Monday, March 3, 2014

Growing Small Business and the Economy Through Clustering

Small and medium businesses have difficulty getting past a critical threshold that allows them to grow in the market. Helping them collaborate with like-minded businesses helps their growth potential. A paper by Dhakal, et. al. (2013) discusses an open-innovation concept of living labs that allows stakeholders and customers to engage in the co-creation process together. They studied a cluster in Australia to show how this enhances business development and the economic engine.  

A living lab is a user-centered open innovation ecosystem (Hippel, 1986).  It uses modern technology to foster communication between stakeholders and customers to co-develop products.  The natural environment becomes the testing grounds for new products and services and this allows users to offer feedback on the success of changes and provide ideas on how to improve on the products and services. 

It provides a collaborative space (virtual or physical) that distributes problem-solving tools, capacities, and responsibilities to the end user to create greater innovation (van der Valt et. al., 2009).  This innovation is used to enhance the offerings of companies through enhanced products and services. In this context, innovation is seen as enhanced discovery whereby innovation equals invention plus exploitation (Roberts, 2007). 

Before an open innovation living-lab can be successful the stakeholders will need to agree on joint goals, and focus on the resolving of problems in the real world (Bergyall-Karaborn, et. al., 2009).  This process allows stakeholders to work collaboratively on developing products and consideration customer feedback to enhance their offerings. The information is shared among the stakeholders to further develop mutual products and services. 

When living labs have the right stakeholders and functionally work well together, each of the businesses receives a benefit for both the co-creation product/service as well as gain important knowledge for the enhancement of other products/services. When innovations are significant, it can have an impact on the regional well-being and local employment opportunities (Keniry, et. al. 2003). 

Living labs are beneficial to enhancing knowledge clusters. Clusters are defined as “a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (Porter, 1998, p. 4). Cluster members need a way to communication to foster mutual growth. Greater growth contributes to the functionality of a larger economic hub.

The authors found that geographical togetherness of small businesses form around competence similarities. To enhance the local interaction it is possible to use open innovation (i.e. living labs) to further their growth. It requires a method operationalizing processes and developing mechanisms that help further innovation. Organizations that willingly collaborate around certain key objectives with other stakeholders and use customer feedback to enhance their products are likely to reap growth while the region experiences greater economic enhancement. 

Bergvall-Kåreborn, B., et. al. (2009). A Milieu for Innovation РDefining Living-Labs. In K. R. E. Huizingh, S. Conn, M. Torkkeli and I. Bitran (eds) Proceedings of the 2nd ISPIM Innovation Symposium: Simulating recovery - the Role of innovation management, New York City, USA. 6-9 December 2009.

Dhakal. et. al. (2013). The innovation potential of living-labs to strengthen small and medium enterprises in regional Australia. Australasian Journal of Regional Studies, 19 (3). 

Keniry, J., et. al. (2003). Regional Business – A Plan for Action, Department of Transport and Regional Services, Canberra.

Porter, M. (1998). Clusters and competition new agendas for companies, governments, and institutions. In M. Porter (Ed) On Competition (pp. 197-287), Harvard Business School, Boston.

Von Hippel, E. (1986). Lead users: a source of novel product concepts. Management Science 32, 791–805.

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