regionally, as you would expect, they are often driven by the respective Regional Development Agency. They act as a sort of Gary Glitter, strutting their stuff to recruit partners, stakeholders and companies to be in the new gang.

Don’t get me wrong, I am a passionate and strong advocate of the RDAs, and we are lucky to have a very good one in the North West. But I have to confess I am not in total awe and admiration of cluster strategies, and I’m worried that I’m the only one out of tune. I know there is a mass of evidence that suggests they can drive economic development, but I’m uncomfortable about their status as the latest economic Holy Grail.

As an example, Scotland has four clusters in Oil and Gas, Food, Semi-conductors and Biotechnology. The relationships have been properly organised and it has substantially improved innovation capability and led to improvements in the rate of new company start-up and even helped win inward investment. However, these successes have been researched from how the cluster performs as a whole, rather than detailed case studies of individual companies. What about the ones which have not succeeded, or who were long-established before the ‘cluster’ emerged? We need to learn from the downsides, what we can do better, and not get too carried away.

Growing clusters exert a strong locational pull. Companies may move to the cluster, but again there is no research to estimate the impact on the communities or employees that are left behind. If local GDP is only growing by 2% and a cluster grows by 6%, surely there is a displacement in those communities. Industries, particularly manufacturing, which are not as cluster-friendly, can find that local skills or inward investment are directed away from them. So it’s possible that cluster strategies can in fact harm some companies, but research will be directed at proving the success of the cluster and not the impact of those outside it.

When strategies are being developed with local partners, it is easier and politically expedient, to involve only the larger companies as the ‘business voice’ in the region. Cluster strategies are biased in their favour and yet by far the majority of employees work for small companies. The over reliance on large organisations in cluster development, dangerously exposes the strategy. Regions have their own identities and historic mix of businesses. To be sustainably competitive it is therefore better to focus on industries that fit the regional identity, that reflect the whole of the workforce, and on companies that will stay no matter how large they become.

Whilst we can involve Vauxhall and Ford to develop and promote an automotive manufacturing cluster (say) in the North West, if German bosses want to stop production at the might Ellesmere Port Vauxhall car plant, or the Detroit Head Office wants to move from Halewood, the cluster strategy will count for nothing. And worse, all the small companies that have gathered around the big boys, not to mention the relentless slog of winning around partners, will also amount to nothing. As experience with Rover and now Peugeot, don’t count your chickens, because eggs in one basket can leave a whole community with egg all over its face.

Although the Diamond Framework[1] developed by Porter is effective at explaining the success of a cluster, and clustering is a persuasive and viable economic tactic, it doesn’t emphasise the beginning of the process enough. More effort and consideration must go into the decision of which industries should comprise the new cluster. Let’s listen to the numerous small voices, not just the handful of big ones, and let’s use some imagination and regional insight, not slavishly use America’s Silicon Valley as a cluster nirvana.

And in getting carried away with the latest management buzzword, let’s not forget the well run companies that are not part of a cluster strategy but are doing very well indeed. They are not part of a cluster, but they are competing in tough markets and making a real go of it. Talking to the enthusiastic and highly skilled managers in the types of smaller organisations would be a good first step.

Cluster strategies can work if developed cautiously and inclusively, but remember no company ever achieves sustainable business success unless it is brilliantly managed.

© Sue Nelson 2006