Clusters' Last Stand?

September 1, 2011
Andrew MacGarvey

Applied Clinical Trials

Applied Clinical Trials, Applied Clinical Trials-09-01-2011, Volume 20, Issue 9

While order might be useful for smaller firms to do business, it is not useful in helping them to innovate.

What is a cluster? A cluster is a way of organizing a group of competing companies in geographic proximity to one another. Perhaps the most well known clusters in the drug development world are the biotechnology clusters in Cambridge, Massachusetts and San Diego, California. There are further clusters in Scandinavia and throughout Europe, and new clusters are appearing in the Asia Pacific region.

The concept of clusters is not new. Researchers have studied clusters in detail and have settled into two schools of thought. The first group extols the benefits of operating in the cluster model. They perceive the phenomenon of "spillover" to be highly beneficial. Spillover occurs where one firm in the cluster can leverage a resource available at one of its neighbors. Knowledge gained in one company can be accessed by others through local networking events (be they formal or social), or by hiring their new staff from them. A person operating in a similar company in the same geography will bring useful procedural knowledge to the hiring firm. In contrast, the second group believes that the number of relationships a company has is more important than proximity of links. They cite an increasingly sophisticated telecommunications infrastructure and the shrinking of the world as nullifying the competitive edge gained by companies choosing to operate in a cluster.

While clusters provide many benefits to those companies that choose to operate within them, my view is that those same benefits of an ordered system can also harm innovation. I question whether operating in a cluster is the right decision for a drug development company, or indeed any knowledge-based organization. Access to suppliers, the power of group buying syndicates, the ability to hire qualified staff without relocating them, and the political strength in numbers are all useful attributes for those in the cluster. But, at what cost?

Once a firm joins a cluster and begins to leverage knowledge spillover, the environment restores an element of order to the system. There is a growing body of evidence in academic literature that suggests that, for innovation to thrive, a more chaotic environment is better. For example, a head of discovery moving from one company to another and imposing similar standard operating procedures at the new company. Prior to the move, two groups might have tackled a problem in different ways, now they may try to tackle it in the same way. Staff exacerbate the problem as they move to their third or fourth companies. Of course, this situation could just as easily occur when a person moves from one country to another, the difference in the cluster is that other factors increase the risk. For example, where a head of discovery moves within a cluster, the risk that their members move too is higher compared to the same person undergoing an interstate or inter country move. Furthermore, local networking events and presentations could lead to certain approaches being implemented across the cluster and becoming the "norm."

An ordered approach has many benefits, but can also have downsides. Group purchasing schemes increase purchasing power but limit the number of vendors in the value chain. Membership of local trade groups aligns the political views of those members but can stifle change just as easily as promote it. Joint presentations at funding events brings access to money but introduces the members to the same potential funders. While order might be useful for smaller firms to do business, it is not useful in helping them to innovate.

Clusters have a place in the commercial world; I am just not sure they have a place in drug discovery.

Andrew MacGarvey Commercial Director and President of US Operations Quanticate [email protected]

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