Clusters and the New Economics of Competition

Michael E. Porter

Article | Harvard Business Review | November – December 1998

Clusters and the New Economics of Competition

Abstract

This article explains how clusters foster high levels of productivity and innovation and lays out the implications for competitive strategy and economic policy. Economic geography in an era of global competition poses a paradox. In theory, location should no longer be a source of competitive advantage. Open global markets, rapid transportation, and high-speed communications should allow any company to source any thing from any place at any time. But in practice, location remains central to competition. Today's economic map of the world is characterized by what Porter calls clusters: critical masses in one place of linked industries and institutions—from suppliers to universities to government agencies—that enjoy unusual competitive success in a particular field. The most famous examples are found in Silicon Valley and Hollywood, but clusters dot the world's landscape. Porter explains how clusters affect competition in three broad ways: first, by increasing the productivity of companies based in the area; second, by driving the direction and pace of innovation; and third, by stimulating the formation of new businesses within the cluster. Geographic, cultural, and institutional proximity provides companies with special access, closer relationships, better information, powerful incentives, and other advantages that are difficult to tap from a distance. The more complex, knowledge-based, and dynamic the world economy becomes, the more this is true. Competitive advantage lies increasingly in local things—knowledge, relationships, and motivation—that distant rivals cannot replicate.

Keywords: Economics; United States;

Format: Print

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Citation:

Porter, Michael E. "Clusters and the New Economics of Competition." Harvard Business Review 76, no. 6 (November–December 1998): 77–90.

Article | Health Affairs

Navy Medicine Introduces Value-Based Health Care

Alee Hernandez, Robert S. Kaplan, Mary L. Witkowski, C. Forrest Faison III and Michael E. Porter

In 2016 the newly appointed surgeon general of the Navy launched a value-based health care pilot project at Naval Hospital Jacksonville to explore whether multidisciplinary care teams (known as integrated practice units, or IPUs) and measurement of outcomes could improve the readiness of active duty personnel and lower the cost of delivering care to them, their dependents, and local retirees. This article describes the formation of the project’s leadership structure; the selection of four conditions to be treated (low back pain, osteoarthritis, diabetes, and high-risk pregnancy); the creation of the care team for each condition; outcomes and costs measured; and the near-term changes in outcomes during the twelve-month pilot period. Patient outcomes improved for three of the four conditions. We describe factors that contributed to the project’s success. After the pilot concluded, the Navy combined the back pain and osteoarthritis IPUs into a single musculoskeletal clinical unit and established a similar IPU at another naval hospital and its clinics. The diabetes IPU was continued, but the high-risk pregnancy IPU was not. We offer several observations on the elements that were key to the success of the project, explore challenges and opportunities, and suggest that the pilot described here could be taken to greater scale in the Military Health System and elsewhere.

Keywords: military health system; Health Care and Treatment; Cost Management; Projects;

Citation:

Hernandez, Alee, Robert S. Kaplan, Mary L. Witkowski, C. Forrest Faison III, and Michael E. Porter. "Navy Medicine Introduces Value-Based Health Care." Health Affairs 38, no. 8 (August 2019): 1393–1400. View Details

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Clusters and the New Economics of Competition

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