Managing the organisation 2.0: Entrepreneurial spirit and general management competences as early indicators for cluster success and sustainable regional development

Journal of High Technology Management Research 24 (2013) 153–160

Contents lists available at ScienceDirect

Journal of High Technology Management Research

Managing the organisation 2.0: Entrepreneurial spirit and general management competences as early indicators for cluster success and sustainable regional development☆ Findings from the German Entrepreneurial Regions Programme Christiane Gebhardt a, Markus C. Pohlmann b a b

Malik Management Institute, Geltenwilenstrasse 18, CH 9001 St. Gallen, Switzerland University of Heidelberg, Institute für Soziologie, Bergheimer Str. 58, D 69115 Heidelberg, Germany

a r t i c l e

i n f o

Available online 15 October 2013 Keywords: Cluster management German innovation policy Entrepreneurial Regions Programme Strategy driven cluster Virtual organization Entrepreneurship

a b s t r a c t During the last twenty years the German programme family Entrepreneurial Regions has formed a landscape of strategy driven clusters, characterized by networking relationships along the value chain between SME, university and research laboratories. Initiated by the Federal Government the Entrepreneurial Regions Programme (ERP) was directed at rebooting East Germany's innovative strength and reviving the declined industrial basis as well as integrating the small technology oriented firms, remnants from GDR research labs into the global economy. The study carried out in 2010 and 2011 was based on a multi-method approach and went beyond traditional quantitative indicators such as turnover, job growth and number of patents, by focusing on interrelated qualitative and early indicators in a systemic approach. Apart from the continuity of Financial Investments, General Management Competences, Networking competences as well as Entrepreneurial Thinking and Acting were identified to be relevant key drivers for many other interconnected indicators of cluster development. We discuss the integration of Management Science into the context of regional innovation, organizational studies and industrial strategy and will shed light on the policy implications for the assessment and monitoring of clusters as well as on the management requirements of clusters. An outcome of our study is an indicator system that enriches the conventional indicator set for the evaluation of robustness and viability of politically initiated clusters. © 2013 Elsevier Inc. All rights reserved.

1. Introduction: sustainability via cluster management? In recent years the cluster concept has gathered momentum. Since 2006 the ministry for research and education has drafted the High Tech Strategy for Germany 2020 that lists objectives such as excellence in science and technology, job creation, revitalization of regions and modernization of the industrial base. The BMBF's budget of 2010 grew by 6.5% compared to the previous year, i.e. by 10.9 billion Euros.1 More than 50% of the budget was allocated to cluster programmes that address an application-oriented and collaborative mode. The ERP2 started in 1989, addressed the situation in Eastern Germany and stands for a highly integrated ☆ Paper is based on the project: Ermittlung adäquater Indikatoren zur Messung regionaler Innovationsfähigkeit mit Bezugnahme auf Föderpolitische Massnahmen. Universität Heidelberg. 2011. Funded by BMBF. E-mail addresses: [email protected] (C. Gebhardt), [email protected] (M.C. Pohlmann). 1 http://www.unternehmen-region.de/en/56.php (Accessed 09.12.2011) 2 The BMBF 's Entrepreneurial Regions Programme (ERP) for East Germany currently consists of six interrelated programmes (Gebhardt 2012, BMVBS 2008, 2009). The ERP started in 1999, with the programme InnoRegio (1999–2006), followed by Innovation Forums (2001–ongoing.) and the programme Innovative Regional Growth Cores, IRGC (2001–2014) as well as the programme Centres for Innovative Competence (2002–2014). In order to sustain the ERP, the BMBF allocated 975 million Euros in the period 1999–2014. 1047-8310/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.hitech.2013.09.007

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programme portfolio in innovation policy. ERP supported the recreation and expansion of technological, scientific and economic competences in East German regions and aimed at a sustainable transfer of these competences to innovativeness, economic growth and employment. In this approach, innovation-oriented regional consortia consisting of SME, universities and research institutions transform technological competences into sustainable industrial development and employment and generate new firms. Complexity, uncertainty and interdependence characterise the business environment in which organisations operate nowadays (Scott, 1987). The ERP picks up on that and promotes the cluster or virtual organization as the most flexible organizational setting to operate within a volatile, ever changing, global environment. Those virtual organisations are characterized by openness, but they are also unpredictable and lack reliable rules. However, in strategy driven cluster government as well as cluster members must legitimize investments and reduce risks of sunk costs. As a non intended consequence strategy implementation in this specific organisational setting will ask for some kind of governance or steering. Management in this context is not an individualistic strain of charismatic leadership but a sounding board of the cluster organisation and its objectives, a specific mode of reflection, coordination and balancing of the system. Management distributes knowledge and integrates interest everywhere in the system. In the light of recent innovation and system theory management will be discussed as impulse for change, rather than a hierarchical defined leadership function (Baecker 1999). We venture the thesis, that whether a management input creates a certain output depends neither on the input nor the individual manager, but on the systemic rules of the systems. Therefore, management competence is defined as the competence to design the self organisation of a system. General management is in the focus of our study because it holds the key to create viable organisations that qualify better for sustainable development because they address the robustness and self organisational qualities of a prolific system. The challenges for cluster management are tremendous. A high number of regional players, the integration of regional activities into global value chains, the coping with cultural conflicts between research and industry alongside the implementation of strategies, and the decision making regarding technological options add to task list of cluster management. The study shows that not a lot of managers will distinguish themselves in mastering this assignment of complexity management. Although the impact of management appears to be a crucial success factor for cluster performance, it is also an often-neglected issue in regional economics and policy impact analysis. This is also due to the lack of an indicator system that takes into account the driving force of qualitative indicators as well as the interconnectivity of indicators that contribute to the viability of clusters or virtual organisations.

2. Regional innovation and the relevance of SME entrepreneurship Porter defines industrial clusters as “a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities” (Porter (1996, p. 199)). The idea of industrial clusters consequently became a policy blueprint for promoting regional economic development (Porter 1990). Bathelt et al. (2004) extended the multidimensional approach, further underlining the importance of integrating local clusters in global value chains to reduce the risk of local lock-in effects due to the loss of the competitive edge. In politically induced industrial clusters SME are understood as a promoter of regional growth (Audretsch, Acs, & Storm, 2009). Cooke, 2009, Gebhardt, 2012, Ketels and Sölvell, 2006b, Ketels and Sölvell 2006 Treado states that regional organizational structures of networking SMEs can serve as a precondition of success for a sustainable development under changing macro-economic conditions (Treado, 2010). Vital SME-networks also play a key role because they actively manage the integration in global value chains, the knowledge intake from science and applied research as well as the upgrading of production systems and innovative products (Herrigel & Zeitlin, 2010). In his study on Germany, Audretsch demonstrates that SME entrepreneurship is a device that channels the spill-over of knowledge in the networks and thus contributes to economic growth (Audretsch, Keilbach, & Lehmann, 2006). In recent literature, trust and interaction modes of individuals in networking activities became relevant factors in social network analysis (Scott, 1987; Burt, 2000; Tushman and Scanlan, 1981). In addition to Jaffe's proximity factor (Jaffe, Trajtenberg, & Henderson, 1993), trust and career perspectives contributed to the explanation of robustness in regional clusters (Casper & Murray, 2005). Thus, entrepreneurial culture and trust-based relationships (Audretsch, Boente, & Tamvada, 2007) enrich the indicator set to explain sustainable development in regional economics. They added a new element to Markusen's “sticky” places defined as “complex products of multiple forces: corporate strategies, industrial structures, profit cycles, state priorities, local and national politics” (Markusen, 1996) and Porter's conceptual framework for clusters. Drucker states that “innovation is success in markets” (Drucker, 2001). The variety and modularity of regional infrastructure and competences however, might allow clusters to embark in many technological options and concentrate on the generation of options rather than to market innovation. Strategically driven networks tend to specialize on a few options and eventually reduce scientific and technological complexity in favour of a marketable product (Malik, 2007). Strategic thinking and strategy implementation in clusters might be a process enforced by Audretsch's entrepreneurial spirit of the SME. True entrepreneurs and able managers handle the process of strategic partnering and change and even train for the management of cooptition. (see Jansen and Schleissing, 2000 for an overview). Thus, regional innovativeness, and sustainability of regional developments are linked by a multitude of contextual, institutional and individual factors. Managers of regional innovation systems tackle the dynamics of their interconnectivity and must be in the centre of our study. Factors such as entrepreneurial spirit, networking competences and strategic positioning, further highlight the importance of management competence. The key question is: Do ERP clusters have the appropriate management competence to build sustainable regional development?

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3. Research design In a first step, relevant indicators of regional innovativeness, and sustainability of regional developments contributed to a tentative set of indicators and the modelling of a preliminary system of regional sustainability via ERP clusters. The relevance and interconnectivity of indicators were evaluated in biographical interviews with cluster managers. The interviews employed techniques like the critical incident method3 to identify incidents in the narratives to collect indicators that have critical significance and meet the methodically defined criteria. We carried out 22 qualitative problem focussed and biographical interviews in the regions Dresden and Berlin. For our interviews we selected managers in ERP-clusters with a high continuity of ERP funding4. They were asked to articulate a story about their individual career and evaluate the management role they conceive for themselves in the ERP cluster. These observations led to the generation of three categories of cluster management and to a further differentiation of indicators ranking around the management of clusters. A critical incident can be described as one that makes a significant contribution—either positively or negatively—to an activity or phenomenon. The interviews also allowed for the assumptions regarding the systemic relationship of individual, institutional and contextual factors for the validation of the tentative system of regional sustainability. Indicators of that model were tested in a sensitivity analysis and subsequently verified with online questionnaires in a quantitative research. In the pretest we tested the questionnaire on 14 cluster managers. In total, 99 Online-questionnaires probed the factors and contributed to the revalidation of the system model that became the basis for building scenarios and a new tentative research design for an evaluation of regional innovation clusters. 4. Categories of cluster management in the ERP: academics, networkers and entrepreneurs As an outcome of our study and in contrast to the requirements of the programme of the ERP, cluster managers mainly comprehend their role as being academics with an assignment or conceive themselves as regional networkers. While regional networkers will not stress features such as entrepreneurial freedom or organizational creativity as part of their role, academics do not perceive themselves as part of the Mittelstand. “Cluster managers in the latter category refer to the university for their habitual frame of reference. In general, the dominant category of cluster managers in the ERP seems to be entrepreneurs against their will, who transfer their code of practise acquired in academia to the world of business. It is characteristic for both interpretive patterns that they have only a vague idea of entrepreneurial thinking and acting. As a rule, they never transfer it to managing an organisation but relate to it as an individual characteristic which is acquired individually and at random. They insinuate rent seeking or long term strategies as typical entrepreneurial features and distinguish themselves from behaviour, habits, and attitudes that points into this direction. As a result of the biographical interviews it can be stated that academics see their career predominantly in the university, and don't perceive themselves as firm founders and owners but rather as civil servants with an assignment. Therefore they lack a strong identification with the new business which is supported by the limited time of being a cluster manager and generator of spin off firms of a funded cluster. Hence parallel career interests tend to block development and growth of startup enterprises. Generally, academics and regional networkers appear to be less ambitious, tend to favour collective decision-making and see themselves forced into the role by the programmatic design. Thus, incentives for entrepreneurial action are rare. As a consequence patents will be limited to the minimum requirements of the programme and private investments in further development hardly ever occur. In the biographical interviews it became clear that these categories conceived entrepreneurial acting as suspect and questionable. These categories of cluster managers can be further classified as “Amateur-Entrepreneurs” who justify the presence in the economic sphere by community orientation, so upward mobility or financial benefit does not count as a legitimate reason for starting a business for these Amateur-Entrepreneurs. Neither are societal recognition and material gratification motives for acting. Entrepreneurs however, would perceive societal recognition and material wealth as justification for endeavour, performance and risk-taking. Initiators of start up business will never see wealth in the forefront when talking about their motives. Lack of equity and profits and the homemade leverage were against this kind of thinking. For the entrepreneur the most important factor for leaving an institution and starting a business was autonomy. Entrepreneurs profit from economic, social and cultural resources (capital, knowledge and social and professional network) and will activate resources to make them fruitful for the start up business. While cluster managers in the category academics or regional networkers take on an unwanted role that they might give up immediately when opportunities change or blockages appear, entrepreneurs embrace an autonomous and self actualized life that comes along with starting your own business. They willingly pay a price in form of risk and uncertainty and have a tendency to repeat this behaviour. Academics and regional networkers dominate the sample of cluster managers we interviewed in the Entrepreneurial Regions Programme. For the analytical concept entrepreneurial thinking and acting qualified as valid and instructive criteria. Next to entrepreneurial thinking and acting (spirit) strategy turned out to be a relevant indicator and was tested on the three categories as the pattern of market penetration. Academics and regional networkers show an scheme of Interpretation pattern that can be described as mechanistic. In their understanding market penetration is inherent in the technological quality of the product and markets will evolve alongside products in a passive way. Product innovation and development will not be linked to performance and 3

The critical incident technique. Flanagan, John C. Psychological Bulletin, Vol 51(4), Jul 1954, 327–358. doi: http://dx.doi.org/10.1037/h0061470 In der Region Berlin-Brandenburg gibt es 20 Innovationsforen, vier WK-Potenziale, drei Wachstumskerne, vier InnoRegio-Vorhaben, zwei InnoProfile und fünf ForMaT-Projekte sowie ein Zentrum für Innovationskompetenz. Etwa 220 Unternehmen und Institutionen sind in diese Förderformate involviert. Die Region Dresden weist vier Innovationsforen, drei WK-Potenziale, vier Wachstumskerne, zwei InnoRegio- Vorhaben, vier InnoProfile und sieben ForMaT-Projekte sowie drei Zentren für Innovationskompetenz auf. Hier sind rund 240 Unternehmen und Institutionen an diesen Förderformaten beteiligt. Als kontrastierende Vergleichsregion wurde (für Expertengespräche) die Öresund-Region in Dänemark ausgewählt. 4

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profits, but is considered a career phase. Cluster managers of both categories are oblivious of active sales management, go-to-market strategies, the strive for market shares, cutting out the competitive edge of products or increase customer value. As indicator pattern of market penetration is closely linked to entrepreneurial thinking and acting: for academics and regional networkers market penetration is simply not important and accidental. Entrepreneurs however analyse the growth and potential of prospective markets, seek global strategic alliances to carve out a niche for their products and adapt them to customer value (as to relative quality and relative price in a competitive environment). For entrepreneurs success in markets becomes an issue that has to be dealt with in a proactive and systematically way. This interpretive pattern might be a more appropriate preliminary for sustainable regional growth and employment. Linked to this, General Management Competence is an indicator that embraces not only a reflection of the role, the strategic and organisational fit, but also on the management or leadership situation. The indicator also indicates the presence of knowledge and skills for coordination, planning, controlling in the system. In the context of our study we distinguish between specialized management competences that arise at several points in the system and may be fulfilled by individuals without management training or knowledge. General management competence however relies on general management knowledge and training or education. General management is abstract, universal and professional and can be transferred to any situation or activity regardless of the technology, branch, and organisation. Interestingly, the study shows that cluster managers of all three types have acquired their management competences in an individual and independent way and cannot recur on management trainings and education. All of them are “Self-made Managers” with semi-professional management standards. They are sceptical when it comes to management concepts and methods because they belong to a world they don't have access to and don t want to have access. Entrepreneurs however, will accept to work with management concepts in a later stage of their firm foundation. According to the interview statements there seems to be a positive correlation between entrepreneurial success and a new affinity for management concepts. So successful entrepreneurs will actively seek know how input in management sciences and relate the new knowledge to their management methods or adopt new techniques in their own management repertoire. Overall, management and leadership knowledge from practical experience is regarded higher and more useful than theoretical knowledge extracted from business schools. The latter is alien, less relevant and cluster managers are sceptical regarding its value for them and the organisation. This holds true for all three categories. Management is referred to decision making on the basis of personal evaluation of the situation. Entrepreneurs will judge every management book for its pragmatic value, but cannot ignore the comparative benefit of management knowledge in the long run — especially when they gradually encounter production or market challenges and interact with other firms. This insight will allow for an intake of external general management knowledge. The indicator general management competence proved valid in the field research, but was a rare find in all three categories. Contingency and individuals coin the developmental path of startup firms in the cluster which can have a negative impact on the sustainability of the situation. General Management Competence connects with the indicator Networking Competence, i.e. the ability to establish and form social relationships and use them strategically in the context of the enterprise. In the interviews two types were prominent not only in literature but also in the field: Local or regional networking competence and global networking competences. While local network competences heavily rely on old boy networking relationships on a regional level, entrepreneurs will actively design and transform their networks to the requirements of global markets. All three categories of cluster management saw social networking as an essential feature of fundraising. The two types of Networking Competence turned out to be valid and instructive indicators. Only entrepreneurs used it on a global scale to penetrate markets. Interestingly academics, despite their international links in science and research would neither seek new global bonds nor use existing international relationships to actively relate them to the business. According to the literature global networking competences inherit the local system and reduce the risk of lock-in of local developments. Following this, the dominance of academics and regional networkers in ERP clusters affects sustainable development in a negative way. Relevant factor

Type A: regional networker

Type B: entrepreneur

Type C: academic

Entrepreneurial thinking and acting

Amateur entrepreneurship and ability to improvise

Start up activity is a well paid part time job, risk aversion, amateur entrepreneurship

Strategy/penetration of markets

Limited to the region, comes with the product, mechanistic ideas about markets, market objectives stem from local network Good local networking competence; limited to the regional context Old boy organisations of equals

Entrepreneurial risk taking, decision making, leadership autonomy, strategy driven, professional entrepreneur Nimmt und sucht die globalen Herausforderungen des Marktes, Produktentwicklung findet am Markt statt: Strategisches Marktverständnis Global and regional networking; seeks strategic alliances and integration into global networks Professional organisational development, may encounter problems in non hierarchical forms of virtual organisations

Regional networking and international academic networking; local networking competence Virtual organisations with noncommittal (research) character. May encounter problems when strategies are binding and implementation of actions is crucial Professional delegation in academia: hierarchy

Networking competence

Organisational development

Autonomy/leadership

Technical delegation, hierarchy-free communication: heterarchy

General management competence

Improvises and depends on individual background

Decision making is controlled and will be assigned. Authority over design of responsibilities and competences in the system: hierarchy “Self-made-Manager”, learning by doing, no professionalization

Markt wird als eine dem Zufall überlassende Größe betrachtet, so dass die Vermarktung von Produktinnovationen eine zufällige Größe in einem “mechanistischen Marktverständnis” bleibt.

Management competence is limited to academic background

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5. From an output indicator set to an early indicator system R&D personnel and S&T spending, turnover with innovative products, patents, number of publications, new firm formation are outcomes of innovation (Ratanawaraha and Polenske, 2007, 32ff; Grupp, 1997, 143ff; Gehrke et al., 2010. In the study we will use the relevant factors as inputs to approach the phenomenon of sustainability of regional development and to further analyse the impact of activities in the forefront of innovative results. In this new approach we will concentrate on qualitative input factors identified in the narrative interviews as well as in the literature and analyse them for being valid early indicators for innovative outcomes. Generally, innovation is seen as a social phenomenon and the result of an interplay of a multitude of factors that operate in the relevant system. The sensitivity chart links the factors of the regional systems in a purposeful way according to the impact of a respective factor on other factors in the relevant system. The expert group identified the following group of factors in the system (Fig. 1). The role of factors result from an impact analysis: Very active factors that dominate and influence the system in a strong way but will not be influenced in the same way by changes in the system: among these are the programmatic design, general management competence, bureaucracy, and autonomy in regard to decision making. Active factor can be a strong impulse in the system to get the engine started and to initiate a sea change. Critical factors have a high impact on the system as a whole and can change the situation dramatically. They stand for the butterfly effect. Being a wild card their consequences are hard to tell. Access to financial funding and networking competence turned out to be parts of this category. Stabilising factors have a retarding, buffering effect. Although they are affected by the systems dynamics in a strong way, they affect other factors only slightly. These are context factors like the technology path and market & competition in the respective branch: self-organisation, technical competence, entrepreneurial acting and thinking and co-operation-competition, that stand for the cooperation of strategic partner that will become competitors at a later stage. Typical indicators will be a result from the systems' dynamics but will react back only in a weak way. Career perspectives, networking, visibility and attractiveness of the regional system and variety will be evolving consequences of other factors operating in the system. In our system model the ranking of relationships (from over proportional to under proportional impact) defines the nature of relationships as well as their impact and their delay on the system as a whole. In that context, feedback loops may take two forms. They either check and balance the system — or eventually lead to an overturning of the system. Positive reinforcement and the length of positive feedback loops of the factors will lead to endless growth until existing resources are exhausted. Positive feedback loops however are very quick and less prominent in the system: although they will have quick effects, they are subdued by a high number of negative feedback loops. This negative reinforcement will balance the system and lead to relative sustainable development. In total, in our system model long chains of interconnected factors of negative feedback loops dominate the system and show a tendency toward self-organisation (Fig. 2). 6. Scenarios The findings indicate that the regional innovation systems induced by the ERP seems to be relatively stable and even inert after 20 years. The clusters in the ERP can be described as complex systems that stand for sustainable development but not for rapid growth, explosive prosperity and a rapid take off. Apparently, the integrative character of the interlinked ERP programme portfolio has led to a constantly funded, network based development and a high variety of players, that show networking

Fig. 1. Relevant factors in the ERP system model and their role (based on expert focus group).

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Fig. 2. Relationship of factors in the system model of ERP regions. (dotted lines: negative feedback loop, solid line: positive feedback in the relevant system).

competences and are linked by mutual trust. The systems also show a relative predictability of career situations which enhances trust building in the network. Access to financial funding and to a lesser extent general management competence are critical factors for a self sustainable development. A change here might have dramatic effects in the systems. In our interviews we have seen that the programmatic design of ERP will attract mainly two categories of cluster managers. In that way academics and regional networkers, rather than entrepreneurs dominate cluster management and tend to favour the status quo. This holds the risk of being a vicious circle for federal investments and a worst case scenario for regional sustainability. When federal funding in the ERP eventually stops in 2014, the system might collapse immediately. The quantitative analysis shows that 41% of the cluster managers hold shares in other companies. While 47% of the cluster managers invested up to 10% in startups and other firms, 29% even invested up to 100% in firms outside the ERP programme. However, in the ERP only 1.4 new firms were newly started. Cluster managers predominantly have a technical or science background, are well integrated in trust based regional networks, but have not been abroad during their career and have difficulties to link the cluster to international value chains. In their understandings cooperation and competition exclude each other entirely, and partners are to be trusted. So long established good old boy networks dominate the ERP clusters. Access to “fresh” money is rare. In a best case scenario entrepreneurial thinking and acting of true entrepreneurs implies that cluster managers will eventually favour forms of funding that promise more autonomy in decision making and independency from public funding. The ideal entrepreneur will arrange for the critical factor general management competences in the system and will tell technical competence its place. That also might shake the systems tremendously but leads to a more optimistic scenario. Ideally, entrepreneurs reflect the condition and adequacy of the management system employed and shy away from an overload of administrative bureaucracy of political programmes due to the complexity costs arising alongside bureaucracy. Entrepreneurs might also be more willing to destroy trust-based networking for a feasible, competitive strategy and form new alliances while other old partner become competitors or partners in other systems and forms (cooperation–competition). In this ideal system and positive scenario networking will be eventually be driven by markets and not by the programmes that kicked them off. That drive makes them also more attractive for private investments. However, although these regional models show a higher degree of sustainability and fitness they might take off in a different direction, create variety and new integrated value chains or offshore to a different location. True entrepreneurs will channel the innovation intake and the regional system might develop in an international and attractive location. The latter factors become indicators for the early indicator management and entrepreneurial spirit. However, we have empirical evidence that not the true SME entrepreneur but the so called amateur entrepreneurs dominate the ERP clusters. They will be less attractive to private investments, might rely on federal funding for a long time or will fall prey to VC who develop technological know hows and technological key persons into goods for resale rather than to create long term employment opportunities. In this scenario the end of federal funding will also lead to the erosion of the regional consortia and the economic development achieved during the last 20 years. 7. Summary: management for the organisation 2.0 In our study we detected that due to the ERP objectives, the evolving clusters have to show a prospective value chain in the proposal stage and can be defined as strategy driven. Therefore they must eventually take a form as virtual organisation (Scott, 1987, p.25) rather than a noncommittal regional networking structure. There is empirical evidence that early indicators such as trust-based networking and proximity factor continue to contribute to the explanation of cluster coherence, but the adoption of

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new factors that are more adequate to indicate cluster success at an early stage must be taken into consideration. That is particularly true if regional consortia must be transformed into virtual organisations that integrate knowledge and industrial networks and strive for success of science based products in global markets. This essential feature and condition adds to a new quality to the discussion on regional innovation in three ways: Firstly, there is obviously a new belief that virtual organisations are more adequate than mere networking parties to transform knowledge into marketable results. Those strategy driven clusters become more and more the policy instrument par excellence in German innovation policies. Secondly, virtual organisations transport the idea of cluster management in that way that the transformation from a trust-based networking knowledge clusters to virtual organisations has to be managed in some way. Therefore indicators such as entrepreneurial thinking and acting and general management competences will contribute a great deal to the explanation of the success or failure of innovation policies. Thirdly, due to absence of chains of command structures, rules, and the lack of hierarchies, virtual organisations have to be managed in an entirely new way, and by managers, that can live up to it. That sheds light on the new importance of the management factor in regional innovation systems. It also gives clues for the assessment and monitoring of cluster management activities. Managers in these organisations will distinguish themselves by the reflective mode and the structure of information and communication rather than to operate with sanctions and incentives which are used in traditional organisation. Sustainability turned out to be indicators that rely on input. Not only is strategic management the key to an international visible region that offers attractive career and business opportunities, but also the capability to keep an organisational viable by creating the conditions for viability. Fault tolerance, effectiveness and efficiency and a certain degree of redundancy might prove the right way to achieve resilience against market failure and funding gaps. 8. Policy implication Thus the true political innovation in innovation policy might be the organisational form and the integration of socio-economic-technological development: “In this environment, traditional organisations find themselves outflanked by competitors that adapt dynamically to unanticipated changes in their turbulent environment or to opportunities revealed through interactions with customers. Sometimes described as ‘virtual’, ‘hybrid’ or ‘lean’, virtual organisations are built ad hoc from small, sometimes globally dispersed, independent organisational entities. These organisational entities reshape themselves dynamically as customer requirements change or as the environment evolves. Contributing entities are added to the network when they can add value and are disengaged as their competencies are no longer required.” (Scott, 1987, p.25). Despite the long term success of the ERP in regard to economic and social development the programmatic design requires revision. Innovative SME, capable to manage the industrial crisis in the 90s and the financial crisis in 2009 might be ready to engage in less elaborated programmes and instruments. Smart, well-designed interventions, such as enlargement of micro-lending, support by business angels, strengthening of venture capital (OECD, 2009a, 2009b), or tax reduction policies will be better suited to support future entrepreneurial driven innovation. These instruments can replace the complex programmes and give the entrepreneurial government leeway to engage in other forms of innovation policy. 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