Dr. Tom Horan describes industry clusters across Minnesota and how business ecosystems can build rural and urban prosperity
Oh, we ain't got a barrel of money. Maybe we're ragged and funny, but we'll travel along singing a song side by side.
Dr. Tom Horan:But what the concept of interesting cluster is, you shouldn't just look at the company if you really want to have regional prosperity. You should look at, is it a network of companies? Because the impact of a network of companies is much higher than an individual company. Pull the frame out a bit from trying to attract an individual company to what kind of cluster of companies do you have, which creates more of a business ecosystem. Industry clusters are important not in just the urban areas, but in Greater Minnesota.
Dr. Tom Horan:And it's not just from a policy perspective or economic development perspective, but actual businesses are thriving by taking that perspective.
Ellen Wolter:That's doctor Tom Horan, dean of the School of Business and Society at the University of Redlands in California and visiting scholar at University of Minnesota's Humphrey School. Talking about his research on industry clusters in Minnesota and their importance in building regional prosperity. Doctor. Horan's work explores the industry cluster of medical devices, with his most recent study revealing clusters in Greater Minnesota and the economic interconnectedness of rural and urban areas. Doctor Horan joined me to talk about his work and highlighted a case study he authored involving Granite Partners, which is headquartered in Saint Cloud, Minnesota, and has successfully used an industry cluster approach to sustain local business and economic ecosystems in Central Minnesota's cities and small towns.
Ellen Wolter:Doctor Horan's work has implications for regional community development and more broadly how rural and urban areas can support each other's growth and view regional prosperity through the lens of networks of companies rather than individual enterprises.
Music (Jim Griswold):When they've all had their quarrels and parted, we'll be the same as we started just to travel along singing a song side by side.
Ellen Wolter:This is Ellen Wolter from the University of Minnesota Extension, and welcome to the Side by Side podcast.
Dr. Tom Horan:I am presently the dean of the school of business and society in Redlands, California. I have been affiliated with the University of Minnesota for at least twenty five years, I would say. And over that period, I have really enjoyed collaborating on a whole series of studies in that time.
Ellen Wolter:Oh, Tom. I didn't realize you'd been affiliated for over twenty five years. Tell me more about the work you've done with Minnesota.
Dr. Tom Horan:Yeah. Well, it started out almost as an accident. This is back in the day when there used to be congressional earmarks. There was a great congressman, James Oberstar, who was a supporter of us, and he had put in an earmark for the University of Minnesota to look at social environmental impacts of transportation. And at the time, I was at another university, and we plead for an earmark, and it said almost the same thing on, like, the next line of the legislation.
Dr. Tom Horan:And I said, I better look them up. And so I contacted Lee Munich at the Humphrey School for a long time, Barbara Roddy, and I said, don't we collaborate instead of compete? And so that has been a long ride with the whole series of studies. But certainly, you know, through line in that, and particularly in collaboration with my colleague, Leib Munich, who's retired, was the notion of industry clusters. And was the notion that industry clusters perhaps were not just an urban thing.
Dr. Tom Horan:And that was a great premise. Right? Because the assumption as we looked at the literature on industry clusters and how it was studied and all that and Michael Porter at Harvard who was really the kingpin on this with his books and such. But the interest cost is they talk about where biotech in Boston and Hawaiian and Napa and and cell in San Diego and Minneapolis for medical devices in terms of the concentration of industries. And so we wanted to see what is it really a medical alley as the descriptor is, which this connotes an alley, which connotes kind of urban form, or is there something more going on underneath the hood?
Dr. Tom Horan:And that's what motivated us to do this this last study.
Ellen Wolter:For folks who are not familiar with an industry cluster, how would you define that? What exactly is that?
Dr. Tom Horan:You know, a lot of times in I'll just say in development, but in general, the focus seems to be on an individual company. You know? Will this company move to here? Can we attract this company? What does this company mean for the economy?
Dr. Tom Horan:And certainly, there are companies that we can point to including Medtronic, including Target. Right? But what the concept of industry cluster is, you shouldn't just look at the company if you really want to have regional prosperity. You should look at, is it a network of companies? Because the impact of a network of companies is much higher than an individual company.
Dr. Tom Horan:And it turns out that people wanna go to places that like them. In other words, you can start a company off in the middle of nowhere, but it's gonna be really hard to find people who kinda know about Right? So companies like medical device companies would be attracted to Minnesota, would be attracted to the area because there's a whole labor pool that have been working at Medtronic or working here, working there. So the skill force is there, Somewhat academic in terms of economic development and economic prosperity. Pull the frame out a bit from trying to attract an individual company to what kind of cluster of companies do you have which creates more of a business ecosystem, if you will, that makes it a lot easier for a company to get started there.
Dr. Tom Horan:So that's what an industry cluster is. It's a grouping of clusters along a certain theme.
Ellen Wolter:So, Tom, would you say that Minnesota itself is a medical device industry cluster, or is it more a region?
Dr. Tom Horan:You know, it would be spanning out from Downtown Minneapolis, and it continues to move out. It's moving out By Plymouth, it's going a lot of different places and there's a thing called the location quotient, which tells you relatively speaking, is it high or low? And Minnesota has two and a half times the average of medical device companies than you would typically find. So it's one in the top three or four, you know, in the country in that regard.
Ellen Wolter:How long has that been the case, Tom?
Dr. Tom Horan:Yeah. Well, it's a long way from, you know, when Medtronic was founded in a back office of a garage or whatever it was. And so it's really been for over the last decade, I would say, that it has really emerged. And so at the state level, it's very important. But what we try to do is look at a level below the company's.
Dr. Tom Horan:In other words, the company needs things. Right? I mean, it needs supplies. It doesn't produce everything. It, you know, it contracts with somebody to produce something for them.
Dr. Tom Horan:So then when you look at an industry cluster, you not only look at the company itself, but just to simplify it, you look at the suppliers to the company. Who makes the wires? Who does this? Who does that? Right?
Dr. Tom Horan:Because rarely do companies do all of it. Right? There's a thing called a supply chain and they get things from different companies and they pull it together and so forth and so on and send it out through their marketing channels. So so if you broaden it from looking at the company itself to looking at what companies are benefiting from this company being there, what other companies are benefiting from Medtronic being there, what other are benefiting from some of the other medical device or, you know, ones that kind of bleed into into health care like Mayo? And so that's that's what we wanted to do.
Dr. Tom Horan:And so we also were curious, do we have a kind of dog bites man story, right, That is kind of the reverse of what you expect. And so the typical expectation in the literature, but also in practice, was that, yeah, look at the urban areas. Look at Boston around 01:28. Look at San Diego around the five kind of thing. And so we said, well, let's just see where these linked companies are.
Dr. Tom Horan:And that's where you see in the map not only the the company itself, but the linked companies. And so when you go from the companies themselves, you know, there's like 12 dots or something. Right? When you go to suppliers, then it really opens up. And that's what we found.
Dr. Tom Horan:Now that's interesting in its own right, but if we look at it from a economic and community point of view, what does it mean? And so that's when we stumbled, really, onto this work by region nine in Minnesota that had looked at the medical device industry and what it meant for South Minnesota. And if you look at it, in several of the counties, the largest share of exports from that county, in other words, was made in that county and went out, It was medical devices. Go figure. Right?
Dr. Tom Horan:You know? So we really like that. And this tapped into something which Lee Munich had really pioneered for decades and I was happy to collaborate with him, that are rural industry clusters and and a rural economic component to industry clusters that needs to be considered when you're thinking big picture about the economic prosperity. Now that's the economic side. Right?
Dr. Tom Horan:But what about the community side? What does it mean besides dollars and cents is coming and going? Well, one thing is it means income. Right? And this is when we started on maps, and we use a platform called geographic information systems or GIS, which allows you to imagine a multidimensional map.
Dr. Tom Horan:It's not just one map. It's like five maps on top of each other that you can then pull out the information you want that connects them all. And so you can take your other companies and then here are the communities that they operate in. Here is the relative educational level in those areas, those counties, and here's the relative income in those areas. Well, first we map percent of medical device relative to total economic output of the county.
Dr. Tom Horan:So first you'll see there's some more of that, darker it is. Then you see, okay, what is the relative proportion of income to it? And you see some bump on income. And then you say, well, where's the relative proportion of education? And you see some bump there.
Dr. Tom Horan:And so so we could see this, and we could take that quantitative analysis about as far as we could take.
Ellen Wolter:So the map that you mentioned, the darker blue is higher concentration of medical device imports and exports compared to the overall federal average. And listeners will be sure to share that map out so you could take a look at it. And to your point, I was really surprised to see that it's Yellow Medicine, the Keepharl, and Lincoln Counties. Those are those Southwest Counties that you mentioned, which are Yeah. Pretty rural.
Ellen Wolter:Yeah. And their averages were higher than our suburban counties like Scott, Carver, Wright Counties. And I'm curious why do you why do you think that might be? What is the reason for that?
Dr. Tom Horan:Well, of course, we have to, you know, level set. The total piece of the pie is much larger in the urban areas. The total number is much higher. Mhmm. So let's just take Minneapolis.
Dr. Tom Horan:You know, there are so many companies in Minneapolis. Right? So medical device is only gonna have, you know, this much. But the pie is this big. Right?
Ellen Wolter:Makes sense. Yeah. Right?
Dr. Tom Horan:So the total economic value is much higher. Go to a small region, pie is smaller in terms of the, let's just say, the net exports from that county, what they make and where it goes, which is what we're looking at. But it could be proportionately higher because out of the, you know, just pick a number, out of the 4,000 jobs, thousand are doing that kind of stuff. And so all of a sudden, it shows up as 25%. So the number is smaller, but that, in some ways, doesn't matter to that community.
Ellen Wolter:Do you think it's kind of a new a new industry cluster? Or do you think it's been there for a while, but you're just kind of lifting it into visibility?
Dr. Tom Horan:If you look at the history of three m and you look at others, this didn't come out of nowhere. Around Minnesota, there had been investments by three m and others in creating certain kinds of products, certain kinds of things, pipes that would then go to this. You know, a certain kind of specialty items that were being done, not in the Twin Cities because among other things, the labor and land is very expensive. Right?
Ellen Wolter:So let's talk about the Granite Partners case study. And full disclosure, I live in the Saint Cloud area, and so I know Granite Partners and work with a few of their folks on community projects. So I was really excited to see that you had connected with them.
Dr. Tom Horan:Yeah. Yeah. You know, one thing kinda leads to another. And so I was speaking with someone, can't remember exactly whom, but they said, oh, you gotta talk to Partners. And so I met with the founders of Granite Partners.
Dr. Tom Horan:And now why? Why was this person urging me to meet with them? Well, I started to talk to them, and they said, you know, we started the company
Ellen Wolter:kind of
Dr. Tom Horan:based on some of your work, and and particularly, Lee Minnick's work on rural industry clusters. I said, you gotta be kidding me. They said, no. Really? And so because we were thinking and they have their own story about acquiring companies that are family owned and they're about to retire and they don't wanna sell it to a conglomerate, which will close it in a year.
Dr. Tom Horan:And so they thought, how do we assemble companies in our portfolio? And they took this cluster approach. This is like a dream come true for an academic. Right? They they picked certain clusters to focus on, which kind of medical devices is one.
Dr. Tom Horan:And we also look at another thing called shared value, which is a concept related to industry clusters, but it's about the community impact and understanding it. And so I said, yeah. We're not only looking at the clusters, but also, you know, this notion of its positive social spin off, for lack of better term, called shared value. And they said, yeah. We we believe in it.
Dr. Tom Horan:I said, how do you know about it? They said, oh, we went to Harvard Business School. Thought he got a Michael Park. What a small world. Well
Ellen Wolter:I thought that helps. Yeah.
Dr. Tom Horan:Small world. And that their and that their that their company, other parts of it, had been a case study at Harvard Business School. So it was kind of really coming full circle for us to look at Granite Partners and their philosophy, and it really is remarkable story. So for listeners who don't know, I'll I'll rewind a bit just because I think it informs. So, yes, they started to think about these companies and they knew several of them that the owners were kinda getting of age and they faced a choice.
Dr. Tom Horan:You know, let's say the kids didn't want it. Right? And so do they sell the company or not? So what they did is Granite Partners set up a firm one level above and they bought the company. And so they bought like 10 companies and they gave and I'm giving you a simple version.
Dr. Tom Horan:If they listen to this, they'll probably say they gave the owners shares in that overall company, Granite Partners. So so then they could hire CEO for the company. The the owners gained shares in this broader enterprise called Granite Partners. And as Granite Partners did, so did they. And and it was able to stay kind of local and so on and so forth.
Dr. Tom Horan:And Granite Partners has done very well economically, very well under this model. And this is another, you know, man bites dog story because instead of a conglomerate coming in, buying a company for eighteen months, right, getting all the IP of the company, letting people go, moving it closer to their branch, you know, and they had seen that. This is really reinvesting, you know, in the in the communities and those companies for the long term. And so we were delighted to be able to use that as as a case study of not only saying industry clusters are important not in just the urban areas, but in the greater Minnesota. And it's not just from a policy perspective or economic development perspective thinking it, but actual businesses are are thriving by taking that perspective.
Ellen Wolter:Yeah. No. Granite Partners is such a fascinating company for all the reasons you mentioned. Could you describe, Tom, a little bit about you know, because their companies you know, Saint Cloud is our kind of metropolitan area, if you will, in Central Minnesota. And then we have, you know, pockets of rural or small towns around Saint Cloud.
Dr. Tom Horan:Correct.
Ellen Wolter:So could you describe a little bit how Granite Partners is even just geographically mapped in Central Minnesota? Because it's not just in Saint Cloud. Right? It
Dr. Tom Horan:it's No. No. Saint Cloud has its own. We hadn't have time to drill into Saint Cloud, but there's there's there's eyeglass manufacturing. There are enterprises coming out of the educational system there.
Dr. Tom Horan:They're starting more training programs, you know, for these, including medical but other industry clusters. So Saint Cloud plus the the health care industry being there is not insignificant. Right?
Ellen Wolter:And you have this great graphic, and listeners, I'll be sure to share this out. In your research study where it describes the different types of companies and the kinda layers
Dr. Tom Horan:Right.
Ellen Wolter:That they are. Right? So there's and help me understand this, but there's the the components that make the materials that make the medical devices. Right? Then there's the making of the medical devices.
Ellen Wolter:And then I believe there's distribution.
Dr. Tom Horan:Distribution. Right? So could
Ellen Wolter:you describe a little bit for folks what those layers and kinda linked companies look like within Central Minnesota for for Granite Partners?
Dr. Tom Horan:Yeah. And it can depend on the on the product. But often companies, if they're not linked, they're making Right? They're making adaptable wheelchairs, okay, for folks who have some form of disability, right, to have greater options. Okay.
Dr. Tom Horan:That's what they do. Well, they really assemble it. Right? They go to a metalworks place and say, hey. This is what we need.
Dr. Tom Horan:Right? And they go to another one. Says, okay. You do this. This is what we need.
Dr. Tom Horan:Right? And so everything on that side would be kind of supply chain, we would call it. They're supplying the company to it. But those aren't the only ones that they're working with. So and so we'll just simply go outbound, right, to the marketing, distribution, sales.
Dr. Tom Horan:Right? So just imagine it. Take these pieces. They ask for these pieces of different kinds. They pull them in, get them assembled one way or the other, and then they sell them.
Dr. Tom Horan:Now there's a bunch of companies that help with the selling. There's a marketing company. There's a distribution company. There's a trucking company that delivers it. So we have all of those on the distribution side.
Dr. Tom Horan:Then you probably have within the company just various types of support. It could range from accounting, right, in managing the company. So all of those are benefiting, and all along they have some sort of ecosystem that they're operating in. And and very few companies do all of that themselves.
Ellen Wolter:And and so that ecosystem is largely in the the Central Minnesota area. Right? And so you have is it more than a dozen companies that exist underneath the Granite Partners umbrella some something Yeah.
Dr. Tom Horan:So it's it's I forget. I think it was 10. Maybe it's growing to 12 or or something like that. And each of those 12 right. But then what Granite Partners did is they can then take over a lot of in house stuff for all of them.
Dr. Tom Horan:So so they can relieve them of accounting burdens. They can relieve them of these burdens because they're gonna get economies escape by being able to do it, and that gives the company a bit more freedom to focus on products and services.
Ellen Wolter:So, Tom, you mentioned that there's, of course, the economic benefit for a community, which is, of course, is, I think, obvious for folks.
Dr. Tom Horan:But Right.
Ellen Wolter:What is the community benefit, if you will? You mentioned this a little bit, but, you know, how has this strategy and approach benefited Central Minnesota? And, you know, even if it's just anecdotally, what are some of the the things that maybe you found or what are the things that Granite Partners shared with you in terms of how communities in Saint Cloud and beyond have benefited?
Dr. Tom Horan:I mean, they they track certainly the amount of giving that they do to the community in terms of educational support and scholarships and things like that. So that's certainly, you know, a piece of it. But I think more than that, there's an engagement of the community that a lot of people never wanna leave. And this is giving it's economic opportunity. You see that in some of the income bumps.
Dr. Tom Horan:And we talked to a couple, not in the founder level, but kind of one down or whatever, and they were like, yeah, we don't wanna mow. You know, this company was going to go up for sale or not and now we get to stay in the community. And does that not create a new set of dynamics, which which you would hope and think would lead to entrepreneurship in those spaces? So now all of this can get kinda simple in a given town. Right?
Dr. Tom Horan:You got this person this company over here and this one over there and this one over here. And so it's kind of invisible, this impact, which is why we wanted to use maps and things like that. I want it.
Ellen Wolter:Yeah. Well, one of the reasons I wanted to to do this podcast is to make the rural urban connections that are invisible more visible. And so your maps literally do that
Dr. Tom Horan:Right.
Ellen Wolter:And really demonstrating how rural and urban and suburban spaces are really connected economically with these industry clusters. So, you know, rural and urban spaces, they're often discussed as separate places, and they are researched separately, different places. Right. And, especially, they're different. The issues are addressed differently.
Ellen Wolter:Right? There's different policy mechanisms for these different places. But your research is really showing that there's a lot of interconnectedness, right, within these industry clusters and the medical device industry. And I'm curious if you think that there could be more research like this. I'm curious why you think we don't have more research like this that's demonstrating these connections.
Dr. Tom Horan:Yeah. Yeah. Look. Right. Which is why we, you know, turn the mirror.
Dr. Tom Horan:Right? Because most of the research had talked about dominant industry clusters in major metropolitan areas and really didn't even pay attention to the flyover states. Senator Klobuchar gave has given some remarks about this study. Her remarks, she did a video, and she said, we ain't no flyover state. We've got economic and and, technological things happening right here.
Dr. Tom Horan:It doesn't have to be just Boston. It doesn't have to be just San Diego. We have a lot going on right here. So Now
Ellen Wolter:she's not wrong. She's not Right.
Dr. Tom Horan:Right. Right.
Ellen Wolter:So in your research, Tom, what are some of the ways that you are thinking about this interconnectedness of rural and urban industry clusters? What are some
Ellen Wolter:of the next things that you're working on?
Dr. Tom Horan:So by way of transition, when we started the study, COVID had happened. And there was a lot of talk about not being so internationally dependent. Because when we're doing COVID, supply chains froze. And so, and so how to be more resilient was the term at the time. Overseas companies looked for places in The US so that if it happened again, they would still be able to to apply.
Dr. Tom Horan:Our our next study is agriculture, and and we're taking an intercostal approach to agriculture, And we are just on the front end of that. Agriculture is a global commodity, a major global commodity for for Minnesota. And the markets how does what we learn from medical devices apply to agriculture? I mean, Minnesota sells more soybeans than it could ever consume. And so how within the agricultural sector do you create what's been called a kind of a circular supply chain?
Dr. Tom Horan:In other words, can you actually develop more of a regional supply chain Yeah. For certain agricultural products that are not as susceptible to these things? And what's the if you use the maps kinda layers that I talked about, you looked at certain counties and what the economic value is in terms of agricultural products, we're gonna see some concentration geographically. And then if you look at the secondary layers of income, education, and things like that, It's gonna be a much more complicated story. And we're just at the front end.
Dr. Tom Horan:I don't wanna get over my skis about it, but you can see where some of the dynamics may start to play out.
Ellen Wolter:I just have one last question for you, Tom, and then I'll let you get on your way. What are some of the implications that your work has for businesses as they think about their strategy and planning? Particularly, I think businesses that exist outside of those bigger metro areas. Right. What are some of the the lessons they can take away from your work?
Dr. Tom Horan:Yeah. Well, if you look at some of the the granite companies, they're doing they're finding niches, you know. Like, hey, nobody else is in this niche. We wanna own this niche. It's not a big global niche.
Dr. Tom Horan:We can really dominate in that niche. And so I think and sometimes you'll find that what will happen is somebody will have been at a Medtronic or something and they know, you know, this is needed. And they say, well, if they're not gonna do it, I'm gonna do it. And so I do think how to encourage entrepreneurship and have companies really support that. I mean, that's kind of this Silicon Valley way.
Dr. Tom Horan:Right? You know, spin it off and, you know, do it. And so I think there are things in there that continue to move around and allow for next generation kind of things to happen.
Ellen Wolter:Tom, and then what do you think implications are for community developers and policymakers? And what are investments and policies that can be developed to incentivize some of these industry clusters?
Dr. Tom Horan:Michael Porter got the ear of the Department of Commerce several years ago, and they started an industry cluster kind of demonstration program. There was a whole wave of that that happened, and Minnesota got some of that, I believe. And then most recently, there was another wave, and Greater MSP was very involved in it. It tends to be a bit more metropolitan focused, I would say. So so if we're looking out on what it can be, I continue to think that the educational investments within those, you know, whether it's St.
Dr. Tom Horan:Cloud or Mankato, because the employers go to those to get workers who know this and that, and there's a lot of curiosities about health care. And so I think within there lies the seeds of entrepreneurship and and being able to grow something with the support of those other companies. I mean, think of Napa Valley. They were nothing. Right?
Dr. Tom Horan:And they really invested in their wine industry to see what it could be. And and Greater Minnesota has got a lot of interesting attributes in terms of educated, hardworking workforce, relatively low cost as compared to California. Right? Some cornerstone industries that are producing labor that can be used in other ways.
Ellen Wolter:Yeah. Thanks so much, Tom, for being on today. I really appreciate your insights and wisdom and looking forward to your future research.
Dr. Tom Horan:I appreciate the opportunity to talk about our work. I've loved working with the University of Minnesota. I mean, it's been a long time now.
Ellen Wolter:Thanks so much, Tom.
Ellen Wolter:Thank you for listening to Side by Side. We welcome your emails at sidebyside@umn.edu. Side by Side is a production of the University of Minnesota Extension and is written and hosted by me, Ellen Wolter. Special thanks to Jan Jekula, who designed our wonderful logo, and Jim Griswold, who sings and plays guitar in our opening and closing credits. You can find episodes of side by side wherever you get your podcasts.
Ellen Wolter:We'll be back next week with another episode. I'm Ellen Walter, and this is side by side.
