Globally there are some 7000 innovation clusters. In many countries, these clusters fuel a critical part of the national competitiveness, future growth industries and a large percentage of GDP. Yet, leadership in these critical innovation networks is poorly understood and little researched. Leading up to the 2020 Global Drucker Forum, we explore the topic and challenges of leading in an innovation cluster networked organization.
By: Christian Rangen and Tanja Hoel
This blogpost is written for the Global Drucker Forum 2020, Leadership Everywhere
Why Clusters Matter
Clusters can play a significant role in shaping national growth industries and accelerate national transformation. Countries like Denmark, Norway, Germany and Spain has invested significantly over the past few decades in building out high-performing national cluster programs. More recently, countries like Canada, Thailand, Malaysia, Saudi Arabia and Costa Rica has started exploring future-oriented cluster and Supercluster programs.
Today, as many countries face an urgent need to transform their fossil energy-based economies, clusters can play a crucial role in developing the new high-growth, high-value industries of the future. In successful clusters and cluster programs, clusters become the central point where government aspirations, public policies, industry leadership, corporate transformation and innovative ecosystems meet and interact.
Leading and Organizing Clusters
While clustering, the natural evolution of co-locating naturally interacting companies, often is a naturally emergent process, Innovation Clusters are purposefully built, designed and led over time. They are legal organizations, with boards, annual budgets, reporting and operating staff. Yet, these Innovation Clusters follow an interesting mix of organizing principles. It is fascinating today, to look at how clusters are led in light of Peter Drucker’s teachings on leadership.
In clusters, we genuinely need to see ‘leadership everywhere’, ranging from the informal powers of a board member, to the influence of a working innovation group manager. Contrary to most traditional organizations, with top-down power structures and hierarchies, clusters function much more like informal ecosystems with distributed leadership and relationship-based, networked leadership principles. One of us frequently call successful cluster leadership a ‘superhuman task’, due to the distributed power principles found in most cluster systems.
Case: Offshore and Energy Wind Cluster
Consider the example of the Norwegian Offshore Wind Energy Cluster. This cluster is now taking a central leadership role in shaping the Norwegian industry for floating offshore wind energy on the global stage. With the aspiration to become ‘the strongest supply chain for floating offshore wind worldwide’ the cluster could help unlock billions in value over the coming decades.
While the ‘market opportunities’ of offshore wind energy has been on the horizon for years, the cluster has now taken a critical role in pulling government interest, government policies, industry interest and market development together into a single, coherent cluster strategy. Founded of the idea of knowledge-transfer from oil & gas to new, high-growth industries, the cluster is designated a critical part of building out Norway’s economy post-oil & gas.
Today, the Offshore Wind Energy Cluster is critical to building out global market opportunities, establishing a better collaboration culture amongst private-public stakeholders, establishing stronger value chains and accelerating industry-level innovation for decades of growth in the global market for offshore wind energy.
Yet, clusters come with some unique organizing principles, balancing collaboration and competition, full-time employees (few) with active members (many) and formal roles (few) with informal power influence (many). The cluster has a general assembly (annual), Board of Directors (ten), CEO (one), Employees (four), Innovation Working Groups (nine, seven depicted below) and a total membership base of 173 members, and counting.
With that kind of collaborative, member-led organizing model, a number of new questions of leadership and leadership principles emerge.
What is an Innovation Cluster?
An Innovation Cluster is a public-private, non-profit, membership organization. These clusters are built and developed over time, typically with a mix of public and private financing. Most clusters are organized around a specific domain like, Smart Mobility, AI, Fintech, Clean Energy or Aquaculture. The best clusters are built around the key, national growth industries, what we often refer to as Industries of the future.
From Five to Eight Levels of Leadership
In our work with Innovation Clusters and Superclusters around the world we have studied leadership practices, interviewed dozens of cluster CEOs and board members and observed numerous cluster CEOs in action. This work has led us to conclude that leading in clusters, networks and ecosystems is a fundamentally different practice of leadership that our traditional management models. Grappling with a theoretical framework, we landed upon leadership expert and business school faculty, Mr. Morten Emil Berg’s Five Levels of Leadership (note, one of us have taught this framework extensively in Executive Leadership programs).
Building on Mr. Berg’s Five Levels of Leadership, we realized there were three critical components missing for successful cluster leadership. This led us to build upon and expand from five to eight levels of leadership, adding Networked leadership, Influencing Leadership and Member-focused leadership.
Describing the Eight Levels of Leadership
The leader must build a large coalition of industry leaders, government leaders, politicians, ecosystem builders and unite them around a strong vision for the cluster. A cluster CEO has little formal power over these stakeholders and must use new and innovate approaches to achieve the herculean task of co-creating a shared vision and a shared ambition across the entire cluster landscape.
In our research, we find all successful cluster leaders to emphasize the importance of the network and having access to the right networks. Either directly, or through their key stakeholders (often, the Board of Directors at the cluster level), the leader fully recognized the critical importance of working in and across personal networks to build and scale the cluster.
Just like Drucker is quoted, “Strategic planning is the first priority of the leader”, a successful cluster leader needs to work strategically. This is often echoed in our findings. “A good cluster leader has to be strategic – always”. The statement came from the CEO of one of Norway’s largest innovation clusters. The cluster had a roadmap to 2050, with a target to 5X the industry’s value impact. To achieve this mission, the CEO knew that strategic thinking, sensing the landscape across the entire industry, from CEOs, policymakers, educators, researchers, startups, investors, corporate innovators, and regulators was of the outmost importance. A great cluster will develop a bottom-up long-term strategy, define strategic areas and targets, future business models (critical), KPIs, roadmaps and a culture of execution at all levels.
How strong influence does the cluster leader have in her network? With hundreds of members, many of them industry CEOs, Professor and policymakers, the leadership role changes fundamentally from “boss” to “influencer”. Soft power, diplomacy, nudging and invisible influence can be far more important than any formal decision making. In our research, we found that few cluster leaders were fully aware of this area, acting rather like they were operating within formal, hierarchical leadership structures. Our findings are very clear; they don’t.
Most leaders we found struggle through this, experiencing an overload of reporting, systems and reviews, often caused by the financing and requirements by the national cluster programs.Fully in line with Drucker’s ideas on leadership, we find that the administrative tasks simply “must get done” within the innovation clusters. Good leaders will ask ‘what must get done?’ and keep administrative work to a minimum. Surprisingly, a number of cluster leaders do not use the administrative supporting tools and reporting platforms, designed to ease their job.
“We work to serve our members”, is a common statement found in our interviews. While this is obviously true, it is also a dangerous trap to fall into. If the cluster leader overly spends his time and resources on serving the existing cluster members, he is unlikely to achieve the larger, strategic goals of the cluster. The right cluster leader will focus on the architecture and structure, building an organization that can serve the members, not trying to do everything himself.
In traditional companies, business units, departments and teams, people are organized in a hierarchical and largely formal manner. This is not the case in most innovation clusters. On average, an innovation cluster will often have a CEO and 3-4 employees. While the number of formal employees tend to be small, the number of people and staff that fall under the operational management is large, and in some cases very large. This creates highly complex leadership structures and challenges. In our interviews, we find a clear and repeatable pattern that management has clearly shifted from hierarchies to managing ecosystems.
The importance of self-leadership has been on the rise since the 1980’s. The ability to set goals, focus on personal performance, strengths-based development, self-imposed positive psychology in practice and a positive developmental belief system are all key pillars of self-leadership. They also echo many of the criteria cluster leaders mention in their own talks about leadership and leadership challenges in clusters.
Designing a Cluster Leadership Map
Based on early feedback on our work from national government leaders, we developed an early map for cluster leaders. The Cluster Leadership Map was first put to the test in the early summer of 2019.
Working with a group of Norwegian Innovation Cluster CEOs we started putting the eight principles of leadership to work, with self-assessment, individual reflections, and short action-items for personal developments. This quickly led to shared insights in three areas.
- Cluster CEOs have widely different leaderships styles
- Most Cluster CEOs apply industrial management ideas to their cluster leadership
- The topic of cluster leadership was poorly understood and rarely reflection upon
What everyone could agree on was that the challenges of leading in an Innovation Cluster was critical to its success and urgently needed more work and better understanding. Many commented on the challenges of leading without formal authority, leading across widely different stakeholders (from different sectors and backgrounds) and leading without having the traditional leadership levelers and tools available.
Reflections of a Cluster CEO
by TANJA HOEL, FORMER CEO OF NCE SEAFOOD INNOVATION CLUSTER
For nearly four years, from May 2015 to February 2019, I had the privilege of serving as founding Managing Director (CEO) of the leading Norwegian seafood cluster.
During this time, we founded, designed and scaled the innovation cluster with a strategy to 3X the value creation of the Norwegian Seafood and Aquaculture industry by 2030. Our strategy was to increase the industry collaboration through knowledge, innovation and entrepreneurship. In my experience, cluster leadership is creating a community engagement to achieve a common vision. Making all members understand the value of co-opetition and co-creation. Utilizing resources and knowledge from the cluster community to accelerate cluster members innovation capabilities.
For many industry CEOs, working together with competitors goes against all they have learnt in business school. Board of Directors reward them on their competitive skills and ability to perform better than their competitors. So how can a cluster CEO succeed to change the behavior of an industry CEO? Two key words; leadership and trust.
A cluster CEO needs to have a a visionary leadership skill with an ability to demonstrate how co-operation can make them reach their business targets faster, smarter and better. The cluster CEO is central to build trust across competitive CEOs and cluster members. Setting up clear lines on what are competitive and what are non-competitive collaboration areas for the cluster to address.
In my personal experience, this starts with four critical steps:
First, it requires investment of time to build your relationship with key industry CEOs and cluster members. Getting a clear understanding of the cluster members business goals, challenges and need of support, capabilities and resources to succeed.
Second step is analyzing this information and setting up a business plan how a cluster model will support cluster members to achieve their business targets.
Third step is to quickly get some success stories. Identify some cluster community building projects that quickly can provide results and value to cluster members. This will encourage the CEOs to see the business value of the cluster and lead to further investment of resources in the cluster community.
The fourth step is requires strategic leadership, co-creating a visionary project, that fully utilizes the knowledge, expertise and resources from the cluster community to enable a more transformative change; i.e new business models, solving key sustainability challenges that lead to the creation of new revenue growth.
And last; key success criteria for the cluster CEO is to have focus on the member’s needs. It is not the cluster CEOs vision, but the vision on behalf of the cluster members.
A cluster CEO plays the role of an underdog, making the members of the cluster succeed and encouraging other key CEO from the cluster members to take ownership and supporters of the cluster community.
The Cluster Leadership Map in Action
Having worked closely with Tanja as a strategy advisor and consultant, I was intrigued by how Tanja would assess herself using the Cluster Leadership Map. One of the strengths of Tanja’s leadership, as witnessed during our many months of collaboration, was her ability to drive the vision, build strong relationships and deeply understand her members and key stakeholders. While she held little formal power and few traditional leadership tools, she was able to achieve a profound shift in industry collaboration working with her small team of innovation manager and project managers.
Tanja’s leadership style in action was one of ‘leadership everywhere’, by creating energy around the cluster’s 3X value creation target and enabling a culture of openness, collaboration, and bottom-up engagement. Leadership happened in a very distributed way throughout the entire cluster ecosystem. This leadership style is clearly apparent in Tanja’s self-assessment of her leadership role as the CEO of the NCE Seafood Innovation Cluster below.
Key Lessons for Leaders of Ecosystems, Clusters and Networks
A key challenge for many leaders today are ‘how do I lead without formal authority?’, ‘How do I lead without a formal hierarchy in place?’ and ‘how do I lead in a largely networked organization?’. We believe these questions are being asked worldwide and will become even more mainstream in the coming years.
We offer three key lessons for leaders leading under these circumstances:
- VISION Develop a strong shared vision – but expect this to be far more challenging than in a traditional organization. The breath of stakeholders you have to deal with is many times larger than in a regular company-based organizational structure.
- RELATIONSHIPS Your power lies in your relationships – invest a disproportional amount of your time and energy into building deep, personal and professional relationships with all key stakeholders.
- TRUST Build trust between your cluster members. This is fundamental to ensure engagement and openness of cluster members. Be sure to clearly communicate competitive and non-competitive areas for the cluster to focus on. Expect participants to be sensitive to having competitors in the room tackling industry level challenges. But, get this right, and the impact can be significant for everyone.
What Would Peter Drucker Say?
Looking at the state of leadership in Innovation Clusters, it begs the questions, ‘What would Peter Drucker say?’, and more importantly, ‘How can Drucker’s teachings help us develop even better leadership in clusters?’
Drucker’s ideas have helped shape modern leadership practices for decades. Working with global cluster leaders and their top challenges, we find that a great deal of Peter Drucker’s ideas on leadership fully resonates with the challenges of today’s cluster leaders. We hope and think that a new generation of cluster leaders will equally find both inspiration and guidance in the ideas of leadership first developed by the leading management thinker Peter Drucker.
Global innovation clusters, we believe, mirror many of the challenges modern organizations will face in their challenges to develop ‘leadership everywhere’. In this quest, we again suggest look to Drucker to guide leaders in their quest for great leadership in modern, networked organizations.
About the authors:
Christian Rangen, founder and CEO of Engage // Innovate and Strategy Tools – the Modern Strategist’s Platform, is a strategy and transformation advisor to companies, innovation clusters and governments around the world. His next book on Superclusters explore leadership, strategy and business models for innovation clusters around the world.
Tanja Hoel, Innovation Manager at Hatch – global aquaculture accelerator. Former CEO of the Norwegian NCE Seafood Innovation Cluster (2015-2019). She has helped start, design and scale multiple cluster initiatives around the world, currently supporting several cluster initiatives in North America, Asia and Europe.
This article is a part of the Drucker Forum’s “Shape the Debate” series.