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This document has been reviewed in accordance with U.S. Environmental Protection Agency policy and
approved for publication.
Mention of trade names, products, or services does not convey, and should not be interpreted as
conveying, official EPA approval, endorsement, or recommendation.
-------
a
Maggie Theroux Fieldsteel
Environmental Technology Innovation Clusters Program
Office of Research and Development
March 12,2013
Office of Research and Development
Environmental Technology Innovation Clusters Program
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Summary 1
Introduction 2
The 5
1. High Quality Research University or Universities 5
Patent Support and Analytics 5
2. Network of Influencers or Executive Champions and Support Groups 6
3. Local Government 7
4. State Government 7
Consistent High Level Funding for Universities 8
State Organization to Encourage Clusters 8
Venture Capital 8
Venture Capital Fund - Privately Managed 9
State Venture Capital Fund - Direct Investment 9
5. Federal Government 10
6. Start-up Companies 12
7. Large Corporations 12
14
1. Austin Technopolis 14
2. Massachusetts Biotechnology Cluster 15
3. Milwaukee Water Technology Cluster 18
Summary 21
Recommendations for the 21
Universities 22
Executive Champions and Support Groups 22
Local Government 22
State Government 23
Federal Government 23
Start-up Companies 23
Large Corporations 23
24
28
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"Clusters" are dense regional networks of
companies, universities, research institutions,
and other stakeholders involved in a single
industry. The iconic cluster is Silicon Valley,
a grouping of businesses and universities in
California's Santa Clara Valley that has become
a leader in high-tech innovation and a primary
driver of economic growth in the region.
In keeping with the objectives outlined in its
2012 Technology Innovation Roadmap, EPA
aims to encourage technological innovation by
supporting the development of clusters focused
on environmental technology. This report
reviews existing literature on industry clusters
by Porter, Smilor, Gibson, Kozmetsky, Phillips,
and others to summarize the prerequisites for the
successful creation of a technology innovation
cluster and promote the practices that will
sustain it.
Based on the literature, clusters consist of
seven sectors: 1) established companies, 2)
start-up businesses, 3) universities or other
research institutions, 4) support groups or
champions, and 5) state, 6) local, and 7) federal
government. The report examines how various
prerequisites and success factors apply to
each of these sectors. For example, a region
must have scientific preeminence within the
cluster industry, new technology development,
attraction of major technology companies, and
the creation of start-up technology companies
in order for the development of a cluster to be
possible.
As the cluster develops, the roles of the
champion and the cluster support organization
become crucial for long term success. In
successful clusters, they create an environment
of collaboration and cooperation. Over time,
they encourage interaction between cluster
stakeholders, advise companies on potential
research and/or commercialization partners,
connect members to funding opportunities
and investors, engage the three levels of
government, encourage the colleges and
universities to develop curriculum that will
prepare their students for jobs in the cluster, and
foster workforce mobility between established
companies and start-ups.
The report also looks at three different
case studies - the Austin Technopolis, the
Massachusetts Biotechnology Cluster, and
the Milwaukee Water Technology Cluster - to
examine how these factors all played into the
development of actual clusters. The final section
concludes with recommendations for future
cluster efforts, and is intended to advise and
encourage those who may be in the process of
developing new clusters.
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The purpose of this paper is to summarize
the characteristics of successful technology
clusters. Michael Porter, a well known Harvard
Business School professor, defines clusters as
"geographic concentrations of interconnected
companies and institutions in a particular field.
Clusters encompass an array of linked industries
and other entities important to competition."1
Since the late 1980s, research has been
conducted to understand why Silicon Valley
was successful when other clusters failed.
Many cities and towns across the world would
like to replicate the Silicon Valley success. In
researching this paper, a literature search was
conducted for articles and books that define
the success factors for business clusters.
After reviewing the material, it appears that
researchers have approached this topic from two
different perspectives: 1) from a macro view by
understanding how clusters have evolved and
then offering general recommendations on the
role of business, universities and government,
and 2) from a micro view, by analyzing
specific clusters and then offering specific
recommendations based on the case studies.
The challenge is to take the best advice from
both perspectives and apply them to building a
successful cluster.
Michael Porter's research has focused on the
macro view. He recognizes that "many clusters
include governmental and other institutions
that provide specialized training, education,
information, research, and technical support."2
Porter does not distinguish clusters with
the term "high tech" because it creates "the
misconception that only a handful of businesses
compete in sophisticated ways."3 In his view,
"a vibrant cluster can help any company in
any industry compete in the most sophisticated
ways, using the most advanced, relevant skills
and technologies."4
From a micro view, the authors Raymond
Smilor, David Gibson, George Kozmetsky, and
Fred Phillips have an excellent understanding of
the success factors related to their Austin, Texas
cluster, known as the Austin Technopolis. These
academics are actual cluster practitioners. After
Phillips left Austin, he then worked with the city
of Portland, Oregon on the development of their
technopolis. In 2006, he authored a definitive
book on technopoleis called Social Culture
and High Tech Economic Development: The
Technopolis Columns. Another insightful book
is Regional Advantage by AnnaLee Saxenian,
which offers an analysis of two well known
clusters: Silicon Valley and the Massachusetts
Miracle, a computer technology cluster which
was located near Route 128 and included the
minicomputer giants of the 1980s: DEC, Data
General, and Wang.
The terms "cluster" and "technopolis" are
often interchanged, which can be confusing. A
technopolis is defined by Fred Phillips as "a
region trying to build and maintain a healthy,
technology-driven economy."-' According
to Phillips, a technopolis includes "inter-
sectoral cooperation and total regional futures
orientation"6 and places "more emphasis
on higher education, research, and formal
knowledge"7than a cluster. As cluster theory
has advanced and more high technology clusters
have developed, they have incorporated the
features of technopoleis. In the United States,
"cluster" appears to be the preferred term.
Based on the research of Smilor et al., clusters
require four prerequisites: "the achievement of
scientific preeminence, the development and
maintenance of new technologies for emerging
industries, the attraction of major technology
companies, and the creation of home-grown
technology companies."8 Phillips states that
a region that succeeds is likely to have "a
robust local value chain including strong R&D,
manufacturing, marketing and distribution,
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and intensive international connections; a
critical mass of companies in one or more well-
defined 'clusters;' and a relatively compact
geography."9 The well-known business clusters
of Silicon Valley, Austin, the Massachusetts
Miracle, and Massachusetts Biotechnology
were all built on the achievement of scientific
preeminence and the development of related
technologies. It has been said that Silicon
Valley and Boston have a natural advantage
in cluster development because they have
well-endowed prestigious universities and a
concentration of entrepreneurial alumni, who
remain in the area because of the desirable
locations. Currently, new business clusters in
Orlando, Florida and Milwaukee, Wisconsin
are being built on achievement in the areas
of interactive entertainment and fresh water
science respectively.
However, having the prerequisites alone
does not ensure success. The Massachusetts
Miracle failed because 1) there was minimal
interaction within this computer technology
cluster, 2) companies "sought technological self-
sufficiency"10 and were vertically integrated,
3) its focus narrowed over the years, and 4)
employees were threatened with legal action
under their non-compete agreements if they
left to start a competitive venture. In contrast,
Silicon Valley evolved into a social and
business culture that encouraged a collaborative
approach. The large companies had a
decentralized management style and sought
the best suppliers rather than making all the
parts internally. "The paradox of Silicon Valley
was that competition demanded continuous
innovation, which in turn required cooperation
among firms."11 There was significant
interaction between engineers of competing
firms, and they would frequently contact
each other to solve complex problems. These
relationships had been formed during previous
employment or graduate school and transcended
loyalty to one's current firm. "Technology
exchange agreements and joint ventures were
also commonplace in Silicon Valley long before
they became staples of American Industry."12
Employees frequently left to start new ventures
because legal actions languished in the courts.
Over the years, it has become clear that
"California state law does not recognize non-
compete clauses."13
In the early 1990s, increasing competition and
regional problems forced local businesses,
government, and universities to institutionalize
Silicon Valley's spirit of regional collaboration
by creating an organization known as Joint
Venture. Tom Hayes, an executive of Applied
Materials and a founder of Joint Venture in
1992, said: "Our aim is to build a comparative
advantage for the Silicon Valley by building
a collaborative advantage ... to transform
Silicon Valley from a valley of entrepreneurs
into an entrepreneurial valley."14 Silicon
Valley's resilience over the last 50 years is
due to "shifting patterns of collaboration and
competition among networks of specialist
producers. The dynamism of the region's
industrial system lies not in any single
technology or product but in the competence of
each of its constituent parts and their multiple
interconnections."15 In the past, many regional
economies focused on a specific technological
area. "A network-based regional economy
like Silicon Valley, alternatively, generates
and pursues a rich array of technological and
organizational alternatives."16 The network is
based on "social capital," which is defined by
the sociologist James Coleman as "the ability of
people to work together for common purposes
in groups and organizations."17
If the prerequisites of 1) the achievement of
scientific preeminence, 2) the development and
maintenance of new technologies for emerging
industries, 3) the attraction of major technology
companies, and 4) the creation of home-grown
technology companies are present, then it is
important that the major sectors in the cluster
interact and collaborate as shown in the Silicon
Valley example. The creators of the Austin
Technopolis appear to have learned from
Silicon Valley's success. Based on their Austin
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experience, Smilor et al. developed a concise
list of these segments or sectors. The list can be
better explained using their Technopolis Wheel
(Figure 1). In the following list of the segments,
I have modified the first, second, and fifth
segments based on my research for this paper:
1. well-endowed high quality research
university or universities,
2. "network of influencers or executive
champions" and support groups,
3. local government,
4. state government,
5. federal government agencies and
laboratories,
6. start-up companies, and
7. large corporations.18
Smilor et al. shows "the importance of
networking across the seven segments of the
technopolis wheel; that is, the ability to link
public and private sector entities, some of which
have been traditionally adversarial, to effect
change.19 Finally and perhaps most importantly,
are key individuals, or influencers, who link
the seven segments of the wheel."20 In the
following pages, I will discuss each of the
sectors or segments in more detail. Then I will
present three case studies based on clusters in
Austin, Massachusetts, and Milwaukee with
examples of inter-sector coordinated activities
in each. It is important to remember that it takes
years to build a successful cluster, and according
to Phillips, "sustained initiatives are a necessary
condition for ultimate regional success."21 In
order to have sustained initiatives, it is crucial
that all sectors work with each other.
Figure 1. The Technopolis Wheel2
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1.
or
It is essential that the university or universities
have: 1) research units that focus on
groundbreaking technology, 2) sophisticated
patent support and analysis capability, 3)
entrepreneurship courses and if possible, a
university business incubator, 4) consistent
funding to attract high quality professors and
graduate students, and 5) reasonable fees for
small businesses to access the universities'
research findings and facilities. The most
successful business clusters are associated
with universities that offer this combination
of academic, business, and financial support.
During WWII, the Department of Defense
funded high technology weaponry research
at MIT, Stanford, and Berkeley, with MIT
receiving the largest percentage. This initial
funding gave these universities a start in high
technology development. Since WWII, Stanford
has been actively involved in encouraging the
development of local technology companies.
In the 1950s, it established "three institutional
innovations": 1) the Stanford Research Institute,
2) the Honors Cooperative Program, which
allowed "engineers at electronics companies
to enroll in graduate courses directly or
through a specialized televised instructional
network,"23 and 3) the Stanford Industrial Park.
Both MIT and Stanford established industrial
cooperation programs that gave companies
access to university research, staff and facilities.
However, MIT's program was geared toward
large corporations, and in the 1990s the fee was
$50,000 versus Stanford's fee of $10,000 and a
willingness to work with any company.
MIT, Stanford, and Berkeley researchers
have continued to focus on groundbreaking
technology, which the universities have
supported by providing sophisticated patent
advice and entrepreneurship support. In the
successful clusters of Austin and Massachusetts
Biotechnology, the universities' business
schools have played a key role by offering
business and entrepreneurship courses
to engineering students and establishing
technology incubators. According to a recent
Ewing Marion Kauffman Foundation24 which
analyzed university entrepreneurship at eight
universities including the three mentioned
above, "the successful generation of spinoff
businesses requires university policies that
encourage entrepreneurship and provide an
assortment of support services for start-ups
beyond the school's technology transfer office.
The eight campuses, the authors discovered,
offer services such as mentoring programs,
business plan competitions, accelerator
programs, entrepreneurship training for students
and faculty, and project-based classes that bring
together interdisciplinary or MBA student teams
to work on business plans and create road maps
for commercialization."25
Support
Since 2000, universities have produced
thousands of patents; 4,500 patents were
issued to universities in 2010.26 They can be
the drivers of innovation, but developing a
business from the patent it requires capital,
support services, and a management team. It
is difficult to determine the value of a patent
unless the university conducts patent analytics
which can "provide insight into a patent's
value and strategic fit in an industry."27 Patent
analytics is composed of patent component
analysis, bibliometric analysis, expert opinion
analysis, and financial modeling. According
to Oldach and Stabinsky, these analyses "can
show linkages between key research trajectories
that need to be explored. But clearly one of
the most valuable uses of patent analytics is to
identify potential licensees or commercialization
partners."28 It can also "help IP professionals
focus their time and efforts on those patents and
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activities that add the most value"29 and connect
them to other research centers globally.
The 10-campus University of California
system produces more patents than any other
university and successfully transfers them to
businesses for commercialization, but it does
not rank in the top ten universities with the most
"impactful" patent portfolios. Rice University
is the leader for "impactful" patent portfolios,
with an impact or asset value of over "four
times that of all patents."30 The Patent Board
determines this measurement, and "the score
indicates the role each institution's patents play
in serving as a foundation for other patents and
technologies."31 So it is not just the quantity that
matters, but more importantly the quality of the
patents. MIT had the second highest number of
patents for 2007-8, and it ranks fourth for "The
Most Impactful Patent Portfolio."32 If a region
is considering the creation of a technology
business cluster, then patent mapping research
should be conducted for the industry under
consideration. The mapping should include
all patents in the region and analysis on
their impact and relationship to technology
development in order to assess whether the
region has scientific preeminence upon which
to build a cluster. Since this is one of the four
prerequisites, weakness in this area would need
to be balanced by strength in the other three, and
it would be advisable for the cluster to consider
how they will overcome the lack of patents.
The Milwaukee water technology cluster has
this weakness, and they are trying to address
it by 1) expanding research and development
programs at the University of Wisconsin's
Graduate School of Freshwater Sciences, 2)
increasing the number of graduate research
fellowships, 3) hiring an entrepreneurial dean,
and 4) establishing a business accelerator to
encourage collaborative research between water
technology companies and the graduate school's
faculty and students.
2. of or
and
Literature shows that there are often one or
two visionaries who initiate the interaction of
the influencers or executive champions from
each of the seven sectors. In the initial stage,
they invest significant time in the building of
social capital with key people before starting
the cluster or technopolis. According to Smilor
et al., "in short, an important characteristic of
a technopolis is to be able to develop or attract
and retain first-level influencers and nurture
second-level influencers in all segments of
the technopolis wheel. Based on the present
research and the work of others (Rogers
andKincaid, 1981; Ouchi, 1984; Aldrich
and Zimmer, 1986) it can be argued that the
more extensive and the higher the level of
networks across the different segments of the
technopolis wheel, the more likely cooperative
economic (and other) activities are to take
place at community and state levels."33 The
influencers are often active members or
initiators of support groups, which create the
venue for interaction and collaboration of the
other sectors. Frequently, they know the local
angel capital investors and venture capitalists.
According to the Kaufman Foundation, most
angel groups investigate opportunities in their
local communities.34
The visionary behind the development of
Silicon Valley was Frederick Terman (Saxenian,
1994; Phillips, 2008). As a professor at
Stanford in the 1930s, he was known for
mentoring his graduate students, which included
William Hewlett and David Packard. During
WWII, he was the "director of Harvard's Radio
Research Laboratory and in 1946 he returned
to Stanford as Dean of Engineering."35 His
vision was to transform Stanford's engineering
program and build a dynamic industrial
community. According to Terman, "Such a
community is composed of industries using
highly sophisticated technologies, together
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with a strong university that is sensitive to the
creative activities of the surrounding industry.
This pattern appears to be the wave of the
future."36 He became the Provost of Stanford
in 1955 and was the driving force behind
the university's efforts to connect with local
industry. "Terman promoted the development of
the Stanford Industrial Park" ... which "helped
to reinforce the emerging pattern of cooperation
between the university and electronics firms in
the area."37 "By 1961 it had grown to 652 acres
and was home to 25 companies that together
employed 11,000 people."38 Today it is known
as Stanford Research Park, and it has 140
companies with approximately 23,000 people.39
Terman also "persuaded William Shockley
to choose Palo Alto as the site for Shockley
Semiconductor Company."40 The spinoffs from
Hewlett Packard (HP), Shockley, and Fairchild
created Silicon Valley.
3.
The role of the local government is to
provide high quality schools, infrastructure,
open space, good transportation, arts and
recreation facilities, and competitive rate
structures for services and utilities; these
all relate to the quality of life. In the MIT
study, which surveyed all MIT alumni in
2003, they found that the following "factors
influenced the location of their [the alumni's]
companies: 1) where the founders lived, 2)
network of contacts, 3) quality of life, 4)
proximity to major markets, and 5) access
to skilled professional workers (engineers,
technicians, and managers)."41 The same study
stressed the importance of "the availability of
skilled professionals to build reliable, high-
quality, innovative products"42 for high tech
businesses. Local technology infrastructure
is also important for economic development.
Darrene Hackler devoted a book, Cities in the
Technology Economy, to analyzing "the role
of cities relative to large economic changes
and technology infrastructure."43 In her 2002
survey, she found that many cities realized the
importance of having competitive technology
infrastructure, but few cities had implemented
strategies to make it available. Seventy-seven
percent of the respondents did not have an
economic development plan that addressed
telecommunications infrastructure.
According to Smilor et al., "local [Austin,
Texas] government has had a significant impact,
both positively and negatively, on company
formation and relocation, largely from what
it has chosen to do or not to do in terms of
quality of life, competitive rate structures,
and infrastructure."44 Based on his Austin
experience, David Gibson states that the
following factors under the influence of local
government are very important: "1) quality
education at all levels, from kindergarten
to graduate school and beyond; 2) globally
competitive infrastructure - both 'physical' as
in roads, airports, the Internet, and city services;
and 'smart', as in talent, capital, and know-
how; 3) a quality of life that attracts and keeps
a broad range of talented people ... as well
as business people and entrepreneurs; and 4)
enlightened government with a regional and,
increasingly, a global orientation."45
Several local governments have expanded their
scope of responsibilities to include emerging
technology business clusters because they
recognize the long-term economic benefits
that can be derived from successful clusters.
According to Porter, "clusters are key drivers
of job growth, wage growth, new business
formation, and innovation."46 These proactive
local governments often have economic
development staff working in conjunction with
nonprofits to promote business development.
An example is the role that Austin, Texas played
in establishing the Austin Advantage Program
in 1988. An enlightened local government can
make a difference.
4.
From the macro view, Porter recommends that
government involvement should "begin with
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the collection of information that identifies the
existence of clusters."47 This information will
"allow public policies and public investments to
be better aligned with business needs, based on
cluster composition in each location."48 Once
clusters are identified then government might
consider "convening cluster participants"49 if
support organizations have not already formed.
He recommends that government agencies
interact with the clusters in order to "understand
local constraints to productivity and identity
gaps and weaknesses in public policy."50
From a review of the relevant literature
representing the micro view, it appears that
the three most important things states can
do to foster economic development are:
1) consistently fund their universities at a
high level to attract outstanding professors,
researchers and graduate students and to support
university R&D, entrepreneurial centers,
incubators, and technology licensing offices,
2) establish and fund a state organization to
encourage technology start-ups and cluster-
building, and 3) establish a state venture capital
fund or tax credits for angel and venture capital
investments made in the state.
High Funding for
According to Smilor et al., the Texas "state
government has had a significant impact, both
positively and negatively, on the development
of the Austin technopolis through what it
has chosen to do or not to do for education,
especially in the areas of making and keeping
long-term commitments to fund R&D, faculty
salaries, student support, and related education
development activities."51 States need to
realize that higher education funding has a huge
impact on economic development; university
graduates are the entrepreneurs of the future.
According to the Association of University
Technology Managers' 2010 survey, "651 new
companies based on findings from academic
studies started up at universities including
research institutes and hospitals an increase
of nine percent over 2009."52 It is interesting
to note that 77% of these new businesses were
established in the same state as the research
institution.
to
Clusters
Massachusetts has one of the best examples
of a quasi-state organization that focuses on
cluster development. They responded to the
failure of the Massachusetts Miracle by initially
establishing four centers that focused on specific
technology areas and with boards composed
of members from academia, business, and
government. Eventually, these centers were
replaced with one organization that focuses on
biotechnology, renewable energy, and clean
tech. It also has a powerful board of well-
connected people that represent all the sectors
except the federal government. One of the goals
of this organization is to leverage state funding
with federal funding for universities and small
businesses. States are missing a big opportunity
if they do not have an organization that focuses
on economic development for specific business
sectors and convenes the first- and second-level
influencers.
Venture capital is defined as "money and
resources made available to start-up firms
and small businesses with exceptional growth
potential. Venture capital funds pool and
manage money from investors seeking private
equity stakes in these small and medium-size
businesses. Most venture capital funds come
from institutional investors such as: public and
private pension funds, finance and insurance
companies, and endowments and foundations."53
According to Money Tree's historical trend data,
$29.4 billion of venture capital was invested
in 20II.54 For several years, about 40% of
it has been invested in companies located in
Silicon Valley. The 2011 data by state shows
California with 51.5% of all U.S. venture
capital investment and Massachusetts with
10.4%. The next six states account for 21.7%:
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New York, Texas, Illinois, Virginia, Colorado,
and Washington. Only 16% was invested in
companies located in the other 42 states. Since
1981, the top two states have not changed their
ranking order; however, New York recently
surpassed Texas for third place. Therefore,
many states have decided that they need to start
venture capital funds in order to attract funding
for their local entrepreneurs. There are two
types of funds: privately managed and direct
investment.
Capital Fund-
"State investment in privately managed,
geographically restricted funds is one of the
most popular state program models. Two of the
largest state funds in this category are the New
York In-State Private Equity Program and the
Oregon Investment Fund. In 1999, the New
York State Legislature passed legislation calling
on the Common Retirement Fund (CRF) to
invest $250 million in New York companies."55
As of 2011, the program has invested $554
million in 176 companies. "Since its inception,
the program has created more than 2,700 jobs
and has achieved a 30% rate of return on the
investments that it has exited."56 Obviously,
the Program was developed to "stimulate New
York's economy but also [to comply] with
prudent risk management practices. Former
New York State Comptroller Allan G. Hevesi
was quoted as saying, 'Although the program,
which the Legislature had the vision to create
in the late 1990s, has provided significant
economic benefits to the State's economy, my
primary objective is to obtain an appropriate
risk-adjusted return comparable to what would
be available for other investments with similar
characteristics. '"57
"In July 2003, the Oregon State Legislature
created the Oregon Investment Council (OIC) to
design and implement a $100 million program
that encourages the growth of small businesses
within the State of Oregon."58 The OIC created
the Oregon Investment Fund (OIF), which
is managed by Credit Suisse's Customized
Fund Investment Group. From 2004 to
2010, they have invested $160 million in 20
Oregon companies, and the effort has created
approximately 1,250 jobs in Oregon. It has
also attracted an additional $336 million for the
Fund's companies from other investors.59
New Mexico provides an additional example
of a state creating a venture capital fund
through state resources. "The New Mexico
Private Equity Investment Program has helped
generate a huge increase in local venture capital
commitments"60 since 2005. The Program is
managed by Sun Mountain Capital and has
achieved the following as of June, 2012: venture
investments in New Mexico companies have
reached $1.9 billion, there are 1,244 related
full time jobs with wages at more than twice
the New Mexico average, and it has generated
$191 million in annual economic impact.61 The
Program has been very successful in attracting
private venture capital funds to the state
because it "requires that any funds it provided
to investors or invests directly in a portfolio
company must be matched by other private
investors. Therefore, if New Mexico puts $10
million into one venture capital firm, the firm
must invest $5 million from its own fund in
New Mexico companies and must arrange for
other venture investors to put another $5 million
into New Mexico companies as well."62
Venture Capital Fund - Direct
Maryland Venture Fund is the largest direct
investment state venture capital fund and was
established in 1994. It was expected to close
due to the lack of state funding, but the state
recently agreed to contribute $70 million to
carry it through 2014.63 A few states have seed
capital funds to help launch start-up companies
from universities to the early stage when
they can attract investors. "Most [seed stage
companies] are occupied with tasks such as
filing patents, writing business plans, building
management teams, completing prototypes
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or optimizing compounds for drug discovery.
States such as Massachusetts, Pennsylvania,
Texas, and Maryland have developed state-
supported seed funds."64
Another version of direct investment funds are
"pre-seed venture capital funds in affiliation
with universities or entrepreneur development
centers. Examples of these funds include
Michigan's Technology Transfer Office
Invention Development Fund at Wayne State
and the Technology Business Finance Program
of the Oklahoma Center for the Advancement of
Science and Technology."65
In 2002, the State of Ohio created a variation
on the above by combining a focus on high
technology clusters with seed funding to create
the Ohio Third Frontier (OTF).66 Through a
bipartisan effort, the state passed legislation and
funded the investment with special state bonds.
The voters of Ohio have continued to support
the funding of OTF by special referendum,
and it has been extended to 2015. It focuses
on the following sectors: 1) Advanced Energy,
2) Advanced Materials, 3) Biomedical, 4)
Instruments, Controls and Electronics, and 5)
Power and Propulsion. Through a competitive
grant program, OTF gives funding to Ohio seed
funding organizations, business clusters, and
businesses. Ohio made an investment of $473
million in Third Frontier from 2003-6, and it has
resulted in "$6.6B in follow-on dollars."67
5.
Traditionally, the role of the federal government
has been indirect, except in the case of earmarks
and defense research. During WWII, some
defense research was conducted by "research
organizations set up organizationally within the
universities (MIT, Stanford, and Cal Berkeley),
but physically separated from the campuses
for security reasons; e.g., Lincoln Laboratory
at MIT. After the war, these research
laboratories were made more independent
of their universities and began to function as
businesses."68 Typically, the federal government
awards grants and contracts to the other sectors
and establishes Cooperative Research and
Development Agreements (CRADAs) through
federal laboratories with universities and
businesses.
According to Phillips, over the years some
universities have seen the potential benefit that
federal partners can bring to the table and have
made connections with federal laboratories in
order to advance entrepreneurship initiatives.
"Washington State University's program is
connected with Battelle-Pacific Northwest
National Laboratories, University of New
Mexico's with Sandia and Los Alamos, and
University of Texas at Austin's with NASA."69
In 2007, the Department of Energy's (DOE)
National Renewable Energy Laboratory (NREL)
"helped to create the Colorado Renewable
Energy Collaboratory in association with
the University of Colorado at Boulder, the
Colorado School of Mines, and Colorado State
University."70 Additional examples of federal
agencies' involvement in clusters include:
National Aeronautics and Space Administration
(NASA) and the Enterprise for Innovative
Geospatial Solutions (EIGS), which is located
at the Stennis Space Center in Mississippi; and
the Department of Defense (DoD) with the
Advanced Defense Technology clusters.
In Porter's 2007 paper, he proposed "cluster-
based economic development policies at the
Federal level" because it would connect them
to "actual state and local economies" and
"would reinforce economic specialization across
states and regions, increasing productivity and
productivity growth."71 In a 2008 Brookings
paper, Karen Mills (SB A Administrator from
2009-2012) recommended that "the federal
government establish an industry clusters
program that stimulates the collaborative
interactions of firms and supporting
organizations in regional economies to produce
more commercial innovation and higher-wage
employment."72
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In September 2010, the Small Business
Administration (SBA) announced funding
for three Advanced Defense Technology
cluster nonprofits: Defense Alliance of
Minnesota, San Diego Advanced Defense
Cluster, and Von Braun Center for Science
and Innovation in Huntsville, Alabama. The
"awardees will focus on providing business
training, commercialization and technology
transfer services, counseling, mentoring and
other services that support the growth and
development of small businesses in the cluster
region."73 EIGS also received funding from SBA
in September, 2010 as one of the "Regional
Innovation Clusters." It appears that DoD,
NASA, and DOE have realized that they can
play an important role in the development of
clusters, and they are actively working with
SBA and the Department of Commerce's
(DOC) Economic Development Administration
(EDA) to provide funding opportunities to
existing clusters. DOE, along with DOC and
SBA, awarded one of the largest cluster grants
of $129.7 million over 5 years in 2010 to "the
Greater Philadelphia Innovation Cluster (GPIC),
a team led by Pennsylvania State University,
to run the Energy-Efficient Buildings System
Design Hub."74
As one of the smaller federal agencies, the
Environmental Protection Agency (EPA) awards
research grants and cooperative agreements to
universities through the National Center for
Environmental Research's (NCER) Science to
Achieve Results (STAR) Program. EPA also
awards specific contracts for services through
its program offices and regions. "NCER
periodically establishes both STAR and non-
STAR (Congressional line item) research
centers."75 The NCER web site lists 38 centers,
which are not associated with clusters. NCER
also manages EPA's Small Business Innovative
Research (SBIR) Program.
EPA is one of 11 agencies that offer the SBIR
Program. The Agency announces annual Phase
I and Phase II solicitations. "Phase I awards of
$100,000 for 6 months are used for 'proof of
concept' of the proposed technology. Successful
Phase I businesses are then eligible to compete
for Phase II awards of up to $300,000 for two
years to further develop and commercialize
the technology. Phase II companies that obtain
qualifying third-party investment are also
eligible for a commercialization 'option' or
supplement of up to $100,000."76 The EPA SBIR
Program also collaborates with the National
Science Foundation (NSF) SBIR Program on
solicitation topics and refers potential Phase II
technologies to NSF when EPA is unable to fund
a promising proposal.
Similar to EPA's NCER, NSF funds research
centers at colleges and universities across
the country, but on a much larger scale than
EPA. NSF is responsible for funding cutting-
edge research in everything except medicine;
it is "the funding source for approximately
20 percent of all federally supported basic
research."77 It has funded several types of
centers. The following three programs provide
some useful examples for collaboration with
industry, but they are not connected to clusters:
the Science and Technology Center (STC):
Integrative Partnership Program; Engineering
Research Center (ERC) Program; and the
Industry/University Cooperative Research
Center (I/UCRC) Program. The STC Program
"supports innovative, potentially transformative,
complex research and education projects
that require large-scale, long-term awards.
STCs conduct world-class research through
partnerships among academic institutions,
national laboratories, industrial organizations,
and/or other public/private entities, and via
international collaborations, as appropriate."78
There are 17 active centers. An example of an
environmental STC is the Center of Advanced
Materials for the Purification of Water with
Systems (WaterCAMPWS). The University
of Illinois at Urbana-Champaign is the lead
university for this center.
The NSF Engineering Research Centers (ERC)
"promote partnerships among researchers in
different disciplines and between industry
-------
and universities. They focus on integrated
engineered systems and produce technological
innovations that strengthen the competitive
position of industry."79 In 2011, the ERC
for Re-Inventing America's Urban Water
Infrastructure was funded with Stanford as
the lead university. The goal "is to advance
new strategies for water/wastewater treatment
and distribution that will eliminate the
need for imported water, recover resources
from wastewater, and generate rather than
consume energy in the operation of urban
water infrastructure while simultaneously
enhancing urban aquatic ecosystems."80 The
Center includes four U.S. universities, three
international universities, and 22 industry
partners. Recently, the ERC Program has given
five awards for collaborative projects between
an established ERC and a small business.
This new type of ERC/SBIR award is open to
SBIR Phase I or II award winners from any
agency. This is an excellent example of SBIR
collaboration with the goal of commercializing
research from the ERCs.
The third NSF example is the Industry/
University Cooperative Research Centers
(I/UCRC) program. NSF should encourage
clusters to apply for funding under this program.
Over the past twenty years, NSF has funded
more than 50 of these leveraged partnerships
between industry and universities to support
"high quality industrially relevant fundamental
research ... and direct transfer of university-
developed ideas, results and technology to U.S.
Industry."81 Submitting a proposal for an
I/UCRC center would be an excellent option
for a nascent business cluster if it can bring
together two or more universities and six or
more industry partners, which are willing to
contribute a total of $300,000 or more. The
NSF funding of $70,000 per year for five years
is meant to act as "seed funding" for the center,
which would have a goal of self-sufficiency in
the long term. In 2010, the Milwaukee water
technology cluster received funding for an
I/UCRC.
6.
According to Smilor et al., the Austin start-
up technology companies play an important
role "in 1) commercializing technologies, 2)
diversifying and broadening the economic base
of the area, 3) contributing to job creation,
4) spinning companies out of the university
and other research institutes, and 5) providing
opportunities for venture capital investment."82
Start-up technology companies are potentially
the large corporations of the future, and this
transition creates the cluster as it did in Silicon
Valley with HP, Fairchild Semiconductor, and
others. If a region is considering the creation
of a technology business cluster, then it should
conduct company and technology mapping
research for the specific industry to identify the
types of companies and their areas of expertise.
Small businesses are often isolated and rarely
have the opportunity to meet organizations from
other sectors that have the same technology
focus. By being a member of a business cluster,
these companies will gain knowledge from their
interactions, find new business opportunities and
possibly develop partnerships or collaborations
with members from the other sectors. When
state and federal agencies are involved in the
cluster, the small businesses become aware
of the federal and state funding solicitations
and the state organizations that offer proposal
preparation assistance and other types of support
services.
7.
Some large companies may be reluctant to
interact with their competitors in a cluster
organization, but in Silicon Valley the
competition within the cluster drove the
companies to become more innovative and
stimulated the formation of new companies.
It is one of the reasons for Silicon Valley's
success. Porter explains the importance of
competition in his 1998 paper: "Without
vigorous competition, a cluster will fail. Yet
there is also cooperation, much of it vertical,
involving companies in related industries and
-------
local institutions. Competition can coexist with
cooperation because they occur on different
dimensions and among different players."83 In
his 2007 paper, he stated that "the advantages
of clusters are more important in global
competition. As firms depend more on outside
firms, support services, and local institutions,
it becomes more important to locate within a
strong cluster to access benefits that are difficult
for outsiders to tap."84
According to Smilor et al., "Large technology
companies have played a catalytic role in the
expansion of the Austin technopolis by 1)
maintaining relationships with major research
universities, 2) becoming a source of talent
for the development of new companies, and 3)
contributing to job creation and an economic
base that can support an affordable quality of
life."85 Among the large corporations in the
cluster, there are usually one or more anchor
companies. An anchor company in a cluster
could be defined as a corporation that is a leader
in research and development in its industry
sector and is also a leader in export and supplier
behavior. It is often a role model for other
companies in the cluster. The anchor company
contributes executives' time to the development
of the cluster organization, pursues research
with the cluster universities, and contributes to
job creation in the cluster. It also contributes
knowledge about worldwide suppliers,
distributors, and competitors in the industry and
provides contacts to the cluster. The anchor
company gives the cluster advice about what
technologies will be important for the future
and how to build the capacity into the university
curriculum. As the universities expand their
curriculum, the anchor company supports the
universities by interviewing their graduates for
jobs.86
As Silicon Valley developed, Hewlett-Packard
played an active role in that cluster. David
Packard often helped Terman by "promoting
the industrial park."87 Hewlett and Packard
mentored aspiring entrepreneurs, and HP's
"semi-autonomous divisional structure and
participatory management style offered ideal
training in the general management skills
needed for a start-up."88 Eighteen companies
spun out of HP from 1974-1984. "HP also built
alliances with local companies that offered
complimentary technologies."89 As illustrated in
the case studies below, when large corporations
are active members of a cluster, they can have a
huge impact on the cluster's success.
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The Austin technopolis and the Massachusetts
biotechnology cluster have been in existence
for more than 25 years. The Milwaukee
water technology cluster is six years old. In
each of the case studies, the champions and
support groups stand out as being crucial in the
formation, development, and continued success
of these clusters.
1.
The Austin Technopolis was established over
25 years ago. From Fred Phillips's book, it is
evident that the late George Kozmetsky was one
of the visionaries and influences behind the
Austin Technopolis. He was a co-founder of
Teledyne, Inc., and later the Dean of the College
of Business Administration and the Graduate
School of Business at the University of Texas
(UT) in Austin. In the 1960s, Kozmetsky
declared that "technology innovation was
the driver of economic development."90 This
well-respected businessman and academic
established the 1C2 Institute (Innovation,
Creativity and Capital) at UT in 1976. It
appears that 1C2 is at the core of innovation and
economic development in Austin. According to
the 1C2 web site, "The 1C2 Institute is a globally
recognized 'think and do' component of the
University of Texas at Austin whose mission is
to engage in cutting-edge research to enhance
the solving of unstructured problems related
to market economies, wealth creation, growth,
and prosperity through entrepreneurial activity
and the commercialization of technological
innovation. The Institute carries out this mission
through its primary applied research laboratory
at the Austin Technology Incubator as well as
through the Bureau of Business Research, the
Global Commercialization Group, the Digital
Media Collaboratory, the 1C2 Fellows Network,
Visiting Scholars, and the Master of Science
in Technology Commercialization degree
program."91
In the early years of 1C2, it established a
reputation as an innovative think tank.
According to Phillips, Kozmetsky and his
networking contacts would "identify an issue
of emerging or near future importance ...
The subject is one that has not been widely
addressed heretofore, and one that involves
creating new wealth or increasing equity by
leveraging technological innovation."92 From
this point, a conference would be organized
with well-known experts, and the leaders from
all seven segments of the Technopolis Wheel
would be asked to support and participate
in the conference. Therefore, a network
would develop from the conference based on
the shared issue. An example is the Austin
Technology Council. In 1991, Kozmetsky
asked Phillips, then the Research Director of
1C2, "to organize a conference on the Austin
area's software industry and its competitive
readiness."93 During the conference, the idea
of creating an Austin Software Council was
initially proposed. 1C2 hosted the Council
until it was firmly established in 1993. At
one point during the development of the
technopolis, it became apparent that Austin
needed direct airline service to San Jose.
According to Phillips, "the Austin Software
Council persuaded American Airlines to offer
a daily non-stop flight to San Jose. Rarely has
there been an empty seat on those flights, and
the benefits to Austin's industry have been
enormous."94 By 1995, the Council had 800
members and changed its name to the Austin
Technology Council (ATC). The Council is still
one of the major networking organizations in
Austin.
From the beginning of this technopolis, the
University of Texas at Austin has played a major
role due to George Kozmetsky's influence and
position in the University's administration.
According to Smilor et al., the University
has been key in "the development of the
Austin technopolis by 1) achieving scientific
-------
preeminence; 2) creating, developing, and
maintaining new technologies for emerging
industries; 3) educating and training the
required workforce and professions for
economic development through technology;
4) attracting large technology companies; 5)
promoting the development of home-grown
technologies; and 6) contributing to improved
quality of life and culture."95 The UT Endowed
Centennial Program for chairs, professorships
and fellowships in 1983-4 "made a significant
difference in attracting researchers who in
turn attracted research funds and exceptional
graduate students."96 However, in 1984, during
the recession, the state cut appropriations
for higher education by 3%, and this lack of
sustained support sent a different message to
scholars and researchers. During this difficult
period, the champions developed an alternative
plan to assist the University, Austin, and the
business community.
Over the years, Austin has demonstrated
that it has the "enlightened government"
factor. According to the former Austin city
manager, Dr. Camille Bamett, it is important
for metropolitan regions to "create a visual
image of the public-private collaboration and
systematic innovation to attract entrepreneurs"97
and provide incentives "through public/private
development policies, tax incentives, and
incubators."98 An example of local government
interaction with a support group and a university
is the Austin Advantage program started in 1988
by the Greater Austin Chamber of Commerce.
The purpose of the program was to help turn
around the city after the recession of the 1980s.
Funds from the program allowed the Chamber
to be a sponsor of the Austin Technology
Incubator (ATI) along with the UT Graduate
School of Business and the City of Austin.
In 1989, they established the Incubator and
since then it "has served over 150 companies
that have generated $1.5 billion in revenue
and created 10,000 direct and indirect jobs
in Central Texas. ATI supports the growth
and development of emerging technology
companies in three vertical incubators:
Clean Energy, Biotechnology, and Integrated
Communication Technology."99 In 1991, the
Greater Austin Chamber of Commerce raised
additional funding for Austin Advantage II,
which promised "continued momentum - and
new initiatives in job creation, small business
assistance, national marketing, technology
incubation, support for schools, and overall
economic vitality."100
Over the years, the large corporations in Austin
have supplied the entrepreneurs, the financing
and the management talent that have been
essential to the start-up companies. A thriving
technopolis needs both large corporations and
start-up companies. One of the first Austin
start-up companies was Tracer, Inc., a defense
electronics company that was started by four
UT professors in 1955. Since 1962, at least
twenty companies have spun out of Tracor.
In the late 1960s, Austin attracted IBM and
Texas Instruments and then Motorola arrived in
1974. By the end of the 1980s, Schlumberger,
3M, MCC, and SEMATECH had all located in
Austin. One of Austin's best known start-up
companies, Dell Computer, was started in 1985,
and according to Phillips, George Kozmetsky
was actually a mentor to Michael Dell.101
The success of this technopolis over the last 25
years is due to sustained efforts by 1C2, Austin,
UT-Austin, the large corporations, the start-
up companies, ATC, ATI, the state of Texas,
and many champions, beginning with George
Kozmetsky.
2.
Cluster
Having learned some lessons from the failure
of the Massachusetts Miracle, the state now has
a very successful biotechnology cluster with
influencers and a powerful support group. The
cluster was established over 25 years ago. It is
difficult to determine who the visionaries were
in this cluster; possibly one of the Interneuron,
Biogen, Genetics Institute or Genzyme founders
-------
along with the state's economic development
team. According to Philip Cooke, the key
players in this cluster are: "MA Department
of Economic Development, MIT, Harvard
University, Mass. General Hospital, Boston
University's Bio Square Technology Park,
Whitehead Institute of Biomedical Research,
Massachusetts Technology Collaborative,
and Massachusetts Biotechnology Council
(MBC)."102
In 1985, Massachusetts played a pivotal role
in encouraging the biotechnology cluster by
establishing the Massachusetts Centers for
Excellence Corporation (MCEC). "Under the
MCEC umbrella, four technologies were to
be promoted - biotechnology, marine science,
polymer science, and photovoltaics."103 The
mission was "to spur innovation and encourage
the development of new technologies through
alliances between business, universities,
and state government."104 The boards of the
Corporation and the centers had members from
government, academia, and business. Each
center had a matching grant program, which
they used to "promote technology transfer
and strategic partnering."105 In the period
from 1985-1986, the Biotechnology Center
of Excellence "awarded 12 grants totaling
$2 million."106 During this same period,
the Massachusetts Biotechnology Council
was established. According to Fernando
Quezada, director of the Biotechnology
Center, "we had a core group of companies
already in the commonwealth, possibly a field
of 50 ... yet there was no organized effort
obviously because we were just starting. ...
So we worked closely with the Council and
the universities that were also discovering
that they were sitting on some very exciting
technologies."107 In 1991, the Center became a
nonprofit known as the Biotechnology Center of
Excellence Corporation, and the Massachusetts
Technology Collaborative (MTC) assumed state
responsibility for the biotechnology cluster.
Currently, the Massachusetts Office of Business
Development and the MTC play important roles.
The Office of Business Development plays a
"key role in business and trade development,
improving the business climate (R&D tax
credits, investment tax credits), responding to
lobbying from industry associations,"108 and
connecting small businesses to Massachusetts
organizations that offer financing options.
According to MTC's website, it is "a public
economic development agency that fosters a
more favorable environment for the formation,
retention, and expansion of technology-related
enterprises in Massachusetts. Through its
major divisions the John Adams Innovation
Institute, the Massachusetts e-Health Institute,
and the Massachusetts Broadband Institute
MTC is stimulating economic activity
in every corner of the Commonwealth. The
agency brings together leaders from industry,
government, and academia to advance
technology-based solutions that improve the
healthcare system, expand high-speed Internet
access, and strengthen regional economies."109
In their role as facilitator, state programs such
as MTC direct businesses to federal funding
opportunities; MTC focuses on biotech,
renewable energy, and clean tech. States are
missing an opportunity if they don't coordinate
and leverage their programs with federal
funding for universities and small businesses.
This type of coordination is evident in the
Massachusetts biotechnology cluster. According
to Cooke in his 2002 paper, "Each year some
$770 million in basic research funding flows
through the system."110 MTC board members
are from the leading technology companies and
the academic and research community. Through
the state's MTC and the support organization,
MBC, the universities, local government, small
businesses, and large corporations interact in
business activities and collaborate on funding
opportunities.
According to the MBC web site: "The
Massachusetts Biotechnology Council is an
association of more than 600 biotechnology
companies, universities, academic institutions
and others dedicated to advancing cutting
-------
edge research."111 They create a "forum for the
biotechnology community to come together,
educating the public and policy makers,
influencing public policy and advancing the
economic interests of individual companies, as
well as the sector as a whole."112 The MBC's
lobbying efforts focus on "public policy
initiatives and tax incentives in Massachusetts
that will enable biotechnology companies to
do their best work."113 In Washington, they
have "worked to effectively reform patent
laws and expand access to Small Business
Innovation Research grants."114 All the major
biotechnology firms in Massachusetts are
represented on the MBC Board. The MBC
membership directory has a list of twenty-two
member categories which includes "government
relations," "law firms," "universities and non-
profits," and "investment and capital firms." It
is estimated that there are more than 150 venture
capitalists in the Boston metropolitan area.
The Massachusetts Institute of Technology
(MIT) is a very important university in this
cluster because it offers outstanding support,
including sophisticated patent analysis, for its
scientists and entrepreneurs. If a university in
a developing cluster is looking for an example
to emulate, then it would be Stanford or MIT.
After the failure of the Massachusetts Miracle
in the late 1980s, MIT established a technology
licensing office115 and became more involved
with start-up companies. In a recent report
on the entrepreneurial impact of MIT, it is
estimated that "6,900 MIT alumni companies
are headquartered in Massachusetts. The
estimated sales of these companies - $164
billion - represent 26 percent of the sales
of all Massachusetts companies."116 MIT
established the now-worldwide MIT Enterprise
Forum in the 1970s, and in 1990 it started
the MIT Entrepreneurship Center, which is
now known as the Martin Trust Center for
MIT Entrepreneurship117 and offers over 25
courses. The Forum and the Center were both
established by MIT's Sloan School of Business.
Any businessperson involved in technology
entrepreneurship can join the Enterprise
Forum, whose mission is to promote interaction
between entrepreneurs and their communities.
It offers a series of entrepreneurship seminars
through its 28 chapters.118 In addition, the
University has other services and facilities that
further enhance interaction with businesses,
support groups, and government. Over the past
10 years, the MIT Technology Licensing Office
has licensed 224 new businesses, an average
of 22 per year. The university even offers a
Venture Mentoring Service, which has been
critical in the formation of 88 companies.119 In
the area of biotechnology, MIT offers campus
incubators and a technology park. According
to Philip Cooke, "the Entrepreneurship Center
trains the scientists in entrepreneurship, and
the Technology Licensing Center identifies
technologies suitable for startups and introduces
the technology to potential investors (usually
venture capitalists)."120 All of the MIT programs
emphasize the importance of networking with
the other sectors through the support groups and
the Massachusetts Technology Collaborative.
As of 2002, there were 218 firms in the
Massachusetts biotechnology cluster. According
to Cooke, "Seventy-nine firms were founded in
the 1980s including Biogen, Genetics Institute
and Genzyme. A further eighty-eight began
between 1990 and 1997; the remainder is
more recent start-ups and inward investments.
Employment grew from 7,682 in 1991 to 16,872
in 1998."121 The success of this cluster is due
to many factors, one of which is the interaction
of the universities (MIT, BU, and Harvard), the
support group (MBC), the state development
organization (MTC), the local communities
(primarily Boston, Cambridge and Worcester),
the large corporations (Genzyme, Biogen,
and Genetics Institute), and the start-up firms.
Since 1985, the MBC has been the central
networking organization with membership that
includes all of these sectors.
The large corporations such as Genzyme,
Biogen, and Genetics Institute have played
a key role as cluster anchor companies by
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interacting and collaborating with the other
sectors. According to Cooke, "Genzyme as a
founder member of the Partners Healthcare
System with Brigham and Women's and Mass
General Hospitals on research funded at $400
million by the National Institutes of Health,
reinforces the [generation and diffusion] system
[of the cluster]
Genetics Institute."122
along with Biogen and
3.
Cluster
In the recently formed Milwaukee, Wisconsin
water technology cluster, Rich Meeusen is
clearly the visionary, and he is attempting
to build the "Silicon Valley of water
technology."123 According to Meeusen, his
"Eureka moment" came about six years ago:
"I was at a meeting at A.O. Smith where their
CEO was showing us their flow lab. As we
talked, we realized that each of us had had no
idea that the other company had a major flow
lab. So, since we're not really competitors, we
agreed to share each other's flow lab facilities.
And then I thought, wow, there are all these
companies in the Milwaukee area involved
in the water cycle, but almost none of them
compete with each other. The only ones that
really did compete were GE and Pentair, and
even now they have their joint venture, Pentair
Residential Filtration."124 Shortly after Meeusen
had the idea of bringing the water technology
companies together in an organization, he
approached the Greater Milwaukee Committee
and the Milwaukee 7 Council, a regional
economic development council for the seven
counties. One of the co-chairs of the Milwaukee
7 is the Milwaukee's mayor, Tom Barrett. The
Council members include the chancellor of the
University of Wisconsin-Milwaukee, CEO of
Wisconsin Economic Development Corporation,
mayors and county executives for all seven
counties, and CEOs of the largest companies.
In 2007, the Milwaukee 7 Council agreed to
establish the Milwaukee 7 Water Council, which
is now known as the Milwaukee Water Council.
Its mission is "to align the regional fresh water
research community and water-related industries
to establish the Milwaukee region as the World
Water Hub for water research, economic
development, and education."125 The Council's
Board of Directors has 17 members and includes
businesses, nonprofits, academia, investors, and
government.126 The co-chairs of the Council
are the CEOs of Badger Meter, Rich Meeusen,
and A.O. Smith Corporation, Paul Jones; they
would be considered first-level inftuencers,
according to Smilor et al. In terms of working
with the local and state government regarding
the development of the water technology hub
in 2007 through 2009, Meeusen said: "The
governor, the mayors, our two U.S. senators,
our various legislators - all have been very
supportive."127 At the time, he had never seen
such bipartisan political cooperation.
Over the six years from 2007-2013, the Council
has pursued an effective strategy of gaining
public recognition and attracting state and
federal funding to expand water research, boast
economic development, and establish the cluster
- all of which supports their mission. Public
recognition began in 2007 with the Council's
first Water Summit, which has been an annual
event ever since. In 2009, Milwaukee "gained
admission into the United Nations Global
Compact Cities Programme (UNGCCP). With
this admission, Milwaukee achieves United
Nations recognition of the area's expertise and
global leadership in fresh water technology
and science. Milwaukee and San Francisco
are the only two North American cities in the
UNGCCP."128 In 2011, the Council was one of
five recipients of the U.S. Water Prize by the
Clean Water America Alliance (CWAA) for
water sustainability. Ben Grumbles, President
of CWAA, stated the following regarding the
award: "The Milwaukee Water Council is a
world-class example of regional collaboration
and technological innovation for a future of
clean water and good jobs."129
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Compared to MIT or UT Austin, the University
of Wisconsin in Milwaukee (LJWM) is not a
well-known research institution nor is it a patent
generator. According to 2008 data from the
U.S. Patent Office on patents of U.S. origin and
an analysis by the Milwaukee Wisconsin Journal
Sentinel, Wisconsin ranks 15th among states
for percentage of patents130 and water is barely
mentioned. Milwaukee is home to the Great
Lakes WATER Institute, a UWM facility whose
mission "is to provide the State of Wisconsin
with a focal point for research, education and
outreach aimed at a thorough understanding
of the Great Lakes and other aquatic and
environmental resources of local, state, national
and international importance."131 In March
2009, the state of Wisconsin established the
university's Graduate School of Freshwater
Sciences with a huge vote of support from
the state. The former governor announced
that "$240 million in bonding over the next
six years would allow UWM's Engineering
College, School of Freshwater Sciences and
School of Public Health to move forward. The
university's Milwaukee Initiative is designed
to expand research and development programs
and gain greater support from business and
civic leaders in southeast Wisconsin."132 The
School opened officially in the fall of 2010
and in July 2010 it received a $525,000 award
from the National Oceanic and Atmospheric
Administration (NOAA) to fund six graduate
research fellowships focused on human health
issues and the Great Lakes.133 The School is
also establishing a Center for Water Policy
with a $2.6 million donation from a local
philanthropist. The WATER Institute is now
operated by the School of Freshwater Sciences.
In July 2011, the School hired David Garman,
an Australian water technology scientist and
entrepreneur, to be its dean.134
In terms of funding for economic development
and the cluster, the Council submitted a number
of proposals to foundations, state and federal
agencies in 2009-11. In September 2009, they
received $172,500 for water related economic
development from the EDA;135 part of this grant
paid for the hiring of a water industry specialist.
They also received part-time assistance from
three Greater Milwaukee Committee (GMC)
employees, and their office is in GMC space. In
January 2010, the Council hired an executive
director and in May 2010, they announced
the receipt of four foundation grants totaling
$210,000.136 It appears that they also started
collecting dues from members in 2010.
The year 2010 continued to be a successful
one in terms of raising money for the cluster.
The National Science Foundation (NSF)
funded an Industry University Cooperative
Research Center (I/UCRC) in Milwaukee. The
Water Equipment and Policy (WEP) Center
is a collaborative involving UWM, Marquette
University and six industry members including
A.O. Smith and Badger Meter. NSF funded
the Center with an initial five year award
of $40,000-80,000 for each year.137 The
annual amount is dependent upon the projects
submitted. NSF requires that the I/UCRC
industry partners each contribute $50,000 for a
total industry contribution of at least $300,000.
"The WEP Center will help boost economic
growth and development by studying water
equipment, policy and technology. This will
advance understanding of" water technologies
and help water equipment manufacturers
increase competitiveness by adopting new
technologies to improve water quality."138
In September 2011, the Council received a
$500,000 grant from EDA's Jobs and Innovation
Accelerator Challenge. The grant supports the
development of a business accelerator.139 In
February 2012, the Milwaukee Water Council
purchased a 98,000 ft2 building, which after
renovation will house the Council, the water
technology business accelerator, Badger Meter,
A.O. Smith, Veolia, and UWM's School
of Freshwater Sciences.140 The business
accelerator portion of the building "will also be
used by water technology-related businesses
to do collaborative research work with UWM
students and faculty. The idea is to create a
-------
synergy between UWM researchers, established
businesses and start-up firms to help them share
ideas and launch business ventures."141
The announcements and funding outlined
above demonstrate the Council's commitment
to water research and economic development.
According to their mission, the third area of
focus is education. Encouraging a regional
investment in water education is strategic to the
long term success of the cluster. Shortly after
the Council was formed, it initiated discussions
with the academic community and the water
industry to determine what types of college
programs could meet the identified need for
"legal and business professionals." "Marquette
University Law School stepped up to offer the
region's only water-law program. Integrated
science and business majors at the University
of Wisconsin at Whitewater can now pursue a
water resources concentration."142 The Council
has established a water internship program
with UW - Whitewater.143 According to Paul
Jones of A.O. Smith, "One of our goals is to
help develop seamless talent pipelines between
universities and water businesses."144
The CEOs of the cluster anchor companies,
Badger Meter and A.O. Smith Corporation, are
playing an important role in the development of
the Milwaukee water technology cluster. Their
collaboration started with sharing their flow-
lab facilities and now they have the Milwaukee
Water Council with eighty-two companies and
organizations as members, state and NOAA
funding for the University of Wisconsin's
School of Freshwater Sciences, EDA funding
for the business accelerator, NSF I/UCRC
funding for university and industry water
research, a water internship program, admission
to the UNGCCP, and local and state government
support. Meeusen's decision to approach
the Milwaukee 7 Council for assistance in
establishing the water support group was
significant, as it gave him access to several first-
level influencers from the key sectors that could
make a difference for the water technology
cluster.
-------
Summary
Drawing on the lessons learned by the
successful and unsuccessful technology
clusters, it is essential that the prerequisites are
available and that the seven sectors interact and
collaborate. The influencers and champions are
important in stimulating the interaction of the
sectors, creating social capital, and providing
strategic coordination and direction for the
cluster. From the examples, it is clear that
support organizations such as the Massachusetts
Biotechnology Council, the Austin Technology
Council, the 1C2 Institute, and the Milwaukee
Water Council play a key role in advocating
for clusters and providing a venue for sector
interaction. Their advocacy role is important
in terms of proposing and sustaining initiatives
that will continue to build the clusters. Without
champions, support groups and sustained local
and state initiatives, a cluster is just a group of
struggling entrepreneurs.
Recommendations for the Seven Sectors
In the exploratory stage of developing a cluster,
it is important to build social capital with key
people from each of the seven sectors and
conduct company and technology mapping
research for the specific industry. In building
social capital, the cluster visionaries will want
to meet with a range of influential leaders
from the different sectors. The following
expanded version of the Technopolis Wheel
includes additional organizations that should
be considered depending upon the type of
technology cluster.
Chambers of Commerce
Business associations
Investors
Environmental nonprofits
Business incubators
Business development
organizations
1 Town leaders
1 Local economic
development groups
1 Utilities
Engineering, business, and
science graduate schools
Research centers
Business incubators
Tech transfer offices
1 State offices for
education, economic
development, and
environment
1 State venture capital
and technology
programs
Large
Corporations
Emerging
Companies
1 Fortune 500
HQ/branches
1 Major sales and/or
R&D centers
1 Major employers
1 Consulting and
engineering companies
University spin-offs
Large company spin-offs
Other Startups
Federal Agencies: EPA, SBA,
DOC/EDA, NOAA, USDA, USGS,
NSF, DOT, NASA, DOE, DOD, NIH
Federal laboratories
Figure 2. Key Cluster Sectors145
-------
Each of the sectors needs to be mindful of
the role that it could play in the development
and success of a cluster. The following
recommendations for the sectors are based on
the case studies and the EPA water technology
cluster experience in Cincinnati.
Universities
In each of the case studies, the universities have
played a key role in the development of the
clusters. It is essential that the universities have
1) research units that focus on groundbreaking
technology, 2) sophisticated patent support
and analysis capability, 3) entrepreneurship
courses and if possible a university business
incubator, 4) consistent funding to attract high
quality professors and graduate students, and
5) reasonable fees for small businesses to
access the universities' research findings and
facilities. The most successful business clusters
are associated with universities that offer this
combination and more services as shown
by Stanford, which has been a leader since
1950 in encouraging the development of local
businesses. The recent Kauffman Foundation
report stresses the importance of "university
policies that encourage entrepreneurship and
provide an assortment of support services
for start-ups beyond the school's technology
transfer office."146 State funded universities
need to remind their legislators that 77% of new
businesses are established in the same state as
the research institution where the technology
was developed.
Executive Champions and Support
Groups
In the Austin and Milwaukee case studies, it
is very clear that those clusters were formed
because of the vision, persistence, and
magnetism of George Kozmetsky and Rich
Meeusen. They each initiated the interaction of
the influencers or executive champions from the
seven sectors. In the initial stage, they invested
significant time in social capital building with
the key people before starting the cluster or
technopolis. They also identified a support
organization to act as the initial convener until
the cluster was ready to set up a nonprofit. Both
clusters were strategic about setting reasonable
goals early in their development. Since the
Milwaukee Water Council developed more
recently, it is easy to track the progress on
their goals. One of the key requirements for
Economic Development Administration cluster
funding is demonstrated success in meeting
goals.
Local Government
The proactive role of the mayors of Austin
and Milwaukee supported the formation
of their clusters, and their involvement is
a model for cluster development. It is also
important for the local government to provide
high quality schools, modern infrastructure,
open space, good transportation, arts and
recreation facilities, and competitive rate
structures because these relate to the quality
of life which will help attract and retain
businesses. The Department of Commerce's
Economic Development Administration has
developed a web site to promote regional
economic development: the Regional Innovation
Acceleration Network (RIAN) at http://
regionalinnovation.org. It offers tools, guides
and webinars based on the experience of
successful clusters.
The local government should also consider
which of its departments, in addition to
economic development, should be involved
in the cluster and how it can have an impact
either through purchasing or piloting new
technologies. In a water technology cluster, the
local drinking water and wastewater utilities
could offer test sites for new technologies. In
a renewable energy cluster, the department of
public works could be involved and government
buildings could be demonstration sites for new
technologies. Most likely, the city of Austin,
Texas was an early purchaser of Dell computers
-------
and software developed by the companies in the
Austin Technopolis.
State governments should look to the example
of Massachusetts for the role that they can play
in cluster development. Massachusetts has
been proactive since the 1980s. The state has
an advantage due to its high concentration of
well-funded private universities and colleges.
It has leveraged that advantage by consistently
funding its state universities at a high level,
offering an effective state organization to
encourage start-ups and cluster building, and
funding one of the longest running state venture
capital programs, the Massachusetts Technology
Development Corporation, now known as
MassVentures, established in 1978. The state
has also placed emphasis on having a well-
educated and skilled workforce that meets the
needs of high technology businesses.
When appropriate, states should consider
legislation that will encourage the use of
innovative technologies that will address their
problems and promote technologies of related
clusters. An example of how Massachusetts
has supported its clean energy cluster can be
found in its legislation and regulations that
encourage the use of clean energy. If a state
has a water technology cluster, then it might
consider legislation that would address its water
problems.
The federal government has an opportunity
to be a catalyst for business clusters that are
linked to its goals and research facilities. Over
the last five years, several federal DoD, DOE,
and NASA laboratories have been involved
in business clusters. EPA's National Risk
Management Research Laboratory in Cincinnati,
Ohio followed their lead and facilitated the
development of a water technology cluster.
EPA was inspired by Administrator Lisa
Jackson's statement that "smart environmental
protection creates jobs."147 On January 18,
2011, the EPA Administrator and the SBA
Administrator jointly announced the formation
of the Water Technology Innovation Cluster
(WTIC) in Cincinnati/Dayton/Northern
Kentucky/Southeastern Indiana. EPA used an
earlier version of this paper as guidance for the
formation of the cluster. Federal government
laboratories should continue to look for
opportunities to be involved in relevant clusters
in their regions.
The recent interagency cluster solicitations
organized by SBA and EDA will have a long-
term impact on clusters. They have not only
encouraged university, business and regional
cluster collaboration, but also federal agency
collaboration through the development of the
solicitations and management of the awards.
NSF should consider using their I/UCRC
program to encourage the development of
clusters; they could even collaborate with other
federal agencies and EDA. The program is
highly leveraged with significant support from
industry partners. By expanding it to clusters,
NSF would be increasing the chances that the
university and industry partnerships would last
beyond the five years of NSF funding.
It is important for start-up companies to take
the time to participate in the cluster and make
the other sectors aware of the barriers that small
businesses face and the assistance that would
be useful. It may require thinking beyond
their individual companies to the needs of their
common business sectors. By being members
of a business cluster, these companies will gain
knowledge from their interactions, find new
business opportunities and possibly develop
partnerships or collaborations with members
from the other sectors.
The active participation of large companies in
cluster committees is important. The role of
-------
anchor companies, such as Badger Meter and
A.O. Smith Corporation, is also crucial. Their
industry expertise and advice provides essential
guidance for the cluster organization. The large
corporations should be looking for opportunities
to contribute industry knowledge, collaborate
with the other sectors, conduct research with
the federal laboratories, universities and start-up
companies, and advise the states, colleges and
universities on curriculum development that is
supportive of the cluster and future technology
development.
Notes
1. Michael Porter, "Clusters and the New Economics of Com-
petition," Harvard Business Review, November-December,
1998,78.
2. Ibid.
3. Ibid, 86.
4. Ibid.
5. Fred Phillips, Social Culture and High Tech Economic De-
velopment: The Technopolis Columns (New York: Palgrave
MacMillian. 2006), 1.
6. Ibid, 2.
7. Ibid.
8. Raymond W. Smilor, David V. Gibson, and George
Kozmetsky, "Creating The Technopolis: High-Technology
Development In Austin, Texas," Journal of Business Ven-
turing 4,no. 1(1989): 50, http://dx.doi.org/10.1016/0883-
9026(89)90033-5 (accessed March 12,2013).
9. Phillips,!.
10. AnnaLee Saxenian, Regional Advantage:Culture and Com-
petition in Silicon Valley and Route 128, (Cambridge, MA:
Harvard University Press 1994), 72.
11. Saxenian, 46.
12. Ibid., 45.
13. Editorial, "Easing up on non-competes, iRobot helps re-
gion, itself," The Boston Globe, December 10,2012.
14. Saxenian, 164.
15. Ibid., 166.
16. Ibid., 112.
17. Phillips, 5.
18. Smilor, 50.
19. Ibid, 51.
20. Ibid., 50.
21. Phillips, 126.
22. Reprinted from Journal of Business Venturing, Volume 4
/ Issue 1, Raymond W. Smilor, David V. Gibson, George
Kozmetsky, Creating the technopolis: High-technology
development in Austin, Texas, 49-67, Copyright 1989, with
permission from Elsevier.
23. Saxenian, 23.
24. Wai Fong Boh, Uzi De-Haan, and Robert Strom, University
Technology Transfer Through Entrepreneurship: Faculty
and Students in Spinoffs (Ewing Marion Kauffman Foun-
dation, 2012), http://www.kauffman.org/uploadedFiles/
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25. Alan Kotok, "Students, Postdocs, Policies Drive Univer-
sity Spinoffs," Science Business, August 7, 2012, http://
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26. Alan Kotok, "University 2010 Start-Ups, Patents Rise; Li-
censing Stalls," Science Business, August 12, 2011, http://
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27. Scott Oldach and Nick Stabinsky, "Research Universities:
Would they benefit from Patent Analytics?" Intellectual
Property Today, September 2008, http://www.iptodav.com/
articles/2008-9-oldach.asp (accessed May 7, 2009).
28. Ibid.
29. Ibid.
30. Ibid.
31. Ibid.
32. Ibid.
33. Smilor, 63.
34. The Scientific Consulting Group, Inc., Venture Capital
Support for Environmental Technology: A Resource Guide
(Under EPA Contract EP-C-05-015, U.S. EPA/ORD, Draft
- May 5,2009), 14.
3 5. Saxenian, 21 -22.
36. Ibid.
37. Ibid., 23.
38. Ibid., 24.
39. Wikipedia, "Stanford Research Park", http://en.wikipedia.
org/wiki/Stanford Research Park (accessed on December
21,2012).
40. Fred Phillips, "The Godfathers: Characteristics and Roles
of Central Individuals in the Transformation of Techno-Re-
gions," Journal of CENTRUM Cathedra 1, no. 2 (2008): 79.
41. Edward B. Roberts and Charles Eesley, Entrepreneurial
Impact: The Role of MIT (MIT Enterprise Forum, publica-
tion funded by the Kauffman Foundation, February, 2009),
4-5, http://enterpriseforum.mit.edu/.
42. Ibid.
-------
43. Darrene L. Hackler, Cities in the Technology Economy
(Armonk,NY: M.E. Sharpe. 2006), 11.
44. Smilor, 64.
45. Phillips, 62-63.
46. Michael Porter, Clusters and Economic Policy: Aligning Pub-
lic Policy with the New Economics of Competition (Harvard
Business School, Institute for Strategy and Competitive-
ness, White Paper, November 2007, Rev. May 18, 2009), 3.
47. Ibid, 5.
48. Ibid.
49. Ibid.
50. Ibid.
51. Smilor, 64.
52. Alan Kotok, "University 2010 Start-Ups, Patents Rise;
Licensing Stalls."
53. The Scientific Consulting Group, Inc., 86.
54. PricewaterhouseCoopers, "MoneyTree Report Historical
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55. The Scientific Consulting Group, Inc., 30.
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57. The Scientific Consulting Group, Inc., 30.
58. Ibid.
59. Portland Business Journal, "Oregon Fund Gives Rosy
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pdf/2011-04-08 oregon-fund.pdf (accessedNovember2,
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60. The Scientific Consulting Group, Inc., 31.
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ment Program, Q2 2012 Review, September, 2012," New
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tion%20FINAL.pdf, (accessedDecember 21,2012).
62. The Scientific Consulting Group, Inc., 32.
63. Christine Hansen, "Maryland Venture Fund Authority
Members Named," MDbizMedia, August 31,2011, http://
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64. ScottNorris, "Despite Billions in Federal Funding, Study
Shows NY Far Behind in Fostering New High-Tech Busi-
nesses from University Research," PR Web, June 23, 2009,
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65. The Scientific Consulting Group, Inc., 25.
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69. Phillips, 230.
70. Federal Laboratory Consortium for Technology Transfer,
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71. Porter, 2007, 6.
72. Karen G. Mills, Elizabeth B. Reynolds, and Andrew Ream-
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82. Smilor, 64.
83. Porter, 1998, 79.
84. Porter, 2007, 3.
85. Smilor, 64.
-------
86. Fred Phillips, email messages to the author regarding the
role of anchor companies, October-December, 2010.
87. Saxenian, 24.
88. Saxenian, 116.
89. Saxenian, 140.
90. Phillips, 23.
91. 1C2 Institute, "1C2 Institute," University of Texas at Austin,
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92. Phillips, 35-6.
93. Phillips, 18.
94. Phillips, 207.
95. Smilor, 64.
96. Ibid., 53.
97. Phillips, 70-71.
98. Ibid.
99. 1C2 Institute.
100. Phillips, 65.
101. Phillips, 148.
102. Philip Cooke, "Regional Innovation Systems: General
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103. Ellen Corliss, "In 1985 the State Saw Great Promise in
Biotechnology," Moss Tech Times, March25,1991, P 1.
104. Ibid.
105. Ibid.
106. Ibid.
107. Ibid., 3.
108. Cooke, 139-140.
109. Massachusetts Technology Collaborative, "What We Do,"
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110. Cooke, 139.
111. Massachusetts Biotechnology Council, "About," Massa-
chusetts Biotechnology Council, http://www.massbio.org/
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112. Ibid.
113. Massachusetts Biotechnology Council, "Policy," Massa-
chusetts Biotechnology Council, http://www.massbio.org/
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114. Ibid.
115. Saxenian, 66.
116. Roberts, 5.
117. Martin Trust Center for MIT Entrepreneurship, "About,"
Massachusetts Institute of Technology, http://entrepre-
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119. Roberts, 7.
120. Cooke, 140.
121. Cooke, 139.
122. Cooke, 140.
123. Tom Williams, "Water Technology talks with.. .Rich
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124. Ibid.
125. The Water Council, "Who We Are," Milwaukee Water
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126. The Water Council, "Board of Directors," Milwaukee
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board/ (accessed on March 19, 2012).
127. Ibid.
128. Water Efficiency: the Journal for Water Conservation
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-------
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