About Clusters
About clusters
Why do clusters matter?
Regional industry clusters can create self-reinforcing economic growth. More specifically, businesses in clusters tend to achieve improved productivity, faster innovation, stronger supply chains, increased entrepreneurship, and a more skilled workforce for themselves and their home region.
Identify strategic sectors
A cluster is a concentration of interconnected businesses, assets, and institutions operating in a sector (or related sectors) within a region. When these connections reach a critical mass, the sector(s) generate benefits greater than the sum of their parts.
Identifying a local cluster enables economic developers not only to better understand their regions, but also to recognize a competitive advantage that can be nurtured and use to support additional growth.
Cluster analysis can occur as part of broader economic development strategy development (such as the creation of a CEDS) or from a targeted assessment of the performance of one or more regional industries. There are useful tools practitioners can use to assist the cluster identification process. Location Quotients reveal meaningful concentrations of economic activity than indicate the presence of a potential cluster. Qualitative insights from community and stakeholder engagement can surface strengths that are not visible in the data alone. Together, this research can tell a story about industries that have already formed connected clusters and sectors that are poised to make this evolution.
Focus resources effectively
For any economic development practitioner, one of the hardest realities to manage is not having enough resources to do everything. Allocating budget, staffing, and other resources effectively requires assessing which options present the greatest opportunities for success. In cluster analysis, this means going beyond identification to evaluating and prioritizing sectors for investment.
Clusters can, and often should, be supported at least through general economic development approaches. For example, identified regional industry clusters are logical priority targets for business retention or for training efforts. Some regions invest in specific cluster development strategies that may feature one or more industry-specific initiatives or even a cluster organization dedicated to strengthening the sector.
Before making a commitment for costly cluster support, regions should critically assess the opportunities. One key factor is the quality of the potential impacts, which may include job creation, increased exports, and the stimulation of supply chain or related sectors in the area. Another factor should be the region's capacity for success: investing heavily in a sector that is facing steep global headwinds, for example, may not be the right choice for a resource-constrained region.
Ultimately, a detailed cluster analysis can go beyond mere identification and help regions understand how to use their limited resources strategically, achieving the greatest and most efficient long-term benefits.
Strengthen local outcomes
The ultimate value of cluster analysis is the realization of stronger business growth, talent development, innovation activity, and economic resilience. Often, this requires creating and executing a regional cluster development strategy.
A successful cluster strategy identifies focused, actionable initiatives (i.e., policies, practices, and programs) that address industry gaps, barriers, and opportunities. Public resources for these efforts should be focused on generating public benefits through investments that industry is not making on its own but will, ideally, incentivize private businesses and investors to do so on their own in the future.
Some regions execute cluster development strategies through a dedicated organization. This approach sometimes is the best means of integrating industry involvement in the strategy or ensuring that initiatives can leverage revenue-generating models that are not always available to the public sector. However, cluster organizations are not the right choice for every region, and this decision needs to be made with eye toward balancing execution, impact, and sustainability.
Regardless of the approach used, regions need to invest in measuring and evaluating their cluster development strategies. This is not only responsible, the information can guide regions toward how to evolve their efforts and even when is the right time to prioritize other regional economic development needs.