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Interview and transcription March 19, 2009

Tom Allen on the Allen Curve: Creating the right space to foster
a spirit of innovation

Thomas Allen, Ph.D.

Howard W. Johnson Professor of Management, Emeritus
MIT Sloan School of Management

[00:09:58] I’m Tom Allen and I’m talking about a study that we did in
biotechnology, clusters of biology technology companies in the
Boston Cambridge area, testing the basic hypothesis that whether
clustering of start-up high technology companies together
geographically has any benefits or not. It’s been a discussion in the
past. We defined an experimental group first of companies that were
located in the region behind MIT or Harvard Medical School on the
Boston side of the Charles River. We defined it by postal codes. We
said if they happened to be in one or more zip codes then they were
in our experimental group. If not, they were in our control group,
which included companies within one hundred kilometers of where
the experimental group is located. One went as far as Wooster,
Massachusetts. And we made comparisons between the two of them;
now, what we had – and you’ve got some of the data - we set up a
web page that listed all of the companies that were doing
biotechnology research in the region and we pulled a sample of fifty
companies that we were going to gather data from and what we did

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was set up the web page first for the two hundred or so companies.
Then, on randomly chosen days we send e-mails out to scientists in
the fifty companies that we’re studying and we asked them to think
about what they did on that given day. Had they talked to anybody in
any of these other companies about a scientific subject, not business
deals, but scientific subjects? Then just take the mouse and click that
company, it goes into our data base, we collect that because we do
this repeatedly over a period of six months, every week on a different
day for six months. Then we plot out a network from the data that we
have, we know which companies have had some contact with one
another and that includes by the way, five major broad based
pharmaceutical companies located in the area. Merck, Pfizer, Wyeth,
Astrozac, and Louverdis are located here and we sampled scientists
in those companies as well. There were also a number of large well-
established biotechnology companies: Biogen, Genzyme, and so
forth, five or six companies of that sort and we sampled from them as
well. So, we had a pretty complete network of companies because
even those we weren’t studying directly, we got references to,
somebody said to talk to, somebody in the company that didn’t
happen to be one of the ones we were sampling we assumed that
that meant there was communication between those two companies.
Once you have data like that you can begin to ask a lot of questions
about it. For example, one of the basic questions was, “How are the
communications within the cluster, within those zip codes than there
is with those companies outside?” And the answer is, “Yes.” If you
place a simple graph theory measures to it you find the companies
within the geographic cluster are more central to the network than are
other companies. Then, you can ask things about the role of the
Universities, the role of the major pharmaceutical companies, and so
forth. You find, of course, that the Universities are a major factor
because that’s where most of the companies have their origins. There
were actually five Universities nearby doing biotechnology research.
But most of the work, most of the companies had their origins in
either Harvard Medical School or MIT. But, Boston University is very
active, a lot of companies came out of Boston University,
Northeastern University less active, Tufts a little bit through the
Copyright 2010 Betsey Merkel and I-Open. Creative Commons 3.0
Attribution-Noncommercial-No Derivative Works. Institute for Open
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Medical School and so forth; but one of the key things that came out
was the role of those major pharmaceutical companies, everybody
was connected into to them. Largely, I think, although I can’t really
test that, because they were active in going out and trying to make
contact with the small companies. They were all obviously trying to
expand into biotechnology and there is a lot of technology available in
these small companies, they were looking for license opportunities or
acquisition opportunities, and they were working hard at it. But, they
become a major factor in the network and I think that it really helps
the network to develop as a result of their position. We also found the
communication was much higher, as I think I said already, of within
the geographically defined cluster area than the companies that were
farther out. We tested it still another way to see whether there was
any affect from physical proximity. We obtained the latitude and
longitude of each of the companies in the sample, now that obviously
is the location of the front door, but these companies were pretty
small and the error there isn’t very great. There is a bigger error in
that we measured the distance between the companies but we did it
‘as the crow flies’ - we didn’t measure around corners or anything, it
could be done but I wouldn’t get into that level of detail. But we then
were able to compute for each company the average distance that
company was from all the other companies in our study. So now
that’s a character of the company, what’s their mean distance from all
the other companies that are in the study? We related that to the level
of communication among that same set, how much did that focus
company, the company that we’re looking at, how much did that
company, the scientists in that company, communicate with all the
other companies? And so now you have two measures for each
company: they’re average distance and their level of communication
with those other companies. And when you relate those two you find
a sudden drop within a few kilometers, it’s just about zero, it’s very
high in close and drops off very rapidly with distance showing that
broadband communication isn’t really a substitute for face-to-face,
these people were talking with one another face-to-face. That is how
distance impacts the likelihood of communication between
companies. Some of that I think is due to the fact that the companies
Copyright 2010 Betsey Merkel and I-Open. Creative Commons 3.0
Attribution-Noncommercial-No Derivative Works. Institute for Open
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are generally pretty small and as a result they don’t have any dining
facilities, people go outside the company for lunch and they go to the
lunchrooms and cafes and so forth around Kendall Square, an area
which is a neighborhood of Cambridge where most of them are
located, and they run into old friends that they knew from their
University days and they talk to one another or they ride in on the
same subway train or they run into each other in the same parking lot
or whatever it may be, I believe it’s a function of small size
companies. People get out and bump into one another much more
frequently and it is a very interesting phenomenon by the way. As a
result, a lot of knowledge was transferred. We also found that people
of course move between companies when they are so close together
and that promotes communication. Interesting, a little [observation]
we ran across, one of the companies that we were studying was very
optimistic about their growth for a few years, they were doing very
well, but they were a little too optimistic and they over hired and
ended up with more staff than the business really could carry and
they had a fairly substantial layoff. The scientists who were laid off,
interestingly enough, didn’t go away mad - turned out that they
brought business back to the company that had fired them! And really
built a network, and helped that company to build its network with the
companies that were working and they spread out pick up jobs all
over the area. So you see things like that going on here that are very
interesting. Now, what else did we learn from it? Well, one is, I think,
the importance of the major pharmaceutical companies being here,
we all know the Universities are important and in different regions
where they’ve tried to develop high technology clusters and this sort,
of course it has to built around a major University, and I think that’s
true, I think that our data certainly supports that. But, the other part of
it is the large companies, both the large biotechnology companies by
the way and the traditional pharmaceutical companies seem to play a
significant role. We need to know more about that, just how it works.
But, when we look at the networks, they have central positions in the
networks and I think they are critical to developing the network and
developing the communication and making these clusters effective.

Copyright 2010 Betsey Merkel and I-Open. Creative Commons 3.0

Attribution-Noncommercial-No Derivative Works. Institute for Open
Economic Networks (I-Open) 4415 Euclid Ave 3rd Fl Cleveland, Ohio
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Our generous thanks to Tom Allen.

The Institute for Open Economic Networks (I-Open)
4415 Euclid Ave 3rd Floor Cleveland Ohio 44103 USA
Creative Commons License
Attribution-Noncommercial No Derivative Works 3.0 United States

You can view the video interview at

http://www.livestream.com/iopen/video?clipId=flv_5fc905c1-1982-
48c6-acb6-1f7293e7f9de
Biographical Information

• Margaret MacVicar Faculty Fellow

• Howard W. Johnson Professor of Management, Emeritus
• Technological Innovation & Entrepreneurship (TIE)
• Specializing in organizational psychology and management
• http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=267&co_lis
t=F

Research

• Wikipedia http://en.wikipedia.org/wiki/Thomas_J._Allen
• Thomas J. Allen is the Howard W. Johnson Professor of
Management at the MIT Sloan School of Management, and the
co-director of the MIT Leaders For Manufacturing program.
• He is the creator of the Allen curve, an approach to measuring
and modeling the performance of cross-functional research and
development teams.

Publications

• Tom Allen and the Allen Curve “Creating the right space to foster
a spirit of innovation” Irish Times, Ireland, by Frank Dillon
(December 8, 2008)
• The Organization and Architecture of Innovation: Managing the
Flow of Technology, Co-authored by Gunter Henn, Butterworth-
Heinemann, October 2006
Copyright 2010 Betsey Merkel and I-Open. Creative Commons 3.0
Attribution-Noncommercial-No Derivative Works. Institute for Open
Economic Networks (I-Open) 4415 Euclid Ave 3rd Fl Cleveland, Ohio
44103 USA
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• Lean Enterprise Value: Insights from MIT's Lean Aerospace

Initiative
• Co-authored by Earll Murman, Kirkor Bozdogan, Joel Cutcher-
Gershenfeld, Hugh McManus, Deborah Nightingale, Eric
Rebentisch, Tom Shields, Fred Stahl, Myles Walton, Joyce
Warmkessel, Stanley Weiss, and Sheila Widnall, Palgrave
Macmillan 2002

Contact information

Office: NE25-758
Tel: 617-253-6651
Fax: 617-253-3331
E-mail: tallen@mit.edu

Support Staff
Name: Joanne McHugh
Tel: 617-253-0586
E-mail: jamchugh@mit.edu

Copyright 2010 Betsey Merkel and I-Open. Creative Commons 3.0

Attribution-Noncommercial-No Derivative Works. Institute for Open
Economic Networks (I-Open) 4415 Euclid Ave 3rd Fl Cleveland, Ohio
44103 USA