In the 21^st century, companies no longer need to assemble all of the resources and all of the experts to create a new product in one central location.  Instead, they can form virtual clusters using state-of-the-art technology and forward-thinking business practices.

Virtual clusters are typically temporary alliances of businesses that combine their skills so they can exploit a market opportunity.  Unlike economic clusters based on geography, however, these clusters are virtual; that is, the organizations may be spread across the globe, while they are linked by computer networks and communications technology.

As John Kao discusses in the Harvard Business Review,¹ a start-up firm can compete like a big corporation by forming virtual alliances that leverage the talent and facilities available in such high-tech hot spots as Helsinki, Singapore, and Shanghai.

In general, a virtual cluster is comprised of equal partners, who have complementary skills or core competencies, that are geographically dispersed, and who are not interested in creating a new legal enterprise.  Each of the organizations is able to focus on using its specialized skill, while relying on its partners to provide the skills it lacks.

The benefits of a virtual cluster include:

• Increased efficiency
• Economies of scale and scope
• Less overhead
• Cheaper connections with suppliers and partners
• Increased opportunities to generate revenue

However, not every company can benefit from virtual clustering.  The organizations that get the best results are those that focus on building the ability to collaborate with partners.  As Alan MacCormack and Theodore Forbath explain in the Harvard Business Review,² they interviewed more than 100 managers in 20 companies in a variety of industries.  What they found is that the best firms invest in four areas that are crucial to a successful collaboration among partners:

They invest in people by changing the way they recruit, train, assess, and reward managers.  Because the people in partner companies are not under their control, the...