This is the ninth in a series of blogs on the UK Industrial Strategy Green Paper published recently by the UK Government. In Blog #8 we articulated the dangers and opportunities created by the changing regulation landscape as well as propose some market spaces of particular interest to us internationally.
This blog addresses questions 26, 27, 28 and 29 posed in the Green Paper:
26. Do you agree with this characterisation of clusters? Are there any additional characteristics of dimensions of cluster definition and strength we should consider, such as the difference between services clusters and manufacturing clusters?
27. What public and private sector interventions are needed to make strategic industrial sites ‘investment-ready’? How should we determine which sites across the UK are most critical for unlocking this investment?
28. How should the Industrial Strategy accelerate growth in city regions and clusters of growth sectors across the UK through Local Growth Plans and other policy mechanisms?
29. How should the Industrial Strategy align with devolved government economic strategies and support the sectoral strengths of Scotland, Wales, and Northern Ireland?
We fully endorse the approach based on Clusters to drive equitable national growth; this is a much more sensible approach than talking about ‘levelling-up’ based on misplaced notions of the strength of London (which is skewed by the outsized influence of its financial services market and hence distorts city-based measures of productivity) vs the Regions.
In any event, there is increasing recognition that conventional productivity metrics, based on comparing inputs and outputs, are less valuable when trying to understand and drive growth: when it comes to understanding cluster growth, productivity and cluster size may provide indicative data, but little explanation in terms of causality, beyond high level prescriptions of the need to streamline planning regulations, invest in infrastructure and devolve decision-making.
In order to really understand how to drive growth via clusters, we need to understand the key drivers of growth at a cluster level. The Triple Chasm Model provides a robust framework for doing this, but crucially depends on:
- Defining cluster boundaries, and hence the ‘movement of value’ across these boundaries, both at a national and international level
- Modelling the strengths of each Cluster in terms of all 12 Vectors in the Triple Chasm Model
- Understanding relationships between the main Clusters at a national level and how they contribute to relationships across the major global markets
We believe that the starting point for developing this approach is to identify the major UK Clusters-this should be done using the paper published by DSIT which identifies the top 20 UK clusters; this approach could then be extended to other clusters in future once the approach has been firmly validated.
To do this properly, based on evidence rather than sentiment, we need to identify key sources of expertise and experience covering the following areas in each cluster:
- Key market spaces (including value chains) as covered by Vectors E1, E2 and E3 defined by the TCM-this recognises that each cluster may be strong in several different market spaces (for example media & entertainment and lifesciences-healthcare) and so we need to understand this-we discussed the key market spaces for the UK in Blog #3.
- Key areas of technology (based on universities and research institutes) – we discussed pervasive, focused and hybrid technologies in Blog #4, covering Vectors I1 and I2 defined by the TCM.
- Key products & services (based on significant players in the cluster), which includes strengths in product development, manufacturing and distribution, covering Vectors I3, I4 and E4 as defined by the TCM.
- Human Capital, including Talent, Teams & Leadership, as covered by Vector I5 in the TCM – this directly addresses the skills agenda, and could be used to build a clearer picture for strategic intervention in training and skills development.
- Funding & Investment, including understanding the relative importance of grants, venture capital, and ‘patient’ capital with regional orientation – this should also be consistent with the overall strategy for regional devolution – this is covered by Vector I6 in the TCM, which goes much deeper than simply emphasizing the need for risk capital, as discussed in Blog #5.
This approach can underpin the development of a detailed picture of the key players driving policy, regulation and investment in each cluster based on the published strategy for devolution.
But this high-level picture only goes so far: we need to build a more detailed picture of all the science and technology-innovation-enabled SMEs (plus the larger players) active in this cluster. This will require a new survey of the kind already developed by the RDS, because neither national data (based on both Treasury and IUK data) nor private data (from Beauhurst & others) on SME’s adequately characterises these companies or provides the detailed insights required to build this picture. The RDS intends to collect data about the market space focus, maturity and vector profile of each company.
We can apply the 12-vector model to understand each company in the Cluster in more detail, which can be used to prioritise the investment and broader support required to build the strength of the cluster.
We then build a detailed Cluster Map using this data, where we can show the distribution of different companies in the Cluster, based on maturity and market space coverage. We can demonstrate this using some data collected from the Kent cluster where we have mapped nearly 50 unique companies (each with a unique ID) from select market spaces. Here we have mapped several bio-pharma companies across the full range of CRL values. Doing this also enables us to demonstrate the importance of very mature professional services companies (CRL= 10+) in the cluster which support the less mature high-growth companies.
Finally, we can build an aggregated view across all the selected Clusters to inform national strategic priorities. This project may be a particularly useful exercise for the metro mayors.
Partial Example Cluster Map for Kent
Key takeaway from this Blog
In summary, we believe that a Cluster-based approach to driving growth across the UK provides a sound component of national industrial strategy-but this approach needs to be underpinned by the following key factors:
- Recognition that a high-level approach based on generalised commitment to reduced regulation, better planning and more devolution is not sufficient by itself.
- We need develop active intervention strategies for the top 20 UK clusters identified by DSIT, based on a detailed understanding of the key drivers for success in each Vector, recognising differences in strengths across different market spaces, technologies and human capital: in effect harnessing these differences.
- A clear understanding of the strengths and weaknesses of all the players in each cluster, in particular, SMEs, the more mature bigger Companies, Research Institutions, and associated service companies (e.g. IP firms) which ‘oil the wheels’ within a cluster.