Reading the Territorial Restructuring of Business Services as an Innovation Process: The Case of...

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Volume 29.3 September 2005 564–80 International Journal of Urban and Regional Research © Joint Editors and Blackwell Publishing Ltd 2005. Published by Blackwell Publishing. 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA Reading the Territorial Restructuring of Business Services as an Innovation Process: The Case of German Advertising JOACHIM THIEL Introduction ‘Innovation’ has been one of the catchwords of urban and regional studies over the last 20 years. The changing pattern of uneven regional development in the Western economies — from the mass-production-led post-war model of urban growth diffusing into the rest of the national space economy to a more diverse constellation of growth and decline of both urban and non-urban spaces — has directed academia’s attention towards the variance of innovativeness as a key source of inequality between regions. Following primarily a neo-Schumpeterian approach, innovation was held to occur in a complex and interactive process full of uncertainties, irreversibilities, path dependencies, mechanisms of cumulative causation and so on, thereby strongly depending on the socio- spatial environment in which it takes place. Notwithstanding the added value that debates on ‘territory and innovation’ have provided, not only for economic geography but also for the social sciences as a whole, there is one major shortcoming in that they almost exclusively dealt with manufacturing industries, thereby virtually neglecting another major change influencing the restructuring of cities and regions: the rise of the service economy, characterized by the two parallel processes of de-industrialization on the one hand, and the emergent post- industrial economy (Marshall, 1988: 7) on the other. The present and future patterns of urban and regional development in the industrialized countries thus have to be considered as being shaped by a ‘geography of innovation’ as well as the articulation of a ‘geography of the service economy’ (see Marshall and Wood, 1995, among others). The rich literature on services and space tackles the question of innovation only to a limited extent. If there is any specific literature at all that focuses on service innovation, beyond stressing the role of services for innovation in manufacturing and vice versa, it ignores the spatial dimension, although providing an important contribution to understanding innovation as a whole from a service perspective — that is, beyond the technology-focused dualism of products and process (e.g. Callouj and Weinstein, 1997; Sundbo, 1997). This article attempts to develop a service (and creative economy) informed approach to the interaction between territory and innovation by addressing the innovation process of one particular business service industry — advertising — in the context of its global reorganization and its implications in a particular national space economy — Germany. Theoretically it starts from two paradigmatic arguments of the territory and innovation A first version of this article was presented at the CURDS anniversary conference ‘Cities and Regions in the 21st Century’, Newcastle upon Tyne, 16–18 September 2002. The author is particularly grateful to Dieter Läpple and Neill Marshall for their support in the underlying PhD project, as well as to two anonymous referees.

Transcript of Reading the Territorial Restructuring of Business Services as an Innovation Process: The Case of...

Volume 29.3 September 2005 564–80 International Journal of Urban and Regional Research

©

Joint Editors and Blackwell Publishing Ltd 2005. Published by Blackwell Publishing.9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA

Reading the Territorial Restructuring of Business Services as an Innovation Process: The Case of German Advertising

JOACHIM THIEL

Introduction

‘Innovation’ has been one of the catchwords of urban and regional studies over the last20 years. The changing pattern of uneven regional development in the Westerneconomies — from the mass-production-led post-war model of urban growth diffusinginto the rest of the national space economy to a more diverse constellation of growthand decline of both urban and non-urban spaces — has directed academia’s attentiontowards the variance of innovativeness as a key source of inequality between regions.Following primarily a neo-Schumpeterian approach, innovation was held to occur in acomplex and interactive process full of uncertainties, irreversibilities, path dependencies,mechanisms of cumulative causation and so on, thereby strongly depending on the socio-spatial environment in which it takes place.

Notwithstanding the added value that debates on ‘territory and innovation’ haveprovided, not only for economic geography but also for the social sciences as a whole,there is one major shortcoming in that they almost exclusively dealt with manufacturingindustries, thereby virtually neglecting another major change influencing therestructuring of cities and regions: the rise of the service economy, characterized by thetwo parallel processes of de-industrialization on the one hand, and the emergent post-industrial economy (Marshall, 1988: 7) on the other. The present and future patterns ofurban and regional development in the industrialized countries thus have to beconsidered as being shaped by a ‘geography of innovation’ as well as the articulationof a ‘geography of the service economy’ (see Marshall and Wood, 1995, among others).The rich literature on services and space tackles the question of innovation only to alimited extent. If there is any specific literature at all that focuses on service innovation,beyond stressing the role of services for innovation in manufacturing and vice versa, itignores the spatial dimension, although providing an important contribution tounderstanding innovation as a whole from a service perspective — that is, beyond thetechnology-focused dualism of products and process (e.g. Callouj and Weinstein, 1997;Sundbo, 1997).

This article attempts to develop a service (and creative economy) informed approachto the interaction between territory and innovation by addressing the innovation processof one particular business service industry — advertising — in the context of its globalreorganization and its implications in a particular national space economy — Germany.Theoretically it starts from two paradigmatic arguments of the territory and innovation

A first version of this article was presented at the CURDS anniversary conference ‘Cities and Regionsin the 21st Century’, Newcastle upon Tyne, 16–18 September 2002. The author is particularly gratefulto Dieter Läpple and Neill Marshall for their support in the underlying PhD project, as well as to twoanonymous referees.

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debate representing two diametrically opposed views of the relation between economicactors and their environment in the process of innovation, either stressing individualentrepreneurship or concentrating on the enabling environment. Empirically it is basedon an in-depth qualitative study involving about 30 interviews with advertisingmanagement staff, creative professionals, supplier management and sector experts,accompanied by a comprehensive review of material such as email newsletters, tradejournals, etc. over two and a half years.

The article’s line of argument runs as follows. A brief discussion on the territorialdimension of innovation processes is given first, outlining the distinct approaches to theterritory just highlighted and confronting them with some evidence drawn from researchwork on the Silicon Valley high-tech complex and on the emerging new media clustersin big metropolitan regions. The subsequent empirical section tries to unravel theinnovation process in German advertising as a combination of both approaches,developing the argument from a narrow view of entrepreneurship to the mechanismsat work in the wider industry environment, including its strong global forces. It isconcluded that the territoriality of innovation in a knowledge-based economy isfundamentally based on the logic of knowledge-intensive (or — in the case ofadvertising — creative) labour markets.

Territory, innovation and the creative economy: framing the issues

The basic positions: innovative actors and/or the enabling environment

As indicated at the outset of the article, one of the main arguments for addressing theterritory as a key factor for the innovativeness of firms is that innovation is considereda complex process, not triggered by a single genius inventor but depending on a densenetwork of social relations, institutions, etc. enabling the various actors involved in theinnovation process to deal with its inherent complexities and uncertainties. In the caseof services, given the importance of both the client relation and non-technologicalfactors for service provision, the argument of innovation being strongly embedded inthe social and institutional fabric surrounding economic actors appears to be even morevalid. Therefore, the ‘classic’ work on regional restructuring developed in the 1980s anddealing with this interaction of economic actors and their socio-spatial environmentappears to be an appropriate theoretical starting point for discussing the territorialdimension of innovation in business services.

Amongst the flood of work on the nexus between innovation and territory, two schoolsof thought appear to be the most suitable for addressing this issue given that theyrepresent two diametrically opposed arguments on how the relationships between theactors and their environment work. On the one hand there is the GREMI school ofinnovative milieus (Aydalot and Keeble, 1988; Camagni, 1991), and on the other the‘window of locational opportunity’ approach developed by Storper and Walker (1989).Their arguments — as compared to other schools of thought — not only show thecontrast in the most accentuated way, they also explicitly stress the local dimension ofinnovation processes.

The milieu approach holds that it is mainly the local environment that drives theinnovative capabilities of firms. Studying the phenomenon of high technology industrygrowth occurring only in a restricted set of localities and regions, the local environmentwas considered to be the ‘best angle to attack these changes’ (Aydalot and Keeble, 1988:8). Or, more precisely:

The local environment-based approach is arguably the most fruitful. Its central concern is tounderstand the firm in its local and regional context and to ascertain what conditions externalto the enterprise are necessary both for the creation of new firms and the adoption ofinnovations by existing ones. The firm, and the innovating firm, are not viewed as pre-existingin or separate from the local environment, but as being products of it. Local milieus are

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regarded as the nurseries, the incubators, of innovations and innovative firms . . . This line ofargument leads naturally to the hypothesis that it is often the local environment which is, ineffect, the entrepreneur and innovator, rather than the firm (

ibid

.: 8).

That is to say, the milieu — as a sort of local ‘synergy space’ (Camagni, 1991: 136) inwhich complexity and uncertainty are reduced due to the existence of a commonunderstanding of decision routines, a rapid information flow, risk sharing, etc. and whichboosts the production system’s capacity for collective learning and innovation — isprimarily seen as an enabling environment that fosters the innovative capacities of actorswithin a regional production system.

Läpple (1994) describes the main mechanism at work within the milieu as a ‘filterfunction’ implying a certain degree of socio-cultural disassociation from the externalworld. Yet he argues that this function by no means automatically leads to enhancedinnovative capability. On the contrary, drawing on the experience of the German Ruhrregion’s inability to change, he contrasts the ‘innovative milieu’ with the notion of a‘sclerotic milieu’ (

ibid

.: 42) acting as a filter that hinders a region from innovating.

1

Thus, he accentuates a completely different function of the local environment from theone put forward by the original milieu theory.

The ‘windows of locational opportunity’ approach, on the other hand, stressesprecisely this role of the environment as a barrier to innovation, arguing that innovativeactors tend to escape from it. As Storper and Walker put it:

there is ample reason to believe that leading firms in a rising industry do not face severelocational specification constraints attributable to needs for labour, resource inputs or inter-industrial linkages for manufactured goods, because innovation necessarily means solvingtechnical problems presented by new ways of producing, organizational problems of how tosecure (or produce) various inputs, and labour problems of mobilizing and training workers.In sum, growing industries may be said to enjoy — for a certain period . . . both a factor-creating and factor-attracting power . . . These moments of enhanced locational freedom maybe called

windows of locational opportunity

(Storper and Walker, 1989: 74, original emphasis).

Innovation is thus argued to be triggered by small groups of ‘first movers’, largelyindependent of their local environment and even fleeing from it, and innovative regionsare considered to be produced by these innovative actors.

More empirically oriented accounts suggest the idea that both approaches stressimportant features of the inherent spatiality of innovation processes whereas it is difficultto discuss them in a polar ‘either–or’ perspective. Take as an example Silicon Valley inNorthern California, always the prime study case for an innovative high-technologyregion. Its growth process was based on individual action of entrepreneurs ‘unusuallyopen to risktaking and experimentation’ and ‘having left behind families, friends andestablished communities’ (Saxenian, 1994: 44) who happened to set up their businessesthere. However, in their wake, a ‘collective innovation’ process was initiated, based on‘dense social networks and open labour markets’ (

ibid

.) within the region. Also theValley’s enduring innovativeness primarily relies on this dialectic of outside and insidedriven dynamics, recently most clearly visible in the continuous ‘brain circulation’generated by immigrant entrepreneurs (Saxenian, 2001). Thus, the relation betweeninnovative actors and the territory surrounding them is of a more complex nature thancan be deduced from a pure reading of both ‘classic’ positions outlined above.

1 The GREMI work considers the possibility of decreasing innovativeness of milieus. Camagni usesfor this a metaphor from thermodynamics, arguing that a closed system over time runs the riskof ‘entropic death’, therefore requiring ‘injections of external energy’ (Camagni, 1994: 84). Toguarantee these injections, firms within milieus indispensably need contact with wider networks(

ibid

.: 83).

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Innovation in creative industries: ‘situated product spaces’ and ‘individualist’ actors in their environment

The issue of a complex and dynamic interplay between innovative actors and theirenabling environment is even more notorious when we leave the field of high-technologyinnovations characteristic of Silicon Valley. The immense body of work on theemergence of internet-related ‘new media’ activities, which are based on theconvergence of information and communications technology with traditional mediacontent production, could show a strong locational affinity of these industries with theclassic culture and entertainment complexes, for instance of Hollywood (Scott, 1998;1999), or with other metropolitan environments historically attractive to creative andinnovative people (Egan and Saxenian, 1999; Pratt, 2000; 2002).

Pratt (2002), in his work on the new media cluster of the SoMa (South of the Market)area in San Francisco, focuses on the dialectic between the seemingly spaceless enablinginternet technology and the local rootedness of the new media industry clusters by usingthe concept of a ‘product space’, meaning that the technology alone does not constituteproducts but enables actors to build products around it; and the way from a productspace to products leads through a social and organizational practice situated in a givenspatial environment.

Other arguments regarding the clustering of creativity-oriented activities in thebohemian quarters of metropolitan regions emphasize less the link between enablingtechnology and the search for profitable use forms but concentrate on the special featuresof the creative economy in terms of work practices and its spatial pattern. Two particularcharacteristics — closely linked to each other — can be drawn from the literature. First,cultural production involves the need for permanent innovativeness given its inherent‘one-off’ logic (Shapiro

et al.

, 1992). The environment in which it operates thus has tounderpin continuous creation of ideas. Second, this innovativeness is based on a specifictype of ‘individualist’ workforce which, according to Florida’s emphatic account (2002),will be the new dominant class of future societies. Consequently, innovative activitiesare said to take place where this ‘creative class’ wants to live. This position resembleswhat Storper and Walker call the ‘factor-generating and factor-attracting power’ of‘growing industries’; yet it appears to shift the dynamic part of change towards the‘factors’ themselves.

The following advertising case study displays a particularly emblematic example ofa ‘one-off’ business relying on a creative and individualistic workforce. Simultaneouslyit focuses on a process of fundamental innovation which strengthened the importanceof this creative logic, while reshaping the national map of advertising production inGermany.

Innovation and territorial restructuring in the German advertising industry

The global advertising industry has experienced a significant period of change duringthe last 25 years, gradually replacing the unilateral post-war model of US dominationby a more multipolar and balanced pattern, a process generally labelled as a shift fromthe ‘first wave’ to the ‘second wave of global advertising’ (Lash and Urry, 1994; Leslie,1997; Grabher, 2001). According to Lash and Urry, this fundamental change was basedon two major innovations in a very classic sense, that is, in terms of both product andprocess. Concerning the former, they hold that a more creative, ‘entertaining’ advertisingstyle was developed, which was more able to cope with the increasing scepticism onthe part of the consumer audience. Concerning the latter, the leading players of thesecond wave managed ‘to reconcile the creative and marketing research approaches toadvertising’ by putting them together and coordinating them within the function of‘account planning’ (

ibid

.). Lash and Urry argue that these innovations were mainly

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driven by British agencies which succeeded in breaking up the clear dominance ofAmerican advertising players on the global market (Mattelart, 1991; Ziegler, 1994;Leslie, 1995).

Germany’s part in the geography of global advertising was always very specific.Despite constituting the third biggest national market in the world (Howard, 1998: 122;ZAW, 2001: 26), German agencies both on the international market and even in theirhome country have always tended to play a subordinated role manifested in low positionsin the agency rankings (

Advertising Age

, 2001: s18). This was due to several reasons,including the late introduction of private TV programmes and a strong restriction ofadvertising time on public television (Schmidt, 1999: 520, 524), the capital goodsorientation of the national manufacturing industry and, probably most importantly, thenational agency structure traditionally contracted by big publisher groups. ‘Modern’advertising, a free-standing marketing business service from the 1920s, was dominatedby American or UK agencies following their clients to European markets (Mattelart,1991). After the second world war this pre-war agency pattern continued to exist, witha growing group of highly professional US-dominated full-service agencies (Schröter,1997: 96) being confronted with other former national ‘media brokers’ and a small groupof freelance consultants (Kellner, 1995).

The German advertising industry, however, was also strongly influenced by the‘creative turn’ of the second wave. Interestingly, the restructuring of the industryinvolved a shift of its centre of gravity from Düsseldorf and Frankfurt, which werenational headquarter locations of the international networks, to Hamburg where a newpole of creative advertising would arise (Thiel, 2005). This rise was closely linked tothe success stories of two agencies, Springer & Jacoby and Scholz & Friends, whichwere set up in the north German city-state in 1979 and 1982, respectively, and quicklyassumed the role of pioneers of a new and entertaining advertising.

In the following sections the success story of Springer & Jacoby (S&J) is examined,which most radically stands for a new orientation in advertising, as a complex processof innovation beyond the duality of product and process stressed by Lash and Urry(1994), starting from the agency itself and unravelling the changes fostered by it in thewider environment of the German agency landscape and its spatial pattern.

Innovation through entrepreneurship: the S&J story

Despite the weak position of German agencies on the post-war national market, therewere some important start-ups from the 1950s onwards, already characterized by afounder generation trained as graphic artists. The agency ‘Team’ may be the archetypeof a successful German advertising agency, originating from an art department foundedin 1953 by two recently graduated commercial artists (Merkel, 1988: 99). Later in 1972it was acquired by the American network BBDO, who used ‘Team’ as a gateway to theGerman market. In the 1970s the German office of the Swiss agency GGK became thecreative ‘pioneer’ of German advertising.

From this context of ‘indigenous’

2

enterprises, which mainly developed inDüsseldorf, the rise of Hamburg as ‘creative capital of Germany’ also began. One couldargue that it even originated directly from Team and GGK given that Scholz & Friendsand S&J were set up by former employees or even executives of Team and GGK,respectively. Jürgen Scholz was one of the Team founders, later in the 1970s buildingup the Hamburg branch office of Team, and with Scholz & Friends starting his secondbusiness, based on Team, BBDO’s most important clients (Scholz, 1998).

S&J was established in 1979 by Reinhard Springer, a former GGK employee. Therewas no obvious reason to choose Hamburg as the location for an advertising businessat that time. On the contrary, the city was considered to promise no great success:

2 GGK was indeed a Swiss agency, but had its biggest branch office in Düsseldorf (Ziegler, 1994).

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. . . colleagues said that I was stupid since Hamburg was simply no place for advertising; itwas no good for agencies, because here was the ‘mother’, LINTAS, that was at that time thebiggest agency in Germany. It was regarded somewhat as a university of marketing and classicadvertising. But beyond that Hamburg was an advertising backwater, really an advertisingbackwater (personal interview, 2000).

After about three years of relatively poor performance, the entry of the copywriterKonstantin Jacoby, also from GGK, as co-owner and creative head pushed the growthof the agency enormously. From 10 employees in 1983, S&J grew to 35 in 1984, 72 in1987, 120 in 1989, more than 300 in 1991 and 518 in 2000.

3

Between 1984 and 1989,130 national and international advertising awards were won (Springer & Jacoby, 2000),making S&J by far the top agency in the creative realm of Germany during the 1980s.

The transformation of this success in terms of creativity into a real

productinnovation

, i.e. where it was also accompanied by an outstanding business performance,was mainly fostered by two factors. First, the introduction of private TV in Germanyfrom 1984 onwards supported the agency in unfolding its capacity to make unusual TVcommercials. In the first few years of its existence, S&J had focused very strongly oncinema commercials and had succeeded in completely changing the image of this typeof advertising:

. . . we made films that enticed people to go to the cinema. Well, normally people begin toleave the cinema when commercials are on, they try to avoid them, and we were actually thefirst who — in 1983, 84, 85 — made films that swept the audience off their feet (personalinterview, 2000).

Private TV provided the possibility of applying this concept of an entertainingadvertising film on a larger scale.

The second factor, which substantially promoted the growth of the agency, was thatit managed to ‘sell’ its unusual advertising to big clients. Having been able to attractseveral ‘blue chips’ during the 1980s, the agency’s final breakthrough only occurredwhen it won the entire Mercedes-Benz account in 1989.

. . . we’ve always been ambitious enough to say: “We want fantastic clients, we’re lookingfor real brands” . . . and we tried Mercedes. And so we pursued them for seven years, calledthem . . . and asked: “What do we have to do to become a potential partner of yours?” Andthey did, of course, find every possible condition; and we did not stop but continued to structureourselves in the required direction, so that one day we were able to say: ‘Now we can do whatyou want’. And at that moment we were lucky that Mercedes was experiencing a low pointregarding its image, and consequently also a low point in sales. And when a client is doingbadly, he tends to get courageous, and so Mercedes said: “Well, why shouldn’t those funnyguys there in Hamburg do the job. Our image can’t get any worse than it is now. So they’llget it”. And within two or three years we managed to turn the image of Mercedes around andthat put a huge wind in their sails (personal interview, 2000).

The agency’s success in winning profitable high-reputation accounts was thus the resultof enormous ambitiousness and obstinacy on the part of the founders themselves.Moreover, they benefited from a gradual sector change inherent to the ‘second wave’on the client side, above all from the rise in the car market that during the 1980s becamethe top advertiser in Germany. Car advertising had always been important, but not forluxury cars, and rarely focusing on TV advertising, nor dominating the post-secondworld war media world in the same way that food, tobacco and detergents, etc. did. Stilltoday, ‘classic’ brand articles are underrepresented in S&J’s client structure.

Hence, it was above all two important changes on the market side — an alteringmedia system and a changing client structure, as well as the agency’s capacity to deal

3 Figures from

Frankfurter Allgemeine Zeitung

(25 March 1987),

Die Welt

(2 February 1989), Springer& Jacoby (2000) and www.sj.com/german/facts/daten/inhalt.html (10 September 2001).

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with them — that helped S&J transform creative advertising into a business success,introducing a substantial innovation in terms of the German

advertising product

. Yet theinnovations which most strongly influenced German advertising lay on the supply side,i.e. ‘behind’ the product, in the way the agency managed to act as a basis on whichcreativity could and still can unfold.

Thus, innovation was for one thing a

process innovation

, not relying on introducingaccount planning as Lash and Urry claimed for the British advertising industry. The factthat the creative development and the marketing part of the advertising agency could be‘reconciled’ in the case of S&J was rather a ‘cultural’ issue:

I am a somewhat atypical entrepreneur; thus it was not my main objective to get rich or tomake money. My main objective was rather to have a community, that is, to make somethingunusual together with some people I like . . . and we never considered ourselves as a ‘normal’enterprise but . . . rather as a community. And, based on this idea, we always saw ourselves asa school, in a double sense. For, first of all, we have continuously learned up to the presentday and, second, we were a school in the sense that we trained people (personal interview,2000).

This quotation is rather ironic given that Reinhard Springer and Konstantin Jacoby haveearned a fortune with their advertising business. Nevertheless, it seems reasonable toconceive of S&J’s agency organization as a sort of ‘learning community’, implying boththe ‘enculturation’ of newcomers in its particular ‘community of practice’ (Grabher,2002: 254)

4

and a common advance in the light of new challenges imposed by theadvertising market. Though the internal division of labour between the creative and thebusiness part of the agency was not abolished, it was strongly shaped by a commonphilosophy or a common professional ethos. In the light of these changes the clearseparation between a

process

dimension and the

organizational

dimension of innovationappears to be of little help given that the overall process of change involves

organizational

and

procedural

, as well as

cultural

aspects.The objective to maintain this philosophy in a constantly growing agency was

reflected in a further principle: to organize this growth as a sort of internal ‘spin-off’ oflegally independent units.

5

This mainly organizational aspect had a further purpose; thatis, to motivate the employees by giving them opportunities to quickly advance withinthe firm:

And so we had lots of very ambitious young people here . . . And since we had the characterof a school — in normal firms the higher ranks in the hierarchy always tend to keep the lowerones low in order to have a quiet life — we didn’t do it that way. Instead, we wrote down asort of basic law, which said: “In this agency everybody can get as far as he or she wants to,and as fast as he or she wants to”. And there were no brakes at all. There was also no reasonto be afraid, since when there was a young and dynamic talented guy, he could open up a newunit, and you can continue this as much as you like, you can have 100 units, that’s no problem(personal interview, 2000).

That is to say, besides the strong community philosophy, one of S&J’s key qualities isconsidered to be the orientation of the advertising process and the firm’s organizationwith respect to the needs and, more importantly, the capabilities of each individualemployee. This not only includes providing them with opportunities to advance but also

4 Still today, S&J’s agency-specific community is based on a set of rules about how the agency hasto function, including clear criteria of work assessment and the corresponding institutionalizationthrough regular work checks, as well as a common idea of what advertising made by Springer &Jacoby should be like, written down as a ‘basic agency law’ (Boldt, 1996).

5 As a consequence, in 1987 S&J already consisted of three agencies, six in 1989, and 11 in 1996. In2001 the S&J group included 18 legally independent firms, four of them outside Germany (figuresfrom

Frankfurter Allgemeine Zeitung

(25 March 1987),

Die Welt

(2 February 1989), Boldt (1996),www.sj.com/german/facts/daten/inhalt.html (10 September 2001).

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a very individual way of determining an employee’s optimum role. In the words of ahuman resources manager:

You have the possibility to develop here in the sense that someday you realize: “That’s whatI actually do best”. And the principle behind this is to put people where they can develop themost enthusiasm, since that’s where the best things will happen (personal interview, 2000).

In sum, although the information obtained from S&J management members might beideologically informed, it seems legitimate to hold that the agency, through the way ithas organized both the firm and the work process, succeeded in ‘speeding up’ theagency’s internal labour market, thereby fostering a high degree of labour turnover bothbetween different tasks within the agency and between agencies. In addition, itencouraged the growth of a group of ambitious and experienced management staff, whowere also able to assume entrepreneurial responsibility outside the agency. It was this‘speeding up’ that basically generated the influence S&J had, not only in terms of itsown business performance, but also as regards the national industry as a whole and,above all, its territorial pattern, ultimately fostering the establishment of a new ‘growthpole’ in Hamburg.

Innovation diffusion: spin-off, imitation and spillovers

As we have shown, the rise of S&J to Germany’s most prominent advertising agency,at least in terms of its success in the national and global creativity contests, did not begin‘at zero’, but in a given context in which global advertising networks were dominatingthe German market. Accordingly, the wider impact of its innovation has, on a first level,to be seen in the context of a changing agency landscape in that the traditional global–local continuum has been extended by two new and innovative groups of players, thatis, S&J and Scholz & Friends, as ‘pioneers of creativity’, and the ‘second generation’as spin-offs whose establishment was encouraged by the labour market dynamictriggered by the pioneer agencies.

In the logic of the S&J philosophy, in which everybody is allowed to ‘get as far ashe or she wants to’, this means that, whenever individual ambitions cannot be satisfiedwithin the agency, employees are likely to leave the agency in order to set up their ownbusiness. The most prominent spin-off from S&J was ‘Jung von Matt’, which wasestablished in 1991 by two former managing directors of the pioneer agency andachieved almost the same degree of success as S&J, at least in terms of creativity.However, it would be too simplistic to depict the spin-off logic as purely driven by the‘Springer & Jacoby school’ — as a sort of ‘conductive energy’. The case of the Jungvon Matt founders, Jean Remy von Matt and Holger Jung, for instance, highlights thatthey moved, particularly in the case of Jean Remy von Matt, through various jobs in amultitude of agencies throughout Germany. Holger Jung, however, underwent arelatively classic Hamburg-based career.

Thus, though the direct spin-off logic as a break away’ from the original pioneers infact happened, it cannot be thought of as a mechanical process but as stronglyinterwoven with the whole German agency landscape and with the process of ‘space–time filtering’ of professionals through this landscape (Scott, 1999: 47). The previousprofessional careers of the founders also paved the way for the performance of the newbusiness by shaping the social networks that provide the contacts necessary for clientacquisition, labour recruitment, etc., but also in terms of choosing the appropriate partnerfor setting up a business:

You’ve accumulated profound experiences you can use. And — most importantly — you’vefound a constellation that works. There are lots of start-ups in the market, where people justmeet in a pub and say: “Let’s do it together”. That’s why so many agencies are renamed everyyear: ‘Schmidt and Partner’, ‘Schmidt and Müller’, then Schmidt leaves and it becomes‘Müller and Somebody’ etc. (personal interview, 2000).

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Previous work experience, however, helps to build reputation. S&J managementexperience, for instance, of course represents a specific approach to advertising, but alsoa certain ambitiousness as regards the quality of the work, thereby facilitating the‘branding’ indispensable for a successful performance.

You need to have a name. An agency without a special name is nothing. There’s a whole bodyof agencies that certainly do a good job. But nobody knows them, and therefore they don’tget big clients, nor are they able to attract a good labour force (personal interview, 2000).

The establishment of new advertising agencies following the pioneers, however, didnot only occur as a result of directly transferring the work experience of S&J andScholz & Friends into their own business success. The ‘sparkling’ image, particularlyof the former, also gave rise to a whole body of imitations: ‘Dozens ofagencies . . . were set up throughout Germany, with one single purpose: to makeadvertising as intelligent as that of Springer & Jacoby’ (Boldt, 2001: 172). Imitationdid not only involve the start-up model as a paradigm to be replicated by other firmfounders, but also took place in the very practical sense of copying the output. Put inthe words of the founder:

Well, the whole quality of advertising has, of course, been improved, since, when you havesome big shots out in front, they tend to inspire all the others. And lots of things are copied— you can see it or at least you notice that it’s been inspired. In addition to this, from theSpringer & Jacoby school, have a look around, you’ll find in nearly all more or less renownedagencies in Germany Springer & Jacoby people. That has — even if homoeopathically thinneddown — of course always some effect, that’s logical, isn’t it? Well, as a school we did certainlyhelp to raise the national level (personal interview, 2000).

As the quotation indicates, diffusion of innovation was not only driven by the spin-offlogic of new agency start-ups or through imitation, but the ‘spill over’ was alsochannelled through a highly volatile labour market in which the ‘S&J culture’ was takenfrom one agency to another. The high turnover fostering this quick diffusion throughthe labour market is driven by the interaction of basically two different logics. On theone hand, the strong focus on the individual needs and desires of each single professionalimplies that there is not always the optimum job inside an agency, encouragingemployees to move. On the other hand, as creative labour has increasingly become thecompetitive edge and the key bottleneck in contemporary advertising, talented andsuccessful professionals are likely to be headhunted by other firms. In terms of theattraction of labour away from successful agencies, two basic patterns are dominant:young and fast-growing ‘second generation’ agencies seek to manage their growththrough employing experienced people who in turn may be attracted by the prospect ofcontributing personally to the progress of a promising firm.

It is, of course, much more interesting to contribute to moulding an agency like ours. That’sthe nice thing here: we’re still of a size where every employee, even the cleaner, has a handin shaping the agency since the influence you have is immense, of course particularly formanagement staff. And then I can ask myself: “Do I want to be, say, the 35th executive ofS&J, certainly doing a good job there or do I really want to make my mark here?” Andthis would be more possible here than there, even if you earn less (personal interview,2000).

Big and financially very powerful, globally oriented agencies try to enhance theircreative reputation by enticing successful labour away from their former employers,offering them higher wages and higher ranked positions in their firms.

It is striking that this diffusion process also had a strong local dimension in that boththe start-up dynamics and labour mobility were largely concentrated in Hamburg. Inaddition, the diffusion through labour buy-out frequently implied a dynamic of firmattraction to provide access to the local labour market. Figure 1 shows the locational

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Figure 1

The locational structure of the German BBDO Group (source: © Thiel, 2005,courtesy of Ashgate)

Nürnberg: Call Center

National Headquarter

'Classic' full service branch

Communication Channel Specialist

Media Brokerage

Others

Majority subsidiary

Minority subsidiary

Subsidiary Network

Subsidiary Network Office

Dresden: Public Relations

Hamburg: Full Service Full Service Direct Marketing Event, Sales Promotion Public Relations Media Others

Wolfsburg: Internet Event, Sales Promotion

Berlin: Full Service Internet Direct Marketing Public Relations Event Sales Promotion

Frankfurt: Public Relations Media Event, Sales Promotion

Stuttgart: Full Service Public Relations Media

München: Direct Marketing Public Relations Media

Köln: Full Service

Bonn: Event, Sales Promotion Public Relations

Düsseldorf: National Headquarter Full Service Internet Full Service Direct Marketing Event, Sales Promotion Public Relations Media

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structure of BBDO, the biggest advertising group on the German market. Besidesclustering around its headquarters in Düsseldorf, it has invested in two further poles:Hamburg, with a gradual growth, particularly during the 1990s, and a very recentinvestment in the city’s two major internet firms after their spectacular bankruptcies,and Berlin from 1999.

The complex diffusion patterns, however, suggest that innovation is not only drivenby leading agents and adopted by others, but that the process involves an environmentof strong competition in which the labour market is a crucial arena in which differentactors operate. In the following section we will attempt to take a more comprehensiveview of innovation and innovation diffusion in German advertising, focusing on thechanging pattern of competition in the ‘second wave’.

Innovation and competition: art vs business, the industry vs the individual

In very broad terms, the advertising industry unites the features of a popular art formwith those of a typical business service. Figure 2 depicts a model in which the‘merger’ of these two ‘worlds of action’ (Storper, 1997) is outlined as a conflictingprocess. The cyclic mechanism of reputation-building in the business world of clientacquisition (’the more and better clients you have, the more and better you get’)follows rules different from those driving the attainment of reputation in the creativecommunity through the advertising contests of which the Cannes festival is the mostrenowned. The sphere in which the advertising business is affected by this ‘populararts world’ is the labour market of creative professionals. The more successfully an

Figure 2

The environment of the advertising industry: between business services andpopular arts (source: © Thiel, 2005, courtesy of Ashgate)

businessreputation

creativereputation

CUSTOMER SPHERE(revenue input)

LABOUR MARKETSPHERE

(creative input)

Advertising agency

Businessservice world

Popular artsworld

business performance

creative performance

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agency performs in creativity contests the more attractive it is to creative labour, sincein this agency the labour force in turn is able to further develop its own individualcreative reputation. In the words of an agency owner: ‘the creativity contests arenothing more than an incentive for creatives and wind behind the creatives’ (personalinterview, 2000). It was one of the main qualities of S&J to have exploited thismotivation tool.

The advertising agency, according to this model, has to establish the link betweenthe two worlds to orchestrate the different requirements of art and business. If weconsider this mediating role in the light of our innovation perspective, basically twoaspects of change appear to be important. First, the popular arts world has beenstrengthened by the ‘creative turn’, visible not only in the rise of creative hot shops,but also through the spectacular growth of national and international advertisingfestivals, the popularity of their output exemplified by the ‘Cannes role’, a collectionof the best commercials of each Cannes festival annually circulating through thecinemas of the whole world. Second, as we can see in the case of S&J, it has managedto carry this ‘creative turn’ into the business service world. Only when the agencysucceeded in winning the Daimler-Benz account and furthermore showed that itsadvertising obtained measurable business success was it accepted as a ‘serious’advertising agency, despite having been the most creative German agency during thewhole of the 1980s.

These two changes chiefly concerned the labour market of creative professionals, inseveral respects. The rising importance of creativity needed ‘more artistic’ staff; in otherwords, a new labour force which previously was not typical for a business serviceenterprise had to be accessed, including visual artists, writers, journalists, etc. Such staff,in turn, required an environment more suited to their individual needs: reputation in thecreative community, a work environment considering individual desires, etc. We haveoutlined above how S&J adapted its internal labour market to these desires and how theagency systematically made use of creativity festivals in order to enhance both itsattractiveness to, and the motivation of, talented creatives.

The transfer of creative or entertaining advertising into the business service worldrequired the creativity to be adjusted to the communication needs of clients; thus thecreativity needed to be tamed to a certain extent according to the ‘materiality ofadvertising’ (Paczesny, 1988) in terms of media formats, customer requirements and soon. Within the firm — in our case S&J — the labour market dimension of the innovationprocess comprises a bargain between the agency and the individual employee. Creativeemployees declare themselves willing to adapt to the needs of advertising or, even moreimportantly, to the basic laws of the agency. In turn, the agency offers to treat them asindividually as possible. As a result, the agency has succeeded in making artists intoadvertising professionals without forcing them to sacrifice their creative identities andcapacities. In the terminology proposed by Storper and Walker: the innovation consistedof the ‘factor creation’, the production of a labour market needed for the new way ofadvertising.

Regarding the industry, the image of advertising changed from two perspectives: onthe one hand, creative work was increasingly acknowledged as the base of successfulcommercial communication; on the other hand, advertising was discovered as apromising and interesting labour market for an ‘artistic’ labour force. Whereas jobs inthe advertising industry in the 1960s and 1970s were still considered ‘morally low’(Jackson and Taylor, 1996), they are now fashionable activities. This in turn constituted,again in Storper and Walker’s words, a process of ‘factor attraction’ which radiated fromthe pioneers as diffusion of innovation in a cultural sense. In the beginning, the newagency appeared as something unique and different from ‘normal’ advertising, therebyrising from being a ‘personal slant’ to a specialist school and community and finallyrenewing the image of the whole industry.

As argued above, however, the influence on the pattern of competition in advertisingwas above all due to the fact that the creative labour force had increasingly become the

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competitive edge of the industry. This new business reality has been interacting withanother major change that occurred in the global industry in tandem with the creativeturn: massive concentration. Big global networks — also from the beginning of the1980s — began to merge under the umbrella of big financial holdings. Thereby theyopened up the advertising industry to the logic of financial markets, making each localbusiness dependent on the ‘shareholder value’ philosophy followed by the globalheadquarters (Mattelart, 1991; Ziegler, 1994; Leslie, 1995). As a result, the top threeholdings in 2000 covered about 39% of the worldwide advertising gross income(

Advertising Age

, 2001: s35).In terms of our advertising model, this means that the logic of business vs culture

interacts with the logic of the global financial system. Indeed, global players reacted tothe challenges they were confronted with through the ‘creative turn’ and the rise of newand innovative agencies, making use of their superiority in terms of finance and enteringthe innovative field of creative advertising in several interdependent ways: by ‘investing’in creativity contests (personal interview, 2000), by attracting labour force throughhigher wages, by setting up their own creative boutiques so as to compete directly withthe dynamic new players (Leslie, 1997: 1034), and finally by buying out creativeagencies as a means of growth to satisfy the shareholders (Leslie, 1995: 406). The buy-out of the US creative pioneer, Chiat/Day (Leslie, 1997: 1031), to the Omnicom groupin 1995 (Willenbrock, 2000) is the most prominent example of this.

The increasing concentration on the global level opens up spaces at the local levelfor the establishment of new enterprises, in most cases pushed either by loyalty conflictswith clients through merger or by discontented management personnel who eitherthemselves become founders or are likely to be attracted by a growing start-up. In thewords of a recent founder:

We were fed up with doing the 25th same international job for Unilever, Nestlé or somethingelse. We no longer wanted to sit in endless meetings with 20 people from 15 countriesdiscussing a strategy or something, finally ending with the statement that it was good that wemet, thus without any result (personal interview, 2000).

The Chiat/Day example is also illustrative of the start-up logic driven by globalconcentration: after the buy-out, the entire staff of the London branch abandoned theagency in order to establish ‘St Luke’s’, a completely employee-owned agency whichhas become one of the most striking success stories worldwide (

ibid

.).Thus, there is, besides the ambivalent interplay of arts and business, a second

‘dialectic’ at work that drives the global advertising business and shapes its patterns ofcompetition — that is, the conflict between the global industry and the individualprofessional. This duality resembles Lash and Urry’s conceptualization of economic‘reflexivity’ characteristic of the post-industrial economy and being pioneered by the‘culture industries’ — and particularly by advertising. Their understanding involves adialectic of structure (as global advertising industry) and agency (of the individualcreative professional) in which ‘agency is set free from structure . . . [by] structuralchange itself’ (Lash and Urry, 1994: 5). However, the motivation behind structure onthe one hand and agency on the other remains different, keeping alive the basic conflictbetween structure’s desire to ‘exploit’ the self-reflexivity and the individual’s desire tobe set free. This focus on the conflicting dimension of reflexivity differs from Lash andUrry’s original idea. At the same time, it is in clear contrast to the popular views ofcontemporary work patterns, stressing the increasing subordination of labour to the logicof flexible capitalism (e.g. Sennett, 1998).

In the context of the German agency landscape the dialectic of structure and agencyat first glance is mirrored in the duality of concentration and start-ups. In the light ofthe innovation process, however, the start-up logic has not happened as a directconsequence of concentration but was driven by a dynamic labour market capable ofconstituting an antipole to concentration. The main innovative achievement of the ‘S&Jschool’ in Germany, as of all creative schools worldwide, was thus the ‘production’ of

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a labour market of creative professionals, in contrast to the global standard model, whichsubstantially and steadily challenges the globalizing industry due to the increasingprofessionalism and the ‘emancipation’ of a ‘reflexive’ labour force. However, unlikethe Silicon Valley high-tech industries highlighted by Storper and Walker, the productionof this labour market obviously needed an urban environment in order for it to beproduced at all — where the ‘factors’ could be accessed and where they could beattracted.

Conclusion: innovation, reflexive labour and space

This article has basically been about the rise of Hamburg to the new centre of gravityof the German advertising industry over the last 25 years. It has undertaken a specificreading of this shift as an inherently spatial process of innovation, starting from twoopposite perspectives of how the socio-spatial context contributes to the performance ofinnovative actors: as an enabling environment and/or as a barrier to innovation, yetmaintaining that they cannot be considered as mutually exclusive but rather as twocomplementary constituents of an interpretative framework.

The first conclusion is very simply that this innovation perspective works. The processof territorial restructuring found in the German advertising industry was triggered byinnovative players who left the industry’s traditional centres dominated by a specifictype of advertising and advertising agencies and placed their businesses in Hamburg.Different processes of innovation diffusion caused the emergence of a milieu-like growthpole which in the end even brought about the partial relocation of the traditional topplayers (see Figure 1). The Hamburg advertising cluster thus developed on one of thesevirtuous circles of growth, having also been identified in the classic cases of innovativehigh-tech regions (see Arthur, 1994).

There is a second, more substantial conclusion, however, which reflects the specificservice (and above all creative economy) informed approach followed here: the keyterritorial ‘anchor’ of the innovation process has been the labour market of creativeprofessionals and the consequences of this are still visible within the constantrestructuring of the industry and its spatial pattern. Thus, the

substance

of innovationconsisted of transforming artists into advertising professionals. This process oftransformation obviously did not just involve taking and retraining them, but openingup artistic labour market segments for advertising, and vice versa, and taking intoaccount the personality of the professional, including artistic identity, requirementsregarding work organization and work environment, living environment, etc. That isto say, innovation took place where the opening up of these labour market segmentscould happen at all. The

diffusion

of innovation mainly involved different patterns oflabour mobility, and although not necessarily limited to Hamburg, this mobilitytended to be concentrated in the north German city. Finally, it was somehow alocalized cluster of creative labour following from this diffusion process whichattracted agencies from outside. The fact that the competitive edge of the wholeadvertising industry shifted towards labour reinforced the economies of localizationgiven that it added to the volatility of both the labour market and the agencylandscape. One can hold that the instability generated through the interaction of anincreasingly reflexive workforce and an increasingly global industry fostered aMarshallian ‘labour pooling’ (see Krugman, 1991), helping both firms and workforceto deal with instability.

The labour relatedness of the innovation process as well as its inherent territorialityraise more fundamental issues regarding the role of labour as the decisive input of aknowledge- and creativity-based service economy. It has already been maintained thatit fundamentally disagrees with the culturally pessimistic accounts of post-industriallabour by Sennett and others. An economy based on reflexivity, that is, on an increasingvariety of options, needs a workforce able to develop ‘critical distance’ (Storper, 1997)

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to its work context and work content and cannot function when based on thesubordination of labour. Yet this must not lead to the opposite interpretation thateconomic organization is simply geared to the lifestyle preferences of creativebohemians, as — roughly put — held in Richard Florida’s popular argument. Anincreased variety of options in all spheres of contemporary society and the need to dealwith it naturally adds to the uncertainty about right choices. An economy based onreflexivity and reflexive labour is thus an economy essentially characterized byuncertainty. The extremely volatile advertising labour market outlined above is oneexample of such uncertainty. At the same time it signals an increasing importance of‘space’ for the functioning of the knowledge-based economy. The pattern of how areflexive economy is ‘re-embedded’ in its spatial structure through the territorialorganization of the labour market is thus one of the key research questions for urbanand regional studies in the coming years.

Joachim Thiel

([email protected]), Department of Urban and Regional Economics (AB 1-06), Hamburg University of Technology, 21071 Hamburg, Germany

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