The Agglomeration Effect

I mentioned in my last post that there are interactions beyond competitive forces that affect the operations of a business. 

Let me give you an example. There’s this effect that exists between companies that’s called the ‘agglomeration effect’ that Richard Florida talks about in his book, ‘Who’s Your City?’ Essentially, it’s a phenomenon from urban studies that has found that firms can benefit from one another by being located close to each other. Think about restaurant clusters. Financial districts. Silicon valley. The proximity of firms facilitates interactions (whether it be firm-to-firm, firm-to-customer, firm-to-customer-to-firm, etc.) that enables companies to be more innovative and productive perhaps through harsher competitive forces, shared resources (suppliers/customers/knowledge), or whatever else might explain this phenomenon. 

More significantly, this whole concept leads me down two paths of thought.

One - this variant (perhaps) of the agglomeration effect that I’ve described above takes advantage of shared expertise. Both companies have to specialize in one industry, and so I equate it to the magic of putting two brilliant scientists in a room. (Of course there’s something cool that comes out of that.) But recently, we’ve found that creativity and productiveness may come from the outsider rather than the expert. (Go read Jonah Lehrer’s Imagine.) And my personal experience at design school (and I’m sure both the Ideos and McKinseys of the world would agree), teams benefit from the forced interaction of an eclectic mix of expertise. So then what happens when we stick a bank, a mining company and an fashion startup into a room? How might this other side of the agglomeration work? (Steelcase, the parent company of Ideo, has already started working with footwear company, Wolverine and food company, Meijer, in a co-working space Michigan - we’ll see how that works out.) 

And two - to pull us back to this whole larger concept of looking at interactions between firms that are beyond the context of competition, the question I pose to myself and two you is…where else should we look? What many other phenomena beyond this agglomeration effect can we use to design not only better companies, but better industries and better economies? I think there’s a lot more to out there in the worlds of design, sociology, biology, etc. 

The Evolutionary Corporation

I find that we tend to look at companies with a set of limited and prescribed perspectives. It’s all well-taught in business schools - to analyze how a company operates internally, look at how industry forces influence these operations, and to consider how competitors may react given their capabilities. It’s altogether a very aggressive and militaristic view of how companies operate in their environment. 

I’d like to contend that we must stop looking at interactions between companies and their competitors in such a militaristic sense, and adopt a more evolution-driven point of view. In short, we have to understand that interaction between competitors is not war-like as much as it is a continuous adaptiveness for evolutionary dominance. 

In this context, the initiatives that corporations choose to undertake are not reactionary or confrontative; actions driven by evolution are instead adaptive and constantly focused on a long-term sustained advantage that is dependent more on the inherent conditions of the industry than the ‘predators’ or competitors that the corporation faces temporarily. 

Moreover, an evolutionary view of the corporation enables thinking about industry players and adjacent players that isn’t necessarily confrontative. In the same way that organisms can benefit from symbiotic relationships, corporations should look more to their industry partners and competitors as potential interactions that could be mutually beneficial, regardless of the competitiveness between the two parties. 

I’d like to explore this more in the next few posts. 

Geoffrey West and the Science of Cities

I’ve known about Geoffrey West’s work since this past summer when I came across this article on Edge.org. Since then, I’ve gotten a bit obsessed about cities and have investigated further into the likes of Jane Jacobs, Richard Florida and Edward Glaeser. Their work led to idle musings about workplace design and contemplating about what city I’d like to eventually move to - but I realize that I’ve been asking the wrong question. 

Geoffrey West and his colleagues have done a fascinating study on the science of cities - using predictive models for biological metabolism and growth, and applying it to cities and companies. He comes to the conclusion that cities gain increasing returns to scale in metrics of productivity and wages (but also crime rates and pollution; it’s a trade-off), but that companies suffer from diseconomies. As companies grow larger, they suffer from declining ability to innovate and be agile, and inevitably die. 

Rather than being satisfied with this conclusion, I think we need to look in a more positive direction. Instead of looking at these results as irrefutable scientific evidence, we have to ask ourselves how we might be able to design corporations so that they can gain the increasing returns, evolve and improve as cities do?

I think the key is in networks. About designing the right set of loops within a company that create economies of scale when it comes to things like production efficiencies and costs, but create increasing returns to scale for aspects like innovation and productivity.

It’s easier said than done, but by looking more closely at biology and more closely at cities, we’ll be able to learn a lot more about how corporations should be defined and run. 

Kaggle and Petridish

I wanted to share two startups today that are introducing well-tested models that have been used successfully in the past to the world of science. 

Kaggle uses the highly successful Innocentive model and targets the data science/analytics space. Instead of the engineering/physics/biology (altogether science-y enough to completely go over my head) challenges that Innocentive offers, Kaggle challenges ‘players’ to use the enormous amounts of data available to cooperations to build predictive models. Competition between players guarantees models that become increasingly accurate as the challenge progresses. One can only ponder the potential of open innovation-driven advances in modelling in this world of big data. 

Petridish uses the equally successful Kickstarter model to help fund projects for researchers and academics. While, to me, it initially seemed difficult to motivate backers to support research (Kickstarter largely pre-sells products to support most of its projects, essentially), projects have had no problems gaining support from backers by offering things like photographs, opportunities to speak with the researchers or even naming rights. Hopefully, this new startup will help open up opportunities for promising new research by reducing barriers to funding access, just like Kickstarter has done for new products and artistic projects. 

Of Thoughts and Mindlessness

I’m one of those people who don’t have a voice in their head. That means that I don’t really hear myself thinking, and I’m still baffled as to how a human would experience that. Strangely enough, perhaps, that makes it difficult to discern whether I’m sitting here without a thought in the world or actually thinking about something. 

I have to admit something first - I take a guilty pleasure in mindlessness. I’ll spare you my list of stupid televisions I till watch, and I’ll avoid estimating how many hours of my life Tumblr now consumes, but I sitting here wondering why that state appeals to me so much. Jonah Lehrer’s new book has a chapter dedicated to this concept of ‘alpha waves.’ Alpha waves are supposed to be the source of divergent thinking, where insights just seem to pop into your head out of the blue. It necessitates a state of mind that is at ease and is not focused on anything specific. I thereby have my excuse to watch television (while not actually watching it), but I still wonder how that could be time better spent.

Back when I was in Berlin on my quasi-sabbatical design school days, when all was immaculately relaxing, free and full of curious energy, I discovered a more active state of mindlessness (oxymoronic, I know.) I would explore the city with a book and my notebook in hand, and satiate some part of my soul sitting around in nice restaurants and coffeeshops half-reading, half-daydreaming. And it’s that state of open exploration that opens you up to so many new ideas, in this surprising network of jumps and leaps that bring you from philosophy to architecture to psychopathy to business in one hyperconnected network of ideas. It’s that kind of environment and activity that brings forth the serendipitous thoughts and curiosities that every creative strives for. 

It’s the dream life for a creative, and I do long for it again. But it’s painfully ironic that, in a world with real work and structured analytics, you need to fight for that creative environment before you can let yourself be mindless and explore.