No Spike Is An Island

Metaphors can enlighten and imprison.  Richard Florida (welcome to the blogging world, Richard!) first introduced me to the metaphor of the spiky world as a contrast to Tom Friedman’s flat world. In an earlier blog posting, I made the case that both metaphors have value. I am especially drawn to the spike metaphor because spikes are where economic value gets created – the flat world is full of challenge while the spiky world is full of opportunity. If you want to make money, concentrate on playing in the spikes while never forgetting that you will be playing in a flat world.

Spikes create a powerful image, but at the same time the image can be misleading.  Spikes often suggest dense urban areas. Spikes tend to be static. Spikes tend to be isolated.  These elements of the spike image can be deceptive and undermine efforts to create and capture value from spikes.

Spikes - concentrations of specialized talent, economic activity and innovation – often are associated with dense urban areas.  Urban areas represent significant spikes of economic activity but spikes of specialized talent and innovation can be found outside major city centers. Sometimes, these latter spikes can generate major urban centers over time – witness the transition of Silicon Valley from orchards to dense settlement.

Here’s the paradox – in the flat world, spikes are where the action is, even when they are way out in the middle of nowhere.  An article in the Wall Street Journal by Timothy Aeppel on October 26, 2006 illustrates this with a great example from a spike that has escaped a lot of public attention.  It turns out that Warsaw, Indiana with a population of 12,500, has become a center for the design and manufacture of orthopedic devices.

As Aeppel reports

Three of the world’s five largest makers of artificial joints and related surgical tools have their headquarters here amid the lakes and fields of northeastern Indiana.  The local industry has grown so much that it’s now a regional force, with orthopedics companies popping up in nearby farm towns and the suburbs of Fort Wayne, about 50 miles to the east.

This small town now boasts 28 orthopedics companies within a seven mile radius. The article reports that 60% of the workers within that radius are “directly or indirectly engaged in orthopedics manufacturing.”

Apparently, this concentration of business began more than one hundred years ago with the establishment of a successful company making flexible splints to set broken bones.  Other companies spun out from this company over time and a rich infrastructure of specialized support businesses evolved.  The article notes:

Warsaw is dotted with small support businesses, from packaging firms that specialize in super-clean processes to machine shops. There are even multiple manufacturers of the plastic trays and cases needed to pack orthopedic kits. A total hip replacement, for instance, can require up to 22 cases of equipment and each case and tray is specially designed.

Warsaw’s emergence as a spike for orthopedic technology was helped by its location.  As the article notes, the town sits on a major highway connecting Fort Wayne and Chicago, connecting it to a major logistics hub.  Aeppel also points out:

The region surrounding Warsaw has long been home to the U.S. automotive and machinery industries, churning out a stream of skilled machinists, toolmakers and industrial engineers. Orthopedics makers opening up shop in Warsaw found a ready supply of skilled workers, particularly in recent years as the more-traditional sectors have slumped.

Warsaw, Indiana reminds us that spikes are not necessarily limited to dense urban areas.  Executives looking for relevant spikes could miss some very promising spikes if they restrict their search to large cities (even though that is where the best hotels might be).

The Warsaw story also reminds us that spikes are not static. Warsaw has come a long way in orthopedic technology since the splints that launched the first company in this spike.  Healthy spikes are highly dynamic, fueled by continuing innovation. Executives need to keep this in mind when they develop strategies to participate in spikes – what matters is the trajectory and pace of spike evolution, rather than the capabilities that exist at any point in time.

Finally, we need to remember that healthy spikes are rarely isolated. There is a risk that spikes can become too inward looking – after all, so much talent and innovation comes together within individual spikes that executives are often distracted from activity in other relevant spikes. The healthiest spikes maintain a broad focus on global markets and opportunities to develop links across spikes.

This is a potential red flag for Warsaw, Indiana.  The article mentions that the US is the biggest market for artificial hips and knees and that

The U.S. also effectively protects manufacturers in the sector with strict regulations for devices that go inside the human body.  Rather than risk problems – and crippling law suits – U.S. health-care providers buy their artificial joints from companies they know, which generally means buying American.

Given this amount of protection, I wonder how many of the Warsaw orthopedic technology companies are scanning the horizon in places like India to identify potentially disruptive technology and products. C.K. Prahalad, in his book, The Fortune At the Bottom of the Pyramid, discusses the extraordinary innovation in prosthetics technology, the Jaipur Foot, pioneered in India (case study available here). As I’ve discussed here and here, India is emerging as a center of innovative technology and processes for delivering high quality health care at low cost. Of course, Warsaw, Indiana companies are far ahead in orthopedic technology today, but remember: what matters is the trajectory and pact of innovation, not relative capabilities at any point in time.

AnnaLee Saxenian, one of the most insightful analysts of spikes around the world, has just written a marvelous book The New Argonauts: Regional Advantage in a Global Economy, which drives home the importance of connections across spikes. She investigates in particular the complex web of personal and institutional relationships that knit together entrepreneurs in Silicon Valley with a series of emerging spikes in such diverse areas as Israel, Taiwan, China and India.

Saxenian focuses on “the new Argonauts”, meaning “the foreign-born, technically skilled entrepreneurs who travel back and forth between Silicon Valley and their home countries.”  She observes that

The new Argonauts are undermining the old pattern of one-way flows of technology and capital from the core to the periphery, creating far more complex and decentralized two-way flows of skill, capital and technology.  They have created dynamic collaborators in distant and differently specialized regional economies, while largely avoiding head-on competition with industry leaders.  Silicon Valley is now at the core of this rapidly diversifying network because it is the largest and most sophisticated market as well as leading source of new technology. . . .

The rise of a network of regional economies with distinct and complementary specializations has the potential to change the nature of global competition, creating opportunities for sustained growth through reciprocal upgrading.

Silicon Valley represents an extraordinary spike in its own right, one that has prospered through several generations of major technology innovation.  Yet, increasingly the success of Silicon Valley hinges on its growing role as a major node in a complex and rapidly evolving set of relationships that span across many spikes around the world. The real opportunities for value creation no longer reside within individual spikes but instead surface across spikes.

Comments

[Kevin Jones]

this reminds me of the argument by Grotius (founder of what became the world court at the Hague) that the Dutch trading empire should concentrate on trade; they had a multicultural sense that enabled higher value transactions on both sides that lowered the cost of military power and let the british be the sea power. the house of orange prevailed, but the point is that high value connections built around eliminating friction and enhancing efficiency are key inflection points in a historical continuum, points that define national political and economic positions for long periods of time. if america does not float to the highest node in the network, it will be just another power that is past its peak.

[John Maloney]

Hi --

Nice. Spikes, to me, are more like clusters, the Michael Porter type of clusters. The network model he uses to describes is the 'diamond.'

There must be certain 'just right' network conditions for a spike/cluster to appear.

Network archetypes are yet another way to describe today's "fill-in-the-blank" Ecomomy.

http://www.kmcluster.com/about_the_km_cluster.htm

Cheers,

John