Business Cities

Friedman vs. Florida, or How to Thrive in a World Both Flat and Spiky

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The regional effect of technological advancement and globalization is a widely studied and hotly contested topic. Thomas Friedman’s renowned book, The World is Flat, argues that globalization and technological advancement have leveled the playing field in terms of commerce—that location is less and less important. These technologies, Friedman writes, have contributed to the meteoric rise of the Indian and Chinese middle class and will continue to decrease barriers to international flows of goods and knowledge.  Another voice in the debate, Richard Florida, argues that the world is not flat, but rather, spiky. Florida argues that most economic activity is concentrated in relatively few areas—spike cities where creative talent migrates and coalesces. Look no further than Silicon Valley as evidence of this phenomenon. In fact, based on evidence gathered by Florida, the world is getting spikier as people move ever more rapidly into dense urban settlements. If anything, location seems to matter more and more.

While both of these theories are correct, we propose a third view in this debate. Most often, when we think about these trends, we focus on how other countries can mobilize the rapidly developing talent in their fast-growing spikes to pose a competitive challenge to American firms. It’s true that globalization has led to increased competition; however, there is also a significant opportunity for companies to access the talent gathering in different spike cities and then connect those people around the world using digital technology infrastructure so that they might leverage the skills of, and learn from, one another.

Such a model does not develop overnight; to move from competitors to collaborators, participants must form long-term, trust-based relationships with one another.  When these relationships develop, then firms can connect capabilities across spikes, and ultimately, pursue opportunities for innovation and capability building across spikes.  Below, we discuss how companies can start to shape global ecosystems, progressing from one stage of development to the next, ultimately creating a web of interactions in which all parties get better by working together.

Building trust-based relationships across spikes

When expanding their presence abroad, Western companies generally favor setting up their own captive facilities or relying on formal, tightly specified transactions with a small number of third parties. A multinational based in the States, for example, might set up a captive facility overseas to handle its manufacturing, or contract out customer care to a third party, but in both these cases, the interactions afford limited opportunity to tap into the broader and more diverse expertise gathering in spikes around the world. As an extreme example, some U.S. manufacturers do not allow their engineers to engage directly with the engineers of their suppliers; all interactions must be funneled through procurement managers. The outposts established in these diverse spikes by Western companies are like forts in the early Western frontier of the US—people associated with these outposts are expected to stay in or near the fort and perform tightly prescribed tasks.

As a next step, companies need to recognize that significant and growing value can be gained by connecting more broadly into the talent pools that are gathering in spike cities around the world. This involves a conscious effort to expand interactions with a broader array of participants within relevant spikes, paying particular attention to participants who have rich networks of their own within the spikes, so that access to talent quickly expands.

But this will accomplish little if Western companies cannot adopt a different mindset. Rather than holding on to a short-term transaction mindset focused solely on buying low and selling high, companies could adopt a different mindset, seeking to build longer-term, trust-based relationships with the participants in these spike cities.

This transition can be facilitated by defining aggressive performance challenges and mobilizing teams from both the Western company and its partners in spikes in emerging economies to work together. By working together, they are more likely to come up with creative new approaches that leverage their diverse capabilities and drive learning on both sides. These performance challenges can also motivate local participants within individual spikes to tap into their broader network of relationships in the spike to access even more diverse talent.

Connecting Capabilities across Spikes

As firms establish deeper, trust-based relationships with partners in individual spikes around the world, there is potential to move to the next level and connect capabilities across specialized spikes. As the number and diversity of spikes continues to grow, so too does the potential to leverage their unique capabilities. From synthetic fiber production in certain Korean cities to mathematical research in Russia, spike regions around the globe can provide deep expertise and highly specialized capabilities so that domestic firms need not build them out themselves.

The little-known firm PortalPlayer in the late 1990s (later acquired by nVidia) had success in leveraging the capabilities of its strategic partners, both domestically and internationally. Early on in the development of digital music players, when device makers faced a daunting array of technical challenges, PortalPlayer mobilized a global network of companies in many diverse technology spikes ranging from Scotland and England to Japan and Taiwan to help accelerate innovation in miniaturization, sound quality, power management and component costs. PortalPlayer was able to incorporate insights and processes from each of these spikes, and licensed its technology platforms to major consumer electronics vendors. Apple approached PortalPlayer when it was in the earliest stages of developing the iPod, recognizing that its own strengths lay in user design and marketing. It saw that PortalPlayer’s global design network could be invaluable in helping Apple to enter the market quickly and successfully. When Apple went to market with its first iPod, it was basically a PortalPlayer platform with a user interface and external device design provided by Apple.

Amplifying Innovation and Learning across Spikes

While connecting capabilities already extend far beyond the current practices of many Western companies, this is only a small part of the full economic potential created by global spikes. There is an even greater opportunity to use these networks not simply to mobilize existing capabilities more effectively, but also to rapidly develop and improve the capabilities of all participants. Organizers of these networks can provide a powerful platform for innovation across spikes as participants with diverse specializations learn from each other and deliver more value to the market.

Nike, for example, uses management techniques to accelerate learning across its global process network. As new business partners are added to Nike’s ever-growing network, they become part of a sophisticated tutelage system in which they are encouraged to work with partners that have complementary capabilities to help them understand how to take greater advantage of new materials and improve their own performance. This system helps the entire network develop and learn faster than would be possible in a hub and spoke system, where communication would only flow between Nike and its partners. By creating a platform where all parties can collaborate with one another, firms can elevate the performance of entire ecosystems and create opportunities for much more rapid  learning. This allows Nike to innovate faster, integrate new materials into their shoes, and continuously improve its footwear.

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As the world becomes flatter and spikier, it isn’t enough to be dependent on a global network of suppliers of partners; firms must learn to be interdependent with a broad ecosystem of diverse, highly specialized parties. When firms focus on building trust-based relationships, connecting capabilities, and amplifying learning, the opportunity for growth is significant. Not only can firms get better and faster once operations have been established, they can also expand seamlessly without incurring the huge upfront investment required to set up captive facilities overseas. By setting up loose, trust-based relationships and encouraging learning, firms improve the performance of all parties at once. This creates positive feedback loops, further motivating long-term participation and a culture of continuous improvement.

If we adopt this approach, we see a wonderful paradox unfold: location becomes even more important precisely because the world is also becoming more flat. People and companies can benefit not only from the proximity that comes from living and working in spike cities but also from the increased ability to connect and collaborate with diverse capabilities across great distances.

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