Machiavelli knew how difficult it is to make changes that matter. He wrote:

“There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the initiator has the enmity of all those who would profit by the preservation of the old… and merely lukewarm defenders in those who gain by the new.”

In the face of this resistance to change, we often seek to win the backing of mainstream supporters, those in positions of power and influence. But, perhaps these days we can increase our chances for successful change by looking to the margins, not the mainstream.

Our economic and social environments are more uncertain and turbulent, business and political decisions are increasingly complex and intractable, and there are signs that power is shifting in both business and the wider community.

Social commentators, Jeremy Heimans and Henry Timms, writing for the Harvard Business Review, argue that the growing tension and balancing act between the forces of ‘old power’ and ‘new power’ will be a key defining feature of business and society in coming years. Old power is enabled by what people or organisations own, know or control that no one else does. New power is about being open, participatory and peer-driven, with the goal not to hoard, but to channel, power and knowledge.

Managing change in this climate means looking to ‘the edge’ for answers. It is time for fresh and unusual perspectives and combining new diverse sources of knowledge and ideas in different ways.

Learning from the edge means deliberately hearing new voices, entertaining unfamiliar or uncomfortable ideas, spanning and making sense of opposing approaches, and shaping innovative solutions from adversarial positions.

US innovation authors and researchers, John Seely Brown and John Hagel 111, have marshalled the evidence on the importance of learning from the ‘edge’. They advance the view that in a rapidly changing world, the edge increasingly reshapes the centre. If you don’t go to the edge, you won’t see what’s coming, both opportunities and threats.

The ‘edge’ is valuable for change because:

• New ideas can be introduced at peripheries, either from necessity or from lack of ‘lock-in’ to the status quo.
• Boundaries and borderlines are fertile ground for innovation, as they are where different people, experiences, beliefs and needs encounter each other and sometimes collide, opening up previously unimagined answers.

But, being edgy is also discomforting. Most of us have a natural tendency to avoid edges. From an early age, we are warned to stay away from edges – you can fall over them or they can cut you.

The antidote to the danger of edges lies in creating ‘safety nets’ of people and connections that multiply knowledge flows and insights, share learning and result in actions that make a difference.

Lessons from the edge, rather than mainstream, conventional wisdom, may be a tool to address the in-built Machiavellian difficulties and dangers of changing the status quo into a new order.

REFERENCES:

Jeremy Heimans and Henry Timms, Understanding ‘New Power’, Harvard Business Review, December 2014.

John Hagel 111 and John Seely Brown, Edge Perspectives, see http://www.edgeperspectives.com

More than ever we are being urged to embrace the new – from continual upgrading to the latest mobile phone and tablet to being at the forefront of cutting-edge technology to stay ahead of business competition.

But let’s spare a thought for the traditionalists, who want to pause and think before rushing headlong into ‘the next new thing’. Maybe, new does not always mean better.

Social scientists, Ross Honeywill and Verity Byth, from their workplace profiling research, identify two fundamentally different types of people in the approach taken to innovation. There are the natural innovators drawn to challenge, change, risk and innovation. The other type are the natural stabilisers, the traditionalists, who stick to the proven, favouring the status quo and valuing stable, recurring patterns of behaviour; they thrive on certainty and structure in getting the job done.

Despite more attention paid to the natural innovators, the natural stabilisers are vital to organisations. The challenge in managing innovation is drawing out the best from both types.

In fact, in an Institute of Public Administration Australia article, independent strategy adviser, Martin Stewart Weeks contends that it is in the nature of organisations to have a conservative instinct, that resistance to change is the norm. But his view is that while sometimes necessary and valuable, the predisposition in organisations to resist change must be balanced with the need to “keep feeding the disruptive engine of innovation”.

One pathway for change-resistant organisations, and their traditionalist inhabitants, to nurture innovation and reform is through design-led innovation.

Design-led innovation is not just product and industrial design. Design-led innovation is a method of working based on commonly-used design principles, to improve the performance of enterprises by innovating not just in products and technologies, but across a combination of all business functions, particularly customer engagement, experimenting with new markets and operational capabilities, and in distinctive models for capturing value and profits from business activities. (Bucolo and King, 2014).

Design-led innovation works through a process of ‘design thinking’. Design thinking is based on acquiring a deep understanding of the customer and user, gaining insights, and developing innovative solutions to solve everyday business issues or more complex problems.

Design-led innovation can appeal to traditionalists as it is a systematic process, based on ‘tried and true’ practices of the design professionals over decades. It deals with the inherently chaotic and creative process of generating and experimenting with bold new ideas and customer experiences in an orderly fashion, with practical, tested results at the end.

To illustrate, The Strategy Group offers a nine-step guide on ‘How to Solve Problems with Design Thinking’, in summary:

1. Define the problem: Specify what the problem is that you think needs to be solved.
2. Observe and empathise: Gain a deep unbiased understanding of the way your customers do things, why they do them, and develop an empathy about their habits, challenges and beliefs.
3. Generate insights: Generate unbiased insights from your observations. Look especially for non-obvious insights. The best insights give you direction to form innovative solutions.
4. Reframe the problem: Go back to the original problem that you thought you were trying to solve. Is it, in fact, the right problem, or does it need reframing?
5. Brainstorm: The goal is to create lots of possible solutions, rather than trying to find the single best solution—quantity, not quality of ideas at this stage.
6. Pick possible solutions: Identify one or two possible solutions to move forward—ones that you think show promise or are high priority.
7. Build prototypes: Flesh out the possible solutions into ’prototype’ offerings of how the solution would work and how it would be implemented for desired results.
8. Test your solutions: Go and test the solutions with your customers. Ask ‘why’ questions to elicit and capture rich, substantial reactions and feedback on the prototyped solutions.
9. Learn from failures to achieve success: Failure is not necessarily a bad thing. The key is to fail early and learn from the failures.

Paradoxically, it may be that design-led innovation can provide traditionalists with the haven they need for experimenting safely with innovation.

REFERENCES

Verity Byth and Ross Honeywill (2008), Managing the Innovation Fault-line, in “Inside the Innovation Matrix: Finding the Hidden Human Dimensions”, Australian Business Foundation.

Martin Stewart Weeks (2015), Blurring Boundaries, Institute of Public Administration Australia (NSW), 24 January 2015, at www.nsw.ipaa.org.au/ignite/Blurring-boundaries

Sam Bucolo and Peter King (2014), Design for Manufacturing Competitiveness, Australian Design Integration Network (ADIN).

The Strategy Group (2014), How to Solve Problems with Design Thinking, at www.thestrategygroup.com.au

Skilled carpenters and builders have a wise watchword – measure twice and cut once. Perhaps the same wisdom should apply to Australia’s action to improve productivity.

Economics writer, Ross Gittins, has been following the recent commentary that questions single, simple prescriptions for lifting Australia’s economic performance and productivity in particular. Gittins reported on a speech to the Australian Business Economists by Dr Ric Simes, a director of Deloitte Access Economics and a former Treasury official.

Dr Ric Simes called for deeper analyses of productivity to elevate the economic debate above catchcries, and so avoid distorted understandings of how productivity actually works to drive greater economic welfare for individuals and society as a whole.

The measurement of productivity has its own problems, according to Ric Simes:   “Productivity is simply a less than perfect measure of economic wellbeing, and having the public debate focus so much on what the Bureau of Statistics reports as productivity can be unhelpful.”

Rather than looking at productivity statistics alone, Dr Simes advised taking a wider view of the way societies and businesses are changing, particularly the profound changes of the digital revolution.

Digital technologies are transforming how businesses operate, particularly the shift in the power of individual consumers and customers to shape the products and services they demand and purchase. Witness online shopping and auctions, telework, new products and devices from advances and convergence in telecommunications and computing, and businesses competing by offering superior customer experiences not just products.

Ric Simes argues that productivity, as measured, misses many, if not most, of the gains to consumer and social welfare that digital technology is delivering. For example, productivity measurements don’t capture the benefits from improved convenience of not waiting in queues to renew a licence or to do the banking, or of searching and finding needed services speedily via the internet. Neither do productivity statistics capture the benefits of much greater choice, e.g. of buying books on Amazon or hotel rooms on various online sites.

The lesson for those interested in lifting the productivity of businesses and workplaces is to act on the most potent drivers of economic wellbeing behind the ‘less than perfect’ productivity measurements. In essence, business transformation determines productivity improvements, not simply cost efficiencies and work intensification.

Understanding the concept of productivity, in one sense, is relatively straightforward—examining what you produce compared to what you use to produce it. Improving productivity is about using human and physical resources in ways that produce more output and value.

Increasingly, productivity results from transforming business methods and capabilities to better meet market and customer needs and to earn and capture profits that fund further investment and growth.

Productivity is not just about cost-cutting and minimising the use of inputs like labour and capital. It is also about producing the same things in better (smarter) ways, or about using inputs to produce better (higher value) goods and services. Being smarter and producing higher value business offerings are the pathways to productivity growth that really count over the long run.

Productivity growth comes about through a combination of increased opportunities to improve productivity and the ability of businesses to pursue those opportunities to maximise their sustained competitive performance.

In the modern era, there is a step-change that is multiplying the available opportunities for productivity growth. Labelled the digital revolution or the rise of the knowledge economy, this change requires a similar shift in the insights and capabilities of businesses to turn these opportunities into a distinctive competitive edge.

This challenge to lift productivity needs more than a surface look at productivity statistics and single issue solutions. Rather, it means probing into how businesses manage the ongoing transformation of their enterprises to meet emerging, sometimes unarticulated, market and customer needs and to keep ahead of global competition in doing so.

FOOTNOTE:
This Latest Thinking article draws on discussions and writings on the drivers and determinants of productivity by Dean J Parham, of economics research and consultancy firm, Deepa Economics, and who has a career background in the Productivity Commission and its predecessors.

Successful small businesses are discovered not planned. Inquisitive and agile entrepreneurs can uncover new business opportunities by searching and engaging with customers, not by formulating elaborate and fully-specified desk-researched business plans.

This may seem to be at odds with the conventional wisdom of the importance of robust business plans. But, in fact, the perfect business plan is proving elusive in today’s environment of rapid change, disruptive innovation and more intensive and extensive global competition.

An approach, termed the ‘lean start-up’, is proving more likely to produce viable business enterprises more quickly, delivering better business offerings of more value to customers.

In this lean start-up approach, lengthy and orderly business master plans give way to pivotal business experiments and reality testing with customers.

US entrepreneur and academic, Steve Blank, in the May 2013 Harvard Business Review provides an overview of lean start-up techniques and what distinguishes them from traditional business planning. He characterises the lean start-up methodology as follows:

“It favours experimentation over elaborate planning, customer feedback over intuition, and iterative design over ‘big design up front’ development…….

Instead of executing business plans, operating in stealth mode, and releasing fully functional prototypes, young ventures [using lean start-up methods] are testing hypotheses, gathering early and frequent customer feedback, and showing ‘minimum viable products’ to prospects…….Using customers’ input to revise their assumptions,…lean start-ups practice agile development…developing the product iteratively and incrementally.”

In short, rather than starting with the implementation of a comprehensively researched business plan, these new entrepreneurs systematically search for their workable business model, ie how as a company they can create value for themselves and their customers.

Firstly, these entrepreneurs set out their ‘good guesses’, the untested hypotheses about their business idea. Next, they test these with customers, asking for feedback on all elements of the business idea—product features, pricing, customer expectations, delivery channels, distribution and the like. They respond to this feedback and produce ‘no frills’ offerings with only the critical features. They test these again with customers, redesign and then repeat until the offering is refined enough to sell.

In designing and re-designing their business offerings, these entrepreneurs quickly pivot away from ideas that don’t work. This process of discovery allows enterprises to improve their chance of success by the principles of failing fast and continually learning. It also makes the introduction of innovations less risky.

The lean start-up approach is showing itself to be equally powerful for mainstream small businesses and for new initiatives in large corporations, as it is for young high tech ventures.

REFERENCES:
Steve Blank, ‘Why the Lean Start-Up Changes Everything’, Harvard Business Review, May 2013, pp65-72.

See the Enterprise Workshop for local lean start-up style programs, EW Pivot Program and EW Planning Program at www.enterpriseworkshop.com.au. Note: Narelle Kennedy is a director of the Enterprise Workshop.

Where do you come from? This is among the first questions we ask when meeting someone new.

We understand the importance of ‘place’ instinctively at a personal level—where you call home, nationality and heritage, the generational family home or farm, sporting allegiances, sacred sites, childhood holiday spots and neighbourhoods.

‘Place’ is equally important to the prosperity of countries and industries, but it is often lost amid macro level, spatially-neutral theories of economic development and growth. Moreover, frequently the approach to place-based policies, such as regional development, is straightjacketed into unnecessarily narrow specialisations—urban and land use planning, infrastructure, league tables of global cities, city versus country debates.

In Australia, typically we restrict the definition of region to rural and remote regions, at the expense of understanding the role in broader economic development of metropolitan areas, ‘city regions’ closely linked to their hinterlands, major regional centres and capital cities. This view limits the opportunities to be unleashed from rural and urban regions interacting with each other and capitalising on each other’s strengths and global connections.

The latest international thinking and research points to a significant shift in what makes place-based policies successful. New approaches to regional development focus on policies that fuel growth in regions by mobilising untapped potential and home-grown capabilities, rather than simply reducing disadvantage and decline by subsidising lagging regions.

The success factors in this new approach are the region’s internal specialist skills, know-how, relationships and innovation capabilities. In an era of more mobile capital, these factors embed investment in regions in ways that low cost labour and physical infrastructure cannot. There is evidence that infrastructure investments in regions only have a positive impact on growth and development if they are accompanied by improvements in human capital and innovation capacity.

Benefits flow from naturally-occurring agglomerations and concentrations of economic activity present in larger cities and populations. But concentration alone is insufficient for prosperity. Regions need to take on the characteristics of knowledge hubs and innovation clusters.

This means forging uncommon collaborations between businesses, universities, entrepreneurs, researchers, technologists, financiers and others, with consequent sharing and absorption of economically-useful knowledge. This in turn, generates new distinctive capabilities that increase the ability of the region’s enterprises to compete, innovate and lift productivity.

The lesson here is to understand the importance of ‘place’ and that its essential ingredients span policies for regional development, land use, employment, innovation and business support, infrastructure and skills. If these policies are deftly knitted together, the benefits extend beyond particular regions to the economy as a whole.

REFERENCE:
John Tomaney, University College London (2014), The Role of Local and Regional Institutions, in Göran Roos and Narelle Kennedy (editors), Global Perspectives on Achieving Success in High and Low Cost Operating Environments, IGI Global, 2014.

American baseballer, Yogi Berra, is credited with the quote that “the future ain’t what it used to be”. Unlike past generations, today we see forecasts of the future as simultaneously mesmerising and commonplace.

On one hand, we witness and wonder at transformative technologies—not only social media and telecommunications technologies, but robotics, genomics, nano-materials, brain plasticity, 3D printing, and mobile digital everything. On the other hand, the rapid pace of change has become the norm for businesses, so the massive adaptations made to the way businesses operate seem unremarkable. Consequently, the management agility and workforce skill involved is routinely underestimated.

To avoid the risk of missing the opportunities or being blindsided by disruptions that the future can bring, it is important to appreciate the emerging and enduring forces of change likely to have most impact on the way businesses can compete and proper.

From the breadth of research and commentary on future trends and thinking, here are five profound forces of change on which businesses can capitalise.

1. Advances in technologies transform entire business models

The importance and the power of the internet, digital and information and communications technologies and the rapid rise in computing power and its applications across all industries is well-recognised. But what matters is not the technology itself, but the game-changing transformations that it enables.

These technology advances enable entirely new business methods and offerings, fresh capabilities for meeting customer needs and providing greater value in customer experiences, and additional ways of earning a premium from doing so.

This is a platform for businesses to innovate, not just in new products and processes, but in their business models, ie the recipe by which they create value for their customers, suppliers and themselves.

Examples of business model innovation include low cost airlines, self-serve online travel and accommodation services, digital photography, and the convergence of mobile phone, music and computing devices.

2. The rise of the knowledge economy is real, pervasive and powerful in creating a competitive edge

The knowledge economy is not a cliché. Knowledge is central to competitiveness, as never before. The knowledge economy is not just restricted to high tech sectors or to workers with high level technical, analytic or conceptual skills. It is an attribute embedded across all industries and economic activities.

Knowledge is increasingly the key input into the production process, at least as important, if not more so, than capital and labour. Knowledge is a vital intangible asset that grows rather than diminishes with use. But as change accelerates, knowledge as an asset depreciates and must be replenished.

More often than not, we emphasise the stocks of knowledge held or created by firms (eg R&D, patents, IP), when in fact it is their access to flows of knowledge that is critical. Drawing on sources of knowledge outside the firm is vital.

How well firms are connected into the latest flows of knowledge, and how proficient they are at absorbing it and collaborating to turn this knowledge into fresh competitive capabilities is key to their long term success.

Enterprises can create a distinctive competitive advantage by the way they recognise, create and mobilise their own sources of knowledge to produce products and services that customers value and want to buy.

3. Shift from mass production to customisation and personalisation

Mass production has been a fundamental feature of business and industry since the Industrial Revolution. It no longer holds.

The transforming power of advances in information, communications and networking technologies is driving a trend towards empowerment of the customer and consumer.

Niche, customised products and services are the norm, not standardised mass production. In fact, the change is not just ‘one size fits all’ products, but tailored and targeted services and solutions. Learning from customers and partnering with them to meet even unexpressed needs is a feature of the shift to customisation.

Customers are moving from being searchers and viewers of information to the creators of content and the designers of their own personalised and customised solutions and services.

The trajectory moves from mass production, to mass customisation, to personalised solutions, to customer partnership and control.

4. More opportunities from changing patterns of globalisation

Globalisation is hardly a new trend, but its patterns are changing. We are witnessing shifts in geopolitical power and more complex and varied opportunities for engaging and doing business globally.

Global trade goes beyond traditional exporting. Increasingly, the trend is towards unbundled global production and supply chains with different specialist functions distributed around the world. This opens up wider opportunities to specialise in niches in these global value chains, without having to own and operate the entire international trade effort.

Examples of the variety of approaches to international trade include offshoring manufacturing facilities, but retaining design, R&D, marketing or administration functions; selling the knowledge not the product; or acting like the conductor of an orchestra by managing the acquisition, assembly, collaboration and delivery of different business elements from around the world into a coherent credible offering from home base.

This allows smaller enterprises, irrespective of location, to participate in virtual business units that span national borders and become in effect, micro-multinationals.

5. Changing working life

The reality is that working life is simply not homogeneous and stable, but being impacted by a complex array of forces for change.

Among the key changing dynamics, the following 6 themes stand out:

• The death of the job for life concept.

• Wider demands for greater work-life balance.

• Tougher social, environmental and ethical standards to be an employer of choice.

• Diminishing options for workers with low or obsolete skills or in declining regions.

• The intensifying war for talent.

• Whole new cohorts of workers with different perceptions and aspirations for their working lives, eg the global generation, free agents, ‘career step’ employees, portfolio or self-determined careerists, experienced ‘wisdom workers’.

The intersection between the five forces of change provides intelligence for businesses to use to chart their course for the future.

Following decisions by Ford and Holden, the loss of Toyota spells the end of car manufacturing in Australia. Perhaps, as the saying goes, this is a crisis too good to waste.

The loss of local automotive manufacturing is tragic for the workers and small businesses affected, but even more so for Australian know-how and iconic ability as ingenious problem-solvers. The Australian car industry has been an important seedbed for skills in engineering, design, technology, research, marketing, logistics and advanced materials. These are the real tools of trade for a high-cost economy like Australia’s to succeed against more intense, growing and low cost global competition.

This is an intangible knowledge asset, embedded in the capabilities of Australian enterprises and workplaces, that Australia must nurture, maintain and expand now without the pull of domestic car manufacturing to replenish this crucial knowledge and skills base.

Nurturing Australian know-how and putting it to good use in enterprises and workplaces in diverse industries, old and new, across Australia and around the world is the challenge. It is a challenge shared by government, business and the community at large for Australia’s future prosperity and sense of a fair go. It translates into action to help Australian manufacturers compete on value, not price and in niche specialist knowledge-intensive manufacturing, not standardised mass manufacturing.

This means boosting the skills in business innovation, smarter work practices and customer services, deeper capabilities from collaborating to learn and to use knowledge and technology for a competitive edge, and securing new opportunities and customers where Australian companies offer value and experiences that others don’t.

The end of the era of entitlement must not herald an age of inaction by either Australian policymakers or business leaders.

REFERENCES:
See the LinkedIn group Australian Manufacturing Forum founded by journalist, Peter Roberts, for broader discussion and ideas.

Available here: LinkedIn – Australian Manufacturing Forum

The term ‘innovation’ is in danger of becoming meaningless from over-use. More likely than not, ‘innovation’ is equated only with breakthrough discoveries and technologies, like cures for disease or quantum leaps in computing power and its applications.

The reality is that innovation is more commonplace and more widespread. Innovation by business enterprises and workplaces is often hidden in plain sight, downplayed as ‘just doing business properly’ or know-how that is tacit and learnt from experience, not recognised by formal qualifications.

This kind of innovation is hard to measure, and many of the reputable international Innovation Indices seem to give more weight to indicators like levels of R&D, patents, educational qualifications, and ‘new to the world’ inventions. These measures are important, but they are not the full story, especially for a country like Australia with a relatively small and local industry and customer base.

But, understanding of the wider dimensions of business innovation is growing. Innovation studies in contemporary literature and practice, eg from the OECD, are being used to add new questions to innovation surveys. This serves to produce richer findings about innovation performance particularly at the enterprise level.

From an overview of the international research on innovation, the following essential attributes of innovative business enterprises can be identified:

• Open, outward-looking organisations embedded in a wide spectrum of quality relationships and networks, and with an exceptional ability to learn, including learning by doing; learning by the use of next generation technologies and equipment which provide new productive capabilities; and learning by interacting with others.

• Closeness to customers that provides a thorough understanding of needs and demand, as an avenue for providing superior value for money in the eyes of the customer, including with business offerings that meet latent, unexpressed needs and preferences, or engaging customers directly in the production of the goods and services they buy.

• Deep, up to date subject matter knowledge in their industry and adjacent industries, market intelligence and knowledge about trends, potential disruptions and forces for change, understanding of technology developments and foresighting of new technologies and convergence.

• Collaboration for problem-solving and for knowledge sharing and application, especially with universities and research organisations, in clusters and regions, or in virtual cross-sectoral or multi-disciplinary communities of practice.

• Strong and deliberate building of new competitive capabilities within the business enterprise, which increases its ‘absorptive capacity’. This refers to the set of processes, routines and skills by which enterprises acquire, assimilate, transform and exploit knowledge to produce distinctive and dynamic capabilities that give them a competitive advantage that others find hard to imitate or substitute.

• Agile and capable managers and skilled and empowered employees engaged in the constant search for new and emerging market opportunities and needs, and how these can be matched with the enterprise’s own design, operations, financial, engineering and organisational capabilities.

Surveys of Australian innovation performance need to investigate these attributes.  Some recent initiatives are:

Australian Innovation System Report 2013

UQ Business Innovation Scorecard

Action happens at cross-roads. This is true for trade routes, military checkpoints and national borders. It is also true in the business world, especially where business enterprises intersect with other economic ‘actors’ and the wider community.

Capitalising on the opportunities at these cross-roads can make the difference between success and failure for firms. The important art of bridge-building at these intersections is a modern day competitive survival skill.

Making connections and collaborating is essential for acquiring, absorbing and applying the knowledge firms need to create and sustain their competitive edge against ever-increasing and stronger global competitors.

The eminent Swedish economist and clustering expert, Professor Orjan Sölvell, shared the evidence for this with a gathering of Australian cluster practitioners, researchers and policy makers at the UTS Business School recently. He worked with Professor Michael Porter at Harvard University when Porter was researching and writing his well-known work on strategy and competitiveness. Professor Sölvell was in Australia to address the Adelaide Festival of Ideas.

At the UTS Business School event, Orjan Sölvell positioned the concepts of collaboration and clustering in terms of the evolving understanding of competitiveness, especially how the competitiveness of firms is connected to the competitiveness of nations. He argued that the pivotal issue was the change from a view of the firm as static and isolated, to the firm seen as part of a dynamic cluster environment.

 Professor Sölvell illustrated this by drawing attention to the shift in Porter’s work from an enterprise-based focus on firm strategy in the 1980s designed to maximise the firm’s immediate profit, to maximising competitiveness for the future in his 1990s work where firms, related and supporting industries and demand and factor conditions combine together to define the enduring competitive advantage of both firms and nations.

According to Professor Sölvell, in the 1980s US firms are making money, but the USA as a nation is losing out to Japan on competitiveness and productivity. To understand why, the focus must shift from an inward-looking analysis of firm performance and therefore just action on the macro-economic conditions of free and mobile capital and labour markets. Instead, we must examine how firms operate in their wider environment, their resources and capabilities, product quality, organisation and management models. Importantly, this means understanding the firm and the interactions it has with others outside the firm.

Professor Sölvell concluded that competitiveness is not a solitary pursuit, and that proximity matters more, paradoxically, even though increasing globalisation and technological transformations seem to make geography less important. This is because firms are competing on creating value for customers, not just on price. Value is created and captured by the capacity of firms to access, assimilate, transform and exploit knowledge to produce distinctive and dynamic capabilities that give them a competitive advantage that others find hard to imitate. This requires capable and agile individuals working inside the firm, who are also embedded and engaged with a wide spectrum of quality relationships and networks.

Creating this dynamic cluster environment for firms does not just happen. It requires the important art of bridge-building and the skill and powers of persuasion to encourage others to dare to walk across those bridges.

REFERENCES:
Orjan Sölvell is Professor of International Business at the Stockholm School of Economics and Director of its Center for Strategy and Competitiveness. Professor Sölvell has been a teacher and researcher in business and economics at the Stockholm School of Economics for over three decades and is an author and contributor to data on European industry clusters published in the European Cluster Observatory.

www.clusterobservatory.eu