Fractal Spikes and Global Competition

In my last blog posting, I mentioned the increasing value of place.  At a time when information technology is supposed to make location irrelevant, we need to wrestle with the paradox that location is becoming more, rather than less, important. In fact, place is becoming an ever more critical dimension of competition in global markets. Executives who dismiss the value of place are likely to find themselves marginalized.

Microclusters

In this context, Steve Lohr wrote a fascinating article in the New York Times on December 20 entitled "Silicon Valley Shaped by Technology and Traffic" making the case that Silicon Valley actually consists of multiple “microclusters”.  Geographically, the microclusters array as follows:

While there are plenty of exceptions, it is generally true that hardware clusters – semiconductors, disk drives and network equipment, for example – are in the South Valley, around San Jose and Santa Clara. . . . . Moving farther north in the Valley typically means moving farther away from the guts of the machine and climbing up the tiers of computing – from chips and layers of business and consumer software and then into San Francisco, home to people with online advertising and digital design skills.

Lohr might have also mentioned emerging microclusters around biotech in South San Francisco and nanotech in the Menlo Park/Palo Alto area.

These microclusters are defined by skills, but they also generate cultural friction as well.  Lohr writes:

There is a certain visual identity to the clusters, and a hint of cultural tension among them. The clearest schism, perhaps, separates Valley dwellers from San Francisco residents.

The hard core in the Valley jokes that San Francisco, with its Internet advertising and design cluster, has a “high P.I.B. coefficient,” for People in Black.  The city’s companies also have more women than those in the Valley.  San Franciscans regard Valley engineers as denizens of a style-free suburban zone for whom being well-dressed means wearing jeans and a T-shirt with a company logo.

Marc Andreesen, co-founder of three Silicon Valley companies, sums up the culture clash best with this quote from the article:

“ . . . in general, the nerds with minimal social lives like me are well down in the Valley, and the cool kids with the trendy glasses and Prada shoes who like to go to parties are in San Francisco.  You can guess who has the leg up in building companies.”

Some companies like Google need to access talent from multiple microclusters, leading to solutions like Google's 32 shuttle buses that help ease the commute to its campus for some 1,000+ employees.  There is no word about the culture clashes that surface as the buses from San Francisco discharge their people in black on campus (perhaps they don camouflage before boarding the buses).

(For the record, I live in the mid-Peninsula area, close enough to drop in on the cool San Francisco parties, but far enough away to get some serious work done.)

Why Place Matters

Lohr's article provides compelling evidence that geographic proximity still matters, even down to the neighborhood level, even in the most technologically sophisticated talent pool in the US.  Why is this the case?

It is all about talent development.  No matter how talented any of us are these days, our talents must be continually and quickly refreshed and augmented if we are to thrive in this rapidly changing global economy.

The best way to refresh and augment talent is not to attend some training course.  In this fast-moving world, by the time knowledge has been expressed and packaged in a form that can be used in a training course, it is probably out of date. We all need to find ways to connect with people who are at the leading edge of relevant talent pools. 

The most valuable knowledge these people have is tacit knowledge – especially the knowledge that is so new that they have difficulty in articulating it, much less abstracting and codifying it. This is a key point for business strategy – when the pace of change accelerates, the balance of value between explicit knowledge and tacit knowledge shifts profoundly. Strategies focused on developing and protecting explicit knowledge fall when confronted with effective strategies to tap into and leverage tacit knowledge.

This is exactly why talent spikes become so strategically important in times of rapid change.  They provide rich opportunities to connect with people at the leading edge of relevant talent pools and more effectively access the tacit knowledge that is so valuable. These connections can take many different forms.  It starts with the casual encounter at the soccer game as described by Steve Lohr in his article. It could be connections that are made possible by a rich infrastructure of specialized service providers, including financers, lawyers, marketing firms or even real estate firms.  One of the key roles of good venture capitalists is to serve as a talent hub, making introductions helpful to their entrepreneurs in accessing relevant talent.

These connections can be very helpful in terms of exposing someone to a new idea or story that sparks some creative insight.  For many, including myself, it is about the patterns that emerge from countless encounters and conversations.

But the true richness of talent spikes comes from the opportunity they provide to engage in real work with other people who are at the leading edge of their fields.  It is one thing to have a casual conversation at a party or even a business meeting.  It is a completely different thing to engage in a challenging work project where all the participants are pushing their skills to the limit and learning deeply from the experience and expertise of others.  It is here that tacit knowledge becomes the most visible and accessible. JSB and Paul Duguid did a masterful job of highlighting this role of talent spikes in their essays “Mysteries of the Region: Knowledge Dynamics in Silicon Valley” and "Local Knowledge: Innovation in the Networked Age."

Talent spikes differ in terms of their ability to provide this opportunity.  Annalee Saxenian, in her historic work, Regional Advantage, captured the advantage of Silicon Valley relative to Route 128 outside Boston as a high tech talent spike precisely in these terms.  In the Route 128 corridor tech companies tended to operate as self-contained and relatively secretive entities with limited flows of employees across enterprise boundaries.  Silicon Valley companies in contrast were much more prone to collaborate with other companies. Among employees, rapid changing of employers became a badge of honor.  Staying too long with one company was viewed with some suspicion. The opportunity to engage deeply with diverse collaborators and access tacit knowledge was far greater in Silicon Valley. 

Silicon Valley further enhanced this advantage by emerging as a more effective global talent magnet, attracting skilled and entrepreneurial engineers from around the world. People often overlook this aspect of Silicon Valley in seeking to uncover the “secret sauce” driving SV’s success, yet it has been central to the innovation that has been a hallmark of this talent magnet.  The ability to attract and retain talent from around the world drives the continuing success of Silicon Valley.  Current patterns of talent flows have been impressively documented in Joint Venture Silicon Valley Network’s Index of Silicon Valley 2007. Its report notes that “Silicon Valley’s population is increasingly more global in character than in California or the U.S.”

A New Basis for Competition

Now, as we move into the 21st century, a new dynamic is beginning to play out.  As captured by Annalee Saxenian in her more recent book, The New Argonauts: Regional Advantage in a Global Economy, Silicon Valley capitalized on globalization to build a rich network of personal and institutional connections with emerging talent spikes in Israel, Taiwan, China and India.  In many cases, these connections arise as successful entrepreneurs in Silicon Valley who came here from abroad return to their home countries to participate in local spikes.

Saxenian does a great job of describing the connections that are emerging and evolving across these talent spikes but, from my perspective, this is just the first step in the next wave of global competition.  We need some profound institutional innovation to more effectively harness the capabilities that are developing in spikes around the world. 

On this dimension, I fear that Silicon Valley companies are falling behind more innovative Asian companies. A number of Asian companies are mastering the management techniques and institutional architectures of process networks required to access and mobilize talent across hundreds or thousands of business partners on a global scale.  While many Silicon Valley companies participate in process networks, very few have successfully organized and orchestrated these process networks.

The Bottom Line

Place still matters in shaping talent development and competition. Place matters because density matters. Density increases opportunities for serendipitous encounters and sustained and rich collaboration. Place not only matters; it is becoming even more important and much more complex. 

Depending on whether you zoom in or zoom out, relevant spikes emerge at the neighborhood, metropolitan or global level.  In fact, they are fractal, down to the level of corridors and work areas within specific buildings. Some companies have developed explicit location strategies, seeking to locate facilities in key spikes in an effort to attract local talent.  Far fewer companies have successfully tackled the challenges of effectively connecting talent across geographic spikes in ways that accelerate learning and talent development.  Technology tools can help support these efforts, but the real opportunity is to define new environments that foster productive friction on a global scale. In a flat world, where you stand really does matter.

Comments

[Niki]

Well John, if we talk place it is allways to keep in mind that we talk also about people. Nothing has changed since the last few thousand years. People need space and fight for it and some people or "communities" need even more. Today place is only getting dramatically more important because it gets shorter for the mass. Greetings, Niki

[Glenn Gow]

John, very well-written post.

One of the key reasons why place matters is, as you mention, culture. It’s not enough to be excellent at your craft, you have to be excellent and deliver (or interact, or collaborate) with other people who value the WAY you deliver (or interact, or collaborate).

Place enables the adaptation of behaviors which create a cultural fit. Cultural fit makes personal interactions work better, which means that those who share a culture will work together better and create better results. This is not to say that those outside the culture (or the place) can’t add tremendous value – they can. It’s just that it’s a different type of value they are adding and often one that leverages a perspective brought from being from another culture.

We (as you do) work with many companies, each of which has a unique culture. Part of our job is to know when to fit in to that culture and when to add value coming “from a different place”.

Finally, as it relates to marketing strategy (my passion), we help our clients reach OUTSIDE of their culture to see the perspective of their target market which is almost certainly in a different place. I have posted about that in “We are NOT Our Market”

http://www.achievemarketleadership.com/?p=116.

I hope you find this useful to your thinking.

[David Scott Lewis]

John, there are no clusters of the type that you are talking about in China, not in zPark (in the northern part of the Haidian District in BJ), in Pudong (Shanghai), Xi'an, Dalian, Wuhan, Chengdu, Shenzhen, ...

They don't exist in China. Different mentality here. Although there are clusters of people, there's not the same type of TechCrunch-type of mentality in China. Yes, many Chinese are into Web 2.0 toys, but it's more about the toys rather than building companies, even if the business models are as meager as Yet Another Facebook Widget.

Can't speak for the other countries you mentioned, but I've been VP, Business Development with the two largest U.S. focused, China-based ITO firms (one is now publicly traded on the NYSE), SVP with Tsinghua's outsourcing operation, the list goes on.

Go to a Chinese party in the Haidian District filled with zPark software engineers (usually male) and admin types (usually female). The topic of discussion: The latest Hong Kong singer or Korean soap opera. It's just not the same here. Work is work; work does not extend into one's broader life. In a sense, maybe the Chinese workers have more balance. My only negative take on this is that the focus is often on the mundane (like actresses and models). So I can't say that their balancing act is necessarily a good thing.