Clusters are natural collaborative networks that drive growth. We are simulating them for the service business

And between companies, the idea of collaboration goes much further back. For example, one form of “natural” collaboration -industrial clusters- has existed for centuries. The physical proximity of firms in the same industry, along the value chain, increases the competitiveness of all. Key drivers are access to deep pools of skills and expertise as well as to information channels which make understanding of developments in markets, as well as innovation far easier. Critical mass in customers and product sold or installed creates a reinforcing feedback loop. Collaboration within clusters is neither mandated nor formally guided. It happens naturally but intensively as key conditions are met: Physical proximity allows people to build trust and rapport as they exchange ideas, methods, approaches, and knowhow in coffee shops, at dinner tables or in informal forums and as they move between companies. Clusters abound in almost all industries, historically from the flower growers in the Netherlands, to the watchmakers of Switzerland, to the mechanical engineering and automotive clusters in southern Germany. Modern high-profile clusters include the City of London (finance), Silicon Valley (computation technology) and Hollywood (media and entertainment).

In an important article –Clusters and the New Economics of Competition– from 1998, Michael Porter, the Harvard economist who developed the “Five Forces” competition model, suggested that clusters are key sources of value creation and competitive advantage in all economies. He defined clusters as geographic concentrations of interconnected companies and institutions in a particular field. They encompass an array of linked industries and other entities important to competition. According to Porter, clusters represent a kind of “spatial organization form” in-between arm’s-length markets on the one hand and hierarchies, or vertical integration, on the other, so a cluster is an alternative way of organizing the value chain. “Compared with market transactions among dispersed and random buyers and sellers, the proximity of companies and institutions in one location—and the repeated exchanges among them—fosters better coordination and trust. Thus, clusters mitigate the problems inherent in arm’s-length relationships without imposing the inflexibilities of vertical integration or the management challenges of creating and maintaining formal linkages such as networks, alliances, and partnerships. A cluster of independent and informally linked companies and institutions represents a robust organizational form that offers advantages in efficiency, effectiveness, and flexibility.  A cluster allows each member to benefit as if it had greater scale or as if it had joined with others without sacrificing its flexibility.”

The Service Leaders Network builds on these insights and goes a number of steps further. It fosters and facilitates collaboration between peers from different companies and industries (and therefore different backgrounds, cultures, experiences, and insights) to master business challenges and solve problems -in actual projects undertaken together, as a group. This allows a greater diversity of views, opinions, and approaches, broadens and deepens the learning experience and lessens the risks of groupthink -as long-held assumptions can be challenged, new ideas synthesized, and, often, opportunities found where none had been realized before. At the same time pitfalls can be recognized, mistakes avoided, and risks can be better managed. The effect can be something like the difference between league football teams and national teams which often, at least in their good moments when the trainer is sound and the chemistry between the players strong, – develop the game to a completely new and higher level making the whole far greater than the sum of its parts.

Top business schools and other organizations have recognized the value of bringing people from different companies together to develop new ideas, undertake tasks and solve problems. The degree of success depends on the collaborative framework, the group composition, the quality of facilitation and the level of interest in the project to be undertaken. The Service Leaders Network provides skilled facilitation by subject matter experts, allows members to select challenges of special interest or importance and provides an intensive, yet relaxed framework for collaboration, both proximately and remotely. Members can meet, debate, argue and work together in a risk-free environment. And collaboration and the built-up trust which itself is an outcome of the process brings also further benefits. As Porter perceived, it provides virtual scale: As insights and costs are shared, costs of outcome are far less than they would be if a task would be undertaken singly. And it is natural to move beyond immediate tasks and collaboration on business projects to other areas where common interests are strong such as sharing in research, benchmarking or developing robust methodologies, tools or best practices, even in technical spaces outside of the immediate scope.

In some well-defined areas, we do see forms of collaboration established in associations, such as those for setting technical standards, conducting market research, providing technical training or advocacy and lobbying for a particular industry. But these are formal, routine, explicit interactions -not the kind of tacit knowledge exchange found in clusters, which is what the Service Leaders Network aims to be – a Cluster of Service Leadership.