Innovation Hot Spots: The Recipe for Success

June 9, 2014
Governor Patrick speaking in Israel.

Governor Patrick speaking in Israel.

Innovation rarely happens in a vacuum. Rather, it is intimately tied to a confluence of factors – some of which organically occur while others are purposefully initiated and nurtured. In recent decades, we’ve witnessed how so-called innovation “hot spots” (also often referred to as “clusters”) have given rise to critical, sometimes even unimaginable, advancements in medicine, technology, and other disciplines.

When it comes to developing “hot spots,” can we trace success back to common catalysts and elements? And can we utilize any of these learnings to successfully build new hot spots and ensure the sustained health and growth of existing ones? What we have learned from academic study in this area, as well as an examination of several prominent case studies, is that several critical ingredients – and common outcomes – are, indeed, clear and necessary.

Michael Porter, currently the Bishop William Lawrence University Professor at Harvard Business School, coined the term “cluster” in his 1990 book, The Competitive Advantage of Nations. According to Porter, clusters are geographic concentrations of interconnected companies and institutions in a particular field that promote both competition and cooperation. To be sure, this balance of connected, mutually beneficial relationships among distinct players – “idea people” – with shared motivation, vision and interdisciplinary skills is the foundational element to cluster (or hot spot) development. The next critical element: both financial and infrastructure resources must be available, accessible and applied in order to catalyze early-stage exploration and fund efficient progress. Finally, there must be a clear path to customers, enabling the ability to interact, understand and dynamically iterate in response to customer needs.

In addition, according to Porter’s research, clusters yield critical benefits: they increase productivity and operational efficiency; they stimulate and enable innovation; and they facilitate commercialization and new business formation. It’s interesting to consider how these outcomes – and ingredients – have been reflected and displayed in prototypic “innovation hot spots” such as Israel, Silicon Valley and Boston. I recently joined Governor Deval Patrick and a coalition of business leaders on an “innovation mission” to Israel to build and deepen relationships with this important hub that will strengthen the Massachusetts global economy,

As the so called “start-up nation,” Israel’s innovation output leads the world. The facts and figures about Israel’s success as an “innovation” hot spot are quite remarkable. In a country only 2.5% the population size of the U.S. – approximately 8 million people – there are more Israeli companies listed on U.S. public markets than any other non-U.S. country. Based on 2013-2014 World Economic Forum global competitive reports, Israel is ranked #1 in the quality of its academic research institutions. By comparison, the U.S. is ranked #4. In addition, Israel leads the world in the percent of GDP (4.5%) that is invested in non-defense R&D, with the U.S. trailing at 2.7% by comparison.

Isreal has a population of approximately 8 million people, 2.5% the population size of the U.S.

Given this ready availability of intellectual capital and significant R&D investment, capital- and technology hungry enterprises have followed. Prior to 2000 only 200 life science companies existed in Israel. By 2011, this number had exploded, exceeding 1,200. Notably, nearly half of this time window occurred during the largest recession experienced since the Great Depression; a global economic meltdown that was barely felt by those building high-tech businesses in Israel.

Approximately 65% of the life science companies in Israel are med tech focused and, as a result, all of the large med tech commercial players have descended into Israel to access these innovative companies. These resulting transactions and related partnerships have secured for Israel the last key hot spot ingredient they might otherwise be missing: durable access to customers.

Over the last several years, some of the largest and most competitive med tech transactions have involved Israeli companies. GE, Edwards, Philips, Johnson & Johnson (my employer), Covidien, Medtronics, St. Jude Medical and others, have all invested in Israeli innovators and, subsequently, expanded their presence in the region. Advanced robotics, integrated imaging and vascular guidance systems, new “smart” materials, and integrated bionics are just a few of the breathtaking technologies that are emerging from this prolific innovative hot spot.

In the US, Silicon Valley and Boston share many traits in common with Israel. With its original roots springing from regional top-tier academic institutions, Silicon Valley now, of course, hosts a tremendous density of expertly trained (often serial) entrepreneurs, along with abundant resources interspersed with diverse yet accessible customer-facing partners. Boston, as well, has continued to build upon a long tradition of education and research. Its immediate proximity to a large, highly accomplished medical community has triggered an escalating migration of biopharma and healthcare-focused companies. Coinciding with major shifts in healthcare related to R&D, the Greater Boston area has become home to nearly all of the top companies in the space, with Novartis, Pfizer, Sanofi-Genzyme, Johnson & Johnson, Amgen, Biogen-IDEC, and Merck all investing in and building teams here. Of course, Boston continues to be a thriving center for start-ups and emerging growth companies who are pursing tomorrow’s breakthrough medical advancements.

A significant trend is the emergence of cross-interaction among these hot spots as they individually have gained strength and prominence. For example, most venture capital firms have offices and teams in both Boston and Silicon Valley, allowing for the sharing of ideas and deal-flow. Major healthcare companies are also strengthening their dual presence in these hot spots. Similarly, the interaction between Boston and Israel is a stunning example of hot spot cross-interaction, some of which is being driven by high-level programmatic resources from the state of Massachusetts and the Office of the Chief Scientist in Massachusetts and Israel, respectively. A full 3% of Massachusetts’ GDP is generated by Israeli-founded businesses that now operate in the state and represent approximately 6,000 jobs.

However, beyond policies and incentives, perhaps the prime motivator behind this cross-collaboration is directly tied to the key element of any successful hot spot or cluster – people. In every hot spot I visit, I meet a true community of individuals who share passions, similarities and synergies, a willingness to collaborate, a thirst to compete, all in the name of advancing innovation to improve lives.