April 29, 2005

1
Resilient Clusters Ontario Mineral Industry
Cluster Forum
April 29, 2005
2
Overview

• Clustering, and its relationship with
  productivity, competitiveness and prosperity
• Roles and relationships between industry,
  government and civil society
• Addressing the risks that come with the rewards
  from clustering

3
Prosperity Seven Forms of Capital
Cultural
Financial

• Attitudes, Beliefs

• Money, Financial Systems

Human
Man-Made

• Health, Skills

Social
Physical

• Infrastructure, Machinery

Insight

• Data, Pattern Recognition

Natural Endowments

• Natural Resources, Natural Environment

Institutional

• Legal and Regulatory Framework, Connective
  Organizations

Source Harrison and Huntington, Culture Matters,
p. 270
4
Two Approaches to Creating a Competitive Cluster
Comparative Advantage
Competitive Assets
Operational Systems
Competitive Strategy
(Physical)
(Conserve Resources)
(Lower Prices)

• natural endowments
• man-made infrastructure
• financial capital

• assembly line systems
• wholesale distribution
• master strategist, heavy regulation

• price-, volume-driven competition
• all customers
• basic services
• independent companies

Competitive Advantage
Competitive Assets
Operational Systems
Competitive Strategy
(Social)
(Maximize Value)
(Differentiate)

• skilled human capital
• trust
• learning institutions
• unique insights

• flexible systems
• tailored logistics
• shared vision between public and private sectors

• value-driven competition
• specific customer segments
• high quality experiences
• partnerships

Source Adapted from CAG Ltd., Building New
Competitive Advantages to Restore Bermudas
Tourism Community
5
The Houston Oil and Gas Cluster
Upstream
Downstream
OilTrans-portation
Oil Retail Marketing
OilWholesale Marketing
OilTrading
OilRefining
OilDistribution
Oil Natural GasExploration Development
Oil Natural Gas Completion Production
GasTransmis- sion
GasGathering
GasTrading
GasMarketing
GasProcessing
GasDistribution
Oilfield Services/Engineering Contracting Firms
Equipment Suppliers (e.g. Oil Field Chemicals,
Drilling Rigs, Drill Tools)
Specialized Technology Services (e.g. Drilling
Consultants, Reservoir Services, Laboratory
Analysis)
Subcontractors (e.g. Surveying, Mud
Logging, Maintenance Services)
Business Services (e.g. MIS Services, Technology
Licenses, Risk Management)
Specialized Institutions (e.g. Academic
Institutions, Training Centers, Industry
Associations)
Source Professor Michael E Porter, HBS
6
Benefits of Partnership

• Ways in which partnership can increase profits
• Complementarity
• Access to new customers
• Advantages of scale
• Learning from each other
• Bringing together unique capabilities
• Making allies of competitors neutralizing
  threats

Revenue

Profit
Costs
Source Alliance Advantage, Doz and Hamel
7
Web of Furniture Activities to Satisfy Customer
Needs
World-Class Academy Designers
Tradition, apprenticeship at manufacturers
Acceptable patent protection
High skill working with wood, leather
World-renown brands
Design
Crafts- manship
High skill working with cloth, glass and metal
Unique Designs
Designers study in Paris, Italy
Some customized design for domestic customers
Skilled, high-wage workers
Computer-aided manufacturing
Service
Flexibility
Annual product line changes
75 average industry capacity utilization
Consumer design, decorating, other services
Narrow product ranges at individual firms
Shorter cycles to bring new products to market
8
Implementing Cluster Initiatives

• Four Types of Initiatives
• Organizational and Institutional Capacity
• Linkages
• Strategic Leadership
• Ability to Learn and Adapt

9
A recent Booz Allen survey highlighted the
growing importance of strategic security for CEOs
Booz Allen Security Survey
Booz Allen Overview
Key Takeaways

• Assessed impact of Sept. 11th on senior
  manage-ments view of security, their operations
  and relationships with federal and local
  government authorities
• Conducted by RoperASW on behalf of Booz Allen in
  November-December, 2001
• Interviewed 72 CEOs, presidents and chairpersons
  in US firms across three size groups by annual
  revenues
• 1B - 2.5B (39)
• 2.5B - 5B (33)
• gt 5B (28)
• Financial firms constituted 50 surveyed,
  retail/ wholesale (14), energy transportation
  (10)
• 65 were services businesses and 28
  manufacturing/mining and construction
• 75 of the firms surveyed generate at least 90
  of their domestic revenue from the US

• Increased concern for day-to-day operations
• 75 expressed concern about vulnerabilities from
  routine business activities (e.g. mail
  processing, travel, physical security)
• Increased risk of supply chain disruption
• 50 recognize the high vulnerability of supply
  chain operations and are beginning to review
  alternatives
• Renewed focus on disaster planning and business
  protection
• 75 of executives are reviewing insurance
  policies and disaster planning strategies
• Relationships with govt authorities are strong
• 75 of participants do not believe Sept 11th will
  change their working relationship authorities
• However, most believe there will be a greater
  focus on coordinating physical security

10
Interdependence risk is highlighted by the roles
that industries play in providing security and
continuity to the economy ...
Consumer Products
Health Care
Financial Services
Shipping
Public Infrastructure
Prevent systematic contamination of key consumer
goods
Prevent contaminated material from entering
shipment flows
Detect illicit funds flows and prevent harm to
capital markets
Prepare contingency plans for disruption to
traffic infrastructure
Establish plans/ measures to respond to
health-related attacks
Security Chain of Responsibility
Prepare
Detect
Protect
Prevent
Respond
Recover
Public Transportation
Telecom
Energy
Airlines
Protect against damage to critical infrastructure
Provide the ability to recover/ restore vital
communications services
Develop measures to detect and prevent security
breaches
Prevent damage to public transportation
facilities and passengers
11
It is also evident within extended enterprises
and clusters...
Pharma / Biotech Extended Enterprise
Key Concerns
Research Institutes
Marketers

• Dependence on external entities, resulting loss
  of control
• Loss of intellectual property
• Patient privacy violations
• Increasing volume and complexity of information
  flows
• Multiple regulations applicable to the same
  information, depending on
• who is using it
• for what purpose (e.g., research)
• Increasing liability for actions of extended
  enterprise partners

Academia
Customer-facingcontent aggregators(e.g., WebMD)
Pharma and Biotech Companies
CROs
3rd PartyAdministrators / PBMs
Physicians
PharmacyWholesellers / Retailers
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which, while essential to growth and
profitability, expose firms to risks they cannot
control directly
Extended Enterprise
Indirect Control

• Indirect Threats
• Restrictions in flow of raw materials
• Changed customer preferences
• Regulatory restrictions
• Public infrastructure disruption
• (telecom, transportation
• Adverse media exposure
• Market downturn

Distribution Channels
Suppliers

Direct Control
Government Agencies

• Direct Threats
• Employee injuries
• Network intrusions/hacking
• Equipment damage
• Intellectual property theft
• Disruption of manufacturing
• facilities

Plant
Employees
Strategic Partners
Buildings

Customers

• Potential Consequences
• Lost revenue
• Declining shareholder value
• Deteriorating operating performance
• Financial penalties
• Legal exposure
• Loss of competitive advantage
• Declining goodwill and brand equity
• Regulatory action
• Bankruptcy

Intellectual Property
Networks
Financial Markets
Public Infrastructure
13
Summary

• We care about clustering because it helps to
  improve productivity, competitiveness and
  prosperity
• Realizing these benefits requires both
  cooperation and competition
• Industry, government and civil society must
  design their cooperation in specific, not
  general, terms
• Actions produce results
• Clusters must ensure they are resilient enough to
  match the risks that interdependence brings