Proceedings of The 11th European Conference on Innovation and Entrepreneurship 15 16 September 2016
The JAMK University of Applied Science Jyväskylä Finland Edited by Dr Iiris Aaltio Jyväskylä University School of Business and Economics and Dr Minna Tunkkari Eskelinen JAMK University of Applied Sciences
Copyright The Authors, 2016. All Rights Reserved. No reproduction, copy or transmission may be made without written permission from the individual authors. Review Process Papers submitted to this conference have been double blind peer reviewed before final acceptance to the con ference. Initially, abstracts were reviewed for relevance and accessibility and successful authors were invited to submit full papers. Many thanks to the reviewers who helped ensure the quality of all the submissions. Ethics and Publication Malpractice Policy ACPIL adheres to a strict ethics and publication malpractice policy for all publications – details of which can be found here: http://www.academic conferences.org/policies/ethics policy for publishing in the conference proceedings of academic conferences and publishing international limited/ Conference Proceedings The Conference Proceedings is a book published with an ISBN and ISSN. The proceedings have been submitted to a number of accreditation, citation and indexing bodies including Thomson ISI Web of Science and Elsevier Scopus. Author affiliation details in these proceedings have been reproduced as supplied by the authors themselves. The Electronic version of the Conference Proceedings is available to download from DROPBOX. (http://tinyurl.com/ECIE2016) Select Download and then Direct Download to access the Pdf file. Free download is available for conference participants for a period of 2 weeks after the conference. The Conference Proceedings for this year and previous years can be purchased from http://academic bookshop.com Print version ISSN: 2049 1050 Print version ISBN: 978 1 911218 07 4 E Book ISSN: 2049 1069 E Book ISBN: 978 1 911218 08 1 Published by Academic Conferences and Publishing International Limited Reading, UK. 44 118 972 4148. www.academic publishing.org
Contents Paper Title
Author(s)
Page no
Preface
ix
Biographies
x
Keynote Oulines From University Research to Social Innovations: Graphogame and a sustainable way to support learning capacity of children
Heikki Lyytinen
The Berkeley Method of Entrepreneurship A Game Based Teaching Approach
Charlotta Johnsson
Research papers A Study on the Effectiveness of Risk Management Implementation Among Malaysian Tier 1 and Tier 2 Cooperatives
Ruzilah Abd Malek, Ahmad Faizal Shaarani, Mohd Shahron Anuar Said, Azmaliza Arifin and IntanNurAzreen Mohamad Radzi
1
Does an Undergraduate Venture Creation Programme in a University Achieve its Objectives?
Nigel Adams
9
Humour Matters in Service Design Workshops
Helena Ahola, Päivi Aro and Taina Vuorela
19
Entrepreneurial Transformation Approach: UQU Path to Establish a World Class University
Hamid Alalwany and Nabeel Koshak
26
Social Entrepreneurship Development in Kazakhstan: Problems and Perspectives
Nurzhan Alzhanova
36
Strategic Entrepreneurship in Enhancing Resources and Innovation in England
Christos Apostolakis and Emre Arslan
42
The Evaluation of Students Meta Competencies and Management Skills in the Context of the Final Year Project
Albert Arisó, Michele Girotto and José Luis Fernandez
50
Specific of Sales Volumes Forecasting for Dairy Products in Russia
Marina Arkhipova and Kirill Arkhipov
57
A Strategic Entrepreneurship Model Based on Corporate Governance in the Iranian Manufacturing Enterprises
Hooshang Asheghi Oskooee and Nader Mazloomi
67
Innovation Strategies of Small Russian Firms
Yulia Balycheva
78
CEE Cross Country Comparison of National Innovation Systems Efficiency: DEA Approach
Marcin Bielicki and Micha Le niak
87
Smart Specialisation: Does it Really Matter to IT SMEs?
Alexander Borg and Christopher Middup
95
Inter Organizational Network Management in an Innovation Context: Combining ego and Whole Network Perspective
Jan Patrick Cap, Erik Blaich, Holger Kohl, Ariane von Raesfeld, Rainer Harms and Markus Will
105
How Responsible Innovation Strategies Emerge in Very Small Enterprises: The Case of a Small Wine Growers’ Cooperative
Valérie Ceccaldi
116
i
Paper Title
Author(s)
Cooperation vs. Firm Based Innovation: A Sectoral Comparison in Portugal
Marisa Cesário, Sílvia Fernandes and José Barata
124
She is the Founder: Who is the Emotional Leader?
Francesca Maria Cesaroni and Annalisa Sentuti
134
FDI, Environmental Regulation and Innovation Performance of China’s Enterprises: Moderating Effect of Urbanization
Yan Chen, Ye Han, Hongbing Li and Yi Li
142
Implementation of Crowdsourcing Into Firm’s Innovation Strategies: The Case of B2B Crowdsourcing
Sylvia Dimitrova
151
Managing Creative Innovation Team Composition: Diversity of Personalities and Innovative Outputs
Vytaute Dlugoborskyte and Monika Petraite
160
Can the Social Entrepreneur Save us? The Role of Government in the Social Entrepreneurship Equation: The Case of Afghanistan
Jawad Ehsanyar, Christina Mullen and Sacha Joseph Mathews
168
Recreating Innovative and Meaningful Workplaces
Anne Eskola and Liinamaaria Hakola
176
A Conceptual Framework for Understanding the Phenomenon of new Ways of Work
Anne Eskola and Heidi Neuvonen
183
Interfaces in Entrepreneurship Development: Between Tradition and Innovation
Maria de Fátima Ferreiro and Cristina de Sousa
187
The Adoption of a Finnish Learning Model in the UK
Michael Fowle and Nina Jussila
194
The Study of Entrepreneurship in Iran and Countries That are Members of Global Entrepreneurship Monitor
Hamid Gharzi and Younos Vakilal roaia
202
Strategy, Structure and Processes to Foster Student Entrepreneurship: The Case of IIlinois Institute of Technology (Illinois Tech)
Alexandre Nabil Ghobril, David Baker, Nik Rokop and Carl Carlson
212
Dependence of Innovation Strategies of Russian Companies on Technology Intensity: Structural and Dynamic Aspects
Oleg Golichenko and Yulia Balycheva
221
Ecosystem Approach to the Emergence of Regional Industrial Systems in Central and Eastern European Countries
Kristina Grumadaite and Giedrius Jucevicius
231
Modelling Innovation Activity in Regional Innovation Networks Using Fuzzy Cognitive Maps
Petr Hajek, Jan Stejskal and Ondrej Prochazka
239
Entrepreneurship Education in Studio Based Learning Practices
Kari Pekka Heikkinen, Seppänen Ulla Maija and Jouko Isokangas
247
The Challenge to Entrepreneurship Educators (Non Obstante David Birch)
Dale Heywood and Alan Southern
257
Entrepreneurial Characteristics in STEM: A Higher Education Institution Perspective
Simon Hill
265
ii
Page no
Paper Title
Author(s)
Relationships of Playfulness, Work Engagement and Innovative Performance
Pia Hurmelinna Laukkanen, Sari Alatalo, Eeva Liisa Oikarinen, Taina Vuorela, Helena Ahola, Päivi Aro Tiia Kallio and Kwadwo Atta Owusu
273
Governing Ownership: A Case Study About the Board’s Role in Family Business Ownership Decisions
Tuuli Ikäheimonen, Marita Rautia inen and Timo Pihkala
281
Triple Helix Relations in Innovation: Conflicts, Tensions, and Struggles in Rentier Regions
Chidubem Ikeatuegwu and Zoe Dann
288
How Mobile Technologies and Social Media Merge to Help Managers and Entrepreneurs Fast Track Their Business
Alexandra Ioanid, Cezar Scarlat and Gheorghe Militaru
297
Developing Innovation Ecosystem of the University Through Implementation of Interfaculty Master’s Program: The Case of LMSU
Nataliya Ivashchenko, Petr Kiryu shin, Alexandra Engovatova and Darya Komarkova
303
A Research Framework for Adapting the Innovation Process to its Context
Alexis Jacoby
311
Virtual Spaces Impacting Real Places: Entrepreneurial Innovations in Trinidad and Tobago’s Tertiary Education Landscape
Freddy James, Sandra Figaro Henry and Lisa Wickham
320
Interactions Among Open Innovation Activities, Organizational Learning and Competence in Business and Public Organizations: Issues of Measuring
Brigita Janiunaite and Monika Petraite
328
On Using Games for Practicing Entrepreneurial Mindset
Charlotta Johnsson, Mari Suoranta, Ikhlaq Sidhu and Ken Singer Alexandros Kakouris
336
Multidimensional Learning Environments for Entrepreneurship Education
Page no
344
Systemic Energy Innovation Networks Funded by the European Union
Moon Jung Kang and Jongwoon Hwang
350
Design Thinking in Teaching: Product Concept Creation in the Devlab Program
Janne Karjalainen
359
Managing Super Diverse Women Entrepreneurs in Aotearoa New Zealand
Sangeeta Karmokar
365
The Double J Curve: A Model for Incubated Start ups
Amr Kebbi and Dave Valliere
371
Strategic Structure and Implementation of Regional Triple Helix Collaboration: Comparative Case Study
Tuomo Kinnunen, Satu Rinkinen, Jukka Majava and Jay Gillette
381
The Changing Role of Universities in Economic Growth
Dmitrij Kochetkov and Viola Larionova
389
Best Practices for Internal Startups: Experiences From Practitioners in Finland
Mervi Koivulahti Ojala and Jukka Märijärvi
398
HYRRÄT: Promoting Entrepreneurship in Welfare Services
Sirkka Liisa Kolehmainen
406
Agile Business Strategies: How to Adjust to Rapidly Changing Environments?
Andreas Kompalla, Michael Studeny, Andreas Bartels and Gabriela Tigu
414
iii
Paper Title
Author(s)
Analyzing Educators’ Perspectives on the Effects of Entrepreneurship Education on Students’ Entrepreneurial Intentions
Lidia Kritskaya and Victoria Kritskaya
Tacit Knowledge Sharing and to Derive Innovation From Project Teams?
Wioleta Kucharska and
435
Wioleta Kucharska and
444
Describing the Emergence of Interaction Mechanisms Within an Innovation Ecosystem
Katja Lahikainen
453
How do Students Learn to Become Entrepreneurial in University?
Kiefer Lee
461
The Marketplace of Ideas: Exploring Open Innovation in Traditional Food Producing SMEs
Joan Lockyer, Breda O’Dwyer and Helena McMahon
469
International Sign: A Practical kit
477
Social Entrepreneurship and Disruptive Innovation: Evaluating the use of Rumie’s Free Educational Software in Seven Developing Economies
Sofia Mastrokoukou, Enrico Dolza, Carolina Carotta and Mitrofanis Georgiadis Chris Moon, Allison Kavanagh, Jackie Jeffrey, Joseph Gebbels and Karen Korsgaard
Collaboration, Geographical Proximity and its Effects on Firm‘s Open Innovation Activities
Rimante Morkertaite and Jurgita Sekliuckiene
496
A Poverty Reduction Oriented Approach to Small Business Development in South Africa
Lentswe Mosweunyane and Patient Rambe
503
Growth Management of Digital Health Care Service Start Ups – California Case Studies
Matti Muhos, Del Foit Jr, Lada Ra sochova and Martti Saarela
512
Efficacy of Vocational Training as an Integral Part of Entrepreneurship Education as a Transition Programme for Persons With Intellectual Disability in Oyo State
Adewale Olaosebikan Olabisi, Temitope Favour Jiboye and Mi chael Olufemi Akinyosoye
521
The Contributions of Obafemi Awolowo University’s Entrepreneurship Business Resource Centre (EBRC) to Community Business Development
Mustapha Olayiwola Opatola and Charles Temitope Jegede
527
Analysis of Factors Affecting UK Small and Medium Enterprises' Corporate Sustainability Behaviour
Gbemisola Oyedepo, Yanqing Duan, Yongmei Bentley and Qile He
534
Innovations in Ice Cream Production in Baltic Sea Region
Agnieszka Palka, Joanna Newerli – Guz, Aleksandra Wilczynska and Agnieszka Rybowska
543
Knowledge Differentiation as Basis of Innovative Activity
Svetlana Panikarova and Maxim Vlasov
552
Innovative and Entrepreneurship Education to Increase Employability Skills
Elisabeth Pereira, Madalena Vilas Boas and Cátia Rebelo
561
The Drivers of Company Innovation Activities in German Industries
Viktor Prokop and Jan Stejskal
569
Tacit Knowledge Sharing and Innovation From Project Teams?
: How
How to Derive
iv
Page no 425
485
Paper Title
Author(s)
Interpretation and Construction of Co Operative Identity at Ideological Level
Anu Puusa and Antti Varis
578
The Appeal and Correspondence of Co Operative Values and Personal Values of the Youth
Anu Puusa, Kirsi Hokkila and Simo Leppänen
586
A Stakeholder Approach to Advancing Business Social Responsibility of Small Tourism and Hospitality SMMEs in Bloemfontein, South Africa
Patient Rambe, Mamello Moeti and Dennis Yao Dzansi
593
Technological Creativity and its Influence on Entrepreneurship Intentions of Vocational Education Students
Patient Rambe, Takawira Ndofirepi and Dennis Dzansi
602
Holistic Performance Evaluation to Support European Regional Development: University Industry Perspective
Tero Rantala and Juhani Ukko
611
Family Firms as Community Innovators in Regional Innovation Platforms
Marita Rautiainen and Suvi Konsti Laakso
619
Policy Framework for Supporting Business Ecosystems and Niche Development Through Innovation Policy
Satu Rinkinen, Satu Pekkarinen and Vesa Harmaakorpi
628
Design Thinking Methods and Creative Technologies in Virtual Worlds
Pete Rive and Sangeeta Karmokar
635
Market Response to Innovation Projects: The Evidence From the Russian Financial Market
Elena Rogova, Daria Guseva, Elena Tkachenko and Fabrizio Rossi
645
Social Network Analysis and the Study of University Industry Relations
Fernando Romero and Eric Costa
654
A Framework for Marketing IoT Based Innovations to the Next Billion
Abhimanyu Roy and Ali Zalzala
662
Entrepreneurial Identity and Leadership: The Research Imperative
Michele Rusk and Kellie Forbs Simpson
672
An Attempt to Identify a Typical Regional Food Product for Baltic Sea Region
Agnieszka Rybowska, Joanna New erli Guz, Aleksandra Wilczynska and Agnieszka Palka
680
Digital Healthcare Service Startups: Case Studies From Sweden
Martti Saarela, Daniel Örtqvist, Anna Mari Simunaniemi and Matti Muhos Navjot Sandhu, J Scott, and Javed Hussain
688
Informal Finance and Growth of Women Businesses in an Emergent Entrepreneurial Ecosystem: A Case of Indian Punjab
Page no
697
Development Trajectory of an Innovation Based Environmental Technology Start Up
Juha Saukkonen and Kari Väntti nen
706
Anticipation of Technology as an Entrepreneurial Skill
Juha Saukkonen, Anna Leena Va samo, Sharon Ballard and Jona than Levie
717
Trust and Resilience in Entrepreneurial Perspective: Empirical Findings From the Developments in Entrepreneurs’ Stories
Taina Savolainen, Mirjami Ikonen and Helinä Nurmenniemi
726
v
Paper Title
Author(s)
Entrepreneurial Orientations of Youth in J&K, India: A Case for Educator Influence
Vivek Sharma and Sudhir Jain
733
Approach to Quest Entrepreneurial Engineering Opportunity and an Application Example for Development of Breakthrough Innovation
Dmitry Shaytan and Georgy Laptev
740
Evolution of the Russian Regional Structure in the Space of Indicators of Innovation Development
Viacheslav Sirotin and Marina Arkhipova
749
A Case Study of Entrepreneurial Ecosystem Related to Growth Firms
Kirsti Sorama and Sanna Joensuu Salo
754
The Creation of a Fast Track, Large Group Intervention Method: A Case Study
Fernando Cardoso de Sousa, João Pissarra and Ileana Pardal Mon teiro
762
Business Model Innovation: A Comparative Analysis
Erik Steinhöfel, Holger Kohl and Ronald Orth Blair Stevenson and Erkki Nuottila
770
Design Thinking and Organizational Change: Developing a Human Centered Culture
Christy Suciu and Chris Baughn
787
Entrepreneurial Intention and Interest in Entrepreneurship Program Among the new Generation in Thailand
Mullika Sungsanit
794
Testing the Relationship Between Resource Availability and Innovation in the Construction Industry
Eva Švandová
802
Co Operative Platforms: Harnessing the Full Potential of Crowdfunding
Antti Talonen, Jarna Kulmala and Olli Pekka Ruuskanen
810
Entrepreneurial Policy for Tribal Societies: Case Study of Mizo Entrepreneurs In India
Shailaja Thakur
819
Parenting of the Micro Enterprise Founders; Does the Parental Approach Make any Difference in the Choice of a Family Business Successor?
Minna Tunkkari Eskelinen
827
Organizational Network Analysis of the Interplay Between Business Model Components
Anna Ujwary Gil
836
The Study of Successful Entrepreneurs (The Case of a Province in Iran)
Younos Vakil Alroaia and Roja As gar
844
Business Proposition Development in new Ventures as a Process of Initiation, Design, Engineering and Realization (IDER)
Robin van Oorschot, Frido Smulders and Erik Jan Hultink
853
Towards an Emerging Paradigm: Is Social Entrepreneurship an Insight into Contemporary Society?
Qian Wang and Iiris Aaltio
861
Commercialisation Strategies: Choosing the Right Route to Commercialise Your Research Results
Urszula Wnuk, Adam Mazurkiewicz and Beata Poteralska
869
Incorporating Design Thinking in Entrepreneurship Education
Blaž Zupan and Anja Svetina Nabergoj
876
Interdisciplinarity in Entrepreneurship Education: A Conceptual Framework Focusing on Pedagogy for Innovation
PHD Research Papers
Page no
781
885
vi
Paper Title
Author(s)
Stimulating Innovative Entrepreneurship: How to Apply US Experience for Azerbaijan
Odiljon Abdurazzakov
887
Acquiring Legitimacy in Institutional Entrepreneurship: A Case for Emerging Economies.
Parisa Baig and Andrew Godley
897
The Links Between Innovation, Strategy and Internationalization Processes: A Comprehensive Literature Review
Fernando Barbosa and Fernando Romero
904
User Communities and the "Dark Energy" of Open Innovation
Christian DeFeo, Jennifer Harding and Robert Wood
913
SWOT Analysis and Evaluation of a Driverless Carsharing Model
Wiebke Geldmacher and and Doru Alexandru Ple ea
921
Conflict, Coincidence and Emerging Interactions as Logics of Innovation
Frederik Gottlieb
929
Trust Formation and Cross Cultural Challenges in Developing Innovation Related Multi Partnership Project: Preliminary Findings of the Initial Stage of Project Designing
Saara Hiltunen and Taina Savolainen
937
Election of Board Members in Cooperatives: A Review on Cooperative Governance vis à vis Corporate Governance
Kari Huhtala and Pasi Tuominen
945
Teachers’ Experiences on Student Enterprises
Pekka Hytinkoski
955
Towards Entrepreneurial Motivation: The Self Determination Theory Approach
David Iremadze
960
Determining the Importance of Personality Indicators Independent Entrepreneurs Using the Analytical Hierarchy Process
Syedrazi Nabavichashmi
971
Sustainable Business Models for Base of the Pyramid: The Role of Customer Participation and Cross Sector Collaboration
Eugenia Rosca and Julia Bendul
979
Social Venturing and Co Operative Entrepreneurship Business Model (SVCE bm) for Growing MSMEs in Zambia
Moulen Siame
988
Stand out and fit in: Entrepreneurship Emergence in China During Economic Transition
Baocheng Wu
1002
Work In Progress Papers
Page no
1011
Innovative Behaviour and Employee Engagement: A Case Study in a Family Business
Carolina Guzmán Pedraza, Fabio Blanco Mesa and Magaly Gaviria
1013
HEIs and Temporality in Entrepreneurship
Cherisse Hoyte
1017
Testing Willingness and Ability as Distinguishing Factors Between Family and Non Family Firms: Contextualizing the Relationship Between Entrepreneurial Self Efficacy and Business Performance
Tina Kociper, Bart Henssen and Wouter Broekaert
1020
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Paper Title
Author(s)
Page no
Entrepreneurship: Opportunity for Young Generation
Peter Marini
1024
An Evaluation of Shared Entrepreneurship and Organisational Structures to Increase the Innovative Capacity
Kevin Reuther
1029
Abstracts Only Innovative Spirit/5EuroStartUp: Theoretical and Practical Modules to Foster Innovation and Entrepreneurship
Laura Janssen and Michael Kriegel
The Role of European Networks in the Development and Promotion of Entrepreneurship in Europe and Among Higher Education Institutions: The Case of SPACE Network
Anabela Mesquita
Teaching Design Thinking to Novices
James Spee and Rajiv Vaid Basaiawmoit
Citation pages Google Scholar
The Importance of Paper citations and Google Scholar
Jotter Page
Blank Paper for notes
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Preface These proceedings represent the work of contributors to the 11th European Conference on Innovation and Entrepreneurship (ECIE 2016), jointly hosted this year by The JAMK University of Applied Science and the Jy väskylä University School of Business and Economics in Finland, on the 15 16 September 2016. The Conference Chair is Minna Tunkkari Eskelinen from JAMK University of Applied Sciences and the Programme Chair Iiris Aaltio from the Jyväskylä University School of Business and Economics. ECIE continues to develop and evolve. Now in its 11th year the key aim remains the opportunity for partici pants to share ideas and meet the people who hold them. The scope of papers will ensure an interesting two days. The subjects covered illustrate the wide range of topics that fall into this important and growing area of research. The opening keynote presentation is given by Henry Etzkovitz on the topic of “Triple Helix Innovation in a Cri sis”. A second keynote will be given by Heikki Lyytinen on the topic of “From University Research to Social In novations”. The third Keynote will be given by Charlotta Johnsson on the topic of “The Berkeley Method of En trepreneurship A Game Based Teaching Approach”. In addition to the main themes of the conference there are a number of specialist mini tracks on topics includ ing Innovation and strategy, Entrepreneurship education in action, The theory and practice of collaboration in entrepreneurship and Challenges for entrepreneurship and innovation n the 21st Century. With an initial submission of 285 abstracts, after the double blind, peer review process there are 106 Academic research papers, 14 PhD research papers, 5 work in progress papers published in these Conference Proceed ings. These papers represent research from Australia, Azerbaijan, Belgium, Brasil, Canada, China, Czech Repub lic, Denmark, Finland, France, Germany, Ghana, Greece, India, Iran, Ireland, Italy, Kazakhstan, Kenya, Lithua nia, Malaysia, Malta, New Zealand, Nigeria, Norway, Poland, Portugal, Romania, Russia, Saudi Arabia, Slovenia, South Africa, Spain, Sweden, Thailand, The Netherlands, Trinidad and Tobago, Tunisia, Turkey, UK, USA, Zam bia. We hope you enjoy the conference. Iiris Aaltio and Minna Tunkkari Eskelinen September 2016
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Conference Executives Minna Tunkkari Eskelinen, JAMK University of Applied Sciences, Finland Iiris Aaltio, Jyväskylä University School of Business and Economics, Finland
ECIE Committee Members The organisers would like to thank those members of the conference committee who assisted in the double blind peer review process. A full committee list can be seen here: http://www.academic conferences.org/conferences/ecie/ecie committee/
Biographies Conference Chair Dr. Minna Tunkkari Eskelinen, Dc. (Econ.) is principal lecturer at JAMK University of Ap plied Sciences. She has worked at the University of Jyväskylä on the degree programme in Entrepreneurship and as Secretary at the Institute of Education Evaluation. She was co founder of the consultancy firm Confidentum Ltd. Her doctoral dissertation was published in 2005 focusing on family business from the perspective of the next generation. Recently her research interests have been focused on sustainable tourism from the entrepreneurs’ perspective and sustainability as a customer insight from Finnish tourists. She is also ac tively involved in innovative service design practices by co creation with students and entrepreneurs. Current ly, she is a vice member on the Board of the Entrepreneurship Education Research Association in Finland.
Programme Chair Dr. Iiris Aaltio is a Professor at the Jyväskylä University School of Business and Economics in Finland. Her research is about cultural aspects of organizations and entrepreneurship, as well as in gender and diversity issues. She has authored and co authored several books, including "Women Entrepreneurship and Social Capital: A Dialogue and Construction" and "Gender, Identity and the Culture of Organizations". Her latest work includes aspects of aging in organizations, with authored articles, and an edited special issue in the Interna tional Journal of Work Innovation. She is a board member in journals Culture and Organi zation, and Journal of Business Ethics and Organization Studies. She has also organized and chaired several workshops at the EIASM institute.
Keynote Speakers and Workshop Henry Etzkovitz is a scholar of international reputation in innovation studies as the origi nator of the ‘Entrepreneurial University’ and ‘Triple Helix’ concepts that link university with industry and government at national and regional levels. As President of the Triple Helix Association (THA), he is at the center of a unique international network of scholars and practitioners of university industry government relations. Henry is the co founder of the Triple Helix International Conference Series, which has produced a series of books, special journal issues and policy analyses since it started in Amsterdam, 1996. He is Editor in Chief of the Triple Helix Journal. Henry is Visiting Professor at the University of London, Birkbeck, CIMR; and Special Advisor to the Shandong Academy of Sciences, PRC. From 2009, Henry is affiliated with Stanford Uni versity as a fellow of the Clayman Institute for Gender Research, and then H STAR, currently Science, Technol ogy and Society (STS) where he will offer a seminar on Triple Helix innovation and entrepreneurship in spring 2017. Prior to coming to Stanford, he held the Chair in Management of Innovation, Creativity and Enterprise at Newcastle University Business School, UK. He received a BA in History from the University of Chicago, PhD in Sociology from the New School for Social Research, and Phd Hon in Engineering from Linkoping University. Heikki Lyytinen is UNESCO Chair on Inclusive Literacy Learning for All. Previously he was Emeritus Professor of Developmental Neuropsychology, when he led the EU COST A8 “Learning Disorders as a Barrier to Human Development” action from 1994 1998. He co lead the Centers of Excellence “Human Development and its risk factors” and “Learning and Motivation”, both funded by the Academy of Finland. He has been PI of the Jyväskylä Longitudinal study of Dyslexia (JLD) since 1993 and was Vice President of the UJ from
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1997 2000. He is Chair of the Boards of the Agora Human Technology Centre of UJ and the Niilo Mäki Founda tion. He is a member of the Academy of Sciences and Letters (of Finland, 2003). He has published more than 300 articles in scientific journals and books. His areas of recent research include dyslexia and reading acquisi tion and most recently digital learning environments for children at risk of reading difficulties or dyslexia. Charlotta Johnsson has a broad range of both academic and industrial experience in the fields of education, technology and entrepreneurship. Charlotta is an Associate Professor at the Engineering Faculty, Department of Automatic Control at Lund University, Sweden, where she is involved in several research projects. She has served as the program director of the cross disciplinary master's degree program Technology Management (2008 2015), and she has been involved in the faculty’s pedagogical activities. Charlotta has recently spent a year with the Sutardja Centre for Entrepreneurship and Technology at UC Berkeley, USA, where she participated in the development of a novel student centric approach for teaching and learning entrepreneur ship, referred to as the Berkeley Method of Entrepreneurship. Tanja Leppäaho works as a Professor of Entrepreneurship and International Business at the University of Jyväskylä, School of Business and Economics, Finland. Previously she worked as Associate Professor at the University of Edinburgh Business School, UK. Tanja's areas of interest are international entrepreneurship, networking, family business and qualitative methodology. Her major publications have appeared in Entrepreneurship Theory and Prac tice, Family Business Review, Journal of Small Business Management, International Market ing Review, and International Business Review.
Mini Track Chairs Dr Blair Stevenson is an educator and researcher with a broad range of both academic and entrepreneurial experience in the fields of education, culture and technology. His current role is as manager of the EduLAB pre incubator program and coordinator of the LAB re search group and international partnerships within the Oamk LABs program at the Oulu University of Applied Sciences (oamk.fi/labs) in Finland. EduLAB is a permanent program that brings together multi disciplinary teams of university students and professionals to develop prototypes and start ups targeting the global edtech industry. Dr Luísa Carvalho is an Assistant Professor at the Open University, Lisbon, Portugal and a Researcher at the Centre for Advanced Studies in Management and Economics (CEFAGE), University of Évora. She received her PhD in Management from the University of Évora (Portugal). She is visiting professor at international universities where she teaches on Masters and PhDs programmes. She is the author of several articles published in scientific journals, international conferences, books and book chapters. Her current research inter ests are in the areas of entrepreneurship, innovation, internationalisation and the ser vices sector. Dr Alexandros Kakouris is an external lecturer in entrepreneurship and innovation at the University of Athens, University of Peloponnese and ASPETE. He holds a PhD in Physics and a MSc in Adult Education. He has been involved in entrepreneurship since 2006, researching educational issues. His special interest concerns fostering entrepreneurship and innovation to science graduates and the support of youth entrepreneurship through counselling. He also specialises in nascent entrepreneurship and experiential learning. Anu Puusa is an Associate Professor at the Business School in the University of Eastern Fin land in Joensuu campus. Her current research interest areas are cooperatives, organizational change, organizational identity, paradigms and qualitative methodological questions. Puusa has published many journal articles and written four textbooks.
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Christy Suciu gained her MBA from Webster University in Missouri, USA. She teaches design thinking in the MBA programs at the College of Business and Economics at Boise State Uni versity in Idaho, USA. She has served as a design thinking consultant for major global compa nies. Her research interests include design thinking, innovation, and strategy. She has pub lished articles on design thinking in the journal of the Academy of Management Learning and Education and The International Journal of Management and Education. Dr Christopher Moon FRSA FHEA is a multi award winning social and eco entrepreneur with a PhD from Imperial College London. He is the founder of several eco businesses including eco design and build, eco taxis and buy eco. Chris is also inspiring business students at Mid dlesex University London to be more environmentally friendly. He is widely published includ ing a book for the Economist; and is the inventor developer of the award winning patented eco bin. Chris was a finalist in the Innovation & Entrepreneurship Teaching Excellence Awards 2015. He is a psychologist by background; certified and accredited CSR consultant and Social Auditor Dr. Rajiv Vaid Basaiawmoit is currently the Head of Sci tech Innovation and Entrepreneur ship at the Faculty of Science and Technology at Aarhus University, Denmark. He works with student led innovation and entrepreneurship while also engaging in university industry in teractions. He combines a rather interdisciplinary background with a PhD in Biophysics, a Masters in Biotechnology and an MBA in sustainability. He conducts research on “Entrepreneruship for STEM disciplines”, “Expatriate Entrepreneurship” and also on using “gamification to make entrepreneurship a more engaging discipline”. Dr. Joan Lockyer is Assistant Director, International Centre for Transformational Entrepre neurship (ICTE) at Coventry University. Formed in 2015, the Centre evolved from the Insti tute of Applied Entrepreneurship (IAE). Joan joined the IAE in 2009 and recently transferred to ICTE maintaining responsibility for the development and delivery of the academic pro grammes. Joan has worked in Higher Education for 15 years, prior to which she worked in industry and consultancy. She has successfully delivered a number of European projects. Her research interests embrace entrepreneurship in a range of contexts: gender; faith; the meaning of work to artisans and artist being examples.
Contributing Authors Odiljon Abdurazzakov is a PhD Fellow at Qafqaz University, Azerbaijan. He earned his bachelor’s and master’s degrees in Business Administration from Colorado State University, USA. He was a visiting PhD Fellow at Har vard Business School in fall 2015. He is the Founding Director of the Center for Entrepreneurship Development and Research (www.cedresearch.org). Nigel Adams is Programme Director of BSc Business Enterprise (BBE) at the University of Buckingham. He teaches, advises and mentors students taking this innovative two year honours degree in Business Enterprise. He is also responsible for Buckingham Enterprise Hub which is used by BBE and other students when starting and running their businesses. Ahmad Faizal is a Lecturer in the Department of Management & Finance at the Cooperative College of Malay sia where he has been a faculty member since 2003. Faizal completed his Master at National University of Ma laysia and his undergraduate studies at Northern University of Malaysia. His research interests lie in the area of Micro Finance and Risk Management. Helena Ahola, Lic (Econ), Principal Lecturer of Marketing at the Oulu University of Applied Sciences, where she currently teaches service design, research and development methods. She has been involved in e business and service design projects, published and presented her research on marketing, value creation and e retailing in several international Internet and service related conferences.
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Hamid Alalwany is the adviser on Innovation and Entrepreneurship at UQU and the Director of Ithmaar Com pany. Having worked for more than twenty five years in industry and service sectors, particularly in transform ing education and health services, Alalwany has gained cross disciplinary experience in the fields of engineer ing, information systems, sustainability innovation and sustainable development. Sari Alatalo, M.A., BBA is a Senior Lecturer in English Business Communication at the Oulu University of Ap plied Sciences. She has extensive teaching and tutoring experience in the degree programs of Business Eco nomics and is also actively involved in FINNIPS examination processes (Finnish Network for International Uni versity Programmes). Her research interest is to investigate the use of humour in teaching as well as in corpo rate communication with a special focus on the effects of humor in these contexts. Currently Ms Alatalo is a project manager of HURMOS Exploring Humor as a Strategic Tool for Creating Innovative Business research project. Nurzhan Alzhanova is from Almaty Management University, Almaty, Kazakhstan. Presenting her paper titled Social Entrepreneurship as Institutional Form That Ensures the Stability of Small Enterprises of Kazakhstan. Christos Apostolakis holds an MA in Business Administration from Bournemouth University, an MA in Public Admin & Public Policy from the University of York, and a Ph.D. from De Montfort University – Leicester all of them in the UK. He currently works as Senior Lecturer in Strategy at Bournemouth University Business School. His research interests revolve around strategy and social entrepreneurship. Marina Arkhipova is a Professor, at the Department of Statistics and Data Analysis, National Research Univer sity Higher School of Economics; Education. Doctor of Sciences, 2007. Career Researcher, RIEPP, 1987 2000; Leading Researcher of Sector, Russian Academy of Science, 2000 ; National Research University Higher School of Economics, Moscow, 2009 . Emre Arslan holds an BSc in Business Administration from Izmir University of Economics in Turkey and MSc in International Business Management from Bournemouth University. He currently studies as a PhD student in Business Strategy and a part time lecturer in Research in Business and Management at Bournemouth Universi ty Business School. His research interests are business strategy particularly in strategic entrepreneurship and innovation. Hooshang Asheghi Oskooee is an Assistant Prof in Business Management Dept. of University of Qom, Ira. Ph.D. Business Administration with major in Business Policy Making (Strategic Management) from ATU in 2011. MBA Financial Management from ATU in 1995. BA – Business Administration from TU in 1992. Bachelor of Laws (LL.B.) from PNU in 2014. Parisa Baig is a 2nd year PhD student at Henley Business School, University of Reading in United Kingdom. Parisa’s research is about exploring a relationship between institutional entrepreneurship and legitimacy in the context of emerging economies that how an entity s able to manipulate the institutional schemas and acquire mass legitimacy from the stakeholders. Sharon Ballard is President and CEO of EnableVentures, Inc., and former President, Chief Executive and co founder of Reticular Systems, Inc. She held management posts in the Titan Corporation, Motorola Inc. and LINKABIT Corporation. She is the developer of the Supercoach® Entrepreneurial Training. She has worked with thousands of entrepreneurs and coaches globally and across the United States Yulia Balycheva, senior research associate at Central Economics and Mathematics Institute of Russian Acade my of Sciences and faculty member at State Academic University for Humanities, PhD. Fernando Barbosa is from University of Minho, Guimarães, Portugal. Presenting his PhD Research paper on The links between innovation, strategy and internationalization processes: a comprehensive literature review José Barata is an Assistant Professor of Economics, R&D Management and Industrial Organization at the School of Economics and Management of the University of Lisbon, (ISEG/UL). Professor J. Barata holds a PhD in Economics (1996) from the UTL. Former Vice President of ISEG/UTL, he has been Coordinator of Graduate and Post Graduate courses at the Portuguese School of Bank Management (APB).
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Marcin Bielicki is a doctoral candidate at the Poznan University of Economics. He graduated from the Faculty of Finance and Accounting at this University with Master degree in 2014. His fields of interest are R&D, public aid and innovations support systems. He also practices as a public aid consultant. Erik Blaich is a junior researcher in Innovation and Benchmarking at Fraunhofer. Institute for Production Sys tems and Design Technology, Berlin. He is about to finish his master’s degree in Innovation Management and Entrepreneurship and currently works on his thesis in the field of innovation networks. Furthermore, he is an active entrepreneur himself. Alex Borg is a Consultant at the Malta Information Technology Agency. Alex is also a Business mentor, manag er and consultant with 21 years of experience in ICT covering various roles in a projectised, strategy building and policy making context. Alex Borg has been a national representative on a number of European Commis sion ICT R&I related Committees from 2009 to 2014, and is a co author of Malta’s National ICT Strategy 2014 2020. Carl Carlson is the founder and Dean of the School of Applied Technology at the Illinois Institute of Technology (IIT) in Chicago. He is also Full Professor of the Information Technology and Management Department and Executive Director of the Entrepreneurship Academy at IIT. He has over 160 publications in the fields of data management and software engineering. His Testing Maturity Model is used by software companies world wide. Valérie Ceccaldi is both a researcher in Management Sciences at Montpellier Research Management (Mont pellier University, France) and a Strategy Consultant at her own consulting firm, Ceccaldi Communication & Conseil (Montpellier City, France). Francesca Maria Cesaroni is Associate Professor of Business Administration at the University of Urbino Carlo Bo. She is Coordinator of the PhD in Economics & Management, Department of Economics, Society and Poli tics, University of Urbino. Her main research interests include entrepreneurship, small business, family busi nesses and corporate financial communication. Yan Chen is a Professor, School of Economics and Management, Beijing University of Posts and Telecommuni cations; Visiting scholar at University of Manchester, University of Liverpool and Brunel University (August, 2008 August, 2009); Chairman and Deputy Secretary General in China’s International Trade Practice Research Academic Committee; Anonymous reviewer of The Academy of International Business (AIB) and Asian Business & Management. Christian DeFeo earned a PhD in Creative Writing at the University of Southampton in 2010. Afterwards, he returned to a career in technology, working for the electronics distributor Premier Farnell where he created innovative online community programmes. He is presently studying for a second PhD in Mechanical and Manu facturing Engineering at Loughborough University. Sylvia Dimitrova is a PhD Candidate at the Department of Management and Engineering of the University of Padua, Italy. She holds a master’s degree in Industrial Engineering from the University of Montreal École Polytechnique de Montréal, Canada. Her research interests are in the fields of innovation and technology management and knowledge management. Vytaut Dlugoborskyt is a PhD in Management candidate with the research topic on Managing Creative In novation Teams in R&D and Technology Intensive Organizations at Kaunas University of Technology, Lithuania. She is currently working as a Research associate at GLORAD – Research Center for Global R&D Management concentrating on creativity and innovation. Jawad Ehsanyar is a Junior Student at University of the Pacific. He is majoring in Business Administration with concentration in Finance. Jawad is President of International Student Club and Vice President for the Council of Social Entrepreneurs at University of the Pacific. He has actively participated in all kinds of conferences, re search, and other global opportunities.
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Anne Eskola works as a Principal Lecturer of accounting at JAMK University of Applied Sciences in Finland. She has received her DSc degree in accounting from the University of Jyväskylä. She is also a member of Law and Tax Committee in the Chamber of Commerce and has published both textbooks and scientific articles. Maria De Fátima Ferreiro has a PhD in Economics. Assistant Professor at ISCTE Lisbon University Institute. Re searcher of Dinâmia’CET IUL. Current areas of research: innovation and territory, governance processes, en trepreneurship and territory, transitions paths towards sustainability. Current areas of teaching: history of economic thought, contemporary issues in economic theory and policy, sustainability and territory. Sandra Figaro Henry is an Educational Technologist at the School of Education, at the University of the West Indies, St. Augustine campus on the twin islands of Trinidad and Tobago Mrs. Figaro Henry holds a MSc. in Ed ucational Technology from New York Institute of Technology. With over thirty years’ experience in education and teacher education, she is committed to preparing educators for teaching with technology in the 21st cen tury. Michael Fowle is programme director of Northumbria’s Entrepreneurial Business Management degree and was team coach to the first graduating cohort. He is a serial entrepreneur and has won the DTI Startup of the Year 2004 and the MIT International Business Plan Competition 2010 with his own companies. Wiebke Geldmacher (MA) is a PhD student at the University of Bucharest of Economic Studies. Her academic research area focuses on the acceptance and the framework design of a self driving carsharing model in Ger many. Wiebke works as a Business Consultant for SRP Consulting AG. Hamid Gharzi is a PhD student in Industrial Management in Islamic Azad University, Science and Research Branch, Tehran. He has 18 years of work experience which is a bend of corporate and academic work in the area of Industries. He has published more than 10 research papers in various international journals. Gharzi has presented 8 papers in various international conferences in different countries. Jay Edwin Gillette is Professor of Information and Communication Sciences at Ball State University in Indiana, USA, and a Senior Research Fellow at the Digital Policy Institute. He also served as Fulbright Nokia Distin guished Chair in Information and Communications Technologies at University of Oulu, Finland, and Visiting Fellow at University of Oxford, UK. He is also a technology journalist, writing for Network World and IDG syndi cate. Michele Girotto holds a Master degree in Business Communication from the Universitat de Barcelona and a PhD in Business Management from the Universitat Politècnica de Catalunya (UPC). Michele is Associate Profes sor at the Management Department of the UPC and coordinator of the program Final year project, of the Busi ness and Management Degree of EAE Business School. Oleg Golichenko has a degree of Doctor of Economic Sciences. He is a chief research associate at the Central Economics and Mathematics Institute of the RAS. He is also a professor at the National Research University Higher School of Economics and the Moscow Physics and Technique Institute in Moscow, Russia. His research interests are related to investigation of innovation development processes on micro macro economic levels and design of social economic and innovation policy. He is an author of more than 200 scientific publications. Frederik Gottlieb has a background in Interaction Design(Ba) and Participatory Innovation(Ma) from the Uni versity of Southern Denmark. He is currently conducting research in the cross field of Design, Innovation and Entrepreneurship. His research is focused on deep involvement in the research context, using Autoethnography as the main methodological approach. Kristina Grumadaite is a PhD student and a junior project researcher in the Department of Strategic Manage ment, School of Economics and Business, Kaunas University of Technology, Lithuania. Her main research inter ests are: emergence of self organising industrial systems, especially in immature socio economic contexts, innovation ecosystems, smart development of social systems and emotional intelligence. Carolina Guzmán Pedraza is PhD at the Department of Management and Business Administration Technical University of Catalonia (Spain). Her research interests include organizational support, leadership and services
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innovation. She is a lawyer with experience in the study of innovative behavior in family owned firms and management. Petr Hajek is an associate professor with the Institute of System Engineering and Informatics, Faculty of Eco nomics and Administration, University of Pardubice, Czech Republic. He works with modelling of economic and financial processes using soft computing methods. He has published his research in leading journals such as Knowledge Based Systems, Decision Support Systems, etc. Liinamaaria Hakola is a project manager at JAMK University of Applied Sciences in Finland. She is Master of Science in (Econ. & Bus. Adm) from the Turku School of Economics, University of Turku and is currently a doc toral student at the University of Jyväskylä. Kari Pekka Heikkinen ’s, M.Sc (tech.), work experience includes electrical engineering, project, staff, business and product management and product concept development at Nokia Corporation. Currently he’s a Senior Lecturer and Project Manager in Oulu University of Applied Sciences, and finalising his PhD in the Industrial Engineering and Management department at the University of Oulu. Bart Henssen received a Ph.D. in Applied Economics and holds a position as research manager at the Depart ment of Business Science at Odisee University College (Brussels, Belgium). He also lectures courses in Human Resource Management and Research Methodology and is Adjunct Director of the Research Center for Entre preneurship Odisee. Dale Heywood is Programme Director MSc Entrepreneurship at the University of Liverpool and Senior Fellow of the Higher Education Academy. She was a serial and portfolio entrepreneur prior to entering academia. She is currently conducting longitudinal research into entrepreneurship education and its effects on the students’ experience. Simon Hill has been a lecturer with the International Centre for Transformational Entrepreneurship at Coven try University since 2009, delivering enterprise education inspired by both his academic research and hands on experience. From an early age, he has run a number of businesses whilst studying and is the founder of the Android app YearDot. Saara Hiltunen, is a PhD student, Project Researcher and part of a Trust research group at Business School, University of Eastern Finland. Saara is developing networks between Kuynpook University (KNU) in South Korea and UEF in Finland. Saara previously worked as a project manager and a lecturer at university of applied sciences. She worked for over 15 years in oriental countries: Thailand, Vietnam and China and has a profes sional background in nursing and preventive healthcare. Kirsi Hokkila is a PhD Student at the University of Eastern Finland. She received her master of Business Admin istration degree in 2013 and started her doctoral studies in 2014. Her doctoral dissertation topic deals with co operative entrepreneurship with a special interest in new generation co operatives. Cherisse Hoyte is currently a Lecturer in Enterprise & Entrepreneurship at the International Centre for Trans formational Entrepreneurship (ICTE) in Coventry University, where she teaches both undergraduate and post graduate courses on entrepreneurship and management. She holds a doctorate in Entrepreneurship from the University of Nottingham and her main research focus is on the entrepreneurial process. Kari Huhtala since spring 2015 has worked as director of cooperation at Pellervo Society which is the umbrella organization of Finnish cooperatives. Kari formerly worked as trainer of board members especially in member based organizations like cooperatives. Eleven years in banking under challenging conditions in 1990's has given Kari a broad and overall picture of several branches and the strategy work. Kari has a master’s degree from the University of Helsinki in 1989 (agricultural economics). Kari is a part time doctoral student at Lappeenranta University of Technology in Business Sciences and Organizational Management. Pia Hurmelinna Laukkanen is a Professor of Marketing, especially International Business at the University of Oulu Business School, and an Adjunct Professor (Knowledge Management) at the Lappeenranta University of
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Technology, School of Business and Management. She has published over 50 refereed articles in academic journals, and contributed to book chapters and over 100 conference papers. Pekka Hytinkoski (M.Sc.edu) is a doctoral student at the University of Turku/Finland (topic: learning in and through student co operatives). He has worked 11 years as an e learning coordinator of the Finnish Co op Network Studies Program (CNS network) where he is responsible for the production, development and coordi nation of the program. Tuuli Ikäheimonen D.Sc. (Econ. & Bus.Adm.) Tuuli Ikäheimonen works with funding and research policy issues at the Lappeenranta University of Technology (LUT), Finland. She has a strong background in family businesses and family business research, especially in family business governance and board of directors. Chidubem Ikeatuegwu is PhD researcher, focusing on ‘Academic Entrepreneurship in Petroleum Rentier States’ at the Department of Strategy Enterprise and Innovation, University of Portsmouth, UK. Chidubem holds a Bachelor’s degree in Mechanical engineering, Master’s degree in Advanced Manufacturing and another in Project management from the University of Portsmouth. Alexandra Ioanid is a PhD student at University Politehnica of Bucharest with background in Computer Sci ence. Current research interests are social networks and management. Davis Iremadze is from Ambrose University, Calgary Alberta, Canada. Presenting his PhD Research paper on the subject of Towards Entrepreneurial Motivation: The Self Determination Theory Approach. Jouko Isokangas, PhD, defended his doctoral thesis in 2009 on entrepreneurship education (EE). He has devel oped methods for EE since the early 1990s. Currently he is a Development Manager and Principal Lecturer in the area of EE at Oulu University of Applied Sciences. Alexis Jacoby is professor on the Master's programme in Product Development at the Antwerp University, Belgium. He holds a PhD in Product Development and teaches innovation and product development method ology. He worked as a design consultant in industry. His research focuses on methods and tools in the Front end of Innovation. Sudhir Jain is Professor at I.I.T. Delhi and specializes in the areas of ‘Managerial Economics’, ‘Entrepreneurship’ & Intellectual Property Rights. Previously, he has held the positions of MHRD IPR Chair Professor, Head of the Department of Management Studies at I.I.T. Delhi, Director General, National Institute for Entrepreneurship & Small Business Development (NIESBUD) under the Ministry of MSME, Govt. of India, and Vice Chancellor, Shri Mata Vaishno Devi University, Katra, Jammu & Kashmir, India. He is a Fellow of the Indian Society for Training & Development. Freddy James is a lecturer in educational leadership at The University of the West Indies, St. Augustine, in the School of Education. Her research focuses on innovation, change and improvement in educational settings. She has published widely in international, regional and local peer reviewed journals. Brigita Jani nait is professor and Head of the Department of Educational Studies at the Faculty of Social Sci ences, Arts and Humanities, Kaunas University of Technology. Her research is focused on the issues of change management and social innovation implementation; development of innovative culture at individual and or ganizational level; higher education; curriculum development. Temitope Favour Jiboye is a Lecturer at the Institute of Entrepreneurship and Development Studies Obafemi Awolowo University Ile Ife Nigeria. She is presently a PhD student in the Department of International Relations at the same Institution. She has attended many Conferences on Entrepreneurship and has many papers pub lished in reputable Journals locally and internationally. Sanna Joensuu Salo works as a principal lecturer in marketing at the Seinäjoki University of Applied Sciences (SeAMK). Before SeAMK she was working at the University of Jyväskylä, in Information Technology Research Institute. She has specialized in public relations and organizational communication, market orientation in the
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context of growth firms and entrepreneurship education. Her publications have been accepted e.g. in Educa tion + Training and Journal of Small Business and Enterprise Development. Nina Jussila is a coach at Northumbria University and is also a graduate of JAMK’s Tiimiakatemia, the original Team Academy. Nina has worked in Team Academies across the world and in North and South America, Africa and Europe. Her research interests are entrepreneurial learning models, business accelerators and team coaching. Moon Jung Kung is a researcher at KIST Europe in Saarbruecken where she joined in 2007, where she has par ticipated in many international projects on developing eco innovation and open innovation strategies. She holds a Diplom in Environmental Science from Leuphana University Lueneburg and is expecting to finalize the Ph.D. on open innovation strategies toward environmental sustainability at TU Berlin. Janne Karjalainen is a Master of Science (MSc), in Technology and Electrical Engineering from the University of Oulu. He has worked at Nokia in various roles in software development projects. He is currently Lecturer and LabMaster at the Oulu University of Applied Sciences running DevLAB at Oamk LABs (www.oamklabs.fi). Amr Kebbi is an MScM candidate 2017 at Ted Rogers School of Management (TRSM) Toronto, Ontario, Cana da. I am a researcher in progress with 18 years of industry background in international chemical sales and sales management. I am interested in entrepreneurship, entrepreneurial competencies, and incubation. I believe knowledge is empowering, and I have passion for teaching. Soraya Khalaji Zavajeri Tax Audit in Organization for Economic Affairs and Finance, Zanjan, Iran. BA – Account ing. Tuomo Kinnunen is a project manager and a doctoral student in Industrial Engineering and Management at the University of Oulu. He has a Master’s degree in Industrial Engineering and Management. Kinnunen has worked in several international research projects. His research work and interest include business ecosystems, innovation platforms and product development covering different angles. Petr Kiryushin, (Phd.) is Assistant professor at the Faculty of Economics of Lomonosov Moscow State Universi ty. He is Head of the “Management of biotechnology” Msc program at LMSU. Petr graduated from Lomonosov Moscow State University, where he received a joint master degree at Central European University and Lund University. His research interests include: regional innovation systems, sustainable regional development and green economy. Mervi Koivulahti Ojala has over 20 years working experience in ICT industry as a senior manager. Her research interests include innovation, change management and ICT in high tech companies. Sirkka Liisa Kolehmainen is Senior lecturer at Helsinki Metropolia University of Applied Sciences, in Health Care Diagnostic Services and Service Management, and a Master degree programs in Social and Health Care Management and In Health Business Sirkka Liisa is a Management Physiotherapist, Entrepreneur, Podiatrist and Lecturer. Andreas Kompalla is a PhD Student at the Bucharest University of Economic studies. Researching on plan based an agile business strategies in the Automotive Industry. Management consulting focusing 4 application of lean methods on logistics and production processes. Andreas Kompalla holds a Business administration (di ploma) from the Technical University Berlin. Andreas is completing PhD Studies at University of Economic Stud ies in .Bucharest Suvi Konsti Laakso MSc (Tech.) works as project researcher in Lappeenranta University of Technology, LUT Lahti. Her research interests are user involvement, co creation, innovation networks and living labs. She is fi nalizing her doctoral dissertation related to co creation and innovation networks. She has also experience in managing and setting up international research projects as well as working in multi disciplinary research envi ronment.
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Lidia Kritskaya is an MA graduate and part time assistant at the Division of Research Management at the Uni versity of Agder, Norway. She also participates in different projects under the supervision of the professor Irina Gladisheva at the Northern (Arctic) Federal University, Russia. Lidia Kritskaya’s primary area of research inter ests includes entrepreneurship and life quality. Wioleta Kucharska is a PhD candidate, the dissertation title: Determinants of brand value creation in social media in the context of network economy (waiting for official defence in June 2016) and research assistant at the Management and Economy Faculty of the Marketing Department at the Gdansk University of Technology. Her research focuses on social media, knowledge sharing, and effectiveness of marketing activities, brand val ue and equity. Katja Lahikainen works as Project Manager at the Lappeenranta University of Technology (LUT), Finland, coor dinating LUT’s Entrepreneurial University process. Since 2010, she has been PhD student at the LUT School of Business and Management. Her research interests include functioning and development of regional entrepre neurial ecosystems, especially social networks residing within the ecosystems. Viola Larionova, holds a PhD in Physics and Mathematics, and is Associate Professor, Head of Department of Economics and Management in onstruction and Real Estate Development at Graduate School of Economics and Management (Ural Federal University), Director of E learning Department at Institute of Open Educational Technologies. Viola is the author of more than 90 publications and 3 monographs. Mosweunyane Lentswe is a lecturer at Central University of Technology, he hold a Masters in Business Admin istration from Central University of Technology, Free State. He is currently a fully registered Doctoral student at the same university. L Micha Le niak is a PhD student at the Poznan University of Economics. He graduated from the Faculty of Management at this University with Master degree in 2013. He studied finance and accounting directing his interest particularly in area of investment and corporate financial strategies. He also practices as a controlling and financial reporting specialist. Peter Marini is a doctoral student and instructor at the Department of Corporate Economy, Faculty of Eco nomics and Administration, Masaryk University in Czech Republic. He is a member of research teams focused to the topics of competitiveness, quality and development of the SMEs; and educational support initiatives in the field of entrepreneurship and start up. Sofia Mastrokoukou Received a Bachelor Degree in Philology and Linguistics from the University of Ioannina, Greece and a Master’s Degree in Lifelong and Adult Education from the Open University of Cyprus. she has worked at the University of Florence as tutor for the Master’s Degree School. In addition, during the last two years, she has been working with the NGO Idea Rom at the Educational Department. She is Phd Canditate at the University of Montpellier, France. Adam Mazurkiewicz is a Prof., CEO – Institute for Sustainable Technologies National Research Institute, Ra dom, Poland. He is a Manager and expert in research projects – systems engineering, machine construction and maintenance, materials engineering, technology transfer, foresight. Adam is an expert in FP6, COST, Polish interdisciplinary research groups. He is head of a few strategic national and international programmes. Adam has authored 300 publications including 22 monographs. Anabela Mesquita is a Professor at the Porto Accounting and Business School / Polytechnic of Porto. She is the Vice Dean and the President of the SPACE European network. She is also a member of the Algoritmi Research Centre (Minho University) and the Director of CICE (Research Centre for Communication and Education). She has also been evaluator and reviewer for European Commission projects. Ileana Pardal Monteiro Assistant professor of the Tourism School/ University of Algarve. MA in Organizational Behaviour, and PhD in Organizational Psychology, she is a board member of the Portuguese Association of Creativity and Innovation. Member of the CIEO/UAlg research center, she has worked in Human Resources Management in Public Administration.
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Rimant Morkertait is pursuing her PhD in Management and at the same time is working as a junior re searcher at the Department of Strategic Management, Kaunas University of Technology (KTU) in Lithuania. Her research interests are in the area of internationalization of SMEs, international entrepreneurship, open inno vation, and business networks. Matti Muhos is the Research Director of Micro Entrepreneurship at the University of Oulu. He has a title of docent in technology business at University of Jyväskylä. D.Sc. (Tech.) Muhos has received his doctorate in in dustrial engineering and management from Universtity of Oulu. Syed Razi Nabavi is a PhD student in Human Resource Management in University of Semnan. He has 20 years of work in public and private company. He has published more than 10 research papers in various international journals. Nabavi has presented 8 papers in various international conferences in different countries. He also has more than 10 years experiences of research in area of small and medium enterprises. Florabel Nieva is an Assistant Professor of Entrepreneurship Department at Effat University in Jeddah, King dom of Saudi Arabia. She obtained a degree in Entrepreneurship, Master in Business Administration (MBA), and Doctor in Business Administration (DBA) at Aquinas University Legazpi (AUL) in the Philippines. Her re search focuses on social entrepreneurship, corporate entrepreneurship technopreneurship and academic en trepreneurship aspects. Eeva Liisa Oikarinen MSc is a Doctoral Candidate of Marketing at Oulu Business School. Her main research interest is humour as a marketing communication and branding tool in online media with special focus on the effects of humour in job ad context. Currently she is working as a Project Manager of the multidisciplinary re search project HURMOS Developing humour as a strategic tool for creating innovative business. Mustapha Olayiwola Opatola is a Phd holder who joined the Institute for Entrepreneurship and Development Studies, Obafemi Awolowo University, as a consultant in 2013. He has been involved in consultancy services related to entrepreneurship in small and medium sized businesses. Before joining the University, he has worked in the private sector as an entrepreneur. Opatola has published many academic papers both locally and internationally. Gbemisola Oyedepo is currently a PhD student in the Business and Management Research Institute at the Uni versity of Bedfordshire, Luton, UK. She holds a BSc in Management and Accounting from O.A.U, Ile Ife, Nigeria and an MSc in Finance and Business Management from the University of Bedfordshire. Her research interests include SMEs, sustainability and sustainable supply chains. Agnieszka Palka, PhD.Eng. Works as lecturer at Gdynia Maritime University in Poland, Faculty of Entrepreneur ship and Quality Science. She received a science degree with specialty in food technology. She has been con ducting various research related to quality of goods, especially frozen food, changes in food quality during storage and consumer behaviour on the market. Elisabeth Pereira holds a PhD and Master in the fields of Economics and Business Management. She is Assis tant Professor of Economics at the University of Aveiro, Portugal and researcher in the field of Competitiveness and Innovation at the Research Unit GOVCOPP. She is author of several dozen articles, chapter of books and communications at international conferences. Beata Poteralska, PhD, is a senior researcher, Head of the Innovation Strategies Centre at Institute for Sustain able Technologies National Research Institute, Radom, Poland. She is a manager and expert in national and international research projects in the area of innovativeness improvement, technology transfer, technology assessment and foresight. Beata has authored over 80 publications including 4 monographs. Viktor Prokop is a professor assistant and second year doctoral student at Institute of Economics, Faculty of Economics and Administration, University of Pardubice. He is co researcher of the grant project: Modeling knowledge spill over effects in the context of regional and local development; and explores the issue of meas uring the knowledge economy in his dissertation.
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Patient Rambe holds a PhD in Educational Technology from the University of Cape Town, South Africa. He cur rently holds the position of Senior Researcher in the Department of Business Support Studies at the Central University of Technology in South Africa. Tero Rantala is a Researcher and PhD student at Lappeenranta University of Technology, LUT Lahti. His current research focuses on performance measurement and management of university industry partnerships, includ ing the measurement of effectiveness of innovation activities in private and public sector organizations. Kevin Reuther is an international PhD Student and research assistant. He studied Business with his majors in Management, Information Logistics and Business Psychology at the University of Applied Sciences Zwickau in Germany and the University of the West of Scotland. Currently, he is researching the field of organisational structures and innovation for preparing his PhD. Satu Rinkinen (MSc) works as a researcher and a doctoral student at Lappeenranta University of Technology, LUT Lahti. She works in research projects and is working on her doctoral dissertation. She holds a master’s de gree in Geography, and her current research interests include innovation policy, innovation systems and re gional development. Elena Rogova is a professor of the faculty “Saint Petersburg School of Economics and Management”, National Research University Higher School of Economics. Her research interests are related to financial management of innovation activities, including innovation projects evaluation, venture capital, valuation, risks, and intellectual capital and real options. Fernando Romero holds a Ph.D. in Science and Technology Studies from the University of Manchester. He is at the Production and Systems Engineering Department, and at the Research Centre ALGORITMI, in the Universi ty of Minho. He publishes regularly in the area of Industrial Innovation, Innovation Systems and innovation management. Eugenia Rosca is currently pursuing a PhD at Jacobs University, Bremen where she is involved in many teaching and research activities. Her primary research interests include sustainable solutions in developing countries, namely industrial sustainability through business models and value co creation activities. Michele Rusk is a Fellow in Entrepreneurship at Newcastle Business School, Northumbria University. Previous ly as an expert in Design Management she led curriculum development of the subject at the Faculty of Art, Design and Built Environment at the University of Ulster. Prior to that she held an academic enterprise devel opment role as Head of Consultancy within the University of Ulster’s Office of Innovation. Michele Rusk is an experienced public sector development adviser with over 17 years of practice in the United Kingdom and in ternationally. Martti Saarela is a Researcher and PhD candidate at Oulu Southern Institute of University of Oulu. He has a Master of Laws and Master of Science in Economics. His primary research interests are the development of micro companies, public business services, external entrepreneur support, public procurement, and regional development. Joseph Mathews Sacha is an Associate Professor of Marketing at the University of the Pacific. She has been working, teaching, researching and advising in marketing, customer service and international business for al most 20 years. Recently, she has been mentoring and training social entrepreneurs from across the globe. Navjot Sandhu is a Senior Lecturer in Finance at Birmingham City University. Since joining Birmingham City University, she continues to develop the discipline of bank lending decisions for small and medium farmers, an important area of research that has potential to impact on government policy and agricultural sector at large Juha Saukkonen (M.Sc.,econ), Senior Lecturer of JAMK University of Applied Sciences, coordinator of High Tech Management specialization. Juha is involved yearly in 50+ E E (education enterprise) projects, 2 3 larger R&D projects. Juha is a member of Finnish Network Academy in Futures Studies and has published on topics in Entrepreneurship, Project based learning and Foresight.
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Taina Savolainen is Professor of Management & Leadership. She leads the research group of 'Trust within Or ganizations' in the University of Eastern Finland, Business School. Her main focus is currently in process ap proach to trust research. She is contributor in the three books of TRUST Inc. in the global network of Trust Across America Trust Around the World where she was named as 100 Top Thought Leaders in Trust 2015. Ulla Maija Seppänen is a Master of Health Sciences (MSc), Occupational Therapist (reg.) and Psychotherapist. She has strong background about therapeutic practices as well as developing new teaching and learning meth ods. She is currently Senior Lecturer and Head Coach at Oamk LABs in the Oulu University of Applied Sciences, Finland. Dmitry Shaytan is co founder of innovationStudio, Lomonosov Moscow State University, Faculty of Economics, where he manages acceleration programs, and teaches entrepreneurial management courses. He is entrepre neur, founder and general manager of the innovation company “ETB” that designs software and hardware based innovative solutions. Educational background: MS in physics, and MBA. Dmitry Shaytan is co founder of innovationStudio, Lomonosov Moscow State University, Faculty of Economics, where he manages acceleration programs, and teaches entrepreneurial management courses. He is entrepre neur, founder and general manager of the innovation company “ETB” that designs software and hardware based innovative solutions. Educational background: MS in physics, and MBA. Moulen Siame is a Lecturer at The Mulungushi University, Zambia and a Research Fellow at Nyenrode Business University. Moulen has published: Differences & Similarities of NGC bm & SVCE bm and Good performing (co operative) Enterprise with –SVCE bm in Zambia Viacheslav Sirotin is a professor at the National Research University Higher School of Economics, who holds a PhD from the Academy of Anti Aircraft Defense, Kharkov, Ukraine, 1990. Viacheslav’s career has involved Mili tary Service, 1981 2001; and roles as a professor at Moscow State University of Economics, Statistics and In formatics and National Research University Higher School of Economics, Moscow. Kirsti Sorama Ph.D. (Management). Dr. Sorama works as a principal lecturer in entrepreneurship at Seinäjoki University of Applied Sciences. Before SeUAS she worked at the University of Vaasa in Faculty of Business Stud ies. Her research interests have been business networks and growth, nascent entrepreneurship and anticipa tion of the future. Erik Steinhöfel studied economics and engineering at the University of Applied Sciences Berlin and the Univer sity of Technology Sydney. He works as a senior researcher at Fraunhofer IPK, Division Corporate Manage ment. His main areas of expertise are strategic and operational knowledge management as well strategic plan ning and innovation management. He refined his expertise in these fields through several public and industry projects set in Europe, Asia and South America. Jan Stejskal is an associate professor with the Institute of Economics, Faculty of Economics and Administration, University of Pardubice, Czech Republic. His domain is connection of the public economy in the regional scope and view. Especially, he analyses regional policy, tools of the local and regional economic development, and public services. Mullika Sungsanit is a lecturer, an InfoDev WorldBank consultant and certified trainer, and a former manager of Business Incubator and IP Management Office. She had developed and delivered training program for Women Entrepreneurs in Mekong and the Caribbean. Her research interests are around entrepreneurship de velopment and managing a growing venture. Eva Svandova works as an assistant professor at Masaryk University, at the Faculty of Economics and Admin istration, Czech Republic. Her scientific interest is focused on organizational design from the contingency theo ry perspective, inter organizational cooperation and innovation management from the view of enterprises. She has been involved in few research projects concerning competitiveness ability of the Czech enterprises. Antti Talonen works at the University of Tampere as a doctoral student and project manager. His doctoral the sis focuses on competitive advantages of mutual insurance company. The thesis puts specific attention to
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sense of psychological ownership. In addition to this, Talonen has carried out research and development pro jects related to cooperatives and mutuals. Latest projects include development of a crowdfunding platform for cooperatives and research on shared value potential of cooperatives. Shailaja Thakur graduated with a bachelors’ degree in Economics from Delhi University. Subsequently, she did her post graduate studies of an MPhil and PhD from Jawaharlal Nehru University, India. Shailaja has worked in the private sector for five years and has more than ten years of teaching experience. Currently, she is teaching Economics at Sri Venkateswara College, Delhi University. Anna Ujwary Gil has a PhD degree in Management from the Warsaw School of Economics in Poland. Since 2011 she has been an editor in chief of the Journal of Entrepreneurship, Management and Innovation (JEMI). In 2010, her book titled Intellectual Capital and the Market Value of a Company won a prestigious award from the Polish Academy of Sciences. She is a Project Manager within the National Center for Science and Experi ence Researcher of the 7th FP of the EU international project of MC IAPP. Alroaia Younos Vakil has 18 years of work experience which is a blend of corporate and academics and spe cializes in the area of entrepreneurial development in SSIs. He has carried out consultancy work for the minis try of cooperative and commerce organization, as well as private company. He has published more than 80 research papers in various international journals. Younos has presented 65 papers in various international con ferences in different countries. Similarly, he has published 15 books. Younos had done 15 research projects on different issues of entrepreneurship development in SSIs. Younos at the present is as a head of DOS in man agement, IAU. Robin van Oorschot has a background as an industrial designer. For his PhD research at the Delft University of Technology he is investigating how to use Design theory to improve Entrepreneurship theory and how to use Design education to improve Entrepreneurship education. Qian Wang, holds an M.Sc. Degree in Economics and Business Administration, and is studying as a doctoral student in Jyväskylä University School of Business and Economics, University of Jyväskylä, with management and leadership as a major. Her research interests include entrepreneurship, entrepreneurship education, women entrepreneurship, social entrepreneurship, qualitative meta analysis and ATLAS.ti. Aleksandra Wilczy ska, Associate Professor, Ph.D., D.Sc. Eng., works as lecturer at Gdynia Maritime University, Department of Commodity Sc. and Quality Management. She received science degree with speciality in quality of food stuff. She has been conducting various research related to quality of regional and traditional food, an tioxidant activity of food products and raw materials. Baocheng Wu is currently a PhD student at School of Business, UNSW Canberra. Prior to studying at UNSW, she obtained her Master degree in Economics from South China University of Technology. Baocheng’s research areas of interests are entrepreneurship, institutional theory, and practice theory. Blaz Zupan is a research fellow at the department for Entrepreneurship of the Faculty of Economics, University of Ljubljana. He is engaged in many entrepreneurship related courses and specializes in the field of new idea development. Alongside the educational and research work he is also a co founder of several companies and an active business consultant.
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A Study on the Effectiveness of Risk Management Implementation Among Malaysian Tier 1 and Tier 2 Cooperatives Ruzilah Abd Malek, Ahmad Faizal Shaarani, Mohd. Shahron Anuar Said, Azmaliza Arifin and IntanNurAzreen Mohamad Radzi Cooperative College of Malaysia, Malaysia
[email protected]
Abstract: The rapid growth in the cooperative sector is evident by the number of the establishments, which stood at 12,493 in 2015. Malaysia’s cooperatives are diverse in terms of type, size and degree of complexity, thus, requiring the implementation of an efficient risk management. This study aims at assessing the extent of implementation of risk management in cooperatives and examines the awareness and commitment of management staff on risk management. Also examined is the establishment of specific risk management committees and risk management units in cooperatives. The study covers 40 Tier 1and Tier 2 cooperatives and 194 respondents comprising management staff involved in top management meetings. Data were collected by way of questionnaire survey and analysed using descriptive statistics, comparison of mean, correlation analysis and regression analysis. Among the salient findings is that the level of awareness on risk management is higher in Tier 1 cooperatives than in Tier 2 cooperatives. Keywords: effectiveness, cooperative risk management, commitment
1. Introduction 1.1 Background of study The cooperative sector in Malaysia has undergone transformation in various forms which exposes many of the cooperatives’ activities to various risks. This was not the case before. It is noted that the cooperative sector has also been establishing business connections outside the sector. This is because the cooperative sector is unique in that it has a large membership forming a huge market. With effective management, a cooperative could be run judiciously and be able to pursue a more risky business venture, thereby improving dividends to members and protecting the interest of stakeholders. With discipline and transparency, the management could establish accountability in the cooperative sector. To ensure that cooperatives provide a comprehensive policy on risk management with the necessary procedures and infrastructure for the numerous risks, the cooperative board members (ALK) must understand all aspects of the business activities of the organisations. It is only then that the cooperatives can begin to manage its risks and identify, evaluate, monitor and handle such risks.
1.2 Problem statement While cooperatives are experiencing growth in yearly profit there are several weaknesses in their management systems and that the cooperatives are facing internal problems which need to be rectified. Otherwise, the organisational activities would be adversely affected and its image tarnished. As such, there is a need to study risk management in cooperatives and the extent of commitment in managing its risks to ensure that the organisations generate high income. It is imperative that cooperatives run its business based on the principles of cooperative. As it is, most cooperatives in Malaysia pay little attention to risk management. Therefore, board members and management staff must take precautionary measures to ensure their organisations remain healthy by continuously examining its infrastructure, human capital and working framework. Growth in the activities of cooperatives is rapid, and this requires management to effectively and strategically handle risks. As a result of the rapid growth in the sector, there are now 12,493 cooperatives with a total membership of 7,418,019 (Cooperative data as of 30 June 2015, SKM). These cooperatives are made up of various types, sizes and complexities of operational set-up and pose a challenge to SKM in its efforts in monitoring, supervising and controlling the cooperative movement.
1.3 Study objectives The objectives of the study are: !
To examine the profile of Tier 1 and Tier 2 cooperatives in Malaysia;
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To determine the effectiveness of the implementation of risk management;
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Ruzilah Abd Malek et al. !
To determine the awareness of management on the implementation of risk management in cooperatives;
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To evaluate the extent of awareness of the management on risk management in cooperatives;
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To examine the relationship between awareness of management towards risk management and the effectiveness of risk management in cooperatives; and
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To examine the relationship between the commitment of staff on risk management approach and effectiveness of risk management.
2. Literature review Risk management comprises all proactive activities of the management in specific programmes designed to accommodate potential failures in such programmes (Irzan, 2012). Risk management is defined as a scientific approach to real risks with the aim of reducing or removing such risks from a business (Vaughan, 1997). Rejda (2005) on the other hand, defined risk management as a process of identifying an organisation’s exposure to losses and selecting the most appropriate technique to accomplish it. Kloman (1992) defined risk as a good practice in dealing with the unexpected encumbrances that could surface from time to time which are detrimental to the organisational finance and derail any planning to provide benefit to individuals, organisations and the community on general. According to The Royal Society (1992), there are two approaches in risk management, namely, reactive approach and proactive approach. In the case of reactive approach, an institution determines its tolerance towards risk and changes its goals by following guidelines established to accomplish such goals. The proactive approach is a holistic risk management in which all potential risks are taken into consideration whether or not these would actually occur. Each of the potential risks is deemed capable of causing damage in its normal setting. Therefore, the management must evaluate and continuously monitor its risk, make projections and learn from problems encountered in the past (internal and external) which may resurface. According to C.O.S.O (2004), an organisation is considered to have an effective risk management if it fulfils eight components of Rangka Kerja Pengurusan Risiko Organisasi (RKPRO) (organisational risk management working framework). These are internal environment, determination of objective, identification of risk, evaluation of risk, reaction on risk, keeping tab on activities, information and communication, and monitoring of risk based on the organisational capability and suitability. Carey (2001) states that success in incorporating risk management depends on the ability to respond to situational changes which requires the involvement of workers. Hagigi dan Sivakumar (2009) show that effective risk management not only depends on the organisational ability in reducing or avoiding risk, but also on the ability to develop risk strategy that is in line with the organisational goal and risk prioritization. In addition, it is important that all individuals in an organisation have a better understanding of risk and risk-taking so that the organisation is effective in managing its risks. Risk management deals with risk directly by controlling, avoiding and reducing the adverse effect of risk. According to Lembaga Perkhidmatan Kewangan Islam (IFSB, 2005), there are five strategic processes in handling risk, namely, identifying, measuring, evaluating, controlling and monitoring (Figure 1)
Figure 1: Risk management process
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Ruzilah Abd Malek et al. Identifying Risk Risks comprise all possible dangers to the operation of an organisation (Tummala and Leung, 1996). According to Tchankova (2002), one could identify risks by looking at the sources, hazard factors and risk exposures as follows: !
Sources of risks and elements of organisational environment that exert positive or negative impact on any undertaking such as embarking on new products with uncertain current market conditions. The risk is associated with quality and market acceptance.
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Hazard factors are specific situations that increase the likelihood of profit and loss. Failure to understand development in the market for new products exposes the organisation to a high risk.
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Exposure to certain risks causes a business organisation to face possible losses. However, losses will only occur when such risks actually materialise.
Measuring Risk According to White (1995), an organisation measures risk by visualising and estimating the likelihood of it occurring. In this process, the organisation focuses its effort on determining the opportunities that come with the risk. According to Irzan, Mutasim, Mohamad and Fazli (2012), risk measurement involves evaluating the probability of a risk occurring. That is, risk management focuses on examining potential risks and that risk measurement aims at reducing risk to a minimum, hence the foundation to controlling risk (Startiene and Remeikiene, 2007). Evaluating Risk According to Irzan et al. (2012), measuring and evaluating risk appear to be similar in nature, but it is important to distinguish between the two. Measurement of risk is a process of estimating the level of risk by comparing such risk with the benefit resulting from the undertaking (White, 2005). The risk evaluation phase involves critical examination of all action plans taken during risk measurement. Risk evaluation looks at the effectiveness of the overall risk reduction, total resources needed, the need for changes to the original venture and selection of optimum action to accomplish the organisational risk management goal (Tummala and Leung, 1996). Controlling and Monitoring Risk Controlling and monitoring risk is very important to see the progress of an undertaking (Tummala and Leung, 1996). It is also useful to update the identified risk and the associated hazard factors. Past studies point out that organisational commitment is important for the development of an organisation ant that a highly committed organisation is likely to be more successful (Shirbagi, 2007; Stanley, Herscovitch and Topolnysky, 2002). Organisational development, strategic changes and evaluation are also important. Meyer and Allen (1997) define organisational commitment as the commitment of employees towards their organisations. And, organisational commitment is an important feature as it represents the overall contribution of employees in enhancing the capability of their organisation and creating conducive working environment (Shirbagin, 2007; Meyer and Herscovitch, 2001). The importance of organisational commitment in risk management is evident under Kod Tadbir Urus Malaysia (Security Commission, 2007) which states that commitment is one of the factors that influence risk management. The ability to measure level of commitment enables the organisational management identify the involvement of staff at all levels in risk management activities. According to Foote, Seipei, Johnson and Duffy (2005), employees who understand the importance of risk management would be more committed to the overall effectiveness of risk management. Figure 2 presents the theoretical framework of the study based on literature review of past studies in relation to the effectiveness of risk management in cooperatives.
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Independent Variable Dependent Variable
Identification Measurement Assessment
Management Commitment
Effectiveness of Risk Management
Control Mediator
Monitoring
Figure 2: Study framework on effectiveness of risk management in cooperatives
3. Methodology This study seeks information on the relationship between organisational commitment and risk management in cooperatives. For this, there is a need to have an integrated data set that could be meaningfully analysed. Data collection was accomplished by way of questionnaire, and such an approach is most appropriate when the emphasis is on quantitative data related to the measurement of attitudes, perceptions and opinions (Burn and Groves, 1993). The respondents for this study were officers who attended meetings involving the top management of cooperatives as they had access to accurate information on risk management in their respective cooperatives. This study is quantitative, using statistical analysis, objective in nature and looking strictly at the results of analysis. The study began by constructing the analytical instrument in the form of a structured questionnaire. The questionnaire was developed to obtain data on the extent of commitment on the part of management in coming up with the effective risk management system in cooperatives. There two sources of data, namely, sample survey and SKM. The sample survey involved 13 Tier 1 and 27 Tier 2 cooperatives. The respondents from each cooperative in the sample consisted of those in the top management such as general managers, managers and management executives involved in top management meetings. A total of 256 questionnaire forms were sent to the 40 cooperatives with a 78 per cent return (194 completed forms). Although not all of the questionnaire forms were complete, these were representatives of all cooperatives. Data collection took four months.
4. Results and discussion 4.1 Effectiveness of risk management in cooperatives In general, half (20 or 50%) of the cooperatives have management committees, while less than half (15 or 43%) have risk management units staffed by cooperative employees. These units are fully responsible for identifying potential risks and taking suitable actions. It is clear that Tier 1 cooperatives are relatively more effective in implementing risk management than their counterparts. Specifically, 77 per cent (10 out of 13) of Tier 1 cooperatives have risk management committees compared with only 37 per cent (10 out of 27) for Tier 2 cooperatives. Meanwhile, 69 cent (8 out of 13) Tier 1 cooperatives have their own risk management units compared with only 30 per cent (7 out of 27) for Tier 2 cooperatives.
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4.2 Awareness about management of cooperatives On the average, awareness about risk management is higher in Tier 1 cooperatives than in Tier 2 cooperatives. The mean scores are also higher in Tier 1 than in Tier 2 cooperatives for identification (4.14 against 3.84), measurement (4.17 against 3.98), evaluation (4.16 against 3.88), control (4.10 against 3.87) and monitoring (4.6 against 3.75). The difference in scores ranges from 0.18 (measurement) to 0.41 (monitoring). Difference in awareness about risk management between Tier 1 and Tier 2 cooperatives is expected because of the difference in their features. Tier 1 cooperatives are large-impact organisations, with supervision and risk management being continuously evaluated by SKM. One SKM officer acts as the communication manager of each Tier 1 cooperative, indirectly enhancing risk management in the latter. On the other hand, supervision in risk management in Tier 2 cooperatives is only carried out occasionally by SKM in 2-5 years and that no SKM officers were specifically assigned to monitor these cooperatives. Identifying Risk Generally, awareness about three aspects of risk measurement is high. The mean score for “Cooperative identifies risk based on its impact on organisation” is the highest for all cooperatives (4.06). This is followed by “Cooperative identifies each risk associated with organisational objective (4.04), and “Cooperative identifies risk based on its sources (4.02). This shows that awareness about the process of identifying risk based on activities having substantial impact and potentially derailing the accomplishment of goal is relatively the highest. So is awareness about identifying risk based on its sources. The lowest mean score is for “Cooperative provides procedures by systematically identifying its risk (3.76), followed by “Cooperative applies procedures for identifying risk (3.80). In general, risk management in these cooperatives is still unsatisfactory, with many respondents not realising the importance of their organisations following a systematic procedure in identifying risk. Without a concrete and well-formulated risk identification procedure, it is unlikely that risk management could be done effectively. Measuring Risk In general, awareness about measuring risk as manifests in “Cooperative risks are analysed based on financial impact” has the highest mean score of 4.20 Awareness on risk measurement has been directed more towards activities having substantial impact on cooperative finance. Furthermore, the emphasis of risk measurement is on the impact on cooperatives with mean score of 4.08. This is followed by “Cooperative risks are analysed based on reputation “(4.02), “Cooperative risks are analysed based on accomplishment of objective” (3.97). The lowest mean score, albeit still relatively high, is “Cooperative risks are analysed based on likelihood of occurrence (3.95). This implies that cooperatives also place emphasis on the likelihood of something happening when measuring risk. Evaluating Risk The evaluation item “Cooperative collects information on risks before making decision on action to make” has the highest mean score of 4.09, implying that cooperatives are aware that collecting sufficient information is essential in making decision on risk management. This is followed by “Cooperative analyses and evaluates the chances of accomplishing organisational objective” (4.07), “The interest of stakeholders is important in evaluating risk facing cooperative” (4.03) and “The action of cooperative in analysing risk includes arranging these according to priority and selecting risks that require the immediate action of management” (4.02). The lowest mean score (3.66) is for item “Cooperative knows the strengths and weaknesses of collaborating cooperatives in managing their risks”. That is, awareness towards risk evaluation in other closely related cooperatives may have an impact on a cooperative. Controlling Risk Respondents were of the view that their cooperatives understand which risk to address in accomplishing their objectives (mean 4.01) and that their cooperatives use a technique of transferring their risk to a third party in
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Ruzilah Abd Malek et al. their risk management (mean 4.00). This implies that awareness about controlling risks is more focused towards risks that could affect the accomplishment of organisational objectives. Cooperatives also seek to control specific risks (3.99) and avoid any risk at all (3.94). The lowest mean score (3.80) is for the item “Cooperative adopts various techniques of risk management in accepting and maintaining risks”. That is, on the average, cooperatives are using a limited range of techniques in their risk management. Monitoring of Risk In the case of risk monitoring, the management of cooperatives is always seeking feedback on risk to ensure that the organisation handles its risk appropriately. This is evidenced by the mean score of 4.15 for item “readily accepts various information regarding risks”. The item “It is important to ensure the importance of risk management in reporting the management of cooperative” has the second highest mean score of 4.06, followed by “Controlling risks in cooperatives must be consistent with the risks being faced” (3.91). Meanwhile, the lowest mean score (3.74) is for “This cooperative has specific indicators used to monitor the effectiveness of its risk management technique. This implies that not all cooperatives have specific indicators to be used to monitor the effectiveness of their risk management.
4.3 Commitment of cooperative management The results show that the commitment of cooperative staff is on the moderate level at best, with mean score of 3.47 and median 3.50 Only one of the six components representing commitment has a high meanof 4.25: “This cooperative is very important and beneficial to me”. This implies that cooperatives are important and beneficial to respondents such that the problems of cooperatives are their problems. This is true because they are employees of the organisations.
4.4 Relationship between management awareness and effectiveness of risk management The results of correlation analysis to determine the relationship between management awareness about risk and effectiveness of risk management. This relationship is seen through the six components of risk management, namely, identification, measurement, evaluation, control and monitoring. As a whole, there is a positive, but rather weak relationship between management awareness and control, evaluation and identification, while measurement and monitoring do not impact on effectiveness that much. Effectiveness of risk management(r=0.453; p,4) were mostly associated in the component 1 with skills that represent those competencies concerning organizational and analytical skills as well as capacity of synthesis. Notwithstanding, in component 2, we observe that the higher number of values were mostly associated with competencies related to creativity. We have tried to gather evidences about whether the students were aware of their learning and if they were aware of their skills to solve new problems in different set of situations. This aspect is particular important for graduate students of business management and administration who need to deal with a challenging and fast changing reality. The concept of developing a framework for assessing the meta-competencies has to do with the importance of having an accurate system of understanding, both from the perspective of the higher education institutions, as well as from the student’s perspectives what were their learning path that does not end at the degree achievement. This can be wrapped up in the subjective perception of "I know I can learn to do what I have or I can find the necessary tools to analyse and propose a solution according to different given situations". A first preliminary result that we can suggest, by using the methodology of Principal Components, are associated with observing basically correlations referred to variables that we can associate with the organization and analytical skills integrated in the dimension 1 and with creativity capacities integrated in dimension 2. In table 1 we can observe the integration of the components that build up the two dimensions. Table 1: Integration of the different set of generic competencies Dimension 1 (Organizational, analytical and methodical set of competencies) Set personal goals and objectives Organise time to goals Organize and manage information High capacity for criticism and self-criticism Relational skills (listening, communication and feedback) Oral and public speaking skills Capacity of autonomous work (work independently) Capacity to adapt to new situations Face new challenges Entrepreneurial spirit and initiative capacity When performing a task, I frequently evaluate my progress on my goals Capacity of adaptation
Dimension 2 (Creativity driven set of competencies) I like to face new challenges I like to generate new ideas (creativity) Concern for quality in all tasks Oral and public speaking skills. Capacity of organization and planning Organise time to goals
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Albert Arisó, Michele Girotto and José Luis Fernandez We may observe that there are in component 1 factors such as: "I do not persist much when there is hard work before leaving it", "if the task is very difficult not even want to start", that correspond to the profile of the organized, analytical and methodical student, but it lacks importance in the creative profile. However, both dimensional sets of competencies valued the importance of time management to control objectives achievements, and capacity of confronting challenges, together with oral and public speaking skills. Nonetheless, it may suggest that in the dimension 1, there is a contrast between the initiative driven and entrepreneurial skills as well as facing new challenges capacities with a high low persistence to keep up with hard work and lack of motivation to start difficult tasks, which presents a higher contrast against the more creative profile in dimension 2. As such, in the creative set of competencies we may observe the integrated importance of being able to generate new ideas, by facing new challenges, that resonates with the importance of having a higher concern for quality results. This is also integrated within the importance given to be able to manage well the time when progressing towards objectives, as well as the emphasis put on the relevance of planning and organising. Table 2: Components analysis Components
1 - Organizational, analytical and methodical competencies
2 – Creativity related competencies
A1. Often set personal goals and objectives
,519
-,176
A4. I organize my time to better meet my goals
,427
-,730
A7. I'm good at organizing and managing information
,621
-,216
A11. Do not resist much hard work before leaving it.
-,507
,254
A12. If the task is very difficult, I don't want to start
-,444
,148
A13. I think you can accomplish almost anything if you want
,620
-,058
A15. I like to face new challenges
,510
,435
A16. I like to generate new ideas (creativity)
,218
,588
A19. I believe I have a high capacity for organization and planning
,351
-,454
A20. I think I have a high capacity for criticism and self-criticism
,526
,346
A21. I always try to maintain an ethical commitment
-,231
,240
A22.I have an excellent level of relational skills (listening skills, communication and feedback)
,748
,310
A23. I am a person able to work independently
,610
-,329
A24. I always try to adapt to new situations
,643
,178
A26. I like to take the initiative and considerer my entrepreneurial spirit is high
,612
,266
A27. For me quality is always important in all tasks
,202
-,532
A28. I have an excellent oral skills and public speaking skills
,530
,409
A29. I have excellent written communication skills
,614
,055
Essentially, we can observe that overall students perceive themselves to have organization, method and tools to deal with problem solving, mostly concerned on organization and analytical skills, regardless of their creative nature and concern for quality. It is also interest to find out that the competency associated with the maintenance of ethical commitment are valued very low by both set of profile of students, which is an interest contrast when it comes to understand the importance of ethical issues when developing professional and management projects in the final year of an undergraduate business student.
5. Discussion As described in the current ongoing paper, we are developing a process of assessing the meta-competencies in the final year projects of business management undergraduate students. This project has a goal of coming up with an accurate process of evaluating the generic competencies in the FYPs. The overall project on the one
54
Albert Arisó, Michele Girotto and José Luis Fernandez hand tries to assess the institutional perspective by analysing the supervisor’s perspective during the whole supervision process, and on the other, we want to come across with the identification of what are the level of awareness of the students concerning their generic skills. Therefore, in this paper we only take an initial approach to the student’s survey, trying to focus on the particular aspect of the skills associated with creativity and initiative. It is still pending to develop a deeper application of the Principal components analysis. This preliminary results have shown an initial identification of two sets of meta-competencies that put in contrast a more analytical, methodical and organizational set of skills profiles, against a more creative set of skills profile, with an observation of a common correlation of aspects associated with facing new challenges, time management and public and oral speaking. Accordingly, the outcomes coming from our preliminary analysis showed us that the most valued skills by the students were initially combined in two main factors: the first factor was related to organizational and analytical capacities while the second factor would be represented by competencies related to creativity. However, this is only an initial preliminary approach to the results, that should be analysed in depth. Thereupon, this paper tried to identify the extent to which student perceptions of their development of the FYP include meta-competencies. Framed by this analysis the study wants to propose the elaboration of an integrated assessment framework that ensures the appropriated meta-competencies build-up and evaluation. In this paper we have prompt the preliminary results from a survey where we asked undergraduate students from a Business School in Spain about which skills they have developed in their elaboration of the FYP, coming up with two main set of a first approach to the meta-competencies in the FYP. Furthermore, by the development of the supervisor’s study to be integrated with the student’s perspectives on competency-based learning process, the practical result of the project will have to do with the development of rubrics that would comprise the findings of the student’s survey on generic competencies, aspects that are not currently assessed in their FYPs. Our goal is to implement the appropriate descriptors, by integrating in the rubric, the set of components that were strongly valued by the students, and that would include both dimensions, in order to facilitate their development. Moreover, it would have an important implication for the learning and training path, as the institution would have guidelines for enhancing a more balanced profile of students on organizational and analytical skills, combined with the creative and initiative driven profile. On the other hand, in terms of scientific contribution, we would like to further deepen the gap in understanding generic competencies in the accomplishment of the FYPs by the students, developing a conceptual model based on the construct of meta-competencies. This idea is driven by the fact that we found out that in the FYP the student must be able to harmonize and prioritize the different skills learnt during their studies. The metacompetency framework is outlined in the reflection process that the student may develop when thinking of their skills development process, and it may help to increase the student's ability to choose and match specific skills depending on the different professional situation in which they may find themselves.
References ANECA. (2005). Libro Blanco Título de Grado en Economía y Empresa. Madrid: ANECA. Bologna declaration. (1999). European Ministers of Educ., “The European higher education area,” European Union, Bologna (Italy), Joint Declaration, (1999). [Online]. Available: http://www.ond.vlaanderen.be/hogeronderwijs/bologna/ documents/MDC/BOLOGNA DECLARATION1.pdf ͒ Bain, Ken. (2007). Lo que hacen los mejores profesores universitarios, Publicacions de la Universitat de Valencia, Valencia, pp. 20-27. Barnett, R. (1994). The Limits of Competence: Knowledge, Higher Education and Society Buckingham: SRHE/Open University Press. Bunge, M. (2004). Emergencia y convergencia. Novedad cualitativa y unidad del conocimiento. Gedisa, Barcelona. Delgado, Bonilla, M.I. and Martín López, C. (2012). Evaluación de competencias en el Trabajo Fin de Grado en Administración y Dirección de Empresas: una propuesta de la Facultad de Ciencias sociales de Talavera de la Reina. UCLM. Revista de formación e Innovación Educativa Universitaria, 5 (4), pp. 241-253. De la Iglesia, M.C. (2011). Adecuación del grado de desarrollo de la formación en competencias a la necesidad en el entorno laboral, según la opinión de los estudiantes. Revista Complutense de Educación Vol. 22, No.1, pp. 71-92. Haynie, J. M., Shepherd, D. a., and Patzelt, H. (2012). Cognitive Adaptability and an Entrepreneurial Task: The Role of Metacognitive Ability and Feedback. Entrepreneurship Theory and Practice, Vol. 36, No. 2, pp. 237–265.
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Albert Arisó, Michele Girotto and José Luis Fernandez Henson, R.K., Roberts, J.K. (2006). Use of Exploratory Factor Analysis in Published Research: Common Errors and Some Comment on Improved Practice. Educational and Psychological Measurement. Vol 66, No. 3. Mateo, J., Escofet, A., Martı ́nez-Olmo, F., Ventura, J. and Vlachopoulos, D. (2012). Evaluation tools in the European Higher Education Area (EHEA): an assessment for evaluating the competence of the Final Year Project in the social sciences. European Journal of Education, Vol. 47, No. 3, pp. 435-447. Montoro-Sanchez, M.A., Mora-Valentín, E.M. and Ortiz-de-Urbina-Criado, M. (2012). Análisis de las competencias adquiridas en los estudios de Dirección de Empresas y su grado de aplicación en las prácticas en empresas. Revista Complutense de Educación, Vol. 23, No. 1, pp. 241-263. Riggs, E.G.; Gholar, C. R. (2009). Strategies that promote students engagement. Unleashing the desire to learn. Second edition. Corwin Press Inc. A SAGE Company. Rullán, M. et al. (2010). La evaluación de competencias transversales en la materia Trabajos Fin de Grado. Un estudio preliminar sobre la necesidad y oportunidad de establecer medios e instrumentos por ramas de conocimiento. Revista de Docencia Universitaria, Vol. 8, No.1, pp. 74-100. Tobón, S,. Pimienta, J., and García, F. Juan Antonio. (2010). Secuencias didácticas: aprendizaje y evaluación de competencias, Ed. Pearson, México, p.8. Tubbs, S.L., and Schulz, E. (2006). Exploring a taxonomy of global leadership Competencies and metacompetencies. Journal of American Academy of Business, Cambridge, Vol. 8, no. 2, ProQuest, pp.29. Watts, F., García-Carbonell, A. and Llorens, J. A. (2006). Introducción. En Watts F. and García-Carbonell, A. (ed.) La evaluación compartida: investigación multidisciplinar. Universidad Politécnica de Valencia, pp. 1-9. Tuning Educational Structures in Europe I (2003). Final Report. Pilot Project - Phase 1. http://www.tuning.unideusto.org/tuningeu/index.php?option=com_docman&Itemid=59&t ask=view_category&catid=19&order=dmdate_published&ascdesc=DESC.
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Specific of Sales Volumes Forecasting for Dairy Products in Russia1 Marina Arkhipova 1 and Kirill Arkhipov 2 department of Statistics and Data Analysis, faculty of Economics, National Research University Higher School of Economics, Russian Federation 2The department of Mathematic statistics and econometrics, Plekhanov Russian Economics University, Russian Federation
1The
[email protected],
[email protected],
Abstract: The article is focused on forecasting of dairy products sales. We estimate the probability of buying in innovative product by a consumer on the base of the model including a set of various factors-determinants. The proposed methodology has been tested using real data on dairy products sales in Danone Russia, the largest producer of dairy products in the CIS area. The quality of the model exceeds the quality of existed models used by the company. Keywords: forecasting, new products, supply chain collaboration, cooperation and partnership, panel data
1. Introduction The variety of products becomes an important component of successful business in Russia. In the dairy market, consumers pay significant attention to the locality of production (region of production, farm and even the name of the cow) and their innovativeness. These tendencies require closer collaboration throughout the supply chain from manufacturers of ingredients and packaging, dairy factory and distributors (retailers). Specific feature of dairy plants the supply in Russia is the low transportation speed of the goods in the country (an average of 17.4 km/h), reflecting poor development of transport infrastructure and the unreliability of railways providers. For producers of goods with small shelf life, Russian logistic specific (large distances within the country and at the same time low concentration of population excluding several districts) leads to the need to develop a complicated network of plants and warehouses. Such operational model gives high logistic costs and significant attention must be paid to operations efficiency and forecast accuracy improvement. It also has a negative impact on inventory turnover of raw materials (31 days in Russia, 12-16 days to USA and Europe). At the same time in Russia only about 80% of deliveries are performed in compliance with all requirements for product quality, delivery date, quantity of goods, while in Europe and the USA this figure is close to 100%. Russia is also slightly behind Europe and the US in terms of customers’ service level (CSL), key reasons are low level of supply chain integration with retailers and absence of a frozen horizon in orders from customers (tab. 1.). Unlike the contract terms in the EU and North America in Russia customers can cancel orders the same day of scheduled delivery or place extra volumes orders in short notice, while in Europe and America these terms are strictly regulated. Closer collaboration allows improving the accuracy of sales volumes forecasting, decrease logistic and production costs and finally supporting customers’ service level on a high rate. Table 1: Key indicators characterizing the supply chain of dairy factories in the world Indicator Average weighed distance between dairy factory and consumers, km Average weighed distance between raw & pack suppliers and dairy factories, km
Russia
Europe
USA
868
229
276
637
289
309
Average speed of goods transportation through the country, km/h
17,4
33,5
31,8
Average goods turnover, days Suppliers service level (average number of deliveries on time, on quantity and without quality issues), %
31
12
16
78
96
94
Average customers’ service level in dairy market, %
94
97
97
(Data Source: informational portal Council)
1
This work was supported by a grant from the Russian Foundation for Humanities №16-02-00716а
57
Arkhipova Marina and Arkhipov Kirill Russia is one of the world’s leaders in terms of dairy products sales volumes increase; however production growth in the country is limited by weak state support of agriculture. Further dairy market development in the next 2-3 years is possible only due to import goods with reduction of investments by Russian enterprises in fixed assets and stimulation of inflationary processes. On average 45% of the cost of dairy products on shelves is the value of milk, thus current trend of milk prices increase threatens to significantly inhibit the development of Russian dairy market. Large number of risk factors for sales volumes forecasts deviations on dairy market and low shelf life of the products and its ingredients require specific models, which can deliver high-performance, accuracy and adequacy in process of demand planning. While traditional products have a sufficient retrospective data about the impact of key factors on sales volumes, for the innovative products, which are even sometimes representing a new product category, such framework is missing, so application of traditional statistical methods of sales forecasting is not possible. Approbation of classical statistical forecasting models described in section 3, such as trend-seasonal, adaptive, ARIMA models, etc., to build a sales forecast even for traditional dairy products on real statistical data from Danone Russia had revealed their ineffectiveness and low accuracy of predictive assessments. For example, the average relative error in modulus for the different products on average ranged from 18% to 34%, average forecast bias -8%. The low quality of such models is mostly determined by the necessity of taking into account specific factors of dairy products: low shelf life of the product and its gradients. In the conditions of crisis and tough competition such errors is not desirable for the company, as they lead to significant material and financial losses. In this regard, the problem of predictive models accuracy improving is relevant, which take into consideration the influence of various factors on the dynamics of the dairy market. Sales models forecast accuracy improving allow manufacturing companies to reduce the loss of finished products and ingredients, gain competitive advantages in general which is especially important during the economic crisis period. In the long term period improvement of sales volumes forecasting models of dairy products enables to optimize investments in production capacities and their locations, create a model of effective distribution of finished products. At the mid- and short-term horizon, an accurate prediction can satisfy the demand of customers with optimal cost and minimal losses of finish product due to shelf life expiration.
2. Literature and data sources review There are two main types of forecasting, depending on their purpose and structure: Macro forecasting is concerned with forecasting markets in total, aggregated volumes. This is about determining the current rate of Market Demand and predict what will happen to sales in the future (Dybskaya V., 2002; Ballou Ronald H., 1999; Coyle John J. et al, 2003; Arkhipova M., Akkhipov K., 2014). Micro forecasting is concerned with detailed forecasts at SKU level. This is about determining a product’s market share in a particular industry and considering what will happen to that market share in the future. The selection of which type of forecasting to use depends on several factors, described in different sources, for example (Mkhitarian V., Arkhipova M., Sirotin V. et al, 2016; Arkhipov, K., 2012; Arkhipov, K., 2013). Among such key factors are: !
The degree of accuracy required – if the decisions that are to be made on the basis of the sales forecast have high risks attached to them, then it stands to reason that the forecast should be prepared as accurately as possible. However, this involves more cost
!
The availability of data and information – in some markets there is a wealth of available sales information (e.g. clothing retail, food retailing, and holidays); in others it is hard to find reliable, up-to-date information
!
The time horizon that the sales forecast is intended to cover. For example, are we forecasting next weeks’ sales, or are we trying to forecast what will happen to the overall size of the market in the next five years?
!
The position of the products in its life cycle. For example, for products at the “introductory” stage of the product life cycle, less sales data and information may be available than for products at the “maturity’ stage when time series can be a useful forecasting method.
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Arkhipova Marina and Arkhipov Kirill Researchers usually have a following standard approach to create a forecast for a particular SKUs, described in Langley John Jr., John J., 2008; . Shapiro J.F., 2001; National trade and marketing research agency and others. The first stage in creating the sales forecast is to estimate Market Demand. Definition – Market Demand for a product is the total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period, in a given marketing environment. This is sometimes referred to as the Market Demand Curve (Shapiro J.F., 2001; Global supply chain non-profit consulting organization). Stage two in the forecast is to estimate Company Demand. Company demand is the company’s share of market demand. This can be expressed as a formula:
company Demand " Market Demand ! Company ' s Market Share A company’s share of market demand depends on how its products, services, prices, brands and so on are perceived relative to the competitors. All other things being equal, the company’s market share will depend on the size and effectiveness of its marketing spending relative to competitors. Step Three is then to develop the Sales Forecast The Sales Forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment. Note that the Sales Forecast is not necessarily the same as a “sales target” or a “sales budget”. A sales target (or goal) is set for the sales force as a way of defining and encouraging sales effort. Sales targets are often set some way higher than estimated sales to “stretch” the efforts of the sales force [Langley John Jr., John J., 2008; Models and methods of logistics theory, 2008; National trade and marketing research agency ). Sales forecast accuracy improving requires a complex analysis of statistical tendencies and the factors that influence the dynamics of the time series. Modern scientists paid great attention to statistical models of forecasting economical processes. In the works Anderson, D.R, Sweeney, D.J, Williams, T.A., Freeman, J. and Shoesmith, E., 2009; Bowerman, B.L., O’Connell, R.T., 2000; Box, G.E.P., Reinsel, G.C., and Jenkins, G., 1994; Makridakis, S., Wheelwright, S.C., and Hyndman,R.J., 1977; Mkhitarian V., Arkhipova M., Sirotin V., 2016 basic principles and applications of trend-seasonal, adaptive and ARIMA models for sales forecasting are described. However, there are not enough works describing specific of sales forecasting of new dairy products with small shelf life. On the other hand, there are many works devoted to planning hub works. Hub is a managing structure of a network company that centralizes purchasing of finished products or materials that helps to get best purchasing prices and fast reaction to a changing market needs to increase goods turnover (Dybskaya V., 2002). Common warehouses are turning from just a place for physical keeping of goods to centres for optimization of products and materials flow, conversion of incoming materials from suppliers to a ready to use batches for production plants. Now in many countries, including Russia yearly conferences and forums take place, where mostly retailers’ representatives share their experience in using hubs. Companies operate either through their own hubs or use service of logistic providers (3-PL). Researches in supply chain determine two main types of hubs, depending on average lead time from it to its clients: American type with optimal distance to clients 400-500km and European with optimal distance 2-3 times lower (Langley et al, 2008). In American hub type, orders are prepared in the evening and are delivered to clients during the night time. In Russia most of the companies use American type of hubs due to significant territories. Implementation of such model requires high amount of investment for organizational innovations, and in this case companies have to choose between extensive and intensive development. In current conditions of deceleration of economic growth in Russia, for many companies the choice of intensive development becomes obvious. Implementation of hub model of supply planning also needs
59
Arkhipova Marina and Arkhipov Kirill good system development and centralized materials requirements planning which should be based on ERP system. The only disadvantage of using hubs is increasing of average lead time (Shapiro et al, 2001). Among main advantages that companies gain after changing their type of materials planning from direct deliveries to plants from suppliers to hub model are (Arkhipova M., Akkhipov K., 2014): !
Purchasing bigger orders for hub to supply optimal quantity to the plants that deliver materials from this hub. It helps to achieve low purchasing price, increase materials turnover and decrease probability of shortage of material at plant;
!
Optimization of warehouse operations that helps to decrease exploitation expenses;
!
Optimization of transportation schemes that helps to increase transport fill rate and exclude inefficient usage of trucks;
!
Optimization of input control of materials, that enables to decrease expenses for quality control.
Researches determine two main types of hubs: enclosed and open (Coyle et al, 2003). Enclosed hubs are used only by one company that operates with them and in open hubs model warehouses are used by several clients. For trade network companies more popular and preferable type is open hubs, in this case the average warehouse fill rate is close to maximum capacity and products turnover is high. For production companies if hubs are used for materials flow management, usually enclosed hubs models used (Arkhipov K. 2014; et al). It is the consequence of the fact, that most of production companies don’t use special external warehouses for materials storage, but they use storage capacities of their plants. In spite of increasing number of conferences, scientific applied researches and publications at this topic, most of the focus is concentrated on using hubs for finished products flow management what is useful for retail companies, meanwhile, insignificant attention is paid for studying hubs for materials for companies with territory-spread production capacities (Arkhipov K., 2013). Such models have its specific features and differences from classical hub models used for finished products. That explains the novelty and potential of further researches of such models, their development and implementation in Russia.
3. Methodology of forecasting the sales of dairy products using a combined model To improve forecast accuracy of sales volumes of finished products with low shelf life the following factors should be included in the model: !
Trend is considered as a long-term tendency of consumption of dairy products. For dairy products, trend characterizes the life cycle of a product, which on average for dairy products is 2-4 years;
!
Seasonal effect for dairy products reflects short-term demand deviation connected with specific of the season. The most significant of them are demand increase in summer for drinking yogurts, specific healthy drinks sales uplift in cold winter season, sales decrease in fasting period in spring, etc.
!
Baseline reflects the level of sales at 1% of weighted distribution with fixed influence of all other factors;
!
Promotions and marketing support. This group includes: television and Internet advertising, customer relationships management and other marketing activities;
!
Trade marketing activities in the sales channels are characterized mainly by temporary reduction of prices on certain kinds of products;
!
Price change history and product elasticity for the price. The annual increase in prices for dairy products generally leads to higher sales a week before the price increase and to a decline in sales during the week after the price increase;
!
Uncertainty in the market that can be caused by various factors including sales deviation due to competitors’’ activities;
!
Other factors.
Below the model is described of sales volumes forecasting of dairy products on an example of cheese desserts Danissimo. Analysis of the dynamics of cheese desserts Danissimo sales during the period since 2008 to 2015 showed that, on the one hand, there is a stable upward tendency of sales of this product, however, on the other hand, we can
60
Arkhipova Marina and Arkhipov Kirill note emerging effect of market saturation starting from 2011 and decrease in sales growth that can also be caused by the crisis. A stepwise including model is proposed to take into account several factors affecting sales of dairy product. . On the first step of the study retrospective data on the sales volumes of Danissimo cheese desserts was adjusted depending on the customers service level (CSL). Note that every company has a target (average) level of the CSL, which the enterprise can provide based on the current operational efficiency (transportation delay, quality problems, materials out of stock, production issues, etc.). If any time in the past CSL was below the target level that means problems with the sale of the product. Taking into account that such sales issues can’t be predicted in advance, retrospective data containing actual sales volumes was corrected in the periods when CSL was below target level. One of the most important factors influencing the volume of sales is the percentage of weighted distribution. This indicator reflects the volume-weighted sales share of retailers where analysed product is available on shelf. Changes in this indicator lead to significant volatility of the total volume of the sale of products; therefore, it must be taken into account when building the forecast model, using formula bellow: n
WD "
# Sales i "1 m
i
# Sales j
,
j "1
Where n is the number of retailers where analysed product is presented; m – total number of markets in the analysed category (dairy products). On the next stage of the research, weighted percentage of distribution was obtained for each retrospective time period. The actual sales level on 1% weighted distribution was estimated on retrospective data to eliminate the impact of fluctuations in the values of this indicator to sales volume history. On the third step, we built a baseline that reflects the sales level of the product at 1% WD, which would be in the market excluding the influence of all factors. The analysis showed that sales at 1% weighted distribution did not change during the period since 2008 to 2015. Graphical analysis of the dynamics of baseline and sales at 1% of weighted distribution shows that in the first two years of the analysed period, the increase of sales was mainly due to the growth of weighted distribution. Note that during model constructing the following factors were also taken into account: the effect of marketing, television and commercial support of sales. In order to forecast the sales volumes of cheese desserts by time series cleaned from the influence of the considered factors the following models were constructed: trend-seasonal, adaptive models, the seasonal trend model with multiplicative seasonality, the harmonic model, additive model, a model with dummy variables. Accuracy characteristics were calculated for each model, estimated autocorrelation and auto regression functions in the residuals. To further improve accuracy and adequacy of predictive models, a combined model was proposed to make sales volume forecasts of dairy products. This model for each time period t takes the forecast obtained by each of the available models with a weight depending on the accuracy of the forecast at step t-1. It allows increasing significantly the accuracy of predictive assessments. Forecasting models 1-4 were included into the initial set with the weight in inverse proportion to their forecast accuracy. Comparison of models in terms of accuracy is presented in table. 2. The analysis of Table.2 shows that all constructed models forecast the growth of sales of cheese desserts in 2016. The most optimistic forecast is obtained by an additive model (+5,1%), the most pessimistic is model with dummy variables (+3,5%). The highest growth rate across all models is assumed for the first quarter (10-12%), with attenuation in the second quarter (5-6%). The rate of growth in the third and fourth quarters is expected
61
Arkhipova Marina and Arkhipov Kirill to be 1-3%. A significant increase in the quarters I and II caused by the impact of marketing and television (according to the forecast, these two activities stimulate sales increase 6.8% a quarter). In III and IV quarters of trade-marketing support leads to 1% increase with almost constant level of percentage of weighted distribution. Table 2: A comparison of the characteristics of the models adequacy forecast sales of cheese desserts № 1 2 3 4 5
Model description Trend seasonal model type Trend seasonal model with multiplicative seasons Harmonic analyses with AR(1) in residuals Additive model Model with dummy variables with AR(1) in residuals Combined model with AR(1) in residuals
Average relative error in modulus, %
Accuracy indicators Average absolute error in modulus, %
8,64
141,2
Average relative amount of displacement, % 3,69
8,77
157,8
2,07
7,57 6,59
136,9 132,9
2,70 3,59
5,32
126,7
1,83
Source: own elaboration Analysis of the adequacy of the combined model with AR(1) in the residues (Fig.1) showed that the correlation at all lags are statistically insignificant, the residues have a normal distribution.
Figure 1: Autocorrelation and the partial autocorrelation functions of the residuals of the combined model Analysis of the accuracy and adequacy characteristics of the model shows that all statistically significant dependences were included and the model can be used to predict the sales volume of dairy products with low shelf life.
4. Sales forecasting of products-new products on the market of dairy products with the use of logistic regression To predict the sales volume of novelties dairy products, especially in the first few months of their launch at the market, it is especially important to estimate the share of potential consumers and new product off take. It is very important for the enterprise to estimate in advance potential customers’ demand for a new product, and to figure out key factors that have influence on it. Logistic regression models are quite accurate to predict the probability of choosing a product a (Mkhitarian V., Arkhipova M., Sirotin V., et al 2016; Yiu-Kuen Tse, 2009; Aivazian, S. and V. Mkhitarian (2011); Dubrov, A, Mkhitarian, V. and L. Troshin (2011); StatSoft), they provide statistically reasonable probability of a purchase of a new product by potential consumers.
62
Arkhipova Marina and Arkhipov Kirill The logistic regression model was created and applied in Danone Russia to forecast sales volumes of a new product (Activia cheese bi-layer with the taste of kiwi-strawberry). As a dependant variable we used a binary variable y – probability of a new product purchase by customer. When you build the model as the dependent variable was the binary variable y is chosen – the fact of purchase of a new product potential customer:
' $1, пew product purchased y"& $ %0, new product not purchased As independent variables during the first step of preliminary analysis, we selected 12 indicators that have a significant impact on the respondent’s decision about the purchase of a product. To study the relationship between qualitative and quantitative indications matrix for the nonparametric correlation coefficients of Kendall τ was calculated. It enabled to exclude multicollinear highly correlated variables in an explicit form. As a result, for analysis for further research we selected 5 most informative indicators that have a significant impact on dependant variable y: x1 – dummy variable, "gender of the buyer" (m/f); x2 –quantitative variable "number of full years of the respondent" (years); x3 – quantitative variable "population in the place of residence" (thousand people); x4 – quantitative variable "mean monthly income per one family member" (RUR); x5 – dummy variable "participation in the motivational or promotions conducted by Danone Russia in the past" (yes/no). Coefficients estimation helped to obtaine the following model.
yˆ " (1 * e ( z ) ) (1 z ) " (0,83 * 0,52 x1 ( 0,0035 x 2 * 0,23x5 (4,91)
(4,05)
(3,32)
R2(McFadden)=0,711; LRstatistic =124,28; s! " 1,11 . Statistical tests proved the significance of the constructed model and all coefficients. The adequacy of the model is also confirmed by the normal distribution of the indicators included in the model and the proximity of the covariance matrix of indicators in different groups. The model has high predictive characteristics. The results of applying the model to the elements of the sample showed that 83.9% of respondents’ choices were correctly classified. To improve the accuracy of the model and evaluate the robustness the method of "sliding examination" was used in SPSS application, which allowed to adjust the model with further improving of its predictive characteristics (tabl. 3). The percentage of correct predictions grew up to 90,8%. Table 3: Characteristics of models’ accuracy Event probability Actual values
Forecasted values Product not Product purchased purchased 2791 293
Product not purchased Product purchased 51 Total of correctly predicted customers’ decisions, %
595
Correct predictions, % 90,5 92,1 90,8
Source: own elaboration Evaluation of model coefficients allowed to identify the factors that have a significant influence on the decision about the purchase of goods by the customers. So, the probability of purchase is significantly higher for women and is decreasing with age. Error of the model bellow the Normal distribution (Fig.2). Analysis of the model leads to the conclusion, that Danone Russia should not abandon the on-going promotions, as the probability of purchase of dairy product novelties among customers involved in promotions in the past years is much higher than among customers who did not participate in such actions.
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Arkhipova Marina and Arkhipov Kirill
Figure 2: Logistic regression residues In order to assess the quality of the model we used the ROC-curve. ROC-curve shows the dependence of the number of true positive classifications on the number of false positive classifications. The indicator that measures the area under the ROC-curve (ATC) is in the range from 0.5 (random selection) to 1 (perfect classification). In our case (Figure 3) to construct the logit AUC value = 0.9906, which is close to the ideal classification.
Figure 3: The ROC-curve for the logit model The obtained results were taken to create the forecasting model for new dairy product in Russia. To do this, we formed a representative sample of customers and collected information on indicators that have a statistically significant influence on the decision of respondents about the purchase of the dairy goods-novelties. Then we determined the expected share of consumers (SC), ready to make a purchase of product novelties. For our product “Activiabi-layer cheese with a taste of kiwi-strawverry” the value of SC was 17%. As off take estimation (OT) we used an expert estimation, which is very close with an average purchase frequency of the goods in the Danone Russia in the category "modern dairy products". Frequency of purchase of analysed product was 0.67 units of product per month or 0.15 units per week. In addition, population size was on the sales territory. At the next stage; the obtained values were used to calculate the estimations of sales volumes according to the formula:
Sales(t) " WD(t) ! P ! SC ! OT ,
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Arkhipova Marina and Arkhipov Kirill where WD(t) is the share of shops, where the new product is on shelf (in product matrix) in week t; P – the population in sales area, people; SC – the share of consumers for whom the probability of purchase is high, estimated by a logistic regression model; OT – is a number of purchases per week. The obtained sales volumes for product "Activiabi-layer cheese with a taste of kiwi-strawberry" for each week are presented in table. 4. Table 4: Forecasted sales volumes of product novelties, tons of finished product Week
Weighted distribution, %
1 2 3 4 5 6 7 8 9 10 11 12 13 14
5 8 12 18 27 37 44 49 53 55 56 56 58 59
Population in sales area, thousand people 4 500 7 200 10 800 16 200 24 300 33 300 39 600 44 100 47 700 49 500 50 400 50 400 52 200 53 100
Share of customers ready to buy a product (SC), thousand people 765 1 224 1 836 2 754 4 131 5 661 6 732 7 497 8 109 8 415 8 568 8 568 8 874 9 027
Sales volumes forecast, kilo pieces of finished product 114 182 273 410 615 843 1 002 1 116 1 207 1 253 1 276 1 276 1 321 1 344
Sales volumes forecast, tons 16 26 38 57 86 118 140 156 169 175 179 179 185 188
Source: own elaboration Thus, the logistic regression model allows to solve the main problem related to the prediction of customers demand for new dairy products in a condition of absence of historical data to build a standard predictive model. Sales forecast accuracy improving for new dairy products with short shelf life allows the company to introduce innovative products at lower cost, ensuring product availability in the right quantity, right time and right place with optimal operational costs.
5. Conclusion In article the combined model of sales volumes forecasting is proposed, and the model to predict the probability of purchase of new dairy products by respondents in the absence of retrospective data to construct classical model. In this case, usage of logistic regression model allowed us, on the one hand, to evaluate the probabilistic volumes of sales of new products, and on the other hand, to select the statistically significant factors that have a decisive influence on the decision about buying the product. Approbation of method was carried out on real data of the largest producer of dairy products in the CIS area Danone Russia for different product groups (for example, Activia cheese bi-layer dessert with the taste of kiwi-strawbery), which allowed the company to significantly increase the accuracy of forecasting model and obtain some interesting from the practical point of view the conclusions.
References Aivazian, S. and Mkhitarian V. (2011) Applied statistics and essentials of econometrics. Moscow: UNITY. Anderson, D.R, Sweeney, D.J, Williams, T.A., Freeman, J. and Shoesmith, E (2009) Statistics For Business and Economics, Cengage Learning EMEA, UK Arkhipov K. (2013) Statistical analysis of models of formation of insurance reserves and forecasting demand for finished products / Questions of Statistics, №8. Arkhipov, K. (2012) Model optimization of costs for the supply of products from the head office to branches // Scientific journal "Economics of Contemporary Russia." №4 (59)
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Arkhipova Marina and Arkhipov Kirill Arkhipova M., Akkhipov K. (2014) Supply process optimization using hubs for materials. Proceeding of the 9th European Conference on Innovation and Entrepreneurship (2014) Edited by Galbraith, B., University of Ulster Business School and School of Social Enterprises Ireland Belfast, UK. p.43-50 Ballou, R. H. (1999) Business Logistic Management. - Prentice-Hall International, Inc.; Bowerman, B.L., O’Connell, R.T. (2000) Forecasting and Time Series: An Applied Approach, 3rd ed. Brooks/Cole Box, G.E.P., Reinsel, G.C., and Jenkins, G. (1994) Time Series Analysis: Forecasting and Control, 3rd ed. Prentice Hall. Coyle John J., Bardi Edward J. and Langley John Jr. (2003) The management of business logistics.A supply chain perspective. – South-Western devise of Thomson Harming; Dubrov, A., Mkhitarian, V. and Troshin L. (2011) Multivariate statistics. Moscow: UNITY. Dybskaya V.V. (2002) Logistics for practitioners. Effective solutions in warehousing and material handling. - M .: VINITI, 2002; Dybskaya V.V.(2002) Logistics for practitioners. Effective solutions in warehousing and material handling. - M.: VINITI Global supply chain nonprofit consulting organization [http:// www.supply-chain.org] Informational portal Council of Supply Chain Management Professionals [http:// www.cscmp.com] Langley John Jr., Jphn J. (2008) Coyle Managing Supply Chains: a logistic approach. –Engage Learning Canada; Makridakis, S., Wheelwright, S.C., and Hyndman,R.J. (1977) Forecasting: Methods and Applications, 3rd ed. Wiley Mkhitarian V., Arkhipova M., Sirotin V. (2016) Data analysis. Textbook / Moscow, Ser. 58. Academic Course Models and methods of logistics theory (2008) Textbook, edited by VS Lukinskogo. SPb .: Peter; National trade and marketing research agency [http:// www.marketcenter.ru] Shapiro J.F. (2001) Modelling the Supply Chain – Duxbury / Thomson Leading StatSoft [http://www.statsoft.ru/home/textbook/default.htm] Yiu-Kuen Tse (2009) Nonlife actuarial models. Theory, Methods and Evaluation. - Cambridge University press, 524 p.
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A Strategic Entrepreneurship Model Based on Corporate Governance in the Iranian Manufacturing Enterprises1 Hooshang Asheghi-Oskooee1 and Nader Mazloomi2 1Business Management Dept. of University of Qom, Iran 2Business Management Dept. of the Allameh Tabataba’i University, Iran
[email protected] [email protected]
Abstract: Recently too much attention has been paid to the relationship between organizational entrepreneurship and corporate governance (CG) and their effects on the firm performance. This research was carried out to study this relationship among the listed Iranian manufacturing firms. 80 companies from various industries are studied. To analyze data, Partial Least Squares (PLS) method of Structural Equation Modeling (SEM) was used. Findings indicates that the presence of executives in the board, the amount of ownership by the board members and also compensating board members according to the long-term performance of the firm has a positive effect on intensity of the strategic entrepreneurship (SE). However a negative result was found for the amount of stocks hold by the institutional investors. Moreover, three moderator variables namely company age; company size and company's past performance have strong impact on the relationship between CG and SE. Keywords: entrepreneurship, corporate entrepreneurship (CE), strategic entrepreneurship, corporate governance, SEM, PLS
1. Introduction Concepts of entrepreneurship and CG through several decades of academic studies have been centered. In the changing and turbulent world of today, the main challenge for companies and institutions is to remain on the path of progress and "the answer to today’s hyper-competitive environments is adaptability, flexibility, speed, aggressiveness and innovativeness, which they boil down to one word – entrepreneurship" (Christensen, 2004, p.302). Entrepreneurship can be manifested in two forms of individual and corporate. CE, also in a general classification can be manifested either through corporate venturing or SE (Morris et al., 2008). "In times when the stock market has dropped2, investment in external start-ups has fallen off" (Morris et al., 2008, p.85). SE is done within the company and can be a good way for enabling companies in terms of wealth growth, creating competitive advantages and development of activities. So, the study of SE and finding the ways to its development can play an effective role in the development of economic activities and as a result, development of countries. SE involves all levels of an organization engaging in entrepreneurial activities and a good CG system can be useful and imperative to creating and strengthening SE. Therefore, attention to the effects and relationship of CG structure with SE and also the association between SE and CG with business performance, it’s important and requires review and scientific wares. The purpose of this study was the relationship model based on theoretical studies in the literature and past research and explanation based on data collected to test. For this purpose, data collected from the selected sample, using SEM and PLS method using SMARTPLS software been analyzed, the initial conceptual model was fitted and the final model of study is shown.
2. Literature review Entrepreneurship Entrepreneurship is to create value through a combination of unique collection of resources for use of an opportunity (Stevenson & Jarillo, 1986); using innovation to pursuing continuous change, responding to it and use it as opportunity. Innovation is the means by which entrepreneurs exploit changes as an opportunity for create different (new) business or service (Drucker, 2007; Weerawardena & Coote, 2001). Numerous studies have examined such as Zahra, Morris, Covin and Kuratko have been cited by many researchers suggests that innovativeness, risk-taking and proactiveness are important indicators of entrepreneurship. Accordingly, in this study summarized the definitions and opinions of experts in entrepreneurship, its related indicators can be categorized in Table 1.
1(Listed 2
in Tehran stock exchange) Like financial crisis
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Hooshang Asheghi-Oskooee and Nader Mazloomi Table 1: Classification of extracted indicators from the definitions of former authors Risk-taking (Cantillon, McClelland) Making judgmental decisions (Mark Casson) pursuing continuous change (Peter F. Drucker) Innovation (Joseph Schumpeter, Stevenson & Jarillo, Peter F. Drucker, Weerawardena & Coote) Creation of new value or value that did not exist before (Stevenson & Jarillo) Accumulating resources in a unique way (Stevenson & Jarillo) Pursuing opportunities (Kirzner , Stevenson & Jarillo, GEM, Peter F. Drucker, Mohanty) Productivity increasing (Jean Baptiste Say) Using social opportunities (Max Weber)
Risk-taking
Innovativeness
Proactiveness
Corporate Entrepreneurship Theoretical foundations of CE were introduced in 1990 by Stevenson & Jarillo and research level enhanced from the level of entrepreneur (person) to the corporate level. "CE may be formal or informal activities aimed at creating new business in established companies through product and process innovations and market developments" (Kuratko, 2007, P.6), "deals with those factors that influence the process of creating new businesses within organizations in order to develop the organization and to enhance an organization's competitive position or the strategic renewal for existing business" (Collin & Smith, 2003, p.2) and is an organization-wide phenomenon that is focused on Innovativeness, risk-taking and proactiveness (Zahra & George, 2002). "An entrepreneurial firm is one that engages in product / market innovation, undertakes somewhat risky ventures, and is first to come up with proactive innovations, beating competitors to the punch" (Jogaratnam et al., 1999, p.341). By combining and summarizing the proposed definitions of CE can be concluded that the most important indicators of CE are Innovativeness, risk-taking and proactiveness. The relationship between entrepreneurship and strategic management (SM) SM and entrepreneurship both have focused on the process of adapting to environmental changes and exploit opportunities. One way to deal with the pressures of global competition and dynamic environment is using entrepreneurial strategies. They are related with corporate performance (CP). Their goal is to identify opportunities and develop them in order to create competitive advantages. "This is where the fields of entrepreneurship and SM intersect" (Kraus & Kauranen, 2009, p.38). Several researchers have addressed these two disciplines to combine concepts. Field of SM is very promising area can be combined in entrepreneurship researches. The combination of these approaches is fundamental factor for doing more researches in the field of entrepreneurship (Zahra & Dess, 2001). Academy of Management's Business policy and Strategic division founded by Karl Vesper in 1974 made an image that entrepreneurship can be considered as a subset of SM. But, researchers attempt to combine these two concepts suggests they are independent fields (Kraus & Kauranen, 2009). "Entrepreneurship and SM are concerned with growth and wealth creation" (Ireland et al., 2003, p.963). While the SM will review the company's efforts to create sustainable competitive advantage as a determinant of their ability to create wealth, entrepreneurship focuses on freshness and novelty. The basis of wealth creation through entrepreneurship is exploring and exploiting beneficial opportunities (Shane & Venkataraman, 2000). SE results from the integration of entrepreneurship and SM knowledge that involves taking entrepreneurial actions with strategic perspectives (Ireland et al., 2003 ؛Monsen & Boss, 2009 ؛Philipsen & Kemp, 2003) and focuses on areas of study related with both field, including innovation, top management teams, governance and so (Figure 1). Also, "the degree to which the firm acts entrepreneurially in terms of innovativeness, risk-taking, and proactivity is related to dimensions of SM" (Kuratko & Audretsch, 2009, p.3). Strategic Entrepreneurship CE is manifested in two forms of corporate venturing and SE (Figure 2). While corporate venturing entails company involvement in the creation of new businesses, SE corresponds to a broader array of entrepreneurial initiatives that don’t necessarily involve new businesses being added to the firm. "All forms of SE involve
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Hooshang Asheghi-Oskooee and Nader Mazloomi organizationally consequential innovations that are adopted in the pursuit of competitive advantage" (Morris et al., 2008, p.88). SE requires simultaneous opportunity seeking and advantage-seeking behaviors that be followed by entrepreneurial behavior through the strategic approach and can be manifest as one of the five forms shown in the figure 2. Reviewing various forms of SE, and examples of successfully implemented in various companies suggests that the most important indicators of SE are Innovativeness, risk-taking and are proactiveness too.
• Innovation • Networks • Internationalization Entrepreneurial Actions
• Organizational Learning • Top management
Strategic Actions
teams and governance • Growth
Wealth Creation
Source: Kuratko, 2009, p. 369 Figure 1: Integration of entrepreneurial and strategic actions Corporate Entrepreneurship
Corporate Venturing • Internal corporate venturing • Cooperative corporate venturing • External corporate venturing
Strategic Entrepreneurship • Strategic renewal • Sustained regeneration • Domain redefinition • Organizational rejuvenation • Business model reconstruction
Source: Morris et al., 2008, p. 81 Figure 2: Different forms of CE Corporate governance Review the definition, characteristics and various forms of SE suggests that SE occurs within the organization and the organization at all levels, especially the operational and middle levels have involved in entrepreneurial activities. Since SE requires a strategic approach to entrepreneurial activities, CG issues can affect it. Therefore, a good CG system can be imperative and useful in creating and strengthening SE. One of the most used definitions of CG proposed by Cadbury (1992), suggests that, CG is a system by which companies are directed and controlled (Clark, 2007). CG is a broad concept and is reviewed from the perspective of five different theoretical frameworks. Agency theory focuses on agency conflicts between shareholders and managers, the causes and results of conflicts and effectiveness of various governance practices designed to reduce these conflicts. For this reason, SM researchers use this theory to examine issues such as innovation, CG and diversity. Internal governance mechanisms such as board composition, ownership structure and executive compensation, including issues are discussed in agency theory (Hoskisson et al., 1999). Review the studies of Davis et al. (1997), Caers et al. (2006) and other discussions about the stewardship theory leads to the conclusion that stewardship theory is a special case of agency theory. In fact, stewardship theory is the secondary model (dual) of agency theory. Because, agency theory tries to minimize potential costs to the company. But, stewardship theory looks to maximizing potential performance of the company. There are barriers and limitations on the way of CE in large companies (Ahmadpour daryani, 2008). The most important are: Limiting structures of entrepreneurial activities, loose of personal relations between managers
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Hooshang Asheghi-Oskooee and Nader Mazloomi and employees due to increasing levels of management, increased bureaucracy, conservatism, avoid of mistakes and failures, the need for short-term profits and efforts to achieve it, general expectation that the CE have to make the company profitable in the short term, few number of actual entrepreneurs, failure to encourage entrepreneurs and wrong systems and methods of allocating rewards. Review of this barriers and constraints, the relationship between them and CG issues, forms part of the research's main question. That is: What structure of CG can help to create or strength SE in the Iranian manufacturing enterprises? And also, shows that the agency theory is a good vision for the study of CE. Furthermore, research results from Audretsch et al. (2009) that specifically focused on the relationship between the agent property (including board members) and SE, shows that the agency theory point of view can be used for SE research domain. Therefore, this study uses the perspective of agency theory as the main approach to study the issue and there is also a glimpse into the stewardship theory (CEO duality). It’s also essential to note that different approaches to business formation and the accompanying CG structures and regulations have evolved in different social and economic context. Some of the more important contextual and industrial variables that influence the business form and system of CG are national, regional and cultural differences; ownership structure and dispersion; firm size and structure and so on (Clark, 2007). Therefore, similar research results may be different in different countries. Despite the agency theory perspective on the separation of Chairman and CEO, some tendencies exists towards CEO duality. Among large American companies, there are CEOs who are also the board chair and this tendency has increased and rate of ROE of companies that their chairman and CEO is same person improved than those that are different people (Donaldson & Davis, 1991). According to previous discussion, it seems if to be the CEO the chairman too, can uses his/her power to influence board members to protect and promote entrepreneurship and consequently be a better business performance too. Therefore, the first hypothesis is proposed as follows. Hypothesis 1:
SE intensity is lower in businesses in which the chairman and CEO are different.
Non-executive board members, by law, only participate in board meetings. According to initial studies, sometimes this people don’t attend these meetings and they just sign minutes that are sent for them. They often aren’t aware enough of the situation of industry and even companies. Therefore, appears to be due to greater awareness of the condition and requirements of industry and company by executives, the increasing number of executives in the board can be effective to reinforcement of SE and consequently enhance business performance. So, the second hypothesis is proposed as follows. Hypothesis 2:
SE intensity has a direct relationship with the number of executive board members.
Managers' ownership is one of CG issues, particularly the agency theory. Under article No. 114 of Iran's trade law, managers must be owner of the numbers of shares to put at the disposal of company as collateral to guarantee of losses may be due to their failures. According to initial studies, most managers (are often representatives of institutional investors) have very little or no shares. Therefore, it seems the company's situation isn’t so important for them. On the other hand, employee ownership plans is one of the mechanisms to foster entrepreneurship and can make the company more attractive to employees and to help motivate and retain them (UN Conference on Trade and Development, 2004). Whereas the results of entrepreneurship are shown in the medium and long term and benefits of stock ownership is also. It seems stock ownership by board members can provide the motivation needed to pursue entrepreneurial activities. So, the third hypothesis is proposed as follows. Hypothesis 3:
SE intensity has a direct relationship with amount of private ownership of board members.
Another proposed restriction in the way of CE, is companies (especially large companies) need to short-term gains and efforts to achieve it. Today, due to the increase in institutional investing, CG systems in large companies are changed and are concentrated in the hands of a small number of institutional investors (Solomon, 2004; UN Conference on Trade and Development, 2003). In companies that are controlled by institutional investors and companies those managers' compensations are linked to corporate profits, it’s possible that managers pay attention to personal interests and short-term profits instead of considering the long-term interests of shareholders (Solomon, 2004). The basic premise is that institutional investors have a myopic view that will reduce R&D efforts. While entrepreneurship needs to R&D and R&D needs long-term investment.
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Hooshang Asheghi-Oskooee and Nader Mazloomi However, several studies have shown different results, some studies proved this assumption and others have rejected it (Kells & Rogers, 1997). It seems industries and various economic and political conditions and legal status can have different effects on this issue. Therefore, it seems in the high level of institutional investors equity, entrepreneurial Intensity will be reduced. Consequently, the fourth hypothesis is proposed as follows. Hypothesis 4:
SE intensity is inversely related to the amount of institutional investors' shares.
The other proposed restriction in the way of CE, is wrong reward systems in large companies. Considering, the time horizon of the entrepreneurship's results and attention to the board member's compensations as a strong stimulus for their behaviors and decisions, it seems, if the compensations of the board calculated based on longterm performance can enhance entrepreneurship intensity. According to the provisions of articles 109, 134, 239 and 241 of Iran's trade law about duration of tenure of board members, how to determine the amount of their compensation and results of initial studies, many board members of listed enterprises are constantly changing and sometimes either be changed before two years (before termination of their tenure) by the owners (mainly institutional investors) or they resigned themselves to gain short-term profits in other companies. Also, considering that the board of directors proposes the cash dividend and the same amount approves by general assembly in most cases, it seems board members will be more willing to not consider voluntary reserves or consider a small amount and propose more money to divide especially when more of them are non-executive. Consequently, nothing left for entrepreneurship that is entail significant spending. On 24 May 2016 the law was amended. These changes can affect the above issues in the future. Obviously, the impact of these new changes should be examined in future researches. Finally, because of short duration of tenure of board members and change in shareholders combination which reduces board members job security level, and dependence of board compensation to short-term performance of the company, managers don’t pay attention to the medium and long term programs. Thus, entrepreneurship intensity can be reduced. So, the fifth hypothesis is proposed as follows. Hypothesis 5:
SE intensity has a direct relationship with the time horizon associated with the board compensation system.
Studies have proven that there is a significant relationship between entrepreneurial intensity and organizational performance (Morris et al., 2008). Also, several researchers have pointed to the relationship between CG and CP. Indeed growth and wealth creation are entrepreneurship’s defining objectives and SE is a unique, distinctive construct through which firms are able to create wealth (Ireland et al., 2003). Shareholder wealth, increases by receiving cash profit and increasing stock price in the market (Raymond P. Neveu, 1989) and undoubtedly, pay cash dividends to shareholders and rising stock prices in the market largely depends on CP. Although the main subject of the study is relationship between SE and CG, but assuming the impact of CG on SE should somehow be able to see this impact on CP. At this point, another part of the research question to be formed. How is the impact of SE and CG on CP?. Therefore, the CP can be considered as a dependent variable that can be seen results of entrepreneurship in it. For this reason, the sixth hypothesis is proposed as follows. Hypothesis 6:
SE intensity has a direct relationship with business performance.
According to Clark (2007), the size and structure of the company are among the factors affecting CG structure. According to Zahra et al. (2000), firm size has an impact on investment and innovation. Ahmadpour daryani (2008) also stated problems that large companies face in the direction of entrepreneurship. Therefore, the seventh hypothesis is proposed as follows. Hypothesis 7:
SE intensity is inversely related to firm size.
It seems, companies that have better performance in the past, it will be possible to spend more resources for investment and entrepreneurship. For this reason, the eighth hypothesis is proposed as follows. Hypothesis 8:
SE intensity has a direct relationship with past performance of business.
According to Zahra et al. (2000), younger firms are more innovative. Initial studies and examining the views of experts and managers of the companies surveyed also indicated suggests such a situation. Therefore, it’s assumed that:
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Hooshang Asheghi-Oskooee and Nader Mazloomi Hypothesis 9:
SE intensity is inversely related to company age.
Also, according to Zahra et al. (2000), companies that are experiencing greater technological opportunities in their industry are more innovative than companies that have fewer opportunities. So, the tenth hypothesis is proposed as follows. Hypothesis 10:
SE intensity has a direct relationship with the technological opportunities available in the industry.
Corporate performance There are different views about the performance in studies and performance evaluation to become a disputed topic for SM scholars. CP can be classified into two general categories of financial and non financial performance. Another way, the performance criteria can be divided into two groups: retrospective and prospective criteria. Several scholars who have researched in the field of entrepreneurship and CG or have been published in journals of entrepreneurship and CG, have used different criteria, such as ROA, ROE, profit to sales ratio, earnings growth, employment growth and ... to measure CP. These criteria have been used to measure the companies performance studied in this research because their applications and their features.
3. Relationship between SE, CG and CP and formation of research's conceptual model There is a positive relationship between entrepreneurial orientation and both financial and non-financial measures of CP (Morris et al., 2007). Also, it’s observed that the active pursuit of entrepreneurial behavior by an organization can make its competition and performance much better than competitors. Implicitly, the ability to anticipate and meet the ongoing needs of customers before competitors is the emphasis on identifying opportunities, proactive behavior and being innovative. Innovation is tied directly to value creation for customers, which, in turn, can produce competitive advantage and higher levels of financial performance for the organization (Morris et al., 2007). Innovativeness, risk-taking and proactiveness have also been known as core indicators of entrepreneurship. Despite disagreement about the relationship of the board-performance in the past researches, the mainstream approach has been to argue for a direct relationship between board demography (such as board size and presence of non-executives) and company performance (Gabrielsson, 2007). Good CG has also a significant relationship with the company's financial performance (Solomon, 2004). Summarized the previous discussions and studies have been investigated separately and limited relationship between entrepreneurship and CG, CG and performance and entrepreneurship with performance, it seems, there is an integrated relationship between SE, CG and CP. This study, is looking for that model. Table 2 shows a summary of researches on these relationships. Table 2: Some studies on the relationship between entrepreneurship, performance and CG Relationship between Entrepreneurship and CG
CG and CP Entrepreneurship and CP
Researches Ireland et al. (2003); Hung & Mondejar (2005); Christensen (2004); Bitler et al. (2005); Williamson (2002); Morris et al. (2007); Conant (1992); Zahra et al. (2000); Otuteye & Sharma (2004) Bitler et al. (2005); OECD (2004); Solomon (2004); Shabbir & Padgett (2008); Earnhart & Lizal (1999); Jones (1995); Jawahar & McLaughlin (2001); Caers et al. (2006); Wong et al. (2004); Collin & Smith (2003); Chui et al. (2001); Neubaum & Zahra (2006); Deckop et al. (2006) Morris et al. (2008); Covin & Slevin (1989); Davis et al. (1991); Miller & Friesen (1982); Morris & Sexton (1996); Wiklund & Shepherd (2005); Zahra (1986)
According to previous discussions, it can be considered an integral relationship between SE, CG and CP. So, the research's conceptual model appears as shown in figure 3.
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Hooshang Asheghi-Oskooee and Nader Mazloomi Figure 3: Conceptual model of research Corporate Governance Board structure:
• CEO duality • Presence / Absence of executives • Ownership by the board members
Ownership structure: • Centralized • Diffused
Board compensation system:
• Based on short-term performance • Based on long-term performance
Strategic Entrepreneurship ntrep
Corporate Performance
Moderating variables • Corporate past performance • Firm size • Company age • technological opportunities
Innovativeness:
Financial performance: Fi • Return R on sales ratio •S Sales growth • ROA R • ROE
Non-financial performance: N
• Growth in number of employees • Growth in market share
• Introducing new products • Introducing new services • Implementing new methods
Risk-taking:
• Financial risk • Technical (operational) risk • Market risk
Proactiveness:
• Search for new opportunities • Introduce new products and brands to the market ahead of competitors • Activities are eliminated in the maturity stage
4. Research methodology This research is a study of SM field. Research method is survey and analysis of secondary data. It’s a developmental research and has used qualitative and quantitative data to explore and describe the subject. This study examined the business level. Statistical population was companies Listed in Tehran Stock Exchange. There were 329 listed companies. Statistical population was screened, because 1) research has focused on manufacturing businesses (the production of goods), 2) Holdings, the group companies and companies that provide consolidated financial statements, have more than a business and separation of performance of each of their businesses was not possible due to lack of access to detailed data about each business., 3) need to review past performance of business that require the presence of companies in the stock exchange atleast for five years. Thus, the number of members of the statistical population was reduced to 158. Then, for most similarities of population and samples, the stratified sampling was used. Listed companies in Tehran Stock Exchange are classified by ISIC codes. 112 companies were selected as sample based on Krejcie and Morgan's table. Parts of the research data obtained using two questionnaires. Other sections were collected through companies’ financial statements. The study used a standardized and proven questionnaire examined by Morris et al. (2008) and the method used by Zahra et al. (2000). The questionnaires were reviewed and modified by a number of professors and scholars and were localized according to country and industry conditions. Likert method was used in one of questionnaires. 31 initial questionnaires were gathered and Cronbach's alpha was calculated to measure the validity of questionnaire. Cronbach's alpha value for the first five questions that were related to the technological opportunities was 0.844, and for the next 15 questions that were relevant to the entrepreneurial intensity was 0.77. Two questionnaires were not usable from 82 due to incomplete information. Also, about 5000 data were extracted from financial statements to calculate the value of some variables related to the companies’ performance and risk of businesses.
5. Data analysis and research findings This research has been used structural equations models, PLS method for data analysis. For factor analysis and structural equation modeling, SMARTPLS software version 2.0.M3 was used. T-test was used to test the first hypothesis. To test hypotheses 2 - 6 of the partial correlation coefficient test was used. To measure the effects of moderating variables (hypotheses 7 - 10), the method proposed by Hensler & Fassott (2010) was used. Test the first hypothesis suggests that there is no significant difference between the two groups of companies where the CEO is chairman and where the CEO isn’t the Chairman (t-Value = -0.047, Sig = 0.962> 0.05). Indeed, this hypothesis couldn’t be tested. Because, number companies where the CEO is also chairman were low. Second to sixth hypothesis test results are summarized in Table 3. Table 3: Summary of test results for the second to the sixth research hypothesis Hypothesis No. 2
Correlation 0.223
t-Value 3.416
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Significant level % 5
Test result confirmation
Hooshang Asheghi-Oskooee and Nader Mazloomi Hypothesis No. 3 4 5 6
Correlation 0.314 -0.24 0.433 0.741
t-Value 3.833 2.803 3.093 5.438
Significant level % 5 5 1 0/1
Test result confirmation confirmation confirmation confirmation
Effect of moderating variables on the relationship between decision variables showed a weak effect of technological opportunities (hypothesis 10) and the strong influence of other moderating variables (Size, Past performance and Age of company) on the relationships (hypotheses 7, 8, 9). Results are summarized in Table 4 and structural equation model of research after fitting is visible in Figure 4. Table 4: The effect of moderating variables hypothesis 7 8 9 10
Variable Company size Past performance Company age Technological opportunity
ƒ2 1/22 1/24 0/46 0/02
Effect intensity strong strong strong weak
β -0/235 0/590 -0/453 0/748
Test result confirmation confirmation confirmation confirmation *
* Hypothesis is confirmed in terms of relationship. But according to the method used in research to measure the effect intensity of the variable, this relationship is weak and negligible.
Figure 4: Final model of research (SMARTPLS output) Correlations between research variables are shown in table 5. Also, R2 value for the variable of SE is 0.802, and 0.365 for business performance. Table 5: Correlation coefficients between research variables Concept 1.Corporate governance (CG) 2.Strategic entrepreneurship(SE) 3.Corporate performance(CP) 4.Company size(CS) 5.Past performance (PP) 6.Corporate age (CA)
1 1 0.6947** 0.0652 -0.6145** 0.2292* 0.5354**
2
3
4
5
6
1 0.4774** -0.7795*** 0.5289** 0.6102**
1 -0.2206* -0.0023 0.1086
1 -0.7045*** -0.5546**
1 0.4713**
1
Significant level of correlation coefficients of variables: ***p< .001 **p< .01 *p< .05 Thus, the research conceptual model shown in Figure 3 would be amended as follows (Figure 5).
6. Conclusion This research studied the relationship of SE, CG and CP. Test of the first hypothesis was not possible due to the low number of companies that their CEO was also chairman of the board. Other research hypotheses were all confirmed. Hypothesis test results showed that, with more presence of executives in the board, more amount of ownership by the board members, compensating board members according to the long-term performance of the firm and less amount of stocks hold by the institutional investors will increase SE intensity.
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Hooshang Asheghi-Oskooee and Nader Mazloomi
Figure 5: Final model of research Also, there was a significant direct relationship between the intensity of SE and CP. Relationship between SE and performance was stronger than the relationship between CG and performance. This shows that the impact of CG on performance, through SE is more than direct impact of CG on performance. Considering to effects of moderating variables indicated that three moderating variables age, size and past performance of business has a strong effect on the relationship between CG and SE. Effect of technological opportunities was poor that is an important matter and requires further research. In addition, moderating effects of variables on the structural equation model suggests that the company size has a reverse effect on the relationship between CG and SE.
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Hooshang Asheghi-Oskooee and Nader Mazloomi Earnhart, Dietrich & Lizal, Lubomir (1999). Effects of ownership on corporate financial and environmental performance and links between the performances types. Retrieved from http://www.bus.umich.edu/kresgeLibrary/Collections/Workingpapers/wdi/wp492.pdf Gabrielsson, Jonas (2007). Boards of directors and entrepreneurial posture in medium-size companies: Putting the board demography approach to a test. International Small Business Journal, 25(5), 511-537. Global Entrepreneurship Monitor (GEM) (2003), Canadian national report. Hensler J. & Fassott G. (2010). Testing moderating effects in PLS path models: An illustration of available procedure. in Vinzi, Vincenzo Esposito et al. (Eds.), Handbook of partial least squares - Concepts, methods and applications (pp. 713-735). Springer, Berlin, Heidelberg, New York. Hoskisson, Robert E., Hitt, Michael A., Wan, William P. & Yiu, Daphne (1999). Theory and research in strategic management: Swings of a pendulum. Journal of Management, 25(3), 417–456. Hung, Humphry & Mondejar, Reuben (2005). Corporate directors and entrepreneurial innovation: An empirical study. Journal of Entrepreneurship, 14(2), 117-129. Ireland, R. Duane, Hitt, Michael A. & Sirmon, David G. (2003). A model of strategic entrepreneurship: The construct and its dimensions. Journal of Management, 29(6), 963-989. Jawahar, I. M. & McLaughlin, Gary L. (2001). Toward a descriptive stakeholder theory: An organizational life cycle approach. Academy of Management Review, 26(3), 397-414. Jogaratnam, Giri, Tes, Eliza C. & Olsen, Michael D. (1999). An empirical analysis of entrepreneurship and performance in the restaurant industry. Journal of Hospitality & Tourism Research, 23(4), 339-353. Jones, Thomas M. (1995). Instrumental stakeholder theory: A synthesis of ethics and economics. Academy of Management Review, 20(2), 404-437. Kells, Stuart & Rogers, Mark (1997). Executive remuneration, board structure, corporate strategy and firm performance: A taste of the literature. The University of Melbourne, Melbourne institute of applied economic and social research, working paper, No. 22/97. Kirzner, I. (1978). Competition and entrepreneurship (7th ed.). Chicago: Chicago University Press. Kraus, Sascha & Kauranen, Ilkka (2009). Strategic management and entrepreneurship: Friends or foes?. Int. Journal of Business Science and Applied Management, 4(1), 37-50. Kuratko, Donald F. (2007). Entrepreneurial leadership in the 21st century. Journal of Leadership and Organizational Studies, 13(4), 1-11. Kuratko, Donald F. (2009). Introduction to entrepreneurship: International student edition (8th ed.). Canada, South – Western Cengage Learning. Kuratko, Donald F. & Audretsch, David B. (2009). Strategic entrepreneurship: Exploring different perspectives of an emerging concept. Entrepreneurship Theory and Practice, 33(1), 1-17. McClelland, David C. (1961). The Achieving society, Princeton, N.J.: Van Nostrand. Miller, Danny & Friesen, Peter H. (1982). Innovation in conservative and entrepreneurial firms: Two models of strategic momentum. Strategic Management Journal, 3(1), 1-25. Mohanty, Sangram K. (2005). Fundamentals of entrepreneurship, India, PHI Learning Pvt. Ltd. Monsen, Erik & Boss, R. Wayne (2009). The Impact of strategic entrepreneurship inside the organization: Examining job stress and employee retention. Entrepreneurship Theory and Practice, 33(1), 71-104. Morris, Michael H. & Sexton, Donald L. (1996). The Concept of entrepreneurial intensity: Implications for company performance. Journal of Business Research, 36(1), 5-13. Morris, Michael H. et al. (2007). Antecedents and outcomes of entrepreneurial and market orientations in a non-profit context: Theoretical and empirical insights. Journal of Leadership and Organizational Studies, 13(4), 12-39. Morris, Michael H., Kuratko, Donald F. & Covin, Jeffrey G. (2008). Corporate entrepreneurship & innovation (2 nd ed.). South-Western, Thomson Learning, USA. Neubaum, Donald O. & Zahra, Shaker A. (2006). Institutional ownership and corporate social performance: The moderating effects of investment horizon, activism, and coordination. Journal of Management, 32(1), 108-131. Neveu, Raymond P. (1989). Fundamentals of Managerial Finance (3rd ed.). South-Western Publishing Co. Cincinnati, Ohio. Organization for Economic Cooperation and Development (2004). Promoting entrepreneurship and innovative SMEs in a nd
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Innovation Strategies of Small Russian Firms Yulia Balycheva1, 2 1Central Economics and Mathematics Institute of Russian Academy of Sciences, Russia 2State Academic University for Humanities, Russia
[email protected]
Abstract: This study analyzes the different types of the innovation behavior of small firms. At the first stage, the analysis of behavioral distinctions between small firms and medium-sized companies as well as large enterprises is undertaken. Particularly, small firms’ contribution to innovation activities of the country is considered. It is demonstrated that small businesses tend to a higher degree to create new-to-market innovations. By comparison, medium-sized companies and notably large enterprises focus on spreading innovations already known in the markets. In addition, the study researches the use of different-sized companies the various innovation types including but not limited to open innovations. It is also shown that small Russian firms tend to process innovations. Besides, the considerable part of small firms’ innovations is created by others, while medium-sized companies give precedence to their own developments and large enterprises are intensively involved in cooperation processes. At the second stage, the paper analyzes the strategies of small businesses depending on their size-class. As a result, it is established that the tendency of innovation diffusion growth remains for small firms with the increase in size. In spite of significant marketable novelty, the lowest shares of innovative products sales in turnover in micro businesses are observed. Diffusion is further increasing along with the size growth. Research and development costs and costs to buy machinery and equipment connected with innovations prevail in the cost structure of innovations. High expenditures for production design pertain only to some groups of small firms, though. The main sources of innovation finance are equity capital, public funds, loans and credit lines. However, concessional lending is an essential factor only for the smallest firms. Keywords: innovation, small firm, small business, Russia, innovation process
1. Introduction There is no consensus among researchers about the influence of firm size on its innovation activity. According to Joseph Schumpeter, large companies are utterly able to create and maintain competitive positions connected with innovative activity (Schumpeter, 1942). The earliest studies support the idea that large enterprises have advantages over small ones in innovations. Empirical literature discovered that R&D rose somewhat more than proportionately with firm size. Thus, large companies’ relative investments in R&D are higher than ones of small firms. This result was interpreted as the proof of the advantages of the largest corporations to innovations creation (Hamberg, 1964, Horowitz, 1962). However, not only large enterprises are able to create successful innovations (Laursen and Salter, 2004). Despite using rational analytical approach to research and innovation activities, large companies are often limited by formal management processes and strategic planning (Hunter, 2013). On the contrary, small firms are more intensively involved in innovation activities due to their considerable flexibility. The growth of size does not always make a positive impact on innovation activity (Scherer and Ross,1990). Therefore, large companies are notably inactive, less flexible and have more bureaucracy than smaller ones. The informational flows become slower and organizational set-ups are more complex. It suppresses creative thinking and lowers capacities to innovate. Unlike large corporations, small businesses incline to innovation in a higher degree (Acs and Audretsch, 1990) and tend to significant innovation creation (Baumol, 2002). In the meantime, small firms depend strongly on the technological character of innovations being created (Peґrez-Cano, 2013). They have to disclose the essential part of information about the conducted research to the potential investors. In addition to that, large companies easily receive financing before the start of production and even earlier than the positive investment results become noticeable (Parker, 1978). Besides, small firms do not always manage to cover the costs of innovations and use the economy of scale (Cockburn and Henderson, 2001). Innovation creation and implementation also require skill availability that also causes difficulties in small businesses (Rothwell, 1989; Samovoleva and Golichenko 2012). In spite of significant limitations in small firms’ innovation activity, they are a significant source of innovations which support is necessary for ensuring sustained economic growth and employment. The aim of the study is the analysis of innovation activity of small Russian firms, identification of its sources and main factors defining the nature of the activity.
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2. Data and research methods The data used in the study were provided by Russian innovation surveys 2013. These surveys are general data from the representative sample of more than 35,000 Russian firms representing 44 industries and 8 size classes and regions. The size of a company is traditionally determined by its class size, which is established according to the number of its employees: 1-49; 50-99; 100-199; 200-499; 500-999; 1000-4999; 5000-9999; and more than 10000. With the aim of analyzing the strategies of small companies we also use the special innovation surveys of small businesses. They include the representative samples of more than 11,000 Russian small firms. In these surveys firms are divided into groups according to the number of employees: 1-20, 21-30, 31-50, 51-70, 71-80, 81-99. The firms were asked to complete a questionnaire that addresses their innovative activities. This questionnaire yields information on many innovation indicators (in this paper, some of these indicators are used; see Table 1). Table 1: Basic indicators used in the study Inputs
Outputs
Costs of product innovations
Sales of innovative products
Costs of process innovations
Sales of new-to-market products
Structure of innovation expenditures (R&D, production engineering, new technologies, patents and licenses acquisition, machinery and equipment, personnel training, software tools, marketing research) Structure of financing sources of innovations Researchers per 10,000 total employees
Innovation process Number of firms introducing product innovations Number of firms introducing process innovations
Sales of newly introduced or significantly improved products
Number of firms combined product and process innovations
Turnover of innovative firms
Number of in-house innovations
Turnover of all firms
Number of open innovations Number of innovations introduced in cooperation with other businesses
With the aim of the modeling of small firms’ innovative activity, some econometrical methods such as multiple regression and principal components methods are used.
3. Small innovative businesses in Russia Under the current conditions, innovation and development of Russian enterprises and industry are one of the top priority aims of national policy. On the governmental and scientific levels of society, these issues are taken into account as well. Despite this avowed goal, the innovation activity of Russian companies leaves something to be desired. As a result, sales of innovative products as a proportion of total turnover amount to 5-7% and 9-15% as a proportion of the turnover of innovative firms. The situation looks slightly different for small businesses. The sales share of innovative products amounts to only 2% and 22% correspondently. There have been no remarkable improvements over many years. Moreover, companies often stop innovating or begin to use less complex forms. For instance, instead of introducing new products they only imitate innovations already known in the local markets. Environments do not encourage companies to innovate or create conditions for their realization. Innovative production of small firms has considerable marketable novelty, though. Therefore, more than 39% of small firms’ innovative products are new-to-market, whereas 61% remained are new-to-firm. By this indicator, small firms considerably outrun medium-sized and large companies (see Figure 1). However, the average technological novelty is in the middle. In such a way, more than 60% of innovative production are newly introduced or significantly improved. For medium-sized companies, this indicator is equal to 53% and for large businesses it exceeds 72%. In spite of relatively high characteristics of innovative products quality of small firms, the sales share of innovative products is less than 1,9%. This fact also determines the very low contribution to the country innovative economy (see Figure 2).
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Figure 1: Average characteristics of innovative production of small, medium-sized and large businesses (2013)
Figure 2: Innovative production of small, medium-sized and large businesses (where the sphere diameter is the total of innovative output) The structure of using process/product, marketing and organizational innovations is similar in many respects to the structure of medium-sized and large companies (see Figure 3). 74% of small innovative firms have product or process innovations within the last three years, 10% of small businesses have marketing innovations and 16% of firms are involved in activity resulted in organizational innovations. The analysis of costs distribution for different types of innovation testifies that the main efforts of Russian companies are located in the area of process and product innovations. More than 98% of costs accrue to process and product innovations both for small companies and also for medium and bigger firms.
Figure 3: Shares of innovative firms using different types of innovations, 2013
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Yulia Balycheva Small firms use product and process innovations differently, though. Small businesses incline to utilize process innovations in 2013 (see Figure 4). Whereas, as against medium and large companies, the number of companies having process innovations exceeds those having products ones. This difference is equal to 10%. At the same time, the costs for process innovations surpass the costs for product ones more than for 65%. The intensive use of process innovations considerably distinguishes small Russian companies from small firms in other countries. According to some studies, the small firms prefer to invest more in the invention of new commodities and try to create something new for the market through product innovations (Yin and Zuscovitch, 1998). In spite of the high characteristics of the marketable novelty of small firms’ innovative production, these innovations are usually an imitation of products not known on local, but already known on some foreign markets. For this reason, the companies use process innovation to adapt products created by others.
Figure 4: Product and process innovations used by different sized companies (2013) The considerable part of innovations of small firms (40%) is developed by others. The value of this indicator is much higher than similar values for medium-sized and large companies (see Figure 6). What’s more, small and medium-sized companies cooperate more rarely than large enterprises. Specifically, medium-sized companies utterly incline to independent innovation creation. Around 43% of innovations here are created without external sources using.
4. The strategies of small innovative companies Further, we research the innovative behavior of small firms depending on the size class. Small firms are hereby divided into the following groups according to the number of the employees: from 1 to 20, from 21 to 30, from 31 to 50, from 51 to 70, from 71 to 80, from 81 to 99.
4.1 Firms with the number of employees between 1 and 20 The most widespread strategy is the imitation of innovative products already known in the local markets. Thus, 46% of innovative production is the result of this strategy following. Companies acquire new technologies with the aim of imitation. In the cost structure of product and process innovations, the cost of new technologies acquisition is much higher than the average one among all small firms. It exceeds the average costs at 34%. Despite the fact that the imitation strategy prevails in the considered group of firms they are also intensively involved in the processes of innovation creation using their own resources. Nearly 40% of innovative products are newly introduced and new-to-market. By this indicator, this group considerably outrun not only other small businesses but also medium-size and large companies. The share of innovative firms involved in R&D activities is 34%. It slightly exceeds the average value of small firms. Meanwhile, less than 50% of group innovative firms buy machinery and equipment connected with innovations whereas larger companies are usually more intensively involved in this process. Apparently, the limited resources do not allow firms to renew production base. Firms compensate the existing restrictions on staff training and modern software acquisition. A slight subset of group innovative products is the result of the modifying strategy. Less than 18% of innovative products are new-to-firm (known in the market) and modified only. This indicator is the lowest among all Russian companies. This fact shows that the smallest firms do not aim at the improvement of earlier implemented products. Their primary activity base is innovative products introduction. These products can both be new-to-
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Yulia Balycheva market and already known in the market, and new-to-firm only. In other words, instead of products modifying companies begin the introduction of new products. In spite of considerable marketable novelty of innovative products, the scale of their distribution is extremely low. For instance, sales of innovative products as a proportion of total turnover amount to only 0.7%. It is much less than the average indicator values among all small firms as well as among all medium-size and large companies.
4.2 Firms with the number of employees between 21 and 30 and between 31 and 50. The strategies of innovative behavior are similar to these size classes. As well as for the smallest size class, the most widespread innovative strategy is the imitation of innovative products already known in local markets. Around 45% and 41% of innovative products are the result of copying innovative products of other companies for the first and second group correspondently. In addition, firms imitate products new to the local markets but already known in some foreign markets. In this case, they place special emphasis on production design. The modifying strategy of earlier created or imitated products pertains to these groups of firms in much higher degree in comparison with micro-businesses. The growth of size class positively influences on companies’ inclination to use modifying strategy. 34% and 39% of innovative products are new-to-firm and modified only for the first and second group correspondently. By doing so, firms do not tend to conduct research and development for their own innovations implementation. No more than 22% of costs of product and process innovations accrue to research.
4.3 Firms with the number of employees between 51 and 70 and between 71 and 80 Hereby the most widespread innovative strategy is earlier implemented innovations modifying. Companies intensively make production insignificant modifying which does not change the main product properties. Thus, 41% and 54% of innovative products are the results of such modifying processes. As well as other small firms, companies imitate innovations. They actively purchase patent rights from others toward this goal. Although the share of innovative products new-to-market and newly introduced is relatively small (no more than 18%), the quality of these products is sufficiently high, also, the considerable part of these products (from 15% to 30%) is new to global markets. The costs of research and development prevail in the cost structure of product and process innovations. They include more than 36% of all costs connected with innovations and exceed the costs of buying machinery and equipment for innovations.
4.4 Firms with the number of employees between 81 and 100. The innovative behavior of the largest cluster of small firms considerably differs from the behavior of other small companies. Most likely, the size and greater resource opportunities allow using economy of scale and control innovative activity more effectively. Despite many differences of group innovative behavior from other small companies, the most widespread strategies are innovation modifying and imitation. Around 39% and 38% of innovative products result from these strategies respectively. The strategy of innovation creation by using firms own resources is also wide-spreading among the firms of the group. In the cost structure of innovations, the costs of research and development are equal to 30% while the costs of buying machinery and equipment count as more than 47%, though. Also, the costs of software acquisition are significant in comparison with other small firms. The scales of innovative products distribution are wide and exceed the ones of other small firms’ groups. Thus, the sales of innovative products as a proportion of total turnover amount to 27% as a proportion of the turnover of innovative firms and 3.3% as a proportion of total turnover of the group. In spite of the fact that these indicator values are the highest among small firms, they are significantly lower than the average country values.
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Yulia Balycheva The main sources of innovation finance are equity capital (49%) and both loans and credit lines (34%). It should be noticed, the share of innovations financed on borrowed money considerably exceeds the corresponding indicator of other classes of small firms which on average is not higher than 25%.
5. Main tendencies of Russian small firms’ innovative behavior The analysis of dynamics of small firms’ innovative behavior for a fourteen-year period of time (2000-2013) allows to identify the following trends. We have allocated two groups of small firms depending on the ratio of marketable and technological novelty characteristics of innovative production. The first group includes the companies with the average number of employees less than 49. The decreasing dependence of the characteristics is observed in the group. In other words, there is a compensation for one product properties at the cost of others (see Figure 5). Thus, two main strategies are identified this way. The first one is the imitation of products not known in the local market while technological production novelty is high and marketable novelty is low. The second strategy is the attempts to implement in-house product innovations during the periods when the significant part of the innovative production is new to the local market.
Figure 5: Characteristics of marketable and technological product novelty in firms with the number of employees less than 49 The second group includes the firms where the number of employees is between 50 and 99. The proportional growth of innovative production characteristics prevails in this case. It is also reasonable to detect two main strategies. The insignificant modification which does not considerably change product quality characteristics and the introduction of innovations not known in the local markets by means of creation or imitation processes. As far as for all small firms are concerned, there is a tendency in the growth of open innovations use (Balycheva and Golichenko, 2014). It is caused by the use of innovations of other companies whereas the participation in cooperation processes is not the base of the activity of small firms. Moreover, the smaller the company the more inclination with time it shows to use other companies’ developments. For small companies which have sufficient resources for being involved in cooperation processes and creating innovations on their own, the growth of using open innovations is not so considerable. There is no strong tendency to use process innovation during the considered time period. For the firms with the average number of employees less than 49. The rotation of dominant using product and process innovations is to be seen. Process innovations were applied the most intensively in the years 2000, 2002-2003, 2006-2007, 2012-2013. In the remaining time, the use of product innovations was prevailing. The remarkable thing is that the beginning of the imitation period in 2006 concurred with the highest costs of process innovations during the considered period. However, process innovations are quite likely to be used with the aim of new-to-firm products adaptation. A relatively long period of prevailing use of product innovation in 2008-2011 allows firms to create necessary conditions not only for imitation products already known in the market but also for the introduction of the new ones. There is a relative balance in the use of product and process innovations in firms with the average number of employees between 50 and 99. However, the preference of the use of product or process innovations has been changing over time.
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Yulia Balycheva For all groups of small firms, there is the growth in patenting for the time being. The increase in patent activity does not necessary positively impact small firms’ innovation activity. Most economists no longer consider patents to be the primary drivers of innovation activity (Lerner, 2009). One major conclusion of the empirical research is that the patent system provides an incentive for firms to innovate by reducing the risks of innovation. However, this conclusion holds true for only a portion of companies holding patents (Golichenko and Balycheva, 2012); whereas other firms use patents for purposes unrelated to the formation of offensive innovation-based competitive strategies (Hall and Dietmar, 2012).
6. Modeling of small firms’ innovation activity For the purpose of the modeling of small firms’ innovative activity, the indicator of the sales of new-to-market innovative products is chosen as the key figure describing the innovative activity connected with new innovations introduction. The following indicators were used as independent variables: X1 - costs of product and process innovations X2 - costs of R&D X3 - cost of production engineering X4 - costs of machinery and equipment connected with innovations X5 - costs of new technologies acquisition X6 - costs of staff training connected with marketing innovations X7- costs of marketing research X8 - costs of software tools connected with innovation acquisition X9 - number of researchers X10 - number of employees with higher education X11 - using equity capital to provide innovations financing X12 - using public funds to provide innovations financing X13 - using credits and loan lines to provide innovations financing According to the correlation analysis there is a strong connection between some indicators (see Table 2). For that matter at the first stage, we used principal components analysis to group the variables into categories. Table 2: The correlation matrix X1 X2 X3 X4 X5 X6
X1
X2
X3
X4
X5
X6
X7
X8
X9
X10
X11
X12
X13
1,00
0,94
0,72
0,96
0,72
0,46
0,69
0,72
0,91
0,92
0,95
0,68
0,85
1,00
0,57
0,83
0,78
0,40
0,59
0,71
0,86
0,87
0,93
0,67
0,72
1,00
0,76
0,50
0,30
0,40
0,48
0,70
0,70
0,68
0,43
0,69
1,00
0,59
0,53
0,75
0,68
0,84
0,88
0,86
0,65
0,92
1,00
0,22
0,43
0,55
0,74
0,72
0,77
0,56
0,43
1,00
0,45
0,23
0,42
0,44
0,24
0,87
0,38
1,00
0,41
0,55
0,62
0,56
0,49
0,78
1,00
0,76
0,80
0,74
0,47
0,55
1,00
0,97
0,91
0,66
0,66
1,00
0,92
0,65
0,70
1,00
0,53
0,72
1,00
0,44
X7 X8 X9 X10 X11 X12 X13
1,00
As a result of principal components, three principal components were identified, which eigenvalues exceed 1,0 and a three-factor model accounts for an acceptably high 89,7 percent of the variation in the data. There was obtained the following regression equation, where all variables are significant: y=51331+0, 205v1+0,3v2+0,5v3, R2= 0,64. The distinguished components have the following economic interpretation: v 1 is connected with innovation introduction, v2 can be associated with the acquisition of new tools and v3 is characterized by the intensiveness of using loan capital in innovation activity.
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7. In conclusion In the study different innovative strategies of small firms were meticulously analyzed. Also, some certain sources and main factors defining the nature of the activity of small firms were identified. Traditionally, the innovation activity of small firms is considered as a crucial issue both on the governmental and scientific levels of society. However, the contribution of small Russian firms to the country innovative economy is extremely low. In spite of the fact that innovation and development of Russian enterprises and industry are one of the top priority aims of national policy, the innovation activity of Russian companies leaves something to be desired. What’s more, companies often stop innovating or begin to use less complex forms. Environments do not encourage small companies to innovate or create conditions for their realization. Despite all the difficulties, the innovative production of small firms has considerable marketable novelty sufficiently exceeding the novelty of medium-sized and large companies. The share of new-to-market innovations among small companies is much higher than among other companies. Although, these innovations are characterized by considerably high quality, small companies focus on local and national markets and do not aim at international ones. There is a tendency of innovation diffusion growth among small firms with the typical increase in size. In spite of significant marketable novelty, the lowest shares of innovative products sales in turnover in micro businesses are observed. Along with the size growth, the diffusion is also increasing. Organizational and especially marketing innovations are rarely used by small companies to gain new competitive advantages. Instead, the base of their innovation activity is product and process innovations applications. Moreover, for the smallest companies, there is a rotation in dominant using product and process innovations over time. For the small companies of bigger size, there is a relative balance in the use of product and process innovations. The intensive use of process innovations in some periods considerably distinguishes small Russian companies from small ones in other countries. Process innovations are generally used for adaptation purposes when companies imitate products usually known in the local markets. In addition to that, the active use of open innovations allows firms to intensively use the developments of others. It is established, that for all small firms there is a tendency of the increase of open innovations use. This growth is caused by the use of innovations of other companies whereas participation in cooperation processes is not the base of small firms’ activity. Moreover, the smaller the company the more inclination with time it shows to use other companies’ developments. For small companies which have sufficient resources for being involved in cooperation processes and creating innovations on their own, the growth of using open innovations is not so considerable. In spite of the fact that the most widespread strategies of innovation behavior among small firms are product imitation and modifying of earlier implemented innovations, they are much more efficient in new product creation than medium-sized and especially large companies. Whereas, the positive trends of the innovative characteristics of small firms hold out a hope for the increase of their contribution to the innovative component of the country’s economy. The study was carried out under the state assignment of the Ministry of Education and Science of Russian Federation.
References Acs, Z.J., Audretsch D.B. (1990) Innovation and Small Firms, MIT Press, Cambridge, MA. Balycheva, Y., Golichenko, O. (2014) “The Relationship Between Patents and Firms’ Innovation Activity: The Case of Russia”, Proceedings of the 9th European Conference on Innovation and Entrepreneurship – ECIE 2014, University of Ulster and School of Social Enterprises Ireland Belfast, UK 18-19 September 2014. Baumol, W.J. (2002) The Free-Market Innovation Machine Princeton, NJ.: Princeton University Press. Cockburn, I.M., Henderson R.M. (2001) “Scale and scope in drug development: unpacking the advantages of size in pharmaceutical research”, Journal of Health Economics 20. pp. 1033-1057. Golichenko, O., Balycheva, Y. (2012) “Intellectual Property and market behaviour in Russia”, Proceedings of the 4th European Conference on Intellectual Capital (ECIC 2012) Helsinki, Finland, on 23 and 24 April 2012. Hamberg, D. (1964) “Size of firm, oligopoly, and research: the evidence”, Canadian Journal of Economics and Political Science 30. pp. 62-75. Hunter, M. (2013) “Typologies and Sources of Entrepreneurial Opportunity”, Economics, Management, and Financial Markets, 8(3), pp. 58–100. Hall, H. and Dietmar, H. (2012) “Recent Research on the Economics of Patents “, Annual Review of Economics, pp. 541-565.
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Yulia Balycheva Horowitz, I. (1962) “Firm size and research activity”, Southern Economic Journal 28. pp. 298-301. Laursen, K., Salter, A.J., (2004) “Searching high and low: what type of firms use universities as a source of innovation?” Research Policy 33 (8), pp.1201–1215. Lerner, J. (2009) “The Empirical Impact of Intellectual Property Rights on Innovation: Puzzles and Clues “, American Economic Review: Papers & Proceedings, Vol. 99, No. 2, pp. 343–348. Parker, J.E.S. (1978) The Economics of Innovation. The National and Multinational Enterprise in Technological Change 2nd ed. London, Longman. Peґrez-Cano, C. (2013) “Firm size and appropriability of the results of innovation”, Journal of Engineering and Technology Management 30. pp. 209-226. Rothwell, R. (1989) “Small Firms, Innovation and Industrial Change”, Small Business Economics, 1, pp. 51-64. Samovoleva, S., Golichenko, O. (2012) “Finding Risk Factors of the Innovation Activity Enterprises”, Proceedings of the 7th European Conference on Innovation and Entrepreneurship, School of Management and Technology, at Polytechnic Institute of Santarem (Portugal). September 2012–рp. 261-70. Scherer, F.M., Ross, D. (1990) Industrial Market Structure and Economic Performance, Boston: Houghton Mifflin Company. Schumpeter, J.A. (1942) Capitalism, Socialism and Democracy, N.Y.: Harper and Broth Yin X., Zuscovitch, E. (1998) “Is firm size conducive to R&D choice? A strategic analysis of product and process innovations”, Journal of Economic Behavior & Organization Vol. 35, pp. 243-262.
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CEE Cross-Country Comparison of National Innovation Systems Efficiency: DEA Approach Marcin Bielicki and Michał Leśniak Poznań University of Economics, Poland
[email protected] [email protected]
Abstract: Innovations improve the prosperity and living conditions of inhabitants of every economy. Therefore they is a priority of social and economic development policy of the European Union (EU). The biggest portion of the EU budget for 2007-2013, equal to 170 billion EUR, was given to the new EU members from Central and Eastern Europe (CEE) for the increase of the competitiveness and innovation of their economies. Overall national contribution amounted nearly 40 billion EUR. As the EU beneficiaries those countries were able to significantly expand and stimulate national innovation systems. The purpose of this study is to check whether the innovation policy of the Central and Eastern Europe countries has been utilized efficiently, and if yes, which of the CEE coutries, including Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia and Slovakia, are the leaders. Analyzed data covered the 2007-2013 period. The results indicate that not every country covered by the research used enabling funds efficiently. On the other hand, we found out that the leaders of the effectiveness in the field of innovation policy were Latvia and Estonia. We use input-oriented Data Envelopment Analysis (DEA) input-oriented. We conduct research in a comprehensive way, taking into account, key sources of the expenditure on pro-innovation activities, such as the EU funds and national contribution as input data. Subsequently all the inputs have been related to a wide range of key indicators to measure the effects of policy innovation in a field of science, technology and macroeconomic of each country, which has been used as output data. Additionally, the results were also collated with independent innovation rankings, drawn up by the governments as well as NGOs. We also indicate which Central Eastern Europe countries and their innovation systems can serve as a model for further development of innovation policy in the European Union budgetary perspective of 2014-2020. Keywords: national innovation system, efficiency, DEA, CEE countries
1. Introduction Creation of innovation-enhancing framework conditions has become a central target of policymakers around the globe. The Lisbon and the Barcelona strategies, as well as subsequent EU Commission’s directives, which targeted R&D intensity as 3% GDP of each EU member up to 2020, show that the European Union has taken steps to increase its innovation efforts and tries to become a leader of the innovation-enhancing approach. Nonetheless building the innovation in such a heterogeneous formation like the EU, requires learning from the experience of both members and other countries in the field of organization and development of national innovation systems, which are an important part of innovation policy design. Increasing awareness of this phenomenon calls for wide international comparisons of innovative strength and cross-country analysis of innovation systems’ efficiency. The term “national system of innovation” (NIS) was used for the first time by C. Freeman (1982) who stared the discussion about the specific definition of this term. Lundvall (1992) narrowed the definition of NIS only to organizations and institutions which are engaged in searching and developing activities such as R&D departments, technological institutes and universities. The broader definition includes also parts and aspects of the economic structure and the institutional set-up affecting learning, searching and adapting (Varblane, Dyker, Tamm 2007). Thus the national innovation system derives from a historically-grown subsystem of the national economy in which various institutions and organizations interact and influence one on another in the performing of innovative activity. The approach of national innovation systems was introduced in the late ‘80s. In general, the innovative activity using the NIS approach is considered in a broader sense. It usually means that instead of focusing on the number of introduced high-tech products and process innovations separately in each country, it encompasses also R&D efforts by the business companies and the public institutions as well as the determinants of innovation-like learning processes, incentive mechanisms or the availability of experts in a labor market (Balzat, Hanusch 2004). In the last decade, the importance of NIS has increased. In the European Union, NIS is supported not only at declarative level, but also by the real EU funds. The EU has become one of the major players in the world of science and technology. The EU delivers almost one-third of a production based on science and technology. Since 1984 the EU has pursued its policy of research and innovation and provided funding under the national
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Marcin Bielicki and Michał Leśniak framework program. In 1984-2013 seven of the framework programs were completed. The financial framework 2007-2013 of nearly 976 billion EUR was accomplished recently and the financial framework 2014-2020 of more than 1 trillion EUR has already begun. It covers Horizon 2020 worth 80 billion EUR - which is the biggest ever EU Framework Programme, dedicated to research and innovation. If we add to that the value of mandatory national contributions, we will see that there is a huge direct or indirect stream of money flowing to the EU member countries which supports their NIS. Is that support efficient in each country? And how efficient are the national innovation systems compared among countries? This paper poses the preceding questions in the relation to the CEE countries that joined the EU in 2004 and 2007. The reason for this approach is determined by the fact that new emerging countries like: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia and Slovakia are less experienced in developing their NIS and due to historical factors have performed NIS for a relatively shorter time than European innovation leaders like Sweden, Denmark, Finland, Germany or the UK. Therefore the main purpose of this study is to evaluate the effectiveness of innovation policy in relation to the Central and Eastern Europe countries. In this paper the hypothesis (H0) that there is no difference in the effectiveness of innovation support systems among Central and Eastern Europe countries is tested. The alternative hypothesis (H1) states that there is significant difference among those countries. This is the first research of its kind, totally dedicated to innovation efficiency across CEE countries. The conducted study is considerably up-to-date due to the EU budget 2007-13 ending recently providing researchers with the latest data and financial figures. Moreover, this paper responds to recommendations of the European Commission in terms of expenditures on research and development activity.
2. Measuring the effectiveness of innovation policy: Empirical studies review An increasing number of studies suggests that evaluation of national innovation policy efficiency becomes more and more meaningful. Nevertheless, each study presents a slightly different approach that determines final conclusions. In general, the analysis that has been carried out can be divided into terms of application of parametric or non-parametric methods. In parametric approach the measurement of innovation policy productivity is carried out by specifying a functional relation which intersects collected data looking for the average relations and estimating coefficients that link inputs to outputs. Alternatively, in some papers estimation is performed non-parametrically, that means without reference to a specific functional form. In such cases the interest lies in estimating an efficiency index, made by comparing each unit with the best performers in the reference group. The best performers (winners) are defined as those units which minimize the amount of utilized inputs given the level of obtained outputs (the output oriented approach) or those objects which obtain the maximum level of outputs given particular level of inputs (the input oriented approach). Such efficiency index gives a score relative to another unit without regarding the absolute efficiency (Bonaccorsi and Daraio 2004). Most econometric (parametric) studies that attempt to evaluate the contribution of R&D to economic growth rely on the Cobb Douglas production function as their basic analytical framework (Mairesse and Sassenou 1991). The examples of early studies are Mansfield (1965), Minasian (1969) and Griliches (1980) who used US panel data to estimate the R&D elasticity within the framework of a Cobb-Douglas function with R&D expenditure and conceived the issue of measuring innovation efficiency at the company level. Subsequent studies of Griliches and Mairesse (1984), Griliches (1986), Jaffe (1986), Cuneo and Mairesse (1984) and Sassenou (1988) performed the cross-industry analysis at the national level for the United States, France and Japan respectively. All results confirmed remarkable role of R&D expenditures as a statistically significant factor contributing to productivity (efficiency) differences among companies in each branch as well as in the country as a whole (Mairesse and Sassenou 1991). Further research of Adams and Griliches (1996) used a Cobb Douglas function to examine the relation between financing and the number of publications output of the American universities and the connection between research output and lagged R&D activity of the universities (Adams and Griliches 1996). Over time research on innovation widened beyond companies level. For instance, Fritsch and Slavtchev (2010) examined determinants of the efficiency of regional innovation systems. They analyzed the differences in the efficiency of regional innovation systems among German planning regions on a basis of the concept of a knowledge production function (parametric approach). The measures for innovative output were based on the number of disclosed regional patent applications within 1995-2000. The analysis proved the relationship
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Marcin Bielicki and Michał Leśniak between input and output of the innovation process which was identified as essential for assessing the technical efficiency of regional innovation systems. As a proxy for input to the innovation process the number of R&D employees was used. Both outputs and inputs came from the private corporate sector only. The additional inputs were progressively added in subsequent stages of research. As a result, they confirmed that a share of private sector R&D employment has a positive impact on regional innovation efficiency. What is more, results suggest that there are still considerable differences in the efficiency of the innovative process in the two parts of the country even after reunification in 1990. Innovation activities in regions located in the Western part of the country were identified as more efficient than those in East Germany (Fritsch and Slavtchev 2010). Along with the relocation of interest in research on innovation efficiency from company level to regional and country level, the number and variety of determinants increases. Therefore, measuring the effectiveness of innovation policy at the international level by using cross-country analysis, requires more frequently the nonparametric approach. The most commonly used nonparametric method in research, taking into consideration the matter of national innovation systems efficiency at cross-country level is DEA method (Data Envelopment Analysis). It is applied by Rousseau and Rousseau (1997), Nasierowski and Arcelus (2003), Hollanders and Esser (2007), Sharma and Thomas (2008), Cullmann, Schmidt-Ehmcke and Zloczysti (2009), Abbasi, Hajihoseini and Haukka (2010), Pan, Hung, and Lu (2010), Cai (2011), Chen, Hu and Yang (2011), Guan and Chen (2011) and Hsu (2011). The total sample of countries used in the studies for the purpose of crosscountry analysis covers five regions: Western and Eastern Europe, North America, Latin America and Caribbean, Africa as well as Asia and Oceania. To sum up, the most innovative countries, in terms of efficient national innovation systems turned out to be OECD countries like: Ireland, Netherlands, UK, Germany, Hungary and Japan. However, there are smaller countries like Argentina, Kyrgyzstan or Slovak Republic which are also efficient countries. The most frequently used DEA model was output-oriented model with constant return to scale (Kotsemir 2013). Each efficient national innovation system has a different range of inputs and outputs determining its efficiency. The key details of each study are presented and described in a possible synthetic way in the tables below. Table 1: Countries sample Countries covered by all reviewed papers Australia, Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Romania, Russian Federation, Singapore, Slovak Republic, Slovenia, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, UK, Ukraine, USA, Venezuela
Source: Self-prepared on a basis of Kotsemir M. N. (2013) Table 2: Cross-country analysis of national innovation system efficiency with DEA method – papers review Reviewed paper
Countries sample
Study results (efficient countries in terms of innovation)
Rousseau S., Rousseau R. (1997) Data Envelopment Analysis as a Tool for Constructing Scientometric Indicators Nasierowski W., Arcelus F.J. (2003) On the Efficiency of National Innovation Systems Hollanders H., Esser F.C. (2007) Measuring Innovation Efficiency Sharma S., Thomas V.J. (2008) Inter-Country R&D Efficiency Analysis: An Application of Data Envelopment Analysis Cullmann A., Schmidt-Ehmcke J., Zloczysti P. (2009) Innovation, R&D Efficiency and the Impact of The Regulatory Environment – A Two-Stage SemiParametric DEA Approach
18
Austria, Canada, Germany, Ireland, Netherlands, Sweden, Switzerland, UK
46
Japan, Taiwan, Switzerland,
37 22
Denmark, Germany, Ireland, Luxembourg, Malta, Switzerland Japan, Slovenia, South Korea.
28
Germany, Sweden
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Marcin Bielicki and Michał Leśniak Reviewed paper Pan Т.W., Hung S.V., Lu W.M. (2010) DEA Performance Measurement of the National Innovation System in Asia and Europe Cai Y. (2011) Factors Affecting the Efficiency of the BRICS' National Innovation Systems: A Comparative Study Based on DEA and Panel Data Analysis Chen C.P., Hu J.L., Yang C.H. (2011) An International Comparison of R&D Efficiency of Multiple Innovative Outputs: The Role of the National Innovation System Guan J., Chen K. (2011) Modeling the Relative Efficiency of National Innovation Systems Hsu Y. (2011) Cross National Comparison of Innovation Efficiency and Policy Application
Countries sample 33 22
Study results (efficient countries in terms of innovation) Czech Republic, Greece, Hungary, India, Japan, Poland, Romania, Russian Federation, Singapore, Slovak Republic, South Korea, Taiwan, Turkey, UK Netherlands, Sweden
24
Hungary, Israel, UK, USA
22
Greece, Ireland
33
Denmark, Germany, Ireland, Luxembourg, Malta, Switzerland
Source: Self-prepared on a basis of Kotsemir M. N. (2013)
3. Methodology The object of the study is the effectiveness of innovation support systems. The research focuses only on Central and Eastern Europe countries, i.e. Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia and Slovakia. This study is designed to assess the hypothesis (H0) that there is no difference in the effectiveness of innovation support systems among Central and Eastern Europe countries. Alternative hypothesis (H1) states that there is significant difference among those countries. In order to verify our hypothesis, we apply data envelopment analysis (DEA) developed by Charnes, Cooper and Rhodes (1978) which is a technique based on linear programming to evaluate the efficiency of entities working in the same environment, industry or region. The basic idea of the DEA is to find the level of effectiveness with which the entity making the decision (DMU – decision making units) transforms held expenditures for the results. The DEA method calculates the efficient frontier for the whole sample analysis objects. Objects located on the frontier are efficient and their efficiency ratio takes the value of efficiency ratio equal 1. Any country not on the frontier is considered inefficient. A numerical coefficient is given to each object, defining its relative efficiency and their efficiency takes value from the interval [0-1]. The difference in value relative to 1 specifies the size of the inefficiency of a single object. The DEA model can be either oriented or non-oriented, whereby the criteria of the orientation are formed according to the inputs and outputs. An example of the non-oriented DEA model is an additive model. The profit scale criterion enables the distinction of the DEA models that set the Constant Returns to Scale (CRS Models) as well as the Variable Returns to Scale (VRS Models). The value of the effectiveness in the oriented model shows the change either in the input or output, and makes certain unit effective. The choice of the orientation is mainly affected by the exogenous conditions concerning the subject of the research. In case of the input orientation the point is to analyze the effective unit in aspect of lower usage of inputs in comparison to a certain unit. For example, the estimated effectiveness measure of 0,9 shows that the certain unit is effective only if the current results will be reached by using 10% less inputs than in reality. In other words, in the input oriented model, the non-effective units can increase their effectiveness by reducing the inputs. The DEA models with focus on the outputs can answer the question: what results could an effective unit reach, if the available outputs of a certain unit were used. In this case the effectiveness of 0,9 shows that the unit is making 10% less than the effective units, while using the same number of inputs. The result increasing strategy in the input oriented models enables the growth of the effectiveness for the non-effective units.
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Marcin Bielicki and Michał Leśniak We use constant return to scale model formally developed by Charnes, Cooper and Rhode – CCR model (1978). According to the model measure of efficiency for an individual object j is calculated as the ratio of the sum of weighted results to the sum of the weighted inputs:
݄ ൌ
where: j = 1, 2, …, n contries, r = 1, 2, …, t outputs, i = 1, 2, …, m inputs, yrj – size of the output r per j unit, xrj – size of the input i per j unit, ur – weight for output r, vr – weight for output i,
σ௧ୀଵ ݑ ݕ σ ୀଵ ݒ ݔ
For efficient countries value of h is equal to 1 (the object is located on the efficient frontier), while in case of inefficient countries its value is less than 1 and the object is below the efficient frontier. Suitable linear programming model CCR input oriented is as follows: ௧
݂݂݁݅ܿ݅݁݊ܿ ݕൌ ܺܣܯ ݑ ݕ ǡ ୀଵ
s.t.
௧
ݒ ݔ ൌ ͳǡ ୀଵ
ݑ ݕ െ ݒ ݔ Ͳǡ݆ ൌ ͳǡ ǥ ǡ ݊ǡ
ୀଵ
ୀଵ
െݑ െߝǡ ݎൌ ͳǡ ǥ ǡ ݐǡ െݒ െߝǡ ݅ ൌ ͳǡ ǥ ǡ ݉Ǥ
All of the analyzed data come from the official European Commission databases and cover years from 2007 to 2013. We chosed that period because the main purpose of funds spent from the EU budget for 2007-2013 was to increase competitiveness and innovation economies of the new members of the European community - the countries of Central and Eastern Europe. In 2007-2013 those countries were totally given from EU more than 170 billion EUR from EU budget totally. Their overall contribution amounted to nearly 40 billion EUR. It was a powerful boost to the economies of each beneficiary, in order to significantly expand and directly and indirectly stimulate national innovation systems. Our input variables are: !
x1 – European Funds (European Social Fund, Cohesion Fund and European Regional Development Fund),
!
x2 – National Contribution.
Our output variables include: !
y1 – Share of high-tech exports in total export (average value for 2007-2013),
!
y2 – Share of R&D personnel and researchers in total employment (average value for 2007-2013),
!
y3 – Patent applications to the European Patent Organisation per million inhabitants (total number for 20072013),
!
y4 – Share of enterprises in high-tech sectors in total number of enterprises (average value for 2007-2013).
Details of input variables are presented in the table below. For wider perspective we also present total Government Budget Appropriations or Outlays for Research and Development (GBAORD) as a percentage of
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Marcin Bielicki and Michał Leśniak total general government expenditure and total intramural R&D expenditure as a percentage of Gross Domestic Product (Total R&D) Table 3: Chosen inputs and additional R&D expenditure ratios Bulgaria Czech Republic Estonia Latvia Lithuania Hungary Poland Romania Slovenia Slovakia
x1 x2 GBAORD (%) Total R&D(%) 6,67 1,35 0,72 0,53 26,54 4,60 1,40 1,49 3,40 0,45 1,77 1,63 4,53 0,80 0,51 0,60 6,78 1,50 1,11 0,85 24,91 4,40 0,84 1,16 67,19 18,30 0,76 0,72 19,06 5,50 0,75 0,48 4,10 0,96 1,15 2,08 11,50 2,00 0,88 0,62
Source: EUROSTAT Chosen outputs are presented in the table below. Table 4: Chosen outputs y1
y2
y3
y4
Bulgaria 7,24 0,61 21,12 2,58 Czech Republic 15,30 1,53 139,51 3,49 Estonia 10,93 1,45 157,10 5,06 Latvia 5,77 0,95 84,58 4,10 Lithuania 6,11 1,35 41,85 1,75 Hungary 20,00 1,27 145,64 6,46 Poland 5,26 0,76 62,61 3,74 Romania 6,80 0,44 16,94 3,70 Slovenia 5,23 1,80 390,53 5,75 Slovakia 6,73 0,99 61,75 3,26
Source: EUROSTAT
4. Results The results given for chosen period are presented in the table and figure below.
Figure 1: Cross-country analysis of national innovation system efficiency with DEA method
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Marcin Bielicki and Michał Leśniak Results above show what percentage of input efficiency leader needs to achieve same results as particular country. For example Estonia needs only 24% of input to achieve same results as Romania. As we can see the effectiveness of innovation policy of individual CEE Countries is significantly different. The leaders of efficiency are relatively small countries such as Estonia and Latvia, both of them has less than 2,5 million inhabitants. On the basis of these results we reject the null hypothesis (H0) and accept alternative hypothesis (H1) - there is significant difference in the effectiveness of innovation support systems among Central and Eastern Europe countries. It has to be noticed that the effectiveness leaders are not synonymous with innovation leaders. We have 2 effectiveness leaders: Estonia and Latvia. While Estonia is considered to be the European leader in innovation across CEE countries (according to the Innovation Union Scoreboard), whereas Latvia is one of the weakest innovators in Europe. But we have to take into consideration that the share of expenditure on research and development in budget of Estonia was on average 1.8% per year, while Latvia was on average 0.5% in 20072013. It should be noticed that both countries spend funds effectively but due to difference in size of those funds only Estonia is considered as an innovative country. Estonia is the leader of innovation across CEE Countries. There are two measures that provide evidence for it: the average government budget appropriations or outlays for research and development (GBAORD) which for 2007-2013 was the highest in Central Easter Europe – over 1.8% per year and the effectiveness of spending that funds which was also the highest. Therefore Estonia can be considered as a benchmark of innovation for other young European Union members. Estonia is a small OECD economy and its government’s priorities include R&D and innovation. Estonia has one of the highest Gross Domestic Expenditure on Research and Development (GERD) growth rates in the OECD area, at 11.8% a year during 2005-10. Business Enterprise Expenditure on Research and Development increased significantly from 0.42% to 0.82% of GDP over the same period.
5. Conclusion The main goal of this study is to compare the effectiveness of innovation policy of Central Eastern European Countries. By using Data Envelopment Analysis method we made a comprehensive evaluation and analysis of different types of National Innovation Systems in CEE Countries. Our results can not only alert governments of the inefficient countries, but also provide them benchmark to compare. Our analysis shows that the leader of innovation across CEE Countries is Estonia. The emergence of Estonia in the efficient frontier indicates that this country can serves as benchmark for efficient use of R&D resources. The inefficiency in the R&D resource usage highlighted by this article indicates the underlying potential thfat can be tapped for the development and growth of nations. A separate issue is the possibility of the application of the Estonian model of innovation support to other CEE countries, in particular the large economies such as Poland or Romania. That scientific problem may be an excellent starting-point for further research on the topic of innovation in the countries of Central and Eastern Europe.
References Abbasi F., Hajihoseini H. & Haukka, S. (2011) “Use of virtual index for measuring efficiency of innovation systems: A crosscountry study” International Journal of Technology Management & Sustainable Development, 9(3), 195-212. Adams J. D., & Griliches Z. (1996) “Research productivity in a system of universities” (No. w5833). National Bureau of Economic Research. Balzat M., Hanusch H. (2004) “Recent trends in the research on national innovation systems” Journal of Evolutionary Economics, 14(2), 197-210. Bonaccorsi A., Daraio C. (2004), “Econometric Approaches to the Analysis of Productivity of R&D Systems: Production Functions and Production Frontiers” In: H.F. Moed et al. (eds.). Handbook of Quantitative Science and Technology Research // Kluwer Academic Publishers, pp. 51 – 74. Cai Y. (2011) “Factors affecting the efficiency of the BRICSs' national innovation systems: A comparative study based on DEA and Panel Data Analysis” Economics Discussion paper, (2011-52). Charnes A., Cooper W.W., Rhodes E. (1978) “Measuring the Efficiency of Decision Making Units”, European Journal of Operational Research, vol. 2 pp. 429-444.
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Marcin Bielicki and Michał Leśniak Chen C.P., Hu J.L., Yang C.H. (2011) “An International Comparison of R&D Efficiency of Multiple Innovative Outputs: The Role of the National Innovation System” Innovation: Management, Policy and Practice, Vol. 13, No. 3, pp. 341–360. Coelli T.J., Rao D.S.P., O’Donnell C.J., Battese G.E. (2005) “An introduction to efficiency and productivity analysis”, Springer. Cullmann A., Schmidt-Ehmcke J., Zloczysti P. (2009) “Innovation, R&D Efficiency and the Impact of The Regulatory Environment – A Two-Stage Semi-Parametric DEA Approach” German Institute for Economic Research, Discussion paper No. 883: Berlin, May 2009. Fritsch M., & Slavtchev V. (2011) “Determinants of the efficiency of regional innovation systems” Regional Studies, 45(7), pp. 905-918. Griliches Z., (1980), "Returns to Research and Development Expenditures in the Private Sector", in J. Kendrick and B. Vaccara (eds.), New Developments in Productivity Measurement and Analysis, University of Chicago Press, pp.419461. Guan J., Chen K. (2012) “Modeling the Relative Efficiency of National Innovation Systems” Research Policy, Vol. 41, No. 1, pp. 102–115. Guo P., Tanaka H. (2001) “Fuzzy DEA: a perceptual evaluation method” Fuzzy Sets and Systems, Vol 119, pp. 149-160 Hollanders H., Esser F.C. (2007) “Measuring Innovation Efficiency” INNO-Metrics Thematic Paper, December 2007. Hsu Y. (2011) “Cross National Comparison of Innovation Efficiency and Policy Application” African Journal of Business Management, Vol. 5, No. 4, pp. 1378–1387 Kotsemir M. N. (2013) “Measuring national innovation systems efficiency–a review of DEA approach” Higher School of Economics Research Paper No. WP BRP, 16. Mairesse J., Sassenou M. (1991), “R&D and productivity: a survey of econometric studies at the firm level” Science– Technology Industry Review, 8, pp. 9–43. Paris, OECD. Mansfield E., (1965), "Rates of Return from Industrial Research and Development", American Economic Review, 55, pp.310-322. Minasian J., (1969), "Research and Development, Production Functions and Rates of Return", American Economic Review, 59, pp. 80-85. Nasierowski W., Arcelus F.J. (2003) „On the Efficiency of National Innovation Systems” Socio-Economic Planning Sciences, Vol. 37, pp. 215–234. Sharma S., Thomas V.J. (2008) “Inter-Country R&D Efficiency Analysis: An Application of Data Envelopment Analysis” Scientometrics, Vol. 76, No. 3, pp. 483–501. Varblane U., Dyker D. & Tamm D. (2007) “How to improve the national innovation system of catching-up economies” Trames: Journal of the Humanities and Social Sciences, 11(2), 106-123.
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Smart Specialisation: Does it Really Matter to IT SMEs? Alexander Borg1 and Christopher Middup2 1Strategy and Business Department, Malta Information Technology Agency (MITA), Malta 2Department of Computing, University of Derby Online Learning (UDOL), UK
[email protected] [email protected]
Abstract: Smart specialisation is a new strategic policy framework which the European Commission has adopted to support co-ordinated Research and Innovation (R&I) investment efforts among EU Member States and regions by prioritising their endeavours through the identification and exploitation of existing strengths and capabilities when using regional funding. It is designed to support and assist entrepreneurs to discover what their firms should specialise in to become more competitive and consequently contribute to overall economic growth and job creation. This study explores the utility of this framework to owner-managers of Maltese IT SMEs through a mixed methods, exploratory “case within a survey” eventually focusing on three export-oriented firms that invest in R&I and specialise in the development of software products and services for specific niche markets. Grounded Theory approaches are used to analyse, interpret and explain the findings, generating theory inductively from the rich data generated using flexible bottom-up approaches. The study explores the tension that has developed between software product orientation and software service orientation in the firms as a result of an increasingly blurred distinction between the two when the mode of delivery is through the cloud. It reveals that in spite of the higher interest by investors in software products, custom projects delivered as a service can become a crucible for specialisation, productisation and eventually internationalisation. In this context the role of the entrepreneur becomes crucial in their choice of strategy, partnership, method, innovation, technologies and resources. These must focus the firm’s collective endeavour in securing sufficient “trust” from their first overseas client – and after that, repeat business. Entrepreneurial patterns are therefore revealed in the way opportunities are discovered by the owner-managers and differentiated strategies developed to target niche areas in spite of the perceived drawbacks of insularity and small firm size. The study reveals that in Malta this has happened regardless of smart specialisation. However, the conclusions indicate that the framework can be an aid to support policy and to replicate the patterns for the benefit of software SMEs in other regions or Member States. Keywords: smart specialisation, software SMEs, case studies, cloud computing, entrepreneurship, EU funding
1. Introduction Smart specialisation is a strategic approach that the European Commission (EC) has embedded in regional policy for the period 2014-2020 to support targeted Research and Innovation (R&I) investment efforts among Member States of the European Union (EU) (Midtkandal & Sörvik, 2013). To ensure that Europe attains “smart, sustainable and inclusive growth” by 2020, the policy helps Member State regions prioritise their endeavours by identifying and capitalising on existing strengths and capabilities when using regional funding. It is designed to support and assist entrepreneurs to discover what their firms should specialise in to become more competitive and consequently contribute to economic growth and job creation (Foray et al., 2012). Smart specialisation assumes a key role for ICT in Member States’ Research and Innovation strategies for smart specialisation (RIS3) and their “digital growth” strategies, formulated to exploit regional financing throughout 2014-2020 (European Union, 2013). Besides driving economic growth, ICT is deemed critical to support industrial and technological leadership, basic and applied research, and innovation in the private and public sector (Foray et al., 2012). Despite being a relatively small country, Malta has a thriving ICT industry that has contributed over 5% to its national GDP over the last five years (National Statistics Office)(NSO, 2013b), one of the highest contributions in the EU (Stančík & Desruelle, 2012). This excludes ICT-enabled sectors online gaming and financial services (NSO, 2013b) which together contribute over 25% of national GDP. Some IT SMEs, 99% of which are small and micro enterprises (NSO, 2013a), have developed a significant level of sophistication in their products and services. This has happened thanks to their ability to focus on a particular niche and then specialising in it. A number of them service foreign markets, despite the perceived additional obstacles usually attributed to SMEs located in a small island state.
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Alexander Borg and Christopher Middup This work explores the utility of the approach to Maltese software producing SMEs. It focuses on three software firms that display characteristics that should in theory benefit from smart specialisation. These characteristics include internationalisation, investment in R&I, and an ability to specialise in the development of software products and services for specific niche markets. The utility of smart specialisation is investigated as it would apply to Maltese IT firms focussing on software as their core business, resulting in a model that can help fulfil “smart specialisation” policy guidelines and capitalise on funding opportunities. The insights gained from this investigation are then generalised to show their utility in other countries and other markets.
2. Background 2.1 Defining smart specialisation in Maltese software firms Foray & Ark (2007) argue that some of the smaller or less economically developed Member States tend to emulate the larger and wealthier regions or countries of the EU, but end up doing so on a smaller scale. As a result, R&D resources are spread thinly and widely in all science and technology domains without reaching optimal levels and critical masses in any of them. This militates against the formation of “agglomerations” or centres of excellence, involving universities, large companies and innovation service providers, needed to compete against major world players. An integrated approach to R&D is therefore needed at an EU level to ensure that Member States develop “clear visions and strategies” aimed to bring out unique areas of specialisation based on their individual core strengths and capabilities, even when these may not be high-tech sectors, e.g. tourism and fisheries. Foray et al. (2011) argue that RIS3 is a tool that can stimulate specialisation in R&D and innovation to address the scientific shortfall in such non-high-tech sectors. Since Malta performs sub-optimally in R&D, lacks the research capability, but possesses greater capabilities to harness (or imitate) innovation supported by a relatively strong IT industry (MCST, 2014; Stančík & Desruelle, 2012; European Commission, 2014), a synthetic engineering-based approach, defined by Foray et al. (2012) as the application or combination of existent knowledge to resolve problems or create new solutions using inductive approaches, appears more suitable for Maltese software firms to acquire new knowledge needed to gain a competitive advantage. Owing to the enabling role assumed by ICT in the Maltese RIS3 (MCST, 2014), smart specialisation as applied to the Maltese software industry should in theory mean the technical capability to provide software products and services to support the specialisation areas selected in that strategy using the proposed RIS3 approach. Despite having a strong IT industry, only twelve IT companies, all with a headcount above nine employees, reported intramural R&D in 2010. This equated to €2.805M, or 11.7% of the total intramural R&D figure of €23.961M and therefore a mere 0.04% of national GDP (NSO, 2012). Coupled with the widely accepted view that more R&D activity is invested in developing software products compared to software services (Cusumano, 2004), the above suggests that Maltese software firms are predominantly service-oriented with few qualifying as software products companies using Cusumano’s (2004) own definition of a software products company: one with over half its revenue originating from new sales of software products. Consequently, less rigid parameters have been adopted in defining smart specialisation in this research: The technical capability of an organisation to develop software products and related services uniquely for a vertical industry, or software products and services developed to carry out a specialised function that can be applied horizontally across several industries. This is partly based on Cusumano’s (2004) definition of a technical specialty within a vertical industry; and justified also by Malta’s two significant ICT-enabled specialties in online gambling and financial services industries (TheWorldFolio, 2015).
2.2 Orientation and the entrepreneur’s role Investors and venture capitalists have traditionally nurtured a greater interest for software products companies compared to software services companies. This is due to the higher and quicker returns on investment achieved and consequently equity value of software products firms (Cusumano, 2004; Hoch et al., 1999). However, a trend
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Alexander Borg and Christopher Middup towards servitisation has recently been observed among software products firms, as it offsets losses caused by the increased competition resulting from increased availability of cheaper or free software (Cusumano, 2008). In a study of 179 Finnish software firms, Rajala and Westerlund (2012) acknowledge this trend, and conclude that customer proximity as a result of service orientation usually leads to better financial performance, but impacts market performance far less positively. Conversely, products delivered as part of a standardised service offering to better satisfy customer requirements, lead to improved market performance of the firms, but not better financial performance. Personal relationships, and therefore the role of the entrepreneur, become more crucial in a context of service orientation when implementing strategies to penetrate new markets (Moen et al., 2004). Gaining credibility as a reliable partner is vital when entering foreign markets. This is highly dependent on mutually beneficial collaborations with partners on the ground. The process eventually becomes easier once long-lasting relationships and reputation are built. By contrast, in a productised context, customers are able to mitigate risk by testing the product before the purchase decision is made (Mannermaa et al., 2000). However, in both types of orientations open innovation approaches have become widely popular as companies collaborate, exchange knowledge, adopt open source software and make their own software products available to form part of web service mash-ups and wider software ecosystems (Bosch, 2009; Rajala & Westerlund, 2012). The innovative capacity, commitment and global vision of the entrepreneur or owner-manager are fundamental to lead and inspire employees in the pursuit of their firm’s internationalisation strategies (Lawton Smith & Romeo, 2011; Gabrielsson et al, 2008).
3. Research method The research used a mixed methods, exploratory “case within a survey” method (Yin, 2009). It focused on three Maltese export-oriented software companies, code named Alpha, Beta and Gamma, that developed a high degree of specialisation. Context was defined by collecting data from a population of 36 SMEs classified under NACE codes 58 (software publishing) and 62-63 (computer programming, data processing, consultancy, etc.) which are the codes pertaining to software production (Mas et al., 2012). The choice of the three companies was the result of purposive sampling among the 19 validated responses. The questions for the survey were formulated using the reviewed secondary sources. The survey data collected were then reviewed, and used to generate semi-structured questions for the actual case study phases. The interviews were one-hour audio-recorded conversational sessions with open-ended semi-structured questions asked to corroborate conclusions already gleaned from the extant literature and survey (Yin, 2009). Figure 1 summarises the strategy.
Figure 1: Stages of case study
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Alexander Borg and Christopher Middup The owner-manager was considered the most appropriate and best equipped person to represent the organisation’s paradigm, business strategy and ethos (Bergeron et al, 2004). Triangulation was sought by interviewing also long serving technical managers from each firm. Grounded Theory approaches espoused by Charmaz (2006) were used to generate theory inductively from the rich data obtained. Data from the interviews were categorised using initial coding. A CAQDAS tool was then used to sort, re-adjust and re-analyse the codes using focussed coding, before final decision-making on the most significant codes for later memo-writing.
4. Findings and analysis 4.1 Quantitative data analysis: the context-setting survey Maltese IT SMEs are active mainly in the local horizontal enterprise market through the provision or customisation of IT solutions such as finance, inventory, payroll or retail management, business intelligence, web design and related IT services to local enterprises. This study, however, confirmed that more export activity is present than is generally perceived, their markets are actually more geographically dispersed than expected, and there is a high degree of specialisation in certain vertical niches indicating an aptitude at opportunity identification by the firms. 72% of respondents declared a degree of specialisation as defined in the study, and 18 of 19 firms internationalise in varying degrees. Nine such firms declared more than half their revenue derived from overseas sales (Figure 2).
Figure 2: Distribution of exporting firms by percentage of overseas sales revenue Figure 3 shows a predominance of software-related services in the domestic and continental European markets, and to a lesser extent North Africa & Middle East and UK & Ireland. By contrast, a more balanced distribution of products, extending to 41 different countries comprising Australia, New Zealand, Asia, Africa and Latin America was discovered. This suggests that geographical distance may hinder direct engagement with the customer usually required for the provision of software-related services. This interpretation is in line with conclusions drawn by Mannermaa et al. (2000).
Figure 3: Distribution by market of software-related services and software products compared
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Alexander Borg and Christopher Middup Born-global internationalisation approaches theorised by Bell (1995), Moen et al. (2004) and Onetti et al. (2012) for IT SMEs, clearly apply also to Maltese firms. In response to a specific question, practically all indicated strong agreement that international partnerships, personal contacts and networking, targeting niche markets, and Internet presence are determinant factors for internationalisation. 13 of 18 firms reported investment in R&D above 5% of annual revenue at any point during the last five years. An improved research capacity was also noted among firms with higher numbers of employees holding a tertiary level of education (Figure 4).
Figure 4: Indicative company R&D expenditure in relation to tertiary education of employees
4.2 Qualitative data analysis The codes that emerged were sorted under five categories in line with the open systems theoretical model based on General Systems Theory (GST). These were environmental influences, inputs, outputs, transformation and firm attributes. The resulting codes and categories were combined to make up a framework model (Figure 5) that could enable a common understanding and interpretation of the results for the purpose of theory building.
Figure 5: The Maltese specialising IT SME as an open system
4.3 The case study firms Alpha, the smallest of the three, had the typical characteristics of a start-up – high growth, and single product and vertical market focus (Hoffman et al., 1998). Focusing on a limited range of single function software products mainly supporting the Microsoft horizontal platform, Alpha’s flagship product has been selected to support a high growth area. It sells the product worldwide at an averagely priced licence fee and user-centricity that appeal to SMEs – 60% of which are in the US – having a mature IT set-up. Alpha fits the definition of a “born-global”
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Alexander Borg and Christopher Middup perfectly, and considers agility and deftness to improvise quick fixes as crucial to roll out its products ahead of its competitors. With >50 employees, Beta is a long established company with a mature set-up. Strong domestically in the horizontal enterprise market where its competitive advantage is market proximity, Beta is now a world market leader in a highly specialised niche in a vertical market (a retail segment in travel and tourism) where it sells products to +250 headcount clients in 40 countries. Beta had the opportunity of test-bedding its first vertical solution in Malta. Since then this niche market grew rapidly. Beta declared that 25%-50% of the company’s total revenue derives from overseas sales. It reported a steady rise in sales of its specialised product by servitising it as a SaaS solution, which provides a long-term guaranteed return through monthly fees. This is appreciated by Beta’s clients for the fiscal benefits offered, compared to the cost of an up-front one-off licence. With 60 employees, Gamma is a software services company. The firm has a strong software engineering ethos believing that software is too mission critical not to merit careful estimation and scoping before beginning to design and build it. Half Gamma’s revenue is from software services and a limited amount of software products exported to foreign markets in Europe, the British Isles, North Africa and Middle-East, and North America. Specialising in two key vertical markets, one of which a high-tech sector, Gamma’s strength is its flexibility to adopt the technology tools, support tools, software development lifecycles and project management methodologies used by its clients. All three firms collaborate with foreign partners in varying measures to support with pre- and post-sales support, and to facilitate market entry in their respective markets. But more importantly all three are good case studies that could answer some of the questions raised by Teece (2010) on how new value is transferred to customers after transformation of the firm’s business model by the innovation in which they have specialised.
5. Discussion What are the main patterns of entrepreneurial activity and organisational behaviour that lead to export orientation among internationalising IT SMEs based in Malta? Maltese IT entrepreneurs have inherited a worldview, of thrift and inventiveness that stems from the realities of living in an insular environment where historically resources are scarce (Briguglio, 1995), and where innovations have to be externally sourced (Punnett, 2009). That has made them successful enough to negotiate the challenge of securing sufficient “trust” from their first overseas client – and after that, repeat business. Echoing Cooper & Edgett (2010), this is achieved through sensible decision-making on the technologies and methodologies to use, the innovations to adopt, the resources to recruit, the strategies to pursue, and especially the focus on which market to target. Rather than pursuing a single holistic strategy, IT SMEs follow different strategies on the basis of that “precise spot” being targeted in the competitive landscape. They appear to support the notion of a “transient competitive advantage” (McGrath, 2013), which suggests that where competitive advantage can be short-lived, the pursuit of sustainable competitive advantage through a monolithic resource-based medium-to-long term strategy, is superseded. The firms studied are doing exactly that: formulating informal ad hoc transient strategies that are flexible, customer-focused and less sectorial, and therefore suitable to pursue the competitive advantage identified at that particular moment in time. What are the implications and presumed utility of the European Union’s regional smart specialisation concept for Maltese IT SMEs? Evidence from the field suggests that if firms such as the ones studied have been successful in their endeavours of entrepreneurial discovery as to what their country “does best in terms of R&D and innovation” (Foray et al., 2011, p. 7), in Malta’s case much merit goes to twenty years of ad hoc policy-making intent on consistently supporting the industry (MITA, 2009; Restall & Cordina, 2010). This has focused on incentives for students to
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Alexander Borg and Christopher Middup take up ICT, free or cheap software sourced through strategic alliances with top ICT companies, and incentive programmes for SMEs. This happened without any smart specialisation policy being in place. Having a smart specialisation policy to help IT entrepreneurs “discover” what R&I they can harness to their respective areas of specialisation is no doubt beneficial. However, it would appear to be of greater interest to tech start-ups that have not yet settled for a specific vertical niche market in which to specialise or even a location where to operate from, what Onetti et al. (2012) term holistically “location decisions”. The firms investigated expressed lukewarm support for ERDF funding. In fact, only the two more established ones, Beta and Gamma, were positive about ERDF funding, as long as this was used to support internationalisation cost reimbursements or tax incentives for R&D activity, rather than individual projects focusing on any of the identified areas of specialisation in Malta’s RIS3. What is the IT firms’ outlook towards the potential of specialisation as a means of achieving an increased competitive advantage through differentiation? All three firms recognised that there is a higher return on R&D investment in software products in terms of both profitability and market value of the firm; and that it is a way of attributing uniqueness and inimitability to the product, and therefore attaining a competitive advantage through specialisation. However, what ultimately generates the product is knowledge – that synthesis of “unique learning experiences and organisational learning” of the firm which are hard to imitate and replace (Claver-Cortés et al., 2007, p. 45). It may therefore be reductive to conclude that a competitive advantage can only be attained by specialising in software products, especially if services such as custom projects may lead to products. Teece (2010), while distinguishing between product and service, emphasises that the business model itself, innovated by the input of new technologies and the discovery of new markets, represents a new opportunity for the firm to transfer new value to its customers, and therefore another form of competitive advantage, if the new business model is difficult to imitate. Rajala & Westerlund (2012) moreover posit that a focus on technology alone is ill-advised. They claim that the disruptive patterns caused by increased service-orientation (e.g. cloud computing) is pushing firms towards “inter-organisational collaborations” (p.1534), and therefore open innovation, which has become a new way of seeking a competitive advantage. They also claim that open innovation has led to a significant rise in the use of open source software. Magdaleno et al. (2011) discovered that the wider availability of open source software and the collaborative nature of open source communities are actually a stimulus to innovation. However, in the case study, little use of open source software is made by the mainly Microsoft-driven IT industry in Malta. Another effect of service-orientation through the cloud, is the increasingly blurred distinction between product and service. Cusumano (2008) argues the need to “productise” services to deliver them more efficiently, but recommends the need to “servitise” products to generate new revenue and offset the dwindling returns from software products, which is effectively another way of seeking a competitive advantage through specialisation in services. What hypothetical model of Maltese IT SMEs’ entrepreneurial activity can be developed for better policymaking and funding support? Figure 6 represents the theoretical model of the Maltese specialising IT firm as it emerged from the findings. The red circled zones indicate weaknesses or even strengths that could merit ad hoc policy intervention co-funded through the ERDF and other funding programmes such as the European Social Fund. Convergence between product-orientation and service-orientation through cloud delivery models is a key feature of the model. It epitomises the tension between these two modes of perceiving software caused by the disruptiveness of the cloud. It also represents an opportunity to improve financial performance of the firm without diminishing the value of IP if at the core of the service there is a product (Cusumano, 2008). In doing so the firm would be improving its value proposition to its clients through the avoidance of up-front licence-fees, rapid provisioning, flexibility and scalability of the service (Zissis & Lekkas, 2012; Subashini & Kavitha, 2011). Figure 7 models the process of entrepreneurial discovery that occurs within the firm as it has been observed and analysed in the case study.
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Figure 6: The emergent model of the Maltese specialising IT SME showing the main zones of potential policy intervention
Figure 7: A hypothesised model of “entrepreneurial discovery” within the specialising Maltese IT SME
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Alexander Borg and Christopher Middup The top half of the model reflects a complex stage during which the firm endeavours to make sense of the environment, identifying opportunities of various forms and then taking decisions on how to address them through the selection of resources and the avoidance of risk. The outcome of this discovery process is newer and richer creative insights used to decide whether a sales lead could be satisfied through a custom project (therefore a service charged at time and material), or could eventually lead to the creation of IP through some investment in R&D (or simply innovation) to develop a new or enhanced software product. The bottom half of the model represents an abstraction of that part of the cycle where specialisation takes place. Regardless of whether it would lead to either a software service or software product, it is another complex stage that entails knowledge build-up and potentially an enhancement of the firm’s competitive advantage in an existing niche or new emerging area of specialisation.
6. Concluding comments Even if smart specialisation is firmly grounded on the notion of rationally planned R&D investments that exploit critical masses of knowledge and expertise (hardly possible in Malta), and therefore by implication a bias towards software products, the study has revealed that island status and the absence of a marketable hinterland are not insurmountable obstacles for software service firms that wish to discover new areas in which to specialise, productise and eventually internationalise. This was revealed in the way owner-managers use custom projects that service a local client, to specialise and gain a reference for further business. It is plausible to conclude that when this happens the project constitutes a testing ground for the firm to ideate, productise and, if the conditions are right, internationalise. The latter would follow a strategy and evolve into a business model of its own involving ad hoc collaborations with partners in the target market. If by smart specialisation, the EU means an interconnected funding framework which creates the right conditions for owner-managers to discover new specialisations to enter new markets, this research has revealed that the firms investigated still succeeded in their venture without RIS3 being yet in place. It therefore remains to be seen whether implementation of smart specialisation in micro countries or regions would present additional or alternative strategic options for young and new technology companies, particularly in today’s globalised context where concentrations in a conventional geographical sense are starting to become superseded. It is then ultimately up to the interpretive capability and willingness of regions and Member States to convey a cross-boundary and pan-European dimension to smart specialisation which can make all the difference (European Commission, 2014). This then will not only matter to software SMEs, but also to other technology firms.
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Inter-Organizational Network Management in an Innovation Context: Combining ego and Whole Network Perspective Jan-Patrick Cap1, Erik Blaich1, Holger Kohl2, Ariane von Raesfeld3, Rainer Harms3 and Markus Will1 1Fraunhofer Institute for Production Systems and Design Technology, Germany 2Technical University of Berlin, Germany 3University of Twente, The Netherlands
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Abstract: Although there is growing interest into the research field of inter-organizational innovation networks, few attempts have been made to develop systematic methods for the active management of such networks. This is especially true for approaches combining the view of single actors and the network as a whole. In response to this gap, this research presents a new method for the management of inter-organizational networks that can help to increase innovation outcome. The introduced approach accomplishes two goals. Firstly, it provides guidance for the measurement of the current collaboration status of a network, its optimal future collaboration status and the gap between them. Secondly, it provides systematics for the development of clear network management strategies for each network actor for closing this collaboration gap. As a result, better exploitation of existing collaboration potential is expected to increase innovation output. The method builds upon work by Kohl et al. (2015) who approached network management on a whole network level providing a solution for the management of entire networks and Ojasalo (2004) who suggested a network management method taking the perspective of a single network actor on the so called ego level. The novelty value of the presented method lies in the demonstration of how these different levels of network management can be combined. The two levels of analysis are linked through reliance on the same data set. The developed method is demonstrated through a case study. The analysis builds upon a questionnaire asking network actors for an estimation of the current collaboration status and a future collaboration potential amongst them. Social network analysis software was used to calculate network measures such as the level of density and to visualize the network graphically. As a result customized strategies for improving collaboration within the investigated network are presented. Keywords: innovation networks, network management, network assessment, ego network perspective, whole network perspective
1. Introduction There is increasing consensus amongst scholars that collaboration in inter-organizational networks has a very significant and positive influence on innovation (Coleman 1988; Burt 1992; Powell et al. 1996; Rowley et al. 2000; Ahuja 2000; Baum et al. 2000; Reagans and Zuckerman 2001; Tsai 2001; Owen-Smith and Powell 2004; Schilling and Phelps 2007; Raesfeld et al. 2012). Hence, it appears worthwhile to investigate in what way and under what conditions collaboration in networks is beneficial to innovation and how this can be fostered. Interorganizational networks and their impact on innovation has been well researched already, which is documented by a variety of literature reviews dedicated to networks (Borgatti and Foster 2003; Brass et al. 2004; Provan et al. 2007; Ozman 2009; Zaheer et al. 2010; Phelps et al. 2012). The research field of network management on the other hand is relatively young. A first literature review has been published by Huuskonen and Kourula (2012). They note a strong, recent increase in publications concerned with the topic of network management. Still, they conclude that only a very small share of publications has developed concrete methods of network management. In response to this scarcity, the authors of this research have previously presented a network management approach that facilitates the definition of an optimal future collaboration status for inter-organizational networks (Kohl et al. 2014, Kohl et al. 2015a, 2015b). Following, this method will be referred to as Network Collaboration Improvement Method. A gap between the current collaboration status of the network and a potentially optimal future status can be identified via this method. While managers are encouraged to intensify collaboration according to the provided analysis, so far the approach did not provide a detailed strategy on how to reach the defined goal. The current paper suggests how this limitation can be overcome by combining the method with a second network management approach by Ojasalo (2004) labeled Key Network Management.
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Jan-Patrick Cap et al. The Network Collaboration Improvement Method addresses network management on a whole network level, meaning that it is concerned with the entire inter-organizational network and outcomes on the whole network level (Zaheer et al. 2010). Key Network Management as introduced by Ojasalo (2004) discusses how single actors can manage their individual network and thus addresses network management on the so called ego level. Building on these two approaches to network management, the paper at hand discusses the possibility of setting goals for future collaboration in networks on the whole network level, while providing strategies for working towards this goal on the ego level. Thus, the main contribution of this work lies in illustrating how network assessment on a whole network level and network management on an ego level can be integrated. The approach is demonstrated by the means of a case study.
2. Network management Network management is a young research field, which developed during the last three decades. The term ‘network management’ has been increasingly used since a publication by Thorelli 1986 on networks as a form of organizing between markets and hierarchies (Huuskonen and Kourula 2012). Network management may be described as a managerial approach for designing and managing networks (Huuskonen and Kourula 2012). This has also been studied explicitly in the context of innovation networks (Dhanaraj and Parkhe 2006). Huuskonen and Kourula (2012) identify in their literature review six dimensions of network management: (1) management functions, (2) network and management strategies, (3) management tasks, (4) management structures(5) network and management roles, and (6) management capabilities. The paper at hand focuses on the dimensions management functions in terms of identifying partners for networking and forming networks and on network and management strategies in terms of providing guidelines for strategic choices on networking. Its novelty value lies especially in connecting the ego and whole network perspective of network management. Following, the approaches to network management by Kohl et al. (2014, 2015a, 2015b) and Ojasalo (2004) are presented and discussed in the context of these two perspectives. The Network Collaboration Improvement Method as described by Kohl et al. (2014, 2015a, 2015b) suggests a three step process for defining a future target status for inter-organizational networks: !
Assessment of the current collaboration status of the respective network as perceived by its actors.
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Assessment of a potential future collaboration status in five years according to collaboration potential perceived by the network actors.
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Definition of the collaboration gap, meaning the difference between the current collaboration status and the potential future status of fully leveraged collaboration potential.
The result of this three step process is an overview over the network that provides a clear image of how network actors see the current collaboration status of the network, how much they believe collaboration could be extended towards an optimal future status and the difference between these two states. The approach is valuable for goal setting and draws a clear picture of what whole networks and their actors should aspire to. Figure 1 summarizes the approach. Each step is described in more detail as part of a combined approach in section 3.
Figure 1: Network management according to Kohl et al. (2015a, 2015b) on the whole network level
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Jan-Patrick Cap et al. Despite knowing their goal, individual network actors cannot derive strategies from this analysis on how to overcome the identified collaboration gap. In order to provide such strategies, an extension of the method is necessary. A potential candidate for such an extension may be Key Network Management (Ojasalo 2004). Key Network Management as introduced by Ojasalo (2004) suggests a three step process of how single actors can develop strategies for managing their individual networks: !
The focal actor selects other actors to build a so called key network in order collaborate on an identified opportunity.
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One of four basic strategies that recommend different intensities of collaboration is selected for managing each actor of the key network.
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On the operational level methods for managing the actors of the key network are developed and applied.
As a result of the three step process an actor obtains strategies for managing their network contacts. It can be inferred whether to intensify, maintain or abandon certain connections in order to optimize the collaboration within the network. Figure 2 summarizes Key Network Management.
Figure 2: Network management according to Ojasalo (2004) on the ego network level Key Network Management provides a guideline for individual actors on how to manage a key network. It is therefore valuable for network management on the ego level. What it cannot provide is a strategy for setting goals on a whole network level or for managing a whole network.
3. Combining the network collaboration improvement method with key network management: Two level network management The network management approaches by Kohl et al. (2015a, 2015b) and Ojasalo (2004) may be viewed as complementary. The approach by Kohl et al. (2015a, 2015b) describes how collaboration goals can be set on the overarching whole network level, but it is limited in the sense that it does not provide a strategy for reaching this goal. Ojasalo (2004) describes how network actors can take decisions on the individual ego level on how to reach a better collaboration status, but the approach is limited by the fact that it does not consider the impact of the taken decisions on the whole network level. This research suggests combining both to a method that sets goals on the whole network level and provides strategies for reaching it on the ego level. Following, the method will be referred to as Two Level Network Management. The following describes a way in which the two approaches may be integrated and applied jointly. The Two Level Network Management method that results from this combination is constituted by six steps. Each is based on either a single step of the Network Collaboration Improvement Method or Key Network Management respectively or integrates elements from both. While the first three steps rely solely on the Network Collaboration Improvement Method, the consecutive steps rather build on Key Network Management but rely on data gathered in step one to three. Step 1: In a first step the current collaboration status is assessed. This happens on three different collaboration levels. Namely customer collaboration, research collaboration and resource collaboration as defined by Kohl et al. (2014). Customer collaboration is characterized by two or more organizations that target the same customers through joint activities and/or jointly deliver projects to the same customer. Research collaboration is defined by two or more organizations that combine their knowledge and technologies to work together on a research
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Jan-Patrick Cap et al. topic a single organization could not master on its own. Resource collaboration describes two or more organizations that share the same resources (e.g. machinery, human resources, analytics). This classification follows a definition of innovation activities provided by the OECD (2005) which highlights scientific, technological and commercial steps as important elements of the innovation process. Scientific activities are interpreted to take place on the research level, technological activities on the resource level and commercial activities on the customer level. Figure 3 illustrates the three different collaboration levels.
Figure 3: The three collaboration levels according to Kohl et al. (2014) Via a questionnaire the network actors are asked to estimate the collaboration status with every other actor on a scale from 0-10. A value of 0 indicating no collaboration intensity, a value around 5 indicating medium collaboration intensity and a value near to 10 indicating high collaboration intensity. Figure 4 illustrates this. The data obtained from the questionnaire is then interpreted in terms of network density, defined as the percentage of potential ties within the network that have actually been established (Ahuja 2000), and tie strength, defined by the collaboration intensity that two actors perceive between them (Kohl et al. 2015a, 2015b). Ties with a collaboration potential of 3-5 are defined as weak ties, while a collaboration potential of above 5 implies a strong tie. Ties with a collaboration potential of 2 or less are neglected because of being too weak.
Figure 4: Scale of collaboration intensity Step 2: Step 2 basically repeats step 1 but asks for an estimation of future collaboration potential in five years. This step is the basis for the projection of a future collaboration status. Step 3: In a third step the collaboration gap is defined as the difference between the future collaboration potential and the current collaboration status. By assessing both situations as suggested in terms of strength of ties and network density, the collaboration gap can be expressed as the difference between the respective values. Step 4: In the fourth step the key networks of each actor are defined. The Network Collaboration Improvement Method assesses networks on the three different Collaboration Levels customer, resource and research
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Jan-Patrick Cap et al. collaboration. Key Network Management considers different collaboration opportunities. This research suggests combining both by interpreting the Collaboration Levels of the Network Collaboration Improvement Method as collaboration opportunities in the sense of Key Network Management. Thus, one may speak of the collaboration opportunity of resource exchange for example. Key Network Management suggests to rate whether the capabilities of an actor to contribute to a key network are high or low. This is not very specific, since this scale does not allow for intermediate values and no exact criteria are defined of how to assign a potential partner to one of the categories. The 0-10 scale provided by the Network Collaboration Improvement Method is rather suitable for providing a more detailed assessment of the collaboration potential between two partners. Here, a network tie is defined as disposing of a collaboration potential between two actors of above 2 on a scale 1-10. While the Network Collaboration Improvement Method infers tie strength from collaboration potential, the same method may be applied in order to infer an actor’s capability to contribute to a key network. Thus, the Collaboration Assessment Scale can be used as orientation for choosing the actors for a key network. Since a collaboration potential of above 2 on the scale 1-10 was defined as a threshold for defining ties, this can serve as a selection criterion for key networks as displayed in table 1. Table 1: Selection criteria for key networks Opportunity Resource Collaboration Customer Collaboration Research Collaboration
Actor Selection Criteria Mutual future Resource Collaboration Potential > 2 Mutual future Customer Collaboration Potential > 2 Mutual future Research Collaboration Potential > 2
Step 5: In a fifth step strategies are defined for each actor of the considered key network. Here again the combined method relies on data gathered according to the Network Collaboration Improvement Method and on evaluation according to Key Network Management. The assessment of network connections which was used for the selection of actors also serves as a basis for their categorization. Four categories are defined according to the 2-on-2 matrix suggested by Key Network Management (see figure 5).
High
Grow/ Invest
Develop/ Selectively Invest
Low
Maintain/ Manage for Earnings
Abandon/ Manage for Cash
High
Low
Collaboration Potential the focal actor perceives regarding the partnering actor
Collaboration Potential the partnering actor perceives regarding the focal actor
Figure 5: Strategies for the management of key network actors The vertical axis displays values of the focal actor’s perception regarding the collaboration potential with the partnering actor, while the horizontal axis reversely displays values of the partnering actor’s perception regarding the collaboration potential with the focal actor. This is not exactly in line with Key Network Management as introduced by Ojasalo (2004), who suggested rather an evaluation of the match between an actor and a key network, than an evaluation of the match between two actors. The Network Collaboration Improvement Method does not assess the capability of a Key Network to contribute towards the goals of a certain actor. Neither did Ojasalo (2004) define clear measures of how to evaluate this. Instead, this research suggests replacing the value for “capability of a key network to contribute to an actor’s goal” through the collaboration potential that the respective actor perceives regarding another actor. In other words, the vertical
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Jan-Patrick Cap et al. axis still maps the values for the capability of an actor to contribute to the focal actor’s goals (its collaboration potential perceived by the focal actor), while the horizontal axis maps the values for the capability of the focal actor to contribute to the respective other actor’s goals (its collaboration potential perceived by the other actor). Building on Ojasalo (2004) Two Level Network Management suggests that when both sides perceive collaboration potential to be high (values 6-10), a grow/ invest strategy should be followed by the focal actor. When the focal actor sees high collaboration potential in a partner (6-10), while the partner does not reciprocate this estimation and rates the focal actor’s collaboration potential rather low (3-5), the focal actor is recommended a develop/ selectively invest strategy. In the reverse case, when the focal actors sees low collaboration potential (3-5) and the partner rather high collaboration potential (6-10), a maintain/ manage for earnings strategy is recommended according to the model. When both sides assume collaboration potential to be low (3-5), the most suitable strategy for the focal actor is to abandon the connection or to manage it for cash. Step 6: The last step calls for the development and implementation of operational level methods for managing the actors of a key network according to Key Network Management. Since this is highly case specific (Ojasalo 2004), no general recommendations can be given. The actors may consider the areas suggested by Key Network Management: products and services, organizational structure, information exchange, and individuals and take decisions appropriate to the situation. Figure 6 summarizes the Two Level Network Management Method.
Figure 6: Two level network management method
4. Case Study In order to demonstrate the method, an innovation network of 20 research institutes has been analyzed. The collaboration status and potential was rated according to the Network Collaboration Improvement Method. For this purpose questionnaires were sent out to the institute directors. The participants were asked to rate the current collaboration status and future collaboration potential on the described scale from 0-10. Due to a partnership between the investigated innovation network and the Fraunhofer institute -to which three coauthors of this work are affiliated- a response rate of 100% could be reached. The results have been anonymized in order to assure data protection.
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Jan-Patrick Cap et al. Step 1: Assessment of the current Collaboration Status In a first step the current collaboration status is assessed according to the Network Collaboration Improvement Method as described by Kohl et al. (2015a, 2015b) through an evaluation of the questionnaire results. For the current network on an aggregate level the result is a level of density of 9%, constituted by 15 strong and 50 weak ties resulting in a strong ties / weak ties ratio of 0.28. Table 2 provides an overview over the network measures, including the individual values of the respective key networks of customer, research and resource collaboration. Data provided for the overall network has been summarized on an accumulated level. The values of the key networks therefore do not add up to the summary values. Table 2: Current collaboration status Level of Collaboration
Current Status Density 8% 8% 12% 9%
Customer Level Research Level Resource Level Summary
Strong Ties/ Weak Ties 14/50 = 0.28 14/51 = 0.27 19/70 = 0.28 15/50 = 0.28
Step 2: Assessment of the future Collaboration Status The assessment of the future collaboration potential follows the methodology of step one. On an aggregate level the potential future network reaches a level of density of 46% and a strong ties / weak ties ratio of 1.39, constituted by 152 strong and 109 weak ties. Table 3 provides an overview over the potential future network, including the key networks. Table 3: Future collaboration status Level of Collaboration Density 47% 46% 45% 46%
Customer Level Research Level Resource Level Summary
Future Potential Strong Ties/ Weak Ties 131/146 = 0.9 140/127 = 1.1 122/141 = 0.87 152/109 = 1.39
Step 3: Definition of the Collaboration Gap When comparing the two network structures the differences are striking. While the current network is relatively sparse and characterized by a high share of weak ties, the opposite is true for the potential future network. Moreover, an evolution of the networks becomes obvious. While the level of density develops very similarly for all three levels of collaboration, the strong ties / weak ties ratio differs across levels in the future network. The ratio took almost perfectly equal values for the current status but the future projection displays a significantly higher share of strong ties for the research collaboration level compared to the resource and customer level. This shows that although the three levels of collaboration seem to be tightly connected, there is still value in observing a network on different levels, since collaboration can evolve with a different intensity according to the area of collaboration. The Collaboration Gap shows the tremendous unleveraged collaboration potential of the investigated network. Strengthening existing ties and establishing new ones according to the analysis must be the goal for the whole network in order to increase innovation outcome. Table 4 displays the collaboration gap in numbers. For example in the customer collaboration network there is the potential for 117 more strong ties, 96 more weak ties and the potential to leverage additional 39% of the theoretically possible maximum network density. Table 4: The collaboration gap – comparing current and potential future collaboration status Level of Collaboration Customer Level Research Level Resource Level Summary
Strong Ties 131 - 14 = 117 140 - 14 = 126 122 - 19 = 103 152 - 15 = 137
Gap (comparing values of current and future status) Weak Ties 146-50= 96 127-51 = 76 141-70 = 71 109-50 = 59
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Density 47% - 8% = 39% 46% - 8% = 38% 45% - 12% = 33% 46% - 9% = 37%
Jan-Patrick Cap et al. Figure 7 seven visualizes current status, target status and gap between them by the means of network graphs. The tool Gephi has been used to create the presented graphs (Bastian et al. 2009).
Figure 7: Network graphs illustrating the collaboration gap Step 4: Definition of Key Ego Networks on Each Collaboration Level Step 4 calls for a definition of the key networks for each actor and each collaboration level. For illustration purpose the example of the key networks of one single research institute will be discussed here. Being an interesting case in terms of diversity regarding the key networks, institute 2 was chosen. Table 5 shows the collaboration potential that institute 2 perceives regarding the other institutes of the network (the first value of each cell) and reversely the collaboration potential that the respective other actor perceives regarding institute 2 (the second value of each cell). Two Level Network Management suggests including actors in a key network with which a mutual Collaboration Potential of 3 or higher has been identified. Value pairs that qualify for integration into the respective Key Network by providing at least this minimum level of collaboration potential are marked light grey, while those that do not are marked dark grey. Table 5: Level of mutually perceived collaboration potential (light grey = sufficient, dark grey = not sufficient) Institute Nr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Resource Collaboration 8/9 x 0/0 2/5 3/5 7 / 10 8/0 7/8 0/0 5/4 4/7 4/9 0/5 0/7 8/3 0/0 3/8 0/5 8/3 0/7
Customer Collaboration 10 / 9 x 5/7 1/6 5/3 5/5 10 / 0 8/5 0/0 5/6 6/5 1/7 1/5 1/7 7/5 0 / 10 6/8 0/7 7/3 5/3
Research Collaboration 9/6 x 7/7 1/4 5/5 8/5 9/0 9/6 2/0 8/6 7/7 6/8 2/6 1/7 5/4 0/0 4/8 1/7 8/5 7/3
Based on an analysis of table 5 institute 2 should currently not include institute 4, 7, 9, 13, 14, 16 and 18 in its key networks, since at the moment there is not sufficient mutual collaboration potential for none of the three collaboration opportunities. Furthermore, institutes 3 and 20 should currently not be included in the resource collaboration key network. Institute 12 should not be considered for the customer collaboration key network. Exclusion from one of the three key networks does not mean that collaboration on the specific topic with a specific partner is out of the question. Especially since key networks need to be reevaluated frequently (Ojasalo 2004) and an excluded actor may be included again in the near future. It merely means that the focal actor
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Jan-Patrick Cap et al. focuses primarily on different partners in the respective context. Following the evaluation of table 5 institute 2 may choose to collaborate in the respective Key Networks with the following actors as displayed in table 6.
Institute Nr.
Table 6: Actors of the key networks of institute 2 Resource Collaboration 1 5 6 8 10 11 12 15 17 19
Customer Collaboration 1 3 5 6 8 10 11 15 17 19 20
Research Collaboration 1 3 5 6 8 10 11 12 15 17 19 20
Step 5: Determination of Strategies for each Actor of the Key Ego Networks The choice of the correct strategy for managing each network actor is based upon the mutual evaluation of the two partners. Actors not included in table 6 have been excluded from the key networks of institute 2. The remaining actors are those that have been selected to be part of the key networks and now need to be managed. When looking for strategies, the matrix derived from Key Network Management is applied (see figure 5). Following the mutual collaboration potential displayed in table 5 and the strategy matrix presented in figure 5, institute 2 can be provided with strategies on how to manage each actor of their key networks. This can be illustrated for instance via collaboration portfolios as demonstrated for the case of resource collaboration in table 7. The partnering actors are represented by the numbers 1 to 20. Table 7: Resource collaboration portfolio
Collaboration potential the focal actor perceives regarding the partnering actor
1, 6, 8
15, 19
Grow / Invest
Develop / Selectively Invest
11, 12, 17
5, 10
Maintain / Manage for Earnings
Abandon / Manage for Cash
High
Low
High
Low
Collaboration potential the partnering actor perceives regarding the focal actor
Table 8 provides a complete overview over how institute 2 should manage its three key networks following the evaluation of table 5. Table 8: Strategies assigned to the management of the individual actors of the respective key networks
Grow / Invest Develop / Selectively invest Maintain / Manage for Earnings
Resource Collaboration Network 1, 6, 8
Customer Collaboration Network 1, 17
Research Collaboration Network 1, 3, 8, 10, 11, 12
15, 19
8, 11, 15, 19
6, 19, 20
11, 12, 17
3, 10
17
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Abandon / Manage for Cash
Resource Collaboration Network
Customer Collaboration Network
Research Collaboration Network
5, 10
5, 20
5, 15
Step 6: Developing and applying operational Level Methods for managing the Actors of the Key Networks Step six is highly case specific and refers to the operational level (Ojasalo 2004). This is where collaboration is executed on a daily basis. It opens up a whole new topic which is too complex to be included in this model in detail.
5. Discussion and conclusion As the impact of networking on innovation has widely been recognized, there is an emerging and hugely unsaturated demand for methods of managing (innovation) networks. This paper presented a new method of network management as way of increasing innovation output. So far network management approaches that set goals for the overall network and provide guidelines to individual actors on how to contribute to those at the same time had been missing. The research at hand suggested bridging this gap by combining two methods that are respectively limited to one of those levels. In conjunction they can add to each other in a way that compensates those limitations. The presented approach connects to a former model of innovation network management by Dhanaraj and Parkhe (2006), who also stressed the role of network structure and the importance of selecting the right actors for innovation networks. Other scholars have likewise suggested methods for rating the actors of a network portfolio that finally can be used for deriving networking strategies (Jüttner and Schlange 1996). This again links to the introduced method and furthermore to the concept of network pictures by Ford et al. (2002), which states that there is no objective network but only different perceptions of it held by its actors. Rating network connections may be viewed as a way of quantifying those network pictures. While the concept of assessing the potential future state of a network numerically is new, the idea of anticipating future network structure and planning accordingly has previously been discussed by other scholars (see Möller and Halinen 1999 and Tikkanen and Renko 2006). Furthermore, the development of specific management strategies for individual network actors has been suggested by previous research, too (Jüttner and Schlange 1996). The discussed case study demonstrated how the two combined methods can indeed work hand in hand, being integrated to a new approach labeled Two Level Network Management. While the presented case has shown how strategies for reaching networking goals can be developed, it is limited in the sense that it cannot provide guidelines on how to implement those on an operational level. This is also true for guidelines for the identification of collaboration opportunities. Further, no measurement of innovation outcome has been considered for controlling for the effectiveness of the suggested innovation network management approach. This calls for further research. Especially practitioners could profit from further elaborating on the operational level of the method. Further, longitudinal research will be necessary to validate whether the developed network management method eventually accomplishes its goal of leading to an improved collaboration status and an increase in innovation outcome.
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How Responsible Innovation Strategies Emerge in Very Small Enterprises: The Case of a Small Wine-Growers’ Cooperative Valérie Ceccaldi Montpellier Research Management, Montpellier University, France
[email protected]
Abstract: Studying strategy development processes organically in Very Small Enterprises (VSEs) allows us to consider the thoughts and visions of entrepreneurs, as well as to understand the role entrepreneurs play in each of the development phases. In a context where chance plays a key role, how new projects intertwine is proof that every decision and every leader’s act has an impact on how an organization evolves. Even if this strategic spiral follows a predefined plan, its realization is surprising given the importance attributed to initiatives and learning. In these conditions, is it possible to envisage innovative and responsible entrepreneurship? It all depends on what projects managers imagine, and on how motivated they are to extend the framework for accomplishing them. The case of the small cellar of Beaucaire1 gives an original managerial exemple of responsible innovation strategy. Indeed, this company, hundred-year-old, atypical by its governance mode since 1960, compound of seven employees, managed to revitalize over a long period (twenty three years) an innovative strategy being, certain times, same, precursory on the vitiviniculture sector in Languedoc-Roussillon2. This light industry specialized in the manufacturing of a table wine " vrac ", managed to develop a sale " in bottle ", directly to the private individual, and to make continue its activity in spite of the successive and deep transform met by this business sector, since 1970. Keywords: strategy, innovation, sustainable development, very small enterprise, entrepreneurship, learning
1. Introduction In order to understand the concept of “responsible innovation” we suggest examining the strategic aspect. We believe that it is by studying how strategies are developed that the formative elements of this concept will emerge. Since the end of the 21st century, it has been confronted more with economic key players who are clients and civil society, and thus players who are more involved in commercialization. This is why business strategies increasingly take into accounts the opinions and remarks of all the key players present. The single circle of decision-makers and suppliers is now broken by a chain of commercial participations and environmental events to which it will be necessary to refer in the future. It is in this context that the “persistent creator” is now found. Today, for entrepreneurs as individuals, implementing innovation means being obliged to engage “their” responsibility (Pavie, 2012) at all strategic levels. To understand the main stages of the radical processing of this small cooperative cellar, we shall be interested at first in the theoretical foundations of the innovation on the VSEs field. We shall explain then the methodology designed specifically for this object-research. Next, we shall approach the strategic peculiarities developed by this light industry, before making their analysis. The observation of the cellar of Beaucaire, allowed us to detail the context of an innovative strategy in very small company, and to seize the impact of leader role during the emergence of each phase of its realization process.
1.1 Sustainable innovation strategies in VSEs: understanding the concept As observed by Pavie (2012), innovation is inherent to humankind. For him, this is not a simple reflection, but well and truly a postulate: man is, by nature, innovative. It thus seems that the characteristics of entrepreneurs as previously described by Verstraete (1999) are reinforced by this last analysis. Sustainable innovation, yes, but for what purpose, and in what manner, also need to be specified. This is why, in this first section, we will cover the theoretical conception of sustainable innovation strategy, before describing the main triggering factors. Observing how a responsible innovation strategy is constructed in VSEs necessarily leads us to take an interest in the history (past and present) of the organization, the nature and visions (present and future) of the key players present, as well as the acts of the directors. This is why we have retained the “crafting” theory of strategy, 1 2
Beaucaire is a small town in the south of France. Languedoc-Roussillon is a french region.
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Valérie Ceccaldi in Mintzberg’s sense of the term (1987, 2004). This approach makes it possible to detail each of the stages because it is a question, in this context, of phase “modeling”. The modeling is carried out in adequation with acquisitions, as well as with all the projected desires of the director. In this way, the modifications or organizational changes that need to be undertaken emerge, and the dynamics of innovation are brought back on track. The concept of “responsibility” will thus be found associated with this major protagonist by the fact that he himself is involved in both public and professional civil society. As Pavie (2012) reminds us, being responsible means “accounting for one’s actions”. However, it is not easy to account for one’s actions when one is not entirely free... The private realm is so completely intertwined with the public realm that individuals find it hard to commit in relation to their values or beliefs without, at some point, being subjected to the consequences. This is why, still according to the same author, “responsibility” must be completely attributed to those who innovate, because we need to be concerned by protection and the well-being of others. According to this principle, and for managers, innovation thus becomes a lever that can trigger “responsibility” (ibid.). In the food industry, between 1998 and 2012, this conception of “responsibility” came into focus when “sustainable development” was implemented as an innovative framework (Temri et al., 2012; Domergue et al., 2012; Touzard, 2008). At that time, Aubertin had already observed the need to combine performance and responsibility as recommended by Pavie (2012), thanks to the paths proposed by sustainable development. “The promoters of sustainable development identified in the figure of the farmer (from his position on site, in situation, in the field so to speak) a natural resource manager who had, or has, reconciled (or should do so) the three essential elements of sustainable development: continuing economic growth, preserving the environment, and promoting social aspects.” (Aubertin, 2006). This theoretical path then led us to consider the definition of managerial innovation, as proposed by Birkinshaw et al. (2008, 2006). Their viewpoint effectively makes it possible to study innovation in terms of a “process”, and to integrate into the analysis the role and impact of the behavior of the directors. But as soon as it was a question of individuals and innovation, the role played by learning seemed, for these entrepreneurs, to be the means for acquiring new information, knowledge and know-how. The final theoretical element taken into consideration lies in the form of the strategy analyzed. To understand this type of formulation, we have returned to the “whirlwind” model developed by Akrich, Callon and Latour (1988) which interprets innovation not in a linear manner but in successive loops. According to these authors, these loops depend on each other as they correspond as closely as possible to the actions of the craftsmanentrepreneur. However, in this entrepreneurial context, innovation cannot take shape without the culture, ethics, values and sense of responsibility of the director. Responsible innovation, as described by Schmid (2012) or Pavie (2012), thus positions the concept of “sustainable development” as a paradigm that structures this research. It represents both strategic opportunity and a long-term investment (Bouvier-Patron, 2011), as well as being the main lever behind entrepreneurial innovation (Berger-Douce, 2011; Aggeri, 2011) in the food industry field (Ceccaldi, 2014; Temri et al. 2012). Innovation, yes, but in what spirit, and what manner? Studying how strategies are developed in the field of entrepreneurial companies’ renders considerably easier understanding of how each stage is modeled. This is for at least two reasons. First, this configuration makes it possible to formulate the strategic vision prior to the action that the director constructs in the course of his reasoning, and, second reason, to dissect the combination of the different stages in the action so as to succeed in defining the process through which he acquired the necessary knowledge (Julien and Marchesnay, 2011; Verstraete, 1999). In this context, the main emergence criteria find themselves mixed up with the decisions of the key player and his behavior in the face of learning.
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Figure 1: The theoretical path
2. Methodology This research project started with pre-exploration, the subject of which was strategic use International Organization for Standardization (ISO) standards and sustainable development by Small and Medium Enterprises (SMEs) and VSEs in the agricultural sector. After going back and forth between the three structures examined and the corresponding literature, we gradually focused our work on the innovation-related issues that arise following standardization, and the tools associated with them (Quality Management Systems (QMS), Environment System Management (EMS), or the invented ones, quality charter, labels, etc.). It was in this context, and because of its particularity, that we chose one of the three companies.
2.1 Selecting the subject of the study In the Languedoc-Roussillon region, wine-growing is a tradition that dates back two thousand years and is one of the region’s main economic activities (verbatims, French Environment Agency (ADEME), Chamber of commerce and industry, 2010-2011; Gavinaud-Fontaine, 2008). Cooperative wineries were created in reaction to a difficult economic situation, and a political environment that encouraged different professions to work together. This case stands out not only because of the complex, traditional milieu from which it originates, but also because of the fact that it is representative of a strategic issue that has persisted over time (Baxter and Jack, 2008). For the elected representatives and both local and regional key players, this case is unique. Its originality lies in the axes of the policies developed, and the energy brought into play to maintain a production activity in the long term in a market context undergoing fundamental change (verbatims, Town council of Nîmes, 2011). First of all, we were struck by their mode of governance. A CEO who manages the activities and employees of a cooperative on a daily basis is not common in the département or even the region. This particular operating method is the result of several internal conflicts which ultimately led to an atypical operating mode for the company itself, but also for the cooperative world (verbatims, Regional Federation of Cooperatives (FRCC), 2011).
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Valérie Ceccaldi Next, the quality management system, in place for twelve years, revealed a strategy based essentially on the search for, and implementation of, innovative, responsible actions of the time, and this, despite the small size. For the experts in the cooperative sector, FRCC, Regional Federation of wine-growing Cooperative Wineries (FRCCV) and Cooperative Institute for Wine (ICV, in french) and the certifying authority AFNOR, this winery is the only cooperative to have used the qualitative method (ISO 9000) over twelve consecutive years. It is also the first to have implemented it, in 1994, in the wine sector (verbatims, Consultant, 2010; ICV, 2013). As for the traditional aspect of the profession, it was enhanced thanks to the polymorphous and polyvalent behavior of the director. This individual, who is very involved in a large number of professional networks, has succeeded in bringing renown to this modest regional activity. The approach of this small industry was formed very quickly as a textbook case. On the one hand, because of its cooperative nature and, on the other, because of the unstable environment in which it has constantly adapted since it was founded, in 1913. From a scientific point of view, and according to the recommendations of Yin (2009), it appears that studying this case may bolster approaches focusing on the strategic and organizational operating of VSEs, all in a context of responsible innovation.
2.2 The data collection protocol The nature of the field, and its research question, made a qualitative exploration process a priority. “The case study method”, to use the term developed by Hlady-Rispall (2002), was chosen for the plurality of the analysis tools and techniques that it recommends. Once formed, this ensemble has helped to transpose the thoughts of the key players, and to understand the past, present and future strategic visions of their organization. Studying this case required more than eighty interviews, based on open-ended and structured questionnaire forms, staggered between 2011 and 2013, and three observations, that we named “accompanying”, based on observational study. One part of these interviews was carried out within the winery itself, and the other with the professional federations, institutions, experts and other establishments with the same activity. Internally, the interviews were carried out with four of the pivotal figures, as previously defined through the key role they play in the operations of a cooperative winery, and their existence prior to 1988. The interviews were also done with employees or members of the cooperative that participate regularly in the activities of the winery. With the help of the pivotal figures, “sociograms” (Mathis, 2003) and “mind or heuristic maps” (Marsollier, 2011, Gueben-Venière, 2011) were designed. The former qualify the nature of the relations between the internal key players, the latter communicate a functional vision of the organization and its future projection. This interpretation process rendered intelligible “the reflection and beliefs of a subject so as to give them their full meaning” (Chabin, 2001). Furthermore, the “historic” approach used in accordance with the simplified method of Smith and Lux (1993) for the period 1988 to 2011 made it possible to understand present actions and to analyze the decisions made once “…the dust has settled on events…” (Begin and Chabaud, 2010). Externally, the interviews were carried out regularly to make it possible to “multi-angulate” all the primary data. Subsequently, all the fundamental elements were once again enhanced by the research done in the archives of the company: the minutes of general assemblies, account books, “quality” reports. These large quantities of qualitative data were content-analized. We mobilized, here, the thechnology by Thiétart et al. (2007), who offer making small thematic categories to analize the contents. In this way, we refined the coding scheme. Finally, observation of the context was based on works on the contemporary history of cooperative wineries in the Languedoc-Roussillon region, initiated by Geneviève Gavignaud-Fontaine (2008), the inventory of the heritage carried out by the Languedoc-Roussillon region (2008) and the doctoral thesis by Julien Granata (2010) on collective strategies in wine-sector SMEs.
3. Emergence of a responsible innovation strategy: Details of how it is implemented Examining the specific history of the regional French cooperative system (in Languedoc-Roussillon) provides a definition and understanding of the particularities of this aspect of the agricultural sector. The elements
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Valérie Ceccaldi collected in this way have revealed different contextual factors which make it possible to analyze the strategies implemented. This is how, for example, the concept of innovation appeared as a reality, in 1976, following dramatic events that occurred in the Aude département. In the 1980s, the need to question and modify both practices and mentalities thus became a necessary act for these professionals aiming for a global market, as reported in the archives and verbatim reports collected during our exploratory stage. Now, the presidents and directors of wine-growing cooperatives must also be entrepreneurs in the sense give to the term by Schumpeter (1999). In addition, these cooperative entities are composed of human beings who manage their respective farms. This study thus reveals that directors of cooperatives must be versatile, that is, as at ease in the field of enology as in accounting, marketing or public relations, etc. In light of the results, to develop a responsible innovation strategy and maintain it in the wine-growing sector, it is necessary for directors to have an “atypical” profile. On the one hand, they must have an entrepreneurial spirit and behavior and, on the other, enjoy the legitimacy of their peers and the admiration of their entourage.
3.1 The directors’ learning process as a determining factor in responsible innovation The research thus revealed, on the basis of the character traits and aptitudes of the director, that it is also his moral values and personal history that play a part in the “modeling” of each stage in the strategy (which is thus deliberately designed). The future vision that he has forged for the company has been structured in relation to his beliefs, as well as on an audit that he carried out personally prior to taking up his position. In the economic situation of 1988-90, this director, who is both president and director, believed that only an innovation strategy would be beneficial for the development of the winery. Furthermore, he specified that “to make the activity of a (wine) cooperative sustainable, it was necessary to be the first to innovate”. Conscious of the investment that this represented for the company and the employees, and the responsibility that he must take on in the name of the members of the cooperative, he decided to implement within the company, “a quality management system” (the foundation of sustainable development). This managerial tool thus helped him to encourage transparency with regard to the strategy developed, and provoked a wide range of ideas and projects from all the key players involved. As for the “quality” axis, it highlighted the desire of this director to take into account on the one hand the needs and requests of the clients, suppliers or other partners and, on the other, to make the activity of the winery a regional example, particularly based on environment-friendly practices such as ISO 14000 and solar panels. Managing this type of strategy means that the director must organize surveillance, via information networks, that help him to look for and find any ideas or means that can answer his questions or solve his problems. To do so, “you have to know how to build up a network of contacts,” stresses the director, because “if you stay in your winery, if you don’t have a network, if you don’t go out and look for information, you’re dead,” he insists. It is through this search for solutions and because he “observes a lot, listens attentively to others and asks lots of questions…” that he was able to create the opportunities needed for his business project, his “vision”, to evolve. This quest for knowledge obliged the director to learn. His learning came through the intermediary of professional and personal networks, and supported him from 1988 to 2011 (the duration of his mandate). The results observed qualified his path as “learning through ideas and actions”, essentially because of his character (“I have a new idea every day”), and observation of the successive projects deployed. He thus brought dynamism to both the search for an idea and the obligation to act in order to find the best solution. Each action thus needs the appropriate learning process. Fourteen phases were identified in the course of the 23 years under his governance. These phases naturally corresponded to the operating characteristics of a cooperative winery in this sector of activity, but the chronology noted was in relation to the strategic decisions made one by one by the director. Although here it is a question of a cooperative system, the development of the strategy depended essentially on the learning phases of its director. In this case, it became the strategic driving force for the responsible innovation, and each project to be designed was thus “modeled” in relation to who he is – an entrepreneur who
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3.2 3.2Committed, responsible innovation in the form of whirlwind phases The individual strategic visions of three other pivotal players, those of the Cellar Master, the Consultant, and the Vice-President, confirmed the actions and polymorphous, versatile profile of the director. In the course of this long mandate, this character left no one indifferent with regard to his reflections and decisions. Some followed him without hesitation, such as the Cellar Master and the Consultant, whilst others were violently opposed, such as the Vice-President. But regardless of their personal positions, all four described a “common” opinion of the vision which, according to them, was the best suited to the situation of the winery. This situation must have as its foundation the centrality of the role of “President” (as they all call him), the quality of the products and manufacturing processes, the need to anticipate the actions for innovation at regular intervals, and the formalization of the work using management tools such as the ISO standards (14000, 22000, etc.). It is in the light of these last results, and whilst detailing the director’s learning process that the phases of the responsible innovation strategy emerged. Using the fourteen pedagogical phases, 8 radical and incremental innovations for the winery and the sector of activity were identified. Since 1980 Quality and globalization, the keywords for economic development in the wine industry From 1984 to 2000
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for the grape variety Cabernet Sauvignon 2. Creation of the sales tool promoting the local terroir
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8. Installation of solar panels
Figure 2: The emergence of responsible strategic innovation loops The schematization of the 8 innovation loops aims to transpose the “spiral” dynamics followed by this “achieved” strategy. This process, with its “whirlwind” style, indicates that each of the phases – or loops – could only be completed once the other actions had been completed successfully beforehand. One example: the rosé wine, “des dames” (loop n°7). It could only be produced in 2008, once the trade name had been registered (loop n°6), or the packaging specific to the winery had been organized (loop n°4), or once the ISO 9002, 14001 or
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Valérie Ceccaldi 22000 standards had been implemented, thus producing a quality wine that respects the environment (loops n°3 and 5), etc. The dynamic of this responsible innovation strategy lies in the link and repeated succession between the many projects and their multiple actions, whether they have been completed or not. Although the strategy was outlined broadly, and thus “thought out”, it was also put together, step by step, in an “emerging” manner, following the evolution in each of the objectives envisaged. Over the course of all these years, the only aim of this small company seemed to be the survival of the activity, and its main driving force was the pigheaded desire of the director to “always be the first to innovate”. Using a quality management system (ISO 9001), implementing the framework standards (14000, 22000), and installing solar panels prove that this director is concerned about the evolution of the organization, and that he listens to his clients and suppliers. It also shows that he is concerned about the environment. He feels “responsible” because, he says, his “motivation lies in satisfying the general interest”. By retaining the originality of the managerial operating mode of this small structure, the research responded to some of the questions evoked by Domergue et al. (2012), on the subject of the reality of the director’s role in innovation. The research also showed that it was indeed the official determining factor for innovation in these small establishments. Only, to maintain the emergence dynamics of innovation – that is, ensure that the loops repeat and renew themselves – there must necessarily be permanence in this virtuous context. This work discovered that to stimulate this whirlwind movement, it must be composed of five major parameters. The first is a director with a visionary nature (Julien and Marchesnay, 2011; Verstraete, 1999) and a broad sense of responsibility (Pavie, 2012). He is both the trigger for, and driving force behind, innovation. The second focuses on the involvement of all the key players, whether they are in agreement or not. The third specifies that the protagonists must create and activate professional networks. The fourth encourages the implementation of modifying projects that perpetually generate oppositions and contestations. Finally, the fifth parameter reminds us that both individual and organizational learning must be present continually. The method designed and used authorizes another scientific approach to studying responsible innovation strategy. It thus proposes a new observation angle, giving innovators themselves the chance to speak out.
4. Conclusion The theoretical part drew the context of a VSE in innovative situation and positioned the role of the leader as determiner at several levels of the process. It allowed to organize the empirical work, mainly, around the actions of the leader … of its reflections. Studying the conception of a strategy in VSEs gives a precise idea of the management style that is used within the organization. It is true that their small size makes exchanges between the key players easier, and this has often led people to believe that VSEs do not really have a management system. The case presented proves on the contrary that even a small company composed of just 7 people knows how to organize itself, and can anticipate the future by being strategically inventive. It is certain that it is the director’s profile that provides the impetus and spirit of the entity. It is also true that depending on his past experiences and values, he will feel more or less committed, more or less responsible, for coordinating a policy that is both in harmony with, and respectful of, the general interest. The main limit which can be glimpsed in this work, lives in the generalization of its results. Can we from a single studied case, in a qualitative way, put new scientific foundations? Apparently and for its age (100 years old), this cooperative gave an atypical example of functioning, by being, sometimes, even, precursory on its regional business sector. It is still true that this research has identified several phenomena. First, it has provided details regarding the nature of a VSE’s capacities. It has also shown how a small business model manages to structure this virtuous framework for responsible innovation. Finally, our research has described managerial dynamics that help make a business sustainable. By allowing the main key players to express themselves, the various reflections and visions emerged in the course of the interviews. And it was by studying their representations and comments that the strategy was composed. This new input of knowledge makes it possible to envisage innovation from a responsible point of view at the level of entrepreneurship. It can also propose a strategic model for small organizations that hope to implement innovative projects.
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Cooperation vs. Firm-Based Innovation: A Sectoral Comparison in Portugal Marisa Cesário1, Sílvia Fernandes1 and José Barata2 1Faculty of Economics, University of Algarve, Portugal 2School of Economics and Management (ISEG), University of Lisbon, Portugal
[email protected] [email protected] [email protected]
Abstract: In today’s knowledge-intensive economies, the enterprises can have a strong economic and social influence as “market protagonists”. Facing today’s economic instability they ought to provide a constant stream of innovations to clients. Researchers suggest that firms can reshape the market through their innovations, for which can contribute some external expert knowledge. The process of developing an innovation may imply three types of approach: make; buy or cooperate with other agents to acquire specific competences or knowledge. This last occurs when the firms’ internal knowledge or skill-base is not sufficient or effective and is conveniently complemented with external sources. Firms’ cooperation, among them or with clients or other stakeholders, and its potential for innovation is not new. In this paper, our aim is to identify the sectors more willing to engage in cooperation initiatives in order to accomplish innovation. Thus, this paper is structured as follows: Introduction; 1. Literature Review (Innovation and its assets; Disclosing the process of innovation; Open innovation; Cooperation for innovation); 2. Research Design (The CIS instrument; Sampling); 3. Results (The nature of the innovation process by sector: cooperation-based vs. firm-based; The scale and scope of cooperation); Concluding Remarks. Using descriptive statistics, the first step will be to identify the sectors more willing to engage in cooperation initiatives in order to accomplish innovation. Secondly, for those sectors a more detailed analysis on the scale and scope of cooperation is developed. For this study a secondary dataset was used from the CIS-2012 (DGEEC, 2014). The CIS, operation acronym in the Eurostat for Community Innovation Survey, is the main statistical survey (mandatory for EU member states) on innovation in companies. The universe contemplates Portuguese companies with 10 or more employees belonging to the NACE codes. The INITIAL sample consisted of 9423 companies. 6840 valid answers were considered. Keywords: process of innovation, open innovation, cooperation for innovation
1. Introduction The process of developing an innovation may imply three types of approach: make; buy; or cooperate with other agents to acquire specific competences or knowledge. This last occurs when the firms’ internal knowledge or skill-base is not sufficient or effective and is conveniently complemented with external sources. Several studies on innovation support that firm’s boundaries require porosity in order to absorb knowledge and capabilities from the external environment. This can provide an extensive variety of ideas, opportunities, sharing of costs and resources. In this paper, our aim is to identify the sectors more willing to engage in cooperation initiatives in order to accomplish innovation. In Portugal, due to the crisis and other factors such as a weak institutional supporting structure (‘InnoStruct’ - Filippetti and Archibugi, 2011), it is more difficult for enterprises to maintain a competitive advantage only through internal R&D. Given the dynamism and complexity of the environment, enterprises need to complement their internal resources and capabilities with ideas from outside interacting with a wide range of actors. This contribution to internal R&D can give enterprises access to complementary assets, needed to turn an invention into a successful product or service (Teece, 1986). Thus, many firms seek external expert knowledge in order to compete in a dynamic and fast changing market and achieve business success. Regarding these initiatives, it is interesting to analyse if Portuguese firms complement their internal R&D with external sources, and which ones, according to their sector of activity. Thus, this paper is structured as follows: Introduction; 1. Literature Review (Innovation and its assets; Disclosing the process of innovation; Open innovation; Cooperation for innovation); 2. Research Design (The CIS instrument; Sampling); 3. Results (The nature of the innovation process by sector: cooperation-based vs. firm-based; The scale and scope of cooperation); Concluding Remarks.
2. Literature review 2.1 Innovation and its assets Innovation and its external vs. internal assets are the main subject of this research (cooperation vs. firm-based innovation and sectoral patterns). Innovation is a theme of interest for researchers in different business and
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Marisa Cesário, Sílvia Fernandes and José Barata management disciplines such as strategy, information technology, marketing, operations management, entrepreneurship or even engineering and product design. A definition of innovation common to all of these areas is not easy. As Damanpour and Schneider (2006) state, “innovation is studied in many disciplines and has been defined from different perspectives” (p. 216). Addressing this ambiguity, due to a high number and diversity of innovation definitions, Baregheh et al. (2009) proposed both a diagrammatic model and a simple textual definition which mutually acts as a foundation for summarizing the meaning of innovation: “Innovation is the multi-stage process whereby organizations transform ideas into new/ improved products, services or processes, in order to advance, compete and differentiate themselves successfully in their marketplace” (p. 1334). It is important to mention that it can only be considered an innovation when the enterprise develops an invention that is introduced in the market and is commercialized bringing economic return to the firm (Kuznets, 1962).
2.2 Cooperation for innovation In the process of developing new products/services it becomes essential to perceive the significance wielded by external agents as a source for innovation projects. Nowadays, firms cannot rely solely on their R&D departments as they need to balance internal resources and capabilities with ideas from beyond their boundaries, and interact with a large choice of players within the innovation system. This concept is the main support of the “open innovation” model (Chesbrough, 2003a,b). Open innovation is defined as: "…the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the market for external use of innovation, respectively" (Chesbrough et al., 2006: 2). The process of developing an innovation normally implies two types of strategy: generate knowledge in-house (make) or purchase it (buy) (Veugelers and Cassiman, 1999), nevertheless, in recent times theorists have detected a third strategy for acquiring knowledge – Cooperation in innovation with other agents (Navarro, 2002). Strategy authors have demonstrated that agents from outside the enterprise constitute a significant resource in actual competitive framework, especially in the development of new products and processes (Penrose, 1959; Teece, 1984; Barney, 1991; Peteraf, 1993). The enterprise’s intention to cooperate with other agents in innovation activities is impelled by the fact that it is an efficient way to improve the chances of success on the development of differential products or services (Becker and Dietz, 2004; Abramovsky et al., 2005, Sampson, 2007). Besides, enterprises that are highly internally focused, not opening themselves up to external networks and relationships may miss a lot of opportunities (Chesbrough, 2003a; Laursen and Salter, 2006). Hence, in the development of innovations the decision to cooperate with other agents is important (Mowery and Rosenberg, 1989) since it will enhance the enterprise’s learning capabilities. However, literature states that the enterprises performance depends on their ability to locate, absorb and exploit these sources in a productive way (Cohen and Levinthal, 1990). Several factors support the firm’s decision to cooperate considering that it allows to share expenses and uncertainty, exploit synergies, scope or recognize economies of scale, as well as to benefit from government support (Veugelers and Cassiman, 1999; Becker and Dietz, 2004). Given these advantages of cooperation, if the concept of innovation among firms has been introduced in an industry, non-participation will be acknowledged as a competitive disadvantage (Enkel et al., 2009). The innovation process may involve external sources from different origins, ranging from clients, suppliers, universities, to competitors as well as other agents (von Hippel, 1988, 2005; Powell et al., 1996). Essentially, innovation sources are divided in two types: internal and external. Table 1 shows a more detailed picture of these sources. The internal type comprises the innovation activities carried out within the enterprise: R&D, marketing and production departments. The external are related to: (1) market sources such as customers and users, suppliers (materials, equipment, software, etc.) competitors, consultants and experts, other sources such as commercial laboratories or technological parks, (2) educational and research sources (universities and research institutes) and (3) public available information (conferences, fairs/exhibitions, journal and magazines and patents). Table 1: Sources of innovation Internal
External
R&D Department
(1)Market Customers and users Suppliers
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Marisa Cesário, Sílvia Fernandes and José Barata Internal
External
Competitors Consultants and experts Others (2) Educational/Research Universities Research institutes
Marketing Department
Production Department
(3) Public available information Conferences Fairs /Exhibitions Journals, Magazines Patents
Source: Own elaboration It is clear that enterprises have at their disposal a wide range of agents to cooperate in their innovatory effort, yet, decide which one(s) to cooperate with, depend on the ability to identify the type of agent that can better satisfy their internal needs and improve their competitive advantage. 2.2.1 Customers Customers can be the cooperation agent with greatest impact on the intensity of innovation activities, somewhat because, just like the suppliers, it is vertical or non-competitive cooperation. The success of product innovations in public sector institutions is also highly related to cooperation with customers (Freel and Harrison, 2006). This external partner is an important source of knowledge because its inputs help firms to identify new ideas about products and solutions (Urban and Von Hippel, 1988), comprehend customers’ needs, and identify new market trends in advance (Li and Calantone, 1998). For example high-tech industries benefit from customers contribution particularly to learn about technological trends and develop superior products. (Atuahene-Gima and Ko, 2001; Brettel and Cleven, 2011). Some firms invite customers to participate in the innovation process, most frequently in the design of the next new product, for example, the online Lego DesignbyMe tool (von Hippel, 2005). Regarding complex technologies and / or products this external source provides particularly valuable information (Tether, 2002). The similar principle applies when the product presents a high level of novelty (Amara and Landry, 2005). 2.2.2 Suppliers The relationship between suppliers is normally considered as vertical or non-competitive cooperation. It is a fact that enterprises have increased their relationships with their suppliers from the eighties onwards mainly because of Japanese car and electronics success relationship in the innovation development (Bidault et al., 1998). According to Håkansson and Eriksson (1993), suppliers are base factors of business. These players can be a source of innovative ideas and critical technologies considering that suppliers have specific knowledge and competencies not to mention that they are always interested in improving relationships with their clients. In countries like the United Kingdom and the United States, large enterprises that choose to downsize and concentrate on core competences, have increased their collaboration with these agents to guarantee a supply of quality inputs. The high degree of efficiency attained is one of the main reasons for cooperating with suppliers in terms of innovation in new products or processes (Tether 2002; Santamaría and Rialp 2007). Suppliers are also the partners of choice when the enterprise’s objectives have a commercial nature, such as entering new markets or internationalization (Santamaría and Rialp, 2007). These agents, just like customers, assist not only the development of products and processes, quality improvement and market adaptation, but also productivity and flexibility (Chung and Kim 2003). Reduction of production cost is another reason to cooperate with suppliers (Atallah 2002), likewise costs and risks involved in new product development (Chung and Kim 2003). 2.2.3 Competitors Establishing a relationship with competitors is normally referred horizontal cooperation which is not an unusual type of cooperation. Competitors are an external source that can be involved in the innovation process (von
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Marisa Cesário, Sílvia Fernandes and José Barata Hippel, 1988, 2005). The knowledge generated by these agents can easily be accessed and exploited by firms that do not hold a high level of internal technological competence (Cohen and Levinthal, 1990). This type of relationship is quite appealing, considering that it contributes to intensify international competitiveness in enterprises, industries and countries and to solve issues associated to market failures and its technological deficiencies (Harabi, 2002). Relationships with competitors involve, on the one hand a reduction in investment risk and market uncertainty, and on the other, sharing of costs when enterprises initiate their R&D activities (Harabi, 2002). According to Von Hippel, enterprises copy and improve products and processes by learning from their competitors, and through know-how exchange as well (Von Hippel, 1988). 2.2.4 Consultants and experts Enterprises tend to seek alternative sources of knowledge and information when the development of innovations is affected, in particular when it is not going as fast as needed or does not correspond to the enterprise expectations. In this context, consultants and experts are a suitable solution (Tether, 2002). These agents are a source of specialized knowledge and skills that provide a wide range of valuable inputs for innovation development. Consultants and experts render possible experience sharing, concerning the definition and articulation of specific innovation needs, offer ideas on new needs and solutions, or even idea transfer among enterprises (Bessant and Rush, 1995). Besides, these agents can bring to the enterprise different points of view, as they are not familiar to the enterprises products and processes, since the enterprise staff can sometimes be an obstacle to new ideas. Thus, the contributions brought by these types of agents encourage a growth in the number of effective innovative ideas (Bruce and Morris, 1998). 2.2.5 Universities and research institutes The most common form of partnership is cooperation with scientific agents particularly in science-based firms (Castro and Fernández, 2006). Universities and research institutes have a main role in the development of technological innovations contributing to new scientific and technological knowledge (Drejer and Jørgensen, 2005). This type of collaboration does not bring any type of commercial risk, unlike cooperation with competitors, inasmuch as these agents are focused in generating R&D knowledge of a basic or generic nature, and not introducing it in the market (Miotti and Sachwald, 2003). Cooperation with Universities is a way of sharing costs and exploit knowledge which is available to public (Veugelers and Cassiman, 2005). Universities as well as their research institutes are constantly creating and developing scientific knowledge, thus, as research in firms intensifies and becomes very expensive, specialized academic knowledge is brought to balance and complement the firm’s R&D in order to gain access to rising technologies (Tidd and Trewhella, 2002) and achieve technological discovers that lead to viable commercial products (Spencer, 2003). Probably, one of the reasons why enterprises chose this source may be to benefit from public funds destined to research (Davenport et al., 1999; Cassiman and Veugelers, 2002; Miotti and Sachwald, 2003; Fontana et al., 2006). It is quite usual for policy-makers the encouragement of the relationship between enterprises and research institutes as a mandatory requisite to subsidize projects with public funds. Although cooperation with these agents is very important, enterprises must have an important in-house R&D capability in order to absorb scientific knowledge generated (Cohen and Levinthal, 1990).
3. Research design 3.1 The CIS instrument and sampling For this study a secondary dataset was used from the CIS-2012 (DGEEC, 2014). The CIS, operation acronym in the Eurostat for Community Innovation Survey, is the main statistical survey (mandatory for EU member states) on innovation in companies. European Union employs this main statistical instrument to monitor Europe’s progress in the area of innovation, which is conducted by national statistical offices. In Portugal, following the methodological recommendations of Eurostat, the CIS aims to directly collect information on innovation (product, process, marketing, and organizational) in companies based in Portugal. Data collection,
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Marisa Cesário, Sílvia Fernandes and José Barata corresponding to the period of 2010-2012, was performed between June 3 and March 14, 2014 through an online electronic platform. The universe contemplates Portuguese companies with 10 or more employees belonging to the NACE codes (economic activities, see Table 2). The sample consisted of 9423 companies, based on census combination (for companies with 250 or more persons employed) and random sampling for other companies. Of the 7995 companies of the corrected sample, 6840 valid answers were considered, corresponding to a response rate of 86%. The CIS instrument provides useful information on how firms interrelated with its surrounding external environment in order to access information considered important for the development of new innovation projects or the completion of existing ones. Firms may use external agents as information sources or engage in more formal cooperation activities, meaning their active participation with other enterprises or institutions on innovation accomplishments. Table 2 gives the sample distribution by sector in CIS 2012 instrument. Table 2: Sample distribution by sector NACE REV3 7–9 10 – 12 13 – 18 19 – 25 26 – 27 28 – 33 35 – 39 42 – 43 46 – 53 58 – 63 64 – 75 86
Description
Number of firms
Percentage
Mining and quarrying Food, beverages, tobacco Textiles, wearing, leather, wood, paper, printing Coke, chemicals, non-metal, metal products Computer, electrical equipment, optical product Machinery, transport equip, furniture Electricity, gas, water supply, sewerage, waste Construction Wholesale, retail trade, transportation, storage Information, communication Financial, insurance, legal, accounting, others Health Total
73 323 889 1436 144 808 284 36 1642 376 735 94 6840
1,1 4,7 13,0 21,0 2,1 11,8 4,2 ,5 24,0 5,5 10,7 1,4 100,0
Source: Own elaboration based on CIS 2012 data
3.2 Conceptualisation and research questions 3.2.1 Product (good or service) innovation The CIS instrument considers that product innovation occurs when a firm introduces to the market a new or significantly improved good or service with respect to its capabilities, technical specifications user friendliness, components or sub-systems. Improved good or service does not need to be new to the market; however it must be new to the firm and it should not matter if it was originally developed by the firm or by other external partners. It is considered that product innovation occurs if the firm answered positively to one of those two questions in Table 3. In consequence these two variables were transformed into a single variable named product/service innovation (INOV_PRD_SRV) with a 0="No";1="Yes" codification. Table 3: Variables for product/service innovation Product/Service Innovation Survey Questions Variable INPDGD INPDSV
Description During the reference period, did your firm introduce new or significantly improved goods? During the reference period, did your firm introduce new or significantly improved services?
Source: Own elaboration based on CIS 2012 data
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Codification 0 = "No";1 = "Yes"; 0 = "No";1 = "Yes";
Marisa Cesário, Sílvia Fernandes and José Barata 3.2.2 Process innovation Process innovation occurs when a firm implements a new or significantly improved production process, or new and significantly improved methods of supplying services, or supporting activity (in Table 4). Purely organizational or managerial changes are excluded. This innovation does not need to be new to market; however, it must be new to the firm not mattering if it was originally developed by the firm or by other external partners. Table 4: Variables for process innovation Process Innovation Survey Questions Variable
Description
Codification
INPCME
Did the firm introduce new or significantly improve methods of manufacturing or producing goods or services?
0 = "No";1 = "Yes";
Did the firm introduce new or significantly improve logistics, delivery or distribution methods for your inputs, goods or services? Did the firm introduce new or significantly improve supporting activities for your processes, such as maintenance systems or operations for purchasing, accounting, or computing?
0 = "No";1 = "Yes";
INPCLG INPCSU
0 = "No";1 = "Yes";
Source: Own elaboration based on CIS 2012 data It was considered that the firm really implemented a process innovation if it answered positively to one of those three questions. Therefore, these three variables were transformed into a single variable named process innovation (INOV_PROC) with a 0="No";1="Yes" codification. Innovation rates are given by the ratio between the number of innovative firms (the ones implementing a product or process innovation) and the total number of sample firms.
3.3 The nature of the innovation process Firms were asked about the way product and process innovations have been developed. To the question: “Who developed the innovation”, four possible answers were available: (1) The firm; (2) The firm in cooperation with other firms or institutions; (3) The firm adopting or modifying goods or services originally developed by other firms or institutions; (4) Other firms or institutions. In this paper, our aim is to identify the sectors more willing to engage in cooperation initiatives in order to accomplish innovation, so we distinguish between “Cooperationbased innovators” (firms responding 2) and “Firm-based innovators” (firms responding 1 or 3). Table 5 gives the frequencies for these variables (with a 0="No"; 1="Yes" codification). The percentages indicate the proportion of firms with positive answers. Table 5: Who developed the innovation? Product Innovation Goods Services
Who developed the innovation: (1) The firm (2) The firm in cooperation with other firms or institutions (3) The firm adopting or modifying goods or services originally developed by other firms or institutions (4) Other firms or institutions
Process Innovation
19.4%
14.3%
26.0%
10.3%
9.2%
18.7%
5.3%
5.2%
6.7%
3.2%
3.5%
6.5%
Source: Own elaboration based CIS 2012 data Table 6: Cooperation-based vs firm-based innovation Innovation rate
Coop-based innovation
Firm-based innovation
Product Innovation
33%
16%
28%
Process Innovation
40%
19%
29%
Source: Own elaboration based on CIS 2012 data
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Marisa Cesário, Sílvia Fernandes and José Barata In relative terms, we note a slight tendency for process innovation rely more on cooperation (but the association is not significant according to the chi square test). The review of the literature suggests the importance of external linkages, recognizing that small firms are frequently fragments of extended networks with different possible partners and geographic scales. By accessing other markets, assets and economic agents, firms not only release themselves from the limits of local and internal competences, but are also aware of new and more demanding market conditions that constitute a stimulus to innovation. In the scope of the present paper, a sample of Portuguese firms from CIS 2012 was used. Firms’ cooperation dynamics were assessed by observing their behaviour regarding the use of partners of cooperation for the development of innovative activities. According to these considerations, the following research questions were addressed in this paper: RQ1: Which sectors are more willing to engage in cooperation initiatives in order to accomplish innovation? RQ2: Which is the scale and scope of the cooperation developed?
4. Results: A synopsis 4.1 The nature of the innovation process by sector: cooperation-based vs. firm-based Based on the previous conceptual framework, the following figures provide a visual diagnosis on the nature of the innovation process, by sector. Besides identifying the sectors more willing to engage in cooperation initiatives in order to innovate, these graphics also allow to compare the nature of the innovation process (firmbased or cooperation-based) by sector and the nature of innovation (product or process). Regarding product innovation (Figure 1) the results show a slightly inferior incidence of cooperation-based innovation when compared to firm-based innovation, regardless the sector. Firms tend to be more cautious and reluctant to cooperate when it concerns the exposure of potentially profitable new products (Tether, 2002).
Figure 1: Product innovation: cooperation vs. firm-based innovation by sector Bubble size based on product innovation rate Source: Own elaboration based on CIS 2012 data A slightly different sectoral behavior is observed when considering process innovation (Figure 2). The health sector is, in this case, the one with a higher incidence of cooperation-based innovation, but contrarily to what happens with product innovation, in the case of process innovation this sector presents slightly more innovative initiatives based on cooperation than firm-based ones. This pattern applies, in minor degree, to construction industry. Firms tend to be more open to collaborate with others when there is no new product involved (Tether, 2002; Cassiman and Veugelers, 2002).
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4.2 The scale and scope of cooperation A higher sectoral desegregation level allows us a better understanding of different sectoral behaviours across the sample. The results show that computer, civil engineering, retail trade, insurance, R&D and human health stand out as the sectors more willing to cooperate when innovating (Table 7). According to the design of CIS, firms may cooperate with different partners: Other firms from the group; Suppliers; Customers; Competitors; Consulters; Universities and R&D Labs. Also, the geographical scale of cooperation may vary, as cooperation can be developed with Portuguese partners, European partners, USA, China/India or others. In general, these selected sectors cooperate especially with universities, R & D Labs, private suppliers and customers. We must, however, refer to the primacy given by “Computer, electrical equipment, optical products” sector to R & D Labs, the “Civil Engineering” sector to Universities, the “Retail” sector to other group companies, the “Insurance” sector to competitors (possibly within business associations). The R&D sector shows a pattern very similar to the Computer sector. The “Health” sector is a supplier dominated sector, with an inherent opening to the public sector as well as a higher propensity to academic collaboration.
Figure 2: Process innovation: cooperation vs. firm-based innovation by sector Bubble size based on process innovation rate Source: Own elaboration based on CIS 2012 data Table 7: Cooperation-based vs. firm-based innovation by sector
NACE code 26 42 47 65 72 86 62
Sector Computer manufacturing, electronic and optical products Civil engineering Retail trade, except motor vehicles and motorcycles Insurance, reinsurance and pension funding, except compulsory social security Scientific research and development Human health activities Consultancy, computer programming and related activities
Product Innov
Process Innov
Prod Innov Coop based
73,6%
67,9%
45,3%
41,5%
62,3%
50,9%
24,0%
56,0%
12,0%
40,0%
16,0%
32,0%
46,7%
73,3%
46,7%
46,7%
40,0%
60,0%
72,7%
67,3%
50,9%
47,3%
58,2%
49,1%
63,3%
56,7%
40,0%
30,0%
56,7%
46,7%
53,2%
54,3%
33,0%
40,4%
51,1%
38,3%
64,6%
52,2%
30,4%
21,1%
63,4%
48,4%
Source: Own elaboration based on CIS 2012 data
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Proc Innov Coop based
Prod Innov Firm based
Proc Innov Firm based
Marisa Cesário, Sílvia Fernandes and José Barata
5. Brief review of findings The first research question was to identify the sectors more willing to engage in cooperation initiatives in order to accomplish innovation. Regarding product innovation the data reveal an inferior incidence of cooperationbased innovation (when compared to firm-based), regardless the sector. Firms tend to be more cautious and reluctant when it concerns the exposure of core ideas and projects (Tether, 2002). In process innovation, the health sector has higher incidence of cooperation-based innovation, followed by construction. Often, process innovation is confused with incremental innovation, a reason why these firms tend to be more open to share or interact with external partners. The second research question referred to the scale and scope of that cooperation. The R&D, Computer and more scientific sectors cooperate with universities and labs. The Retail sector with other firm group, and the Insurance with competitors. And the Health sector is a supplier dominated sector. We acknowledge a traditional set of cooperation partners according the major sector’s dependences for core activities. Some innovation trends are emerging from combinatory innovations, among which are the inter-sectoral creations. Portugal is less mature on this kind of innovation, thus its cooperation patterns are more inner-sectoral.
6. Concluding remarks The theoretical framework of this paper clarified the current and future importance of cooperation for innovation, implemented at the level of customers, suppliers, competitors, consultants and experts, universities and research institutions. The brief presentation of some results for the Portuguese economy served primarily to show the interest of this type of analysis, namely, in establishing a diagnosis that may support innovation public policies. An introduction of analytical data analysis methods (like factor analysis, structural equations and CHAID analysis) to assess the influence of the external environment (information sources and cooperation agents) on the two different types of innovation (product/service and process), will help disclosing further economic, financial, managerial and organisational distinctive innovation aspects. That is the purpose of the current and upcoming work. This paper is financed by National Funds provided by FCT- Foundation for Science and Technology through project UID/SOC/04020/2013.
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She is the Founder: Who is the Emotional Leader? Francesca Maria Cesaroni and Annalisa Sentuti Department of Economics, Society and Politics, University of Urbino Carlo Bo, Italy
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Abstract: In FB research some studies have investigated the position of women involved as successors in the succession process, but very few studies have analysed women as incumbents. Until a few years ago, this issue would have been considered of little importance, given the very small number of women-owned businesses involved in a succession process. However, the increasing quantity of female firms raises questions about the specificities of a succession process from mother to son. This kind of process could indeed be a recurring one in the coming years. Apart from a few exceptions, in analyses of the succession process, women have often been described as mediators between family members, patient wives, mothers responsible for bringing up the future heir, or women living in the shadow of their husbands, fathers, sons, or brothers. An important role in transmitting family and business values to the children has been recognised by women. Women in this role have been defined as "chief emotional officer" (Jimenez, 2009), being that they hold the emotional leadership of the FB. But what happens when a woman, especially a mother, is the main actor of the succession process? Can she also act as emotional leader? Which behaviours reveal that she is acting as an emotional leader? And how does this role affect the outcome of the succession process? To answer these research questions, this paper presents an eight-year longitudinal case study (Yin, 2013). The main character is a woman who founded and ran a business and recently passed the leadership to her son. Results show that even if she was the founder, owner and leader of the business, she never lost her role as emotional leader. This behaviour has proven to be very beneficial for the succession process and business survival. Keywords: family business, women-owned family businesses, women entrepreneurs, succession, mother-son succession
1. Introduction Succession is one of the main research topics in family business (FBs) studies (Sharma, 2004) and most of the research has focused on the traditional succession father-son (Hadler, 1994; Harveston et al., 1997). However, the number of female-owned businesses has slowly but progressively been increasing for several decades in many economies and the binomial “women entrepreneurs and succession” is becoming extremely relevant. For this reason, a new perspective of analysis is deemed necessary. Apart from a few exceptions, women involved in the succession process have often been described as an invisible but crucial character, often without a formal position in the FB, not directly involved in the succession process (Gillis-Donovan and Moynihan-Bradt, 1990). Women often act as a third actor, and play an important role as a mediator, informal coach and consultant (Hollander and Bukowitz, 1990). They manage conflicts, take responsibility for peace and harmony in the family and the firm, and play an important role in transmitting family and business values to the children, teaching them “to love the company” (Jimenez, 2009). To describe this role, some authors introduced the term emotional leader (EL) (Jimenez, 2009) and underlined its relevance during the succession process, because of often difficult relationships between the incumbent and successor and between family members (Fox et al., 1996; Morris et al., 1997; Davis and Harveston, 1999). In this context, women may favour succession by taking care of family’s dynamics. As stated above, in more recent years the number of companies founded and managed by women has been increasing. This means that an increasing number of women are, or will be, involved as the main character of the succession process. For this reason, it is important to wonder if a woman who is passing the leadership to her children can also act as an EL. It’s also important to understand which behaviours reveal that she is acting as an EL and how this role can affect succession process outcomes. To answer these questions, this paper presents an eight-year longitudinal case study (Yin, 2013) of a motherson succession. The paper is structured in four parts. Firstly, the main literature on women’s involvement in FB succession is presented. Following, methodology used in the empirical research and the case study are described. Finally, key results are discussed and main conclusions are drawn.
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2. Literature review In the last few decades many authors have studied FB succession (Sharma, 2004), but most of them have ignored gender issues. Female entrepreneur passing “the baton” (Dyck et al., 2002) has received little attention by both the literature on female entrepreneurship and FB succession. In studies on female firms, most attention has been devoted to business early stages and to factors influencing business growth. These studies mainly examine female firms in the entrepreneurial phase, before entering in the family phase (Cadieux et al. 2002), and so succession is not studied. Research on FB succession generally considers incumbents neutral from the gender perspective, even if they are described with clear male characteristics. Women have not been considered as business founders for a very long time, and female entrepreneurs have been overlooked or tacitly assimilated into the male model. From this point of view, a few exceptions exist. Some authors discuss specific cases of mother-children succession and focus their attention on interactions and dynamics between mother and son (Kaslow, 1998), how succession unfolds when the incumbent is a woman (Cadieux et al., 2002), and differences between father– daughter and mother–daughter successions (Vera and Dean, 2005). Other authors argue that women's characteristics (such as loyalty to the company, concern for other family members, sensitivity to the needs of others, and collegial decision-making processes) are fundamental for a positive outcome of succession (Salganicoff, 1990; Dubini and Songini, 2002). Apart from these exceptions, women involved in FBs have often been described as mediators between family members, patient wives, mothers responsible for bringing up the future heir, or women living in the shadow of their husbands, fathers, sons, or brothers. Hollander and Bukowitz (1990) underline that women are often the third, “uninvolved” leg of a triangle that involves the wife-mother, the founder-father and the son or daughtersuccessor. They act as an informal coach and consultant, resolve frictions and conflicts and take care of the emotional side of the family. As noted by Jimenez (2009), “the most important traditional role that women play in the family has been to take responsibility for peace and harmony in the family and in the firm and to avoid the appearance of conflicts between the relatives who work together in the firm – particularly, the founder and his son”. Women have also been given an important role in transmitting family and business values to the children, teaching them “to love the company” (Jimenez, 2009). In this perspective, women act as external and invisible but crucial actors, namely without a formal position in the FB but with a key role in managing relationships and maintaining the family unit (Gillis-Donovan and Moynihan-Bradt, 1990). Precisely because of this central role, some authors have defined women’s role as "chief emotional officer" or EL (Jimenez, 2009), being that they bear the emotional leadership in the FB (Ward, 2004) by favouring communication and ensuring compassion between family members. This role is even more crucial during the succession process. Difficult relationships and conflicts between the incumbent and successor or between family members (Fox et al., 1996; Morris et al., 1997; Davis and Harveston, 1999) and lack of shared values between old and new generations (Tàpies and Fernández Moya, 2012) are some of the main factors that may undermine the positive outcome of succession. In this context, women may favour the succession process by taking care of the family’s dynamics and relationships. In conclusion, studies on succession considering women as founders, owners and leaders of FBs are very few. Some research has been realised from the end of the Nineties until now, but analyses on this topic are sporadic and very limited. In the studies mentioned above women have been described as a minor character, who only participate from the outside of the succession process. Women are indeed involved as third actors, and despite the importance of the role of chief emotional officer, they are not protagonists, as this role is left to incumbent and successor, typically identified as father and son. But what happens when a woman, especially a mother, is the main actor of the succession process? Can a woman, who is passing the leadership to her son/daughter, also act as an EL? Which behaviours reveal that she is acting as an EL? And how does this role affect the outcome of the succession process? To answer these research questions, in the next part, an eight-year longitudinal case study is presented and discussed (Yin, 2013).
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3. Methodology 3.1 Case selection and data collection Despite the growing interest in the involvement of women in the FB succession process, it’s difficult to obtain a high number of mother-to-son succession cases to use for sample surveys. Precisely because of the low number of female enterprises in the succession phase, succession from mother to son is a little-known phenomenon. This is why, in this paper, we opted for a qualitative analysis based on a single case study (Eisenhardt and Graebner, 2007; Miles et al., 2014). It allows us to investigate this phenomenon by giving voice to those living an experience – in this case mother and son involved in the succession process. The main character is Maria Toni, an Italian woman who founded a small business 50 years ago and recently passed the leadership role to one of her sons. Therefore, this case is particularly suited for the analysis of this little known phenomenon, not only in Italy, since it is a very rare example of a succession process with a woman in the role of incumbent. Other reasons to explain why we selected this case are (De Massis and Kotlar, 2014): 1) the case deals with a successfully completed succession process, while other studies analysed ongoing processes (Cadieux et al., 2002); 2) authors had easy access to the firm and were able to interview the two main characters of the succession process – the mother and her successor; 3) authors were able to follow the evolution of the case over a period of eight years (2008-2016), starting from the joint management phase to the definitive leadership transition. Information has been collected from different sources, in order to support and triangulate the findings: direct interviews with incumbent and successor, business documentation and website, newspaper articles and online news. Interviews were the primary source of data, while other sources allowed us to gather contextual information about the business. We also collected field notes in order to take note of interviewees’ attitude and behaviour and remember the context and conditions of the interviews. In-depth, face-to-face, semi-structured interviews with the incumbent and successor were carried out, in order to encourage a flexible and informal dialogue (Fontana and Frey, 1994; Pettigrew, 1997; Stake, 2000; Qu and Dumay, 2011). Interviews took place in two rounds: in 2008 and in 2016. In 2008 the succession process was in a joint management phase. Thus both the mother and the son were interviewed, separately and together. This allowed us to compare their perspectives and avoided bias caused by retrospective sense-making and impression management (Eisenhardt and Graebner, 2007). In 2016 only the son was interviewed, as the mother’s had absolutely retired and the son had taken over the leadership of the company. Interviews took place at the company site and varied in length from 2 to 4 hours. In the first round, respondents were individually asked to freely introduce themselves and describe their family, their company and their succession process. The joint interview mainly focused on mother and son roles, behaviours and interactions during the succession process. In the second round, the successor was primarily asked to provide updated information about the company. All interviews were recorded and later transcribed verbatim for further analysis.
3.2 Data analysis As suggested by Miles et al. (2014), data analysis was an on-going process. Available data was iteratively analysed in order to allow a progressive elaboration of a general interpretative framework. In the first step of data analysis, we created a rich description of the case, putting together all available materials. Authors read the empirical material independently and categorised the stream of words into meaningful categories, related to the research question. Patterns of meaning associated to each category were then identified and tentatively labelled. In the second step, we cycled through multiple readings of the data. In cases of disagreement in coding between the authors, the material was jointly re-analysed and codes were discussed to reach consensus. This process permitted the identification of a number of definitive categories, obtained by grouping data from interviews and empirical material. These categories were labelled and a data structure was designed, as shown in Section 5.
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4. Case study Toma s.r.l. was founded in 1965 by Maria Toni, in central Italy. It produces professional uniforms and work clothes for several sectors (hotels, restaurants, health care, beauty treatment and industry). Maria worked very hard, with tremendous tenacity and great effort in order to realise her independence and dreams, dreams that are still continuing thanks to her son Gianni (second child). The start-up was not simple: Maria was very young, without capital or experience and above all a mother of a two-year-old son (Giorgio, firstborn son and Gianni’s brother). Her father saw her passion and aptitude for business and decided to help her by loaning her the necessary capital to start the business. In 1968, Gianni was born and Maria began to really feel the pressure of family commitments and realised that she had to make a choice. “Working in the fashion industry was taking me a long way away from home and with two children I realised that I couldn’t continue that way. I gave up the fashion industry and continued producing only work clothing”. The firm began to grow. By the early 1970s, the company employed 65 people (all of them were women and Maria called them "my girls”), producing about 1,200 work clothes a day and for very important customers (Ferrari, Tod’s, Fiat, Barilla and Poltrona Frau). Maria established with her employees a working relationship based on communication and shared responsibility. To favour a good working environment and a confidential relationship between the entrepreneur and the collaborators, one time a month, Maria had lunch with all of her "girls" in the meeting room: each one used to bring something to eat and they spent some time together. The mid-1970's recession forced Maria to drastically downsize the business, cut the staff and outsource the production process. Meanwhile the family was changing: Maria got divorced and her children were grown up. She had involved them in the business from an early age. When they were 6 years old, she started by familiarising them with the business: “Every month I spent half an hour telling them about the business. I don’t know how much they actually understood but I kept doing it. I talked to them about the business and I kept them up-to-date about what was happening. We even did the accounts together so that they would get used to understanding our exact income and expenses”. As soon as high school had finished, Giorgio went straight to work in the business but immediately realised that this was not what he wanted to do and left. Gianni also finished school with his diploma and after a year and a half in England, learning the language, he began working in the business. He decided to join the business because he was captivated by the firm and was moved by the passion he obtained as a baby, "The work fascinated me... I remember, when I was young I played with the fabrics... I remember the smell of the fabric, I remember those big giant rolls and saw how the fabric became professional clothing, a jacket, trousers, something for work. I was fascinated by this transformation, as well as by the smell of the fabric that I still love.” In the first two years, he worked in each area of the company: warehouse, sales and marketing, information systems, finance. Maria recounted, “My grandmother always said to me that to be a leader you have to know how to do everything! My son has unloaded the fabrics, printed labels and uniforms, cut and sewn the garments. These were all areas of the business that he had to know and understand. Otherwise, how could he assess the employees’ work and understand if they were making mistakes?” At the end of his on-the-job training, Gianni decided to set foot into the business and began a phase of joint management. Maria started to transfer her knowledge and experience to Gianni and encouraged him to take courses in management. Gianni began to assume his first responsibilities, looking to balance his mother’s ideas with his own. As the years passed, Maria saw in Gianni the right person to succeed her (“He is a thoughtful man, he isn’t impulsive and that makes him good for the business.”) and she understood that the time had come to make her
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Francesca Maria Cesaroni and Annalisa Sentuti son’s position official. She equally divided the company ownership between her children but Giorgio preferred not be involved in the business and refused his share. Maria explained, “I would have preferred that both of my sons worked in the company but I know that they have very different characters.” After the transfer of the ownership, thanks to Gianni, the company started exporting throughout Europe, Russia and Dubai. Maria continued to be involved in the business, supporting her son in all of the main management activities and remaining a point of reference for the personnel. The last few years of co-existence between Gianni and his mother were directed towards the development of the business and the mutual role adjustment between incumbent and successor. In 2010, the company had 15 employees, 25 external workers and a turnover of 5 million euros. At the time of the last interview, Maria was 75 years old and had retired from the business in 2011 due to health reasons. Gianni said, “I would have continued to collaborate with my mother, I didn’t changed anything and I never wanted to change it sincerely”. Nevertheless, Gianni continued to inform his mother of his main decision related to the business and he's still carrying on several practices and traditions that he learned from his mother, such as the periodical lunch with “the girls”.
5. Findings and discussion In line with the research questions, the available material was analysed in order to understand how Maria Toni behaved during the succession process and to identify behaviours consistent with the role of EL. The following themes resulted from this analysis: !
avoid and mitigate conflicts;
!
transmit values;
!
teach her son to love the company;
!
keep family and company harmony.
In the following section, these themes are described and discussed.
5.1 Avoid and mitigate conflicts The relationship between Maria and Gianni during the joint management phase was characterised by a great harmony. This doesn't mean that conflicts were totally absent, but Maria was able to defuse and resolve conflicts, which mainly arose from different views of the business or temperamental differences. Maria stated: “If I disagree with my son I tell him my opinion and sometimes we get angry as well”. And Gianni confirmed, “It was not easy to work with her! She is a dynamic woman with a very strong character, so it was not easy at all. We have had several confrontations, convincing her was not easy and disagreements were frequent”. Nevertheless, Maria was able to dissolve each conflict limiting exasperation and negative interactions: “It’s useless to argue when it comes to the business. One has an opinion, and the other has another opinion, but it’s useless to argue. If there is something that seems wrong to me, I let him know and at times we get annoyed with each other. But before going home I hug him … a little kiss and a goodbye”. Above all, she taught her son that a conflict is not a personal issue but an opportunity to learn and find solutions. In fact, Gianni added: “Any confrontation or discussion always brought something positive. My mother taught this to me, it was great! We clashed many times, but that's what made me grow". Furthermore, conflicts were never characterised by competition. Gianni said: “We had contrasts and threads, but rivalry, envy, jealousy ... no, never!” According to Maria, “a lot of patience was necessary. A woman is also a mother and understands that she can’t impose herself on her child or let her child keep making mistakes beyond a certain point…well, we are a bit over protective because there is always the umbilical cord! Maternal instinct always remains. I am always trying to help him learn and help him understand things. Men do not always have this patience. At times, they want to be better than their son and compete against him. I have never competed against my son”. In Maria’s opinion, women’s sensitivity makes mother-son succession less conflictual and more successful than the traditional father-son succession.
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Francesca Maria Cesaroni and Annalisa Sentuti Thanks to this attitude, in this case, it was not necessary to involve another actor to manage conflicts. Even if Maria was responsible in running the business and managing the succession process, she never forgot her role as a mother and she always avoid conflicts with her son.
5.2 Transmit values Both Maria and Gianni mentioned values referred to the family and the business several times during the interviews. And it’s clear that Maria was the key actor in the transmission of values. Maria suggested that her son find a balance between family and business: "If you have enough money to go out to dinner, travel and buy something you like, what else is necessary? Enjoy your life, your family and your child!" She also decided to focus the business only on professional clothing in order to have more time with her family and to take care of her children. She taught her son the value of money since he was very young, discussing the family budget together and then dealing with the business's financial needs. Gianni really appreciated his mother's approach and affirmed that he will do the same with his daughter. Secondly, Maria taught Gianni the meaning of sacrifice and hard work. It’s representative his involvement in each business area, including working in the warehouse as a packer. Thirdly, Maria educated her son to take care of employees and collaborators. It's emblematic that both the mother and the son use the same term to refer to their employees (the "girls"), that Gianni maintained the same tradition of having some time at lunch all together at the headquarters and that the employee turnover is equal to zero. Gianni stated, “We have people who have worked with us for a lifetime. All of them have grown up here. People who have joined the business have always remained”. Finally, Maria passed down “the reliability of one’s word” to her son. This typical Italian expression means be a person of his word, maintaining promises and being serious, timely and accurate even if there is only an informal accord without other warranties. Maria was proud that Toma’s main stakeholders (e.g., customers, suppliers, banks) appreciated the earnestness of the company: "For me this is worth more than a few million". And Gianni absorbed this value: "She passed on me the seriousness of one's word. When you give your word, you shouldn’t go back on it”. During the interview, no one else was cited as a subject devoted to transferring values to the incumbent. Maria was the only one accountable for transmitting values to her son.
5.3 Teach her son to love the company Love for the firm emerged very often from the statements of the mother and son. Maria declared, “I am completely in love with my company and for me Toma is like another son. It really hasn’t been an easy process to detach myself from it”. Nevertheless, she was able to pass the baton to her son and taught him to love the company. This process was very natural, without impositions, and respecting Gianni’s feelings and path of growth. Gianni said: "with lightness". He stated, “She was a wonderful teacher because she made me work, not as a job, but as a way to know, to see, to understand. She made me, with fun, love what I saw. One beautiful thing that she always said to me was, "working yes, but with fun". And he added, “I often jokingly say to my mother: You made me fall in love with this work and when you fall in love with a job you do not leave! Absolutely. So I tell her that she has totally screwed me, really! She unleashed my passion and made me fall in love with what I do. I do not mind what I do. It was an extremely soft succession”. Also with regard to this aspect, Maria still maintains her central role as educator, transmitting love and passion toward the business.
5.4 Keep family and company harmony Harmony in the family and the firm may be pursued in different ways. In this case, the attention of the entrepreneur was mainly devoted to respecting both the sons' needs, propensity and wills. And this attention resulted in an extensive harmony between mother and sons, with positive consequences for the business. Maria always put her children first, both when they were babies and when the moment to make choices arrived. In the first phase, she preferred limiting the potentiality of her business instead of delegating taking care of her children: “I could not do fashion, I should have left the family, but I had two children and I was like a mother hen. […] I saw that I couldn’t take care of my children, I didn't like it. For me, family is very important, it's too precious.” It was fundamental for Maria to maintain her role as a mother and her choices were oriented toward this goal.
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Francesca Maria Cesaroni and Annalisa Sentuti The children grew up without bad feelings towards their mother and – especially Gianni – developed a special relationship with her. In the second phase, Maria left her children to make their own choices. She never forced Gianni’s brother to enter the business and encouraged Gianni to feel free to choose what he wanted to do. Maria stated, “I tried to make it clear to him that he was not obligated to work in the business”. In this manner, both the sons followed their own paths and developed a good relationship with their mother and between themselves. At the same time, this good relationship between mother and son-incumbent was transposed into a business relationship with a positive effect on the succession process. And the good relationship between the two brothers avoided conflicts between family members during ownership transfer. Most likely choosing to commit more time to her family when the children were young permitted limited business growth but, in the long term, Maria was rewarded when Gianni chose to enter the business and carry on his mother's dream.
6. Conclusions This paper offers an important contribution to the knowledge of FB succession analysing the transition from mother to son. Based on a case study, results show that even if Maria acted as the founder and leader of the business, she never lost her role as an EL. In fact, even though Maria was completely involved in the succession process as a main actor, she maintained the traditional woman’s role as the EL. Maria was the main figure who took care of the harmony within the family and the business, assured the transmission of values of both the family and the firm to her son, taught her child to love the company and managed potential conflicts by transforming them into learning opportunities. Neither the father nor other family or non-family members was cited as possible EL. For Maria, the role of chief EL was added to the entrepreneurial role. We think that this behaviour was an important advantage in managing the succession process because it favoured a positive interaction between incumbent and successor and also ensured a much smoother transition. Furthermore, Maria had a virtuous behaviour, positive for both the company and its survival. However, maintaining the role of EL requires relationships between the incumbent and successor to be strong and steady over time. In this perspective, Maria always tried to develop and preserve a positive interaction with them, since they were kids. This research presents a number of limitations. The main one is its generalisation, as this research is based on only one case. It may be considered a pilot case and could be followed by empirical studies. This is an overlooked research area and further investigations are needed to better identify factors affecting the overlap of an EL and a business leader in the same person and the consequences for succession outcome. For instance, Jimenez (2009) stated, “the role of the EL is much more difficult to replace than that of the CEO”. What happens if two roles coincide in the same person? Furthermore, a comparison from different countries might highlight how cultural factors may affect transition from mother to son. Finally, differences between mother-son and motherdaughter succession can be analysed.
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FDI, Environmental Regulation, Innovation Performance of China’s Enterprises: Moderating Effect of Urbanization Yan Chen, Ye Han, Hongbing Li and Yi Li School of Economics and Management, Beijing University of Posts and Telecommunications, China
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Abstract: Innovation in the process of new-type urbanization is a major strategic choice for the inflows of foreign capital and economic development. Based on Chinese Industrial Statistics Database of 2004-2007 and data at province-level, this research investigates the effect of urbanization, FDI and environmental regulation on enterprises’ innovation performance. It is found that the FDI from U.S. and environmental regulation will hinder the creativity of Chinese industry by the decrease of R&D. However, the FDI from U.S. enhances the domestic enterprises’ ability to attain compensation from innovation following the environmental regulation. Meanwhile, we confirm that environmental regulation can contribute to the innovation spillover of FDI from the United States. In addition, the effects of FDI from EU and Japan are further examined. Unlike the FDI from U.S., the FDI from EU and Japan both have the positive innovation spillover effect but through the same way as the former. Further analysis based on "innovation-driven effect" of urbanization is developed, and we find that urbanization has innovation-driven effect on environmental regulation and FDI’s innovation spillover. The moderating effects of FDI from the United States and the European Union outperform that from Japan at a restrained degree. This research is developed from the dimension of urbanization, FDI, environmental regulation and innovation performance, investigating the role of FDI in environmental regulation, environmental regulation in FDI, their relations with innovation performance, and also the effects of urbanization, aiming at demonstrating innovation, innovation-driven and innovation-compensation effects of FDI and environmental regulation under the background of new urbanization. According to the empirical results, China is suggested to extend the channels of foreign investment, encourage environmental-friendly FDI, motivate enterprises to upgrade the core technology and facilities of energy conservation and environment protection, improve domestic enterprises’ ability to handle with environment regulation, inspire technological entrepreneurship, thus to achieve the growth of national economy. Keywords: FDI, environmental regulations, innovation performance, innovation-driven
1. Introduction In China, with the opening and internal reforms the expansion of cross-border investment and urbanization have been accelerated, domestic enterprises’ innovation level has been enhancing. According to Global Investment Trends Report of 2014, China outperformed the U.S. and has become the world's largest destination country for foreign investment since 2003. Foreign direct investment is expected to have different effects on improving the innovation of China's enterprises, which scholars have studies in different views, including "Restraining Theory", "Promoting Theory" and "Dual-effect Theory". On the other hand, with the worsening of the environmental quality, the fear is that China will become "pollution haven" of the multinational company. For example, China Public Environmental Research Center (IPE) 2006 – 2009 shows among 13,000 records of corporate irregularities, the majority come from state-owned enterprises, however, quite a number of the rest come from foreign companies. At the same time, government has enhanced the environmental protection while the development of Chinese economy is further upgraded, such as "2014 - 2015 annual energy saving and emission reduction of low-carbon development action plan", "Corporate Environmental Credit Evaluation (Trial)" and other regulations. Is there a possibility that the environmental regulation can enhance corporate environmental performance at the same time improve their economic performance through the promotion of innovation? In the July 6, 2014, IBM reached an agreement with the Beijing Municipal Government, using the company's advanced weather forecasting and cloud computing technology to help solve the haze problem. So is FDI a negative environmental externality or a positive one? In addition, studies have shown that multinationals prefer areas with more stringent environmental policy (Jorge Rivera, 2013; Di, 2007), and FDI enterprises generally adopt environment friendly production technologies and pollution solution technologies more than local businesses (Harrison, 2003), and these technologies have the potential to urge domestic enterprises to adopt cleaner production through
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Yan Chen et al. FDI overflow channels. Thus FDI may enhance the "innovation compensation effect" of domestic enterprises under environmental regulation. Also, concerning the impact of FDI spillovers and FDI location, environmental regulation could be an institution factor influencing FDI’s innovation spillover effects. Furthermore, with acceleration of urbanization in recent years, it is difficult to distinguish the "people's urbanization" between "scale urbanization", which leads to irrational exploitation and complementary problems such as the damage to ecological environment and pollution. Our understanding about the effect of foreign investments’ entry has become complicated, due to the cross effect of the listed problems and foreign investment, R&D and innovation. The current research hasn’t given a clear answer. Therefore, under China’s “New Normal” innovation-driven economy, how to better understand the roles of FDI and environmental regulation in enterprises’ innovation and make practical policies targeted for new urbanization can be an important strategic issue.
2. Literature review Combing the related literature of FDI and "Pollution Haven" hypothesis (Copeland Taylor, 1997) of, it is found that most scholars argue that FDI would induce the technological progress effects having a positive environmental effect (Grossman, 1995; Panayotou, 2000; Sheng and Lu, 2012; Huang, 2010; Yu and Qi, 2007). Whether FDI will ultimately benefit host countries’ environments depends on the comparison of the positive environmental effects caused by FDI’s technological progress effects and the negative environmental effects caused by FDI stock generating the expansion effects of economic scale and changes in the economic structure bringing structural effects. Increasing the pollution tax rate in host countries would force companies to apply more resources to pollution reduction. The relation between FDI and environmental pollution in host countries presents a U-shaped curve. Regardless of what the overall effects are, there’s no doubt that the technological progress effects induced by FDI bring positive environmental effects. According to the relevant literature of FDI’s technological diffusion, the technological progress effects promote domestic companies’ innovation through the demonstration effect, competition effect, linkage effect and human capital effect. However, the existence of spillover effects depends largely on domestic companies’ absorptive capacity (Zhang, 2012), on the basis of the literature of the two faces of R&D (Cohen and Levinthal, 1989), R&D investments not only generate new knowledge and information, but also enhance the ability of enterprises to absorb the existing knowledge and information and promote the spillovers of knowledge and technology, including the “two faces”: the improvement of innovation capability and absorptive capacity (Zhang, 2005), also for the explanation of firms’ productivity growth process, the impact of R&D absorption capacity is larger than innovative capacity’s (Yuko Kinoshita, 2000) or they’re equal (Redding, Reenen, 2000). Since Potter and Van der Linde (1995) completed Porter Hypothesis and explained the mechanism of environmental protection through innovation enhancing competitive strength, many scholars have been studying the relation between the intensity of environmental regulation and enterprise’ innovation or technological progress based on different hypothesis. The impact of environmental regulations on enterprises’ technological innovation depends on the comparison between "compliance costs" caused by R&D input reduction maintaining profit rates and "innovative compensation" caused by technological innovation internalizing environmental costs. Jiang and Lu (2011) stated that environmental regulation hinders innovation and encourages it, the ultimate impact is determined by the comparison of the two effects. Environmental regulation promoting innovation is basically achieved by enterprises’ R&D input increase internalizing environmental costs. For instance, Mitsutsugu and Hamamoto (2005) found that strict environmental regulation improves the Japan’s domestic enterprises’ R&D. Chih-Hai Yang (2012) found that strict environmental regulation promotes enterprises’ development in Taiwan and induces the improvement of productivity. Song Wenfei (2014) studied the threshold effect of environmental regulation on R&D dual-link efficiency. With the threshold conditions of FDI, trade liberalization and marketization level, the impact of environmental regulation on R&D conversion efficiency has the U-shaped feature, while the impact on R&D transformation efficiency has the inverted U-shaped feature. Jiang Wei (2015) found that environmental regulation not only encourages China’s manufacturing enterprises to increase R&D input, but also helps enhance their product innovation and production processes. Those studies show that environmental regulation would force enterprises to increase R&D input to get “innovation compensation”, even though there are “compliance costs”.
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Yan Chen et al. Therefore, based on technological progress effect of the positive environmental performance induced by FDI, the interaction between FDI and R&D input adjusting “innovative compensation” of environmental regulation on enterprises is analysed. In addition, environmental regulation adds the cost of enterprises, forces domestic enterprises to learn from foreign enterprises of upgrading technological innovation and increase R&D input. Corporate R&D input can improve both enterprises’ innovation capability and absorptive capacity. From this point, environmental regulation is likely to enhance the spillover effect of FDI as an institutional factor. The early studies of FDI’s technological progress effects affecting enterprises’ innovative compensation indicate, the interaction of environmental regulation and R&D input adjusting the spillover effect of FDI needs to be discussed, and the existence of such a spillover mechanism is to be identified. Studies of the relation between FDI and environment are usually focused on whether FDI is a way of developed countries in transferring polluting industries, there is little scholarly attention on the role of FDI in environmental regulation after entering host countries. The contributions this article will possibly provide include: (1) It is a detailed study of the role of FDI after entering host countries in environmental regulation influencing enterprise’ innovation, in a perspective of FDI’s environmental performance distinguished from "pollution heaven" hypothesis, expanding the studies of FDI’s externality. (2) It explains the mechanism of environmental regulation affecting FDI technology spillovers, and deeply discusses the role of environmental regulation in FDI innovation spillovers. (3) By referring to regulatory mechanism of new urbanization, we discuss about the innovation-driven effects of urbanization’s regulatory FDI and environmental regulation, and examine the above-mentioned mechanism in terms of different sources of FDI (US, Japan, EU), on the basis of previous studies about FDI and environmental regulation’s innovative compensation effect.
3. Modelling and data collection The panel data empirical research is applied, the data of Chinese industrial enterprises in 29 provinces from 2005 to 2007 are from 2004-2008 "China Industry Economy Statistical Yearbook", "China Statistical Yearbook on Environment" and National Bureau of Statistics of the People's Republic of China. In this research, the three-step method (Baron and Kenny, 1986) is applied, the model is as follows.
lrd " + 0 * +1lfdi * + 2lpollutearn * +i # control * , ˄1˅
lnpv " lrd * + 0 * +1lfdi * + 2lpollutearn * +i # control * , ˄2˅ Based on the model as following, it tests the spillover effect of R&D investment on U.S. FDI, regulating the impact of environment regulation’s intensity on enterprises' innovation performance, interaction between R&D investment and FDI, and t interaction between R&D investment and environment regulation’s intensity on U.S. FDI spillovers.
lnpv " + 0 * +1 x * +i # control * + j moderate * x * , ˄3˅ The framework of this research is as following:
Figure 1: Analysis framework
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Yan Chen et al. The innovation ability of domestic enterprise is measured by logarithms of output values of current new products (Wang, Cheng, 2009). Three independent variables, including lfdi, lefdi and ljfdi, are the logarithms of FDI in every province from U.S., EU and Japan. Lpollutearn is the logarithm of income from pollution discharge in each province (Liao Xianchun, 2015), to measure the intensity of environmental regulation. Ird, which is the logarithm of R&D input of existing enterprises, represents the intermediary variable and control variable. The descriptive statistics of core variables are as following: Table1: Descriptive statistics Variable name afdi2004 afdi2005 afdi2006 efdi2004 efdi2005 efdi2006 jfdi2004 jfdi2005 jfdi2006 pollute~2004 pollute~2005 pollute~2006 npv rd
Observed numbers 28 28 28 27 29 30 28 28 28 31 31 31 22209 22209
Mean value 1627199 1968387 2549494 1220026 2313843 2961599 2268023 3470445 4115036 30382.13 39728.61 46982.05 158354.1 5497.192
Standard deviation 2557774 2992072 3529875 2001666 4618685 6482898 3969691 5586095 6657013 24707.13 32998.19 39594.47 801690 78834.68
Least value 820 891 3200 5080 9000 9000 1000 3639 9153 384.2 577.3 797.8 1 -15717
Crest value 1.05e+07 1.26e+07 1.48e+07 9711225 2.04e+07 2.96e+07 1.82e+07 2.05e+07 2.55e+07 87221.6 119201.2 155917.5 2.69e+07 7142497
Control variables at corporate level: The scale of enterprises is measured by the number of employees (limply) (Ahuja, 2000). The export intensity of enterprises is measured by the export value (lexedly) (Jiang, 2006). Tangible resources of enterprises are measured by the total fixed assets (lcptast). Prfratio is the corporate profitability. The logarithms of the variables are applied in the modelling except for those that have been claimed in the ratio format. Control variables at regional level: According to the theory of FDI regional choice, the factors include labour cost, market size, regional degree of openness, human capital, infrastructure level and urbanization rate. The factors influencing the environmental regulation of economic performance include regional economic development level (Shen and Liu, 2012), regional exoteric extent (Li and Mu, 2013) and human capital (Jiang and Lu, 2011). Although the variables of regional GDP can be accessed, this variable is omitted concerning the co-linearity in modelling. The regional market size is measured by lpolula, regional resident population (Liao, 2015). The degree of openness is measured by lextrade, the regional import and export delivery value to measure (Zhou, 2014). Human capital is measured by lustaff, the total number of college staffs (Yu,2014). The infrastructure level is measured by the regional highway mileage (Wang, 2010). The level of urbanization is measured by urbanatio, the ratio of urban population and regional population. The logarithms of the variables are applied in the modelling except for those that have been claimed in the ratio format.
4. Based on the perspective of urbanization innovation-driven effect further inspection This empirical research develops a systematic test to the mediation mechanism of research input in FDI and environmental regulation which affects enterprises’ innovation performance, and identifies the innovation compensation effect and spillover effect. An important issue needs to be concerned: both FDI and environmental regulation on enterprise innovation are usually affected by the urbanization level and degree of openness. The acceleration of urbanization, the unbalanced structure of foreign investment and the environmental problems in China are highly concerned. As a matter of fact, experience from the U.S. urbanization shows that 20% of the land area in the 1990s urbanization area are taken by 3/4 of the population, with 92% of patents granted (Carlino et al., 2001; Cheng, 2010). On the basis of measurement model (3), the variables of regulation of urbanization are imported, relevant enterprises and regional variables are controlled, and the moderation of urbanization in effects of FDI and environmental regulation on innovation performance measurement equation is tested as following:
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lnpv " - 0 * -1urbanatio * - 2urbanatio * rd * +i # control * , ˄4˅ lnpv " - 0 * -1urbanatio * - 2urbanatio * rd * pollutearn * - 3 pollutearn * +i # control * , ˄5˅ lnpv " - 0 * -1lfdi * - 2urbanatio * rd * fdi * - 3urbanatio * +i # control * , ˄6˅ In the equations above, variables are defined as the previous ones. The equation (4) and (5) examines the effect of interaction between urbanization and R&D investment on the environmental regulation. Equation (6) analyses the effect of interaction between urbanization and R&D investment on innovation performance by different country origins of foreign investment (the United States, Japan and the EU). The regression results in Table 2 show that urbanization promotes environmental regulation’s innovation-driven effect. The coefficient of urbanization and R&D input is positive, which indicates that the improvement of urbanization level increases corporate R&D input, and promotes innovation performance. On one hand, as the improvement of urbanization speeds up the accumulation of human capital, knowledge spillover makes knowledge and technology in more urbanized areas more likely to be spread and absorbed. Thus, the higher the level of urbanization is, the higher the level of education is and the stronger the innovation capacity is (Glaeser, 1999). On the other hand, a higher level of urbanization usually implies a higher level of economic development and a stronger comprehensive strength, which improves the motivation and capabilities of enterprises to promote technical innovation by enhancing R&D investment. And it is also helpful to shorten the distance of culture and values, to improve the communication and cooperation, and thus motivates the innovation activities. Further, we find the regression coefficient between urbanization and the R&D investment on environmental regulation is positive, and the interaction of urbanization and research input will improve the innovation performance. The "Environment Kuznets Curve" (EKC curve) hypothesis, in the first place, is expected to exist in an inverted U-shaped relationship (Tamazian, 2010) between the city's economic development and environmental pollution, although it is questioned by a number of scholars. Urbanization is usually accompanied by a large amount of energy consumption, unreasonable land development and complementary environmental problems such as ecological destruction. At the same time, for developing countries, urbanization development, improvement of FDI entry and trade freedom can affect urban environment and bring the risk of "pollution haven" (Managi, 2004). Therefore, urbanization will significantly influence the urban environment strengthening environmental regulation. Secondly, as it is stated ahead, environmental regulation will have a positive impact on enterprise innovation performance, the classic Porter Hypothesis supports that well-developed environmental protection policy will enhance innovation and net income, improving the international competitive advantage of enterprises while not increasing the cost. The evidence from U.S., Japan and Germany in 1980s also confirms that pollution control spending presents positive correlation with the environment patents, patent number increasing with the growth of pollution control spending (Lanjouw and Mody, 1996). Based on the mutual influence between variables, the interaction between urbanization and R&D investment moderates the mechanism of environmental regulation in affecting innovation performance, namely mutual reinforcement of urbanization and R&D promotes the innovation-driven effect of the environmental regulation, enhancing enterprise's innovation performance. Because a higher regional urbanization level means more solid strength of increasing investment in R&D, which also provides the technology and fund guarantee for environmental regulation, attracting the environmental protection enterprises and encouraging the existing enterprises’ R&D in clean technology. The improvement of enterprise's R&D and innovation performance will adversely promote the urbanization and environment, thus forms a new type of urbanization of virtuous interaction and coordinated development. Table2: Urbanization promotes environmental regulation innovation-driven effect test
urbanatio urbanatio _rd
(1)
(2)
(3)
lnpv
lnpv
lnpv
-0.4435***
-1.7543***
-1.8253***
(-3.54)
(-3.50)
(-3.62)
0.1229***
0.0632***
(26.79)
(10.60)
lpollutearn
-0.0494* (-1.88)
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Yan Chen et al. (1)
(2)
(3)
lnpv
lnpv
lnpv
urbanatio _rd_pollutearn
0.0060*** (10.78)
lcptast
0.3430*** (24.03)
(24.02)
lexedly
0.2046***
0.2046***
(24.88)
(24.90)
lwage
0.1622*
0.1842*
(1.73)
(1.94)
lpopula
-0.7874***
-0.7887***
(-7.53)
(-7.55)
lustaff
0.5997***
0.6025***
(7.83)
(7.87)
lroad
0.1201***
0.1308***
(4.26)
(4.43)
0.0695*
0.0788**
lextrade
0.3429***
(1.80)
(2.00)
prfratio
0.0217***
0.0218***
(6.71)
(6.75)
lemply
0.2931***
0.2921***
(13.94)
(13.90)
9.9802***
6.2836***
6.4552***
(145.25)
(5.53)
(5.68)
N
22200
11140
11140
R2
0.2076
0.5611
0.5616
Constant term
Note: Regression method for the random effects model; The standard deviation of regression coefficient in parentheses: ***, **and*respectively 1%, 5% and 10% significance level. Table3: Urbanization promotes innovation-driven effect of FDI spillover (1)
(2)
(3)
(4)
USA
USA
EU
Jap
lnpv lfdi
lnpv
lnpv
lnpv
-0.0390*
0.0286*
0.0494***
(-1.76)
(1.80)
(3.05)
urbanatio
-1.7543***
-1.7391***
-1.7631***
-1.4582***
(-3.50)
(-3.46)
(-3.50)
(-2.88)
urbanatio _rd
0.0632*** 0.0042***
0.0042***
0.0040***
(10.60) urbanatio _rd_fdi lcptast lexedly lwage lpopula
(10.52)
(10.56)
(10.39)
0.3430***
0.3434***
0.3426***
0.3433***
(24.03)
(24.05)
(24.01)
(24.07)
0.2046***
0.2051***
0.2046***
0.2041***
(24.88)
(24.92)
(24.88)
(24.83)
0.1622*
0.1947**
0.0820
0.0632
(1.73)
(1.98)
(0.84)
(0.65)
-0.7874***
-0.7728***
-0.8190***
-0.7857***
(-7.53)
(-7.26)
(-7.81)
(-7.52)
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Yan Chen et al. (1)
(2)
(3)
(4)
USA
USA
EU
Jap
lnpv
lnpv
lnpv
lnpv
0.5997***
0.6104***
0.5504***
0.5535***
(7.83)
(7.95)
(7.00)
(7.13)
lroad
0.1201***
0.1168***
0.1254***
0.1440***
(4.26)
(4.10)
(4.44)
(5.00)
lextrade
0.0695*
0.0837**
0.0620
0.0247
(1.80)
(2.12)
(1.58)
(0.61)
0.0217***
0.0217***
0.0219***
0.0217***
(6.71)
(6.71)
(6.76)
(6.71)
lemply
0.2931***
0.2938***
0.2958***
0.2950***
(13.94)
(13.98)
(14.08)
(14.04)
Constant term
6.2836***
6.1083***
7.1681***
7.2129***
(5.53)
(5.16)
(6.21)
(6.26)
lustaff
prfratio
N
11140
11140
11131
11140
r2
0.5611
0.5608
0.5613
0.561
Note: Regression method for the random effects model; The standard deviation of regression coefficient in parentheses; ***, **and*respectively 1%, 5% and 10% significance level. Table 3 shows the test of innovation driven effect of urbanization in promoting FDI spillover. We find that urbanization and R&D investment has a positive relationship with the innovation spillover effect of FDI inflows from U.S., EU and Japan, which is consistent to the moderation effect of environmental regulation discussed ahead. Therefore, the improvement of urbanization not only benefits the development of human capital, specialization diversity and communication network, but also structures a platform of innovation incubation and technology diffusion. From the perspective of hierarchical space differences, innovation is usually started in the big cities with high-level urbanization, then spread to secondary cities around, finally spread to small and medium-sized cities and rural areas, until the diffusion process is complete. In areas with high-level urbanization, as a new technology is adopted, or using a new method of production improves efficiency, it will have spillover effects within the industry related enterprises, promoting the overall productivity and innovative ability (Cheng, 2010). FDI inflows also facilitate more advanced management concept and production technology, and have spillover effects on domestic enterprises. Of course, highly specialized enterprises, high-quality human resources, broad consumption markets, free-sharing specific labour markets, and the advantages of the internal contact information which is formed by the aggregation of urbanization, are also important factors to attract FDI inflows. Therefore, the interaction between urbanization and R&D investment builds the innovation platform and foundation of innovation environment, and also promotes FDI inflows, releasing its spillover effects and enhancing innovation performance by offering a positive circumstance. Referring to the differences at country level, the interaction between urbanization and R&D investment on innovation-driven effect is not identical. The moderating effects of FDI from U.S. and EU, barely outperform that from Japan. Similar to the analysis above, the FDI from U.S. and EU is more of capital and technology intensive investment, the principal of investment during the urbanization of China is "exchanging market with technology", which gradually cultivates the huge urban market for foreign advanced technology. To some extent, technology spillovers motivate the innovation activities of domestic enterprises, and promote enterprises’ innovation performance. For a long period, the investment from Japan to China is featured by efficiency-seeking orientation. According to the theory of FDI, in the different production stages international enterprises would launch productions around the world due to differences of factor endowments. The investment from Japan primarily targets at the lower labour cost, therefore offers limited contributions to innovation-driven effect for Chinese enterprises.
5. Conclusion The management of FDI, environmental regulation and the innovation-driven effect are important strategic issues during the new type of urbanization, the study of which would benefit China’s innovation-driven economic
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Yan Chen et al. growth. This research integrates FDI and environmental regulation in perspective of innovation in domestic enterprises with the background of urbanization, investigating the influences of FDI, environmental regulation and the effective channels of interactions between these two factors on innovation performance of domestic enterprises, and further explores the moderating effect of urbanization. There are several findings in the research: Firstly, the positive effect of FDI inflows on technology upgrading is demonstrated, by improving domestic enterprises’ ability of gaining “innovation compensation” when facing environmental regulation. But referring to the economic performance, the U.S. FDI in China is more marketseeking, and makes the reverse flow of production elements into U.S., its contribution to China’s enterprises’ innovation is limited. Secondly, this research examined the economic performance of environmental regulation, suggesting that environmental regulation improves the innovation spillover of domestic enterprises. At the current stage, the cost of environmental regulation is greater than innovation compensation” in China, which impedes enterprises’ innovation. The result is consistent at country level, but the FDI from EU and Japan, which are technology-intensive and capital-intensive, provides positive innovation spillovers to China’s enterprises. Finally, by studying the effects of environmental regulation and innovation-driven spillover on urbanization, we find that the interaction between urbanization and R&D investment positively moderates the effect of environmental regulation in improving innovation performance, positively related to innovation spillover of FDI from U.S., EU and Japan. Also the moderating effects of FDI from U.S. and EU barely outperform Japan. The analysis above has important policy implications in how to manage the relations between environmental protection and urbanization. Due to the fact that FDI has been the basic strength in economic and technology progress in China, FDI is an important issue in the way to achieve green production and convert to green economy. Furthermore, the technology spillover of FDI relies heavily on the absorbing ability of enterprises, which is evaluated by R&D investment. For example, Huawei's high R&D investment enables it to integrate ARM's instruction system and COTEX TSMC 16nm chip production process so as to develop Qilin mobile phone processor. To make good use of the technology spillover of FDI, entrepreneurship needs to be promoted to reach its full potential. The protection of environmental intellectual property rights also should be concerned, as a way to enhance technological cooperation. Enterprises can be encouraged to exchange technology and patent, and domestic enterprises can adopt a clean and environment-friendly production by a demonstration effect. On the other hand, the enhancement of environmental regulation will increase the cost of domestic enterprises, and motivate domestic enterprises to learn from the foreign companies that are involved in the same case but take a leading position in technical transformation and promotion, so that the innovation spillover of FDI can be developed. That also gives opportunities to technological entrepreneurship with new vision. While the environmental regulation policies are formulated, market-based tools (eg: emission trading, environmental subsidy) can be applied, corresponding to regional and industrial characteristics, in that way the market will play a conclusive role in promoting the spillover of green-mode production and domestic enterprises’ independent green technology upgrading. Also control-command regulation tools should be avoided to the greatest extent, such as discharge quota, environmental standards. Finally, the negative influence that the pollution industries bring to cities’ development and enterprises’ innovation should be considered. As a result, China is suggested to carry out rigorous environmental regulation, lead FDI to an effective direction, introduce clean industries, increase R&D input and innovation incentives in existing industries, encourage innovation and entrepreneurship, with well-developed management of the FDI and environmental regulation’s innovation-driven effects and urbanization.
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Implementation of Crowdsourcing Into Firm’s Innovation Strategies: The Case of B2B Crowdsourcing Sylvia Dimitrova Department of Management and Engineering, University of Padua, Italy
[email protected]
Abstract: Crowdsourcing is a Web-based model of innovation and collaboration that provides businesses with the opportunity to receive more inflow from the firms’ internal and external environment compared to traditional “closed” innovative and collaborative practices. Crowdsourcing gives firms multiple advantages, notably work force scalability, diversity of crowd workers, a variety of novel ideas, and rapid solutions. Moreover, crowdsourcing can result in impressive cost savings for businesses using this model. Firms also benefit from the additional publicity involved. In addition, because crowdsourcing provides firms with access to future customers, they can make more accurate market predictions and adjust their strategies to crowd expectations. Because the existing literature on crowdsourcing was sparse with respect to empirical evidence of the impact of crowdsourcing on firms' business and innovation strategies, the general objective of this study was to assess the impact of implementing crowdsourcing into the business and innovation strategies of a company. The literature review revealed also that crowdsourcing is used mostly by firms representing B2C industries. Therefore, this research was particularly aimed to study the implementation of crowdsourcing in a firm representing a B2B industry, such as railway manufacturing. The intention was to examine whether or not crowdsourcing can change a firm's innovation culture, to identify obstacles to crowdsourcing implementation, and to understand the limitations of the crowdsourcing model in B2B setting. Based on the research goals and the extent of the current knowledge on crowdsourcing, a qualitative, exploratory, and descriptive case study was deemed an appropriate research strategy. Keywords: crowdsourcing, B2B, innovation, collaboration, case study
1. Introduction Although crowdsourcing is a relatively new trend, it has already received attention in the literature. The preliminary researches under this study showed that crowdsourcing is used mostly in the B2C industries, and past research works have already described such crowdsourcing applications. However, the current knowledge on crowdsourcing lacks extensive empirical research on the impact of crowdsourcing on firms’ business and innovation strategies. Therefore, this research was particularly aimed to study the implementation of crowdsourcing in a firm representing a B2B industry-a topic that has been underexplored to date and merit further investigation. The research objectives were to document real-life crowdsourcing initiatives in a B2B firm, to assess the impact of crowdsourcing on the firm business and innovation strategies, to identify obstacles to crowdsourcing implementation and to understand the limitations of the crowdsourcing model in B2B setting. The study aimed to examine also whether or not crowdsourcing can change a B2B firm’s innovation culture. The paper is structured as follows: the next section presents a concise review of the literature on crowdsourcing focusing on its use as a business model. The third section outlines the research methodology, while section four includes the case study findings. The fifth section discusses the research results and highlights the theoretical and managerial contributions of the study. Section six summarizes the research conclusions and the limitations of the study and suggests avenues for future research.
2. Crowdsourcing as a business model Crowdsourcing is a Web-based model of innovation and collaboration that provides businesses with the opportunity to receive more inflow from the firms’ internal and external environment compared to traditional “closed” innovative and collaborative practices. Crowdsourcing is a compound word that combines the words “crowd” and “outsourcing”. The uniqueness of the crowdsourcing model lies in the fact that it is not limited to communities or individuals with legal status or preselected contributors only. Generally speaking, anyone can participate. The term crowdsourcing was first coined by an anonymous user on an Internet forum (Schenk and Guittard, 2009). After it first appeared, the term was popularized by the journalist Jeff Howe in 2006 in his article in the online magazine Wired (Howe, 2006). In 2008, Howe (2008) gives the following, frequently cited by scholars, definition of crowdsourcing: “Crowdsourcing is the act of taking a job traditionally performed by a designated
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Sylvia Dimitrova agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call”. The modern forms of crowdsourcing usually include three components: a crowdsourcing Web platform, where the tasks outsourced to the crowd are posted; the companies that broadcast their tasks; and the crowd workers, who agree to participate, produce and submit solutions. These three components are described by various terms in the literature and on the Web (Felstiner, 2011). The first crowdsourcing platform was launched in 2001 by the American multinational pharmaceutical company Eli Lilly. The platform is called InnoCentive, and is dealing with problem-solving and innovation projects (Schenk and Guittard, 2009). The literature contains various taxonomies of the types of crowdsourcing. A more general taxonomy distinguishes between external and internal crowdsourcing. The external crowdsourcing initiatives source knowledge and ideas from organizations’ external environment. External crowdsourcing is addressed to the crowd as an open tender via an Internet Web platform, and generally allow anyone to participate. However, in some cases firms searching for crowd-generated content can use preselection criteria for participants (Howe, 2008, Felstiner, 2011). On the other hand, internal crowdsourcing is a form of crowdsourcing for problem-solving and innovation used on a corporate level, allowing collaboration across firm divisions, hierarchical structures, and geographic boundaries (Villarroel and Reis, 2010). Many other taxonomies of crowdsourcing can be found in the literature (Doan et al, 2011, Von Ahn et al, 2008, Von Ahn, 2006, Schenk and Guittard, 2009, Frei, 2009). Despite the various classifications of the different crowdsourcing models, they all share a common characteristic: they depend on contributions from the crowd (Felstiner, 2011). What differentiates them is the nature of these contributions, which can vary significantly across models (Howe, 2008). The expansion of crowdsourcing during the last decade is remarkable. As could be expected in an Internetdependent industry, crowdsourcing first appeared in the online-exclusive sectors of the economy, such as Web content creation, advertising, audio and video transcription, software development, database building, digitization, and market research. The first adopters of crowdsourcing were small firms with limited resources. Later, as crowdsourcing models developed, crowds grew, and crowdsourcing platforms became more sophisticated, medium and large firms also entered the industry (Felstiner, 2011). Crowdsourcing thrives thanks to the multiple advantages it offers to firms. The most significant are work force scalability and low labor costs, which can result in impressive cost savings for businesses. On-demand crowd labor allows the workforce to grow and shrink over time, depending on the company’s changing needs. Crowdsourcing also means little or no personnel administration costs or recruitment expenses, low transaction costs, and fewer logistics issues due to the anonymity of interactions and the Web-based work environment (Felstiner, 2011). Companies also benefit from the diversity of crowd workers, as crowdsourcing gives firms immediate access to crowds with widely varying backgrounds and skills, located literally all over the planet (Ipeirotis, 2010, Ross et al, 2010). Moreover, the openness of the firm-to-crowd relationship creates additional publicity for any business using this model. The fact that crowdsourcing gives firms access to their future clients allows better market predictions and adjustment of firm strategies according to the crowd’s expectations (Bartl et al, 2010, Bilgram et al, 2011). Crowdsourcing also reduces a firm’s dependence on its providers, because the tasks are not outsourced to a single or a limited number of subcontractors. By the same token, it minimizes the risk of not obtaining a solution to a given problem (Schenk and Guittard, 2009). Nevertheless, the implementation of crowdsourcing introduces significant changes to firms’ traditional closed innovation, collaboration, and R&D processes. These changes “rarely occur within an organization without some cultural resistance” (APQC, 2013). Past research has already investigated the impact of crowdsourcing on firms’ culture - an impact that varies depending on the type of crowdsourcing (e.g., internal, external, micro tasks, macro tasks) and the organization’s experience to collaborate with external innovation sources (APQC, 2013). Although businesses find crowdsourcing a profitable and inexpensive way to get the work done, employees usually consider crowdsourcing as a threat to their employment (Felstiner, 2011, Howe, 2008). Much of the literature review under this study was devoted to an analysis of firms that use crowdsourcing. The goal was to identify what kinds of firms use crowdsourcing today and for what reasons. The identified cases revealed that crowdsourcing is used mostly by firms in the B2C industries, and the three main purposes for
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Sylvia Dimitrova crowdsourcing use were co-creation, gathering third-party proposals (licensing, cooperative development, acquisition), and brainstorming and/or targeting potential areas for innovation and new project ideas. Because the literature on crowdsourcing was sparse with respect to empirical evidence of the impact of crowdsourcing on firms’ business and innovation strategies, the general objective of this study was to assess the impact of implementing crowdsourcing into the business and innovation strategies of a company. The research was also particularly aimed to study the implementation of crowdsourcing in a firm representing a B2B industrya topic that has been underexplored to date. More specifically, the research objectives were: !
To document and describe real-life crowdsourcing initiatives in a B2B industry
!
To assess the impact of crowdsourcing on firm’s business and innovation strategies
!
To identify obstacles to crowdsourcing implementation and to understand its limitations in B2B setting.
Through these research objectives, this study aimed to examine whether or not crowdsourcing can change a B2B firm’s innovation culture and if there is indeed a tangible change in firm’s typical closed collaboration and innovation models resulting from the use of crowdsourcing.
3. Research methodology Based on the research goals and the extent of the current knowledge on crowdsourcing, qualitative, exploratory, and descriptive case study was considered an appropriate research strategy. A qualitative research approach was a suitable choice for this study because it aims to describe the context, processes, activities, and participants’ behaviors and motivations. It takes into account organizational and societal aspects and is associated with inductive theory building. Qualitative research also provides considerable flexibility: researchers can readily adjust the research direction, concepts, and data collection tools and methods according to the setting and as the understanding of the phenomenon evolves, which was particularly relevant when studying an underexplored business concept such as crowdsourcing in a B2B setting. In addition, the exploratory study approach allows clarifying, gaining a detailed understanding, and assessing an organizational (or societal) phenomenon such as crowdsourcing. Descriptive research provides a useful methodological complement and acts as a “forerunner” to the exploratory aspect of the study (Saunders et al, 2009). The case study is the main research method for this study. The motivation for this choice is supported by authors such as Yin (2013), who claims that “the case study is the preferred strategy when ‘how’ or ‘why’ questions are being posed, when the investigator has little control over events, and when the focus is on a contemporary phenomenon within some real-life context.” Furthermore, the case study approach provides universality. Thus, the case study approach is used to present three individual crowdsourcing cases as well as more broadly generalized case study findings. Various data collection techniques have been used. The semi-structured questionnaire was the primary data collection instrument. The interviews were conducted at Bombardier Transportation’s (BT) offices in Berlin and Henningsdorf, Germany in June 2013. The author had the opportunity to meet and interview three high-level BT managers who had multiple roles in planning, execution, assessment, and control of the three crowdsourcing initiatives at BT. The interviews lasted from 60 minutes to two hours each, and were conducted at their place of work, at their convenience. Table 1: Key professionals interviewed at BT and their participation in the organization of the three crowdsourcing initiatives
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Sylvia Dimitrova In addition, online and offline firm’s documentation was examined to provide a more detailed understanding of the context of the crowdsourcing projects, the organizational structure, the firm’s processes and policies, and the project team structures and roles.
4. B2B crowdsourcing at Bombardier Transportation, Germany 4.1 The firm Bombardier Transportation, one of two subsidiaries of Bombardier Inc., is a world leading provider of rail equipment and solutions. Its sister company, Bombardier Aerospace, is a global leader in the design, manufacturing, and support of business, commercial, specialized, and amphibious aircrafts. Bombardier Inc. the only manufacturer in the world of both trains and aircrafts. Bombardier Inc. has shown steady development since its humble beginnings in 1941 in rural Quebec, Canada, when Joseph-Armand Bombardier founded the company L’Auto-Neige Bombardier in Valcourt, and started to produce snowmobiles for the Canadian market. After some turbulent periods in the 1950s and the 1960s, Bombardier learned to spread its risk, and since that time, it has placed strong emphasis on diversification and innovation. In 1971, the company acquired mass transit technologies and entered the rolling stock manufacturing business. In 1974 Bombardier won its first railway contract and delivered 423 cars to the city of Montreal subway system. Later, Bombardier continued to grow quickly, mainly through acquisitions (Bombardier Museum, 2008, MacDonald, 2002). Today, Bombardier Transportation is a global leader in the railway sector, with 64 production and engineering sites and 19 service centers in 26 countries and a global headquarters in Berlin, Germany. Bombardier Transportation has six divisions and 36,000 employees, and it generated revenues of $8.1 billion in 2012. The firm offers the broadest portfolio in the railway industry including rail vehicles, propulsion and controls, bogies, services, transportation systems and rail control solutions. The current decentralized structure of BT reflects the firm’s acquisition history. BT has six independent divisions (as of 2013) based on the firm’s product portfolio, headquartered in various European countries (except for BT North America, based in St. Bruno, Canada). A Berlin-based group headquarters includes central departments for each function (e.g., procurement, engineering) and governs and aligns the group of divisions to group-wide guidelines. Each BT division is “a small company” with its own budget and profit and loss responsibilities. BT’s group Innovation Management and Project Management headquartered in Berlin coordinates and defines the firm’s strategies, tools, and processes, and identifies new business opportunities and new technological trends related to innovation at the group level. Because BT Innovation Management aims to identify promising new business and innovation methods, crowdsourcing and the multiple benefits it brings to businesses rightly appeared to be a useful development. The following section presents BT’s three internal and external crowdsourcing initiatives.
4.2 Crowdsourcing at Bombardier Transportation: A look at three initiatives 4.2.1 Innovation Express Innovation Express is BT’s internal crowdsourcing Web platform for innovation, problem-solving, and collaboration. It is a full platform managing innovative ideas from the moment a proposal is submitted on the platform to the moment it is applied to an R&D project or is stored as an archive. The pilot phase of Innovation Express was introduced in 2009, and the platform was officially launched at the end of 2010. The platform has three main “focus areas” (Innovation Manager, 2013) in line with BT’s innovation strategies: simplicity, energy efficiency, and customer/user delight. Employees can submit ideas related to these three characteristics of products and internal processes. The focus areas are always open for submission of new proposals. Employees can post ideas and browse proposals posted by others; they can also create communities on the platform, which function like discussion and problem-solving forums. There is no clearly delegated responsibility for the moderation and community management of the focus areas - all BT’s innovation managers are moderators. Since currently not all BT employees have access to computers, the platform also allows submitting ideas on behalf of someone else by indicating the name of the person making the submission and the name of the author of the idea. This approach gives blue-collar workers access to the platform as well.
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Sylvia Dimitrova Innovation Express also hosts more targeted ad-hoc problem-solving campaigns. Only BT’s innovation managers can initiate these campaigns. They are also responsible for moderating, filtering, and assessing the submissions on the platform. The campaigns usually last from four to six weeks, because BT’s experience shows that after this period, the participants’ interest drops and the quality of the input suffers. According to BT’s policy, Innovation Express can host up to three problem-solving campaigns simultaneously, because too many campaigns running at the same time would have a negative effect on the users’ attention and motivation to participate. Innovation Express does not offer monetary incentives to participants. The only incentive is recognition within the company. Since the official launch of Innovation Express in 2010, more than half of BT’s employees have been using the platform. On October 26, 2009, BT’s Innovation Management launched the first external crowdsourced contest with the theme “Your personal vision of modern transportation”. The YouRail design contest was addressed to anyone interested in the topic. The submitted proposals had to show the participants’ preferences about how the modern train interior should look, and what new features, in any aspect of the train’s interior, should be integrated in it. The participants were asked to develop interior design proposals in three categories: !
The Leisure Passenger: innovative design ideas targeting the needs of families and passengers travelling to recreational destinations
!
The Business Traveler: innovative train designs targeting passengers on their way to work or back home, including workplace essentials and a modern office space
!
The Everyday Passenger: new design ideas to attract passengers to use public transport by providing a comfortable, homey atmosphere
The designs could be submitted as freehand drawings, computer-generated illustrations, or simply written explanations of the ideas. In addition, the YouRail platform asked users to submit seat upholstery designs created with the help of a platform-embedded configuration tool. The online community could submit designs, evaluate others’ proposals by assigning points, or liking or disliking submissions. Participants could also comment on submissions, reply to comments, and leave public messages on other participants’ profiles on the platform. The winner selection process of YouRail included ranking by the online community on the platform, ranking by the internal BT expert jury, and final ranking by the design contest jury. The YouRail contest offered monetary prizes (from €200 to €2000) and netbooks to the winners. The winners were announced in March, 2010, and BT presented the results of the competition at the world’s leading trade fair for the rail industry, InnoTrans 2010, in Berlin, Germany. The YouRail design contest was a one-time event. It attracted 2,486 participants from 102 countries, who submitted 4,239 designs, 25,979 evaluations, 8,565 comments, and 3,445 messages. The YouRail competition also garnered significant media attention and coverage: more than 150 articles about the contest were published, not only in Germany but throughout the world. 4.2.2 YouCity multi-disciplinary innovation contest The YouCity urban mobility innovation contest was launched on March 1, 2012. The crowdsourced competition was open to anyone who wanted to share innovative ideas about the future of urban mobility in developed and emerging cities. BT selected three target cities that represented typical urban mobility markets: London, UK (mature market); Belo Horizonte, Brazil (BRIC market), and Vientiane, Laos (emerging market). The YouCity competition consisted of three tasks: the first asked participants to define current and upcoming issues related to urban mobility in their city of choice, analyze the situation, and develop solutions to the identified problems. The second task asked them to present a holistic proposal describing how their urban mobility solutions fit the global vision of the city of interest. The participants were expected to develop an urban mobility proposal that took into consideration engineering, business, and urban planning aspects of the idea. For each task, the participants were asked to submit via the Web platform a one-page document (with no restrictions on page layout) containing their answers. The community members could work individually or as a team of up to five people.
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Sylvia Dimitrova Table 2: Innovation fields and streams of the YouCity contest
The third bonus task was an offline workshop called “Innovation Workcamp” held in September 2012 in Berlin, Germany for the three winning teams from each stream (engineering, business, and urban planning). In addition, during the online competition, the teams could produce two-minute videos on the topic “Your vision of tomorrows’ urban mobility”, upload them on YouTube and link them to the YouCity Web platform. Based on votes by viewers and experts, the teams could earn additional bonus points. The YouCity urban mobility innovation competition was a one-time event. It attracted 894 registered members who submitted 215 proposals. The contest attracted visitors from 129 countries and 2,000 cities, and participants from 74 countries. Thirteen finalists were selected and invited to the Innovation Workshop in Berlin. The results of the workshop were presented at Bombardier’s booth during the world’s leading trade fair for the rail industry InnoTrans2012 in Berlin, Germany.
4.3 Targeted business and innovation benefits The targeted business and innovation benefits for BT from the introduction of the internal crowdsourcing platform are recognition of the innovative potential of all BT employees, broader innovative input, and better firm collaboration for innovation. Through Innovation Express, BT recognizes the “sleeping innovative potential” (Innovation Manager, 2013) of all its employees. Thus, the internal crowdsourcing platform is the means to access all of them, regardless of their status within the company, field of expertise, or geographic location. Innovation Express acts as a collaboration enabler and helps BT employees solve professional problems more efficiently. Thanks to Innovation Express, BT benefits from the collective knowledge of its employees. Another compelling benefit from introducing the internal crowdsourcing tool is the fact that, for BT, the term “innovation” has a much broader meaning than just product innovation. Both the interviewed BT innovation manager and the CIO defined “innovation” also as process innovation, service model innovation, technology innovation, business model innovation, and more. Therefore, by launching Innovation Express, BT is trying to “kill the bias of the company, which is very engineering-oriented, and try to get a much broader input” (Innovation Manager, 2013). The YouRail train interior design contest was BT’s next step, after the launch of the Innovation Express platform, towards opening up the firm’s innovation processes, not only at the firm level but to the entire world. The targeted business and innovation benefits from the YouRail contest include new ideas for shaping a unique look for BT products and attractiveness as an employer of choice. BT’s motivation to launch the crowdsourced train interior design contest was to “understand what does a commute or a trip look like from a passenger perspective” (CIO, 2013). BT’s innovation managers acknowledge the fact that BT’s traditional design processes are strongly biased by the company’s engineering orientation, and especially by the fact that the railway design professionals’ creative thinking is limited by the their knowledge of the existing technological constraints. As explained by the CIO, the outcomes of any design workshop strongly depend on the kind of community being invited. At the same time, BT’s innovation managers were aware that the crowd-generated proposals could not provide a direct substitute for professional designs, as stated by the CIO: “This is not a blueprint for a one-to-one realization the next day; it is about what of those elements, what of those solutions can be done in a different way….” The designs collected from the YouRail contest provided not only multiple innovative and aesthetic ideas, but also plenty of ingenious detail solutions, which BT design professionals are using today as an inspiration when planning new trends and features to implement into BT’s products.
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Sylvia Dimitrova In addition, the advertisement strategy of the YouRail competition was particularly targeted to attract design students from prestigious universities and design professionals from around the world. Therefore, another benefit includes increased awareness of BT as a future employer of choice and direct recruiting possibilities. One of the participants in the YouRail contest was hired on a freelance basis thanks to the contest. The YouRail competition also garnered significant media attention and coverage: more than 150 articles about the contest were published, not only in Germany but throughout the world. The targeted business and innovation benefits for BT from the YouCity contest include new business ideas and attractiveness as an employer of choice. Firstly, YouCity was a “business planning contest” (CIO, 2013) that provided BT with new business ideas considering the specific needs of different markets and the engineering, economic, and urban planning aspects of modern urban mobility development. BT’s need for innovative thinking about the mobility of the future derives from the expectation that by 2050, more than two-thirds of the world’s population will be living in cities. These environments will require new approaches to urban mobility development to ensure improved mobility and sustainable economic growth. The railway manufacturer wants to think holistically and to evolve its business strategies to consider all aspects of mobility development, including infrastructure, energy efficiency, and communication, and the YouCity crowdsourcing contest seemed a good way to acquire innovative ideas for future business development. In addition, the advertisement strategy of YouCity aimed to attract students from prestigious universities and professionals with a vision of urban mobility development. This is why the YouCity contest also increased the awareness of BT as a future employer of choice and led to potential recruiting possibilities based on the contest outcomes.
4.4 B2B crowdsourcing and firm culture BT’s innovation managers believe that there is enormous potential in crowdsourcing and the quality and quantity of the crowd-generated ideas under the two external crowdsourcing contests YouRail and YouCity far exceeded their initial expectations. Nevertheless, BT’s experience demonstrates that BT’s employees regarded crowd-generated input as additional work, and even as a threat to their employment. The reason for such reactions is that the external crowdsourcing initiatives “provided solutions for problems that the company had not yet identified” (Innovation Manager, 2013). According to BT’s innovation managers, only once the external crowdsourcing had provided solutions to the firm’s immediate problems did the crowd-generated content stop provoking the usual “not invented here” effects. Then the solutions would be appreciated and applied as real innovations. The acceptance of external ideas also depends on employees’ “habit to collaborate with external contributors” (Head of Industrial Design, 2013). A good example is BT’s Industrial Design Department, for them crowdsourcing was “just a different process and a different tool” for innovation, because BT’s design professionals routinely collaborate with external consultants and students (Head of Industrial Design, 2013). In contrast to the external crowdsourcing initiatives, BT’s innovation management was quite confident about the success of the internal crowdsourcing platform, because it was “answering a need” (Innovation Manager, 2013) within the company. Indeed, Innovation Express proved to be a very powerful tool for problem-solving and innovation. BT’s experience demonstrated that the major factors for employee acceptance and successful internal crowdsourcing initiatives are the careful specification of tasks, appropriate definition of participant focus groups, and clear communication about the campaigns. What BT’s innovation managers and the Head of the Industrial Design Department define as a necessary element for every internal or external crowdsourcing initiative is the managers’ commitment to provide feedback to participants about the outcomes of the initiatives and how their ideas are applied. This type of information increases participants’ motivation and creativity, and shows them what kinds of ideas the company is looking for.
5. Discussion The three crowdsourcing initiatives described above offered multiple advantages to BT. First, BT greatly benefited from the diversity of the crowd contributors in case of both internal and external crowdsourcing, in line with the research findings of Ross et al (2010) and Ipeirotis (2010). BT’s internal and external crowdsourcing also provided rapid solutions to firm’s problems and reduced the possibility of not obtaining a solution for a problem, thanks to the collective knowledge of a large number of contributors, as suggested by Felstiner (2011)
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Sylvia Dimitrova and Schenk and Guittard (2009). In addition, the two external crowdsourced contests YouRail and YouCity had a significant positive marketing effect on BT and attracted important media attention. Moreover, the YouRail train interior design contest gave BT access to their trains’ passengers and allowed better adjustment of firm’s strategies according to the passengers’ expectations. Despite the fact that BT’s crowdsourcing experiences share some similarities with those documented in previous studies, BT’s cases of B2B crowdsourcing features important particularities. Based on the analysis of the case study findings, the following limitations and obstacles related to the use of crowdsourcing in B2B setting can be summarized. First, whereas crowdsourcing has gained popularity as a business approach mainly for its ability to provide lowcost solutions leading to impressive cost savings for firms using it (Felstiner, 2011, Howe, 2008), the case study findings clearly show that low labor costs and cost savings did not feature in the business and innovation benefits for BT. This can be explained by the fact that BT operates in a very mature and traditional B2B industry, such as railway manufacturing, where innovation requires substantial specialized R&D efforts, time, and investments. The study results show that BT’s external crowdsourcing initiatives collected ideas that could not be directly applied to future BT products without further detailed professional development. Thus, in BT’s case, the use of crowdsourcing did not lead to cost savings from the acquisition of cheap or even free crowd-generated solutions. For example, the crowd-produced designs collected under the YouRail design contest could not be applied “oneto-one” to real train designs, and they could be used only as inspiration for BT’s designers when they are looking for new trends and potential solutions. Therefore, BT’s cases of external crowdsourcing suggest that crowdsourcing cannot substitute in-house expertise for product innovation in a B2B industry such as railway manufacturing, nor it can be regarded as an employment threat to employees. In the same vein, BT’s external crowdsourcing also does not lead to “unlearning and brain drain” (Schenk and Guittard, 2009) for the firm, because it served simply as an addition to the creativity aspects of BT’s traditional R&D and innovation practices. Moreover, in BT’s case, the use of both internal and external crowdsourcing did not reduce the firm’s dependence on its providers, as suggested by Schenk and Guittard (2009). This is again due to the specifics of the railway manufacturing industry where crowdsourcing does not provide direct substitutes for the railway manufacturing production processes. Therefore, B2B crowdsourcing does not influence directly the role of the firm’s providers. Although businesses find crowdsourcing a profitable and inexpensive way to get the work done, employees usually consider crowdsourcing as a threat to their employment (Felstiner, 2011). The research findings also confirm this perception in BT’s employees regarding the firm’s external crowdsourcing initiatives YouRail and YouCity. Other examples of cultural resistance described in the literature and confirmed by the case study results include the “not invented here” attitude, where a firm’s employees do not accept external ideas and consider crowd-generated input as low-quality and non-professional; the “I don’t have time for this” effect, where a firm’s employees refuse to accept crowd-generated material and regard it as additional work; and the “pocket veto” (APQC, 2013) effect, where a firm’s innovation management identifies a need and a potential solution, but the firm’s other units are not interested in it because they have not yet identified the need (APQC, 2013). The acceptance of external ideas also depends on employees’ habit to collaborate with external contributors. In BT’s case, the firm’s external crowdsourcing provided solutions in advance to problems that the company had not yet identified. As a result, BT does not benefit from the full potential of its external crowdsourcing, since crowdgenerated input provoked the “not invented here” effect, and was regarded as additional work by BT’s employees.
6. Conclusions and limitations This study makes a substantial contribution to the theoretical knowledge on crowdsourcing by examining its use in a B2B industry such as railway manufacturing and by analyzing the real-life impact of both internal and external crowdsourcing on a firm’s business and innovation strategies. In practical terms, the study results can help managers identify successful practices for implementing both internal and external crowdsourcing as a firm innovation and collaboration catalyst. The results can also help managers identify, lessen, mitigate, or avoid the negative and non-constructive effects of inappropriate
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Sylvia Dimitrova crowdsourcing use, and can help them achieve their innovation and collaboration goals more efficiently and effectively. Moreover, managers, especially those working in other or similar B2B industries, may be encouraged to give crowdsourcing a try, as they would be able to learn from the experience of a leading multinational organization, such as Bombardier Transportation. Nevertheless, the presented case study has the following limitations: First, the scope of the study was limited to analyzing the crowdsourcing initiatives of only one company. A multiple case study examining several B2B companies that use crowdsourcing would lead to a better understanding of the impacts of crowdsourcing on organizations’ innovation strategies and culture, and to a more reliable validation of the research findings. In addition, confidentiality issues limited the type and amount of presented information. Disclosing information, particularly concerning the internal crowdsourcing tool Innovation Express, would be considered a breach of confidentiality. Therefore, these data could not be discussed or published.
Acknowledgements This study was fully funded by the Canada Research Chair on Technology Project Management, Université de Montréal - École Polytechnique de Montréal, Canada
References APQC (2013) Open Innovation: Enhancing Idea Generation Through Collaboration (Best Practices Report), Houston, Texas, USA, APQC. Bartl, M., Jawecki, G. and Wiegandt, P. (2010) "Co-Creation in New Product Development: Conceptual Framework and Application in the Automotive Industry", R&D Management Conference–Information, Imagination and Intelligence, Manchester, UK, June. Bilgram, V., Bartl, M. and Biel, S. (2011) "Getting Closer to the Consumer–How Nivea Co-Creates New Products", Marketing Review St. Gallen, 28, 34-40. Bombardier Museum (2008) "J. Armand Bombardier", [online], Bombardier Museum, http://www.museebombardier.com/en/content/jab/biographie1946_1948.htm. CIO (2013) Interview of Chief Innovation Officer of Bombarier Transportation, In: Dimitrova, S. Doan, A., Ramakrishnan, R. and Halevy, A. Y. (2011) "Crowdsourcing systems on the world-wide web", Communications of the ACM, 54, 86-96. Felstiner, A. L. (2011) "Working the crowd: employment and labor law in the crowdsourcing industry", Berkeley Journal of Employment and Labor Law, 32, 143-203. Frei, B. (2009) Paid Crowdsourcing Current State & Progress toward Mainstream Business Use, Smartsheet. com. Head of Industrial Design (2013) Interview Head of Industrial Design for the Division Rolling Stock Central & Northern Europe and Asia of Bombardier Transportation, In: Dimitrova, S. Howe, J. (2006) "The rise of crowdsourcing", Wired magazine, 14, 1-4. Howe, J. (2008) Crowdsourcing: How the power of the crowd is driving the future of business, Random House. Innovation Manager (2013) Interview Innovation Manager of Bombardier Transportation, In: Dimitrova, S. Ipeirotis, P. (2010) "Demographics of mechanical turk", Center for Digital Economy Research, NYU Stern School of Business, Working paper. MacDonald, L. (2002) The Bombardier story: planes, trains, and snowmobiles, Wiley. Ross, J., Irani, L., Silberman, M. S., Zaldivar, A. and Tomlinson, B. (2010) Who are the crowdworkers?: shifting demographics in mechanical turk, Conference on Human Factors in Computing Systems, Atlanta, Georgia, USA, ACM. Saunders, M., Lewis, P. and Thornhill, A. (2009) Research methods for business students, Pearson Education Schenk, E. and Guittard, C. (2009) "Crowdsourcing: What can be Outsourced to the Crowd, and Why?", Workshop on Open Source Innovation, Strasbourg, France. Villarroel, J. A. and Reis, F. (2010) "Intra-Corporate Crowdsourcing (ICC): Leveraging upon rank and site marginality for innovation", CrowdConference. Von Ahn, L. (2006) "Games with a purpose", Computer, 39, 92-94. Von Ahn, L., Maurer, B., McMillen, C., Abraham, D. and Blum, M. (2008) "recaptcha: Human-based character recognition via web security measures", Science, 321, 1465-1468. Yin, R. K. (2013) Case study research: Design and methods, Sage publications.
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Managing Creative Innovation Team Composition: Diversity of Personalities and Innovative Outputs Vytaute Dlugoborskyte and Monika Petraite Kaunas University of Technology, Lithuania
[email protected] [email protected]
Abstract: The importance of teams in the successful functioning of modern organization is widely recognized. So as innovativeness of the company is known as a main source for competitiveness in the global market nowadays. Since innovation process is closely linked with creativeness much attention was paid on creativity and innovation management in all the levels: individually, in a team, company, or even society. A dominant way of thinking about teams with respect to their capacity for creativity and innovation usually seems to be input-process-output models, in which variety of inputs combine to affect intra-group processes and, in turn, influence team outputs. In fact, most studies have been focusing on the input parameters as a context that surrounds a team or diversity of skills, competences, gender, professions when analyzing inputs from the individual perspective. Thus the personality composition of teams have been studied in order to understand combinations of team members’ individual characteristics, as reflected in team-level, which would enhance creativity and innovation. What is missing is an analysis of how diversity of personalities in team composition contribute to innovation at the project level. Thus the aim of this paper is to provide a conceptual model on composition and performance management of creative innovation teams. Constructed conceptual model that derives from literature review is empirically tested conducting a research on creative innovation students’ teams and their performance. The new methodological approach to study diversity is applied that comprises not only the mix of personalities, but either evaluates team roles taken by the members. Such analytic approach enables to investigate the importance of diversity in personalities and disclose possible performance patterns of creative innovation teams resulting different innovative outputs. Keywords: creative innovation team, team performance management, team composition, diversity of personalities, innovative output
1. Introduction Teams have increasingly become a basic building block in organizations (Katzenbach & Smith, 1993; Lawler, Mohrman, & Ledford, 1995). For this reason the mix of individuals in a team has become an important issue for management development professionals, even though the psychology of individuals is a complex enough subject (Partington, & Harris, 1999). As ability to innovate is vital to survival of modern organizations, a lot of attention is dedicated to innovation management. Much research has gone trying to understand the nature of innovation, and the ways to control it. These investigations enclosed the stages of innovation, revealing it to be non linear process and closely linked with creativity. Amabile (1996) defined creativity as the production of novel and useful ideas in any domain and innovation - as successful implementation of creative ideas within organization. Creativity by individuals and teams is a starting point for innovation (West, Sacramento & Fay, 2006; Amabile, 1996). In fact, creativity was found to be most evident in the early stages of innovation processes or cycles (West, 2002). Extensive research has studied factors enhancing creativity within organizations, creativity models were developed (Amabile, Barsade, Mueller, & Staw, 2005; Borghini, 2005; Ford, 1996; Woodman, & Schoenfeldt, 1989), much attention was devoted to individual and group creativity (Klijn, & Tomic, 2010). Descriptions of creative personality were refined and most of them now include attributes relevant to idea generation as well as idea implementation (Mathisen, Martinsen, & Einarsen, 2008). While team creativity is defined in the extent to which teams develop ideas about products, processes, or procedures that are both, novel and potentially useful (Amabile, 1996; West, 2002). A dominant way of thinking about teams with respect to their capacity for creativity and innovation usually seems to be input-process-output models, in which variety of inputs combine to affect intra-group processes and, in turn, influence team outputs (Mathisen et al., 2008). West (2002) have created a famous model on team innovation that covers group task characteristics and external demands. In fact, most studies have been focusing on the input parameters as a context that surrounds a team or diversity of skills, competences, gender, professions when analyzing inputs from the individual perspective. Thus the personality composition of teams have been studied (Baer, Oldham, Costa Jacobson, & Hollingshead, 2008; Mathisen et al., 2008) in order to understand combinations of team members’ individual characteristics, as reflected in team-level, which would
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Vytaute Dlugoborskyte and Monika Petraite enhance creativity and innovation. The real challenge is to create sufficient diversity within team without threatening their shared view of their task and their ability to communicate and work effectively together (West, 2002). Thus most of the research have focused on Big Five personality factors and even after the number of studies the results seem to be too broad for a proper composition of a team. Therefore, the new ideas and methodologies for the further research need to be presented. Answering this call for new ideas a conceptual model will be presented. Accompanied by already existing and reliable measurements it could provide a new look to the management of creative innovation teams and their innovative performance from internal perspective.
2. Conceptual model on composition and performance management of creative innovation teams The demographic composition of a group and, more specifically, diversity of its members now is seen to be critical in driving creative processes in a group. By including people of diverse backgrounds and differing viewpoints, a combination of elaborate explanations, experiences, and expertise may ignite the creative spark within a group (Paulus & Brown, 2007, Bezrukova, & Uparna, 2009) and determine innovative results (Nemeth & Nemeth-Brown, 2003). However, studies prove there is a dark side of diversity. Creative teams have a greater potential for conflict and hence performance losses (Pelled, Eisenhardt, & Xin, 1999). Moreover, research suggests that very dissimilar people are unlikely to interact and share information, but are those, who are more likely to come up with radical ideas. Not surprisingly, such unfavorable findings have sparkled studies on how to overcome these obstacles. Ziebro and Northcraft (2009) proved that information exchanges between deep-level dissimilar group members are approximately 2.5 times more likely to occur when proximity is added. Although proximity by itself cannot completely overcome interaction patterns and information exchange barriers, it dramatically increase the potential for information exchanges. Therefore, due to the greater exposure of group members to diverse information the potential for radical creativity is much higher in these teams (Ziebro, & Northcraft, 2009). Hence, even though conflicts at some level are beneficial for the creativity in the team (Goncalo & Staw, 2006), it is important to understand that more diverse minds and thus creative teams may bear negative results for the team’s productivity (Bezrukova, & Uparna, 2009). Thus empirical studies provides grounding for possible team scenarios based on the diversity as an input (see Figure 1). These findings draw possible patterns on team processes and innovative outputs that are heavily determined by team composition and thus were based conceptual model on the performance of creative innovation teams (see Figure 2).
Figure 1: Empirical grounding for conceptual model on composition and performance management of creative innovation teams
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Figure 2: Conceptual model on composition and performance management of creative innovation teams The idea of diversity level in the conceptual model is accompanied by already existing and reliable measurements in terms of personalities and roles played in a team. One of these, Belbin’s team role model, is one of the most widely used methods in management practice and featured extensively in research on teams at work (Aritzeta, Swailes, & Senior, 2007; Partington, & Harris, 1999). Nine roles in a model were defined as a pattern of behavior characteristic of the way in which one team member interacts with another in order to facilitate the progress of the team as a whole. It measures behavior rather than personality and is not considered to be a psychometric test (those which measure attributes of personality). Rather, personality is considered to be one of many factors which can influence behavior. The test developed is based on four key factors: intelligence, dominance, extroversion/introversion, stability/anxiety (Hipple, Harde, Wilson, & Michalski, 2001). While the second instrument Myers-Briggs Type Indicator (MBTI) is considered to be one of the oldest, most reliable and valid personality instruments that has been tested on millions of people, has proved to be useful tool in understanding human dynamics of both at work and social level, and effective tool in team building, communication and career exploitation (Von Stamm, 2008). which identifies four individual preferences: extroverts versus introverts (E vs. I), sensers versus intuitives (S vs. N), thinkers versus feelers (T vs. F), judgers versus perceivers (J vs. P). The first three choices describe person’s orientation towards life, the last choice a person’s orientation to the outer world, resulting 16 possible types (Hipple et al., 2001).
3. Methodology The nature of the investigating topic determined the research to be entirely quantitative. In order to fulfil the objective to test the framework, creative innovation teams as unit of analysis were selected. In order to test the conceptual model on composition and performance management of creative innovation teams, data collected in a pivot research on creative innovation student teams. Following IPO model, the pivot research collected data on students’ personality types, team roles and a number of team characteristics on their processes and outputs (see Dlugoborskyte, Norvilaite &, Petraite 2015), and obtained enough information to rearrange into new variables to test the constructed conceptual model. The sample consisted of 39 undergraduate students (16 male, 23 female) from Technology Entrepreneurship course. Not initially acquainted with one another, participants were randomly assigned to teams, composing 11 teams with the size range from 2 to 6 members. Firstly participants completed two web-based surveys – MyersBriggs Type Indicator instrument and Belbin Self-Perception Inventory, and later for 4 months were working in teams to create an innovative idea and business plan for its implementation. In the end they were asked to complete a questionnaire evaluating team processes and output, answering the questions with a Leiter scale. Questionnaire-based tools and a separate questionnaire on team performance and output shows the survey research was set to answer the research question and thus represented a quantitative research, determined by the nature of a research topic and its objectives. As the tools for personality type and team role identification are already developed, in this study the relationships of variables (team composition and innovation output) are the most important to understand.
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Vytaute Dlugoborskyte and Monika Petraite New variables for this study from the data pool were formed to represent constructs of conceptual model. A research framework for analyzing creative innovation teams was created, that reflects new variables and logic of a conceptual model (see Figure 3). Statistical analysis on SPSS was used to unify data for new variables and group cases in order to ground proposed relations.
Figure 3: Research framework for analyzing creative innovation teams
4. Results Belbin’s test revealed all 9 possible team roles in the group of students. The most common roles were Implementer, Resource investigator and Team worker. The rarest - Plants, Shapers and Specialists. Whereas Myers Briggs test identified only 10 from 16 possible MBTI types and relatively low number of Introverts. Moreover, a number of students were revealed to possess Judger’s characteristics and even 38,5% were found to be ENTJ type. ENFJ and ESFJ types were commonly found in a sample as well. Such repetitions and gaps in data hindered an opportunity to see all possible constructs of personalities and roles. Nevertheless, compositions of student groups enabled to look deeper into the diversity of personalities presented within a team and discover their relation with a success of teamwork processes and outputs. MBTI types, team roles and their combination within a team disclosed cases to be very diverse. The cases, where all the team members were possessing the same MBTI type or team role, were revealed. Teams with a mix of personality types or different team roles between members were formed as well. Finally, teams with all members in different MBTI types and roles were observed. Even given the small sample and the scope of possible combinations of personalities and team roles in a team, which cannot be presented in this study, the level of diversity was easily evaluated. The sample limited an ability to analyze differences between types of diversity (personalities or team roles), as well as to prove significant relations between all variables. Thus all of the cases were grouped according to the level of diversity in personalities and team roles within a team. 7 teams with diversity in MBTI types and team roles, even if there was a repetition between some of the members, were grouped together and marked as possessing high diversity. Whereas teams with all team members possessing the same MBTI type, team role or both, were grouped to represent low diversity teams. The latter group consisted of 4 teams. Table 1 represents the average scores of each team group and discloses the evaluations of teamwork characteristics – teamwork process, outputs, overall performance (combining evaluations of process and outputs). Three important characteristics are extracted from the overall process evaluation - ability to set and follow roles and functions in a team, quality of communication and conflict management. Two characteristics are extracted from the outputs – orientation towards innovation and idea generation. As it can be seen from the data, teams low diversity teams have better overall performance than the high diversity teams. However, when performance evaluations are extracted into process and outputs, low diversity teams are better evaluated only in the process and in outputs high diversity teams score more. These findings replicate the conceptual model of creative innovation teams, where low diversity teams have higher performance and smooth processes, but give in to high diversity teams considering outputs of a teamwork. Analyzing evaluations and going into details of process characteristics, these primary insights and either the
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Vytaute Dlugoborskyte and Monika Petraite conceptual model are grounded even stronger. Average scores of low diversity teams show they are better in setting and following roles and functions within a team, have higher levels of communication, are able to manage conflicts more successfully than high diversity teams. These findings replicate the initial assumptions that were modeled on different patterns of a teamwork that is determined by team diversity in personalities. Hence it is interesting that the more diverse team composition with different roles within is, the more difficult is to set the roles and functions and to follow them during a teamwork. This finding shows that a number of different roles within a team do not assure more thoughtful processes and tasks to be done, contrary, this is much more hindering the functioning of a team. However, evaluations of the outputs of a teamwork show better results are achieved by high diversity of groups. Even though idea generation evaluation is slightly higher in low diversity teams, high diversity teams are way better in producing innovative outputs. That can lead to an assumption that the difference between idea generation in high and low diversity teams is not significant, yet the ideas of high diversity teams are more oriented towards innovation. Finally, the evaluations of high and low diversity teams replicate initial assumptions disclosed in the conceptual model, where high diversity in a team cause difficulties in performance, but in the end result more innovative outputs. Striving to empirically ground conceptual model, the patterns of communication in teams need to be examined in more details. Therefore teams were grouped according to their usual communication and meeting habits. There were 4 types of groups identified – those, which prefer live meetings (3 teams), live and virtual meetings (4 teams), only virtual meetings (2 teams), and those, which communicate poorly (2 teams). In Table 2 average evaluations on teamwork characteristics based on 4 different communication patterns followed by teams are provided. Scores disclose that teams which prefer live and virtual meetings outstrip all of other teams in most of analyzed characteristics. The data proves that more and better quality communication within a team leads to better overall performance of a team. Furthermore, interesting results were observed in the pattern of teams that prefer communicate virtually – those teams were evaluated only slightly lower than the primarily mentioned group in their performance and even higher in ability to set and follow roles and functions. Thus these findings show the importance of a member to understand and follow his role, which can later cause better performance of all the team. Unexpectedly, teams that prefer live meetings have fallen behind the ones that prefer live and virtual meetings, or virtual meetings. However, if the understanding of your role should be stressed, teams conducting live meetings scored lower in this characteristic. Such finding suggests that setting, understanding and following the right roles and functions can be essential for a team and its performance. Even though teams that were conducting live meetings and had a positive proximity characteristic, this did not help them to perform in a good quality. And since high diversity teams with a number of different roles score less in understanding their roles and functions, a good understanding of the roles and functions should be strived for as an essential one in the beginning of a teamwork. Nevertheless, the difference of teams that conducted live and virtual meetings or virtual meetings with the ones that conducted less meetings overall shows the importance to communicate within a team as well. Moreover, the difference of the results between teams conducting live and virtual meetings with the ones that prefer more virtual communication stress the importance of proximity. And even though this data does not allow to ground the proximity as a key of making a high diversity team more similar minded and thus performing smoother like it has been showed in a conceptual model, it is obvious that proximity plays a role in raising team performance. Finally, it is important to mention that even though less communicating teams were the poorest performers, they were still evaluated relatively high in idea generation. In the evaluations these teams were in line with teams conducting live and virtual meetings, or virtual meetings. However, the ability to generate ideas in less communicating teams was not followed by high innovativeness. As it is already noted in the field of team management and creativity, the team does not necessarily cause higher number of generated ideas. In fact, individually people are more productive in idea generation. This can explain the fact why less communication in a team did not affect idea generation in the sample. Finally, data from the research on student teams supports assumptions that led to construction of a conceptual model on composition and performance management of creative innovation teams. Analysis of team diversity and their performance evaluations proved high diversity of personalities to cause less smooth functioning of a team, but more innovative outcomes. The research enabled to investigate the possible relations of communication patterns in a team and their performance. The findings stressed the importance of communication to the success of processes in the team and innovative outcomes. Proximity was proved to increase overall performance of a team, even though the sample was too little to ground the importance of proximity in the way it is provided in a conceptual model. Moreover, the new factor, ability to set and follow roles and functions in a team, was discovered to be significant in all of the processes and outputs of a teamwork.
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Vytaute Dlugoborskyte and Monika Petraite Consequently, the research on student teams enabled not only to reveal the change of processes and outcomes of a teamwork given the diversity level, but either to ground the conceptual model and show possible patterns of performance of high and low diversity teams. Continuing research and increasing the sample would enable to discover the relations between characteristics extracted in the conceptual model, as well as show their significance and, finally, empirically ground the conceptual model.
Idea generation
Orientation towards innovation
Conflict manageme nt
Communica tion
Ability to follow roles and
4
Mean
3,39
3,21
3,30
3,19
3,36
3,51
3,19
3,24
High diversity
7
Mean
3,19
3,23
3,21
3,07
3,13
3,43
3,26
3,21
Outputs Mean
Process Mean
Low diversity
Group of cases
Number of teams
Performanc e Mean
Table 1: Evaluations of teamwork characteristics in low and high diversity teams
3,04
3,32
2,96
3,04
4
Mean
3,73
3,65
3,44
3,41
3,43
3,20
3,43
3,61
3,52
3,30
2
Mean
3,00
3,29
3,41
3,29
3,35
3,31
3,38
3,60
3,29
3,29
2
Mean
3,00
2,67
3,12
3,13
3,12
3,05
2,85
3,23
3,00
3,25
Idea generation
Orientation towards innovation
2,93
Communi-cation
3,01
Ability to follow roles and functions
3,00
Performance Mean
3,03
Outputs Mean
2,75
Process Mean
3,50
Virtual meetings
Mean
Group of cases Live meetings Live and virtual meetings Virtual meetings Less meetings
Live meetings
3
Number of teams
Conflict management
Table 2: Evaluations of teamwork characteristics based on different communication patterns within teams
5. Conclusions With the aim to study, how diversity of personalities in team composition contribute to innovation at the innovative project level, the conceptual model on composition and performance management of creative innovation teams was provided. Such model invites taking a new look to possible ways of innovative performance management, focusing on internal team environment, specifically, personalities and the diversity in their composition, as the basis for innovative outcomes. It is suggested, that the level of diversity determine the smoothness of team’s performance. Finally, the model discloses two possible paths for a team and is expected to suggest an appropriate diversity level given the aim of outputs, as well as to show possible obstacles the manager will face in each of it. The pilot research on student teams and its data analysis supported the main propositions that were extracted in conceptual model and either disclosed other important factors that need to be considered while forming and managing a team. Tests on MBTI types and team roles revealed a number of different combinations present within teams, which were later grouped according to their level of diversity. Analysis of the performance of two distinct team groups proved high diversity in personalities to cause less smooth functioning of a team, but more innovative outcomes: !
Low diversity teams were better in setting and following roles and functions within a team, had higher levels of communication, were able to manage conflicts more successfully than high diversity teams;
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Vytaute Dlugoborskyte and Monika Petraite !
A number of different roles within a team did not assure versatility, but was hindering the functioning of a team;
!
Idea generation in high and low diversity teams was not significantly different, yet the ideas of high diversity teams were more oriented towards innovation.
The research either enabled to identify different communication patterns in teams and investigate their relations to team performance. The data proved the quality of communication within a team and proximity to determine overall performance of a team: !
Teams that were conducting live and virtual meetings, hence had more proximity, performed better than the ones that were communicating virtually;
!
Less communicating teams were the poorest performers;
!
Communication intensity within a team did not determine its performance in generating ideas, yet the ability to generate ideas in less communicating teams was not followed by high innovativeness.
Even though this data does not allow to ground the proximity as a moderating factor transforming high diversity team to be more similar minded and thus to perform smoother, like it has been underlined in a conceptual model, it is obvious that proximity plays an important role in raising team performance. And above all, the research shows that setting, understanding and following the right roles and functions can be essential for a successful teamwork: !
Even proximity did not help the team to perform well if the team members had difficulties in understanding their roles and functions;
!
Since high diversity teams with a number of different roles suffers hardship in setting and following their roles and functions, it is important to overcome this challenge in early stages of a teamwork.
The study on student teams enabled to reveal the change of processes and outcomes of a teamwork given their diversity level in personalities either disclosing possible patterns of performance and innovative outputs of high and low diversity teams. It was proved that the expected linkages provided in the conceptual model can be found even in a relatively small sample. The correct sample should enable to find significant correlations between given team characteristics in the future research thus empirically grounding the model on composition and performance management of creative innovation teams.
Acknowledgements This research was funded by a grant (No. GER-001/2015) from the Research Council of Lithuania. The authors also want to express their appreciation to Master in Strategic Leadership (Kaunas University of Technology) Vaiva Norvilaite for a data collection.
References Amabile, T. M. (1996) Creativity and innovation in organizations (Vol. 5), Harvard Business School, Boston. Amabile, T. M., Barsade, S. G., Mueller, J. S. and Staw, B. M. (2005) “Affect and creativity at work”, Administrative Science Quarterly, Vol. 50, No. 3, pp 637-403. Aritzeta, A., Swailes, S. and Senior, B. (2007) “Belbin's Team Role Model: Development, Validity and Applications for Team Building”, Journal of Management Studies, Vol. 44, No. 1, pp 96-118. Baer, M., Oldham, G. R., Costa Jacobson, G. and Hollingshead, A. B. (2008) “The Personality Composition of Teams and Creativity: The Moderating Role of Team Creative Confidence”, Journal of Creative Behavior, Vol. 42, No. 4, pp 255282. Bezrukova, K. and Uparna, J. (2009) “Group splits and culture shifts: a new map of the creativity terrain” in E. A. Mannix, J. A. Goncalo and M. A. Neale (Eds.) Creativity in Groups, Research on Managing Groups and Teams, No. 12, pp 163193, Emerald, Bingley, UK. Borghini, S. (2005) “Organizational creativity: breaking equilibrium and order to innovate”, Journal of Knowledge Management, Vol. 9, No. 4, pp 19-33. Dlugoborskyte, V., Norvilaite, V., Petraite, M. (2015) “Creativity and innovation management: team performance peculiarities”, Entrepreneurship and Sustainability Issues, Vol. 3, No. 1, pp 25-39. Ford, C. M. (1996) “A theory of individual creative action in multiple social domains”, The Academy of Management Review, Vol. 21, No. 4, pp 1112-42. Goncalo, J. A. and Staw, B. M. (2006) “Individualism–collectivism and group creativity“, Organizational behavior and human decision processes, Vol. 100, No. 1, pp 96-109. Hipple, J., Harde, D., Wilson, S. A. and Michalski, J. (2001) “Can corporate innovation champions survive?”, Chemical Innovation, November, pp 14–22.
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Vytaute Dlugoborskyte and Monika Petraite Katzenbach, J. R. and Smith, D. K. (1993) The wisdom of teams: Creating the high-performance organization, Harvard Business Press. Klijn, M. and Tomic, W. (2010) “A review of creativity within organizations from a psychological perspective”, Journal of Management Development, Vol. 29, No. 4, pp 322-343. Lawler, E. E., Mohrman, S. A. and Ledford, G. E. (1995) Creating high performance organizations: Practices and results of employee involvement and total quality management in Fortune 1000 companies, Jossey-Bass, San Francisco. Mathisen, G. E., Martinsen, O. and Einarsen, S. (2008) “The Relationship between Creative Personality Composition, Innovative Team Climate, and Team Innovativeness: An input – Process – Output Perspective”, Journal of Creative Behavior, Vol. 42, No. 1, pp 13-31. Nemeth, C. and Nemeth-Brown, B. (2003) “Better than individuals“, Group creativity: Innovation through collaboration, pp 63-84. Partington D. and Harris, H. (1999) “Team role balance and team performance: an empirical study”, The Journal of Management Development, Vol. 18, No. 8, pp 695-705. Paulus, P. B. and Brown, V. R. (2007) “Toward more creative and innovative group idea generation: a cognitive-socialmotivational perspective of brainstorming“, Social and Personality Psychology Compass, Vol. 1, No. 1, pp 248-265. Pelled, L. H., Eisenhardt, K. M. and Xin, K. R. (1999) “Exploring the black box: An analysis of work group diversity, conflict, and performance”, Administrative Science Quarterly, Vol. 44, No. 1, pp 1-28. Von Stamm, B. (2008) Managing Innovation, Design and Creativity, John Willey & Sons, Chichester. West, M. A. (2002) “Sparkling Fountains or Stagnant Ponds: An Integrative Model of Creativity and Innovation in Work Groups”, Applied Psychology: An International Review, Vol. 51, No. 3, pp 355-424. West, M. A., Sacramento, C. A. and Fay, D. (2006) “Creativity and innovation implementation in work groups: The paradoxical role of demands“, Creativity and innovation in organizational teams, pp 137-159. Woodman, R. W. and Schoenfeldt, L. F. (1989) “Individual differences in creativity: an internationalist perspective” in Handbook of Creativity, pp 77-91, Plenum Press, New York. Ziebro, M. and Northcraft, G. (2009) “Connecting the dots: network development, information flow, and creativity in groups” in E. A. Mannix, J. A. Goncalo and M. A. Neale (Eds.) Creativity in Groups, Research on Managing Groups and Teams, No. 12, pp 135-162, Emerald, Bingley, UK.
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Can the Social Entrepreneur Save us? The Role of Government in the Social Entrepreneurship Equation: The Case of Afghanistan Jawad Ehsanyar, Christina Mullen and Sacha Joseph-Mathews Eberhardt School of Business, University of the Pacific, USA
[email protected]
Abstract: In the last decade, social entrepreneurship has become a popular tool for communities in the developing world to address some of their most pressing social dilemmas. The premise of the social entrepreneur is that business cannot be separated from the social environment, from people or from nature (Preto et al. 2015). As traditional models of governmental aid and developed world intervention has proven unsuccessful in alleviating many of the global ills that plague developing communities. Individuals and the communities that surround them have looked to their own solutions to attack the issues that affect them the strongest. This is where the bulk of academic research has focused; defining the field and assessing impact. Yet despite a resolute determination to confront some of the biggest social challenges affecting the planet, social entrepreneurs are recognizing the tremendous and in some instances insurmountable blockades that exist where government systems are non-functioning and national security non-existent. The question is a pertinent one…Can social entrepreneurship thrive, despite a lack of security and without crucial government assistance? This is the research question this paper seeks to address, as we explore the role of government in creating a space for social entrepreneurs to thrive or fail. Following the work of Zhang and Swanson, (2014), we examine the impact of market, institutional and state failures in curtailing or facilitating the development of socially oriented business ventures. Over 400 students across three cities in Afghanistan were surveyed about their perceptions about social enterprises. Findings indicate that these potential entrepreneurs are optimistic about the future of Afghanistan and see social entrepreneurship as a valuable tool to address issues in their communities, generate jobs and create change. Keywords: social entrepreneurship, Afghanistan development, social entrepreneur, developing world business models, social innovation, non-functioning government
1. Introduction Since the late 1990s, social enterprise has become a widely debated topic. As budgets tighten and support for NGOs and donor-based organizations decline, philanthropic and donor organizations are beginning to see the impact of the social enterprise business model. The end result is an increased research agenda and a surge of interest in social enterprise as a viable solution to social ills (Kraus et al. 2014; Nandan, London & Bent-Goodley 2015). A second cause for the increase in interest in social enterprise is the globalization of economies, this has opened up additional research into entrepreneurial action as a means to address social problems (Zahra et al. 2008). This globalization has also increased the concept of market liberalization, which leaves global citizens unable to access products that they previously got at a low cost or for free as they are now being sold at fair market value (Zahra et al. 2008). There is the argument that a majority of social enterprises have made their impact at the “base of the pyramid” market segment, which consists of largely marginalized groups that have been ignored due to their low purchasing power and lack of proper infrastructure (Ghauri, Tasavori & Zaefarian 2012). Research across the developing world suggests that social enterprises could benefit economically depressed communities in a multitude of ways, such as increased literacy, financial freedom, employment, crime reduction, health & well being, and cultural appreciation (Prieto et al. 2015). This supports the theory that social enterprises are sitting at the forefront of social transformation, providing innovative solutions to previously unmet social needs (Sserwanga et al. 2014). It is at this intersection of need and benefit; that we find ourselves most intrigued. The question begs, can social enterprises thrive within the borders of a state or nation where the government has failed to provide all of the aforementioned securities (employment opportunities, crime reduction, access to health and education). More importantly, what is the impact on these ventures when a state fails to put the necessary support systems in place to facilitate the smooth functioning of a business? This study explores the question, where basic business facilitating agencies such as permit and license granting institutions, national security agencies, port facilities, infrastructure etc. are non-functioning or non-existent, can social enterprises still accomplish their goals? Following on the work of Zhang & Swanson, (2014), this study looks at the impact of the economic marketplace alongside institutional and state failures in curtailing or facilitating the development of socially oriented business ventures. The paper has four goals. First, we explore the role of government in the successful implementation
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Jawad Ehsanyar, Christina Mullen and Sacha Joseph-Mathews and development of social enterprises. Second, we explore why, in some instances, governmental dysfunction can create a ripe environment for the development of social enterprise. Third, we examine how young Afghan university students view the field of social entrepreneurship and finally we will discuss how attractive this sector is for these potential entrepreneurs in the midst of a failed state.
2. Defining social entrepreneurship There is much debate in the body of literature as to an accepted definition of social entrepreneurship (SE). Historically SE has been referred to as “the third sector” or “the sector of civic society” (Petrovici 2013). Some definitions outline social entrepreneurship in terms of their goals, while others argue that social entrepreneurship moves towards enhancing “total wealth” a term encompassing both economic and social value (Zahra et al. 2008, Zahra et al. 2009). This concept is also explained through the common use of terms such as “double”, “triple” or “quadruple” bottom lines, where social enterprises effectuate change on a financial, social, environmental, and/or cultural level. Sserwanga et al. (2014) and Mort, Weerawardena & Carnegie (2003) argue that the social mission is a key-defining factor in the definition, presenting the idea that where a business firm creates economic value; a social enterprise creates social value (Sserwanga et al. 2014; Mort, Weerawardena & Carnegie 2003). Prieto et al. (2013) furthers this argument by suggesting that organizations cannot be separated from the social environment, people, or nature and that the social entrepreneur possesses similar traits to their business counterparts, but use their talents to address social problems on a local, national or even global scale. A third body of research suggests that it is not the goal or the mission, but rather the presence of innovation that matters. One definition frames social enterprise as “any new processes, products, or services that address and improve the quality of human life at the micro and/or macro levels,” suggesting that social entrepreneurship establishes initiatives which in turn spur social innovation (Nandan, London & Bent-Goodley 2015 ‘Introduction’ para. 3; Pol & Ville 2009). Despite the fragmented and confusing attempts to define social entrepreneurship, it can be asserted that most of the literature could reach a consensus in which a social enterprise consists of two key elements: an overarching social mission and entrepreneurial creativity; specifically, any organization that has adopted a social mission while using business means to sustain itself (Corner & Ho 2010; Hervieux, Gedajlovic & Turcotte 2010). For the purpose of this study we will be utilizing the definition provided by Wolk (2007). Social Entrepreneurship is defined as “the practice of responding to market failures with transformative, financially sustainable innovations aimed at solving social problems” (‘Synopsis’, para. 1).
3. The role of government in social enterprise development The aforementioned definition, which involved market failures, is critical to the purpose of this study. It is our belief that government intervention in market failure, combined with an eternal quest by many governments to provide more with less, often creates the perfect incubator for socially entrepreneurial thinking aimed at problem solving. Governments across the globe are constantly examining ways to improve the lives of their citizens and constituents while maximizing the use of tax revenue. This can sometimes prove to be an insurmountable task, as needs increase and the scope of government spending expands exponentially. The end result is often insufficient funding of critical programs for human development. As elected officials and government agency staff approach these tough choices, facing fewer and fewer options; more and more, they are recognizing that social entrepreneurs are potential partners. Globally, government officials are accepting the fact that social entrepreneurs are their allies as the two entities share an interest in “identifying efficient, effective, and sustainable ways to solve difficult social problems” (Wolk 2007, ‘Introduction: Social Entrepreneurship Enters the Public Eye’, para. 10). Yet, very little research has focused on the intersection between these two groups. The symbiotic relationship between governments and social entrepreneurs has yet to be fully explored and or understood in the literature. A new body of research is pointing to the potentially huge effect government intervention can have on social enterprises. Favorable governmental policies can potentially foster a positive environment for entrepreneurs allowing them to pursue business goals which otherwise may prove difficult or even impossible for governmental organizations to accomplish. Where governments choose to have a focused, defined strategy for institutional, financial and developmental support for social enterprises, the end result can be quite beneficial to long term economic impact and human development (Wolk 2007). Wolk (2007) makes the argument that social entrepreneurship brings about the best components of three worlds; government, non-profit and the private sector. He suggests; “Like business, social entrepreneurship utilizes markets to drive innovation and productivity.
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Jawad Ehsanyar, Christina Mullen and Sacha Joseph-Mathews Like government, social entrepreneurship responds to market failures by providing public goods and services. Like nonprofits, social entrepreneurship engages individuals in action to achieve social goals” (‘Social Entrepreneurship Emerges at the Nexus’, para. 2). If an enterprise is perceived as friendly by the government, otherwise known as “socio-political legitimacy”, it will increase the probability that the enterprise will be perceived as friendly by the consumer market (Zhang & Swanson 2014; Sullivan 2007). But what happens to social entrepreneurship when there is a failed state? This study examines how the unique set of circumstances in Afghanistan impact the possible development of a thriving social entrepreneurship sector in that country. According to the 2016 Index of Economic Freedom “Afghanistan’s overall economic environment is undermined by ongoing political and security challenges, and the inability to deliver basic services on a reliable basis has severely eroded confidence in the government” (The Heritage Foundation 2016). The country is overwhelmed by a dysfunctional government, few social services, a barely operational education system alongside limited foreign direct investment. Unemployment is at a staggering 40% and communities have very little confidence that they can rely on anyone but themselves (Trading Economics 2016). Some researchers believe that this type of instability and dysfunction is exactly the type of environment that facilitates the growth of social entrepreneurs and the development of self-reliant entities (Zhang & Swanson 2014). It is becoming evident that social enterprises are far more commonplace in deprived regions where there are weak and or unstable institutions and governments (Nandan, London & Bent-Goodley 2015; Nga & Shamuganathan 2010; Zahra et al. 2008; Zhang 2014). In these environments social enterprises have stepped up to meet the gaps created by firms or institutions which have valued financial returns over social sustainability, causing many governments to encourage community-based entrepreneurship initiatives (Nga & Shamuganathan 2010; Nandan, London & Bent-Goodley 2015; Kraus et al. 2014). For example, in the late nineties and early 2000s, European-based companies sold solar panels to thousands of communities across Africa with no plans for warranties or follow up service. The end result was a massive failure of said solar panels in the following decade and no government legislature to protect consumers from this type of predatory behavior on the part of these MNCs. One can argue that even the need for such panels to provide electricity was, in itself, a major governmental failure; as governments are typically tasked with the responsibility of providing adequate access to electricity. In small villages all over Uganda one social enterprise; Village Energy is running a social revolution where they recruit and train young men and women as technicians and entrepreneurs, setting them up as franchisees with their own branded repair & sales shop for solar panels (Village Energy 2016). This is exactly the type of entity Andersson (2014) envisioned when he argued that social enterprises were practicing “a highly regarded best-practice approach for non-profits to solve social issues, survive in a competitive marketplace, and generate social impact” (‘Introduction’, para. 2). Yet these solutions are being offered in the wake of massive governmental failures. The first pertained to a lack of access to electricity in the home, the second adequate consumer protection in the marketplace. We therefore propose the following hypotheses: H1: Young Afghans who believe that governments are failing them in their communities will have more positive perceptions of the field of social entrepreneurship than those who do not believe the government is failing them. H2: Young Afghans associate social entrepreneurship with self-empowerment, doing good in the community, job creation and innovation. This is where we find Afghanistan currently existing. With high unemployment, limited job creation by the government or private sectors, an overarching threat to national security constantly at play, coupled with crumbling social and educational systems and an almost non-existent infrastructure; they are almost the poster child for what a failing government looks like. This is why we believe the country is ripe for an insurgency of social entrepreneurship. We hypothesize that given the colossal inadequacies of the Afghan government; citizens will look to themselves to create solutions to some of the government dysfunction. H3: Young Afghans will have positive perceptions of the field of social entrepreneurship.
4. Social entrepreneurship: Opportunity recognition Because a social enterprise is so reliant on its unique social, political and technological environments, it is argued that more dynamic environments offer more opportunities (Zhang & Swanson 2014). An opportunity is defined by Corner & Ho (2010) as “a favorable set of circumstances for doing something such as establishing a new
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Jawad Ehsanyar, Christina Mullen and Sacha Joseph-Mathews venture” (‘SE Opportunities’, para. 1). If opportunity recognition is a foundational attribute of entrepreneurship, then it can be argued that opportunity recognition is considered to be one of the most fundamental qualities of a social entrepreneur (Corner & Ho 2010). Sserwanga et al. (2014) argues that social entrepreneurship itself could not exist without opportunity recognition, individuals must remain sensitive to changes in the business environment, cueing them into market needs. Extant literature tells us that social entrepreneurship is founded upon the ability to recognize the potential to solve an unmet social need through innovation where governments and private enterprises, historically, could not (Nga & Shamuganathan 2010). We are making the argument that the stronger the social need and the greater the gap left by the inability of governments to meet these needs; then the more opportunities for the development of a robust social entrepreneurship sector. This leads us to hypothesis 4: H4: Positive perceptions of social entrepreneurship will be significantly positively related to perceptions that social entrepreneurship is an effective, innovative tool to address social issues within their communities.
5. Social entrepreneurship: Social capital What a social entrepreneur sees as an opportunity, however, may depend on their individual social networks (Arenius and DeClercq 2005). These networks provide an accumulation of social capital, defined by Sserwanga et al. (2014) as the “trust, norms, and mutual obligations that develop in relationships” (‘Social capital’, para. 1). Social capital, then, includes the creation of strategic partnerships that are essential to the support, participation, and legitimization of a social enterprise. The social networks that social entrepreneurs operate in provide emotional, financial and human resources that would be hard to come by otherwise (Nga & Shamuganathan 2010). Some bodies of research argue that a social entrepreneur is not just one person, but rather multiple actors using their knowledge and experience to provide innovative solutions for social problems, a phenomenon referred to as the “collective entrepreneur” (Corner & Ho 2010). These innovative solutions must require the interaction and collaboration of a variety of stakeholders in order to pool complementary resources (Ghauri, Tasavori & Zaefarian 2013; Neck, Brush & Allen 2009). Thus, our fifth hypothesis: H5: Perceptions that anyone has the power to build the networks to bring about change in a community will be significantly positively related to perceptions of social entrepreneurship as a means for development. Nga & Shamuganathan (2010) argues that there are three benefits to social enterprises participating in social networks: 1) the establishment and sharing of the social mission, 2) the deeper understanding of social norms and the creation of reputation and 3) the definition of shared meanings and collaboration of resources and knowledge to effect long-term change and local solutions to real problems. It is clear then, how essential social capital, and in extension, social networks are in the operation and management of business activities, advice, human resources, innovation, financial and emotional support (Nga & Shamuganathan 2010, Jack 2005). We propose the following: H6: Afghan youth who want to have a career focused on solving problems in the community will consider social entrepreneurship to be a positive means for development.
6. Social entrepreneurship: Innovation and challenges Inevitably, the exponentially increasing demand for social services cannot be met by existing resources. Therefore, new, cutting-edge solutions are required to address and alleviate social ills. Social enterprises and innovators have been known for their ability to combine available resources in new ways in order to meet this growing demand through two different processes: rational/economic or effectuation (Sserwanga et al. 2014; Sarasvathy 2001). Sarasvathy (2001) outlined the rational/economic form of innovation as the process by which an entrepreneur notices a viable opportunity and then follows a “normative decision-making process” to fill the needs/wants associated with that opportunity. A social entrepreneur finds an opportunity to fit an existing product or service rather than the rational/economic process of finding a service/product to fit an existing opportunity (Sarasvathy, 2001). Despite how an entrepreneur chooses to follow the path of innovation, it is widely argued that social innovation faces a set of distinct challenges, including the fear of failure, a lack of financial resources, financing systems, fiscal uncertainties, and legal frames in which potential entrepreneurs operated (Amway 2013; Petrovici 2013).
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Jawad Ehsanyar, Christina Mullen and Sacha Joseph-Mathews It is our hope that this paper will add to the body of research that may assist social entrepreneurs in understanding the conditions that facilitate growth, development and success in the midst of said challenges.
7. Sample University students were used as the sample of respondents for the purpose of this study. Professors recruited respondents across ten (10) universities in three (3) provinces of Afghanistan. Respondents attended both private and public institutions in the cities of Herat, Balkh, and Kabul yielding a total of 344 usable survey respondents. There were an additional 29 students who attended a focus group to follow up on the survey responses. 10 students were from universities in Heart, 9 from Balkh and 10 from universities in Kabul. In the sample, 53.45% of the respondents were male, 46.55% were female. In terms of education attainment levels; 12.35% of the sample were in their first year of College, 17.35% were in their second year of College, 34.71% were in their third year, and 35.59 % were seniors in college. Overall, 19.6 % of the sample had an annual income of over $6,012 a year. Table 1 outlines the sample statistics. Table 1: Sample descriptive statistics Gender:
Response Percent
Male
53.5%
Female
46.5%
Class Standing:
Response Percent
Freshman
12.4%
Sophomore
17.4%
Junior
34.7%
Senior
35.6%
Monthly Household Income
Response Percent
$ 85 or less
14.6%
$ 86-170
24.5%
$ 171-340
24.2%
$ 341-500
17.1%
$ 501 or more
19.6%
8. Measurement This study was exploratory in nature and, as such, focused on a combination of qualitative and quantitative measures. Most of the items were single item measures designed to succinctly assess how Afghan youth perceive the field of social entrepreneurship. Christophersen and Konradt (2011) speak to the validity of single item measures in assessing respondents’ perceptions. The measures were designed to assess if Afghan youth were aware of social entrepreneurship and their feelings towards the construct. Additionally, we explored how empowered these young people felt in terms of their ability to change their communities and their thoughts on the importance of government intervention. Finally, we wanted to explore how interested Afghan youth were in building careers in social entrepreneurship moving forward.
9. Results Six hypotheses were tested using SPSS and content analysis software. A combination of t-tests, simple regression and text analysis were used to test the hypotheses. As seen from the results outlined below; five of the six hypotheses tested were supported. Hypothesis one demonstrates that the SE mean for participants who
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Jawad Ehsanyar, Christina Mullen and Sacha Joseph-Mathews believe that governments are failing them in their communities is higher than the SE mean for those who do not believe the government is failing them. H2 confirms that the participants did think of SE in terms of selfempowerment, doing good in the community, job creation and innovation. H3 refers to the positive perception of SE by the participants and a one-way t-test demonstrates that perceptions are significantly positive in the population. The regression model testing hypotheses 4-6, tell us that although the participants do not always see SE as an effective innovative tool to address social ills, they do see it as a means for development, consider self-empowerment key to its success, and they are excited at the prospect of having careers in the field. Table 2: Hypotheses testing results HYPOTHESIS
SUPPORT
TEST
RESULTS
H1
Yes
Two way ttest
SE Mean for Afghans who did not believe =3.0 SE Mean for Afghans who did believe = 4.34 pch15 and (28840-0)/(28840-0)=1 for ch15->u1. In other words, we approximated the knowledge linkages by the intensity of collaborative activities in common R&D projects. A higher knowledge flow was assigned to a higher financial participation of the partner. The nodes in the innovation networks were represented by regional actors. Their innovative activity was measured by the number of patent applications in 2015. Again, the innovative output was rescaled to the range of [0,1] using the above-mentioned normalization process. FCM (Kosko, 1986) can be defined as a signed digraph consisting of nodes and edges causally connecting the nodes. Weights wji are assigned to the edges, representing the strengths of the linkages. To calculate the value of a node in the next iteration k+1, the impact of all edges connected to the node is considered. Finally, to transform the values of the nodes, activation function f is used, such as linear, sigmoid or hyperbolic tangent. Formally, the node value for the next iteration k+1 can be calculated as follows: k *1
ci
k
N
k
" f(ci * # c j / w ji )
(1)
j "1 j 0i
where indexes i and j refer to connected nodes. By contrast to original cognitive maps, FCM process the uncertainty in the linkages using the theory of fuzzy logic. Thus, the causal relationships may be represented by fuzzy weights in the range of [0,1]. Note that the new value of a node is calculated based on all edges connected to that nodes. In the regional innovation network, the values of nodes represent the innovative activity of regional actors and the edges stand for knowledge flows. Thus, the dynamics of the innovative activity of the actors is based on its previous innovative activity (in iteration k) and the innovative activity of influencing actors (the strength of the influence depends on both the innovative activity of the actors and the weights of knowledge flows). The nonlinear activation function f such as sigmoid or hyperbolic tangent function is used to transform the linear values in order to capture the full dynamics of the relationship between R&D intensity and innovative
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Petr Hajek, Jan Stejskal and Ondrej Prochazka activity (Yang et al., 2010). Nonlinear relationships have also been reported in regional innovation systems (Hajek et al., 2014). By incorporating uncertainty and nonlinear relationships, FCMs have provided good simulation performance in various business applications such as modeling interactions among knowledge management processes (Prochazka and Hajek, 2015). In our experiments, we employed FCMs with a hyperbolic tangent activation function (f=0.5tanh(x)) because it is reported to realistically simulate the intrinsic characteristics of the innovation process (Hajek et al., 2015).
4. Results The regional innovation networks for chemical and transportation industries are represented by the typologies of FCMs presented in Figure 1 and Figure 2, respectively. In the FCMs, the nodes represent regional actors, namely universities, firms and R&D institutions. A label was given to each node, along with the innovation activity scaled to the range of [0,1]. The linkages in the FCMs represent the knowledge flows between the actors with the collaborative R&D projects. Obviously, the University of Pardubice (u1) lies in the central position, with many linkages to other actors. Since the remaining universities were located outside the Pardubice region, thus connected to additional actors in other regions, we assumed that their innovation activity is fixed. In other words, for simplicity their innovation activity is not evolving over time.
Figure 1: FCM for regional innovation network in chemical industry, where u denotes university, v is R&D institution and ch is chemical firm
Figure 2: FCM for regional innovation network in transportation industry, where u denotes university, v is R&D institution and d is transportation firm. To simulate the evolution of the innovation activity of individual regional actors, we used equation (1) with k=20 iterations. We examined the initial values (k=0) of the nodes for several scenarios. In the first set of experiments (scenario 1), we used the current innovation performance (proxied by the rescaled number of patent applications in 2015) of the actors. Note that the values for scenario 1 are based on real data, whereas the
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Petr Hajek, Jan Stejskal and Ondrej Prochazka following two scenarios are based on fictional changes in initial conditions. In scenario 2, we examined the sensitivity to initial innovation activity by increasing the value of the central node u1 from 0.165 to 0.365 (i.e. fictional increase by 0.2). In scenario 3, sensitivity to the strengths of the linkages was tested. In this case, we fictionally increased all linkages by 0.1. Figure 3 shows the results of the simulations for the chemical industry. To save space, we focused on two representatives in the innovation network: 1) the University of Pardubice (u1) and 2) average firm innovation activity. In the original scenario, the innovation activity of both the university u1 and firms in chemical industry are increasing to a fixed point, representing a long-term stability of the regional innovation network. The effect of increasing the initial innovation activity of the university u1 (scenario 2) leads to a short-term increase in firm innovation activity, without having a long-term effect. In scenario 3, on the other hand, a significant long-term effect was observed. This is the increasing amount of collaborative R&D projects have a lagged positive impact on innovation activity. Similar, but weaker, effects were also present in the transportation innovation network (Figure 4). This suggests that the public financial support of collaborative R&D projects in the chemical industry is more effective than in the transportation industry.
Figure 3: Simulations of innovation activity for 3 scenarios in chemical FCM a) University of Pardubice, b) average firm
Figure 4: Simulations of innovation activity for 3 scenarios in transportation FCM a) University of Pardubice, b) average firm
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Petr Hajek, Jan Stejskal and Ondrej Prochazka
5. Conclusion In this study, we have developed two FCM models to simulate the activity of two regional innovation networks. The evidence from this study suggests that the models allows for the simulation of the effects of public financial support in collaborative R&D projects. However, several limitations of the proposed model should be mentioned. Although the models may explain some of the evolving patterns in the regional innovation networks, we are aware that the models can be further elaborated in several directions. Firstly, the collaborative R&D projects financially supported by the TACR represent one of the most important source of collaborative activities. However, other important sources were omitted owing to the character of the database used, such as collaborative activities with market actors (customers, suppliers, competition) and internal collaborative projects (within a firm or firm group). Secondly, the intensity of knowledge flows was approximated by the size of the collaborative R&D projects, without considering the knowledge intensity and effectiveness of the projects. Thirdly, innovation activity can also be measured by alternative approaches, such as the novelty and economic effects of the innovative products. Finally, the most important limitation of this study is the focus on a narrow context of two industries in one region (one country) within a certain period of time. In this context, we show that the increase in innovative activity of individual actors have a short-term effect on the innovative activity of other actors, without having a long-term effect. On the other hand, a positive long-term effect was observed when the amount of collaborative R&D projects increased. However, we cannot generalize our findings to different contexts. This study is the first step towards enhancing our understanding of the dynamics of regional innovation networks. Further studies, which take different contexts into account, will therefore need to be performed. We believe that this research will serve as a base for future studies undertaken in the abovementioned areas by extending the research methodology developed in this study.
Acknowledgements This article was created as a part of the solution of the research task No. 14-02836S entitled “Modeling of knowledge spill-over effects in the context of regional and local development”, financially supported by the Grant Agency of the Czech Republic. The article is also a result of the grant No. SGS_2016_023 of the Student Grant Competition.
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Entrepreneurship Education in Studio Based Learning Practices Kari-Pekka Heikkinen, Seppänen Ulla-Maija and Jouko Isokangas Oulu University of Applied Sciences, Finland
[email protected] [email protected] [email protected]
Abstract: The need for entrepreneurial mindset, skills and creativity in the future work-life will require the renewal of pedagogical methods used. The studio based learning is one of the promising pedagogical methods enabling this change. The LAB studio model, pre-incubator style studio education in Oulu University of Applied Sciences in Finland, develops connections between work-life based problems and the recognition and development of the related business prototypes and start-up companies. Projects, based on the given problems are medium for educating self-aware future professionals, who will gain skills and attitude to work in interdisciplinary teams with entrepreneurial mindset. This article is a study by a literature review of the recent higher education practices utilising studio model as pedagogical method in variety of disciplines. The study will identify the common elements of entrepreneurship education and studio model practices described in the literature. The findings of the study indicate that entrepreneurship as a concept is not sufficiently addressed in the studio model literature; several similarities in the pedagogical principles between the LAB studio model and other studio models; and that LAB studio model has several unique practices compared to other studio model educations. Keywords: studio based learning, studio model education, lab studio model, higher education, activity system model, entrepreneurship education
1. Introduction The current economical decline in Europe causing the increased unemployment rate has challenged also the higher education institutions to renew their offering. One solution to overcome this societal problem is to increase and develop the entrepreneurship education offering in the universities. In Finland, Oulu University of Applied Sciences has responded and taken the initiative to develop the LAB Studio Model (LSM) for the need. LSM is grounded on the studio based learning as a pedagogical solution and is among other targets educating entrepreneurial skills in a small company like environment. Traditionally learning studios have been used to educate disciplinary skills for professional areas, such as architecture, design and software engineering. Since LSM has a significant focus on new business development, this article is a study of entrepreneurship education aspects within the educational settings utilising the studio based pedagogics. In addition the research of entrepreneurship education has shown the requirement of aligning the used methods and pedagogical solutions with the entrepreneurship phenomena, since the traditional methods of education are still widely used. The research questions stated in this article are as follows; how common ‘entrepreneurship’ and ‘entrepreneurship education’ are as a theme in the research articles within context of ‘Studio Model Education’ and ‘Studio Based Learning’?, what elements does studio model education have in common with entrepreneurship education? and what are the unique entrepreneurship education elements of LAB Studio Model compared to other educations utilising studio based learning?
2. Entrepreneurship education and LAB studio model Entrepreneurship is seen as a society-renewing phenomenon (Kuratko, 2005). Schumpeter connects the entrepreneurship to the creation of new innovations, as he describes entrepreneurs according to their ability to adapt to the changing demands of their customers and their own business environment, and the ability to offer a constant process of innovation to societies, no matter whether that innovation is a service or a physical product (Schumpeter, 1926). The main focus of entrepreneurship has shifted to the process of creating new businesses (Alvarez and Barney, 2006; Detienne and Chandler, 2004; Shane and Venkataraman, 2000), which is often an iterative process (Davidsson, 2005). The process is connected to changes in the operational environment (Bryat and Julien, 2000; Eckhard and Shane, 2003) and is used to develop knowledge and networks for the benefit of new businesses (Elfring and Hulsink, 2003). Theoretical categorisations to the creation of a new business have been made by e.g. Alvarez and Barney (2006); Detienne ja Chandler (2004), and Sarasvathy, Dew, Velamuri and Venkataraman (2002). Puhakka (2002) defines entrepreneurship as a process of creating new business, where the opportunity of new business is recognised and transformed into a form of creating economic value by using own and others resources and personal relationships. Coming from this entrepreneurship connects as a phenomenon to the environment of activity, innovation, human activity and future orientation (Shane, Locke ja
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Heikkinen Kari-Pekka, Seppänen Ulla-Maija and Isokangas Jouko Collins 2003). The debate around the entrepreneurship education states, that it should be closely connected to the entrepreneurship phenomenon (Deakings and Free,l 1998; Hytti, 2003). Historically, formal education has differed from learning in the informal sector and in working life (Engeström, 1987; Miettinen, 1990). Teaching has typically been teacher-led, involving textbook- and individual-centered learning in classrooms with few connections with actors outside of the education context (Miettinen, Isokangas and Peisa, 1997). The objective of educational change is to move beyond the lesson and textbook structure and move to connect more strongly with activities focused on societal use. Entrepreneurship as new business creation is linked to changes in the environment and societal phenomena. Educational activities related to the recognition of business opportunities have become as part of entrepreneurship education (Detienne and Chandler, 2004). The challenge for the entrepreneurship education is that the traditional teaching methods are still widely used, e.g. Solomon, Duffy and Tarabishy (2002). Entrepreneurship education research has shown that entrepreneurship-learning methods should include functional project-based learning (Pittaway, 2004), which contains a sufficient level of challenge and uncertainty (Cope, 2003). This type of education requires students to be active and self-directed (Bird, 2002; Cope, 2003). In addition functional, new activity creative, pervasive and long-term learning are required. Strengthening of the social dimension and networking (Rae and Carswell, 2000) encourages the student to take part in educational planning (Fiet, 2000), self-organising and the use of versatile assessment (Honig, 2004). The learning methods should emphasise working under uncertainty, working under pressure and solving contradictions in the activity (Cope 2003; Pittaway 2004). Ultimately, linking the recognition of business opportunities to learning requires a detachment from traditional classroom pedagogy (Honig, 2004) and building bridges with learning networks outside the education environment (Deakings and Freel, 1998; Elfring and Hulsink, 2003; Isokangas, 2009). Originally by Schön (1983, 1987), the concept of studio model education has been developed to overcome this dilemma. The model emphasises learning skills of the experienced professionals by having a weak connection to the external representatives of the work-life and its conditions. The LAB studio model (LSM) is a higher education, interdisciplinary education model created in Oulu University of Applied Sciences (Oamk), Finland and aimed at training competent new professionals, self-directed teams and new businesses with an industry focus. In general, the LSM can be defined as a business pre-incubator, created to produce promising teams with solid and proven potential for creating their own new business (Heikkinen, Seppänen and Isokangas 2015). In general, studio model education can be defined as an instructional strategy that provides students with opportunities to engage in relevant, authentic learning in a school setting (Boyer and Mitgang 1996; Burroughs, Brocato, and Franz, 2009) A studio model of educational delivery suggests a more practical approach to professional education. Schön (1983, 1987) summarizes this process as reflective practice or “knowing- and reflecting-in-action". Pakman (2000) adds that this model of learning can allow practitioners to reconstruct their theories of action making and form action strategies explicitly open to criticism. Recent study of Heikkinen and Stevenson (2015) has shown LSM to utilise the studio model for its pedagogical model and include several new factors compared to the existing definition of studio model education by Bull, Whittle, and Cruickshank, (2013). These factors include: the offering a form of instruction that is more competitive in structure in contrast to other studio models (competitiveness); integrating experienced professionals and coaches from the industry (work-life connection); including problems or ideas directly from targeted industries; and building interdisciplinary project teams that cross professional and higher education faculty boundaries. Also the study of Heikkinen et al. (2015) has shown the expansion of the learning networks and the study of Heikkinen and Räisänen (2016) the utilisation of knowledge creation in the LSM. DevLAB is one of the three LSM based educational settings, called as Oamk LABs, using LSM as it´s pedagogical basis. DevLAB is one or two semesters full time education in English aiming to educate self-aware future professionals who are capable for developing client centered solutions in a cooperative interdisciplinary team. During the academic year of 2015-2016 the industries in focus were health and social care, tourism, energy and environment. Industries are chosen based on the local development and employment needs as well as the strategic development areas of Oamk. Student teams develop their solutions and business models by an iterative design thinking process and Lean startup business model. During the academic year of 2015-2016 40 students, consisted from 12 different countries, 11 different degree programs and five different disciplines participated DevLAB. By its organisation and administration DevLAB is part of the Oamk, but it operates outside the university campuses. This is in order to provide possibilities to connect with the startups, entrepreneurship services and learning network beyond the university learning network. (Heikkinen, Seppänen and Isokangas, 2015.) The
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Heikkinen Kari-Pekka, Seppänen Ulla-Maija and Isokangas Jouko learning, as well as each student's individual goals of learning and professional and personal aims of development, are based on the goals and methods described in the Oamk LABs curriculum (Oamk, 2016).
3. Method for the study The study was done in two major parts; firstly by an overview of the articles in the studio context published during the past thirty years and secondly by a literature review to identify a more detailed and recent understandings of the core studio model practices described in the literature and compare the entrepreneurship education practices to the studio model practices. For achieving the best coverage for the study, two different search terms for the published articles were used; “studio model education” and “studio based learning”. For the analysis tool of the second part Activity System Model (Engeström 1987), based on Activity Theory, was chosen because of its viability in analysing the activity of a system in general and the social aspect of the activity. Activity Theory defines that the behavior of an individual cannot be separated from the changing environment. Vygotsky (1978) defined mediated action from the individual's perspective. Activity Theory emphasises the concept of object-oriented, collective and culturally mediated human activity and the role of artefacts on it (e.g. Engeström 1987, Leontjev et al. 1977). The production of any activity involves a subject, the object of the activity, the tools that are used in the activity, and the actions and operations that affect an outcome (Nardi, 1996). The subject of any activity is the individual or group of actors engaged in the activity. (Jonassen and Rohrer-Murphy, 1999; Engeström, 2001) A tool can be anything that is used in the transformation process, including both material tools and tools for thinking. (Jonassen and Rohrer-Murphy, 1999) The activity in the system should have an object, which is clearly defined. According to Leontjev et al. (1977) the object of the activity is the real motive for the activity. Objects and motives are collective (Engeström, 1987, 1995), and the individual activity is always part of a system activity and activity among other actors in the system (Engeström, 1983, 1987; Leontjev et al., 1977). Figure 1 illustrates the concept of Activity System Model, where individuals participating to activity are in relation to the environment via artefacts, signs and other individuals.
Figure 1: The structure of a human activity system (Engeström, 1987, p. 78) The activity is social, only the actions are individual (Engeström, 1987). Engeström expanded the Activity Theory to include collective motivated activity toward an object, making room for understanding how collective action by social groups mediates activity by inclusion of community, rules and division of labour. The community consists of the interdependent aggregate, which share object (Jonassen and Rohrer-Murphy, 1999). Rules inherently guide actions or activities acceptable by the community, so the signs, symbols, tools, models, and methods that the community uses will mediate the process. The division of labour prescribes the task specialization by individual members of groups within the community or organization as related to the transformation process of the object into the outcome. The outcome is the form of instruction that is developed and implemented from the object. (Jonassen and Rohrer-Murphy, 1999.) The overview study was performed by a text content analysis (Krippendorff, 2012) for the keywords and abstracts in articles published between the years 1984-2015. The searches with two search terms were directed to Scopus, one of the biggest bibliographic databases having more than 60 million records (Scopus 2016). After the searches the non-relevant and duplicate articles were removed and by using Nvivo-tool the analysis was
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Heikkinen Kari-Pekka, Seppänen Ulla-Maija and Isokangas Jouko performed for the relevant articles in two patches; the first batch with a “studio model education”-search term included 92 articles and the second batch with a “studio based learning”- search term included 164 articles. The analysis was performed in two parts, first the total amount of articles published per year was counted from two batches and second the articles of most used words in the abstracts and keywords were found out. The first analysis was performed to achieve overall understanding of the amounts of the articles in studio context and the second analysis was performed to achieve overall understanding of the subjects written in the articles. The literature review was performed for the articles written between the years 2010 and 2015, called ‘Studio articles’ in this study, by an analysis using the Activity System Model. The search for the articles was directed to Scopus and included the articles with the search term “studio model education” and “studio based learning”. Total amount of 23 articles were read by three researchers during the spring 2016 and analysed by a deductive content analysis using the Activity System model as a theoretical background. The findings were written down using Google Sheets in the research seminars between the researchers, after which, two experienced coaches, both working in DevLAB, reviewed the findings and the conclusions.
4. Results 4.1 Results of the overview study The results of the overview are illustrated in the Figures 2, 3 and 4. The Figure 2 shows the amount of the published articles about the studio model education and studio based learning between the years 1984-2015.
Figure 2: Amount of the published ‘Studio Model Education’ and ‘Studio Based Learning’ articles between the years 1984-2015. As it can be seen from the Figure 2, the amount of publications has been significantly rising during the past ten years. This trend can be a sign of a rising interest of new studio environments establishment and interest towards the studio based pedagogic overall. Adding the search terms ‘entrepreneurship’ or ‘pre-incubator’ to the used terms didn’t give any results from the Scopus for published articles. This indicates the possibility of missing entrepreneurship education and startup company pre-incubator settings utilising studio model practices. Provided by the Nvivo-tool, Figure 3 and Figure 4 illustrates wordclouds of the ten most used words in the published articles keywords and abstracts between the years 1984-2015. From the both wordcloud, where larger font means bigger count in the amount of words used, can be seen that subjects like ‘architecture’, ‘environment’, ‘project’ and ‘process’ are the most common used, while as in the first search the words missing are ‘entrepreneurship’ and ‘pre-incubator’. In fact, business related words are a minority in the articles keywords and abstracts. The findings indicate that there are no articles published about business and entrepreneurship educations utilising studio pedagogics within the last thirty years. Based on the nature of words on the wordclouds, there is a possibility that the search term ‘Studio Model Education’ would find the articles describing more the practical implementation of the studios, while ‘Studio Based Learning’ would find the articles describing the practices of the studios.
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Heikkinen Kari-Pekka, Seppänen Ulla-Maija and Isokangas Jouko
Figure 3 and 4: Wordclouds of the published ‘Studio Model Education’ (Figure 3) and ‘Studio Based Learning’ (Figure 4) articles between 1984-2015.
4.2 Results of the literature review The results of the literature review are presented first by presenting the common findings of the comparison of Studio articles and LSM, second by comparing the findings to entrepreneurship education and third by presenting the unique features of LSM. 4.2.1 Subject In this study the subject is a group of higher education students. Students might be either bachelor or master level with different phases of studies. Most commonly students are from one or two professions, in fewer cases the groups are interdisciplinary. (Bull and Whittle, 2014; Bosman, Dedekorkut and Dredge, 2012; Khan and Mahmood, 2013; Shraiky and Lamb, 2013; Schnabel and Ham, 2012; Collison, Cody and Stanford, 2012; Hundhausen, Fairbrother and Petre 2012.) When comparing the findings between Studio articles and entrepreneurial educations, none of the articles mentioned students from the field of business or entrepreneurial studies. DevLAB includes students from the field of business and other fields of higher education studies. Before entering the LSM students are ensured to realise the curriculum including entrepreneurial subjects, as well as the possibility for establishing their own enterprise. 4.2.2 Object In this study the object is a prototype of the desired solution to a given problem. The solution is based on a recognised need of a client. Articles describe the prototype to be a kind of fulfilling the needs of the curricula practices within the particular discipline. (Bosman, Dedekorkut and Dredge, 2012; Brandt et al, 2013; Bull and Whittle, 2014b; Gattie et al, 2011; Wang, 2010.) Studio articles are having an object of prototyping a viable solution, while entrepreneurial educations object is making new business. DevLAB object is to combine both of these; prototyping a viable solution with a viable business model. Solutions developed in LSM are based on client’s real need, so there is already a customer willing to pay for the new solution. This setup creates a need for the business opportunity recognition, as well as requirement of scalable solution, enabling growth of their possible business. 4.2.3 Outcome The outcome is a concrete result of the development activities, such as a product or a service; student personal and professional development; understanding the connection between theory and practice and between worklife and academic context. (Bosman, Dedekorkut and Dredge, 2012; Bull, Whittle and Cruickshank, 2013; Bull and Whittle, 2014; Carter and Hundhausen 2011; Clinton and Rieber, 2010; Collison, Cody and Stanford, 2012; Forest et al, 2014; Habash, Suurtamm and Necsulescu 2011; Peterson et al, 2015; Lee et al, 2015; Mathews 2010; Schnabel and Ham, 2012.) Outcomes shared are in categories of personal and professional development and understanding the connection between theory and practice. Findings about student personal and professional development are connected to a personality, skills to work as a team member and networking skills. Common for both entrepreneurship education and studio model learning is that student will develop his/her agility, self-regulation, -awareness and -esteem. Also competences to confidently network and become a team worker are to develop. Common is also different ways of cooperating
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Heikkinen Kari-Pekka, Seppänen Ulla-Maija and Isokangas Jouko with the external experts, targeting to develop meaningful networks. Being able to execute and evaluate the process from a need to a solution is one outcome. This requires student to connect theory and practice as well as acting and adapting their product and their own ways of working according to the changes in throughout the process. In DevLAB learning by an interactive process with business model development will enable understanding of the client centered product development. By having concrete results as an outcome of the activities, students will learn how to develop a viable solution fitting to the needs of a client. 4.2.4 Tool In this study the tool is defined to include practices within four different categories; pedagogical models; culture of critique; iterative problem solving process; and practical equipment and spaces. Common for all tools is the aim of using them to support the reflective nature of learning, reflective practice. The common issues for the studio articles and entrepreneurship education can be found from every category. Teaching in studio model is based on different pedagogical models. The most commonly used models are project-based learning, learning by doing and problem based learning. (Bull, Whittle and Cruickshank,, 2013; Bull and Whittle, 2014; Collison, Cody and Stanford, 2012; Habash, Suurtamm and Necsulescu, 2011; Hundhausen, Fairbrother and Petre, 2012; Schnabel and Ham, 2012.) Pedagogical models discussed both in Studio articles and entrepreneurship educationare project-based learning and learning by doing. Solving challenging ill-defined problems with uncertain parameters teaches coping with uncertainty. (Bosman, Dedekorkut and Dredge, 2012; Brandt et al, 2013; Bull and Whittle, 2014; Habash, Suurtamm and Necsulescu, 2011; Hundhausen, Fairbrother and Petre, 2012; Mor and Mogilevsky, 2013; Peterson, 2015; Wang, 2010.) In DevLAB projects are based on illdefined problems from partners from different industries. Critique is in a format of self- and peer-critique as well as receiving critique from the coaches and external experts. Students are also taught how to ask and receive critique from industry client and end-users (Brandt et al, 2013; Bull, Whittle and Cruickshank, 2013; Bull and Whittle, 2014; Carter and Hundhausen 2011; Cennamo et al, 2011; Hundhausen, Fairbrother and Petre 2012; Mor and Mogilevsky, 2013; Schnabel and Ham, 2012; Shraiky and Lamb, 2013; Wang, 2010.) Unique for DevLAB culture of critique is the principle of competitiveness that enhances also the skills of coping with uncertainty. The competition between projects enables the culture of excellence; only the most viable solutions will be made as demonstrations. The decision-making by the external industry experts of the continuing projects will increase the credibility of the solution. Learning process is an interactive process for developing solution. Main issues are the problem, iterative nature of the progress, length of the project, learning theoretical knowledge and ownership of intellectual property (IP). (Bosman, Dedekorkut and Dredge, 2012; Brandt et al., 2013; Carter and Hundhausen 2012; Cennamo et al, 2011; Mor and Mogilevsky, 2013; Peterson et al, 2015.) Learning is based on real life problems, where industry representatives are involved. It is focusing on developing a solution based on analyzed data in order to understand the problem, what is verified by making series of prototypes. (Bosman, Dedekorkut and Dredge, 2012; Bull, Whittle and Cruickshank, 2013; Bull and Whittle, 2014; Bull and Whittle 2014b; Forest et al, 2014; Habash, Suurtamm and Necsulescu 2011; Mor and Mogilevsky, 2013; Peterson 2015; Shraiky and Lamb, 2013; Wang 2010.) In DevLAB the problems are from industry and length of the project is one or two semesters. Development of solution with the business model is done as iterative process, where process is repeated several times. There were no articles in the literature review describing the ownership of the IP rights. Main categories for the equipment and space are defined to include: learning tools, visualisation and description of the space. For supporting students to be more active and self-directed different learning tools are used. One of the most important tools is the studying space; use a public space that could be used also by other people and learning environment that belongs to the students. This conveys the principle of mutual trust and reciprocity. Digital tools, such as learning platforms, virtual environments, social media and video conferences provide student a possibility to become less dependent of teachers and become more team centered. Using tools like log books and journals will support students to store their documents and to reflect their personal learning process. (Bosman, Dedekorkut and Dredge, 2012; Brandt et al, 2013; Bull, Whittle and Cruickshank, 2013; Bull and Whittle, 2014b; Forest et al, 2014; Hundhausen, Fairbrother and Petre 2012; Lee, 2015; Mor, 2013; Schnabel and Ham, 2012; Wang, 2010.) DevLAB uses one platform for team communication and mutual feedback. In studio learning versatile assessment tools are used to support students reflection of professional and personal development. Students are making different kinds of self-reflection reports, learning journals,
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Heikkinen Kari-Pekka, Seppänen Ulla-Maija and Isokangas Jouko design narratives as well as personal and team role journals. (Lee et al, 2015; Mor and Mogilevsky 2013.) Becoming a self-aware future professional is one of the main goals of DevLAB. For this reason also other tools for reflection and self-assessment are used, such as future curriculum vitae and Kawa-model river (Iwama 2006). One main difference compared to Studio articles is the location of a studio; DevLAB is located outside of the university campuses and belongs to a startup business community, called Business Kitchen (Business Kitchen 2016). 4.2.5 Rules Rules are divided into four different categories; academic rules; co-operation rules; community rules defined between the studio actors and personal rules for person’s internal behaviour. When comparing the findings between studio articles and entrepreneurial education, academic rules, community rules and personal rules are recognized as shared categories. One common rule is that peers, clients and professionals do evaluation in academic manner enabling a public critique. These rules are descripted in curriculum. For the evaluation versatile assessment methods are used. One rule is that teams own result of their work. One rule for the learning community is the socialization for learning purposes. (Bosman, Dedekorkut and Dredge, 2012; Brandt et al, 2013; Bull, Whittle and Cruickshank, 2013; Bull and Whittle, 2014; Clinton and Rieber, 2010; Forest et al, 2014; Lee et al, 2015; Mor and Mogilevsky, 2013; Wang 2010.) In the DevLAB rules are defined by the university e.g. in curriculum, by the community e.g. how to take care of the premises and by students e.g. one's own goals of learning. A common rule characteristic to DevLAB is that student teams will have IP of their own product. Also strong focus on solving problems from economical and sustainability topics in its projects is one of the learning rules. Rules are enabling the process of creating knowledge development as well as new businesses and networks without economical constraints. 4.2.6 Community The community is an important factor for the process of innovating and creating new business. In this article the community includes students; university staff; and external participants. The process is fostered by social interaction; connections between studio participants and external participants. The external participants are used for e.g. as be clients for the projects and as giving feedback from the professional context. (Bosman, Dedekorkut and Dredge, 2012; Bull, Whittle and Cruickshank, 2013; Bull and Whittle, 2014; Carter and Hundhausen, 2011; Forest et al, 2014; Habash, Suurtamm and Necsulescu 2011; Harinarain and Haupt, 2015; Khan and Mahmood, 2013; Lee 2015; Pektas 2015; Peterson 2015; Shraiky and Lamb, 2013.) In the process of creating innovations the activity of producing personal relationships is enhanced by the mix of students with different levels of knowledge (Khan and Mahmood, 2013). In DevLAB students are at least on 3th year since the model requires a basic knowledge of their own profession. In addition teams of DevLAB includes unemployed, experienced professionals. Staff members have background from different industry fields and have at least master's education as well as pedagogical studies. External participants are experts of different fields of industry. 4.2.7 Division of labour Division of labour is divided between two groups of actors; students and staff members. (Brandt et al., 2013; Bull and Whittle, 2014; Habash, Suurtamm and Necsulescu 2011; Hundhausen, Fairbrother and Petre 2012; Carter and Hundhausen, 2011; Mor and Mogilevsky, 2013.) In DevLAB students are always working in teams. Every team has to decide their tasks and roles. Different tools and team coaching are used to support each team to recognize the roles and members suitable for each role. Students are also encouraged to try roles and tasks they find challenging. In DevLAB students require supervision and coaching several times in a week. There are specific staff members responsible, called LAB Masters, for taking care of operational activities, such as planning of the learning activities in studio and evaluation of the students. Student teams have also possibilities to have coaching from experienced coaches, who have different areas of expertise. In the beginning of the semester these coaching moments are organized by LAB Masters and coaches, by the end of the semester students are expected to be fully independent to recognize the need of coaching and contact coaches themselves.
5. Conclusion Studio based learning are one of the promising pedagogical methods to combine theory and practice in higher education. LAB Studio Model (LSM) is one of the higher education concepts utilising the studio model practices in Finland. This article presents a study about the common elements of studio model and entrepreneurship educations. Results of the overview study give a strong indication that there are no articles written about
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Heikkinen Kari-Pekka, Seppänen Ulla-Maija and Isokangas Jouko entrepreneurship and entrepreneurship educations utilising studio based learning. Even with the limitation that the study was performed by using only one database, the results indicate there seems not to be a significant number of entrepreneurship education settings utilising studio practices at the moment. This might also indicate the weakness of the real work-life connection among the educations utilising studio pedagogics. Results of the literature review shows that the current studio practices are mainly established based on the academic and disciplinary needs, while LSM practices instead are established from the needs of renewing and bridging the higher education and work-life practices. The common elements that studio model education have in common with entrepreneurship education are; active learning methods, such as project based learning and learning by doing; iterative process; dealing with uncertainty; close work-life connection; active and self directed learning; and sense of community. The uniqueness in LAB studio model practices compared to the other studio practices include; true interdisciplinarity; conscious support of self-awareness; and conscious support of team working abilities. Also as a process vise, LSM produces new, innovative solutions with related business models; the competitive nature of the development process generate the culture of excellence, where student teams have common goal to work together in order to develop the most viable solutions as demonstrations.
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The Challenge to Entrepreneurship Educators (Non Obstante David Birch) Dale Heywood and Alan Southern University of Liverpool, UK
[email protected] [email protected]
Abstract: Just over a decade ago in the journal Academy of Management Learning and Education Magnus Aronsson (2004) published a paper entitled “Education Matters – But Does Entrepreneurship Education? An interview with David Birch”. The reason for the interview was to open up a discussion on what might be required in the taught provision of entrepreneurship education. This was essential, it was argued, for entrepreneurship education to provide a more effective environment for encouraging entrepreneurship. In the paper Birch developed a critique of those involved in entrepreneurship education, particularly citing the role of institutions and the programmes they deliver and questioned their impact on producing high quality entrepreneurs. This debate raised age old issues about practice and theory, about praxis, and about the role of structure and agency particularly relating to the contradictions that arise to even define the discipline of ‘entrepreneurship’. Less sophisticated although equally pertinent, is the question of whether entrepreneurship can be taught. The critique offered in the interview between Aronsson and Birch has left an impression on many entrepreneurship educators and it was this that became the starting point for the design of a programme developed by the authors of this paper. We decided to take on the challenge suggested to incorporate sales training, negotiation and other entrepreneurship relevant content into a curriculum for postgraduate entrepreneurship students at our institution. Our view was sympathetic to the critique offered by Birch so we sought to design a bespoke and creative entrepreneurship M-level degree that has sales and negotiation as the foundational module of the programme. Other equally innovative modules support this. The UK higher education system typically has a dissertation equating to a third of the degree. We replaced this with a three semester module on developing sales skills and teaching negotiation techniques which are practiced repeatedly. We believed we could legitimately question the functional purpose of a dissertation for people aiming to become entrepreneurs. However, in recognising the paradox often found between theory and practice, we felt that those critical, analytical skills that are part of the academic journey, particularly in the dissertation period, had an important role for nascent entrepreneurs. We recognised that if we could support students to produce an output, a paper, of ‘publishable standard’ we would take those students through a journey that would support their learning for entrepreneurship juxtaposed alongside practitioner-based pedagogy. This keeps at arms length, views articulated about student learning that tended to be conservative and opposed to such a change. We present in this paper a case study of what we have sought to develop, showing the barriers we overcame and how we incorporated live projects, utilising various learning technologies and by encouraging entrepreneurial behaviour in the learning activities of students. We hope this case provides inspiration for other entrepreneurship educators to support the development of their courses and programmes in delivering a closer match between what universities can provide and what is required in entrepreneurship education. Keywords: entrepreneurship education, critical skills, experiential learning, negotiation, research publication, dissertation redundancy
1. Introduction This paper shares the advantages of redeveloping a UK Masters' level university programme which was designed to encourage students studying entrepreneurship to gain a better understanding and appreciation of several absent skills, competences and experiences during their education. It explains the thinking behind the introduction of new features and demonstrates how students have benefited from them thus far. The programme we inherited had previously been an MBA and that was reflected in the structure of content focus. It was like many other MBA’s, a rather traditional business management programme but called MBA Entrepreneurship. The year long programme has been completely restructured over the past three years and has been built around a new 60 credits, three semester, foundation module, Sales, Selling & Negotiation. This was designed to be the 'spine of the degree' partly in response to David Birch’s observation that sales lie at the heart of any successful entrepreneurial activity. In this paper we provide evidence of the innovative subjects and activities we have introduced over the entire degree which we feel differentiates our programme from other M-Level entrepreneurship programmes. Consequently other educators may be encouraged to examine features such as the traditional dissertation for its educational and experiential purpose for entrepreneurship students. [Jeske 1984; Vos 2013]. Readers will learn that there are a broader selection of subjects introduced to the degree which have inspired graduates and existing students to become more entrepreneurial even though they don’t all expect to set up new ventures.
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2. Surveying associated literatures In order to cover all the associated literature areas required for this project it was necessary to cover many education research specialisms. These include the content of enterprise and entrepreneurship programmes, literature on the objectives and effectiveness of entrepreneurship and enterprise education, sales education, negotiation training and dissertation purposes in higher education. These are consequently set out in this order.
2.1 Content of enterprise and entrepreneurship education There is a great deal of conflicting commentary and opinion when it comes to educators debating ‘what’ should be taught in entrepreneurship and enterprise education and indeed ‘how’ it should be taught (Gibb 2011; Leitch et al 2012). A division of enterprise and entrepreneurship education has emerged recently which now adds to the confusion of which is which (Harte & Stewart 2012; Jones & Matlay 2011). Enterprise education is often presented as more practical focussed whereas entrepreneurship education is presented as more start-up oriented. There are also debates about the expected outcome of entrepreneurship education with Leitch et al [2012] noting how the shift has moved from encouraging students to create new businesses on graduation to a new emphasis on regarding entrepreneurship as a way of thinking and behaving. This has been particularly problematic for us because we have a very diverse cohort of students who have come to study with us since taking over the programme in 2012. We actively recruit small business owners, social entrepreneurs, family firm inheritors, nascent entrepreneurs, self employed people as well as those who have a less defined intention of ‘some day’ setting up a new business. Therefore the assumption and basis for much critique in the literature is that entrepreneurship fails to meet its expected outcome of more start-ups (Aronsson 2004; Pardo 2013). Some researchers argue educators should not only aim for more start-ups and new ventures to be created but to develop ‘autonomy’ (van Gelderen 2010) an entrepreneurial mindset (Collins et 2006) the ability to create new opportunities (Neck et al 2014) and focussing on the future (Fayolle 2013). It would appear that few other subjects taught at university come under as much scrutiny as entrepreneurship and enterprise education with the much debated ‘can entrepreneurship be taught’ at its heart. However with the rapid increase in universities providing entrepreneurship education about, for and through (Sirelkhatim & Gangi 2015) it would seem that the market has decided it is a resounding ‘yes’ and students continue to apply in ever greater numbers. This poses an ongoing problem for educators however.
2.2 What and how of teaching entrepreneurship The authors work in a traditional academic university which imposes its own requirements and traditions for how things should be done in the learning and teaching sphere. In agreement with Vanevenhoven [2013] we found that in order to challenge this traditional philosophy as entrepreneurship educators, we need to be entrepreneurial ourselves. What we proposed was a radical shift in education supported by the broader paradigm shift of moving from teacher centred education to a learner centred entrepreneurship education programme. A decade ago Lourenço & Jones (2006) following a full systematic literature review of what and how entrepreneurship education was taking place, identified a distinct difference between the traditional teaching approach and what they termed an alternative approach. Table 1: Traditional and alternative teaching approach A comparison of traditional and alternative teaching approach/mode for entrepreneurship education Traditional approach Alternative approach Knowledge Instructed to learners Constructed by learners Learners (e.g. students, participants)
Received knowledge and contain knowledge
Constructors, discoverers and creator of knowledge
Institutions (e.g. Colleges, Universities, faculty) Relationships
Classify and sort learners
Develop learners’ competencies and talents Personal interactions among learners and between institutions and students Mixture of individualistic and interactive learning activities dynamic
Activity type
Impersonal relationship among learners and between institutions and learners Individualistic - static
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Dale Heywood and Alan Southern A comparison of traditional and alternative teaching approach/mode for entrepreneurship education Traditional approach Alternative approach Example of teaching method Lecturing, reading, question and Activities, presentations, answer session, advice and simulation, role-play, scenario, feedback etc games, etc Assumptions Teaching and learning is through Teaching and learning is through ‘top-down’ instructive approach – ‘bottom-up’ constructive approach transmissive methodology – transformative methodology
Source: Lourenço & Jones (2006) The programme we have designed is very much more reflective of the ‘alternative approach’ with the learning intended to be transformative for students and graduates, not transmissive as is shown in Table 1.
2.3 Sales education and training literature Having decided to introduce a greater focus on sales and selling training for our students we consulted the literature. We found that all the academic journals publishing sales education research were USA based which was disappointing. This helped us appreciate there was scope for our MSc students to not only participate in the novel activities we were preparing for them, but they could also write about their experiences and potentially contribute to research on sales education. The sales training literature is similarly contested for its efficacy [Bolander et al 2014] its place in the curriculum [Bowers & Summey 1983] why sales education needs to be thought of differently [Dixon & Tanner 2013] and how sales education can be transformative. Mani et al [2015] recommend the use of role play exercises to help students understand how body language can have either a positive or negative effect on outcomes. We have utilised these in our module. Several literature reviews are equally critical of existing sales training programmes appealing for future research to concentrate on identified gaps [Cummins et al 2013]. Following their own detailed literature review of sales research Singh et al [2015] suggest that future sales training research needs to incorporate the effects of social media and its propensity for helping people acquire sales skills. The discipline of sales is closely associated with marketing but also with negotiation. One example which links both together is Nielson & Border [2016] who show how sales professionals negotiate with the wider world.
2.4 Negotiation training literature The literature in negotiation education and training is similarly diversified in subject, process and utility often being closely aligned with conflict resolution, law and international business. Pedagogy issues are dealt with rarely but some examples include Fortang [2000] who is interested in pedagogy of teaching negotiation. Borden & Viscomi [2015] recently addressed what they term “the wicked problem” of rethinking negotiation teaching. Others provide a reflective overview of how teaching negotiation has evolved over the decades [Greenhalgh & Lewicki [2015]. Other studies look at specific factors such as emotional intelligence and how it affects negotiations [Kim et al 2014] or how knowing the right questions to ask and when, are significant in negotiations [Miles 2013]. On ‘what’ to teach and ‘how’ is a lively subject base in negotiation literature where suggestions on the use of role plays [Poitras et al 2013] and how the use of videos can be useful too [Williams et al 2008] whereas Bobot & Goergen [2010] are enthusiastic about the use of simulations to help with teaching negotiation techniques. Wade [2009] question how we measure success in negotiation outcomes and how intercultural dimensions are often overlooked in negotiation education programmes which goes directly to assessing how effective different approaches can be. So there is an overlap of scepticism between enterprise education researchers’ questioning if entrepreneurship can be taught with a not dissimilar suggestion in negotiation education research.
2.5 Dissertation literature In order to achieve our radical improvements we first had to tackle the problem in M-Level taught education of the dissertation and universities historic preference for signifying a master’s degree by the production of a dissertation [Grusendorf 1941, Vos 2013]. This feature has remained unchallenged for decades. Where research is now beginning to appear, the question of the purpose of a dissertation has been raised. Anderson et al [2006, 2008] surveyed both students and supervisors and found parallel problems from both sides with commitment and expectations. de Kleijn et al [2014] highlight the tensions in students and supervisors having to adapt to one another’s expectations which are not always balanced. This outcome is also made explicit by Ginn [2014] looking
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Dale Heywood and Alan Southern at UK geography masters. Pilcher [2011] terms the dissertation ‘an elusive chameleon’. A recent literature review carried out by the Higher Education Academy [Vos 2013] introduces the problem of plagiarism and academic dishonesty when students are not supported sufficiently in the production of their thesis or dissertation. The review states that dissertations require students to demonstrate higher level skills including evaluation, synthesis, critical analysis and judgement along with intellectual coherence as well as personal skills such as time management and the ability to prioritise tasks. It goes on to state: “Additional research is needed to determine whether the knowledge and skills can be developed and demonstrated using an alternative type of assessment that may also reduce the challenges and problems inherent in the current approach.” p11 We believe our ‘alternative’ proposal does just that and others have voiced similar concerns. Jeske [1984] lists five reasons why writing training workshops are required in order to produce not only the high quality writing required for a master programme, but also the advanced intellectual challenge highlighted in the Vos [2013] report mentioned above. Jeske recognises five problems with how the dissertation process was failing students: !
Graduate writers are usually unprepared for such professional writing tasks as the dissertation.
!
Graduate departments neglect training in writing. Individual departments may offer research and methods courses, but these almost always focus on acquiring knowledge, not communicating it.
!
The dissertation is a unique task performed in a unique situation.
!
More attention to writing would result in sharper thinking
!
Greater focus on dissertation-level writing would have long-term benefits for both student and profession.
The authors’ consulted this paper and took on its suggestions when we were redeveloping the MSc Entrepreneurship programme. It may be over thirty years old but it still resonated with both authors. Universities expect high level writing but don’t provide the support students had indicated they needed. We decided that our students would be challenged to aim for a ‘publishable standard article’ but with continuous support supervision throughout the entire process.
3. Refocusing of our MSc entrepreneurship degree Having evidenced some of the areas in the higher education literature that were taken into consideration some tough decisions had to be made about what the final degree programme intended to achieve for our students.
3.1 What's in and what’s out? Some of the content of the degree we inherited were dispensed with straight away and others have been removed or revamped over the past three years. Managing Finance covered traditional accountancy methods and was replaced with an entrepreneurship focussed Entrepreneurial Finance module which includes crypto currency uses, payment technology developments, sources of funding for start up businesses and uses crowdfunding in small teams as an assessment method. Table 2: Old programme structure and focus Applied Business Research Methods
Managing Finance
Marketing Management
Entrepreneurship & Business Creation
Strategic Organisation
Government & Business Consumer Behaviour Social Enterprise
Entrepreneurial Marketing
Entrepreneurial Decision Making
Computer Simulation Game = 5 days Dissertation 10,000 words 60 credit module
Marketing Management also relied on traditional marketing theories where applied marketing techniques are better demonstrated and practised in Entrepreneurial Marketing. Students work with local SME’s to enhance their marketing position or the students own businesses if they have them. Strategic Organisation was changed
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Dale Heywood and Alan Southern from a compulsory module to an elective. Venture Dynamics: Buying Building Selling Enterprises was introduced as a module that takes entrepreneurship education into the business transfer realm [Heywood 2015].
4. Dissertation redundancy The most significant and contested change was the removal of the 60 credit Dissertation component and replacing it with a year long alternative scholarly article development. If we are training students to be productive in an occupation where a dissertation or large written project will be required on a fairly regular basis, then the dissertation has immense value. However for the majority of students on the MSc Entrepreneurship programme over the past four years, the dissertation was perceived as a pointless ‘bolt on’ at the end of the year. Most M-Level degrees are recognised by traditional faculty as having a dissertation or thesis of varying lengths. Grusendorf (1941) questioned the purpose and relevance of dissertations at M-Level education as far back as 1941 and we agreed that there was a strong argument for making the dissertation redundant in our programme. The academic writing skills required to achieve a masters degree are still fundamental but in the form of a ‘publishable standard journal article’ instead. Increasing restrictions have been put on research conducted by students at our institution so we questioned if an extended literature review has the value it once had when primary research into a subject was permitted (Anderson et al 2006, 2008, de Kleijn et al 2014). Supervision of dissertations is demanding on academics time when they would rather be conducting their own research or writing (Ginn 2014; Pilcher 2011). With increasing internationalisation of higher education, we found many students regard the summer semester as a travelling opportunity, not one where they needed to be focussed on writing a ten to fifteen thousand word dissertation. Below are some of the factors we took into consideration when deciding to remove the dissertation and replace it with the Sales, Selling & Negotiation module but with a publishable quality article instead:
4.1 Purpose of the dissertation to entrepreneurship graduates? !
Quality and length of the dissertation
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Supervision of the dissertation
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Limitations on gathering primary research
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Cost of producing numerous copies of a dissertation
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Academic writing abilities of non native English writers
4.2 Article production as a purposeful alternative !
Shorter but targeted towards publication
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Academically rigorous
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Immersion in the Journal of their choice
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Developmental learning incorporated into18 writing clinics
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Spans the whole academic year
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Mini viva session helps students communicate their research paper
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Peer-to-Peer learning in the Student Conference day
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Exposure to academics for their views on the article’s value and significance
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Collegiate learning culture
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Author identity needs to be gradually accepted
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PhD potential is increased for writing and submitting an article whether it’s published or not
Sales, Selling & Negotiation has been developed as the ‘Spine of the Degree’ from which other innovative modules hang like limbs as can be seen in Table 3. Other modules have been built to supplement the proactive entrepreneurship education experiences we want students to achieve.
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Dale Heywood and Alan Southern Table 3: New programme with sales, selling and negotiation as the ‘spine of the degree’ Research Methods for Business Entrepreneurship & Business Creation
Sales, Selling & Negotiation Part 1 2 videos = 20 credits
Entrepreneurial Finance Venture Dynamics: Buying, Building, Selling Enterprises
Sales, Selling & Negotiation Consumer Behaviour Strategic Organisation E-Business Strategy
Part 2 2 videos = 20 credits
Business Ethics Social Enterprise Becoming a Leader
Entrepreneurial Marketing
Sales, Selling & Negotiation
Entrepreneurial Decision Making
Part 3 1 video Written Article Student Conference Mini Viva
5. Academic article production Unlike the ‘bolt-on’ dissertation, Sales, Selling & Negotiation is taught over all thee semesters with six, two hour practical workshops each semester and six, two hour writing clinics each semester. This way students continuously develop their sales skills and negotiation techniques using role plays (Poitras et al 2011) and eventually develop an entrepreneur identity through live selling situations (Williams et al 2008; Dixon & Tanner 2013) as well as developing an ‘author’s voice’ through working regularly on producing a scholarly quality journal article (Ginn 2014). The supervision of the written article has had the most benefit to students because they feel we are co creating their articles with them. They submit their work in progress every month for suggestions and comments from us and ideas about how to develop their papers further. When compared with the previous dissertation model of supervisors reading a two page proposal and first draft of a chapter only, the redeveloped structure and supervisory model is both more efficient and more productive. The standard of students’ scholarly writing improves incrementally with guidance from us as supervisors [see Sirelkhatim & Gangi 2015 as an example]. This has created a practical programme that fosters innovation, creativity, technology exploitation which demonstrates enhanced enterprising skills and intellectual stimulation too.
5.1 Practising sales and negotiation Role play exercises are used to reflect real world and imaginary problems and situations and permit students to practice scenarios that represent everyday buying and selling situations. These in-class role play scenarios are a very popular method of transferring information but also of awakening student’s perception of sales and negotiation as fundamentally important to all businesses. Assessment topics can be created from current affairs. For example one of the authors was travelling to South America just as the media was reporting the intervention of the World Health Organisation with regard to the Zeka virus (WHO 2016). So students were given a ‘brief’ as either buyers or sellers of a recognised product which could prevent mosquito bites but is not in fact marketed as a mosquito repellent. This required clever manipulation of online customer feedback without claiming the
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Dale Heywood and Alan Southern product will prevent Zeka infection. For the buyers team, who were a tourist business their task was to persuade the manufacturer of the product to sell them a large quantity as a first time customer. This similarly involved not mentioning explicitly why they were so eager to purchase this product whilst expecting them to demonstrate being willing to offer favourable terms to the supplier. Each group creates a video ‘pitch’ as either buyers or sellers based on information they can gather online and from mainstream media sources.
6. Entrepreneurship educators challenges Our ambitions meant we started with what we wanted students to learn and how we wanted them to learn and constructed ways and means of that learning being achieved (Biggs & Tang 2011). We have designed teaching and learning activities that directly address the learning outcomes. There is an ever challenging need to dispense with what has been taught ‘about’ entrepreneurship and an acceptance that students need to learn ‘for’ and ‘through’ active participation in entrepreneurial situations (Neck et al 2014). Learning-by-doing (Chang et al 2014) has had a far greater impact on all our students for the past few years which encourages us to continually look for better learning and teaching styles which directly benefit students whilst they are learning. These also help graduates to adapt quicker to the demands of the labour market when they select their career paths. Every situation in life is presented as a potential selling and negotiation situation including interviews for jobs, opening a bank account, choosing a partner, deciding to have children, setting up a business and selecting a career so this subject should be given much greater prominence in the modern entrepreneurship and management education curriculum.
6.1 Limitations and reflections As this is only the second year the new structure and module contents have run these are very early observations. We met determined resistance to these changes from traditional faculty but perseverance, patience and persuasion won in the end. Students have found it more relevant to their future careers and several colleagues have also abandoned dissertations in their own programmes.
References Anderson, C. Day, K. and McLaughlin, P. [2006] Mastering the dissertation: lecturers’ representations of the purposes and processes of Master’s level dissertation Studies in Higher Education Vol. 31, No. 2, pp. 149–168 Anderson, C. Day, K. and McLaughlin, P. [2008] Student perspectives on the dissertation process in a masters degree concerned with professional practice Studies in Continuing Education Vol. 30, No. 1, pp 33-49 Aronsson, M. [2004] Education Matters – But Does Entrepreneurship Education? An interview with David Birch. Academy of Management Learning & Education Vol. 3, No. 3, 289–292. Biggs, J. and Tang, . [2011] Teaching for Quality Learning at University 4th Ed. Open University Press: Maidenhead Bobot, L. and Goergen, A. [2010] Teaching European Negotiations: The EU Chocolate Directive Simulation International Negotiation Vol 15, pp 301–323 Bolander, W. Bonney, L. and Satornino, C. [2014] Sales Education Efficacy: Examining the Relationship Between Sales Education and Sales Success Journal of Marketing Education Vol. 36, No. 2, pp 169–181 Borden, R. and Viscomi, R. [2015] Review Essay. The Wicked Problem of Rethinking Negotiation Teaching Negotiation Journal Vol 31, Iss 1, pp 65-81 Bowers, M. and Summey, J. [1983] A curriculum for personal sales training in an academic setting Journal of Marketing Education, Spring, pp 11-15 Chang, J. Benamraoui, A. and Rieple, A. [2014] Learning-by-doing as an approach to teaching social entrepreneurship. Innovations in Education and Teaching International Vol 51, Iss 5, pp 459-471 Collins, L. Smith, A. and Hannon, P. [2006] Discovering entrepreneurship: An exploration of a tripartite approach to developing entrepreneurial capacities Journal of European Industrial Training Vol. 30, No. 3, pp 188-205 Cummins, S. Peltier, J. Errfmeyer, R. and Whalen, J. [2013] A Critical Review of the Literature for Sales Educators Journal of Marketing Education Vol 35, No. 1, pp 68–78 de Kleijn, R. Bronkhorst, L. Meijer, P. Pilot, A. and Brekelmans, M. (2014) Understanding the up, back, and forward component in master's thesis supervision with adaptivity, Studies in Higher Education pp 1-17 http://dx.doi.org/10.1080/03075079.2014.980399 Dixon, A. and Tanner, J. [2013] - Transforming Selling: Why It Is Time to Think Differently About Sales Research Journal of Personal Selling & Sales Management Vol 32, Iss 1, pp 9-13 Fayolle, A. [2013] Personal views on the future of entrepreneurship education. Entrepreneurship & Regional Development Vol 25 No 7-8 pp 692-701 Fortang, R. [2000] Taking Stock: An Analysis of Negotiation Pedagogy across Four Professional Fields Negotiation Journal Vol 16, Iss 4, pp 325-338
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Dale Heywood and Alan Southern Gibb, A. [2011] Concepts in to practice: meeting the challenge of development of entrepreneurship educators around an innovative paradigm. The case of the International Entrepreneurship Educators’ Programme (IEEP) International Journal of Entrepreneurial Behaviour & Research Vol. 17 No. 2, 2011 pp. 146-165 Ginn, F. [2014] “Being like a researcher”: supervising Masters dissertations in a neoliberalizing university Journal of Geography in Higher Education, Vol 38, No 1, pp 106–118 Greenhalgh, L. and Lewicki, R. [2015] Evolution of Teaching Negotiation: The Legacy of Walton and McKersie Negotiation Journal Vol 31, Iss 4, pp 465-476 Grusendorf, A. [1941] The Master’s Thesis The Journal of Higher Education Vol 12, No 2 pp 85-88 Harte, V. and Stewart, J. (2012) Develop.evaluate.embed.sustain: enterprise education for keeps Education + Training Vol. 54 No. 4, 2012 pp 330-339 Heywood, D .[2015] Venture Dynamics: Buying Building Selling Enterprises: Moving Entrepreneurship Education Beyond Start-Ups European Conference on Innovation and Entrepreneurship 2015 Genoa, 18-19 September Heywood, J. [2000] Assessment in Higher Education: Student Learning, Teaching, Programmes and Institutions. Jessica Kingsley Publishers: London Jeske, J. [1984] Demystifying the Dissertation U.S. Department Of Education Office ERIC Number: ED268529 Jones, C. and Matlay, H. [2011] Understanding the heterogeneity of entrepreneurship education: going beyond Gartner Education + Training Vol. 53, No. 8/9, pp 692-703 Kim, K. Cundiff, N. and Choi, S. [2014] The Influence of Emotional Intelligence on Negotiation Outcomes and the Mediating Effect of Rapport: A Structural Equation Modelling Approach Negotiation Journal Vol 30, Iss 1, pp 49-68 Leitch, C. Hazlett, SA. and Pittaway, L. [2012] Entrepreneurship education and context Entrepreneurship & Regional Development Vol 24, Nos. 9–10, pp 733–740 Lorenco, F. and Jones, O. [2006] Developing Entrepreneurship Education: Comparing Traditional and Alternative Teaching Approaches International Journal of Entrepreneurship Education Vol 4, pp 111-140. Mani, S. Kothandaraman, P. Kashyap, R. and Ashnai, B. [2015] Sales Role-Plays and Mock Interviews: An Investigation of Student Performance in Sales Competitions Journal of Marketing Education pp 1-16 Miles, E. [2013] Developing Strategies for asking questions in negotiation Negotiation Journal Vol 29, Iss 4, pp 383-412 Neck, H. Greene, P. and Bush, C. [2014] Teaching Entrepreneurship: A Practice-Based Approach. Edward Elgar: Cheltenham Nielson, B. and Border, T. [2016] Teaching and Training Future Sales Professionals How to Negotiate with Real World Experience Journal for Advancement of Marketing Education Vol 24, pp 8-15 Pardo, C. [2013] Is business creation the mean or the end of entrepreneurship education? A Multiple Case Study Exploring Teaching Goals in Entrepreneurship Education Journal of Technology Management & Innovation, Vol 8, Iss 1, pp 1-10 Pilcher, N. [2011] The UK postgraduate Masters Dissertation: an ‘elusive chameleon’? Teaching in Higher Education, Vol 16, No. 1, pp 29-40 Poitras, J. Stimec, A. and Hill, K. ]2013] Fostering Student Engagement in Negotiation Role Plays Negotiation Journal, Vol 29, Iss 4, pp 439-462 Sirelkhatim, F. and Gangi, Y. [2015] Entrepreneurship education: A systematic literature review of curricula contents and teaching methods Cogent Business & Management Vol. 2, No. 1, pp. 1052034. Singh, V. Manrai, A. and Manrai, L. [2015] Sales training: A state of the art and contemporary review Journal of Economics, Finance and Administrative Science Vol 20, pp 54–71 Vanevenhoven, J. [2013] Advances and challenges in entrepreneurship education Journal of Small Business Management Vol 51, No 3, pp. 466–470 van Gelderen, M. [2010] Autonomy as the guiding aim of entrepreneurship education Education + Training Vol. 52 No. 8/9, 2010 pp 710-721 Vos, L .[2013] Dissertation study at the postgraduate level: A review of the literature Higher Education Academy Wade, J. [2009] Defining “Success” in Negotiation and Other Dispute Resolution Training Negotiation Journal Vol 25, Iss 2, pp 171-179 Williams, G. Farmer, L. and Manwaring, M. [2008] – New Technology Meets an Old Teaching Challenge: Using Digital Video Recordings, Annotation Software, and Deliberate Practice Techniques to Improve Student Negotiation Skills Negotiation Journal Vol 24, Iss 1, pp 71–87 World Health Organisation (WHO) Press Release http://www.who.int/csr/don/7-march-2016-zika-argentina-andfrance/en/
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Entrepreneurial Characteristics in STEM: A Higher Education Institution Perspective Simon Hill Coventry University, UK
[email protected] Abstract: The benefit of entrepreneurship and innovation within the STEM subjects is not in question, with national bodies and academic research, expanding within the topic (RAEng 2015). The existence of entrepreneurship education and support within Higher Education Institutions (HEIs) is also increasing, although not necessarily within all subject areas (Young 2015). With often limited resources to integrate entrepreneurship education and support into STEM, is there an entrepreneurial characteristic profile that can be targeted? Are these student profiles attracted to certain topics within the STEM arena? By answering these questions, the enterprise resources of HEIs can be better allocated (but not limited to) to those individuals with increased entrepreneurial potential. This paper presents empirical data conducted at Coventry University into the entrepreneurial profiles possessed by students within the Faculty of Engineering and Computing. The data was collected based upon the Gasse et al. (2006) Characteristic Inventory model. The data collected measures eleven characteristics such as internal locus of control, creativity, self-efficacy and risk taking propensity; all of which have significant levels of research surrounding the impact upon entrepreneurial action and intent. The results are compared across a range of samples groups that reflect disciplines within the STEM arena. This data is discussed in the context of specific STEM topics and the potential focusing of enterprise support resources being directed towards these individuals. By targeting these engineering students further, there is a potential economic impact to business and job creation. Comparison is also drawn between the use of the Engineering Councils UK-SPEC Chartered Engineer competencies, as many of the characteristics are mirrored within the entrepreneurial characteristics measured within this research. Improved focus upon the characteristic development in areas such as leadership and tolerance to ambiguity, can be implemented further within engineering curriculum. Keywords: entrepreneurship, STEM, characteristics, traits
1. Introduction Within Higher Education (HE) the focus upon the need for students with an understanding of enterprise and entrepreneurship has been highlighted within multiple key reports (Andersson et al. 2014; Curth et al. 2015). Yet there are areas of HE that have less enterprise and entrepreneurship engagement, such as engineering (Hill 2014). Therefore this paper looks to evaluate the different discipline segments of under graduate engineering students, in relation to entrepreneurship. Within the range of engineering disciplines for mechanical to design, each may invoke an image of a certain type of individual with specific characteristics, the research will highlight the differences between the differing types of engineering students. The measure of entrepreneurship to be used is not the stereotypical ‘has this person ran a business’, as it is known that being a business owner is regular appearance in entrepreneurial behaviour, but not a mandatory one (Koh 1996; Stokes and Wilson 2010). Rather this study breaks down what it means to be entrepreneurial into eleven entrepreneurial characteristics (Gasse et al. 2006), and measures these through quantitative research methods to establish which characteristics stand out within certain disciplines and which disciplines have the most significant levels of the characteristics. Whilst entrepreneurship in engineering may not be aswell integrated as it could be, the existence of these characteristics arise in multiple engineering based reports from the Engineering Council and the Royal Academy of Engineering, as well as the UK Standard for Professional Engineering Competence (UK-SPEC)(Engineering Council 2011). These associations are drawn out within the literature review.
2. Literature review Whilst there is some discussion as to the most appropriate word to encompass the characteristics that make up an entrepreneurial individual, such as a characteristic, trait or attribute (Stokes and Wilson 2010; White et al 2010), there is high degree of similarity between them. The QAA (2012) for example highlights a number of key behaviours, attributes and skills that account for key entrepreneurial characteristics that include opportunity recognition, self-confidence, perseverance, internal locus of control, action orientation, innovation/creativity, approach to management and decision making. The characteristics have been echoed within multiple self assessment questionnaires designed to measure entrepreneurial mind-sets, from both Gasse et al.(2006) and Caird (1993). Gasse et al.(2006) focuses upon twelve characteristics that include all those discussed by the QAA.
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Simon Hill However one characteristic discussed by Gasse was the need for challenge, which has yielded little further research to justify its inclusion. From another perspective, Caird (1993) focuses upon a narrower view of the characteristics of enterprising people, which include risk taking propensity, creative tendency, locus of control and motivation. Whilst this method has seen much usage within the enterprise education field, the narrow field of view limits the feedback to users. Following the review of these self assessment methods, Gasses method will be discussed in the research methods section in order to outline the process implemented within the study. The following paragraphs discuss the characteristics (derived through Gasse’s method) backgrounds both generally in the context of entrepreneurship and more specifically with engineering demographics.
2.1 Action orientation Having an idea is one thing, but without taking some form of action toward that idea leaves an unanswered opportunity. For this reason the ability for entrepreneurial individuals to take action is essential, both to start businesses but also to take action in other organisational contexts (Crant 2000). Similarly to business, being an engineer also requires an action orientated mindset to take problems and put into action solutions. Rodrigues and Rebelo (2013) highlighted the importance of software engineers being action orientated, as it acted as an indicator towards their future job performance being increased. The UK-SPEC suggests two key competencies to meet the Chartered Engineer standard that highlight the need for a action orientated mind-set: !
“Ensure that variations from quality standards, programme and budgets are identified, and that corrective action is taken.” (Engineering Council 2015: 26)
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“Set targets, and draft programmes and action plans.” (Engineering Council 2015: 25)
2.2 Creativity The connection between creativity and entrepreneurship is clear throughout the literature (see Rae 2007; Robinson 2006). Whilst businesses can be established by following structure, such as the processes imposed in many franchise models,creativity can be considered a key element that takes a business with limited potential and opens avenues for diversification and growth. As with other characteristics discussed within this literature review, creativity appears within multiple competencies listed to meet the Chartered Engineer status in UK-SPEC. These competencies are shown below: !
“Engage in the creative and innovative development of engineering technology and continuous improvement systems.” (Engineering Council 2015: 25)
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“Use imagination, creativity and innovation to provide products and services which maintain and enhance the quality of the environment and community, and meet financial objective.” (Engineering Council 2015: 29)
2.3 Independence The need for independence is often a characteristic that is associated with popular entrepreneurs, who venture into business as a ‘lone wolf’ to deliver solutions to the masses (Cooper and Schindler 2001). Often one of the motivations behind going into business initially is linked to the pull factor that independence presents, being your own boss and leaving the restraints of employment (Kuratko et al 2001). Yet as ventures grow, the need for support and additional stakeholders within an organisation, dilutes the independence that an entrepreneur can achieve. There is greater debate as to whether engineers can be characterised as desiring independence. Within a study of college students (Brown and Joslin 1995) it was established that the students had a significantly lower need for independence, when compared to those students in other disciplines. Despite this, research undertaken into professional engineers in a later stage of their careers, independence arises as a key factor into whether they remain in engineering (Jackson et al. 1993). Unlike many of the characteristics discussed within this literature review, the need for independence does not appear clearly within UK-SPEC, which draws parallels with Brown and Joslin (1995).
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2.4 Internal locus of control As with creativity, internal locus of control forms a substantial level of research within the entrepreneurship discussion (see Rotter 1966; Leone and Burns 2000; Caird 2013). The prominent name in the topic, Rotter (1966) discusses internal locus of control as a characteristic that gives individuals the ability to perceive a positive outlook upon changing the events around them. This ability is key to the establishment of businesses, but also forms a key element of the challenges that engineers undertake. The other side of the locus of control scale is external locus of control, which puts an individual into a mindset that suggests that events and other factors cannot be impacted by their actions. Understandably an engineer must also hold a degree of internal locus of control thinking, in order to develop solutions that can be applied. As well as being able to impact upon problems, having an internal locus of control associates with proactive personal development too, as to effectively move forward the belief that it is possible is essential. As it is unlikely that any engineer will automatically cover all of the UK-SPEC competencies, having an internal locus of control relates to achievement of all of the competencies. Internal locus of control also can be seen more specifically within the competencies below: !
“Strive to extend own technological capability” (Engineering Council 2015: 24)
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“Broaden and deepen own knowledge base through research and experimentation. Engage in formal postgraduate academic study. Learn and develop new engineering theories and techniques in the workplace. Broaden your knowledge of engineering codes, standards and specifications.” (Engineering Council 2015: 24)
2.5 Leadership Whilst entrepreneurs that remain as sole traders may display personal leadership, as responsibility grows within an organisation an entrepreneurial individual needs to demonstrate effective leadership over teams. Painoli and Losarwar (2012) describe the entrepreneurial leader as someone who not only manages a team, but brings groups of people together in order meet a common vision through committed effort. A review of UK-SPEC demonstrates 14 references to leadership (and its synonyms) within the assessment competencies. Below is a selection of these competencies: !
“Lead work within all relevant legislation and regulatory frameworks, including social and employment legislation.” (Engineering Council 2015: 28)
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“Identify, agree and lead work towards collective goals. “(Engineering Council 2015: 28)
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“Lead and support team and individual development.” (Engineering Council 2015: 27)
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“Lead teams and develop staff to meet changing technical and managerial needs.” (Engineering Council 2015: 27)
2.6 Need for achievement Another highly researched characteristic associated with the entrepreneurial mindset, is that of need for achievement. Discussed at length by a number of key scholars (see McClelland 1987; Perry et al. 1986; Klyver et al. 2007) the need for achievement is based around the achievement of goals and the potential recognition that can accompany that. Mathieu and St-Jean (2013) further discuss the need for achievement and its association with narcissistic views of these individuals. The achievement of the Chartered Engineer status is an achievement in itself and therefore suggests there is a need for achievement within those engineers that strive for that level. However the extent to which the need exists is not clear within UK-SPEC or the broader engineering literature, especially at University level.
2.7 Opportunity recognition Strongly attached with the creative process, the recognition of opportunities that present themselves is essential to the entrepreneurial method (Rae 2007). Not only to establish businesses, but also effectively develop and grow as an individual outside of the working environment. Baron describes the process as “connecting the dots”
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Simon Hill (2006: 108), and therefore once a pattern of cognition is established, it can become habitual to repeat the pattern. Within UK-SPEC the need for engineers to recognize opportunities is highlighted in a number of the competencies, examples of which are shown below: !
“Identify potential projects and opportunities.” (Engineering Council 2015: 25)
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“Prepare, present and agree design recommendations, with appropriate analysis of risk, and taking account of cost, quality, safety, reliability, appearance, fitness for purpose, security, intellectual property (IP) constraints and opportunities, and environmental impact.” (Engineering Council 2015: 25)
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“Identify constraints and exploit opportunities for the development and transfer of technology within own chosen field” (Engineering Council 2015: 25)
Despite the competencies suggested by UK-SPEC discussed above, Park (2005) notes that the average engineer does not have the tendency for opportunity recognition. Rather they need to actively develop the process or form partnerships with others.
2.8 Perseverance Eisenberger (1992) discusses the process of perseverance as one that utilises effort to achieve a goal, whilst overcoming a multitude of factors and adversity. Through the development of SMEs, adversity is a familiar term that often appears, therefore require this perseverance to continue to accomplish the goals and continue forward when the process is difficult. Van Gelderen (2012) cites the story of Sir James Dyson and the development of his dual cyclone technology into the mainstream vacuum cleaner market. Engineers like Dyson might be considered as needing an increased level of perseverance, however the literature joining these two groups is limited and no direct reference is made with UK-SPEC. Harris (1994) indeed does present empirical research that suggests students studying engineering at HE level do hold increased levels of perseverance, which was further clarified by Brown and Joslin (1995). These approaches however did not take into account inter-discipline differences across engineering as a whole.
2.9 Risk taking propensity An individual’s assessment of risk and decisions based upon that assessment, are discussed heavily within the entrepreneurship literature. This is not surprising given the original meaning of the word entrepreneur by Cantillon, as someone who takes upon risk in order to potentially achieve a return on investment (Thornton 1998). Brockhaus and Horwitz (1986) goes further, discussing the importance of recognising the probability factor within a decision and whether the probability of reward outweighs the initial risk. Luthje and Franke (2003) look specifically at the risk taking of engineering students and their future intentions towards starting a business post-graduation, and in line with the theory those with higher levels of risk taking are more inclined to starting a business in the long term. Whilst the taking of risks is not focused upon primarily within UK-SPEC, there are four competencies that refer to risk and its effective management: !
“Prepare, present and agree design recommendations, with appropriate analysis of risk.” (Engineering Council 2015: 25)
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“Define a holistic and systematic approach to risk identification, assessment and management.” (Engineering Council 2015: 26)
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“Raise the awareness of risk.” (Engineering Council 2015: 27)
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“Develop and implement appropriate hazard identification and risk management systems and culture.” (Engineering Council 2015: 28)
2.10 Self-efficacy The belief and confidence that an individual has toward their own abilities to accomplish a task, is an important one in both entrepreneurship as a whole, as well as narrower fields such as engineering. Self-efficacy (also referred to as self-confidence), is a cognitive dimension that like locus of control, relates to the control an individual wields over themselves (Rotter 1966).
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Simon Hill As a part of UK-SPEC, there is an individual competency that directed relates to the self-efficacy: !
“Be confident and flexible in dealing with new and changing interpersonal situations” (Engineering Council 2015: 28)
2.11 Tolerance to ambiguity The ability for individuals to manage uncertain situations is important for the process of starting a running a business as events often can differ from the initial plan (Furnham and Ribchester 1995). As situations vary with the environment and decisions by others, an effective entrepreneur can manage the high and low events, and effectively continue to produce results, whether others may lose momentum. Within higher education generally, El-Gohary et al. (2012) highlights that the competencies that should be developed during the education process is the ability to cope with uncertainty. Despite this focus within higher education, a focus upon the characteristic within UK-SPEC is not clear (compared to the clarity of connections discussed in previous sections).
2.12 Summary A number of the characteristics discussed within this literature review as being associated with entrepreneurial personalities, share resemblances with the competencies required to be assessed as a Chartered Engineer. As well as this, these characteristics have been shown to be important to the process of starting a business and turning ideas into economic impacts. The literature suggests that yielding these characteristics can in many cases have a positive influence upon an engineer, although this may not always be the case. In order to assess the level of these characteristics within engineering students of varying disciplines the approach discussed within the next section was adopted.
3. Research methodology Following the discussion within the literature around differing measurement techniques of these entrepreneurial characteristics, the decision was taken to base this research upon the validated methodology proposed by Gasse et al. (2006). This methodology presents a series of statements with attached four point Likert scales for respondents to respond with strongly agree, agree, disagree, strongly disagree. The forced nature of these scales aligns also with Caird’s General Enterprise Tendency test, that provides responded with a true/false two point Likert scale. Whilst the framework presented aligns with the supporting entrepreneurial characteristic research in the field, minor adjustments were made to the questionnaire tools to suit the sample groups and the objectives of the research. Firstly on initial pilot testing of the questionnaire with engineering students, the matter of vocabulary was risen. The initial test presented by Gasse was designed with business orientated individuals in mind, therefore presenting many of the statements with terms such as business, enterprise and commercial. Whilst these are not foreign words to the engineering community to be questioned, the feedback from pilot test participants was that by changing words such as business to project would disguise the entrepreneurial topic being assessed through the statements. Another change to the research methodology was the number of statements to be responded to, based upon the feedback from pilot test participants. Whilst the original assessment tested the existence of need for challenge, these questions amongst others lengthened the overall assessment to a level that was suggested as potentially off putting the students taking it un-incentivized. The final questionnaire that was released to the respondents was 33 statement long (based around the entrepreneurial characteristics) with supplementary questions to segment the participant demographics. Following the distribution of the self assessment questionnaire 452 engineering students responded fully.
4. Results and discussion The results gathered using the method discussed in the previous section is presented below based upon the highest levels of the characteristics measured. Whilst this research categorised the student sample into 18 disciplines, table 1 highlights the disciplines that achieved the highest result within each of the characteristics measured. The greatest proportion of the characteristics shared within the engineering disciplines were the Manufacturing and Communication Management students, sharing the highest scores for four of the characteristics each. For
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Simon Hill manufacturing students it is a positive results to see these characteristics being identified, with elements such as action orientation and creativity being recognised as an important competency within UK-SPEC. Despite the lack of clear mention within UK-SPEC, need for achievement and perseverance is also noted as being important in a long term perspective for these students (Harris 1994). Table 1: Characteristic top results Architecture
Design
Action Orientation
Communication Management Internal Locus of Control
Independence
Self-efficacy
Creativity
Leadership
Tolerance to Ambiguity
Need for Achievement
Opportunity recognition
Perseverance
Risk taking propensity
Manufacturing
The Communication Management students also claimed a high score with four of the characteristics. Whilst the Manufacturing students yielded an en equally high number of the characteristics results, the characteristics that the Communications Managements students displayed have a deeper connections with the UK-SPEC competencies, with each having one or more competencies that directly relate. The other two course disciplines that claimed the highest characteristic results were Architecture and Design students. These characteristics again share resemblance with the competencies seen within UK-SPEC, as well as other literary works that suggest the positive employability impacts upon professional engineers. For example based upon Jackson et al. (1993) work, the architecture students may enjoy a longer working period within the sector, based upon increased level of independent working. Whilst graphs were created for each of the characteristics measured within this study, due to space restrictions a summary graph is presented in Figure 1. The graph demonstrates characteristic results gathered through the self assessment methodology.
Figure 1: Mean entrepreneurial characteristics results graph
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Simon Hill Based upon these results, this paper suggests a potential connection and learning point that can be taken from these Manufacturing and Communication Management students. Notably, there are many factors that will impact upon these students to mould their mind-sets and the characteristics that they possess, such as upbringing and culture. But the key learning point for future changes to practice is learning from the pedagogies that are seen within these disciplines. Do the lecturers themselves impress their own characteristics upon students. Given the overall mean value of characteristics displayed by the Manufacturing, Architecture and Communication management students shown in Figure 1, engineering faculties globally could potentially develop their curriculums further to be in line with both the characteristics discussed in documents such as UKSPEC. Added to this further development of the mind-set of an entrepreneur, which will increase the propensity for business start ups, as well as the development of existing business through an intrapreneurial focus(Pinchot 1985). A key element that stood out within this data was the low level of creativity within disciplines such as Design. Whilst the Design students appeared within the middle range of the total results, the creativity level, was expected to be higher given the types of activities undertaken within their curriculum.
5. Conclusions This paper recommends a number of opportunities for both practices within the Higher Education sector as well as wider policymaking for engineering education. As suggested throughout the literature review, the characteristics considered to be those that make up an entrepreneurial individual, are also considered desirable in a non-entrepreneurial sense, especially in reference to the competencies assessed through the Engineering Councils UK-SPEC and other key engineering reports. Therefore the development of these characteristics and attributes, should be developed further to account for the variations within the various disciplines. The results recommend that engineering faculties within this institution could considered the pedagogical approaches of fellow teaching peers and the topics themselves in order to assess potential developments that may readdress the perceived imbalance of characteristics within the study.
References Anderson, S. Culkin, N. Penaluna, A. Smith, K (2014) An Education System Fit for an Entrepreneur. London: All-Party Parliamentary Group Baron, R. A. (2006) 'Opportunity Recognition as Pattern Recognition: How Entrepreneurs “connect the Dots” to Identify New Business Opportunities'. The Academy of Management Perspectives 20 (1), 104-119 Brockhaus, R. H. and Horwitz, P. (1986) 'The Psychology of the Entrepreneur'. Entrepreneurship: Critical Perspectives on Business and Management 2, 260-283 Brown, N. W. and Joslin, M. (1995) 'Comparison of Female and Male Engineering Students'. Psychological Reports 77, 35-41 Caird, S. P. (1993) 'What do Psychological Tests Suggest about Entrepreneurs?' Journal of Managerial Psychology 8 (6), 1120 Caird, S. (2013) 'General Measure of Enterprising Tendency Test' Milton Keynes: Open University Crant, J. M. (2000) 'Proactive Behavior in Organizations'. Journal of Management 26 (3), 435-462 Cooper, D. C. and Schindler, P. S. (2001) Business Research Methods. New York, NY: McGraw-Hill Irwin Curth, A., Chatzichristou, S., Devaux, A., and Allinson, R. (2015) Entrepreneurship Education: A Road to Success. Luxembourg: European Union Eisenberger, R. (1992) 'Learned Industriousness.'. Psychological Review 99 (2), 248 El-Gohary, H., O’Leary, S., and Radway, P. (2012) 'Investigating the Impact of Entrepreneurship Online Teaching on Science and Technology Degrees on Students Attitudes in Developing Economies: The Case of Egypt'. International Journal of Online Marketing (IJOM) 2 (1), 25-37 Engineering Council (2015) Uk-Spec [online] available from [06/03/2015] Furnham, A. and Ribchester, T. (1995) 'Tolerance of Ambiguity: A Review of the Concept, its Measurement and Applications'. Current Psychology 14 (3), 179-199 Gasse, Y. Camion, C. Ghamgui, A. and Tremblay, M. (2006) Entrepreneurial Intentions: A Cross-Cultural Study of University Students in Three Countries.: Faculté des Sciences de l'administration, Université Laval Harris, J. A. (1994) 'Perceptions of Engineering, Nursing, and Psychology Students' Personalities.' Canadian Journal of Behavioural Science/Revue Canadienne Des Sciences Du Comportement 26 (4), 484 Hill, S. Wick, D. Miles, L. (ed.) (2014) 'Longitudinal Case Study of the Changing Characteristics of Student Entrepreneurs Participating in SPEED Plus at Coventry University'. held November at Manchester. London: Institute of Small Business and Entrepreneurship Jackson, L. A., Gardner, P. D., and Sullivan, L. A. (1993) 'Engineering Persistence: Past, Present, and Future Factors and Gender Differences'. Higher Education 26 (2), 227-246 Klyver, K., Hindle, K., and Schøtt, T. (2007) 'Who Will be an Entrepreneur? How Cultural Mechanisms and Social Network Structure Together Influence Entrepreneurial Participation'. Frontiers of Entrepreneurship Research 27 (7), 1
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Simon Hill Koh, H. C. (1996) 'Testing Hypotheses of Entrepreneurial Characteristics: A Study of Hong Kong MBA Students'. Journal of Managerial Psychology 11 (3), 12-25 Kuratko, D. F. and Hodgetts, R. M. (2001) Entrepreneurship: A Contemporary Approach. Harcourt College Publishers Fort Worth Leone, C. and Burns, J. (2000) 'The Measurement of Locus of Control: Assessing More than Meets the Eye?' The Journal of Psychology 134 (1), 63-76 Lüthje, C. and Franke, N. (2003) 'The ‘making’of an Entrepreneur: Testing a Model of Entrepreneurial Intent among Engineering Students at MIT'. R&D Management 33 (2), 135-147 Mathieu, C. and St-Jean, É. (2013) 'Entrepreneurial Personality: The Role of Narcissism'. Personality and Individual Differences 55 (5), 527-531 McClelland, D. C. (1987) 'Characteristics of Successful Entrepreneurs'. The Journal of Creative Behavior 21 (3), 219-233 Park, J. S. (2005) 'Opportunity Recognition and Product Innovation in Entrepreneurial Hi-Tech Start-Ups: A New Perspective and Supporting Case Study'. Technovation 25 (7), 739-752 QAA (2012) Enterprise & Entrepreneurship Education: Guidance for UK Higher Education Providers. Gloucester: The Quality Assurance Agency for Higher Education Painoli, G. K. and Losarwar, S. G. (2012) 'Leadership through Entrepreneurship'. Leadership 2 (1) Perry, C. Macarthur, R. Meredith, G. and Cunnington, B. (1986) 'Need for Achievement and Locus of Control of Australian Small Business Owner-Managers and Super-Entrepreneurs'. International Small Business Journal 4 (4), 55-64 Pinchot III, G. (1985) 'Intrapreneuring: Why You Don't have to Leave the Corporation to Become an Entrepreneur'. University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship RAEng (2015) What is Engineering [online] available from [09/23/2015] Rae, D. (2007) Entrepreneurship: From Opportunity to Action. Basingstoke: Palgrave Macmillan Robinson, K. (2006) How Schools Kill Creativity. [Video] California: TED Rodrigues, N. and Rebelo, T. (2013) 'Incremental Validity of Proactive Personality Over the Big Five for Predicting Job performance of Software Engineers in an Innovative Context'. Journal of Work and Organizational Psychology 29 (1), 21-27 Rotter, J. B. (1966) 'Generalized Expectancies for Internal Versus External Control of Reinforcement.'. Psychological Monographs: General and Applied 80 (1), 1 Stokes, D. and Wilson, N. (2010) Small Business Management and Entrepreneurship. Andover:Cengage Learning EMEA Thornton, M. (1998) 'Richard Cantillon and the Origin of Economic Theory'. Journal Des Economistes Et Des Etudes Humaines 8, 61-74 Van Gelderen, M. (2012) 'Perseverance Strategies of Enterprising Individuals'. International Journal of Entrepreneurial Behaviour & Research 18 (6), 630-648 White, G., Carter, S., Abd Razak, A., and Prabhakar, G. P. (2010) 'Profiling an Entrepreneurial Family in the UK'. Management & Organization 2 (1), 5-18 Young (2014) The Lord Young Report: Enterprise for all. London: Gov.uk
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Relationships of Playfulness, Work Engagement and Innovative Performance Pia Hurmelinna-Laukkanen1, Sari Alatalo2, Eeva-Liisa Oikarinen1, Taina Vuorela2, Helena Ahola2, Päivi Aro2 Tiia Kallio3 and Kwadwo Atta-Owusu1 1University of Oulu, Oulu Business School, Finland 2Oulu University of Applied Sciences, Finland 3University of Oulu, Faculty of Education, and Axico, Finland
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Abstract: Playfulness and serious, credible business seem to be an unfitting match at first glance. However, astutely combined, they might promote competitiveness of firms. This study addresses a specific area in which humor and business can come together, as we examine the relationships between playfulness, work engagement and individual-level innovative performance. Earlier research on work engagement, playfulness and innovativeness has contributed to the creation of current research framework with hypothesized relationships between playfulness and work engagement as well as playfulness and innovative performance. Web-based survey data comprising the responses of 115 employees were collected from nine different organizations. The theoretical considerations and empirical evidence based on the collected data add to the existing knowledge on innovation management, entrepreneurship, human resource management, and organizational and humor theories. Our findings suggest that of the different forms of playfulness, playful attitude and atmosphere relates positively to work engagement which, in turn, shows positive relationship with innovative work performance. Nonetheless, a conclusion can be drawn that, like earlier research suggests, playfulness and humor need to be approached with certain caution when they are used as a strategic business tool: different forms of playfulness and humor can have different – even opposite – consequences for different innovative outcomes. Keywords: innovation, work engagement, playfulness, humor, management, entrepreneurship
1. Introduction Humor and business, play and work, are often contrasted to each other. However, closer examination reveals that the boundaries are not solid (Hunter et al. 2010). As a relatively obvious example of overlap areas, innovation activity and entrepreneurship comprise not only serious business but also creativity (Brattström, Löfsten and Richtnér 2012; Ward 2004) with which fun, humor, and playfulness resonate well. Although there is no general agreement on the composition of playfulness as a concept, some scholars have identified spontaneity, sense of humor, and manifested joy as the basic components (e.g., Proyer and Jehle 2013). In general, it could be assumed that playfulness and humor as a specific, verbal variant of play would be positively related to employees’ wellbeing at work, creativity, and innovative output (Mainemelis and Ronson 2006; Davis 2009). This is because important functions of organizational play involve e.g., play as creation, play as meaning-making and enactment, and play as orientation (Tökkäri 2015), all of which can promote the emergence of even radical ideas. For example, Ward (2004, 173) suggests that creativity relates “to an important task of entrepreneurs: generating novel and useful ideas for business ventures”. In contemporary organizations, playfulness has a significant role. Specifically, this applies to serious play, the intention of which is to achieve work-related goals which is of relevance (Heracleous and Jacobs 2005; Tökkäri 2015). Humor and play can provide a psychologically and strategically safe environment for introducing new ideas, for generating debate about important issues, for challenging assumptions, and for generally building a sense of joint purpose, thereby potentially strengthening work engagement and intrinsic motivation. However, deviating somewhat from the general definition of playfulness in which spontaneity is brought to the front, play in a business setting can seldom be totally impulsive (see Spraggon and Bodolica 2014). In particular, given that
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Pia Hurmelinna-Laukkanen et al. play and humor can turn out to be a “double-edged sword” (Malone, 1980; Rogerson-Revell 2007) with potentially negative consequences such as collusion and loss of credibility (Rogerson-Revell 2007; Bressler and Balshine 2006; Isaksen and Ekvall 2010), managerial astuteness and careful organization are needed. Creativity and wellbeing can emerge around serious, strategic issues as a result of promoting humor and playfulness, but certain level of attentiveness is likely needed. Although there are studies that have addressed the relationships of play and organizational creativity, explicit connection of work engagement and innovativeness has rarely been examined, especially empirically. Among the empirical studies, West, Hoff and Carlsson (2013) addressed the link between play and creativity, and found the mediating effects of openness, intrinsic motivation, and collaborative relationships to be relevant for this relationship. Similarly, there have been few studies that have examined the relationship between individual innovativeness and innovative work performance (see, e.g., de Jong and den Hartog, 2010). Still, play and humor rarely emerge explicitly in innovation literature. In order to add to the existing knowledge, we examine how perceived organizational playfulness (divided here into attitudes and atmosphere within organization, internal actions involving play and humor, and organizationexternal actions incorporating humor use) is related to work engagement, and further, what kind of relationship work engagement has to an individual–level innovation output (i.e. innovative work performance). The search for answers to these questions builds on the examination of existing innovation management and organization research and humor theories, and empirical evidence involving examination of 115 responses from nine firms of different sizes and representing different industries. In the following, we will first outline current knowledge on the relationships of work engagement and innovativeness, and then examine how playfulness in its different forms may contribute to these. Empirical examination follows this review. Discussion on the findings, theoretical contribution and managerial implications conclude the study together with evaluation of limitations and suggestions for future research.
2. Work engagement and innovativeness As relevant part of entrepreneurial activity and innovation management literature, the relationship between work engagement and innovativeness is one of the central interests in this paper. Lately there has been a significant increase in the research on engagement (Bakker et al. 2008). Here engagement refers to a workrelated state of mind characterized by vigor, dedication and absorption (Schaufeli and Bakker 2004; Schaufeli et al. 2002). These attributes, in turn, are characterized by such features as high levels of energy, resilience, enthusiasm, inspiration, pride, and deep concentration (Schaufeli and Bakker 2004). These aspects emerge in a variety of studies where human resource management and entrepreneurship, for example, are taken as guiding views. As a consequence it can be said that engagement is a relatively widely studied topic, as is innovativeness. Organizations have traditionally organized their innovative activities through quite formal institutionalized structures, such as Research and Development (R&D) departments (Cassiman and Veugelers 2006). However, innovation can now be found in various parts of organizations and their interactions (Huizingh 2011). Companies increasingly rely on their employees to facilitate their innovation efforts (Subramaniam and Youndt 2005). Employees are increasingly encouraged to be entrepreneurial and proactive in the search for novel solutions to work-related problems (Kesting and Ulhoi 2010). This has also attracted the interest of researchers. There is a growing body of research, e.g., in the field of social psychology, that is trying to enhance understanding of the phenomenon (e.g., Scott and Bruce 1994). Innovations are fundamentally products of human mind or minds, and manifestations of entrepreneurial orientation. The objective of individual innovativeness at work is to generate and realize useful ideas which enhance an organization’s competitiveness (Ward 2004; Tuominen and Toivonen 2011). The result of an innovative idea is often a tangible output such as a new product or service, working method, process, technology or design (Criscuolo et al. 2013; Oslo Manual 2005). These outputs can be employed as objective ways of measuring the level of innovative performance, which quite a few studies have preferred (consider, e.g., patent counts) (Scott and Bruce 1994). However, we argue that how individuals perceive their innovative output is relevant as well.
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Pia Hurmelinna-Laukkanen et al. As the role of employees in all areas of company’s activities has become more pronounced, attention has turned to work engagement and innovativeness. Regarding innovativeness, work engagement is highly relevant. For example Hakanen et al. (2008) found a positive relationship between these two features. According to their research, work engagement predicts individual initiative over time, and the individual initiative further has a positive effect on work-unit innovativeness. This would seem to suggest that individual initiative can be spread out to a wider context. Based on the above discussion, we expect to find a positive relationship between work engagement and innovative output at individual-level, and hypothesize the following: H1: Work engagement is positively related to individual-level innovative work performance
3. Playfulness and humor promoting work engagement While work engagement and innovative output can be expected to be positively related, it is likely that both are also related to other factors that promote creativity and idea generation. Playfulness and humor can be quite closely linked to work engagement. As suggested above, playfulness can mean different things in organizational settings, covering attitudes, atmosphere, and activities. Spontaneity, sense of humor (a personality trait), and manifested joy are inherently present when playfulness is considered. Humor (which is different from the sense of humor) can be defined as a state of mind, but it also involves the quality of causing amusement and making people laugh (Longman 1998). Humor and play are closely intertwined and they are clearly significant in contemporary organizations. Play and humor in organizations can be related to creativity, collaborative learning and identity formation. Using play for beneficial impact requires getting employees and managers to step outside their normal roles to examine the organization and its challenges (Heracleous and Jacobs 2005). According to Lin and Lin (2011), in the best cases, entrepreneurial managers can create a work culture that can contribute to an improved sense of work community. However, play in a business setting can seldom be totally spontaneous; it needs to be organized so that it allows creative playfulness to emerge about real strategic issues (Heracleous and Jacobs 2005). The challenge is that sometimes humor can be misplaced. Some scholars have observed that applying humorous stimuli into brainstorming sessions can have a negative effect on the quality of group work (Wodehouse, Maclachlan and Gray 2014). Nevertheless, as humor and play can be adjusted by managerial action, suitable forms for generating a positive relationship between play and work engagement could be found: especially younger generations seem to appreciate having fun at work (Romero and Pescosolido 2008). It could also be expected that playfulness and humor relate to innovative performance quite directly: In some situations, especially in formal organizations, structures, rules and routines may hinder the employees’ acceptance of innovative ideas (Brattström et al. 2012; Hirst, Van Knippenberg, Chen and Sacramento 2011); search for efficiency and concentration on fulfilling expectations related to rule following easily turns attention away from trial-and-error types of exploration and experimentation. At the same time, playfulness and humor can mitigate rigidity: Kuiper et al. (1995), for example, have found that individuals with high sense of humor are better able to revise their perspectives. Besides, as the expectation of employees is increasingly to be able to work in relaxed environments where they can genuinely enjoy working (Romero and Pescosolido 2008), many employers have come to acknowledge this and specifically allocate some working time for doing things not directly related to the everyday job descriptions (Buskus and Oster 2012). A work environment where humorous exchanges are encouraged can remove the excessive performing and inflexibility, and reduce the fear of failure and increase ideation (Romero and Curthirds 2006). Surely, overshooting in this area is possible as well, but eventually, playfulness and humor can reach the actual products and services as well (e.g., Cao and Shi 2013). Based on these considerations, we expect to find connections between playfulness and work engagement, and playfulness and innovative performance: H2a: Playfulness in its different forms is positively related to work engagement H2b: Playfulness in its different forms is positively related to individual-level innovative work performance. Figure 1 below combines the aspects discussed above, and illustrates the relationships that we examine in this study.
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Figure 1: Research framework with hypothesized relationships
4. Empirical evidence 4.1 Sample and data collection The data were collected from employees of nine different organizations by means of cross-sectional, web-based survey. These organizations operated in manufacturing, media, leisure and recreation, and service industries. This group of companies involves firms of different sizes (from micro to large), and all of them are based in Finland. One large firm also operates internationally. Common factor for these Finnish firms was that all had expressed interest in developing their businesses with help of humor and had invested both time and money to examining this activity. This is a fairly new perspective in Finnish working life, and Finns are nowadays perhaps more prone to accept humor in working life (Leander 2010) while Finnish identity has not previously been associated to humor, but rather to ‘hard work and feelings of anxiety’ (Ollila 1998). The survey was conducted in late 2015. A pretested questionnaire was designed following the suggestions of Podsakoff et al (2003) so as to avoid common method bias. The internet links of the questionnaire in both English and Finnish were sent via email to the contact persons in each firm, who then forwarded the links to the participants. In small organizations, every employee was asked to complete the questionnaire while in large firms, the contact persons selected a random sample of employees to participate. Employees from different functions were encouraged to take part. At the end of the research period, 115 responses had been gathered. Most respondents were in non-managerial positions and had about four years of work experience in their organizations. The potential of non-response bias was checked following the instructions of Armstrong and Overton (1977), and no problems were detected in this regard.
4.2 Measures The measures were generated by relying on established item sets and original, theory-driven item sets measured on six-point Likert-scale, and by applying factor and reliability analyses on the item sets. Employees’ innovative performance was assessed with nine item scale based on de Jong and den Hartog (2010) and the OECD’s Oslo Manual (2005). Following de Jong and den Hartog (2010), respondents rated their innovative performance based on subjective self-evaluation. This subjective measurement approach was adopted because due to the diverse work roles and different professional backgrounds of the respondents, it would have been challenging for them to assess their innovative performance based on objective measures such as patent counts. The variety with regard industries represented by the firms and the related differences with regard what constitutes “innovation” also pointed towards this approach. The final measure included items like ‘I am involved in the implementation of completely new production or delivery methods’, and ‘I am involved in the implementation of new methods for organizing routines/ procedures’. The Cronbach alpha value was .919. Work engagement was evaluated with the help of Finnish version of the Utrecht Work Engagement (UWES; Shaufeli Wilmar B. Schaufeli,. Bakker A.B., Salanova, M.2006) Scale (see Hakanen 2008). The final construct comprised eleven items that loaded into one factor and produced an alpha value of .951. The items in this measure include statements such as ‘I find real enjoyment in my work’, ‘I am proud of the work that I do’, and ‘my job inspires me’. Playfulness and humor were measured by asking the respondents to evaluate the extent to which humor and playfulness are used or present in their organization’s business or work environment. The 18 items loaded in to three distinctive factors. Six items (e.g., ‘our organization’s premises are a showcase of our playful work culture’) captured items that reflected a general playful attitude and atmosphere, reflecting a natural tendency to incorporate humor and playfulness to the work. The alpha value for this measure was .819. Five items
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Pia Hurmelinna-Laukkanen et al. (alpha= .791) captured the organizational humor-related activities. Items such as ‘staff is allowed to personalize their work spaces in our organization’ and ‘humor is used in developing our products and services’, covered these issues. Finally, seven items (alpha = .888) reflected outbound humor use, that is, organization-external actions incorporating humor use. Examples of items in this construct include the following: ‘humor is used in our marketing communications’ and ‘we use humor in interacting with some of our business partners’. Finally, as different factors can relate to work engagement and innovative behavior, we also controlled for age (years), gender (a dummy variable), and work experience within the organization (years), and industry (years), in our analyses.
4.3 Analyses and results We started our examination of the hypothesized relationships by computing a correlation matrix (see Table 1 below). Table 1: Descriptive statistics and correlation matrix related to work engagement, playfulness, and innovative performance
1.Innov.perf 2.Work eng. 3.PlayAttitude 4.Org.humor activity 5.Outbound humor use 6. Age 7.Org.work experience 8.Ind.work experience a
Mean (St.D.) 2.70 (1.32) 3.74 (.853) 2.48 (1.12) 2.53 (1.13) 2.01 (1.25) 30.39 (12.8) 4.17 (2.03) 4.13 (1.93)
1.
2.
3.
4.
5.
6.
7.
.287** .149a
.273**
.335**
.248**
.680**
.291**
.217*
.730**
.672**
.220*
.296**
-.091
.139a
.061
.275**
.186*
-.047
.223**
.117
.653**
.311**
.182*
-.090
.218
.121
.615**
.768**
= p < .10; * = p < .05; **= p < .01
The examination of the correlations indicates, that work engagement is positively related to innovative performance (see italics in Table 1), and that the different forms of playfulness have similar connections with work engagement and innovative performance (underlined in Table 1). The connections seem to be somewhat weaker in case of playful attitude and innovative performance, and outbound humor use and work engagement, respectively. While these findings seem to support our hypotheses, we also utilized regression analyses in order to get a more comprehensive insight on the relationships between the different constructs. Before going further with the actual analyses, statistical parameters were checked for possible violations of the underlying assumptions of regression analysis. The variance inflation factor (VIF) scores of all models revealed that they were all within the acceptable limits with the highest value of 3.0 (Hair et al. 1998), and the values of the Durbin-Watson statistic showed that they were all below 2. Subsequently, we proceeded with the analyses. Tables 2 and 3 below show the results of the hierarchical regression analyses. Control variables were entered first (Models 1 and 4) followed by the examination of the main effects. Work engagement was first reflected on its own against innovative performance (Model 2), and then it was examined together with the different forms of playfulness (Model 3). Model 5 shows the relationships between playfulness and work engagement.
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Pia Hurmelinna-Laukkanen et al. Table 2: Regression analyses - work engagement, playfulness, and innovative performance Analysis 1/ Dependent variable: innovative performance Model 1 Model 2 -.001 (.397) -.008 (.016) .057 (.120) .059 (.117) .141 (.122) .140 (.119) .438 (.308) .416 (.301) .370 (.175)*
Age Org.work experience Ind.work experience Gender Work engagement PlayAttitude Org.humor activity Outbound humor use F R2 R2 Adj. ∆R2 a
2.569* .125 .076
Analysis 2/ Dependent variable: Innovative performance Model 3 -.007 (.015) .037 (.115) .090 (.120) .377 (.296) .331 (.180)* -.279 (.216) .291 (.189) .225 (.176)
3.048** .177 .119 .052*
2.779** .246 .158 .122*
= p < .10; * = p < .05; **= p < .01; St.Error in parenthesis
Table 3: Regression analyses – playfulness and work engagement
Age Org.work experience Ind.work experience Gender PlayAttitude Org.humor activity Outbound humor use F R2 R2 Adj. ∆R2
Analysis 3/ Dependent variable: Work engagement Model 4 Model 5 .020 (.010)* .022 (.009)* -.008 (.075) -.020 (.073) .002 (.076) .023 (.076) .059 (.192) .001 (.187) .261 (.133)* .006 (119) -.041 (.111) 1.958a .089 .044
2.431* .181 .107 .092*
a= p < .10; * = p < .05; **= p < .01; St.Error in parenthesis The results of the regression analyses suggest that our hypothesis 1 finds support: work engagement seems to be positively related to innovative performance. Hypothesis 2a receives partial support: of the different forms of playfulness, playful attitude and atmosphere seems to be the one related to higher work engagement. Of the more structured forms, outbound use of humor actually has a negative sign (even if the relationship is not statistically significant), and there is no significant relationship between organizational humor activity and work engagement either. Hypothesis 2b is not supported: playfulness does not have direct relationship with innovative performance (while the findings are not reported here, running the regression analyses without work engagement produced similar results as shown in Model 3 in Table 2; while the model itself was improved as a result of adding the different forms of playfulness, none of the coefficients were significant at the .05 level. Within-organization activities that involve humor come close to being significant (p =.12), but not quite. Rather interestingly, playful attitude shows a negative (non-significant) sign. These findings are discussed below.
5. Discussion and conclusions The aim of this study was to contribute to existing theories on innovation and humor by examining what kind of relationships can be found among playfulness, work engagement, and individual-level innovative performance. Our empirical findings indicate that playfulness is a plausible supporting factor for work engagement (H2a), which, in turn, contributes to innovative performance (H1). Both of these findings seem to be in line with earlier studies. For example, Lin and Lin (2011) suggest that the management has the potential to create humor-
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Pia Hurmelinna-Laukkanen et al. oriented work culture resulting in improved sense of work community. Likewise, in their research Hakanen et al. (2008) established a positive relationship between work engagement and innovativeness. Regarding the empirical evidence of the present study, correlation analysis points towards overall positive relationships between different constructs. Results of regression analysis, where various factors are controlled for, show more nuanced aspects: according to our findings, work engagement (rather than playfulness) is related to the level of innovative output. In other words, playfulness as such seems not to directly contribute to innovativeness. Heracleous and Jacobs (2005) suggest that play needs to be organized appropriately to allow playfulness to have a real role in business settings. Also, it is worth noticing that with respect to playfulness, it is the presence of playful attitudes and atmosphere rather than concrete actions that are positively related to higher work engagement. It could be that trying to “force” humor into different processes cannot ensure better results, but if such environment is created where natural humor is facilitated, work engagement can be improved. Innovative performance, however, is another thing, as too much “joking around” might actually limit the execution and implementation of an idea. Even though not significant in this analysis, the negative coefficients point towards the aspect that managers and entrepreneurs should approach playfulness and humor with some caution (e.g., Smith and Khojasteh 2014; Rogerson-Revell 2007). Finally, an issue to notice is that the R2 values, while satisfactory, are not extremely high. Other factors exist that can explain a notable proportion of the variation. Further research is therefore warranted. Nevertheless, these results bring their contribution to the existing knowledge on the role of playfulness and humor in innovation, human resource management, leadership, and entrepreneurial activity. Practice-oriented implications can be derived from the study as well. Entrepreneurs and managers can increase work engagement of employees by communicating and providing the platform for playfulness in relation to showing the organizational values, for example. The more practical manifestations and embodiments do not seem to affect employees as much. This does not mean, however, that activities promoting playfulness would not be useful in different stakeholder relationships, for example. Further research can reveal the areas where such forms of playfulness become valuable. One practical implication to be studied later is to investigate the potential of playfulness embedded in peer-group mentoring as effective form of intervention for work engagement. Thus, continuing still relatively modest research of work engagement is relevant (Bakker et al. 2011). Further research is needed also due to limitations of this study. While adequate for identifying some general directions, our data is relatively small and closer scrutiny of differences between organizations in different industries and of different sizes, for example, might reveal relevant aspects. Interrelations of playful organizational culture and humor use with other factors promoting work engagement and innovativeness would also be interesting to study. Our hope is that this study, with its findings and limitations, can be utilized in the future work as well.
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Using humour to enhance design creativity”, International Journal of Design Creativity and Innovation, Vol. 2, No. 3, pp. 125–141.
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Governing Ownership: A Case Study About the Board’s Role in Family Business Ownership Decisions Tuuli Ikäheimonen, Marita Rautiainen and Timo Pihkala LUT School of Business, Lappeenranta University of Technology, Finland
[email protected] [email protected] [email protected]
Abstract: Well-functioning governance enables entrepreneurial intentions and behaviour to channel into organizational outcomes like strategic renewal, the creation of new ventures and improved performance in companies. The board of directors is the most central governance body, and especially board roles and composition have been popular topics among governance researchers. Despite this, the research on boards of directors in a family business context is still just emerging. In this study we will open a new path for the board role discussion and examine how the board of directors participates in the ownership-related decision-making of family businesses. The research is implemented as a qualitative case study, using two Finnish family businesses as cases. The findings from the cases show that the board has several tasks regarding ownership. These tasks include, for example, decisions about dividends, the evaluation of and decisions about acquisitions, and compensation negotiations in succession. The case studies suggest that the board also participates actively in the management of the ownership structure. As a conclusion we present that although ownership creates the basis for the activities and the essence of the board, the board also contributes, to a large extent, to the ownership decisions and in this way to the management of ownership. The findings presented in this paper contribute to the theoretical discussion of family business governance by presenting a new, ownership-related role for the board of directors. In addition, the findings reveal some interesting but little-researched topics, like the use of the dual stock-class system in family business succession. Simultaneously, we contribute to the practice by providing concrete examples of how the board participates in ownershiprelated decision-making and highlighting the need to manage ownership in order to secure family businesses’ continuity from generation to generation. Keywords: family business, governance, board of directors, board roles, ownership
1. Introduction This paper builds on family business governance research, including research on family businesses’ boards of directors and ownership. Governance is needed when turning entrepreneurial intentions into business actions. It can be seen as one of the organizational antecedents enabling entrepreneurial behaviour to channel into organizational outcomes like strategic renewal, the creation of new ventures and improved performance (Kuratko, 2010). As a critically important part of all businesses, governance has increased its success as a research topic lately. As the board of directors is the central governance body (Nordqvist, Sharma & Chirico, 2014), the board’s roles and composition have especially stimulated a wide range of scientific discussions. Research on boards in general is plentiful, but the literature about boards in family businesses is sparse (Bettinelli, 2011; Gersick & Feliu, 2014). The research question in this paper is How does a family business’s board of directors participate in decisions regarding ownership? The study is implemented as a qualitative case study with two Finnish family businesses. The role of the cases is to show what kind of decisions family business boards make regarding ownership issues and why these decisions are made. The findings contribute to the theoretical discussion of family business governance by presenting a new board role. We also contribute to the practice by providing concrete examples about board participation in ownerships issues, and emphasizing the need to manage ownership in order to secure family business continuity over generations. The paper will proceed as follows. The first section includes an introduction to the paper and topic. In the second section, we sketch out the family business governance literature, emphasizing the roles of the board of directors and studying family business ownership as a base for family business governance and board roles. Next, we present the methodological aspects and data used in this study. This is followed by short case descriptions and analyses from the viewpoints of ownership and board roles. We conclude by discussing the findings in relation to existing literature, presenting implications to theory and practice, and suggesting potential research possibilities for future studies.
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2. The board of directors as a part of family business governance A governance system can be defined as a system consisting of structures and processes for directing, controlling and accounting for a family firm in the long term (Sharma and Nordqvist, 2008). More broadly, governance structure describes responsibilities and rights among participating actors and it dictates how benefits are created, maintained and distributed across different stakeholders (Aguilera & Crespi-Cladera, 2012). As a system, governance includes the determined ways to implement management, the form of ownership in a particular firm and the board of directors as the top governance actor (Carney, 2005; Chrisman, Chua & Sharma, 2005). A family can exert strong control over a firm through the ownership (or control) of a significant number of shares (Aguilera & Crespi-Cladera, 2012). Therefore it is ownership that suggests the distribution of power and control in a firm (Goel et al., 2012), and forms a reason and a basis for governance activities. Governance refers to ownership, but treating these as synonymous would be misguided. Gersick and Feliu (2014) note that governance is not only a matter of ownership rights, it also determines how the use of ownership power is organized within the firm. This explains why effective governance bodies, like a board of directors, are such influential participants within a governance system. A family’s influence on governance has often been described by using two dimensions: ownership concentration and the characteristics of family control (e.g. Silva & Majluf, 2008; Pieper, Klein & Jaskiewicz, 2008). The use of power in a family firm can be examined by using a combination of family ownership (either direct or indirect [through financial holdings]), the extent of direct governance control (through family board members) or indirect control (through members nominated by the family), and the extent of direct managerial control (through family managers) and indirect control (through managers chosen by the family) (Corbetta & Salvato, 2004). Thus, family influence in the business is reflected by the family’s ownership and presence in the business, for example in terms of board seats (Silva & Majluf, 2008; Pieper, Klein & Jaskiewicz, 2008). It is typical for family businesses rather to use board of directors than external auditors when monitoring managerial decisions (Aguilera & Crespi-Cladera, 2012). Ward (1987) states that an effective family business board is one of the most important structures and processes in maintaining the company’s continuity and success. To enable success, the board has to operate in multiple roles. These are, for example, strategy development, general and technical advice, networking and the exercise of control (see e.g. Voordeckers, Van Gils & Van den Heuvel, 2007; Bammens, Voordeckers & Van Gils, 2012). The board and its members also ensure the protection of shareholders’ interests, strengthen the link between the corporation and its environment by providing useful business contacts and help in corporate identity creation (Pettigrew, 1992; Huse & Rindova, 2001). Earlier studies about the relationship between the board of directors and ownership have mostly concentrated on how ownership and changes in ownership influence a firm’s governance, the board of directors and the firm’s financial performance. The family system itself affects various board dimensions, such as tasks (e.g. resolving family disagreements), composition, processes (Voordeckers, Van Gils & Van den Heuvel, 2007) and also the expectations the board faces. For example, as the ownership structure in a family business changes, the goals and values also change. When the ownership structure becomes more complicated, goals and values often become more diverse (Ward, 1987; Vilaseca, 2002). This means that as families expand and owners grow older, cohesion at the ownership level becomes crucial for future success (Ward, 1987). As a family business develops and diversifies, and ownership is shared among multiple family members, there is also an increasing need for monitoring the attitudes and expectations of the expanding number of familymember shareholders (Thomas, 2009). In closely held businesses the owners’ will are often closely linked to business activities, meaning that the board of directors has to be fully conscious about the owners’ expectations in business. Although this seems to create a clear need and task for the board of directors, the board’s role in ownership decision-making has hardly been studied.
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3. Methodology and empirical data The chosen research strategy in this study is a multiple case study with two cases. The case selection follows the sampling guidelines suggested by Patton (2002) for purposive samples. The criteria for the selection of a case were as follows: the case must be a family-owned business; it must have an actively operating board of directors; the business must have gone through at least one family business succession; and there must be more than one generation of family members available for data gathering. Although the two chosen cases have their unique characteristics (e.g. ownership structure, field of business and the generation in charge), they both have active boards of directors. Table 1: Summary of case characteristics Characteristics Age Size
Case 1: Fashion House About 100 years old 70 employees, turnover of €8 million
Owners
12 (mainly) 4th generation owners; the share of ownership ranging between 4% and 20%; three owners participate in daily operations
Generation in charge
4th (cousins)
Board of directors
Five members, including three owners, one manager of the firm and one from outside the firm (but inside the family)
Collected data
Ten interviews, total time 11:44:16
Case 2: Garden House About 60 years old 40 employees, turnover of €10 million Two owners; a 2nd generation ownermanager with 90% of the shares, a 1st generation owner with 10% of the shares (who does not participate in the daily business) 2nd (siblings) Three members, the owner and two outsiders; in addition one external adviser participates in all board meetings Six interviews, total time 11:32:54
The data includes a range of archival records to support the preunderstanding of the cases (see Ikäheimonen, 2014). The primary data consists of interviews. The interviews were analysed by using content analysis (Miles & Huberman, 1994) to find meaning from the data, to concentrate the information it includes and to organize this information in order to make conclusions possible.
3.1 Case description: Fashion House Fashion House is an approximately 100-year-old Finnish family company. Today, Fashion House is a mediumsized company with 70 employees and an annual turnover of €8 m. Its business activities are mainly located in southern Finland and it represents some big international fashion chains and brands. The current owners of the company represent the fourth generation in the family. The company’s business structure has developed over time, and different ownership operations have been implemented when needed. Over the years, there have been at least 14 business acquisitions or company start-ups. In 2011 (when the data was collected) the company consisted of the parent company and three subsidiaries, all 100% owned by the parent company. The latest succession has been the most significant event influencing ownership issues in the current Fashion House. The transitions of ownership and management were implemented separately and the process took over 20 years. The process was started by founding a new company, Mode as Mode Ltd, at the end of 1980s. Stocks of the company were divided into two different classes with varying accompanying voting rights. Most of the fourth generation members – eleven cousins – were quite young, and the third generation family members wanted to keep control over the business, so they held back privileged shares with accompanying higher voting rights. The fourth generation had ordinary shares with one vote per share. During the following period of seven years, the new company Mode as Mode bought the shares of Fashion House from the third generation until Fashion House was totally owned by Mode as Mode in the 1990s. After this, these two companies merged, and the name was changed back to Fashion House Ltd. In 2007, the company bought all the privileged shares from third generation and abolished shares to both ensure peace at work for the fourth generation leaders and prevent e.g. potential threats of uncontrolled ownership changes arising from the aging third generation. This finalized the ownership succession process and gave the fourth generation full control over the company. The implementation of succession was financed by selling a family owned estate. Over the years, the firm achieved several other ownership operations regarding real estate as estates and offices were bought both for
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Tuuli Ikäheimonen, Marita Rautiainen and Timo Pihkala use and to rent out. The acquisition of real estate was perceived to be a good way to prepare for the future and possible changes in markets, competition and the business environment.
3.2 Case description: Garden House Garden House Ltd is a Finnish family company specializing in growing and selling plants. In 2010 when the data was collected, Garden House had little more than 40 employees and an annual turnover of €10 m. The company had its first transgenerational succession at the beginning of the 2000s. In the beginning of the ownership succession, the whole family (the founder, his wife and four children) owned the business. About 10 years later two children withdrew. The remaining two children intended to continue the business after their father’s retirement, and their ownership shares in the company were increased. At the age of 65 the founder decided to retire, and the succession was implemented through an acquisition in order to give the founder the possibility to be compensated for his life’s work. Both successors got the same number of shares, but the son’s shares had higher accompanying voting rights, which gave him authority over the company. Both successors continued working in the daily business but their ways of leading differed extensively. Over time, the tension between the siblings increased and, finally, the son ended up buying his sister out. As part of the purchase price, she got one of the related businesses. Since the end of 2000s, the remaining successor has been the main owner of the parent company and three subsidiaries with 90% ownership. From the family perspective, the ownership was used to manage family and business wealth, and the ownership structure of the company. The family used ownership to take more family members into the business but also to decrease the number of involved owners. The orderliness of ownership ran through the company’s history, and the business was divided or sold many times. There were several reasons for this: at first, when the business went well, there was a need to do something with the money in order to avoid excessive taxation. Secondly, if the owners disagreed about the firm’s future directions, dividing the company enabled each owner to carry out their own intentions. The third reason related to families and ownership structures, as division offered an opportunity for family members to be owners, and selling the company enabled withdrawal from the business. Although ownership operations concerning family ownership played a big role in the company’s history, ownership was also used to develop the company and its business, to take advantage of different possibilities (e.g. taxation, financial support) or to provide solutions for future needs or changes. Complimentary businesses were selected and bought because of their added value to the business (or owners), as reasons to buy or found a new company varied from holding properties to being close to the customer interface or having supplementary production.
4. The board’s participation in ownership decision-making Both family businesses have a rich history full of events, and they used ownership actively to achieve different goals. The companies had active boards of directors implementing multiple tasks, including participation in the decision-making that related directly or indirectly to ownership. Ownership operations were implemented partly from the business reasoning of conducting the business strategy and partly from family reasoning, especially that of securing the family business’s continuity. The board was not active at Garden House before the succession, so it did not take part in the succession planning or the estimation of the related ownership arrangements. Later, board work captured this task well, especially with acquisitions and buyouts regarding the business strategy: ‘Estimating the keeping or selling options is a typical task for the board’. (The board member.) At Fashion House there were also many decisions relating to business acquisitions and buyouts. The board also actively discussed about the management of the ownership structure and the number of owners. One result of this thinking was the buyout of the older generation. In addition, the board presented different plans for the future for the owners at the Annual General Meeting and collected the owners’ attitudes towards the plans. ‘And we will present that [plan] in the general meeting and say that most likely this will mean that short-term profits for owners will be smaller than before. And at the same time we will ask who is ready for this, the fact that for the next five years there will not be so much [dividends]. And we will ask who is willing to participate, and if someone isn’t, of course anyone can also use their own money to buy shares but we, as a board, also have an interest in reducing the number of shareholders. So we could – in the same way as we did with the A-shares – the firm could buy those
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Tuuli Ikäheimonen, Marita Rautiainen and Timo Pihkala shares. This will decrease the dividend profits for everyone but, on the other hand, increase everyone’s ownership share.’ (The Chair of the board.) When withdrawing from the business, the earlier generation usually has an interest in getting good compensation for their life’s work, and this creates a need to balance the needs of business and withdrawing owners. As one fourth generation member at Fashion House said ‘During the succession, the board should absolutely ensure that it is not only the interests of owners that are monitored but also the interests of the company. The succession must not be too heavy for the business. … We have seen those successions where the former generation has tapped the company so much that there are no longer the operational prerequisites. Although the business continues, development is impossible.’ At Garden House, the board’s role in relation to the owners and ownership is visible in decisions concerning newly founded companies and the amount of dividends (see Table 2). For example, the family used to utilize experts from different fields to gain advice on ownership operations. After succession, the board’s role in these decisions was to consider different options and their consequences. As a result, the board partly replaced the outside advisers the family had previously used. Table 2: Board tasks relating to ownership issues Task Deciding about the ownership operations and succession, finding out about the owners’ expectations Discussions about different possibilities and consequences regarding ownership operations Managing the ownership structure (the number of owners; ownership concentration or diffusion) Decisions about the amount of dividends (to provide suggestions in the General Meeting) Decisions about newly founded companies The estimation and acceptance of acquisitions and buyouts Negotiating the price of the company in succession
GH
FH
Target
X
ownership
X
X
business, ownership
X
X
ownership
X
X
ownership
X
business, ownership business, ownership ownership
X X
In the studied cases the boards’ aims for managing ownership were based both in business and family reasoning. Thomas (2009) found that the quality of the board’s future decision-making is enhanced by understanding shareholders’ views of the company. In ownership related decisions, e.g. those related to dividends, the board has to balance the interests of owners and the business. The task is not easy when the monitoring of owners’ interests is the reason why the board exists, and the monitoring of business benefits is the most important means of achieving this goal. Piper (2003) provides the solution of parallel family and business thinking to support the development of planning, decision-making and problem-solving structures for both the family and business system.
5. Discussion Decision-making related to business activities is the basic task of the board. The cases also provide evidence of the board’s role in ownership-related tasks. In governance research, the board’s participation in ownershiprelated decision-making has been largely overlooked. However, ownership-level decision-making includes decisions every board will face, such as decisions about dividends. Although decision-making about dividends is a common board task, there are only a few studies examining the issue from the board’s perspective (Gersick & Feliu, 2014). The cases also indicate several more tasks for the board that relate to owners and ownership issues. One of those is the board’s participation in decisions concerning business succession. In the studied cases, these included decisions such as starting the succession process, decisions about business acquisitions or newly founded companies, and price negotiations. As business viability after the succession is one criterion for the success of the succession process (Sharma et al., 2001; Le Breton-Miller, Miller & Steier, 2004), the board’s task is to balance the needs of the business and withdrawing owners. Succession planning is a recognized board task (Le Breton-Miller, Miller & Steier, 2004) but only a few studies note the board role in price negotiations regarding transgenerational changes.
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Tuuli Ikäheimonen, Marita Rautiainen and Timo Pihkala The case studies suggest that the board has tasks in managing the ownership structure (both the number of owners and the degree of ownership concentration) and establishing the owners’ will, namely the family’s vision about issues regarding ownership in the present and future. The question of how to collect and deliver the owners’ will to the decision makers lies at the core of corporate governance. It is also meaningful for the family companies’ success and viability over generations (Thomas, 2009). In both cases the firms had a dual stock-class system, meaning that companies’ shares were divided into two classes. The dual stock system can be used for different purposes, for example if there is a need to have distinct voting rights or dividend payments policies for different owner groups (Gersick & Feliu, 2014). In these cases, the dual stock-class system is used to determine power relationships and to prevent threats arising from situations in which the number of owners increases and, simultaneously, the ownership competence decreases or becomes more difficult to control. According to Gersick and Feliu (2014), studies on the impact of the dual stock system on generational dynamics among family branches, or on succession planning in family firms, have not been reported earlier.
6. Conclusion The relationship between ownership and the board of directors has been studied a lot but from different perspectives. In earlier studies the main emphasis has been on the relationship between family influence (often examined through family members on the board) and the firm’s performance (e.g. Anderson & Reeb, 2004; Zattoni, Gnan & Huse, 2012). In other words, earlier studies have concentrated on clarifying what kind of consequences ownership has for the board of directors and for the firm’s performance. In this paper we have focused on board participation in ownership decision-making. This approach provides a new and underresearched perspective on family business governance. Thus this study contributes to the family business governance literature by illustrating the two-way relationship between ownership and the board of directors in a family business, and by suggesting a new, ownership-related role for the board by presenting examples about the decisions the board makes regarding ownership issues. Understanding the linkage between the board and ownership more clearly also has several managerial implications. It is not obvious that a closely held SME has outside board members and an active board of directors. As the destiny of the owner is often closely related to that of the business, it is understandable that business owners want to keep crucial decisions in their own hands. In order to decrease reluctance to utilize the board of directors in these firms, we emphasize the need to be aware of the owner’s will and their insights into the business and its ownership, and to use this knowledge as a basis when making decisions affecting ownership. Further, understanding the board as a decision-maker that also considers ownership issues may encourage business owners to think about goals and objectives not only for their business activities, but also for their ownership, and to communicate these goals to the board of directors. This can be seen as the first step towards also seeing ownership as a strategic activity in smaller companies. Goal-oriented strategic ownership, and the board’s role in ownership management, offer fruitful possibilities for future studies. First, the board role in ownership decision-making should be studied more closely to understand the phenomenon better. This demands both qualitative studies, in order to better understand the role contents, and quantitative studies to analyse how usual this phenomenon is and what kind of forms it takes in different kind of companies. Secondly, business strategies have seldom been consciously studied from the perspective of the family´s or individual family members’ long-term goals and wishes. This is especially important as the family grows and the business develops. Again, creating a strategy for ownership can offer one possible way to handle the wholeness of economic and non-economic goals, and the aims of different owners. However, as earlier studies about this topic are almost non-existent, more research is needed to clarify the usability of the idea in a family business context.
References Anderson, R. C. and Reeb, D. M. (2004) “Board composition: Balancing family influence in S&P 500 firms”, Administrative Science Quarterly, Vol. 49, No. 2, pp. 209–237. Aguilera, R. V. and Crespi-Cladera, R. (2012) “Firm family firms: Current debates of corporate governance in family firms”, Journal of Family Business Strategy, Vol. 3, pp. 66–69. Bammens, Y., Voordeckers, W. and Van Gils, A. (2011) “Boards of directors in family businesses: A literature review and research agenda”, International Journal of Management Reviews, Vol. 13, No. 2, pp. 134–152.
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Tuuli Ikäheimonen, Marita Rautiainen and Timo Pihkala Bettinelli, C. (2011) “Boards of directors in family firms: An exploratory study of structure and group process”, Family Business Review, Vol. 24, No. 2, pp. 151–169. Carney, M. (2005) “Corporate governance and competitive advantage in family-controlled firms”, Entrepreneurship: Theory & Practice, Vol. 29, No. 3, pp. 249–265. Chrisman, J. J., Chua, J. H. and Sharma, P. (2005) “Trends and directions in the development of a strategic management theory of the family firm”, Entrepreneurship: Theory & Practice, Vol. 29, No. 5, pp. 555–575. Corbetta, G. and Salvato, C. A. (2004) ”The board of directors in family firms: One size fits all?”, Family Business Review, Vol. 17, No. 2, pp. 119. Gersick, K. and Feliu, N. (2014) “Governing the family enterprise: Practices, performance and research”. In L. Melin, M. Nordqvist, and P. Sharma (Eds.), The SAGE handbook of family business (1st ed., pp. 196–225), London: Sage Publications. Goel, S., Mazzola, P., Phan, P. H., Pieper, T. M. and Zachary, R. K. (2012) “Strategy, ownership, governance, and sociopsychological perspectives on family businesses from around the world”, Journal of Family Business Strategy, Vol. 3, No. 2, pp. 54–65. Huse, M. and Rindova, V. P. (2001) “Stakeholders' expectations of board roles: The case of subsidiary boards”, Journal of Management & Governance, Vol. 5, No. 2, pp. 153. Ikäheimonen, T. (2014) “The board of directors as a part of family business governance – multilevel participation and board development”, Acta Universitatis Lappeenrantaensis 591, Lappeenranta. Kuratko, D. (2010) “Corporate entrepreneurship: an introduction and research review”. In Acs, Z., & Audretsch, D. (Eds.) Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction (2nd ed.), New York: Springer. Le Breton-Miller, I., Miller, D. and Steier, L. P. (2004) “Toward an integrative model of effective FOB succession”, Entrepreneurship: Theory & Practice, Vol. 28, No. 4, pp. 305–328. Miles, M. B. and Huberman, M. A. (1994) Qualitative data analysis: An expanded sourcebook (2nd ed.), Thousand Oaks, USA: Sage Publications. Nordqvist, M., Sharma, P. and Chirico, F. (2014) “Family firm heterogeneity and governance: A configuration approach”, Journal of Small Business Management, Vol. 52, No. 2, pp. 192–209. Patton, M. Q. (2002) Qualitative research & evaluation methods (3rd ed.), California: Sage Publications. Pettigrew, A. M. (1992) “On studying managerial elites”, Strategic Management Journal, Vol. 13, p. 163. Pieper, T. (2003). Corporate governance in family firms: A literature review (No. 97/IIFE), INSEAD, Working Paper Series. Pieper, T. M., Klein, S. B. and Jaskiewicz, P. (2008) “The impact of goal alignment on board existence and top management team composition: Evidence from family-influenced businesses”, Journal of Small Business Management, Vol. 46, No. 3, pp. 372–394. Sharma, P. and Nordqvist, M. (2008) “A classification scheme for family firms: From family values to effective governance to firm performance”. In J. Tàpies, and J. L. Ward (eds.), Family values and value creation: The fostering of enduring values within family-owned businesses (pp. 71–101), New York: New York, Palgrave Macmillan. Sharma, P., Chrisman, J. J., Pablo, A. L. and Chua, J. H. (2001) “Determinants of initial satisfaction with the succession process in family firms: A conceptual model”, Entrepreneurship: Theory & Practice, Vol. 25, No. 3, p. 17. Silva, F. and Majluf, N. (2008) “Does family ownership shape performance outcomes?”, Journal of Business Research, Vol. 61, No. 6, pp. 609–614. Thomas, J. (2009) “Attitudes and expectations of shareholders: The case of the multi-generation family business”, Journal of Management and Organization, Vol. 15, No. 3, p. 346. Vilaseca, A. (2002) “The shareholder role in the family business: Conflict of interests and objectives between nonemployed shareholders and top management team”, Family Business Review, Vol. 15, No. 4, p. 299. Voordeckers, W., Van Gils, A. and Van den Heuvel, J. (2007) “Board composition in small and medium-sized family firms”, Journal of Small Business Management, Vol. 45, No. 1, p. 137. Ward, J. L. (1987) Keeping the family business healthy: How to plan for continuing growth, profitability and family leadership. San Francisco, CA: Jossey-Bass. Zattoni, A., Gnan, L. and Huse, M. (2012) “Does family involvement influence firm performance? Exploring the mediating effects of board processes and tasks”, Journal of Management, October (online).
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Triple Helix Relations in Innovation: Conflicts, Tensions, and Struggles in Rentier Regions Chidubem Ikeatuegwu and Zoe Dann University of Portsmouth, UK
[email protected] [email protected]
Abstract: This study investigates academic entrepreneurship within a prism of the triple helix model of innovation relating university, industry, and government. The study adopts a sociological approach, defines academic entrepreneurship as a social game, and aims to unravel the mechanisms of relations within the triple helix that arise in oil-rich regions, using oilrich Nigeria as case. In particular, it focuses on how socio-economic-political institutions of rentierism within these regions influence commercialization of findings of research. The study argues that the structural powers that shape academic entrepreneurship in different environments are governed by the interdependencies between agency and socio-economic political institutions. This is in line with the prevalent claim that institutions impose rules that constitute constraints and enablers of agency. This study however argues that agential actions are not mere rules-compliance, rather they are strategic calculations based on pragmatic contingent decisions about what works best within given institutional dynamics. The study employs Bourdieu’s sociology as the conceptual framework, underpinned by critical realist philosophy. It uses data from multiple sources to transcend the agency-structure divide, and unearths the various conflicts, tensions, struggles and negotiations between the three players in the triple helix in oil-rich environments. Findings of the study offer new insights to academic researchers, industrialists, governments, and policy makers especially in knowledge-driven economies. It identifies and highlights the points of divergence of the key players in the fields of innovation and entrepreneurship. The findings are also of significance to innovation and regional development policy-makers as they offer insights into what works, what doesn’t work and what may never work regarding policy; and illustrates that entrepreneurship and innovation policies that are effective in one clime may not necessarily be effective in another, thus highlighting the critical importance of institutional considerations in entrepreneurship and innovation policy-making. Keywords: academic entrepreneurship, Bourdieu, Rentier states, agency-structure, social space, practice
1. Introduction Academic entrepreneurship stimulates economic growth (Audretsch, 2006). Natural resource-rich rentier states prevalently derive income from external rents from natural resources in contrast with production states that tax domestic economic activities for their income (Beblawi & Luciani,1987). This paper takes a sociological perspective and conceptualizes academic entrepreneurship as a game; Scharle (2002) defines ‘gaming’ as “activity involving more than one participant, where... the moves of the participants correspond to a pattern of complementary roles, the participants (either individuals or groups) have specific goals and driving strategies, the moves are motivated by the outcome of the game and by the pay-offs". Academic entrepreneurship is defined in this study as a Social Game where opportunities from utilizing findings of academic research are discovered, evaluated, and exploited through actions of individuals who aim at advancing their social positions by the pursuit of the various forms of capital availed by the commercialization of findings of research. This study focuses on rentierism, a socio-economic construct that shapes institutional outlook of oil-rich regions, and investigates its impact on academic entrepreneurship. Formal and informal institutions underpin social order and pivot the dialectic between entrepreneurs and their wider societies; Jones-Evans (1998) argues that "academic entrepreneurship is a phenomenon that exists in a range of different institutional and regional settings” (p.103). Impacts of contextual institutions on academic entrepreneurship is discussed by Siegel (2006). In his triple helix model of innovation, Etzkowitz (2008) discusses universities, governments, and industries as the key players in Academic Entrepreneurship; he states: “university, industry, and government enter into a reciprocal relationship with each other in which each attempts to enhance the performance of the other” (p. 8). Academic entrepreneurship conceptualized as a game implies that the three members of the triple helix are in a game-like (Dallas & Zapalska, 2006) relationship. This study therefore focuses on understanding the various position takings and game strategies (Bourdieu, 1996) of the players in academic entrepreneurship game, with focus on the dialogues, negotiations, tensions and struggles (Bourdieu, 1990) between the players, and how these relate with the socio-economic structures of a rentier ‘games arena’; and how the position-takings, relations, strategies, rules, and pay-offs shape academic entrepreneurship in these environments.
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2. Literature review Strands of literature exist on how natural resources influence regional socio-economic and political topography, including how the rentier apparatus shapes government, economy, politics, and even behaviour. The Dutch disease thesis (Corden, 1984) for instance blames resource wealth for the comparatively slow economic growth in resource-rich countries. Collier & Hoeffler (2005) link mineral wealth with violent conflicts, Harford & Klein (2005) cites resource wealth as the determinant of institutions, while Karl (1997) argues that oil booms caused a destabilization of governance structures and national capacities. Yates (1996) posit that “the conditioning factor of economic stagnation and political authoritarianism in oil-dependent states is the corrosive effect of external rent”. The effects of oil wealth on national institutions are well documented in African, Middle Eastern, American, Asian and European oil-rich states. The European state of Russia is oil-rich, although its rentier status remains arguable (see Arilla, 2005; Freinkman & Plekhanov, 2009; Oomes & Kalcheva, 2007); Algieri (2011), and Kalcheva & Oomes (2007) find that oil wealth in Russia have produced: relative de-industrialisation, contraction in nonoil exports, and real wage growth; a trend associated with African, Asian, Middle-Eastern and South-American rentiers. This study investigates how the institutional dynamics of oil rentier states influence academic entrepreneurship. The study strengthens entrepreneurship and rentier state literature by adding to knowledge regarding influence of external rents on entrepreneurship. Three perspectives dominate Academic entrepreneurship research: individual, process, and context. Perspectives on individual focus on characteristics of agents (Mosey & Wright, 2007), or entrepreneurial teams (O'Shea, et al., 2005), and influence of agents’ social capital/ networks (Mosey & Wright, 2007); main argument being that some academics are better predisposed to commercialize their findings as a result of their personality, psychological characteristics, or possession of scarce knowledge that helps in creating, identifying, and seizing opportunities offered by research findings. Process-based studies address the courses of action that transform research outputs into economic values, seeking to understand the speeds, stages, typologies, and determinants of success (Knockaert, et al 2011). More recent works bring into account the impact of contextual situations; three levels of analyses dominate this perspective: individual, organizational, and regional levels. While the contextualized studies identify the geographies of their studies, they commonly fail to identify specific institutional forces that govern action in the geographies studied. Failure to identify and account for the contextual institutional dynamics at play in the contexts studied constitutes weakness in these previous studies. This study therefore gains strength by identifying rentierism as the socio-economic predicator, underlying institutions in oil-rich regions. Influence of natural resource abundance on academic entrepreneurship is rarely studied, and account at a multi-level is rarely given of the underlying socio-economic dynamics governing academic entrepreneurship; these are gaps in knowledge this study fills.
3. Theoretical framework 3.1 Research philosophy and analytical framework Critical realism is the underpinning philosophy of this study. Critical realism as the underpinning philosophy requires that this study provides account not only of concrete structures that regulate agential action, but also that objectively inaccessible subjective structures within agents, and underlying instigative powers and mechanisms of relations that generate, enable, constrain, or shape agency in rentier states be brought into the analysis. The analytical framework for this study is based on Bourdieu's (1977) theory of practice. Bourdieu’s sociology serves for this study, as mediator of the tension between objectivism and subjectivism, enabling transcendence of the three levels of analysis (individual, organisational, and regional). It reconciles external social structures with embodied subjective experience of agents, thereby opening avenues for logical illustration of the social governance of academic entrepreneurship. Bourdieu's theory of practice has its foundation on his thesis that choices and preferences of social agents in diverse domains of practice have basis on agential internal dispositions and their external social positions. Bourdieu refers to these dispositions as ‘habitus’- a product of the objective conditions that agents encountered
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Chidubem Ikeatuegwu and Zoe Dann and encounters; an embodiment within agents of the structural constraints and enablers within their environment, that provide them with personally configured rules of their games; what Bourdieu termed “structuring structures” (Bourdieu, 1977, p.72).
3.2 Forms of capital Bourdieu’s concept of capital is intended to extend account of society beyond Marxian economic models that limit analysis of society to concrete economic assets. Bourdieu’s concepts of capital “extend economic calculation to all the goods, material and symbolic, without distinction, that present themselves as rare and worthy of being sought after in a particular social formation” (Bourdieu, 1977, p.177). Capital is “accumulated labour (in its materialised form or its ‘‘incorporated,’’ embodied form), which, when appropriated on a private, i.e., exclusive, basis by agents or groups of agents, enables them to appropriate social energy in the form of reified or living labour” (Bourdieu, 1986, p.241). To Bourdieu, the various resources available to agents becomes conceptualized as capital "when they function as a 'social relation of power', that is, when they become objects of struggle as valued resources” (Swartz, 1997 p.74). Capital “can present itself in three fundamental guises: as economic capital, which is immediately and directly convertible into money and may be institutionalized in the forms of property rights; as cultural capital, which is convertible, on certain conditions, into economic capital and may be institutionalized in the forms of educational qualifications; and as social capital, made up of social obligations (‘connections’), which is convertible, in certain conditions, into economic capital…” (Bourdieu, 1986 p.82).
3.3 Habitus Every agent possesses a system of disposition emergent from their past history, present situation, and future expectations. Agents in proximate positions within the social space possess specific modes of thinking about the world, of interpreting the world, and of behaving in the world; Bourdieu terms these modes of apprehending the world as ‘habitus’ (Bourdieu, 1977). Bourdieu considers habitus a reflection or reproduction of the hierarchical social structures and positions existent within the agent’s environment. The concept of habitus is crucial in the analysis of the society, since it is through the same mechanisms that mental dispositions (habitus) reproduce 'images' of the existing social world that the 'rules of the game' within the fields of power are also reproduced (ibid). Implication is that decisions or choices, including choices of field strategies conform to the mental, or dispositional conditions characterising the agents’ existence, history, and personal trajectories (Bourdieu, 2000) since they are the conditioners of the agent’s habitus.
4. Methodology This study followed a three-phase, seven-stage process; the process is set out in Table 1. Table 1: Summary of the research process
Mapping Relations
Data Analysis
Data Collection
Phase
Stage
Description
Quantitative Data
Collecting quantitative data on the forms, volumes and configurations of capital held by the agents under investigation.
Qualitative Data
Collecting desk data and interview data that shed light on the mind dispositions, actions and practices of the agents.
Construction of the Social space Separating the fields within the field of power Identifying homologies in the fields
Applying quantitative data to spatially locate agents based on their volumes and configurations of capital. Once the social space has been constructed, the distinct fields are identifiable, characteristics of these fields are identified and specified. Identifying objects, events, dispositions, tendencies, etc. that are specific (or homologous) to the each of the identified fields.
Relating events, actions, habitus and fields
Logically relating the various objects, events, dispositions, etc. identified in the earlier stages.
Validation
Using existing theory and literature to validate the findings.
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4.1 Sources of data The research data consist of quantitative data on volumes and configurations of capital held by agents, qualitative data from desk research, and interview data that illustrate dispositions, choices, and actions of the agents. The survey consist of self-reported closed questions involving twenty-one academic entrepreneurs. This was followed up with semi-structured interviews involving eleven (11) of the twenty-one (21) agents; the quantitative data is applied to develop the social space of academic entrepreneurship.
4.2 Analysis of data Analysis of data starts with plotting the social space. The forms, volumes and configuration of capital the respondents hold position them differentially on the social space. Within the resulting social space, the various proximate groups and specific properties of each field are identified, and analysis shifts focus to identifying the various homologies and oppositions between the various groups, in particular, their underlying categories of perception and thought (habitus), and distinctive practices. The final stage of the analysis is relational, where retroductive processes (Danermark, 2002) and logic are applied to establish the relational mechanisms between the forms of capital, agential habitus, action, and practice. This stage illustrates the various power struggles, position takings, inter-agential and inter-group tensions, struggles, negotiations, and the relations between these and wider societal structures. The emergent mechanism of relating constitute the dynamic governance of academic entrepreneurship within the context studied.
5. Findings 5.1 The social space The resulting social space show three distinct fields that constitute Etzkowitz’s (2008) triple helix model: Government, Industry, and Academia (figure 1). The government field occupies the top right position, making it the dominant field (Bourdieu 1984). The academic field occupies the bottom left position being the dominated field, while the Industry field occupies an intermediate position between the government and the academic fields. The resultant social space is shown in figure. 1.
Figure 1: The social space
5.2 Field properties Data from desk research, from literature, and inferences from the interviews are used to build up a qualitative description of the three distinct fields within the space. These, alongside ‘field actions’ are represented in the ‘space of action’ (Figure 3); and a comparison of the field properties is tabulated in table 2. Table 2: Comparison of properties across the three fields
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Chidubem Ikeatuegwu and Zoe Dann Field Property
Government Field
Industry Field
Academic Field
Access to rents
Direct (high)
Earned (low)
Indirect (intermediate)
Academic knowledge
Low
Intermediate
High
Technical power
Low
High
Intermediate
Business skills
Low
High
Intermediate
Rent-seeking
High
Low
Intermediate
Research skills
Low
Intermediate
High
5.3 Habitus in the three fields of academic entrepreneurship Agents within the three fields possess different habitus conditioned by the life trajectories of its agents. Although no two individuals possess the same habitus, individuals with similar life trajectories may possess “similarities in their habitus and lifestyle” (Bourdieu, 1984, p. 93). Interview data was used to produce the resulting space of academic entrepreneurial dispositions (figure 2.)
Figure 2: The space of dispositions
5.4 Action in the three fields of academic entrepreneurship Agents and agential groups in the social space strategize and compete at various fronts, the ultimate being “to maintain or enhance their positions in the social order" (Swartz, 2012, p.210). The agents, consciously or unconsciously are 'aware' of their positions in the social order, aware of the resources within the social space, aware of the constraining and enabling properties of their particular fields, aware of the powers and limits of powers of their positions, and strategize to maintain or advance their positions in the social order by "preserving, reinforcing, or transforming their stock of capital" (ibid); or converting them to preferred new forms. This study uncovered five typologies of entrepreneurial actions homologous with the three fields of academic entrepreneurship; these typologies (table 3) define the practice of academic entrepreneurship in a rentier state. Table 3: Typologies of academic entrepreneurial action in a rentier state
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Chidubem Ikeatuegwu and Zoe Dann Action Accessive Assessive Mediative Creative Allocative
Description Actions of agents aimed at gaining access to the rentier capital. Accessive action pervade the entire social space and permeates all the three fields. Assessing commercialization proposals to determine their commercial values, market potentials and suitability. Assessive actions are homologous with industry field. Bridging the gap between demands of the society and supplies that satisfy the demands. Mediative actions are homologous with the industry field Creation of new knowledge through research; homologous with the academic field. Distributing from coffers of the state, necessary resources for the execution of the academic entrepreneurial actions; this is homologous to the government field.
Other entrepreneurial actions within the various fields are represented on the space of action (Figure 3).
Figure 3: The space of action
6. Discussion 6.1 Symbolic violence within the fields Agents within the three fields capitalize on resources available and opportunities presented by their fields to further enhance incomes accessible to them. They deploy accessive strategies that enable legitimate or illegitimate access to the rentier capital. The dominant position of the government field and the dominated position of the academic field polarizes the main struggles between these two fields, each striving to access maximum possible capital from the circuit. The industry field is neutral in these struggles, its neutral position being homologous with the intermediate position it occupies on the social space. The field has no access to the rentier circuit, therefore focuses on maximizing the profitability of its activities, refusing to be involved in commercialization activities when its profitability is not demonstrable. Employment serves as a primary channel for converting cultural capital into economic capital (Weis, 2009). Cultural capital in this regards relate mostly to education, experience and skills acquired over time and embodied within agents. In any given society there are different categories of employment and different salary levels, agents are consciously or unconsciously aware of their social positions. They will seek employment, and negotiate a salary that corresponds to their social positions. When government is the employer, agents negotiate their rewards not as reflection of work, but as reflection of their social positions, and reflection of
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Chidubem Ikeatuegwu and Zoe Dann rents accruing to the state. Government agents deploy the power and control they retain over the rents from petroleum to enhance and maintain their dominant position over other fields in the social space. Even in the face of possible illegality and illegitimacy of such actions, the government field utilizes the political power at its disposal to justify and legitimize approvals of enormously high levels of salaries for their field, in this way widens the social gap and power distances between the field and the other two fields. This is the strategy of symbolic violence (Bourdieu& Thompson, 1991). There exists, an apprehension of instability of the field and its vulnerability to destabilization by the elites. The government field guards against any destabilization by seeking the support of the elites by funding their interests. “…oil rents accrue directly in the hands of the state, and loyalty to the state is gained through patron– client networks which help increase political stability, giving the government a certain measure of legitimacy” (Franke, Gawrich, & Alakbarov, 2009, p. 112). This works in favour of the academic field, as the government invests in research and commercialization of its findings, not out of genuine desire to encourage wealth-creation through commercializing findings, rather aimed at maintaining and consolidating their positions in the field by appeasing the elitist academic field. "Instead of attending to the task of expediting the basic socio-economic transformations, they devote the greater part of their resources to guarding the status quo" (Cook, 1970, p.443). The academic field is the dominated field , agents in this field access the rentier capital primarily through salaried employment, because the field lacks direct access to the rentier circuit, and lacks the political power and structure required to set the dynamism of the social space in its favour in contrast to the government field. As a result the salary levels in the academic field more than those of the government field follow the work-reward causation, while those of the government field follow the tides of the state’s income from petroleum, rising when petro-income rises and reluctantly downwardly adjusted when income dwindles. To enhance income levels of the field, the academic field resorts to a strategy of undermining the state structure, thereby threatening stability of the government field. This is often in form of strikes, industrial action, public criticism and activism. Agents in this field are aware of their stock of cultural capital which having been acquired over long periods of time are rare and inimitable. Having acquired legitimacy, credibility and trust of the general population above the government field as a result of its social disposition, the wider population are more inclined to believe and accept voices from academia over that from the government field, government field having been apprehended by the population as untrustworthy, deceitful and kleptomaniac. Aware that government cannot afford a substitute to their rare skills, knowledge, and experience; the academic field deploys the symbolism of their rare position in the social space as tools of symbolic violence to rattle the government. The government field responds by enhancing funding levels made available to the academic field, funding their research and its commercialization. These funds are however often misapprehended by the academics as earned income, thus misappropriated, but justified with basic research that has little or no potential for commercialization; hence the commercialization effort fails. Funding being provided through this mechanism explains why the government’s expenditure on the projects are rarely monitored- it serves to purchase the indulgence of the academic field. Although some of these practices are ordinarily identified as ‘corrupt’, they form part of the power struggles in a rentier state. In the European rentier state of Russia for example, Lane (1999) reports that corrupt activities form "part of the politics of confrontation", and are better understood "as an indication of power struggles between Russias's political and economic elites" (p.97), and that the Russian oil and gas wealth has resulted in "the triumph of rent-seeking over profit-seeking" (p.181). Osipian (2012) argues that the widespread corruption in Russian universities results from the quest by the state to “derive its rent not in money but in loyalty to the regime" (p.153). These findings even in European rentiers illustrate and mirror the same rentier institutional dynamics that produce unfavourable commercialization outcomes as identified in this study. The Russian science-technological complex founded in 2010 was aimed at commercializing new Russian technologies, but academics (eg. Dezhina, 2010) criticize the project as being hijacked by the dominant "narrow circle of government officials" (p.108) to the detriment of innovation firms and researchers, and was administered through political rather than scientific considerations, and decision about its location, politically motivated (ibid). Liuhto (2010) argues that these government projects, although Russia’s best innovation promotion measures, the state remains too involved for them to “form an effective, flexible, and sustainable innovation system” (p.99).
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7. Conclusion 7.1 Access to the external rents: Driver of action This study finds that the major driver of action in rentier states is access to the rentier circuits. Earlier studies eg. Grant (2014) finds in rentier states, favouristic employment and political appointments as classic means of gaining access to the rents, “jobs and contracts and licences are given as an expression of patronage and clientelism rather than as reflection of sound economic rationale” (Grant,2014). In Russia, Satarov (2000) finds that the competition that exists in Russia "is principally that of competition for rents" (p.113). Social position and clientelism rather than suitability for the role determines who gets employed or appointed to positions, this way, efficiency of academic entrepreneurship efforts are hindered. When unqualified and uncommitted persons, given such roles merely as means to access rentier capital via employment occupy strategic job positions that deal with commercialization, misappropriation of funds follow, and they will most likely lack the relevant skills, knowledge, experience, and drive to carry the role through. This gets further complicated by the shift in the focus of the government agents from how to achieve successful commercialization projects, to how to illegitimately gain access to the rentier circuits through the opportunities offered by the commercialization process. This explains why investments made towards commercialization produce mismatched outcomes.
7.2 The dynamics of the triple helix in a rentier state Further, this study finds that the triple helix model works differently in rentier regions. Etzkowitz (2008) states that triple helix relations in knowledge-based societies result when “university, industry, and government enter into a reciprocal relationship with each other in which each attempts to enhance the performance of the other” (p. 8). Similarly Fetterman & Wandersman (2005) states that “the three partners in the relationship work together to build upon one another's strengths to achieve results”. But this study finds contrast in the structure and dynamism of this relationship in rentier regions. In rentier states the three partners support each other only to fulfil their obligations, rather than to enhance performance; and to ingratiate self to other stakeholders, and the wider society; if such ingratiation supports their cause. Rather than mutual enhancement, the three partners strive to enhance self, and gain advantage even to the detriment of one another. This study finds that the triple helix of innovation in a rentier state involve intra-relational struggles and tensions that hinder its effectiveness. Among the major functions of the government within the relationship is making policy initiatives and providing enabling environment such as intellectual property regimes and law enforcement. But the institutional dynamics of rentier states dictate in contrast that it is in the interest of the government that these institutions remain weak, as Bratton & Van-de-Walle (1997) explains “In most rentier states, the ruling elite often undermine institutional integrity to protect their own rent-seeking interests” (p.19). Sound legal system is required for academic entrepreneurship to flourish, but the rentier government rather supports the status quo of weak institutions; this in the overall works against intellectual property ownership, and stifles academic entrepreneurship. Owing to the peculiarity of academic entrepreneurship in rentier regions, it is recommended that governments and policy-makers before borrowing policy initiatives from other regions should first scrutinize them under the prism of their peculiar institutional outlook. Especially for natural-resource rich regions, evidence that such policy initiatives worked in some regions may not guarantee that it would work in others.
References Algieri, B., 2011. The Dutch Disease: evidences from Russia. Economic Change and Restructuring, 44(3), 243-277. Arilla, C., 2005. Is Russia Drifting Toward an Oil-Rentier Economy?.Eastern European Economics, 43(5), pp.46-73. Audretsch, D. B., 2006. Entrepreneurship, innovation and economic growth: Edward Elgar Publishing. Beblawi, H., & Luciani, G., 1987. The rentier state (Vol. 2). New York: Routledge Kegan & Paul. Bourdieu, P., & Thompson, J. B., 1991. Language and symbolic power. Cambridge: Harvard University Press. Bourdieu, P., 1977. Outline of a Theory of Practice (Vol. 16). Cambridge: Cambridge university press. Bourdieu, P., 1984. Distinction: A social critique of the judgement of taste: Harvard University Press. Bourdieu, P., 1986. The forms of capital. In I. Szeman & T. Kaposy (Eds.), Cultural theory: An anthology (81-93). Bourdieu, P., 1990. In other words: Essays towards a reflexive sociology. Stanford: University Press. Bourdieu, P., 1996. The rules of art: Genesis and structure of the literary field. Stanford: SUniversity Press. Bourdieu, P., 2000. Pascalian meditations. Stanford: University Press.
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Chidubem Ikeatuegwu and Zoe Dann Bratton, M., & Van-de-Walle, N., 1997. Democratic experiments in Africa: Regime transitions in comparative perspective. Cambridge: Cambridge University Press. Braunerhjelm, P., 2007. Academic entrepreneurship: social norms, university culture and policies. Science and Public Policy, 34(9), 619-631. Collier, P., & Hoeffler, A., 2005. Resource rents, governance, and conflict. Journal of Conflict Resolution, 49(4), 625-633. Cook, M. A., 1970. Studies in the Economic History of the Middle East: from the Rise of Islam to the Present Day. Oxford: University Press. Corden, W. M., 1984. Booming sector and Dutch disease economics: survey and consolidation. Oxford economic papers, 359-380. Dallas, B., & Zapalska, A., 2006. Entrepreneurial Decision Making in a Dynamic Environment, Journal of East-West Business. Danermark, B., 2002. Explaining society: Critical realism in the social sciences: Psychology Press. Dezhina, I., 2010. Big projects as a stimulus for innovation development in Russia. Edited by Eini Laaksonen Etzkowitz, H., 2008. The triple helix: University-industry-government innovation in action. London: Taylor & Francis. Franke, A., Gawrich, A., & Alakbarov, G., 2009. Kazakhstan and Azerbaijan as post-Soviet rentier states: resource incomes and autocracy as a double ‘curse’in post-Soviet regimes. Europe-Asia Studies, 61(1), 109-140. Freinkman, L., Plekhanov, A., 2009. Fiscal decentralization in rentier regions: evidence from Russia. World Development, 37(2), pp.503-512. Grant, J. A., 2014. New Approaches to the Governance of Natural Resources: Insights from Africa. Basingstoke: Palgrave Macmillan. Harford, T., & Klein, M., 2005. Aid and the resource curse. Public Policy Journal, 291, 1-4. Henrekson, M., & Rosenberg, N., 2001. Designing efficient institutions for science-based entrepreneurship: Lesson from the US and Sweden. The Journal of Technology Transfer, 26(3), 207-231. Jones-Evans, D., 1998. Universities, technology transfer and spin-off activities: Academic entrepreneurship in different European regions. Targeted socio-economic research project (1042). Kalcheva, K. and Oomes, N., 2007. Diagnosing Dutch disease: does Russia have the symptoms? (No. 7-102). International Monetary Fund. Karl, T. L., 1997. The paradox of plenty: Oil booms and petro-states. California: University of California Press. Knockaert, M., Ucbasaran, D., Wright, M., & Clarysse, B., 2011. The Relationship Between Knowledge Transfer, Top Management Team Composition, and Performance: The Case of Science-Based Entrepreneurial Firms. Entrepreneurship Theory and Practice, 35(4), 777-803. Lane, D. S., 1999. The Political Economy of Russian Oil. Plymouth: Rowman & Littlefield Publishers Levin, M., & Satarov, G., 2000. Corruption and institutions in Russia. European Journal of Political Economy, 16(1), 113-132. Liuhto, K., 2010. Rosnano and Skolkovo are Russia’s best innovation promoting measures, but they are not enough to modernise Russia as a whole. Edited by Eini Laaksonen. Mosey, S., & Wright, M., 2007. From Human Capital to Social Capital: A Longitudinal Study of Technology-Based Academic Entrepreneurs. Entrepreneurship Theory and Practice, 31(6), 909-935. Oomes, N., Kalcheva, K., 2007. Diagnosing Dutch disease: does Russia have the symptoms?. O'Shea, R. P., Allen, T. J., Chevalier, A., & Roche, F., 2005. Entrepreneurial orientation, technology transfer and spinoff performance of U.S. universities. Research Policy, 34(7), 994-1009. Osipian, A.L., 2012. Loyalty as rent: Corruption and politicization of Russian universities. International Journal of Sociology and Social Policy, 32(3/4), pp.153-167. Scharle, P., 2002) Public-Private Partnership (PPP) as a Social Game, Innovation: The European Journal of Social Science Research, 15:3, 227-252. Siegel, D., 2006. Technology entrepreneurship: Institutions and agents involved in university technology transfer, Vol. 1. London: Edgar Elgar Publishing. Swartz, D., 1997. Culture and power: The sociology of Pierre Bourdieu. Chicago: University of Chicago Press. Weis, L., 2009. The way class works: Readings on school, family, and the economy. New York: Routledge. Yates, D. A., 1996. The rentier state in Africa: Oil rent dependency and neocolonialism in the Republic of Gabon. New Jersey: Africa World Press.
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How Mobile Technologies and Social Media Merge to Help Managers and Entrepreneurs Fast Track Their Business Alexandra Ioanid, Cezar Scarlat and Gheorghe Militaru University Politehnica of Bucharest, Romania
[email protected]
Abstract: The approach most of the organizations have taken recently is to integrate social media and mobile technologies into their activity to create awareness and persuading the customer into liking, following an organization’s social media profile or interacting with other users or organization’s representatives on its platform. The mix between social media tools and mobile technologies is the key to a successful business development. The authors noticed that only with social media very few users progress into buying a product or service, but rather remain of the first stage of social media reactions. The main objective of the paper is to determine the best way to mix social media and mobile technologies in order to fast track a business. A structured questionnaire was the main survey tool for this study. After the preliminary results were analyzed, there were conducted several interviews with the entrepreneurs that obtained a significant business growth mainly through social media merged with mobile technology. The exploratory research aims at answering the following questions: (i) if using mobile social media technologies is correlated with the performance of the company; and (ii) if there is a preference for social media mobile applications depending on the industry. One of the most important benefits of mobile social networking is the location awareness, leading to a great opportunity for marketers to target customers better. Also, offering various promotions through social media might be even more successful when merging targeted demographics with the location. Understanding that social media alone is not enough anymore for business growth, but that it rather becomes a successful approach when used together with mobile technologies, helps entrepreneurs develop their business. The model presented in this study can be adapted by several industries where the customer interacts directly with the provider. Keywords: social networks, social media, Facebook, mobile technology, business performance
1. Introduction Social networks have been intensely used by individuals all over the world and according to statista.com there are 1.65 billion monthly active Facebook users. (statista.com, accessed April 2016) Since social networks appear as a Web 2.0 innovation in the early 2000s, it represented an opportunity for “both private life of individuals and professional life of organizations” and in the future “it is expected to continue to revolutionize personal and organizational communications and interactions worldwide”. (Ngai et all, 2015) Social media for business is considered a must for any company that wants to increase its online performance and indirectly its financial and non-financial benefits. This paper presents the final results of a larger research on how managers and entrepreneurs use social networks and what benefits they obtain. In the previous studies, the authors proved that the use of social media is highly correlated with education and previous work experience of the manager or entrepreneur and that social media platform choice is highly correlated to the industry, now based on several interviews with entrepreneurs of SMEs the authors noticed that mobile technologies influence the success of social media activities by at least 15%. (Ioanid et all, 2015) During interviews with entrepreneurs and managers the authors noticed some of them mention that their online performance has increased after adapting their website for mobile technology, becoming more mobile-friendly, so customers could access the content via smartphone or tablet. Most interviewed companies’ representatives reported an increase in both financial and non-financial benefits from social media presence after adapting their content to be suited for different types of devices. However, there are only some industries that reported this difference between using only social media or social media merged with mobile technologies. The paper is structured as follows: first, the authors go through a literature review and develop the hypothesis, highlighting the financial and non-financial benefits of using social networks. Secondly, the research methodology is described and after that the results obtained are analyzed. The authors focused especially on the performance obtained with classical use of social media versus the development of applications that with the permission of the user of course, collect and use demographic data and the location coordinates for better targeting. One important aspect worth mentioned is that due to the sample, this study is applied for SMEs as most of the respondents represent small and medium enterprises. Finally, the authors present which are the conclusions and the implications of the study for both members of
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Alexandra Ioanid, Cezar Scarlat and Gheorghe Militaru the academia and managers or entrepreneurs looking to fast track their business using social networks strategies.
2. Literature review and hypothesis development Social media is considered now an integral part of people’s lives, so it provides businesses with an almost free and easy to use tool for communicating with customers. Even more, social networks are especially beneficial for SMEs as these types of companies are not able to invest into more technical solutions. (McCann, 2015) Social media changes the way people communicate online from a traditional one-to-one private conversation to a many-to-many type. (Derham et all, 2011) In this way, businesses can reach much higher audiences through one single post. Social network platforms like Facebook, Twitter and Instagram are used mostly for growing the brand awareness, marketing and customer service. Among all these three networks, Facebook is the most used network in business for two reasons: first, it is the most popular across individual users and secondly, supports mobile apps that can subtract data about the users for better targeting. Twitter allows targeting also based on the location of the user, but there are not so many mobile apps developed for this network, while Instagram is mostly used for sharing photographs and works better for young adults, the other age groups preferring Facebook. Facebook can be implemented with a very low financial investment and also as the platform is very intuitive, doesn’t require advanced IT skills either. (Derham et all, 2011) The authors agree with Derham et all on the fact that it doesn’t imply a high cost to start using Facebook, Twitter or Instagram as it is free to create an account for the business and it is not necessary to train an employee to take care of these accounts daily, however for better results, businesses should develop their own applications where they can attract followers and keep in this way customers closer to the brand. In the second part of the paper, this idea will be developed and practical examples will be given on how to obtain benefits from merging mobile applications with classical social media presence. Together with the development of smartphones, businesses adapted their websites for new environments: mobile phone or tablet. Social media platforms like Facebook, Twitter, Instagram have their own applications for smart phones and tablets, functional in all operating systems (iOS, Android, etc.). Therefore, it would be a mistake for business to ignore the fact that their customers spend so much time accessing these social networks platforms from their mobile devices while they travel, wait for the train or relax in the park. On the contrary, this new behavior of spending time on social networks while going to work or while relaxing in a park, represent a huge opportunity for business owners that can target the potential customers interested already in their products or services. Also, as most mobile applications function better if the location option is active, the businesses might promote their products or services primarily to users in their area. Therefore, from the business perspective, social networks can be used for better communicating with customers, raising the brand awareness through amplifying the world of mouth effect, gaining new customers, promoting the products or services of the company, raising the traffic on the website of the company, building online communities and increasing both financial and non-financial benefits. (Kaplan and Haenlein, 2010; McCann, 2015) Facebook improves the customer-oriented process, leading to financial benefits (Rodriguez at all, 2014), but also impacts the social capital of a business and indirectly its performance (Ferrer at all, 2013). Previous studies proved that using Facebook has an impact on the business performance, but there hasn’t been made a comparison yet on using only the basic functions of Facebook versus upgrading to using mobile applications designed for marketing on Facebook. The authors want to see in what percent the online performance of a business already using the basic functions of Facebook increased after using mobile applications to target better customers on social network platforms. Hence, the following hypothesis is postulated: H1: Using mobile applications for social networks positively influences the perceived online performance of the business. The development of social networks and mobile technologies is beneficial for both individuals and organizations, as using social networks “has become a common practice in the workplace”, helping organizations to “conduct business anytime from anywhere”. (Chen at all, 2011) Of course that this affirmation leads to a discussion on
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Alexandra Ioanid, Cezar Scarlat and Gheorghe Militaru rather this new trend is beneficial for the work productivity or if employees can make a difference between navigating on internet and/or on the social media platform for their own interest or for the business interest, but this doesn’t make the purpose of this research. In a study on social media adoption by SMEs done in Ireland in 2013, it was shown that in case of the private sector companies, the engagement with the social media was seen as an opportunity, whereas in the case of the state-owned companies not being present on social networks platforms was seen as a threat. Durkin and McGowan published in their study that the interest of the customer in social media differs according to the area of the business. So, it is more likely that the activity on the Facebook page of a clothing retailer or tourism promoter to be higher than on the page of a restaurant or an energy company. (Durkin and McGowan, 2013) Another study was done in Scotland in 2015 on a wide range of companies’ type: IT consultancy, graphic design and hairdressing, childcare and legal companies. The main objective for using social media stated in this study included: raising awareness on the company, building relationships with customers and reaching wider audiences. (McCann, 2015) The authors obtained similar results on the domains best suited for using social media, in general the ones that deal directly with the customer: restaurants, clothing retailers, hairdressers, etc. However, no study so far treated separately the companies that use the basic functions of social media only and the ones that mix these basic functions with mobile applications. Hence, the second hypothesis is proposed: H2: The preference for social media mobile applications is correlated with the industry
3. Research methodology and sample description The participants at this study are representatives of Romanian SMEs, both managers and entrepreneurs. The research was done in two steps: first a structured questionnaire was distributed to several companies in Bucharest, the capital city of Romania, asking companies’ representatives how they use social networks for their business and what benefits they obtained and secondly, based on the first results the authors had face-to-face interviews with a part of these respondents going deeper into the perceived performance of the business with only basic functions of the used social media versus the perceived performance after using social media merged with mobile technology. A number of 962 individuals completed the questionnaire; however for this study the authors consider relevant only 388 questionnaires, the questionnaires completed by managers or entrepreneurs. The respondents are demographically distributed as follows: 67% men and 33% women; 70% of them graduated university, and 28% graduated a master program.
4. Research findings The authors noticed that managers and entrepreneurs with less experience are more open to trying new technologies, both social networks platforms and mobile applications but they rather do it chaotically, without any plan. On the contrary, the more experienced the manager or entrepreneur, the social media strategies are more targeted and the financial and non-financial benefits higher. Out of the total number of respondents, 78 have a top management position, 92 a middle management position and 56 have a first-line management position. 162 respondents have entrepreneurial experience: 40 respondents for less than one year, 34 respondents have between one and three years of entrepreneurial experience, 16 respondents have three to five years of entrepreneurial experience, 24 respondents five to ten years, while 48 respondents have more than 10 years of entrepreneurial experience. The distribution of both managerial and entrepreneurial experience can be seen in the tables below:
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Alexandra Ioanid, Cezar Scarlat and Gheorghe Militaru Table 1: Correlation between the entrepreneurial experience and the managerial experience Entrepreneurial experience Less than 1 year 1-3 years 3-5 years 5-10 years More than 10 years
Managerial experience Top Management 2 14 2 12 20
Middle Management 8 10 6 8 6
First-line management 4 2 4
The authors noticed the more entrepreneurial experience has the person managing that business, the more likely is that the business adapts strategically new technologies, including mobile social media applications. The managerial experience is not correlated to the openness of trying new tools for social media marketing. From the respondents using social networks for their business, 99% use Facebook, 61% LinkedIn, 38% Twitter, 45%YouTube, 7% Google+. The authors chose to focus only on Facebook in this study, as it is the most used social network for business in Romania, according to a study published in 2015. (Ioanid et all, 2015) The managers and entrepreneurs were asked about their purpose for using Facebook for the business, the results being presented in the table below: Table 2: Benefits of using Facebook for the stated purpose Purpose for using Facebook
Percent of the respondents who obtained benefits for the stated purpose
Communication Customer Service Brand awareness Gaining new customers Profit growth Marketing Networking Recruiting
78% 41% 77% 75% 20% 55% 68% 12%
In conclusion, this study and others stated in the literature review (Kaplan and Haenlein, 2010; Chen et all, 2011; Derham et all, 2011; Durkin and McGowan, 2013; Rodriguez et all, 2014; McCann, 2015) show that there are several financial and non-financial benefits resulting from using Facebook. The financial benefits are harder to quantify because the business representatives don’t know exactly in what percent the sales are a consequence of Facebook marketing, but all agree what with the followers number and the share and likes on company’s posts, it grows the brand awareness, and indirectly the sales. The non-financial benefits such as easier communication with customers and the opportunity to obtain feedback from customers directly, without having to pay for surveys are more visible and thus these purposes obtained a higher percent in the perceived obtained benefits. Only one item doesn’t bring so much benefits for business – recruiting, but Facebook wasn’t primarily designed for this purpose, and most businesses use LinkedIn for Human Resources specific activities. In the second part of the study, there were selected the companies active on Facebook for at least two years, that used mobile applications designed for Facebook for at least one year, leading to a number of 11 companies on which the authors could test the first hypothesis. The company’s representatives were asked during interviews in what percent the performance of the business increased or decreased after starting to use mobile applications for social networks. In table three, it is written the percent in which the performance increased and where the respondents considered that they have no data to answer, it is written No data. Table 3: Benefits of using mobile applications for Facebook for the stated purpose versus using only the standard functions of Facebook Purpose for using Facebook Communication Customer Service Brand awareness Gaining new customers
Benefits of using standard functions of Facebook versus mobile applications for Facebook +5% No data +7% +20%
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Alexandra Ioanid, Cezar Scarlat and Gheorghe Militaru Purpose for using Facebook Profit growth Marketing Networking Recruiting
Benefits of using standard functions of Facebook versus mobile applications for Facebook +11% +15% No data No data
Therefore, hypothesis H1 is supported in this study. Using mobile applications allows businesses to target better the customers, by knowing users location and their demographic data settled as public by each user. For example, a boutique that offers fashion clothing for women would promote the products mainly to women aged 18-35, with interests in fashion and that encounter themselves within 1 kilometer from the shop. Another examples is one of a luxury barber shop in Bucharest, who plans the marketing strategy by targeting men aged 25-65, with their current city Bucharest. This targeting based on location and demographics is not something new, but not so many businesses upgraded their social networks technologies yet. From the interviews, the authors concluded that for gaining new customers, mobile applications merged with social networks basic functions bring about 20% extra clients. The revenue also increased in the period that the company used also mobile applications, but all 11 managers and entrepreneurs interviewed mention is hard to quantify this fact as the profit growth might as well come from other factors. The marketing campaign was better targeted and the costs optimized since instead of addressing the entire amount of followers a page has, they address only the ones they plan; in case of payed marketing campaigns the rate of leads also increased. For the customer service there was no perceived difference as the communication and customer service activities are developing the same way regardless the device from which the user connects. However, there is a small increase in communication, based on the fact that customers connect easier from wherever they are on their smartphones with internet access, without the need to be in front of a computer or in a location with WiFi. The authors noticed that the companies that started using mobile applications for Facebook are belonging to the services sector or to the retail sector. These two sectors have to deal more with the final customers and also in these sectors the competition is higher. The activities of the companies varied from fashion retailer to barber shop, from restaurant to sport club. They all have in common higher competition and the limitation of offering their services or products in a certain location. This targeting based on location was of no relevance for the representatives of companies in energy sector, for the mobile telephony provider or for online retailers that are able to deliver the goods anywhere in the country. So the second hypothesis is partially supported. The preference for social media mobile applications is correlated with the industry, however it is given more importance to it only if that business is offering their products or services in a certain location and needs to attract potential customers into that specific location. Otherwise, if the goods are deliverable, the applications targeting users based on their location are not so relevant anymore.
5. Conclusion This study revealed ones again that the presence on social networks and especially on Facebook could help any business gain new customers, target better potential customers during online marketing campaigns and in the end increase revenue. So, social networks bring both financial and non-financial benefits. The idea for this study came from the fact that in Romania many companies focus only on attracting as many followers as they can on their page through “like and share” campaigns offering some prizes instead, but in the end these companies do not obtain so many benefits from using social networks. Of course that the bigger the number of followers, the bigger the audience for the promotions and the opportunity to increase the sells, but the results are statistically better only if the posts are more targeted for the needs of the customers. Merging social networks with mobile applications proved to have effect in the sectors where there is direct communication between the company and the customer and if the business offers products or services in a certain location without the possibility to deliver these goods. In this case it is a must to target the customer after the location. The other demographic data can be successfully used for better targeting during marketing campaigns, leading to a growth in sales. The authors recommend for any business that is not able to deliver the goods and needs to bring the customer to its location to start using social media mobile application.
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Alexandra Ioanid, Cezar Scarlat and Gheorghe Militaru The limitations of this study are the size of the sample and the geographical localization of the businesses, making it difficult to generalize the results. Further research is being recommended in other countries also and on specific industries.
References Chen, Y., Fay, S., & Wang, Q. (2011). The role of marketing in social media: How online consumer reviews evolve. Journal of Interactive Marketing, 25(2), 85-94. Derham, R., Cragg, P., & Morrish, S. (2011, July). Creating Value: An SME And Social Media. In PACIS (p. 53). Durkin, M., McGowan, P., & McKeown, N. (2013). Exploring social media adoption in small to medium-sized enterprises in Ireland. Journal of Small Business and Enterprise Development, 20(4), 716-734. Ferrer, R., Eerola, T., & Vuoskoski, J. K. (2013). Enhancing genre-based measures of music preference by user-defined liking and social tags. Psychology of Music, 41(4), 499-518. Ioanid, A., Scarlat, C., & Militaru, G. (2015, September). How Managers and Entrepreneurs use the Innovative Social Technologies. In European Conference on Innovation and Entrepreneurship (p. 298). Academic Conferences International Limited. Kaplan, A. M., & Haenlein, M. (2010). Users of the world, unite! The challenges and opportunities of Social Media. Business horizons, 53(1), 59-68. McCann, M., & Barlow, A. (2015). Use and measurement of social media for SMEs. Journal of Small Business and Enterprise Development, 22(2), 273-287. Ngai, E. W., Moon, K. L. K., Lam, S. S., Chin, E. S., & Tao, S. S. (2015). Social media models, technologies, and applications: an academic review and case study. Industrial Management & Data Systems, 115(5), 769-802. Rodriguez, M. G., Gummadi, K., & Schoelkopf, B. (2014). Quantifying information overload in social media and its impact on social contagions. arXiv preprint arXiv:1403.6838. statista.com, accessed April 2016
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Developing Innovation Ecosystem of the University Through Implementation of Interfaculty Master’s Program: The Case of LMSU Nataliya Ivashchenko, Petr Kiryushin, Alexandra Engovatova and Darya Komarkova Faculty of Economics, Lomonosov Moscow State University, Russia
[email protected] [email protected] [email protected] [email protected]
Abstract: This article discusses the overall performance of the first interfaculty Master’s program at Lomonosov Moscow State University (LMSU) called "Management of Biotechnology" (MB), and significance of its contribution to the development of the University's innovation ecosystem (IE). The program was implemented by the Faculty of Economics in conjunction with the Faculty of Biology. We deduced the following three hypotheses: Implementation of the MB Master’s program promotes development of the University’s IE since it attracts students to working in a knowledge-intensive industry, where biotechnology is used extensively; MB Master’s program stimulates development of entrepreneurial skills among students which is essential for work in high technology industries related to biotechnology; MB Master’s program facilitates implementation and, hence, contributes to further commercialization of high-tech biotechnology products which are created on the basis of the Faculty of Biology. Within our methodological framework we used a combination of research methods which encompass the analysis of: Embodied lived experience of the authors before empirical data were collected via selfinspection and reflection of own experience; Interviews: results of published scientific research and interviews conducted by the team during 2012-2016; Surveys: we assessed responses of students, stakeholders of IE of LMSU and potential employers which were conducted during 2014-2015. The results generally confirm all three hypotheses presented above. Moreover, we found out that students that are enrolled in the program demonstrate a good level of motivation and interest in the subject matter which stimulates an increasing support from employers and members of the IE of the university. At the same time, there are limitations, including slowly developing market for biotech innovations in Russia, which leads to limited employment opportunities for students, as well as difficulties associated with commercialization of biotechnological products in LMSU due to the generally theoretical nature of such products. Nevertheless, our MB program integrates these projects into the curriculum to allow students to gain practical experience in biotechnology field. Keywords: interdepartmental Master’s program, collaboration, interdisciplinary research, university infrastructure, university innovation ecosystem
1. Introduction In our previous article (Ivashchenko, Kiryushin and Engovatova, 2015) we analyzed the stages of development of the innovation ecosystem of Lomonosov Moscow State University. Back then we have determined that it was linked inter alia with inter-faculty educational projects. Since the end of 2012, our team was directly involved in creation and implementation of such projects: first interfaculty master's programs at the Lomonosov Moscow State University. These programs are carried out jointly by the Faculty of Economics and the Faculty of Biology, and are called "Management of biotechnology" and "Bioengineering, biotechnology and bioeconomy" respectively. The goal of this study is to analyze the current role and opportunities of the interfaculty Master’s program "Management of biotechnology" for the development of innovation ecosystem of the university. This article will examine one of the two interfaculty Master’s programs due to the fact that the authors work at the Faculty of Economics and participate in the implementation of this program. Moreover, the information obtained as a result of this study also will help determine the future course of development of this specific Master’s program.
2. Research framework and methodology Modern trends in global university environment encompass modernization of universities, development of market components in the higher education system, race for the top positions in global university rankings, increasing mobility of students and access to distance education, and spread of higher education across the society (life-long learning). All of these aspects help to establish the new role of universities in the world (Nelson and Wei, 2012; Ka Ho Mok, 2013; Crow and Dabars, 2016). Current research is structured around the university as the key grounds for conducting entrepreneurial activities. The methodological framework is built around the
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Nataliya Ivashchenko, et al. concepts described in Clark’s research papers (Clark, 1998; 2004), Etzkowitz’s “triple helix” concept (Etzkowitz, 2003; 2008), as well as the academic entrepreneurship approach (Slaughter and Leslie, 1997). Contemporary research studies promote diverse ideas with respect to the entrepreneurial university model, out of which the work of Konstantinov and Filonovitch (2007) deserve special attention. These authors explain the concept of the entrepreneurial university in their own way by incorporating the much needed "Russian feature": "Entrepreneurial university is a higher educational institution which, systematically makes efforts to overcome limitations in three areas such as knowledge creation, teaching and translation of knowledge into practice by initiating new activities, transforming internal environment and modifying the process of interaction with the environment" (Konstantinov and Filonovich, 2007). In order to use the entrepreneurial university concept as the backbone of our research, we adopted the model of innovative infrastructure of a classical Russian university, which was developed by Engovatova (2013) (see Fig.1) Center for foresight in the priority fields of scientific, technological and socio-economic development University as the industry center for fforecasting scientific, technological and socio-economic development
University as the executive within the trend specified by the industry center
University as the developer of products and services within the selected areas of development
Project Management ment of the University Department De D For aap application process s support
Center for grant support
Research R arch aspect o of the University
Ce Center for shared use of equipment and prototyping + ratory laboratory
Department on cooperation with relevant industries
Centter for the Center University’s intellectual property management geme
Department on cooperation with universities with similar profiles
Marketing d department of the University
Department on cooperation with international and business partners
Business B i Incubator (Project teams of 3-4 people)
Department on on collaboration mni with alumni
Technopark
((Small, medium and d large innovative companies)
Seed foundation and foundation for discretionary funding of the university
School of entrepreneurship
Figure 1: Model of innovative infrastructure of a classical Russian university (Engovatova, 2013). In order to analyze the role of the first interfaculty Master’s program “Management of biotechnology” (MB) in Lomonosov Moscow State University (LMSU) innovation ecosystem (IE) development, we applied a combination of several methodological approaches. Our goals were: !
To provide a general description of the IE of the university and the MB master’s degree program;
!
To formulate the basic hypotheses, describing opportunities for the development of IE of the university, which are offered by the interfaculty MB master’s program;
!
To either verify these hypotheses or to further adjust them depending on the result of the study.
The methodological basis of this research encompasses analysis of the team’s personal experience of working with IE and MB program, since the authors are directly involved in its implementation process. We also analyzed various sources of information, including secondary sources such as peer-reviewed articles, news reports, interviews and reports issued by distinguished consulting firms. On top of this, in order to analyze current results of preparation and launch of interfaculty programs, we conducted surveys (presented as questionnaires) between June 10th 2014 and April 15th 2015 among the following stakeholder groups: MB Master’s program graduates, selected representatives of the innovation ecosystem of LMSU, representatives of various Russian
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Nataliya Ivashchenko, et al. biotech companies, as well as students of the 1st and 2nd year of MB program. Finally, we used the data from the interviews, which were conducted between 2012 and 2016.
3. Innovation ecosystem of LMSU and first interfaculty MB Master’s program Modern universities are the core of the knowledge society and one of the most important channels for technology transfer purposes (Shane, 2004; Morris, 2009). These social institutions act as the innovation hubs within the national innovation system (European Commission, 2008; Fuller, 2005; Gibb, Haskins and Robertson, 2009). Etzkowitz (2003) defines entrepreneurial academic model of a modern research university through "teaching, research and economic development of entrepreneurship”. Indeed, along with companies and corporations, universities are the key institutional stakeholders of national innovation systems due to their critical role in conducting breakthrough research as well as in commercialization of research results obtained at the university (Guerrero and Urbano, 2010; Mainardes, Alves and Raposo, 2011). Due to the fact that LMSU is one of the largest and most famous universities in Russia, it has a significant influence on stimulation of innovation development in Moscow and Russia as a whole. The university hosts various centres, which focus on education and innovation research and entrepreneurship. For example, LMSU is home to the Science Park and innovation incubator, as well as laboratories, which conduct research in the field of biotech. According to our study results Kiryushin et al., (2013), LMSU is considered as a favourable place for innovation development since it stimulates interdisciplinary research and incorporates information about innovations in its educational materials. Nevertheless, some of our respondents considered that, the university has just as many purely scientific projects, which do not fit the real business frame and also many students are not inclined to view entrepreneurship as a viable career opportunity. The first interfaculty MB master’s program came into light due to the cooperation between the deans of the Faculty of Economics and Faculty of Biology of LMSU. They determined that one of the most promising areas of cooperation was bioeconomy, which basically represents an economy reliant on the application of biotechnologies. Biotechnology is the basis for innovative development of numerous industries, including pharmaceutical, medical, agricultural, food, environmental, industrial production, and other industries (McCormick and Kautto, 2013; OECD, 2009; Kirpichnikov and Kanygin, 2012; Bobylev, Mikhailova and Kiryushin, 2013). As a result of such collaborative effort, in 2012 it was decided to create interdepartmental master’s program, which would be developed by two departments in the bio-economy field. It was agreed that there should be two “mirror” programs in this field: !
one program should be developed by the Faculty of Biology with participation of the Faculty of Economics – this program is called "Bioengineering, biotechnology and bio-economy";
!
another program should be developed by the Faculty of Economics with participation of the Faculty of Biology – this program is called "Management of biotechnology" .
The idea of interfaculty collaboration consisted of a) developing joint training courses for students from both programs; b) collaborative preparation of final projects in joint teams called "biologist-economist", which would use examples of technologies created at the Faculty of Biology; c) joint marketing and promotion of both master’s programs. Table 1: Comparative characteristics of the first LMSU master’s programs – "management of biotechnology" and "bioengineering, biotechnology and bioeconomy" Management of biotechnology Bioengineering, biotechnology and bioeconomy Implemented at the Faculty of Economics together with Implemented at the Faculty of Biology together with the the Faculty of Biology Faculty of Economics Designed for students with basic economic and Designed for students with basic biological education managerial education Full-time training Part-time training (Evening classes) Additional study of economic and management Additional study of biological disciplines disciplines Final projects conducted in pairs “biologist - economist” using cases of real technologies Joint training at the Faculty of Economics and Faculty of Biology Joint promotion of the master’s programs Results of the program – trained managers in the field of Results of the program – trained researchers with biotechnology specialized for working in business and managerial skills in the field of biotechnology who will be state organizations as well as entrepreneurs. specialized for working in the corporate sector, new innovative companies and research organizations.
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Nataliya Ivashchenko, et al. According to our research, we have not identified any existing master’s programs which would be similar to the MB in our country. At the same time, there are foreign programs that are similar in nature. For example, there is a program “Advanced master in biotechnology & pharmaceutical management”, which is organized by Grenoble Ecole de Management, France, and exists since 2002. This program’s feature is studying in teams – the program participants work on “crucial innovative projects” designed to highlight the current challenges and decisions facing managers and business leaders. However, we haven’t found any universities that experimented with a "mirror" master’s program for students with natural science and economic backgrounds. Additionally, the feature of our program lies in the course project, which students perform in joint teams: one “biologist” and one “economist”. The project is based on existing technologies developed in research laboratories and chairs of the Faculty of Biology, LMSU.
4. Research results: testing the hypotheses. We have identified the following three hypotheses, concerning the possibility of development of the IE of the university with help of the MB master’s program. Implementation of the MB master’s program facilitates the processes of: !
engaging students for further employment in knowledge-intensive industries, where biotechnology is extensively used;
!
developing entrepreneurial skills for work in knowledge-based industries related to biotechnology;
!
commercializing high-tech biotechnology products created at the Faculty of Biology.
4.1 Engaging students for further employment in knowledge-intensive industries, which extensively use biotechnology It seems that today there is only a small number of LMSU graduates with economic and managerial skills, who proceed to work in the field of high-technology business, related to biotech, for example, graduates from the Faculty of Economics (Zolotina, 2015). On the other hand, it seems that the graduates of the Faculty of Biology are also not currently inclined to work as managers in knowledge-intensive companies in the field of biotechnology. These trends can be explained by the following factors. 1). Lack of demand for professionals in the field of biotechnology in comparison with other segments – FMCG, consulting, etc. This is due to a more rudimentary level of development of biotechnology in comparison with other advanced industries in Russia (Frost & Sullivan, 2014). 2). Low demand for graduates with economics and management training from scienceintensive businesses, since there was always a higher demand for professionals with scientific background. 3). Insufficient popularity of jobs in the high-technology business in the field of biotechnology for students of economic and management specialties (Zolotina, 2015). 4). Lack of knowledge among students with economics and management majors regarding opportunities and available jobs in biotech industries as well as the low interest in applying for jobs in these fields. According to the main findings after our surveys, implementation of MB master’s program will help to: a) provide sufficient knowledge about career opportunities and raise interest of students, who major in economics and management specialties, for the field of biotechnology; b) promote integration of students into professional biotechnology environment. Our goal is to test these hypotheses. The admission to the master’s program shows small but steady demand: in 2014 – 37 students filed documents for enrolling in this program, while in 2015 – 40 students. However, in comparison to other popular master programs at Faculty of Economics – the number of enrollment papers to MB is 2-3 times less. It seems that more traditional industries remain more attractive to students, while biotechnology management field remains relatively vague and unappealing. There are number of factors that can affect students’ decisions when choosing their education path, for example, the lack of knowledge among students regarding employment opportunities in the field of biotechnology or the real lack of these opportunities. On the one hand, the survey shows that potential employers, which are also involved in our course, report that they observe a shortage of young staff in the biotech industry, including managerial positions. On the other hand, in fact, there are not many employment opportunities in that area for students that major in economics and management. Nevertheless, the results of our survey show that students are interested in the program, because it can offer "various professional/ cross-disciplinary knowledge", they are attracted by "prospective industries" and the
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Nataliya Ivashchenko, et al. ability to "learn the basics of economics and management, which are essential for running future business in this area." The respondents' answers point out that after completing the master’s program they plan to work "for large firms and companies engaged in the development of biotechnology", including the areas of ”biochemistry, biotechnology, biomedical informatics, medicine as "project managers, CEOs, group leaders, and medical advisors". This generally corresponds to the objectives for attracting students into the field of biotechnology. We also noticed a good level of motivation among students regarding future employment in comparison with other similar master’s programs. At the same time, the program is generally characterized by integrating students into the professional environment. Students note that: "during the training they were able to meet a large number of practitioners and experts in the field of biotech", "they learned about working in the field of biotechnology companies." One student mentioned that "as for our homework, we are often asked to prepare a business plan for the creation of our biotech projects, which is extremely useful from a practical point of view". This confirms the importance of the existing approach, which focuses on attraction of practitioners to teach – about 25% of the courses are taught by practicing experts.
4.2 Developing entrepreneurial skills for employment in high technology industries related to biotechnology Despite the availability of courses in entrepreneurship, systematic education in that field is conducted mainly on the Faculty of Economics. Additionally, there are some educational projects in this field, which are based on the elements of innovation infrastructure, e.g. "Formula biotech" at the science-park. However, these activities are not systematic. At the same time, popularity of interfaculty courses in this area reflects the growing demand for education in entrepreneurship at LMSU, which also holds true for the sphere of biotechnology. This way, more students studying in the field of biotechnology can obtain entrepreneurial skills for creating their own start-ups as well as for conducting entrepreneurial activities on the basis of any organization. Other reasons, which explain the lack of entrepreneurial training of LMSU students for obtaining jobs in knowledge-intensive industries and also in biotechnology, include: 1) lack of entrepreneurial culture – this culture became a trend for LMSU only during the last years; 2) innovation development at LMSU produced more IT projects than biotech ones, because they could be created faster and needed less costly resources; 3) the activity in the natural sciences departments did not assume participation in entrepreneurial activity until recently. Since the 2010s, various projects in this area were launched, including "Formula Bio" (in 2012) and "LMSU Biotech incubator" (in 2014). Within the framework of MB the solution to this problem was found primarily in incorporating in curriculum a significant part of the disciplines devoted to the issues of innovation and entrepreneurship – about 20% of all disciplines. On top of this, we decided to invite experienced entrepreneurs as teachers of the program, who could demonstrate their experience and inspire students. Additionally, our training incorporated real technological developments and projects created at the Faculty of Biology so that our project teams "biologisteconomist" would examine the practical aspect of biotechnology field. We also designed the course so that the students would create their final projects together and we encourage student participation in various competitions such as the "Formula biotech" or "Project competition for scientific-technological valley". According to the survey results about 75% of the students mention that they are interested in employment in the biotechnology start-ups. Additionally, students say that in order to launch their own business in the future it would be very useful to learn the following skills: "overall purview”, “knowledge of various industries and available jobs in business field”, “ability to network and to present their own point of view”, “communication skills required for working with experts and obtain their contacts in a variety of scientific and industry fields”, “practice of creating a team of like-minded people and working in a team”, “understanding the biotech industry”. From the point of view of representatives of the IE of the university most useful for the future establishment of a private company will be "communication skills", "knowledge of the industry", "contacts in other departments of the LMSU", "business process understanding" and "sales skills". Thus, it can be argued that students are becoming more motivated for launching their businesses in the field of biotechnology and gaining the essential skills for this. Nevertheless, it will only be several years after the
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Nataliya Ivashchenko, et al. graduation when we will be able to assess how well the students expressed themselves as entrepreneurs, as well as how effective were their skills.
4.3 Commercializing high-tech biotechnology products created at the Faculty of Biology There is a possibility to increase the number of successful commercial technologies, which are created at LMSU, including in the field of biotechnology. There are related barriers in that area including the lack of entrepreneurial culture among technology developers and the lack of effectiveness of the university innovation infrastructure. Despite the fact that the need for technology commercialization is marked as an important task for the LMSU, it is currently not viewed as a top priority by the university and by the majority of faculties. The opportunities presented by MB program in that area include: 1) the program can promote commercialization of biotechnological developments created by the Faculty of Biology due to input from work conducted by joint teams "biologist-economist"; and 2) the program could demonstrate that commercialization of biotechnology is a prospective industry. In 2015 joint team working in pairs “biologist-economist” was launched with the purpose to develop the projects and prepare joint dissertations based on technology created at the Faculty of Biology. "The biologist" – a student of the program “Bioengineering, biotechnology and bioeconomy”, engaged in the development of technological solutions and initial commercialization. “The economist” – a student at the “Management of biotechnologies” program, who is responsible for market analysis and development of opportunities for project in the market. The projects which are selected for this joint “biologist-economist” pairs includes the following: development of a medicament for preventing cardiovascular disease, a test system for detection of human cancer, test system for detection of plants and animals’ contamination by mycotoxins, food supplement, and biological technology for enhancing oil recovery process. According to the survey results, out of five joint project teams’ three students-economists are planning to continue their participation in the ongoing project after completing the master’s program. Another indicator of success is the fact that four out of five “biologist-economics” pairs defended their projects during innovation seminar “Project competition for scientific-technological valley” at LMSU as well as one of the pairs were selected in the competition for further participation in the accelerator of breakthrough projects “Biotech formula”. Additionally, 100% of the students who participated in the master’s program agree that this type of practical education can significantly contribute to creation of new biotechnology start-ups and biotechnology companies in LMSU. All innovation ecosystem stakeholders and employers also agree with this statement. However, one of the experts noted that currently there are no real examples of such cases. At the same time 84% of the surveyed students considered that these master’s programs have a positive effect on the development of applied biotechnology projects at LMSU. First of all, due to the fact that the programs introduce representatives of different departments to each other, and by the end of the program students receive the necessary skills “for conducting biotechnology business”. Interviewed representatives of IE of the university and potential employers tend to assess the impact of master’s programs with less optimism. Experts believe that the program will have a rather indirect impact on commercialization of scientific research in a manner of "preparing the environment" and "forming a critical mass of professionals who understand the peculiarities of the Russian biotech."
5. Discussion and conclusions The entrepreneurial university as a research framework and the model of innovative infrastructure of a classical Russian university proposed by Engovatova (2013), which takes into account the experience adapted to the Russian reality by Konstantinov and Filonovich (2007), made it possible to carry out the analysis. At the same time, just like in our previous study (Ivashchenko, Kiryushin and Engovatova, 2015), the concept has shown that it is necessary to develop a new approach that takes into account interdisciplinary features in order to assess the role of interdepartmental cooperation in the development of the university. It should be noted that, in general, all three hypotheses were confirmed. Indeed, the program MB contributes to: 1) attracting students to working in a knowledge-intensive industry, which uses biotechnology; 2) development of entrepreneurial skills that are important for getting jobs in high technology industries related to biotechnology; and 3) commercialization of high-tech biotechnology developments created on the basis of
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Nataliya Ivashchenko, et al. the Faculty of Biology. However, the question still remains on how to assess the efficacy of the program's impact on the development of IE of the university through the system of internal and external audits. At the same time, our practical experience has shown that currently there are not many real employment opportunities in the field of biotechnology. This is also due to the fact that biotechnology market is still under development in Russia. On the other hand, the program has shown promising potential for development of entrepreneurial skills of students – students become motivated in doing business and developing joint projects, as well as integrating professionally in the field of biotechnology. Finally, the project "economist-biologist" pair format for commercialization of biotechnological projects also helps students to develop entrepreneurial skills and learn from best practice. At the same time, the possibility for real commercialization of these projects depends not only on the interest and desire of students, but also on other factors such as the real value of the technology, university infrastructure opportunities for its commercialization, including patenting and intellectual property, availability of financial resources, etc. According to the results of our research we assume the need to develop our MB master’s program not only as the interdepartmental project, but also as one of the most important elements of the emerging cluster of hightech business at LMSU in the field of biotechnology. It is important to note that this cluster can be associated with prospective areas such as biomedical, biopharmaceutical, perfumery and cosmetic. Such approach can help to increase competition for the MB program, because applicants will understand career prospects. Also it will provide an opportunity to network the Faculty of Economics and whole LMSU with the knowledge-intensive business in this field. In general, the experience of creating and implementing interfaculty programs at LMSU is important not only for the Faculty of Economics and Faculty of Biology, but also for other departments as well as for the university as a whole and, moreover, for other universities. This kind of interdisciplinary and interdepartmental collaboration is necessary to examine, generalize and distribute.
Acknowledgements We would like to extend our gratitude to Prof. Auzan A.A , Dean of the Faculty of Economics and Prof. Kirpichnikov M.P., Dean of the Faculty of Biology of LMSU. We would also like to thank the Russian Foundation for Basic Research that partially supported this research project (project No. 14-06-00385).
References Bobylev, S.N., Mikhailova, S.Yu. and Kiryushin, P.A. (2014) Bioeconomy: the Problems of Developing, Economy. Taxes. Law, No. 6, pp 20-25. Clark, B.R. (1998) Creating Entrepreneurial Universities: Organizational Pathways of Transformation, International Association of Universities and Elsevier Science, Paris and Oxford. Clark, B.R. (2004) Sustaining Change in Universities: Continuities in Case Studies and Concepts, Open University Press, Berkshire, England. Crow, M.M. and Dabars, W.B. (2015) Designing the new American university, Johns Hopkins University Press. Engovatova, A.A. (2013) Development of the Innovation Infrastructure Model for National Entrepreneurial Universities, Creative Economy, No.3, pp 9-14. Etzkowitz, H. (2003) Research Groups as Quasi-Firms: the Invention of the Entrepreneurial University, Research Policy, No. 32, pp 109-110. Etzkowitz, H. (2008) The Triple Helix: University-Industry-Government Innovation in Action, Routledge, London. European Commission (2008) Entrepreneurship in Higher Education, Especially Within Non-business Studies: Final Report of the Expert Group. 13, http://ec.europa.eu/DocsRoom/documents/8969/attachments/1/translations/en/renditions/native Frost & Sullivan (2014) An Overview of Biotechnology in the Russian Market and the Assessment of the Prospects of its Development, https://www.rusventure.ru/ru/programm/analytics/docs/20141020_Russia%20Biotechnology%20Market_fin.pdf Fuller, S. (2005) What Makes Universities Unique? Updating the Ideal for an Entrepreneurial Age, Higher Education Management and Policy, Vol. 17, No. 3, pp 27-51. Gibb, A., Haskins, G. and Robertson, I. (2009) Leading the Entrepreneurial University: Meeting the Entrepreneurial Development Needs of Higher Education Institutions, National Council for Graduate Entrepreneurship, Birmingham. Guerrero, M. and Urbano, D. (2012) The Development of an Entrepreneurial University, The Journal of Technology Transfer, Vol. 32, No.1, pp 43-74.
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Nataliya Ivashchenko, et al. Ivashchenko, N.P., Kiryushin, P.A. and Engavatova, A.A. (2015) The Role of Interdepartmental Collaboration in the Development of the Innovation Ecosystem of the Lomonosov Moscow State University, In Proceedings of The 10th European Conference on Innovation and Entrepreneurship, pp 303–333. Kirpichnikov, M. and Kanygin, P. (2012) Bioeconomy: background, current state in the world, Bulletin of the Federation Council, No. 12 (109), pp 54-57. Kiryushin, P., Mulloth, B., Iakovleva, T., and Solodov, V. (2013) The Role of Academia in the Development of Regional Innovation Systems: A Comparative Study of the Oresund and Moscow Regions, In Proceedings of the 6th International Conference for Entrepreneurship, Innovation and Regional Development, Regional Economic Resilence Through Innovation and Enterprise, ICEIRD 2013, pp 450–460. Lookus Scientific Istanbul, Turkey. Konstantinov, G.N. and Filonovich, S.R. (2007). What is the Entrepreneurial University? Education matters, No. 1, pp 49-62. Mainardes, E.W., Alves, H. and Raposo, M. (2011) The Process of Change in University Management: From the Ivory tower to Entrepreneurialism, Transylvanian Review of Administrative Sciences, No. 33, pp. 124-149. McCormick, K. and Kautto, N. (2013) The Bioeconomy in Europe: An Overview, Sustainability, Vol. 5, pp. 2589–2608. Mok, K.H. (2013) The Quest for the Entrepreneurial Universities in East Asia, Palgrave Macmillan, New York. Morris, L. (2009) The Innovation Infrastructure, International Journal of Innovation Science, Vol. 1, No.1, pp. 41-49. Nelson, A.R. and Wei, I.P. (2012) The Global University: Past, Present, and Future Perspectives, Palgrave Macmillan, New York. OECD (2009) The Bioeconomy to 2030: Designing a Policy Agenda, Main Findings and Policy Conclusions, Paris, 2009. Shane, S., (2004) Academic Entrepreneurship: University Spin-Offs and Wealth Creation, Edward Elgar, UK. Slaughter, S. and Leslie, L.L. (1997) Academic capitalism: Politics, policies and the entrepreneurial University, The Johns Hopkins University Press, Baltimore/London. Zolotina, O.A. (2015) Graduates with Majors in Economics on the Labor Market: Features of Lomonosov Moscow State Univeristy Faculty of Economics graduates, In Graduates with Majors in Economics on a Labor Market: Qualitative Researches in Economics and Demography, Ed. By Kalabikhina, I.E., Lomonosov Moscow State University, Faculty of Economics, No. 9 pp. 152-166.
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A Research Framework for Adapting the Innovation Process to its Context Alexis Jacoby University of Antwerp, Belgium
[email protected]
Abstract: The early innovation stages, prior to actual development, are often perceived as fuzzy, ill defined and therefore difficult to manage. Every specific innovation context requires a specific approach, adapted to the specific requirements of that context. Existing generic process models hardly bring into account the specific situation a firm is facing with regard to innovation: the novelty of the innovation required, the specific drivers such as technology or market, nor the specific context of developing product-service systems or experiences rather than hardware products. The impact of these early innovation stages, however, is known to be important for the competitive position of the firm in the long term. Prior research points at the importance of the innovation stages and the importance of adapting the process to its context, in order to gain efficiency and effectiveness for the overall innovation activities. Based on qualitative research we propose a multi-dimensional research framework that permits an improved understanding of the innovation process. It provides a base for specific process research and development and it supports building customized prescriptive process approaches in the Front-end of Innovation (FEI). The framework integrates four basic principles of design and product development methodology in a novel way. Essential in this approach is the integration of innovation abstraction levels. As a result, the framework tackles existing confusion in the early innovation stages. It helps to understand how an approach could be created for any given innovation context. Also, the framework unravels the Front-end of Innovation in such a way that it opens opportunities for researching the early stage design processes in a more detailed way. Distinct operational levels and distinct process steps on every level open these ill-defined approaches. This conceptual paper gives insights in the framework and the opportunities it could deliver for understanding the innovation process, both from a practitioner’s point of view and a research point of view. Keywords: front-end of innovation, methodology, adaptive approach, research framework
1. Introduction Innovation processes cover a wide range of activities. Activities performed in the early innovation stages are referred to as the Front-end of Innovation (FEI). Activities that focus on the actual development of new hardware are referred to as New Product Development (NPD) (Koen et al., 2001). The Front-end of Innovation (FEI) covers all activities that lead to the definition of future products or services prior to development in order to answer the question what product or service should be developed. It used sometimes to be referred to as the Fuzzy Front-End (Reinertsen, 1999; Reid & de Brentani, 2004) due to the fuzziness that is linked to these less formalized processes in the context of the firm. The New Product Development (NPD) phase is the actual development phase that leads to a fully developed product or service solution. The activities give an answer to ‘how’ a product should be designed (Koen et al., 2001). Although the FEI can be seen as a lightweight process compared to NPD when it comes to the use of resources, firm success on the long term largely depends on the success of the innovation activities in the FEI as first seeds for future developments are sown there. Many researchers have pointed at the importance of the early stages of the innovation process (Gupta & Wilemon, 1990; Smith & Reinertsen, 1992; Murphy & Kumar, 1997; Khurana & Rosenthal, 1998; Reid & de Brentani, 2004; Langerak, Hultink & Robben, 2004), and the opportunities for improvement of these early stage innovation activities (Backman et al., 2007; Cooper & Edgett, 2008; Verworn, 2009). Yet, a framework for a thorough research into these processes is only limited available, mainly due to a lack of common understanding of these early stages. Different studies have proposed models for the FEI (Koen, 2002; Sandmeier et al., 2004) and the transition of the FEI into the NPD-phase (Buijs & Valkenburg, 2005). These models propose process steps and sets of activities that would guide the FEI process. Nevertheless, the early stage innovation processes are in many occasions perceived as ill defined and therefore difficult to manage. They often lack structured processes, without any predefined milestones and defined deliverables (Jacoby, 2012).
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1.1 Adaptive approaches for contextual differences in the Front-end of Innovation There is not one innovation context. Instead, all kinds of parameters influence the approach for activities in the FEI. Front-end of Innovation processes are very dissimilar due to varying contextual factors. Van der Duin et al (2013) argued that an innovation process should be tailored to a specific context in order to improve process efficiency. They found the difference between radical and incremental innovation and the difference between market-driven and technology-driven innovation the most important elements for differentiating the innovation process. Existing process models hardly offer opportunities for bringing into account the different context parameters a firm is facing. Hence, the need for adaptive approaches and a framework that could lead to adaptivity.
1.2 The exploration-exploitation paradigm Front-end of Innovation is considered to be the process of generating new ideas for new products. Idea generation can be based on existing products or could start from a complete new perspective. This ambidextrous approach to innovation (O’Reilly III C, Harreld J, Tushman M (2009) is referred to as the exploration-exploitation paradigm (Benner & Tushman, 2003). It has never been clearly stated from a methodological point of view whether or not early innovation process models belong to the exploration or exploitation context. On the process side of the FEI, hardly any distinction is made between exploration and exploitation. That is partially because this paradigm finds his roots in innovation management literature, rather than in product development literature. We can consider this paradigm as a managerial issue, focusing on intent rather than result. Nevertheless, an approach for exploration compared to an approach for exploitation asks for a specific tool set and a better view on the deliverables required. Mixing both approaches could lead to confusion in the FEI (Jacoby, 2012).
1.3 Understanding rather than prescribing The main constituting elements of an idea generating process in the Front-end of Innovation are well-known and appear in many different models: idea generation, idea selection, search field generation, product definition, opportunity identification, opportunity analysis and so on. Although these process activities are commonly defined, our qualitative research pointed to the fact that practitioners tend to understand these processes the way they want to understand it (Jacoby, 2012). As a result, the real value of process models is being undermined with regard to effective use. In this paper, we suggest that the missing link to understand the rationale of a design process is to link design process steps to the basic product abstraction levels that are hidden underneath. By providing the most essential corner stones of the innovation process, we build a base of understanding that would eventually lead to the development of proper innovation processes, adapted to the specific needs of the situation.
2. Key components for the methodological rationale The methodological rationale that we propose for the Front-end of Innovation (FEI) is build on four essential elements: a) multidisciplinarity, b) divergent and convergent thinking, c) the base design cycle and d) the abstraction levels inherent to a conceptual context. These four components are essential elements from a methodological point of view for innovation and product development (Braet & Verhaert, 2006; Kim & Wilemon, 2002; Roozenburg & Eekels, 1995; Ullrich and Eppinger, 2008). Multidisciplinarity has been an important topic for innovation in different ways. Firstly, the aspect of collaborating in a cross-functional team has been proven to be a success factor for innovative effectiveness (Kim & Wilemon, 2002; Trott, 2002; Boeddrich, 2004). Secondly, any innovation process integrates all different aspect of a product: from technological aspects over human aspects to business-related aspects, as was mentioned by different scholars (Braet & Verhaert, 2006; Evanschitzky H et al., 2012). It is also one of the cornerstones of the design thinking paradigm where the overlap between the different aspects provides the best opportunity for real innovation (Brown, 2009), the so-called ‘sweet spot of innovation’ (figure 1).
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Figure 1: The sweet spot of innovation, adapted from Brown, 2009 Several authors have described the concept of divergent and convergent thinking. Divergent thinking is referred to as the process phase where multiple ideas or concepts are generated (Seidel and Fixson, 2013). Convergent thinking refers to the activity of evaluating and selecting the right idea or concept. Basically, a good solution doesn’t exist. One can only evaluate by comparing different concepts. The succeeding process phases of divergence and convergence are often organized in an iterative way (Ullrich and Eppinger, 2008) switching from one to the other in a general converging direction to reach a final solutions after several iterations. This is the power of design thinking: the fact that one doesn’t elaborate on just one idea but dynamically explores different directions or opportunities.
Figure 2: The base cycle of design, adapted from Roozenburg & Eekels, 1995 The base cycle of design (Figure 2: Roozenburg & Eekels, 1995) refers to the different steps in any problemsolving situation: from analysis, over synthesis to simulation, evaluation and decision. These are the essential steps that are taken in any given context. Here, as well, the base cycle is presented in an optional iterative loop. If the solution generated provides an answer to the problem, one can proceed. Otherwise, the entire cycle is taken all over again. Every specific well-defined problem in general can be solved using this or a similar model.
Figure 3: Reasoning from function to solution. Adapted from Roozenburg & Eekels (1995)
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Alexis Jacoby The abstraction levels are based on the product rationale as proposed by Roozenburg & Eekels (1995). This perspective represents a product as a physical system, having a lot of characteristics, such as weight, colour, strength and so on. The characteristics represent how a product is actually created. People choose a specific product because of these characteristics. Characteristics make every product or service specific compared to the competition. We know characteristics to have a rather mechanical nature. However, characteristics can also represent non-tangible issues such as the emotions they evoke or the impact a product or service has for its user. Although Roozenburg & Eekels started from a physical product rationale, the constituting elements also apply to services. Every product fulfils a function. That is what the product or service actually does. An airplane flies; a car drives or transports peoples and goods. A function is the main reason why we buy or use a product or service. We want to fly or drive or telephone and we buy or use a product or service to do so. Functions are based on needs. Our need is to get to our job or to communicate wireless with somebody. Users tend to have all kinds of needs that can be met using products or services. And doing so they fulfil the values they stand for like working or being communicative. Figure 3 (on the left side) gives the overview of this product rationale. The development of new products or services can be seen as a reasoning process starting from values to reach the physical representation of a product or service (Figure 3, right side). Any kind of innovation process covers this reasoning process partially or entirely. A typical design process can cover only the shape level and the characteristics. An incremental innovation can cover the process from side-function to shape. A very explorative process, with the intention to deliver really new products or services can cover the entire range of abstraction levels, starting with enquiries about the values to cover, discovering new needs, defining new functions and side-functions, leading to new products or services with specific characteristics. Roozenburg & Eekels (1995) already pointed at the product/service function as the essential link between predevelopment activities and development activities. The determination of a product function is the final deliverable of the pre-development phase. At the same time, the function determination is also the start of the development phase. The product or service function represents the base for further definition of the characteristics and the design phase of a product or service. The different levels as pointed out in Figure 3, can be seen as distinct abstraction levels. Thinking about human values and basic needs is more abstract than thinking about the shape a product ought to have. Every step down in this model is a step into a more concrete world. The most concrete is the ultimate product or service that is launched on the market. Moving from one abstraction level to another is an approach well known from a design perspective. In the search for new products or services, innovators tend to ask in terms of why-question: Why does this product look like this? Why do we use this product? Why is this function so essential with regard to our needs? Every time a whyquestion is asked, an innovator jumps an abstraction level higher. Hoping that a more high-level view will provide new insights in how a product should evolve or change.
3. Towards a multi-dimensional framework for innovation Based on the four essential cornerstones we propose a multi-dimensional framework (Figure 4) starting from the abstraction levels (on the vertical axis) and the process steps (on the horizontal axis). From an overall perspective, the innovation process can be considered to be a reasoning process from value to solution. However, the specific activities performed in an innovation process tend to happen on a specific abstraction level. They are key to understand what kinds of activities have to be performed. Analysis and synthesis and all the other generic process steps make part of every innovation process. Only, they have a completely different nature depending on the abstraction level they are part of.
3.1 Looking at abstraction levels rather than process steps The basis for this framework (Figure 4) is shaped with different process steps related to a specific abstraction level. Abstraction refers to the openness of the questions one is dealing with or the measure of detail one is
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Alexis Jacoby applying with regard to the eventual product or service. Every level holds different deliverables, different starting points and different questions to be dealt with. Thinking of these different levels as abstraction levels changes the necessity to see the process in a vertical or linear direction. Rather, all kinds of innovation activities occur at a specific level. Every abstraction level is a broad working space and can cover multiple little process steps in order to achieve the desired outcome at that level. Once they are completed, one can get down to the next level. Prior research already pointed to the fact that design processes don’t follow a linear logic. They have a more iterative nature. Iterations are to be made on a specific level, rather than between levels. Nevertheless, many innovation processes require a switch of level more or less as a switch of mind-set. There are parallels between the abstraction levels and the prescriptive design process steps as we have seen in models presented by different authors. Considering values or detecting needs are activities related to the search field and opportunity generating activities (Sandmeier et al., 2004; Buijs & Valkenburg, 2005). Determining characteristics and sub-functions of future products are definitely a part of the product definition process. The level of product ideas might be considered the same level as the level of product or service functions. Any product development or product design model integrates the different essential elements of a product: technological issues (how to make it), human issues (how to use it) and economical issues (how to bring it to the market). It is the overlap between product viability, feasibility and usability that yields innovation. This integrations first occurs at the level of product ideas, where a new product idea exist only when one has defined in which way a specific function will be applied to a specific target group. Product ideas come forth at the moment somebody combines a new function with a target market and a possible technology to build it.
Figure 4: A multi-dimensional framework for innovation The integration of these three aspects is the most essential part in the product idea generation process. Everything prior to this integration is the search for problems and opportunities, and is mainly driven by one of the three aspects. The search for needs or opportunities doesn’t need to look into the integration yet. It is possible to start looking from the business side, the human side or the technology side. All entrances to define opportunities are optional. However, the strategic context of the firm or the strategic needs will drive this process to look into different opportunities.
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Alexis Jacoby On lower levels than the product idea level all activities are driven by the integral approach for product or service development, integrating economical, technological and human aspects. The context of the firm and the use case cannot be ignored anymore. Defining the final product requirements in a product definition process is a multidisciplinary step, looking into the outcome from the three perspectives involved.
3.2 A specific outcome at every level Using abstraction levels implies that any activity can be performed at a given level but the way to organize it can differ, depending on the product or the context. However, the outcome at every level is clear and understandable to everyone. Base cycle process steps and divergent and convergent thinking activities can take place on every level. At the highest level, the most abstract one, the outcome can be any kind of element that would trigger the definition of a new product idea. That could be specific opportunities yielded by emerging trends, new upcoming needs detected in a user environment, a new upcoming technology becoming available, a change in regulation, sociological, political and ecological evolutions, and so on. Either referring to detected problems or detected opportunities. The product function level is a very important one. We have already stated that the level of product functions can be linked to the level of new product ideas, due to the fact that what a product really does (its function) is the main component. Nevertheless, an idea can only be considered a new product idea when the function is linked to a specific market or target group and there is some clarification on the way it will be realized. The level of product definition is the broadest. All kinds of deliverables can be expected on that level. The most essential ones are the product requirements, a business model, a product architecture and so on. On the design level, actual solutions are designed and tested.
3.3 Similarities and differences with current approaches Apart from current methodological approaches to the FEI, some strategic oriented canvas approaches are well known and reach a lot of potential users. The business model canvas (Osterwalder & Pigneur, 2009) focuses on the key components of a business model generating the links between a firm’s value proposition and the customer segments in order to determine how cost and revenue will get into balance. The big difference however between our abstraction level framework and the business model canvas is the fact that the latter requires an idea to start from. Once the product or service idea is known, the business model canvas supports the determination of the business components. Compared to our framework, the activities would only start from the level of functions and characteristics. One can only generate the business model canvas once the explicit context of the product or service is revealed. Nevertheless, due to its open character and ease of use, we have noticed that the business model canvas is also used in very varying circumstances, even for generating new business ideas. That way the canvas supports going through the different abstraction levels of our framework, trying to determine opportunities by focusing on customer segments, key resources, or specific value propositions. Whereas the canvas permits the results to be given in a very easy to understand overview, the abstraction framework focuses more on the underlying process needed to be able to fill in such a canvas, and the way to find an approach. Whereas the business model canvas uses the language of the business developer, the abstraction level framework focuses on the language of the product and service designer.
3.4 Product and service approach The framework opens potential paths for all kinds of innovations. Our research revealed that both product and service development follow the same logic. The big difference between both, however, lies in the fact that in service development several abstraction levels can be taken together in one process step. In specific service cases, limited complexity provides the opportunity to take the definition and development level together. The definitions of functions and characteristics could be delivered in one step and defining a service, in some cases, equals the development of the service.
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4. Research opportunities for the framework The framework offers a range of opportunities for researchers and practitioners, mainly by clarifying how things work in the early innovation stages. Different aspects can be mapped on this framework, giving insights on how to organize a proper innovation approach, given a specific context. From the research point of view, the framework offers the possibility to describe and map existing innovation approaches and compare them. The framework provides meaning to generic process steps. Starting from the base cycle of design, it is much more easy to define what analysis, synthesis, simulation and evaluation could mean on a specific abstraction level. Evaluation of a product idea, for instance, on the function level is different than evaluation of requirements on the characteristics level. Synthesis leads to a deliverable on a specific level. Due to the well-defined abstraction levels, one can define a process that eventually leads to the right deliverable. Prototyping is a way of simulating a proposed solution. Through the framework one could define what prototyping actually could mean on a specific level. A second opportunity can be found in the deployment of innovation tools. Many tools have been developed for innovators to use during their innovation process. However, confusion often occurs in the early innovation stages as it is not clear where and when a tool can be deployed and to which deliverables it should lead. The multidimensional framework provides a clear distinction with regard to the kind of process and the abstraction level. So, it provides the opportunity to exactly map existing tools on this framework. More generic tools can be deployed on different abstraction levels but it is also possible, once one understands the rationale, to develop or make use of a specific tool for a specific activity on a specific level.
Figure 5: Mapping innovation tracks on the framework The framework provides the possibility to explain both explorative and exploitative innovation tracks (Figure 5). The first one starts from the highest abstraction levels: a search for new values, new needs or other opportunities that might provide input for new product ideas. Every abstraction level can be the scene of an elaborated process consisting of the entire range of base design cycle activities. It can also be performed in a cyclical way, only jumping to the next level when the deliverables are met for that level. Exploitative processes start on a lower level, going slightly up to come down again, depending on the innovation challenge a firm is facing (Figure 5). In human-centred innovation, the connection with the customer during the innovation stages is perceived as essential. However, it is sometimes difficult to define the best way of organizing this interaction and what to expect from this customer involvement. Again, the framework offers the possibility to define how a connection could be made. From a more passive interaction on the highest level to a meaningful contribution on the lower
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Alexis Jacoby levels in all kinds of analysis or simulation activities. A detailed user involvement strategy can be mapped on the framework.
5. Conclusions Our research revealed that Front-end activities often lead to confusion. It is very difficult in a research context to compare two innovation processes due to the fact that they operate in a different context and have probably to deal with different parameters. The framework opens opportunities for understanding the FEI in a better way, by using an aspect that can easily be understood: the specific deliverables at a specific abstraction level. The framework is not a prescriptive process model. Rather it provides opportunities to map innovation approaches in a comparable way. As such, it offers possibilities for research and education. It yields possibilities for creating overviews of different models in a comparable way and it provides a tool for analysis of process steps in the context of the firm.
5.1 Testing The framework is the result of a qualitative research involving 13 innovative companies (Jacoby, 2012). Based on semi-structured interviews with 23 people in these firms, 13 innovation processes have been compared. The big challenge in the comparison, however, could only be tackled using a multi-dimensional framework, providing the opportunity to compare processes having different innovation levels, in a qualitative way. This resulted in a preliminary framework, used in the case analysis. The framework was adapted, based on the results of the qualitative analysis to its current form and has been challenged in a qualitative way in two focus groups: one consisting of design students and one consisting of faculty staff members. Although the framework had proven its use in a research setting, this qualitative approach was chosen in order to detect issues on usability and usefulness for both non-experienced and experienced designers. The research objective was twofold: could the framework provide more clarity about the FEI-process compared to existing process models and could every single described innovation process be mapped on the framework accordingly? The focus groups could confirm both issues, although the framework was not self-explanatory for non-experienced designers. Secondly, the framework was used to describe research settings with regard to the front-end of innovation. Specific approaches in different innovation settings could be mapped on the framework in order to compare and to understand the differences and the opportunities for improvement. The framework mainly provided a common understanding between the research team members.
6. Limitations and future development The framework is built on the essentials of a product and services: the characteristics, the functions, the needs, … Therefore its focus is on product and service design rather than on business development in general. Nevertheless, the framework should be able to provide a link with business model innovation, or, alternatively, business elements should get a place in the framework. The challenges for future development are to be found in the way the framework can help practitioners understand their proper innovation challenge and build a proper approach that fits the context of the firm. In order to achieve this, extended mapping of existing processes and examples is necessary. Furthermore, the framework should be completed with overlays, explaining how specific issues, like the use of innovation tools, could be integrated.
References Backman M, Börjesson S, Setterberg S (2007) Working with concepts in the fuzzy front end: exploring the context for innovation for different types of concepts at volvo cars, R & D Management, 37, 1, 17-28. Benner M J, Tushman M L (2003) Exploitation, Exploration, and process management: the productivity dilemma revisited, Academy of Management review, Vol. 28, 2, 238-256.
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Alexis Jacoby Braet J, Verhaert P (2007) The practice of new products and new business, Acco, Belgium. Brown T (2009) Change by design, HarperCollins Publishers, New York. Buijs J, Valkenburg R (2005) Integrale Productontwikkeling, Lemma, The Netherlands. Cooper R G, Edgett S J (2008): Maximizing productivity in product innovation, Research - Technology Management, MarchApril, 47-58. Eekels J, Poelman W, Industriële Productontwikkeling; deel 2, methodologie (1995) Lemma, The Netherlands. Evanschitzky H, Eisend M, Calantone R J, Jian Y (2012): Success Factors of Product Innovation: An updated meta-analysis, The journal of Product Innovation Management, 29: 21-37. Gupta A K, Wilemon D L (1990) Accelerating the development of technology-based new products, California Management Review, 32 (2):24-44. Jacoby A (2012) Performance in the Front-end of Innovation: linking strategy to requirements; PhD thesis, Kim J., Wilemon D. (2002) Focusing the fuzzy front-end in new product development, R & D Management, 32 (4): 269-279 Koen P, Ajamian G, Burkart R, Clamen A, Davidson J, D'Amore R, Elkins C, Herald K, Incorvia M, Johnson A, Karol R, Seibert R, Slavejkov A, Wagner K, (2001) Providing clarity and a common language to the Fuzzy Front End, Research Technology Management, 44 (2): 46-55. Khurana A, Rosenthal S R, (1997) Integrating the fuzzy front end of new product development, Sloan Management Review, 38 (2): 103-120. Khurana A, Rosenthal S R, (1998) Towards holistic front ends in new product development, The journal of Product Innovation Management, 15(1); 57-74. Murphy S A, Kumar V (1997): The Front-end of new product development: a canadian survey, R & D Management, 27, 515. O’Reilly III C A, Harreld J B, Tushman M L (2009) Organizational ambidexterity: IBM and emerging opportunities, California Management Review, Vol. 51, N° 4. Reid SE, de Brentani U, (2004) The fuzzy front end of new product development for discontinuous innovations: A theoretical model, The journal of Product Innovation Management, 21, (3); 170-184. Roozenburg N F M, Eekels J, (1995) Productontwerpen, structuur en methoden, Lemma, The Netherlands. Sandmeier P, Jamali N, Kobe C, Enkel E, Gassmann O, Meier M, (2004) Towards a structured and integrative Front-end of product innovation, conference paper, R&D management Conference, (RADMA), Lissabon, Portugal Smith P G, Reinertsen D G (1992) Shortening the product development cycle, Research - Technology Management, 35; p449. Trott Paul (2008) Innovation Management and New Product Development, 4th Edition, Prentice Hall. Van Der Duin P A, Ortt J R, Aarts W T M (2013), Contextual Innovation Management Using a Stage-Gate Platform: The Case of Philips Shaving and Beauty, The journal of Product Innovation Management, 2013;31(3). Verworn B (2009) A structural equation model of the impact of the ‘fuzzy-front-end’ on the success of new product development, Research Policy, 38; 1571-1581.
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Virtual Spaces Impacting Real Places: Entrepreneurial Innovations in Trinidad and Tobago’s Tertiary Education Landscape Freddy James1, Sandra Figaro-Henry1 and Lisa Wickham 1The University of the West Indies, St. Augustine, Trinidad and Tobago, West Indies
[email protected] [email protected] [email protected]
Abstract: In this study an innovative entrepreneurial approach was used to teach a postgraduate educational leadership course by incorporating digital tools to develop 21st century skills (creativity, collaboration, communication and critical thinking). Additionally, utilizing a practice-based approach facilitated learners operationalizing acquired skills within their institutions in real time and in the real world, thereby wedding knowledge, skills acquisition and dissemination in a way that had immediate impact and added value to the learner and The University of the West Indies School of Education (UWISOE) in Trinidad and Tobago (T&T). Global factors impacting the business of education have made it imperative for tertiary education providers worldwide to seek innovative entrepreneurial pathways to increase the skills base of their populations and capitalize on the full potential of individuals. New digital technologies have brought this imperative within reach, but it is not sufficient. The innovators are entrepreneurs: their integration of new pathways in tertiary education foster institution building, albeit intrapreneurs: they build collective capacity and transform the institution from the inside. (Coyne et al, (2001) and Hekkert et al, (2011) technological innovation systems (TIS), seven-step system functions, was used as a theoretical framework to assess the challenges and extent of the value-added. A qualitative interpretive approach was used in the study. The participants comprised thirty learners (school teachers, school leaders and educational organization leaders) enrolled in the course, the four lecturers who integrated 21st century skills in the course, and a fifth lecturer who acted as a participant observer of the course. Data collection methods included: participant observation, field notes, realtime videography of participants, interviews, blog posts, online and face-to-face focus groups and an online survey. A content analysis approach to data analysis was adopted, with the aid of the NVIVO 10 data analysis software. Research Questions: How has the entrepreneurial, innovative approach to teaching an educational leadership course utilizing digital tools aided the development of participants’ 21st century skills and capitalized on the potential of the individual’s learning? How has the entrepreneurial, innovative approach to teaching an educational leadership course utilizing digital tools added value to the UWISOE? How have participants in the course translated the gains from the course experience into their real world activity? Preliminary findings indicate that learners are navigating new spaces and ways of functioning within a blended learning environment. They are willing to do so because they feel the acquired 21st century skills are adding value to them personally and the practice-based approach allows them to use these skills to begin institutional transformation. These findings are important because they show that acquisition of 21st century skills provides learners with confidence to develop their institutions utilizing these skills, thereby adding value to the T&T educational system from the bottom up. From the UWISOE’s perspective the benefits were: 1) economic, as open-source digital tools were used and there is the potential for increased student intake, 2) administrative, as digital instruction and assessment frees up administrative resources. Keywords: entrepreneurship, innovation, Trinidad and Tobago, digital tools, tertiary education, 21st century skills, collective capacity building
1. Introduction Global factors impacting the business of education have made it imperative for tertiary education providers worldwide to seek innovative entrepreneurial pathways to increase the skills base of their populations and capitalize on the full potential of individuals (Schleicher, 2006). In response to the global environment, The University of the West Indies, St. Augustine (UWISA) 2012–2017, articulates a strategic objective to: “...provide multiple, flexible paths for all constituencies to pursue tertiary education over their lifetime” and to “enable technology solutions for teaching, learning and research” (University of the West Indies, 2012, p. 33). New digital technologies have brought this imperative within reach, but it is not sufficient. Entrepreneurial innovative approaches to the delivery of instruction and learning must be instituted within the tertiary education in T&T. In the current study an entrepreneurial innovative approach was used to teach a postgraduate educational leadership course by incorporating innovative digital tools to develop 21st century skills (curation, creativity, collaboration, communication and critical thinking). A multi-layered approach to technological infusion was adopted to engage 30 learners across two separate geographical locations (23 in Trinidad and 7 in Tobago): !
To use wired and wireless technologies to communicate during instruction
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To immerse the learners in the 21st century tools, to facilitate their acquisition of these 21st century skills to enhance their practice
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To facilitate learner interaction during face to face and online classes
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To create the framework for the learners to implement the use of these technologies in their institutions
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To spark discussions towards identifying and closing the technological gap that exists in the learners’ institutions
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To foster communication and group work among learners and across the geographic locations, thereby building a professional learning community
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To use videography to collect data for research purposes, curation and to capture student interactions during class
Additionally, utilizing a practice-based approach facilitated learners operationalizing acquired skills within their institutions in real time and in the real world, thereby wedding knowledge, skills acquisition and dissemination in a way that had immediate impact and added value to the learner and the University of the West Indies School of Education (UWISOE) in Trinidad and Tobago (T&T). Utilizing the practice-based approach as a model of learning supports entrepreneurial action (Brush et al, 2015). This current study builds on a previous innovation introduced to the UWISOE, which involved the use of the Bring Your Own Device (BYOD) mobile learning technology to enhance instructional delivery and flexibility (Figaro-Henry and James, 2015). Innovations were used to add value in the following areas: UWISOE, students, instruction, tool selection, communication, accessibility and flexibility (Hekkert et al, 2011).
2. Theoretical frameworks The increasing role of ICT in the global economy and the eminence of the knowledge economy are propelling higher education institutions to reconfigure research and learning in more creative, innovative and entrepreneurial ways (Gibb et al, 2013; Mok, 2005 & Kitagawa, 2004). To remain relevant, competitive and keep pace within this knowledge economy, higher education institutions must find ways to serve all constituents of society, particularly those who may not have had access to higher education previously (Schleicher, 2006 and Kitagawa, 2004). Further, higher education institutions must become more responsive to the needs of its stakeholders, improve administrative efficiency and this can be done by promoting entrepreneurship and innovation (Gibb et al, 2013). In the context of this study the term entrepreneurial means organizing, managing and assuming the risks of a business enterprise and the term innovative means introducing or using new ideas or methods. The researchers drew from Hekkert et al (2011) whose ideas on technological innovation systems (TIS), provided a fitting conceptual framework to guide the entrepreneurial and innovative instructional and evaluative approaches regarding value added to both the institution and learners. This framework was used to assess the value-added and resulting challenges from innovation integration to practice. The TIS frame, facilitated a structure and process for charting, recording and assessing the extent of the entrepreneurial value-added while pointing out obstructions, due to the innovations’ integration into the course’s enactment. The following evaluative system functions assess who or what is active in the system, whether what is being done is enough and the success of the innovation which aids the evaluative process. The system’s success comprises qualitative and quantitative measures of the key stakeholders active in the innovation system. Indicators of success, inclusive of the integration of the 21st century skill, are identified and measured by answers to the following: !
What are the intrapreneurial activities? Identify those that are valuable and add value.
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How does knowledge development take place and how is it measured? Examine how the actors in the innovation ecosystem interacted.
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How does knowledge exchange occur? Explain how knowledge is exchanged across the networks.
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How is the search guided? Identify a clear vision and policies.
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How are markets formed? Ensure the size of the education market does not form a barrier for development of the innovation system.
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Are all the resources mobilized? Examine the physical, infrastructure and other resources to ensure they support the diffusion of the technological entrepreneurial innovation.
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Is there a lot of resistance towards the new technology? Evaluate to minimize resistance to change so as to facilitate the diffusion of the innovations.
The framework views an innovation as a collective activity and thus an entrepreneurial innovation is thought to take place within a wider system called the “innovation ecosystem” (Hekkert et al, 2011, p. 3). This study’s “innovative ecosystem” consisted of the digital interactive innovations used amid the blended infrastructure. The practice-based approach to curriculum enactment was also part of the ecosystem. It embodied entrepreneurial and sustainable benefits to the students’ and organization’s economic, political, administrative, social, cultural and technological systems functioning. The TIS frame identifies four components of an innovative ecosystem. Firstly, the actors who are the people or organizations contributing to the technological innovations. Secondly, the institutional structures for example the formal policies and informal interactions that guide the activities of the actors. The networks that facilitate the global and local communications are the third component. The technological factors or techno-economic infrastructure in which the artifacts are integrated constitute the fourth component. Some examples of the techno-economic infrastructure are costs, reliability and safety (Hekkert et al, 2011). In finding solutions to effect the innovations’ diffusion within the innovation system, Hekkert et al (2011) sees benefits in incorporating a large amount of practice or experiences in the learning. Billett (2010) also agrees that a practice-based approach for novice practitioners in higher education is not only beneficial in initial educational or occupational preparations and practice, but also provides continued development across learners’ working life. He is convinced that “ ...the experiences provided in practice settings, usually workplaces or work settings, are essential for developing the knowledge required to effectively practice occupations” (Billett, 2010, p. 1). As such, the researchers incorporated the learning and thinking skills identified by the Partnership for 21stcentury skills (2016), within the face-to-face and distance instructional and practice segments, for learners who worked in multi-occupational environments to effect innovative intrapreneurial elements to the course. Having conceptualized the innovation as a new and improved educational service and the process modelled after Meissner and Kotsemir (2016, p. 3) who purport that “innovation activities can more or less correctly be described and visualized in process models,” the researchers sought to effect and evaluate the innovative entrepreneurial outcomes. They also integrated an innovative entrepreneurial instructional practice with a view to addressing a need to harness a creative, value-added, economically sustainable future for higher education in their institution and country (Stephens et al, 2013; Blass and Hayward, 2014 and Carmeli and Paulus, 2015). Additionally, the researchers were guided by Higgs (2011) framework for practice-based education, which suggests that the instructional design should be configured in alignment with the answers to the following questions: !
What is the practice of this occupation?
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What capabilities does the student need to develop to enter this practice community?
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What is the context of the course and what resources and opportunities does it provide?
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Who will be the key role models and educators to reflect the standards and expectations of the profession?
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How can authentic and relevant relationships and learning activities be created to foster students’ learning
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and socialisation?
3. Methodological approach A qualitative interpretive approach was used in the study. The participants comprised 30 learners (school teachers, school leaders and educational organization leaders) enrolled in the course, the 4 lecturers who taught the course and a fifth lecturer who acted as a participant observer of the course. The participants situational and practice contexts varied as follows. There was one participant whose practice context was an Urban High School in The United States of America; there were 23 students from the island of Trinidad and seven from the island of Tobago. Further, participants represented various educational levels in the system, ranging from early childhood care and education teachers, and principals; primary school teachers, vice principals and principals; secondary school teachers, middle managers, vice principals and principals and one participant from a nonschool educational organization.
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Freddy James, Sandra Figaro-Henry and Lisa Wickham Data collection methods included: participant observation, field notes, interviews, blog posts, online and face to face focus groups, an online survey and realtime videography of participants. Videography served the purpose of recording the students as they utilized the actual tools, for example, students using multiple devices and technologies simultaneously. A content analysis approach to data analysis was adopted, with the aid of the NVIVO 10 data analysis software.
4. Findings Research question 1: How has the entrepreneurial, innovative approach to teaching an educational leadership course utilizing digital tools aided the development of participants’ 21st century skills and capitalized on the potential of the individual’s learning? The findings show that the entrepreneurial, innovative approach adopted in teaching the educational leadership course, utilizing digital tools aided the development of 21st century skills and capitalized on the potential of their individual learning in a number of ways. Collectively they indicated that they had learnt the following new digital tools: Moxtra, Padlet, Blogs, Weebly website and NVIVO. More significantly, they identified a number of new skills, digital and otherwise that they were learning because of the practice-based approach utilized in the course delivery. There was consensus among the participants that they learnt new skills because of: “The style of delivery by lecturers, course design and content and flexibility of the course, e.g the use of the blog to respond to issues and discussion during class and the Moxtra meet on school improvement.” Overall the learners indicated that using the digital tools during the course allowed them to learn many skills: collaboration (virtual and face-to-face), team-work, affective learning, problem solving, networking, research, using google docs to collaborate, setting up Moxtra meetings, creating Padlets, using Skype to communicate, posting to a blog, navigating the Weebly website, emotional intelligence, leadership and critical thinking. The ways in which using new media/digital tools have capitalized on the learners’ potential are detailed below. The virtual and face-to-face classroom environment facilitated the development of the learners collaboration skills. On the one hand the learners engaged in virtual collaboration for group-work during classes and away from classes. These groups comprised students located in Trinidad and students located in Tobago. On the other hand, the expressed view was that collaboration enriched the relationships among learners, fostering emotional intelligence and building professional learning communities. According to one learner: “This course has enhanced my collaborative and communicative skills through group work. Working in groups, during class and out of class has helped me in being more sensitive to what I say to others and how I say it. Again the group dynamics has brought our class together and has fostered greater communication with our classmates in Tobago. I belong to two different groups and this has helped me to build a better relationship with my classmates. Last term I didn't know a lot of people - mainly the people I sat with. This term I got to know everyone in my class. Thanks to our lecturers who threw us into confusion at first with these different groups which eventually brought us together as a class.” Learners’ expressed that the course fostered the development of their communication skills. Active engagement in the course, for example, group-work built learners listening skills. Additionally, having to present their findings from activities, whether individually or in groups enhanced the learners’ presentation skills. Further, the learners reported that the use of digital tools afforded more effective communication, in that they didn’t have to meet physically to get work done. Still further, the evidence indicates that a deeper transmission of communication skills took place as a result of learning by modelling. That is, in their instructional delivery, the lecturers demonstrated the behaviours and skills that they wanted the learners to inculcate and the learners effectively modelled these behaviours and skills. Thus, the findings show that communication is learnt at both the tacit and explicit levels. Following are some of the comments the learners made with regard to communication and modelling: “Group work and group presentation have helped facilitate communication and collaboration skills. Also, encouragement and techniques used by leaders of the course have also helped with communication. Having me work with others who are skilled with ICT use and motivation by tutor had given me confidence to try new and challenging areas.”
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Freddy James, Sandra Figaro-Henry and Lisa Wickham “It is much easier to collaborate with group members without having to meet physically on campus…I now see that there are so many possibilities for greater collaboration amongst teachers and students and tools to assist.” The quality, accessibility and availability of course materials via the course website enhanced the learners’ experience and participation during the course. Learners attributed a number of benefits to having the course materials available online. These included having 24/7 access to materials from any location provided that there was Internet. One learner adequately sums up the benefits as follows: “the allowance of flexibility, userfriendliness, convenience and ease of retrieval of material on my hectic day to day work schedule.” Other benefits mentioned were that it made reviewing and revision easier, and the paperless delivery according to one learner meant that “materials could not be misplaced.” Additionally learners stated: “I have benefited tremendously because it is easy for me to access and read the content. It also means that I can engage fully in classes and not have to concentrate on writing notes.” “This has been quite effective for us as we are operating in Tobago and it allows for full participation despite the distance, having to interact with the ICT has presented me with the opportunity to learn new skills.” The learners consistently acknowledge that it was not only the use of digital tools that realized and advanced their learning potential, but the way the lecturers delivered the course. The evidence suggests that the practicebased approach adopted in the delivery of the course helped learners to gain a deeper understanding of leadership, and their role as leaders in their institutions and organizations. The words of one learner succinctly captures this point in the statement: “the reading material and theories discussed come to life and feel more practical,” and another expressed: “It has allowed for greater diagnosing, action planning and implementing solutions through a collaborative approach. Discussions and activities have contributed immensely by applying theory to problems, scenarios etc. as opposed to having the course strictly lecture based and boring. Good use of time and variety of methods utilized to marry theory with practice.” There is agreement among the learners that quite apart from the soundness of the course content and the effectiveness of the course delivery, leadership skill acquisition was also derived through modelling the lecturers. One learner stated: “...The professors decision to use different tools weekly was a leader and teacher by example.” The key leadership skills that learners acquired during the course were creating a vision for an institution/organization, problem solving, emotional intelligence, collaboration, communication, being a reflective practitioner, being analytical and evaluative in making decisions, thinking creatively and critically and capacity building. The evidence also indicates that the learners acquired leadership dispositions as a result of engaging in the course. These dispositions include: self-confidence, motivation, being solution driven, empathetic and being reflective. The evidence suggests that the ability to share ideas, reflect on issues and discuss with colleagues, both in class and away from class was pivotal in making the learners become more solution driven. “It has caused me to be more reflective…evaluate multiple responses to resolving situations before acting. I am even more self motivated to succeed and turn my school around.” “Many of the problems were real and currently what we experience. I enjoyed the relevance to on the job situations and my interest peaked as a result. The diversity lesson was good to me as the influx of immigrants is a real issue that I had not actually considered carefully until after that class.” Further, learners expressed the view that the practice-based approach moved them out of their comfort zone into areas that enhanced their critical and creative thinking skills and made them empathetic: “The first assignment encouraged the use of creative and critical thinking skills. As a teacher I’m never asked to think like an administrator. The assignment forced me to imagine myself in a new role and how [to] attempt to solve the issue. I think I got a better understanding of how principals address issues, something that I had never considered before.” The findings for this research question indicate that significant development of the learners took place, through the use of digital tools, the quality of the course content and the positive learning environment created through the entrepreneurial innovative approach used in the course delivery.
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Freddy James, Sandra Figaro-Henry and Lisa Wickham Research Question 2: How has the entrepreneurial, innovative approach to teaching an educational leadership course utilizing digital tools added value to the UWISOE? Value was added to the UWISOE economically, technologically, administratively and socio-culturally and in terms of building collective capacity. Economically, the entrepreneurial innovation was the use of the Internet and Intranet and the overall value added gains are as follows. The use of blended learning and BYOD allowed for instructional and learning opportunities, which saved time and reduced organizational costs because less technical equipment was needed and therefore less money spent on acquiring technological resources. All the tools used were Open Educational Resources (OERs) which were free and open source, thereby bringing economic and financial gains for the UWISOE. Additionally, there were cost-savings through the application of a paperless delivery model. Administratively, there were savings from a human resource perspective, in that no time had to be allocated to copying, which meant that time could be utilized in more value adding activities. Additionally, face-to-face meeting spaces were freed-up due to the blended approach making more physical space available for scheduling other UWISOE activities. Technologically, the course added knowledge onto the Web. The curated digital spaces aided continued online and mobile interactions. The acquired digital collaboration skills facilitated everyone’s ability to work together and pool ideas for problem-solving. Further, divergent views fostered the expansion of ideas and contributed to a broader exchange and asynchronous interactions facilitated deep thought processing. Another gain was that the use of digital tools like Padlet facilitated brainstorming and immediate and spontaneous idea generation, easily retrieved and curated. Socio-culturally gains were achieved through the innovative entrepreneurial approach that promotes collaboration and communication using digital tools. As mentioned in findings for research question 1, sensitive content like migration was ventilated through the use of social networking tools and in so doing the goals of differentiated instruction were achieved. This approach promotes reciprocal learning as students are encouraged to interact, rather than take individual notes, with the resultant effect being: team interaction, intra and inter island engagement and collaboration across gender, ethnic, geographic and hierarchical lines, (various levels of work positions) One learner stated: “During class - by listening to the experiences of fellow classmates especially those currently in administrative leadership positions, allowing me, someone fairly new to administration, the opportunity to be exposed to day to day issues at their schools and possible strategies on how to handle them.” Perhaps the biggest socio-cultural value added to the UWISOE was the blurring of cultural and geographic barriers to teaching the Trinidad students and the Tobago students as a homogenous group. “The group tasks have encouraged greater collaboration between the students. We are mixed with Tobago students which was out of the box for us and each task is completed by a new mixture of participants.” Research Question 3: How have participants in the course translated the gains from the course experience into their real world activity? The learners benefitted from the course in such a way that the 21st century knowledge and skills acquired could have been immediately applied to the real world activity in their respective institutions and organisations. The learners indicated practical ways in which they had started to share and implement some of the leadership theories and practices they learned as follows: “Challenging teachers to reflect on their practice. reflecting on my practice and attempting to make relevant changes. Building capacity.” “... a parent group was made via WhatsApp as a means to keep parents informed about their child's development and assignments.” “These tools assist me in maintaining contact and collaborating, even brainstorming at times. I have created a WhatsApp group with staff for this purpose.”
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Freddy James, Sandra Figaro-Henry and Lisa Wickham “Technical skills are used to help me communicate with staff members. Knowledge of leadership traits etc. help to mould me into becoming a better leader. I try to listen to the input of others much more. I also share readings with management team.” More than indicating specific actions that were applied in their respective work environments, a deep sense of self reflection come through in the findings. “This course has made me become a more reflective person so that I am able to look at challenges in another way and find solutions that would have been very reactive before. I am now more highly motivated to attack issues that I would not have done before.” It is noteworthy that as a result of the skills and knowledge acquired on the course, learners were able to positively influence not only their peers, but their superiors at their institutions to engender change. One learner indicated that this was done through: “sharing of materials in department meetings and changing the discussion topics in the staff room to school improvement.” Another stated: “The use of encouraging media tools at my school has influenced my administrator to get interested and involved in technology or media tools as she was not exposed to smartphones and the use of the technology before... as a result she has gotten a smartphone.”
5. Challenges The greatest challenge faced by the learners and lecturers was technical, for example, inconsistencies with Internet connectivity and video conferencing. At the individual level for some learners using the new tools was a challenge, but they all indicated that with practice and help from colleagues they were able to surmount that challenge. One learner captures the sentiment of the others in the following statement: “Challenges I faced when using Moxtra was that it was the first time I was using the tool and as a result I was fumbling around and this had me uneasy. For instance, when we had to set up the Moxtra connection the first time it took a long time and I was becoming frustrated but with persistence and help we got through.” While being in mixed level groups worked for most persons, for one learner it presented a challenge: “Not so much a challenge but drawback for me many times in not being able to contribute in discussions and solutions which I attribute to my lack of experience in being an administrator”
6. Discussion and conclusion The use of digital tools to capture and share material facilitates more meaningful engagement within the learning environment and among peers. This implies that the quality of interaction as well as the quality of the content derived would have been more substantial. Shared notes in the digital landscape provides the opportunity for simultaneous enhancement of thought as learners can contribute to each other’s notes in real time thereby adding to the process and capitalizing on collaboration. The findings imply that significant work remains to be done with regard to the integration of 21st Century tools and new media skills into both the operations of and course delivery at the UWISOE. This gap presents an opportunity to move the eco-systems to a place where learners are better able to navigate the digital landscape. The value that learners derived from the course experience extended beyond the acquisition of learning and applying 21st century digital skills. For example, some learners appear to have benefitted from improved communication skills as a result of the collaborative processes employed. Still, with regard to the use of online tools for collaborating, it was clear that without a strong infrastructural backbone the entire process can be thwarted because once the Internet became unreliable the learning process was affected and the learning stunted. Clearly there are benefits to be derived from creating spaces and opportunities for participants in the educational system to collaborate and cross function, not only in intra regional groups but across Tobago and Trinidad thereby creating opportunities in the digital landscape for teams to meet on a regular basis, to address real world issues and challenges. The research sought to find out how an entrepreneurial innovative approach, using new media tools and a practice-based instructional design to teach a postgraduate educational leadership course brought value for the
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Freddy James, Sandra Figaro-Henry and Lisa Wickham learners and the tertiary institution. Additionally, the research sought to investigate how the learners had incorporated their newly acquired skills and knowledge in their real world work spaces, thereby bringing value and innovation to those institutions. The evidence in this study, which speaks to relationship building, collaboration, capacity building, teamwork and shared values, leads to the conclusion that the learners in the course have been building a Professional Learning Community (PLC). Even more so, it would seem that the digital tools they have learnt during the course has provided a pathway to make the PCL sustainable beyond the course. It can also be concluded that the application of new media technology to the learning environment significantly enhances the experience of and adds value to both the learners as well as the lecturers and administrators. It redounds to the benefit of the learning institution via economic, socio-cultural and financial gains and to the benefit of the learners through a greater understanding of self-worth and transformational skills not only in their respective work environment but in the wider society.
References Billett, S. (2010). The Practices of Learning through Occupations. In S. Billett (Ed.), Learning Through Practice: Models, Traditions, Orientations and Approaches Dordrecht, Springer, Netherlands, pp 59-81. Brush, C., Neck, H., and Greene, P. (2015). A Practice-Based Approach to Entrepreneurship Education Evolving Entrepreneurial Education: Innovation in the Babson Classroom, pp. 35. Blass, E. and Hayward, P. (2014) “Innovation in higher education; will there be a role for “the academe/university” in 2025?” European Journal of Futures Research, Vol 2, No .1, pp 1-9. Carmeli, A. and Paulus, P. B. (2015) ”CEO Ideational Facilitation Leadership and Team Creativity: The Mediating Role of Knowledge Sharing”. The Journal of Creative Behavior, Vol 49, No.1, pp 53-75. Coyne, K. P. and Nielsen, J. (2001) How to conduct usability evaluations for accessibility methodology guidelines for testing websites and intranets with users who use assistive technology,[online], University of Syracuse, http://library.syr.edu.libezproxy2.syr.edu/digital/documents. Figaro-Henry, S. and James, F. (2015) “Mobile Learning in the 21st Century Higher Education Classroom: Readiness Experiences and Challenges”, Caribbean Curriculum, Vol 23, pp 99-120. Gibb, A., Haskins, G. and Robertson, I. (2013) Leading the Entrepreneurial University: Meeting the Entrepreneurial Development Needs of Higher Education Institutions. In A. Altmann and B. Egersberger (Eds.), Universities in Change Managing Higer Education Institutions in the Age of Globalization. Sprin ger, New York, pp 9-45. Hekkert, M., Negro, S., Heimeriks, G. and Harmsen, R. (2011). “Technological innovation system analysis”, [online] Utrecht University, http://www.innovation-system.net/wpcontent/uploads/2013/03/UU_02rapport_Technological_Innovation_System_Analysis.pdf. Kitagawa, F. (2004) Universities and Regional Advantage: Higher Education and Innovation Policies in English Regions. European Planning Studies, Vol 12, No. 6, pp 835-852. DOI:10.1080/0965431042000251882 Higgs, J. (2011) Practice-Based Education: A Framework for Professional Education, Sydney: Australian Learning and Teaching Council. Meissner, D. and Kotsemir, M. (2016) Conceptualizing the innovation process towards the ‘active innovation paradigm’— trends and outlook. Journal of Innovation and Entrepreneurship, Vol 5, No.1, pp 1-18. doi:10.1186/s13731-016-0042z. Mok. K. M. (2005) Fostering Entrepreneurship: Changing Role of Government and Higher Education Governance in Hong Kong. Research Policy Vol 34, No. 4, pp 537–554. doi:10.1016/j.respol.2005.03.003 Partnership for 21st-century skills. (2016) “Framework for 21st-century learning”, [online], Partnership for Century Learning, http://www.p21.org/our-work/p21-framework. Schleicher, A. (2011) Skills, Education and Employment: Europe’s Next Frontier. Lisbon Council Policy Brief An Action Plan for Europe 2020: Strategic Advice for the Post-Crisis World, [online], The Lisbon Council think Tank for the 21 st century, http://www.lisboncouncil.net/publication/publication/65-an-action-plan-for-europe-2020-strategic-advicefor-the-post-crisis-world.html. Stephens, H. M., Partridge, M. D. and Faggian, A. (2013) Innovation, Entrepreneurship, and Economic Growth in Lagging Regions. Journal of Regional Science, Vol53 No.5, pp 778-812. University of the West Indies. (2012) “Strategic plan 2012 – 2017”, [online], Universityof the West Indies, http://www.mona.uwi.edu/opair/strategic-plan/UWI+Strategic+Plan+2012-2017+(Final).pdf].
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Interactions Among Open Innovation Activities, Organizational Learning and Competence in Business and Public Organizations: Issues of Measuring Brigita Janiunaite and Monika Petraite Kaunas University of Technology, Lithuania
[email protected] [email protected]
Abstract: The changing nature of innovation modes requires a different focus in innovation process organization and monitoring in order to ensure innovation management effectiveness, speed, and maintain strategic focus. At this level it is important to understand the link between open innovation processes and innovation micro foundations in the organization (supporting learning and knowledge exchanges for open innovation) and organizing and monitoring practices. In this context the important question how to measure the above-mentioned activities of open innovations and their interaction with particularly relevant components of open innovations – organizational learning and the acceptable set of competences required – remains. Therefore, this paper addresses the following questions: how open innovation activities at organizations in different sectors interact with the dominant learning processes and sets of competencies? How to measure activities of open innovation, learning and competencies while searching for interactions among them? Interactions have to allow measuring the above-mentioned variables in different type organizations irrespective of whether they are of business, or public sector? These questions are addressed drawing on the research carried out in the frame of the project AISTIS. The project AISTIS aims to develop a complex methodology for the evaluation of national innovation system with reference to its evolution towards open innovation ecosystem. The research is based on a new methodology for the measurement and evaluation methodology on the level of innovation systems, sectors and organizations. Keywords: open innovation, organizational learning, competence, public and business sector
1. Introduction Open Innovation (OI) has emerged as an umbrella concept between the macro and micro levels of innovation studies (Huizingh, 2011). OI refers to a setting where the focal company strives for innovation by purposefully seeking to tap into available knowledge residing outside its boundaries, while simultaneously allowing for own unused knowledge to outflow and be exploited by third parties (Chesbrough, 2003). The theoretical foundations of OI can thus be seen as a firm-level mirroring of the innovation systems literature in that OI conceptualizes innovation as taking place between companies and other relevant actors who exchange knowledge and codevelop products and services in loosely coupled networks where business models are dynamically created, reshaped, dissolved and recreated in order to continuously enhance innovation competency (Chesbrough, 2003; Chesbrough, 2006; Chesbrough & Bogers, 2014). After more than a decade of extensive scholarship and practice development in Open Innovation, since the publication of the book Open Innovation (Chesbrough, 2003), Chesbrough & Bogers (2014) propose the following synthesis definition of the concept, quoted in West et al. (2014, p. 806): ‘We define open innovation as a distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization’s business model’. Hence, OI can encompass a wide range of forms and degrees of openness in the innovation process (Laursen & Salter, 2006). Companies can engage in outbound innovation by either revealing or selling ideas, knowledge or technologies, in inbound innovation by either sourcing or acquiring such innovation assets from outside (Dahlander & Gann, 2010), or in both, by coupling external knowledge sources and outbound commercialization activities (Chesbrough & Bogers, 2014). Activities of open innovation management in organization’s level, progress of innovative activity, maturity of open innovation application in an organization, profile and importance of national and international partners in open innovation activity and alike can be attributed to ‘hard’ dimensions; organizational learning, competencies, strategic orientation of organization’s innovative activity to solve challenges for wellbeing of the society, guidelines for open innovation responsibility evaluation and ethical principles of partners’ choice, etc. – to ‘soft’ ones. Different measurement instruments are applied to measure some dimensions; however, it is based on complex standpoint as well as the appropriate valid instrument, which would allow evaluating interactions of particular ‘hard’ and ‘soft’ dimensions. Evaluation of such interactions is important both for business and also
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Brigita Janiunaite and Monika Petraite for public sectors. This paper strives for these goals; its structure presents the systematic standpoint to open innovation ecosystem; further on essential ‘hard’ and ‘soft’ dimensions are analyzed by distinguishing aggregated groups and their variables important for measurement in them. Having performed measurements in organizations of different sectors, the measurement instrument’s reliability and validity are presented in the final part of the paper.
2. Ecosystem of open innovation: The concept and model Adner (2006), when integrating the perspective of organization’s innovation strategy, treats innovation ecosystems as partner agreements, by which companies combines individual suggestions into a united decision for a customer. Wang (2009) defines innovation ecosystems as innovation networks as well as individuals and organizations’ communities, which interact by generating and using innovations or, as Oksanen and Hautamaki (2014) state, dynamic, interactive networks, which ‘breed’ innovations. Open innovation ecosystem is defined as the network of market and non-market agents interrelated by meaningful relationship and actively exchanging knowledge and experience, which is oriented towards generation of innovations and value added that is based on open flows of incoming and outgoing knowledge. This definition is referred to in the paper. Thus the approach of open innovation ecosystems focuses the analysis attention not only to an individual innovator, but also pursues to create a value for all agents of the ecosystem (suppliers, customers, society groups), who also solve own challenges of innovations (Adner and Kapoor, 2009). Referring to the above presented analysis, the model of open innovation ecosystem’s research, which incorporates intraorganizational, organizational, extra- and intra-organizational processes of open innovations in sectorial, national and international level, was substantiated. The model refers to reference orientation of innovative activity towards the solution of challenges for formation of welfare society (social, environment protection, sustainable economic development) as collective responsibility of innovative activity that encourages companies, organizations and stakeholders to join open innovation networks and proactively function in open innovation ecosystems. The latter orientation of innovative activity is realised through open innovation activities initiated by an innovative organization at the intra-organizational level (from outside to organization’s inside, from inside to outside and mixed) as well as integration of open innovations into parameters of organizational level, such as goals of organization’s innovative activity, formation of organization’s structure for open innovations, organizational competences and learning processes in order to productively integrate flows of open knowledge into innovative activity as well as such ‘soft’ components of organizational structure as openness, flexibility of organization culture, abilities and competences of open innovations as well as learning processes for open innovations. Extra- and inter-organizational level form the level of open innovation interactions’ analysis when it is sought to know interactions of open innovation ecosystem’s knowledge through efforts of ecosystem’s agents to generate, transfer (absorb) and use generated knowledge in open innovation networks to achieve an innovative result. Tangible elements of this level are defined by indicators of subsystems of innovation system knowledge creation, dissemination and use, complex formations and partner networks and orientation of innovative activity towards R&D system, value creation systems, society or communities, or entrepreneurship as well as open innovation platforms being generated by entrepreneurship ecosystems through purposeful choice of partners at national and international level; this allows retiring from the framework determined both by national innovations and business system. Qualitative ‘soft’ parameters of this level cognition are defined by implementation of trust and coordination mechanisms, involvement of stakeholders into open innovative process, formation of extra- and inter-organizational open teams to solve innovation problems. National and international context determines interaction of intra-organizational, organizational, and extra as well as inter-organizational open innovations’ dimensions. Further on the article concentrates on three essential variables related to the activity of open innovations in organizations and among organizations, detection of the essence and substantiation measurement criteria (aggregated groups and variables).
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3. Substantiation of aggregated groups and variables of open innovation activity expression in an organization Concept of open innovations refers to purposeful use of knowledge incoming into the organization and outgoing from it while striving to encourage internal innovations, accelerate their creation and expand markets for external use of innovations (Chesbrough, 2003). In the latter decade the development of research on open innovations allowed to properly enough typologize and distinguish dominating types of open innovations, which should be related to higher or lower degree of openness of internal innovation processes, which manifests through the type of interaction with external innovation partners and communities. In modern global knowledge economy integration of technologies and intellectual property into internal innovative activities is most prevailing (technological and intellectual input of open innovations) and, by analogy, the shift of unused technologies and intellectual property to participants of innovation ecosystem on the basis value chain relations (technological and intellectual output of open innovations). Such open innovation activity is defined as open transfer and interception of technologies and intellectual property (Chesbrough, Vanhaverbeke, West, 2014). The latter group of variables consists of the activity to manage typical input and output of open innovations related to the following indicators: acquisition of intellectual property, licences; sale of intellectual property, licences; acquisition of external technologies and technological solutions; sale of unused technological solutions. Another, more complex and hardly tangible activity of open innovations refers to different collaboration in attaining goals of innovative activity. In this case an organization purposefully creates different activities of collaboration by pursuing to acquire specific knowledge of open innovations, such as integration of customer’s needs into an innovative solution, research and cyclic development of experimental activity in order to create and develop innovative products and processes, management of technological integration while pursuing to integrate into dominating technological and social platforms as well as to ensure technological and social compatibility of innovations being generated. In summary the latter activity forms the group of variables of open innovation activities in collaborating with value chain partners and customers, which involves collaboration with customers and consumers in creating innovations and performing researches as well as purchase of R&D services from partners. The third group of open innovative activity is formed by open networking and active community interactions. Organizations when attempting to envisage and influence innovative solutions being formed strive to open innovative activities at the maximum, and later to institutionalize their results; this would ensure the return of innovative activity investments in long-term perspective. Usually such activities refer to active search for ideas and open communities of innovative solutions’ generation, as well as they require particularly smart management of the voluminous and diversity network of distant enough agents and interested agents as well as capacities of result integration. The entirety of the open innovation activity forms the group of open innovation activities by interacting in open communities of interactions, which is formed by such indicators as innovation generation at competitions of ideas and startups, public announcement of the problem while pursuing for crowdsourcing; search for ideas in different external sources, open free display of innovations to external parties (e.g., ideas, intellectual property) as well as participation in creating and influencing certified or publicly accepted standards.
4. Substantiation of aggregated groups and variables in the context of open innovations of organizational learning Open innovations can be treated as organization’s competency, which has to be developed in long-term period. Open innovations encompass not only resource attracting and sharing. As Enkel, Bell and Hogenkamp (2011) state, open innovations are basically related to organization’s becoming a learning organization (Argyris, 1999; Senge, 1990). Qualities of a learning organization are related to knowledge management and organizational learning. Scientists (Argyris, Putman and McLain Smith, 1985; Senge, 1990; Senge et al., 1994; Nonaka and Takeuchi, 1995; Longworth, 2006; Juceviciene, 2007) distinguish two levels of learning, which can take place in an organization: individual and collective. Individual learning is important and necessary for an organization; however, the level of collective learning renders the greatest profit for effectiveness of organization’s activity when employees’ groups functioning in the organization pursue for collective knowing, i.e. ‘something more than general sum of individuals’ knowing’ (Durkheim, 1974, cit. from Juceviciene, 2007, p. 304).
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Brigita Janiunaite and Monika Petraite Processes of individual and collective level learning have to be enabled in an organization while pursuing for constant organizational learning important for the organization. The result of this activity is created new organizational knowledge. A learning organization creates certain conditions in order that the above-mentioned learning processes would be enabled. In a learning organization the complex of certain means, conditions, possibilities, which ensures constant organizational learning, is functioning. Researchers of knowledge management (Krogh, Roos, 1995; Choo, 1998; Bukowitz, Williams, 2000; Gamble, Blackwell, 2001; Sanchez, 2003; Probst, Raub, Romhardt, 2003; Waltz, 2003 and others) treat organizational learning as knowledge creation both at individual and collective levels. Organizational learning is considered to be such individual and collective learning of employees when it is institutionalized by this organization, i.e. it is supported; and the knowledge created while learning in the activity and after the activity (by reflecting) is consolidated in rules, systems, structures and culture of an organization. Innovative activity, especially that of open innovations is first of all characterized by fast consolidation and reconfiguration of the knowledge generated by most agents of the network when no organization is able to possess all necessary knowledge in its inside (Powel, Grodal, 2005). Referring to the above-mentioned insights, the following variables are distinguished in this aggregated group: internal platform of organizational knowledge creation oriented to learning by open innovations; organizational learning determined by external partnerships for open innovations.
5. Substantiation of aggregated groups and variables in the context for competencies for open innovation From its particular focus on various forms of collaboration, mutual working relationships, and sharing of innovation opportunities and risks, Open Innovation brings new challenges at the level of the human side of innovation teams (du Chatenier et al., 2010), which, however, are difficult for managers both to define and to find in new recruits (Dabrowska & Podmetina, 2014). Researchers have recently turned to the concept of competencies in order to identify the particular skills and behaviors that are essential to find, develop and cultivate in the work force in order to succeed in OI endeavors (du Chatenier et al, 2010; Dabrowska & Podmetina, 2014; Hafkesbrink & Schroll, 2014). Competence, in this perspective, is defined as an integrated set of knowledge, attitudes and skills of a person (Mulder, 2007), which results in effective and/or superior performance in a job (Boyatzis, 1982). Based on an extant literature review, Soderquist et al. (2010) identified three analytical perspectives that help understand the meaning and applicability of different types of competencies for HRM: !
Generic vs. organization-specific competencies, which refer to competencies identified within the context of a specific job, either generically, i.e. common to all individuals occupying a specific job, or specific to the job in a particular organization,
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Managerial vs. operational competencies, which refer to competencies required for carrying out the functions of a specific role; managerial competencies relate to interpersonal interaction, such as action management, coordination, planning or motivation, while operational competencies refer to specific job positions and how to carry out successfully a specific job of operational nature,
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Competencies as skills vs. competencies as behaviors, which refer to characteristics of individuals that are either learned and describe what an individual does, or fundamentally inherent and describe how people do their job.
This typology, consisting of a combination of the three identified couples, has a general applicability for competency management as it suggests an analytical 'scale' of competencies, ranging from the most specific 'Organization-Specific Operational Skills', to the most general 'Generic Management Behaviors'. This facilitates the identification, classification, understanding and balancing of the complex pattern of competencies that in practice appear on a continuum between the more specific and the more general (Soderquist et al., 2010). A central theoretical framework for further understanding and classifying the competency aspects of innovation management is the exploration/exploitation trade-off (March, 1991), which has evolved into the exploration/exploitation dichotomy affording co-existence (Benner & Tushman, 2003) and more recently into a focus on simultaneous integration through ambidexterity (Raish et al., 2009; Blindenbach-Driessen & van den
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Brigita Janiunaite and Monika Petraite Ende, 2014). ‘Exploration includes things captured by terms such as search, variation, risk taking, experimentation, play, flexibility, discovery, innovation. Exploitation includes such things as refinement, choice, production, efficiency, selection, implementation, execution’ (March, 1991, p. 71). In innovation studies, exploration has become synonym with radical innovation, and exploitation with incremental innovation (Jansen et al, 2009). Ambidextrous organizations are ‘capable of simultaneously exploiting existing competencies and exploring new opportunities’ (Raish et al., 2009, p. 685). This translates into examining how exploration and exploitation work together to simultaneously achieve incremental and radical innovation, what could be referred to as innovation ambidexterity (Li et al., 2008). Ambidexterity is central for innovation performance (Blindenbach-Driessen & van den Ende, 2014), especially in an Open Innovation context characterized by intensive inter-organizational collaboration, knowledge transfer and learning (Li et al, 2008). Thus, the individual competences associated with both exploration and exploitation are essential for succeeding in OI (Hafkesbrink & Schroll, 2014), and many researchers claim that ambidexterity is rooted in an individual's ability to explore and exploit (Raish et al., 2009). Leaning on the dimensions of exploration, exploitation and ambidexterity, Hafkesbrink & Schroll (2014) proposes a comprehensive catalogue of both organizational and individual competencies for Open Innovation: !
Organizational competencies for the exploration phase of OI include: Ability to identify and assimilate knowledge, Ability for Outside-in Collaboration, Dynamic adaptability, Inventive capability, and Effectiveness.
!
Organizational competencies for the exploitation phase of OI include: Ability for transfer/valorization of knowledge, Ability for Inside-Out Collaboration, Routinization capability, Imitation/replication capability, and Efficiency.
!
Individual competencies that support exploration activities include: Combining and expanding knowledge (professional skills), Coping with complexity in the context of variety enhancement (methodical skills), Cooperation in the framework of interaction relationships (social skills), and Self-reflection in a personal action routines (personal skills).
!
Individual competencies that support exploitation activities include: Knowledge concentration (professional skills), Simplification and variety narrowing (methodical skills), Hierarchy for control of work processes (social skills), and Authority in the implementation of personal action (personal skills).
!
Individual ambidextrous competencies finally, include: knowledge brokerage, topsy-turvy-thinking, multitasking, dialectic thinking (methodical), diplomatic and rhetorical capabilities, tolerance to ambiguity, mediation, capabilities (social), and capability to combine alternative logics, emotional ambivalence, capability to think outside the box (personal).
Another attempt at classifying OI competencies –skills and attitudes – was generated from a study of large multinationals at the University of Cambridge's Institute for Manufacturing (Mortara et al., 2009). They propose four categories of skills for open innovation: introspective, extrospective, interactive and technical, accompanied by a set of desirable personal attributes (behaviours), including, among other, motivation, ability to learn, sociability, techno-business mind-set, leadership, entrepreneurial mind-set, adaptability and flexibility (Dabrowska & Podmetina, 2014). Du Chatenier et al. (2010) identified four clusters of OI competencies, based on a literature review and a qualitative validation through interviews and focus groups: !
Self Management, which is seen as the basis for achieving the central tasks related to OI,
!
Interpersonal Management, which is essential in order to manage the inter-organizational collaboration process,
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Project Management, which is essential for managing the overall innovation process,
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Content management, which is essential for creating new knowledge collaboratively.
Particular OI challenges that need to be addressed through appropriate competencies were also identified, including: High diversity and cognitive distances, Low social cohesion, High level of uncertainty, Low reciprocal commitment, and Absence of traditional hierarchical lines. Finally, with the objective of conducting a first larger-scale empirical research about competencies –knowledge, skills and attitudes- for Open Innovation across Europe, Dabrowska & Podmetina (2014) reviewed related
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Brigita Janiunaite and Monika Petraite literature and collected data on job titles, job functions, and job offers. Based on this, they elaborated sets of competency related variables in two categories: Individual skills and competencies useful for OI professionals, and OI-specific skills and knowledge.
6. Validation of instrument for measuring interactions among open innovation activities, organizational learning and competence Referring to the above presented methodology, the indicators of particular aggregated groups and variables, which became the basis of research instrument – the questionnaire, were distinguished. The characteristic scale internal consistency was used to measure questionnaire’s reliability; it refers to correlation of separate questions making the questionnaire (diagnostic blocks of the questionnaire). The meaning of Cronbach’s Alpha coefficient, Corrected Item-Total Correlation, KMO, Bartlet’s Test, Communalities analysis was calculated for validity of the questionnaire, Total Variance Explained and Rotation Sums of Squared Loadings, Rotated Component Matrix tests were performed. Table 1: Validity of separate diagnostic blocks Diagnostic block OPEN INNOVATION ACTIVITIES ((Part A) OPEN INNOVATION ACTIVITIES (Part B) MANAGEMENT OF OPEN INNOVATION LEARNING FOR OPEN INNOVATION SET OF SKILLS AND COMPETENCES IN OPEN INNOVATION CONTEXT
Cronbach’s Alpha 0.899
N of Items 13
0.861
13
0.922 0.872 0.959
15 8 29
Thus it is seen (see Table 1) that the meaning of the Cronbach’s Alfa coefficient, which should be higher than 0.7 for a well-designed questionnaire (according to some authors – 0.6), ranges from 0.861 to 0.959; this shows that the constructed questionnaire is well-designed, its distinct blocks allow measuring particular variables and their interaction. Recommendations and suggestions for questionnaire’s structure and form as well as variables of diagnostic groups were provided after the pilot survey. All blocks with particular indicators, which distinguished in the theoretical analysis, remained (see Table 2). Table 2: Structure of main research instrument Diagnostic block
Indicators
N of statements
OPEN INNOVATION ACTIVITIES
Open innovations while collaborating with value chain partners and customers Open innovations while collaborating in open communities Open innovations while applying technology interception and transfer Present and desired level of open innovation activity intensity Acceptance of organization’s design and processes for open innovative activity Organization’s coordination mechanisms for open innovative activity Processes of open knowledge flow empowerment Internal platform of organization knowledge creation oriented to learning for open innovations Organizational learning for open innovations determined by external partnerships Collaboration abilities/capacities of open innovations Meta-collaboration abilities/capacities of open innovations Exploration abilities/capacities (critical) of abilities/capacities of open innovations
13
MANAGEMENT OF OPEN INNOVATION
ORGANIZATIONAL LEARNING FOR OPEN INNOVATION SET OF SKILLS AND COMPETENCES IN OPEN INNOVATION CONTEXT
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15
8
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Brigita Janiunaite and Monika Petraite Diagnostic block
Indicators Eclectic abilities/capacities (combinative) of open innovations Transformational abilities/capacities of open innovations Exploitation abilities / capacities of open innovations
N of statements
7. Conclusions !
Open innovation ecosystem is defined as the network of market and non-market agents interrelated by meaningful relationship and actively exchanging knowledge and experience, which is oriented towards generation of innovations and value added that is based on open flows of incoming and outgoing knowledge.
!
The model of the research on open innovation ecosystem integrates intra-organizational, organizational, extra- and inter-organizational processes of open innovations in sectorial, national and international level. The construct of the model refers to reference orientation of innovative activity towards solution of challenges for formation of welfare society as collective responsibility of innovative activity that encourages companies, organizations and stakeholders to join open innovation networks and proactively function in open innovation ecosystems.
!
The substantiated aggregated groups and variables of ‘hard’ and ‘soft’ dimensions allowed constructing the indicators, which are valid to measure interactions among open innovation activities, organizational learning and competence in business and public organizations.
References Adner, R. (2006) Match your innovation strategy to your innovation ecosystem, Harvard business review, 84 (4), 98. Adner, R. and Kapoor, R. (2010) Value creationon in innovation ecosystems: How the structure of technological interdependence affects firm performance in new technology generations, Strategic management journal, 31 (3), 306-333. Argyris, C. (1992) On Organizational Learning, Blackwell Cambridge, Mass. Argyris, C., Putman, R. and McLain Smith, D. (1985) Action science, San Francisco, Jossey Bass, CA. Boyatzis, R.E. (1982) The Competent Manager: A Model of Effective Performance, NY, John Wiley & Sons. Bukowitz, W. and Williams, R.L. (2000) The knowledge management fieldbook, London, Prentice Hall. Chesbrough, H. (2003) Open innovation: The new imperative for creating and profiting from technology, Boston, Harvard Business School Press. Chesbrough, H. and Bogers, M. (2014) Explicating Open Innovation: Clarifying an Emerging Paradigm for Understanding Innovation, in Chesbrough, H., Vanhaverbeke, W. and West, J. (eds.), New Frontiers in Open Innovation, Oxford: Oxford University Press. Chesbrough, H. and Crowther, A.K. (2006) Beyond high tech: early adopters of open innovation in other industries, R&D Management, 36 (3), 229–236 Chesbrough, H., (2006) Open business models: How to thrive in the new innovation landscape, Boston, Harvard Business School Press. Chesbrough, H., Vanhaverbeke, W. and West J. (2014) New Frontiers in Open Innovation. Oxford, Oxford University Press. Choo, Ch.W. (1998) The knowing organization. How organizations use information to construct meaning, create knowledge, and make decisions, NY, Oxford University Press. Dabrowska, J. and Podmetina, D. (2014) Identification of Competences for Open Innovation, XXV ISPIM Conference – Innovation for Sustainable Economy & Society, Dublin, Ireland on 8-11 June. Dahlander, L. and Gann, D.M. (2010) How open is innovation? Research Policy, 39, 6, 699–709. du Chatenier, E., Verstegen, J.A., Biemans, H.J., Mulder, M. and Omta, O.S. (2010) Identification of competencies for professionals in open innovation teams, R&D Management, 40 (3), 271-280. Durkheim, E. (1974) Sociology and philosophy, NY, Free Press. Enkel, E., Bell, J. and Hogenkamp, H. (2011) Open innovation maturity framework, International Journal of Innovation Management, 15, 1161-1189. Gamble, P.R. and Blackwell, J. (2001), Knowledge management. A state of the art guide, London, Biddles Ltd, Guildford and King’s Lynn. Hafkesbring, J. and Schroll, M. (2014) Ambidextrous Organizational and Individual Competencies in Open Innovation: The Dawn of a New Research Agenda, Journal of Innovation Management, 2 (1), 9-46. Jucevičienė, P. (2007) Besimokantis miestas: monografija, Kaunas, Technologija. Laursen, K. and Salter, A. (2006) Open for Innovation: The Role of Openness in Explaining Innovation Performance among UK Manufacturing Firms, Strategic Management Journal, 27, 131–50. Longworth, N. (2006), Learning cities, Learning regions, Learning Communities: Lifelong learning and local government, London, Routledge.
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Brigita Janiunaite and Monika Petraite Mortara, L., Napp, J., Slacik, J. and Minshall, T. (2009) How to implement open innovation: Lessons from studying large multinational companies, University of Cambridge Institute for Manufacturing. Mulder, M. (2007) Competence: the essence and use of the concept in ICVT, European Journal of Vocational Training, 40, 5–22. Nonaka, I. and Takeuchi, H. (1995), The Knowledge Creating Company, Oxford University Press. Oksanen, K. and Hautamäki, A. (2014) Transforming regions into innovation ecosystems—A model for renewing local industrial structure, The Innovation Journal: The Public Sector Innovation Journal, 19, (2). Powell, W.W. and Grodal, S. (2005) Networks of innovators, The Oxford Handbook of Innovation, 56-85. Probst, G.J.B. and Büchel, B.S.T. (1997) Organizational Learning: the Competetive Advantage of the Future, Great Britain, British Prentice Hall Europe. Sanchez, R. (2003) Knowledge management and organizational competence, Oxford, Oxford University Press. Senge, P.M. (1990) The Fifth Discipline, NY, Doubleday. Senge, P.M., Kleiner, A. and Roberts, Ch. (1994), The Fifth Discipline Fieldbook, London, Nicholas Brealey Publishing. von Krogh, G., and Roos, J. (1995) Organizational epistemology, NY, St. Martin’s Press.
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On Using Games for Practicing Entrepreneurial Mindset Charlotta Johnsson1, Mari Suoranta2, Ikhlaq Sidhu3 and Ken Singer3 1Lund University, Sweden 2University of Jyvaskyla, Finland 3UC Berkeley, USA
[email protected] [email protected] [email protected] [email protected]
Abstract: Today, innovation and entrepreneurship are key words for many universities, as it constitutes an important part of most universities’ public and scientific outreach task. Universities are striving to increase the number of innovations and entrepreneurs generated by the university. Teaching and learning entrepreneurship is therefore of importance and schools, colleges and universities can play an important role by including entrepreneurship and innovation in their curricula (Sidhu et al., 2015a). Some of the most crucial elements of entrepreneurship at the level of individuals are attitudes, skills and actions (Wennekers, 2005), i.e. the entrepreneurial mindset of the individual. This is an element that is seldom included in traditional classes at schools, colleges and universities. Creating entrepreneurial mindsets in students also calls for the use of innovative models and contents in teaching. As part of the Berkeley Method of Entrepreneurship (BMoE) research project, the entrepreneurial mindset has been studied and ten behaviors have been identified (Sidhu et al., 2015b). These are behaviors that are frequently found with successful entrepreneurs in the highly innovative and entrepreneurial area of Silicon Valley, California. Another part of the same research project has been to identify and design various games that can be used with the entrepreneurship students and that has the intension to advance the individual’s entrepreneurial mindset (Sidhu et al., 2015a). This paper describes two BMoE-games (Story-telling and Collaboration) and discusses experiences of using them for teaching and learning entrepreneurship in higher education. Reflections from both teachers and students are provided. Keywords: entrepreneurship, innovation, teaching and learning
1. Introduction This paper presents a fresh and innovative approach of how behavioral games can be used in entrepreneurship education. As pointed out by Phan, Siegel & Wright (2009), more research concerning good way to train students in entrepreneurship is needed, and Verzat, Byrne & Fayolle (2009) state that research investigating suitable pedagogical methods to attain requisite skills among higher education students is lacking. There is a notable lack of definitional consensus concerning the use of games in education, and current research with respect to the use of games has remained fragmented and underdeveloped. Following Verzat et al. (2009) we define a game as an educational device with discrete objectives with respect to the participants’ learning, used in the context of known boundaries. Currently, universities are expected to play a new role in society, in addition to research and teaching, by applying a ‘third mission’ of economic development (Etzkowitz et al., 2000). This development has been apparent at many US universities for decades, and is currently accelerating also in Europe. According to Rasmussen & Sorheim (2006) universities can contribute to entrepreneurship both indirectly, through education of candidates, and directly by commercialization of research and by being the seedbed for new ventures. The flow of candidates, or future innovators, constitutes a great potential and a responsibility for the universities to address the need for a more entrepreneurial workforce in general, and for highly qualified competence in this area. This paper starts with arguments why it is of importance for society to educate students who have entrepreneurial knowledge and skills. It describes current trends in teaching and learning as well as the special aspects of teaching and learning entrepreneurship. The paper further contains a description of the BMoE and the hypotheses on which it is based. The paper presents a set of behavioral patterns that characterize an entrepreneur and it discusses how these can be invoked by introducing games in the teaching and learning setting. The paper presents some ideas for further research related to entrepreneurship and management education in general and to the BMoE in particular. At last, the conclusions are drawn.
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2. Need for entrepreneurial mindset in education Having entrepreneurial knowledge and skills as well as entrepreneurial mindset are often seen as prerequisites to creativity and innovation and as enablers of entrepreneurial actions that are essential in order to prepare students for a successful professional life (Täks, Tynjälä & Kukemelk, 2015). While traditional educational practices have involved the transmission of prescribed knowledge, entrepreneurial learning has been described as being something about unplanned and unpredictable ideas, the creation of new and non-existing ideas. According to Pittaway and Cope (2007) entrepreneurial learning includes learning by coping, experimenting, problem-solving, and learning from one’s own mistakes. Entrepreneurial learning can be seen as a way to encourage the development of creativity and innovation together with the individual’s ability to see new opportunities. It is also about making adequate business decisions and making decisions based on real-live situations and problems. As well as requiring the ability to reflect on one’s actions and learn from them. It has been stated that learning entrepreneurial skills requires combining both theoretical and practical pedagogies. As Gibb (2005; 2008) suggests and Täks et al. (2015) coincide idea of developing entrepreneurial competences among student does not necessarily mean that it is expected them to become entrepreneurs but to show alternatives for career options as well as preparing them for working life. Therefore we agree with Täks et al. (2015) that entrepreneurship education is not only to be the engine of economic growth and wellbeing through the creation of jobs and new ventures, but also to develop individuals who understand entrepreneurial processes and have entrepreneurial skills and ways of thinking. To teach and educate future entrepreneurs is orthogonal to traditional teaching in respect to how teaching is conducted. An instructor that wants to educate innovators should e.g. lead from the side as opposed to lead from the top, should inspire as opposed to direct, should trust and delegate instead of check and control, should treat the group members as colleagues and not as a subordinate (Mery, 2014). This is unconventional in teaching and learning situations and calls for a different mindset of the instructor. As the cases in Rasmussen & Sorheim (2006) study show entrepreneurship education focuses less on teaching individuals in a classroom setting and more on learning-by-doing activities in a group setting and a network context.
3. Using games in entrepreneurship education Entrepreneurial mindset and a skill set include, for example, ability of identifying opportunities, creative problem solving, negotiating, thinking strategically, networking, managing business situations holistically, making decisions intuitively in the face of uncertainty, being effective on a personal level and becoming more resilient to failures (Täks et al. 2015). Understandably providing students with these kinds of skills in a traditional learning environment might be difficult, often more student-centered, active environment is needed. Using games in management education was originally an outgrowth of war games, where the military had extensively used simulations to mirror real-world combat situations. Today, the entrepreneurship discipline draws heavily on developing and using simulations and experiential exercises as an integral component of the education process (Katz, Gundry, Low, & Starr, 1994). Verzat et al. (2009) state there is a notable lack of definitional consensus concerning the use of games in education, and current research with respect to the use of games has remained scant. A game may be described as an “artificial situation” in which players engage in an artificial conflict against one another or all together against other forces. Game objectives may be concerned with winning or losing, about being victorious against others, or even about taking revenge on adversaries. Purpose of an educational game is to create real-life learning environments and simulate real-life activities where unexpected events can occur and from which students can learn. Games are regulated by rules, which may take the form of procedures, controls, obstacles, or penalties. These rules structure the participants’ actions in striving to reach an objective. Games are examples of active-learning techniques (Benek-Rivera & Mathews, 2004). Games can create “imaginary worlds and hypothetical spaces where players can test ideas and experience their consequences” Squire & Jenkins, 2003, 8). Their value lies in their ability to promote collaboration and peer learning (Ruben, 1999). They are said to be particularly appropriate for today’s video-game generation, games add to class variety and are a creative way to attract and hold students’ attention (Benek-Rivera & Mathews, 2004). In entrepreneurship teaching and learning situations, it is essential that the student is able to develop a relationship to the subject itself. Games, as an active learning technique, constitute a suitable vehicle for this. In recent years, the general discussions about teaching has shifted from “how to present and transfer knowledge
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Charlotta Johnsson et al. from a teacher to someone else” to “how information and knowledge provided is perceived by the receiver”, i.e. from a teacher-student-transfer focus in which the subject is only the transported goods, to the studentsubject-relation focus in which the teacher is only the medium used. The shift is illustrated in the didactic triangle in Figure 1 (Johnsson et al., 2014).
Figure 1: An interpretation of the Didactic Triangle showing a shift from the teacher-student-transfer focus (left) to the student-subject-relation focus (right)
4. Berkeley Method of Entrepreneurship At the University of California Berkeley a new method for teaching and learning entrepreneurship is under development (Sidhu et al., 2015b). The pedagogy is focused around learning rather than teaching (compare Figure 1) and the students are pushed to proactively develop their own understanding rather than waiting for someone to teach them what they need to know. The students are trained to frame problems and find ways to solve them and then reflect on what they've learned from the process. The method has already been used in practice at different occasions; boot camps, courses for undergraduate and graduate students, Global Venture Lab, conferences for academia and industry, and research activities. The method under development is referred to as the Berkeley Method of Entrepreneurship. The Berkeley Method of Entrepreneurship encompasses three main elements; networks, mindset, and frameworks. Networks and frameworks are elements found in many entrepreneurial courses and provide the students with knowledge and facts associated to entrepreneurship whereas mindset is an element often missing in traditional courses. Generally, the mindset is a way of thinking that influences the way someone sees and acts upon a situation; the mindset is reflected in the person’s behavioral patterns (Dweck, 2006). The Berkeley Method of Entrepreneurship is based on the hypothesis that the mindset of an entrepreneur can be characterized by a distinct set of behavioral patterns, and that an inductive game-based teaching approach is a successful vehicle for introducing and re-enforcing these. In the game-based teaching approach, students explore their current mindsets and can compare it with that of entrepreneurs. The Berkeley Method of Entrepreneurship further stresses the relationship between the student and the subject (compare Figure 1), i.e. how information, experiences and knowledge provided in the course is perceived by the student.
5. Ten behaviors of entrepreneurs The mindset of successful entrepreneurs has been studied and a proposal describing their most dominant characteristics is given through ten (10) behavioral patterns. The proposal is based on extensive interaction with entrepreneurs in the Silicon Valley area, and on literature reviews e.g. Rainforest by Hwang and Horowitt (2012). A distinct set of behavioral patterns is identified and listed in Table 1, the list includes e.g. communication and collaboration. The list of the behavioral patterns is also given in Sidhu et al. (2015b) in which a more detailed explanation and references are also provided. It is important to note that this is an ongoing research, which implies that the ten (10) behavioral patterns should be interpreted as best current status. It cannot be excluded that more patterns will be added, or current patterns modified and/or removed. The ten behavioral patterns describe the typical mindset of successful entrepreneurs. If everyone in a community acts like this, there will be a vibrant entrepreneurial culture. Table 1: Ten (10) behavioral patterns characterizing an entrepreneur. Nb 1 2 3
Behavior Pay It Forward “Agree that you will get help from others, and pay it forward.” Story Telling “Realize a something new by induction, and then learn to communicate the story with a new language.” Friend or Foe
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Behavior “If you can’t tell: Learn to trust others without expecting anything in return.” Seek Fairness “Make deals that seek fairness (in positive sum transactions), not advantage (in zero sum transactions.” Plan to Fail “It is necessary to be Wrong sometimes. Plan to Experiment. Plan to Fail. (Fail Fast) Analyze, Adapt and repeat. The smarter you think you are, the harder this is going to be.” Diversify “Diversify your networks. Connect to people you would not normally, then go and listen. Open Up. And connect them to others.” Role Model “Be a role model for other entrepreneurs and innovators.” Believe “Believe that you can change the world.” Good Enough “Perfection is no good but good enough is perfect.” Collaboration “Individual vs team and competitors vs partners”
Two of the ten behaviors are explained below: STORY TELLING “Realize a something new by induction, and then learn to communicate the story with a new language” This behavioral pattern refers to Christensen’s influential work on the innovator’s dilemma (Christensen, 1997) and Moore’s work on crossing the chasm (Moore, 2006). Especially in high-tech markets, an entrepreneur’s product idea or business model can be radically new, or disruptive, it can be a “new to the world” type of innovation. Often even the terminology used to describe the concept might be missing. Exploring a new, possibly disruptive, market thus requires major changes in patterns of behavior related to how entrepreneurs communicate. The entrepreneurs need to learn how to “cross the communication chasm” so that potential investors, and later on customers, understand the added value in the new offering. The entrepreneurs need to learn to communicate their story with a new language; they need to be storytellers and to do story telling. To be able to adopt new innovations, consumers need to be aware of an innovation and understand the additional value provided by the innovation (Rogers, 1996). Narrative, or story telling, is central tool in addressing many of today's key leadership challenges, for example, articulating the risks and opportunities identified by strategic management tools like strategic plans, scenario analysis, and dilemma resolution (Denning, 2006). Story telling can be one way to overcome the communication chasm. It can be used effectively for several purposes of communication; sparking action, transmitting values, explore alternative future scenarios or sharing knowledge. COLLABORATION “Individual vs team and competitors vs partners” Collaboration can be performed in different flavors; there can be collaborations between individuals, who build the teams in businesses. Financial and human resources often seem to be the most critical for a successful launch of the venture and these resources tend to be closely interrelated. When new ventures apply for early stage venture capital funds, the question of a well-balanced team with sufficient business experience is often raised by the potential investors to evaluate a project (Vanaelst, Clarysse, Wright, Lockett, Moray & S'Jegers, 2006). And there can be collaborations between competing companies, so called co-opetition which is defined as a strategy embodying simultaneous cooperation and competition between firms (Gnyawali, He & Madhavan, 2006). Collaboration in business today is more of a survival trait than a buzzword. Because competing firms possess relevant resources and face similar pressures, collaboration with competitors enables firms to acquire and create new technological knowledge and use the knowledge in pursuit of innovations (Gnyawali & Park, 2011). Increased popularity of co-opetition is evident by the fact that over 50% of collaborative relations
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Charlotta Johnsson et al. (strategic alliances) are between firms within the same industry, that is, among competitors (Harbison and Pekar, 1998). Recently, scholars have suggested that especially small businesses in an industry need to collaborate with competitors so that they can create economies of scale, mitigate risk, and leverage resources together (Morris, Kocak & Özer 2007).
6. BMoE games The Berkeley Method of Entrepreneurship includes behavioral training as well as reflections on mindset. For this, an inductive game-based teaching approach is used. Various games, referred to as the Berkeley Method of Entrepreneurship Games, have been developed. A game can be defined as a structured playing, usually undertaken for enjoyment and sometimes used as an educational tool. Or a game may be described as an “artificial situation” in which players engage in an artificial conflict against one another or all together against other forces. Games are regulated by rules, which may take the form of procedures, controls, obstacles, or penalties (Verzat et al.,2009). Furthermore, four key components of games are: goals, rules, challenges, and interaction. For the Berkeley Method of Entrepreneurship games this implies: !
Goals: a preset objective, aligned with the teaching objective,
!
Rules: limitations on how to achieve the goals,
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Challenge: possibly competition, use of skills, etc. to reinforce behavior,
!
Interaction: a setting for players to interact and communicate and even enjoy the process.
The idea is to let the games invoke a certain behavior or mindset of the student, e.g. Story Telling (behavior-2) or Collaboration (behavior-10). After the game, the students should reflect about his/her own behavior and compare it with that of successful entrepreneurs. The result of the reflection can be either an ignition for the student (confirming that he/she wants to become an entrepreneur), an extinguisher (confirming that the student does not want to be an entrepreneur) or a wake-up call (ok, I need to learn more about this mindset).
6.1 Story telling game Out first example relates to the BMoE behavior-2 “Story telling” and it been used in an educational activity in the Technology Management program at Lund University, Sweden. In the storytelling game, the students will be exposed to a game in which their communication attitudes will come to play. After the game, it is important to have post-mortem discussions in which the outcome of the game can be discussed and lessons learnt. In the storytelling game the students are paired in groups of two. They are asked to sit with their backs against each other, i.e. their heads facing in two directions. Person-A will thereby be able to see the figure shown on the screen, whereas Person-B will not be able to see the figure. Person-B is given paper and pencils. The instructor give the students about 5 minutes to work, during this time the figure that Person-A sees on the screen should be transferred to the paper that Person-B has. Person-B is not allowed to turn his/her head around, i.e. the only way to transfer the figure is by communication between the two students.
Figure 2: The right car was used as the instruction-figure. The left car is the outcome from one of the groups participating in the storytelling game After the game is over, the students are asked to have a look at the figure that has been drawn and to discuss it. It is imperative that the instructor also let the student reflect around and speak about the entrepreneurshipanalogy of the game. An entrepreneur (represented by Person-A) often has an idea in his/her head, the role of the entrepreneur is to make sure that the idea is understood by the other team members or to potential customers (represented by person-B). Making sure that two persons understands an idea in the same way is not easy and requires effort from both parties. The entrepreneur should explain the idea but, equally important is
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Charlotta Johnsson et al. that he/she listens to the questions that are asked. By listening to the questions, the entrepreneur can get an understanding of where misunderstandings are. The team-member should listen but also ask questions and state confirmation phrases. The act of transferring a figure/idea from one person to another is an act of teamwork. Very often, the act of listening to questions or stating confirmation phrases are not considered, so when the game is executed, there is often an active speaker and a passive listener. After the post-mortem discussions, the students state that they have a better understanding for the importance of story-telling.
6.2 Collaboration game The BMoE behavior-10 “Collaboration” emphasizes the importance of cooperation, fun, sharing, caring and overall group success in contrast to domination, egoistic behavior and personal gain. Much of the work in today’s organizations is completed through teamwork. A game invoking this behavior was used in a marketing course in the Technology Business program at University of Jyvaskyla, Finland (Hytonen and Makinen, 2011). Students were given a problem to solve related to marketing communications of a local high technology SME. The students teams competed against each other and in the end best solution would win. Thus, the students were assigned real-life practical problem, and they needed to use theoretical knowledge for solving the problem. We called this “live cases pedagogy”. The collaboration between students and the firm was initiated by a faculty member but after the first introduction students were on their own to build a relationship to the firm representatives. Students first task was to negotiate the team building, how to select members to a team. Ideally teams should have been truly multidisciplinary, so that the members bring to a team a wide variety of experiences and expertise. Next step was to identify further and narrow down what was the exact problem with the marketing communication of the firm. Altogether 5 teams each having 4-5 students team continued to work for three weeks and in a final seminar presented their solutions to the panel of judges consisting of the founder/CEO and marketing manager of the firm and faculty members. The first prize was actually given to two teams which had also collaborated between themselves, co-opetited, e.g. they had shared their memos from initial meetings with the CEO which made them able to identify the problem faster, and then proceed to analyze the alternative courses of actions, formulate strategy and implement.
6.3 Scavenger game A multi-behavior game “Scavenger game”: The Scavenger game has been used in educational activities given by the University of California Berkeley (Sidhu et al., 2014). In this game, each team had 5 members, two of them were placed in a control room and 3 of them were part of the field-group. The field-group and group in the control room could only communicate via voice using a simple phone (no sms, texts, emails, videos etc). The group in the control room had no access to internet. A five-liner instruction was given to the group in the control room, these instructions had to be communicated to the field team whose task was to find a location and take a picture of it. The field group that provided the group in the control room with a correct picture first, was the winning team. The task seems easy, if it was not for the fact that the 5 lines of instructions were given in a different language (e.g. Chinese, Russian, illustrations, Korean and Finnish). In this game an important behavior for the group in the control room was to be a Story Teller (able to communicate the shapes of the letters in the instructions), and for the field group to be able to demonstrate Collaboration skills, e.g. each student working on the translation of one instruction. Furthermore, the teams had to appreciate Diversity in the people they encounter in order to have someone to help them with translation. As soon as they thought they knew a location that fulfills the instructions, they should go there and take a picture of it, a picture that is Good Enough to represent the location. After completing the game, the students were asked to reflect about their own contributions, what behavior they felt comfortable with, and which they needed to practice more. The students also reflected about the strategies used by the different teams and their respective advantages and disadvantages.
7. Conclusion The BMoE has already been used in engineering entrepreneurship education at Sutardja Center for Entrepreneurship and Technology, UC Berkeley, US. The first feedback received from students, instructors and visiting scholars is positive. Like Verzat et al. (2009) we believe that the positive reactions to the game also relate to its novelty as a pedagogical device. Its break from previous learning experiences contributed to its success and appeal. The pedagogy of BMoE is inductive in its nature and thereby focused around learning rather than
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Charlotta Johnsson et al. teaching. The students were pushed to proactively develop their own understanding rather than waiting for someone to teach them what they need to know. The students were trained to frame problems and find ways to solve them and then reflect on what they've learned from the process, e.g. the outcome of a game. The Berkeley Method of Entrepreneurship is a holistic and student-centered teaching and learning approach that is hypothesized to enable students to be more entrepreneurial. It encompasses three main elements; Infrastructure, Mindset and Tactics. Most entrepreneurial curricula include the two traditional elements of Infrastructure and Tactics, however, only few curricula explicitly include the Mindset perspective. The BMoE is based on the hypothesis that the mindset of successful entrepreneurs can be characterized by a distinct set of behavioral patterns and that an inductive game-based teaching approach is the best vehicle to introduce and re-enforce those to students. A list of ten (10) behavioral patterns that captures the mindset of successful entrepreneurs is presented and a game-based teaching approach is used to let the students explore his/her current mindset and compare it with that of entrepreneurs. Our first implication is that games are not solution to all challenges related to the entrepreneurship education but we think that game-like activities could be used as a means to overcome other obstacles blocking the emergence of entrepreneurial behaviors and skills. They can be one method that can be used in combination with other pedagogical devices. While we highlight the positive aspects of using games as a pedagogical tool in entrepreneurship education, we view the above study as a preliminary research step. Therefore, as a next step of the BMoE research project an empirical study amongst a group of international students participating in a global entrepreneurial bootcamp is planned to take place in the fall 2016 to further investigate and validate the underlying hypotheses. Current research therefore aims at; confirming or rejecting each of the set of behavioral patterns, tuning existing games and/or finding additional games that reinforce the behavioral patterns, and finding ways of how to measure the success of using the game-based teaching approach in entrepreneurial curricula.
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Charlotta Johnsson et al. Pittaway, L., & Cope, J. (2007). Entrepreneurship education: A systematic review of the evidence. International Small Business Journal, 25(5), 479–510. Rasmussen, E. & Sørheim, R. (2006). Action-based entrepreneurship education. Technovation 26, 185–194. Rogers E. (1996). Diffusion of Innovations. New York: Free Press. Ruben, B. D. (1999). Simulation, games and experience based learning: The quest for a new paradigm for teaching and learning. Simulation and Gaming, 30(4), 8 –12. Sidhu I., Singer S., Johnsson C., & Suoranta M. (2015a). Introducing the Berkeley Method of Entrepreneurship – a GameBased Teaching Approach, American Society for Engineering Education (ASEE) Annual Conference 2015, Seattle, WA, USA, June 14-17, 2015 Sidhu I., Johnsson C., Singer K. & Suoranta M. (2015b). A Game-based Method for Teaching Entrepreneurship, Applied Innovation Review, Issue 1 pp. 51-65, June 2015. Tynjälä, P., Salminen, R., Sutela, T., Nuutinen, A. & Pitkänen, S. (2005) Factors related to study success in engineering education, European Journal of Engineering Education, 30(2), 221-231 Täks, M., Tynjälä, P., & Kukemelk, H. (2015). Engineering students’ conceptions of entrepreneurial learning as part of their education. European Journal of Engineering Education, 41(1), 53-69. Vanaelst, I., Clarysse, B., Wright, M., Lockett, A., Moray, N., & S'Jegers, R. (2006). Entrepreneurial team development in academic spinouts: An examination of team heterogeneity. Entrepreneurship Theory and Practice, 30(2): 249-271. Verzat, C., Byrne, J., & Fayolle, A. (2009). Tangling with spaghetti: Pedagogical lessons from games. Academy of Management Learning & Education, 8(3): 356-369 Wennekers, S., Van Wennekers, A., Thurik, R., & Reynolds, P. (2005). Nascent entrepreneurship and the level of economic development. Small Business Economics, 24(3), 293-309.
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Multidimensional Learning Environments for Entrepreneurship Education Alexandros Kakouris Career Office, National and Kapodistrian University of Athens, Greece Centre for Entrepreneurship and Sustainable Development, University of Peloponnese, Greece
[email protected]
Abstract: The study of effective learning environments for entrepreneurial learning is an open subject in entrepreneurial studies. In the present article we adopt the theory of Knud Illeris for learning which introduces a 3-dimensional framework, i.e. the content, the incentives and the environment, to analyse the conditions under which entrepreneurial learning occurs. In accordance with Illeris’ theory, it is crucial that all of the three aforementioned dimensions be active for creating favourable conditions for learning. For most formal entrepreneurial courses that lean upon cognitive learning processes, the functionality dimension that pertains to the content dominates the rest two dimensions. Drawing upon an entrepreneurial course taught during an Autumn Academy for international students in a German university and an online group of informal learners through TeleCC.org in Greece, we address the learning environments by means of the Illeris’ theory. A questionnaire was administered to the participants of the courses in order to examine how they experienced Illeris’ three dimensional framework. The results are discussed in order to reveal the perceived contribution of each dimension in the learning environment. For the specific courses, the three dimensions of Illeris’ theory were found to contribute equally the learning process. Hence, the illustrated cases can be considered as examples of integrated learning environments, either face to face or online, for entrepreneurship education. Keywords: entrepreneurship education, entrepreneurial pedagogy, learning environment, online teaching, Illeris’ theory
1. Introduction Entrepreneurship education has emerged as an expanding field of study for the last two decades (e.g., Katz 2003, Kuratko 2005). However, the relevant literature appears with low citation compared with other subjects of entrepreneurship (e.g., Kakouris and Georgiadis 2016). Amongst others (Katz 2008), there are also certain concerns about appropriate teaching models for entrepreneurship (e.g., Fayolle 2013). Beyond Business Schools, entrepreneurial courses are being offered interdisciplinary in higher education curricula, but recently, entrepreneurial learning is also observed to leak into informal, non-academic settings either face to face or online. Therefore, appropriate teaching for entrepreneurship can be questioned. A well-known divide concerns the objectives and the output of entrepreneurship education. In contrast to those who consider that the impact of entrepreneurial courses has to be measured by pure educational terms, there are others who measure the impact from the number of new firms that are founded by the alumni. We follow the former stream and we analyse entrepreneurial learning in pure educational terms. Entrepreneurship education can be considered distinct from other relevant fields because of an underlying lack of a standalone theory (Bygrave and Hofer 1991). Due to this scarcity, Fiet (2001) has proposed to teach entrepreneurship through theoretical contingency approaches instead or arbitrary and difficult to generalize cases. But most of entrepreneurial courses utilize learning by doing focusing on business planning (Honig 2004). But even under such a quasi-cognitive approach, trainees undergo personal emotional affection and influences from the social framework they operate in. Especially when students are expected to engage in business after the training period, the last two dimensions become crucial. The large number of factors that intrude the learning process (Fayolle 2013), render entrepreneurship education distinct and demanding continuous innovation in content and methods to become efficient. Its atheoretical content also demands trainers’ training (Kakouris 2007). The aim of the present article is to address the question of “how entrepreneurial learning can be facilitated through the learning environment”. A learning environment encompasses the teaching material and the relevant activities, the educators, the motives for learning but also the culture under which the educational setting functions. For an analysis of the learning environment we adopt the theory of Illeris (2007). According to Illeris, learning can occur when three certain dimensions are present: the content, the incentives and the environment. In this case, the learning environment can be considered as integrated and favourable for learning. Beyond the majority of studies that focus on the content and the environment, the role of the affective (and the conative)
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Alexandros Kakouris domain in entrepreneurship education has been discussed by Kyrö (2008). More recently, Lackéus (2014) summarises previous research and relates the affective domain with the development of entrepreneurial competencies through emotional events. Moreover, Zampetakis et al. (2015) found that anticipated emotions during entrepreneurial courses can lead to negative entrepreneurial behaviour. Albeit similar research has been scarce in literature, there are indications for the importance of the incentives dimension in entrepreneurial learning and education. For the present application of Illeris theoretical framework, discussed in the next section, we contacted two groups of learners. The first one was a typical, one-week, intensive course on innovation and entrepreneurship during the Autumn Academy for local and international postgraduate students at the university of KoblentzLandau in Germany (hereafter K-L group). The course followed a previous, one-week course on entrepreneurial design thinking. It took place in an alternative classroom capable for action learning, round discussions and work in teams. About fifteen locals and five international students attended. The second group was an online one that adopted asynchronous communication through the methodology of TeleCC online platform (hereafter TeleCC group). This method combines informal learning and personal career counselling with a minimum duration of five months (Kakouris, Tampouri and Moustakali 2014). About 120 participants allover Greece, aged from 25 to 35 years old, registered for the course but only 25% of them remained active after two months. The subject of the online course was innovation and entrepreneurship and the educator was the same person. Teaching methodology in both groups was constructuvist, based on action learning, collective reflection and bottom-up meaning making. In the sequel, the response of the two groups relevant to the three dimensions of learning is addressed.
2. Theoretical background: The three dimensions of learning of Illeris Knud Illeris (2003, 2007, 2009) developed a synthetic theory of learning based on two fundamental processes: the acquisition and the interaction (Figure 1). The former is internal and the latter pertains to the interaction with the cultural, social and material environment.
Figure 1: The three dimensions of learning. Adapted from Illeris (2003). Apart from the content – that refers to knowledge, skills, attitudes, etc. that can be altered through cognition – the incentives domain provides the mental energy for cognition to happen. It encompasses motives, emotions and the volition for learning through a continuous process of mental balance and personal sensitivity. The interplay of these two dimensions guides the internal process of elaboration and acquisition. The interaction dimension refers to the sociality of a learner, i.e. his/her integration with the community. This interaction offers him/her experiences, communication and other impulses for learning; although learning has to activate the other two poles and the internal process. Illeris (2003: 398) states that “…, it seems evident to me that both processes [i.e. acquisition and interaction] must be actively involved if any learning is to take place”. In other Illeris’ words (2009: 11): “Thus the triangle depicts what may be described as the tension field of learning in general and of any specific learning event or
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Alexandros Kakouris learning process as stretched out between the development of functionality, sensibility and sociality – which are also the general components of what we term as competencies”. Hence, all three dimensions of Figure 1 are equally important for learning and should be present in any integrated learning environment.
3. Methodology As discussed in the introduction, the present study focuses on two learning groups: a face to face one at the university of Koblentz-Landau and an online one through the platform TeleCC.org. In order to decompose the three poles of Illeris’ theory (Figure 1), i.e. content (cognition), incentives (emotion) and environment (society), an appropriate instrument was constructed. It was a questionnaire that aimed, as a first attempt, to include several parameters for each pole. The parameters included for the present study are shown in Table 1. Specific parameters can slightly vary for the online learning environment (TeleCC) compared to the face to face one (KL). Table 1: Parameters for the construction of the questionnaire CONTENT I. Factors
II. Innovation III. Outcome
i.e. lectures, activities, feedback, etc. innovative teaching skills acquired
INCENTIVES I. Motives
i.e. reasons for participation
II. Emotions
pleasure, surprise, anxiety, etc.
III. Customisation
personal needs were met or not
ENVIRONMENT I. Course processes II. University III. Social trends
i.e. performance, collaboration, facilities, etc. university’s mission perspectives related to the local culture
For the content dimension, factors concerned: lectures, activities, discussions, feedback received, assignments, final exams, time devoted to each task, knowledge acquired, skills cultivated, attitudes fostered during the course and understanding of concepts. For the online group, instead of lectures and final exams that do not occur (Kakouris, Tampouri and Moustakali 2014), we included the formative evaluation through the five-stars rating during the course and whether the purpose of the online course has been facilitated. Furthermore, we asked if the participants consider the teaching innovative and if they consider that their entrepreneurial selfefficacy (Zhao, Seibert and Hills 2005) was enhanced due to the course they participated in. For the incentives dimension, motives that were asked encompassed: just obtaining ECTS credits or a certificate, exploitation of student mobility opportunities, getting a new experience, participation in student socialisation and pursue personal development. For the online group, instead of student mobility, which was not the case, we asked about joining mixed learning groups allover the country. We also introduced an additional motive that was getting personal career counselling. For emotions that might emerged during the course we included: anxiety and stress, pleasure, surprise and engagement with the course. We note that anxiety and stress is a negative feeling so it was measured through its counterpart. Finally, both groups were asked if they considered that the specific course was scheduled (tailored) for them and their needs. For the environment dimension, we firstly asked about the pursued processes during the course as: educators’ performance, cultural activities, collaboration in teams, facilities of the autumn university. For the online group, instead of cultural activities we asked about the “shoutbox” tool where the members can freely communicate informally. The facilities also referred to the online platform. We then asked about the mission of the university or the online programme. K-L is an entrepreneurial university which is a new concept in higher education induced by the modern educational policies and trends (Etzkowitz 2004), while TeleCC.org has a mission to facilitate online career counselling and especially youth entrepreneurship. Finally, some social trends, related to the local culture, concerned: prioritisation of entrepreneurship in the home country, mobility and participation to summer or autumn universities and internationalisation of studies. For the online group, relevant questions concerned: prioritisation of entrepreneurship in Greece, participation in online learning, the quality of online courses and the modern need for online career counselling.
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Alexandros Kakouris The participants of each group were asked to score on each item of the questionnaire using a 5-point Likert scale (1–low up to 5–high). N1=18 postgraduate students, i.e. the total population of K-L group, and N2=22 online learners from the TeleCC group responded. Mean scores for each item are used to evaluate the mean scores of C I,II,III, I I,II,III, E I,II,III (Table 1) from which the mean score for each dimension (Content. Incentives, Environment) is derived. Results for both groups revealed high internal reliability for the scales with Cronbach’s alpha 0.93 (K-L) and 0.91 (TeleCC) respectively.
4. Results The results for the two groups examined are shown in Table 2. Remarkably, the scores exhibit similar variation within the two groups. The online group (TeleCC) scores higher than the face to face one (K-L). This difference is probably due to the participants who are those who have not dropout the online course and it is sound to feel more enthusiastic about it. Table 2: Results for the two groups examined CONTENT
Mean score K-L
TeleC C
I. Factors
3.76
4.13
II. Innovation
3.78
III. Outcome MEAN
INCENTIVES
Mean score K-L
TeleC C
I. Motives
3.70
4.36
4.27
II. Emotions
3.40
3.85
3.61
4.18
III. Customisation
3.15
3.91
3.72
4.19
MEAN
3.42
4.04
ENVIRONMENT
I. Course processes II. University III. Social trends MEAN
Mean score K-L
TeleC C
3.81
3.81
3.67
4.41
3.78
4.57
3.75
4.26
The content factors scores for K-L exhibit a minimum for the assignments (3.33) and a maximum for the knowledge acquired (4.40). The minimum for the online group is for the discussion of the activities (3.77) and the maximum is for knowledge acquired (4.50). Hence, there is no difference between the two groups for the content dimension. The motives’ scores for K-L show a minimum for student mobility opportunities (2.83) and a maximum for getting a new experience (3.94). For the emotions, the minimum is for the surprise (2.61) and the maximum for the absence of anxiety and stress (4.50). Similarly, the online group scores’ minimum is for personal career counselling as a motive (3.91) and engagement with the course as a feeling (3.45) while the maximum occurs for getting a new experience (4.82) and for the pleasure feeling (4.23) respectively. Hence, the two groups appear similar to the incentives dimension too. Finally, scores for the environment course processes for K-L exhibit a minimum for the cultural activities (3.28) and a maximum for the available facilities (4.11). For the same processes, the online group scored minimum for collaboration in sub-groups (2.86) and maximum for the performance of the educator (4.64). For the rest variables K-L focus on internationalisation of studies and TeleCC on entrepreneurship as a priority for the country. The conclusion from the results is that the two groups do not differ towards scoring content and incentives items, illustrating a slight variation towards the environmental items. The overall result of the two groups for the three dimensions of learning is shown in the radar plot of Figure 2.The two dimensions (Content and Environment) are almost equal with the ‘Incentives’ dimension slightly shorter (8% for K-L and 5% for TeleCC). As shown in Figure 2, both learning environments highly incorporate the three dimensions of learning, as developed by Knud Illeris, and they can be considered as integrated learning environments for entrepreneurship education, either formal or informal. Some qualitative elements about the learning environment were derived from the TeleCC group during an interim assessment. When the participants were asked what burdens their participation almost all of them replied “personal obligations and limitation of time”. One of them found difficult to follow the terminology, another one found the syllabus very abstract and a male wanted the activities shorter. In the question “what facilitates your learning”, most of them noted: the asynchronous communication, sufficiency in time for activities and the freedom to express different and multiperspective opinions. An indicative answer was given
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Alexandros Kakouris by a lady as follows: “Undoubtly the asynchronous communication and the open discussion space for free exchange of ideas and opinions with the rest participants”.
Figure 2: Radar plots for the three dimensions of Illeris for (a) K-L Uni and (b) TeleCC groups.
5. Discussion How online environments for entrepreneurship can be developed in a constructuvistic way to facilitate diverse groups of learners has been discussed by Kakouris (2009). In that approximation, a perceptional learning environment has been suggested as more appropriate for informal and inclusive learning in entrepreneurship. TeleCC has been developed in accordance with the previous consideration in order to facilitate structured online discussions through proper activities. In such an environment, the role of the educator is to facilitate the learning process. Given that the specific online environment is very new, it needs to be further examined whether it favours learning. For this purpose the Illerian three dimensions of learning were adopted and examined. The Illerian theory is fundamental encompassing all dimensions for integrated learning environments. Most learning spaces can be considered as subsets of the Illerian framework shown in Figure 1. The result of Figure 2 clearly illustrates that TeleCC participants recognize and appreciate every single dimension of the Illerian framework. Basic limitations for the generalisation of the derived result concern both the selective sampling of the participants, i.e. those who actively follow the course, and the validity and sufficiency of the instrument used. For the former, the variation of the results of the TeleCC group appears identical to the one of the face to face K-L group. Thus, an implicit triangulated validity for the method and the instrument can be corroborated. The teaching method that included activities and critical discussions was considered innovative not only by the TeleCC group that participated online (4.27) but from the K-L group too (3.78). The goal of the specific teaching was to facilitate critical thinking and collective reflection that can cease learning disorientations in the subject, especially in informal adult education settings (e.g., Kakouris 2015). The method was probably thought as innovative compared with the customary cognitive, top-down teaching in relevant academic courses. Within constructuvistic approaches in learning, most educational settings for entrepreneurship aim to induce assimilative learning contrary to the present one which aimed to the accommodative one. It was also important that the participants scored high the environmental parameters since entrepreneurship courses have a strong social and cultural dimension (e.g., Anderson, Drakopoulou-Dodd and Jack 2009) and have emerged as a result of specific educational policies (e.g., Kakouris and Ketikidis 2012, Kakouris, Dermatis and Liargovas 2016). The determination of how a learning environment affects learning is a typical subject for qualitative research. Conversely, a quantitative research instrument was constructed and used for the present analysis. Despite the high Cronbach alpha of the questionnaire that indicates internal reliability, it is not straightforward how to sufficiently decompose each dimension of the Illeris’ framework into simple, sound and measurable variables. For example, what significant cultural influences have to be included? Or, how many anticipated emotions have to be incorporated? What motivates active participation? A piece of qualitative research was presented, nonetheless, much more is needed in future research in order to complement the quantitative results and show the number and the extent of underlying emotional or societal factors that underpin learning. How many parameters to include in each dimension and with what weighting functions, highly depends on the subject taught. Hence, the present study can be thought as a first attempt to sufficiently depict a learning environment for entrepreneurship. A closer combination of qualitative/quantitative research will be used in the future.
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Alexandros Kakouris
6. Conclusion For the present status of entrepreneurship education worldwide, the evaluation of its methods and impact has become crucial. After a long period of implementation in various educational settings, the entrepreneurial pedagogy has to be clarified. In the present article we analysed two different learning environments for entrepreneurship in accordance with the Illeris’ (2003, 2007, 2009) theory for learning. This theory incorporates the environment and the incentives beyond the usual content dimension. The adopted framework is in line with early ideas of Kyrö (2008) who introduced the affective and the conative domains in entrepreneurial teaching and learning. It was quantitatively shown that utilising proper instruction in a friendly and facilitative educational setting induces an open and integrated learning environment that can favour entrepreneurial learning. The features of such an environment do not appear different between online and face to face teaching.
References Anderson, A., Drakopoulou Dodd, S. & Jack, S. (2009) “Aggressors; Winners; Victims and Outsiders: European Schools' Social Construction of the Entrepreneur”, International Small Business Journal, Vol. 27, No. 1, pp 126–136. Bygrave, W.D. and Hofer, C.W. (1991) “Theorizing About Entrepreneurship”. Entrepreneurship Theory and Practice, Vol. 16, No. 2, pp 13–22. Etzkowitz, H. (2004) "The evolution of the entrepreneurial university", International Journal of Technology and Globalisation, Vol. 1, No.1, pp 64–77. Fayolle, A. (2013) “Personal views on the future of entrepreneurship education”, Entrepreneurship and Regional Development., Vol. 25, No. 7/8, pp 692–701. Illeris, K. (2003) "Towards a contemporary and comprehensive theory of learning", International Journal of Lifelong Education, Vol. 22, No..4, pp 396–406. Illeris, K. (2007) How we leam. Leaming and non-learning in school and beyond. Routledge, London, UK. Illeris, K. (ed) (2009) Contemporary theories of learning: learning theorists... in their own words. Routledge, Oxon, UK. Kakouris, A. (2007) “On a Distance-Learning Approach on'Train the Trainers' in Entrepreneurial Education in Greece. Theoretical Considerations Supported by Students' Response as Observed from the Career Office of the University of Athens”, Paper read at 2nd European Conference on Entrepreneurship and Innovation, Academic Conferences Limited., Reading, UK, pp 75–79. Kakouris, A. (2009) “Online platforms for entrepreneurship education: an instructional design approach”, Paper read at 4th European Conference on Entrepreneurship and Innovation, Academic Conferences Limited., Reading, UK, pp 230– 235. Fiet, J.O. (2001) “The theoretical side of teaching entrepreneurship”, Journal of Business Venturing, Vol. 16, No. 1, pp 1–24. Honig, B. (2004) “Entrepreneurship Education: Toward a Model of Contingency-Based Business Planning”, Academy of Management Learning and Education, Vol. 3, No. 3, pp 258–273. Kakouris, A., (2015) “Entrepreneurship pedagogies in lifelong learning: emergence of criticality?”, Learning, Culture and Social Interaction, Vol. 6, pp 87–97. Kakouris, A., & Ketikidis, P. (2012) “Editorial: Poles of innovative entrepreneurship: A triple nexus”, International Journal of Innovation and Regional Development, Vol 4, No. 3/4, pp 197-203. Kakouris, A., Tampouri, S. & Moustakali, V. (2014) “Possibilities for peer, online learning in entrepreneurship: the case of TeleCC platform”, Paper read at 9th European Conference on Innovation and Entrepreneurship, edited by B. Galbraith, Academic Conferences Limited., Reading, pp 268–275. Kakouris, A., & Georgiadis, P. (2016) “Analysing entrepreneurship education: a bibliometric survey pattern”, Journal of Global Entrepreneurship Research, Vol 6, No. 6, open access. Kakouris, A., Dermatis., Ζ., & Liargovas, P. (2016) “Educating potential entrepreneurs under the perspective of Europe 2020 plan”, Business and Entrepreneurship Journal , Vol. 5, No. 1, pp 7–24. Katz, J.A. (2003) “The chronology and intellectual trajectory of American entrepreneurship education 1876–1999”, Journal of Business Venturing, Vol. 18, No. 2, pp 283–300. Katz, J.A. (2008) "Fully mature but not fully legitimate: a different perspective on the state of entrepreneurship education", Journal of Small Business Management, Vol. 46, No. 4, pp 550–566. Kuratko, D.F. (2005) “The Emergence of Entrepreneurship Education: Development, Trends, and Challenges”. Entrepreneurship Theory and Practice, Vol. 29, No. 5, pp 577–598. Kyrö, P. (2008). "A theoretical framework for teaching and learning entrepreneurship", International Journal of Business and Globalisation, Vol. 2, No.1, pp 39–55. Lackéus, M. (2014) "An emotion based approach to assessing entrepreneurial education", The International Journal of Management Education, Vol. 12, No. 3, pp 374–396. Zampetakis, L.A., Lerakis, M., Kafetsios, K., & Moustakis, V. (2015). "Investigating the emotional impact of entrepreneurship programs", Journal of Business Venturing Insights, Vol. 4, pp 38–41. Zhao, H., Seibert, S.E.; & Hills, G.E. (2005) “The mediating role of self-efficacy in the development of entrepreneurial intentions”, Journal of Applied Psychology, Vol. 90, No. 6, pp 1265–1272.
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Systemic Energy Innovation Networks Funded by the European Union Moon Jung Kang1, 2 and Jongwoon Hwang2 1Technical University of Berlin, Germany 2Smart Convergence Group, Korea Institute of Science and Technology Europe, Germany
[email protected] [email protected]
Abstract: Innovation in the energy area is increasingly being built upon a systemic approach that connects innovation lifecycle from technology exploration to market exploitation. Systemic energy innovation has been supported by the European Union (EU) through funding for international networks that integrate resources across diverse geographic and thematic areas. This study analyzes the structural conditions of EU-funded networks over 11 years to determine whether EU’s policy instruments have contributed to developing an ecosystem for systemic energy innovation. The analysis shows that networks under the EU’s programs had weak core and periphery clusters, each of which should have stimulated market exploitation and technology exploration, respectively. Moreover, these core and periphery clusters were not structurally interconnected to generate a synergistic effect for systemic innovation. In general, the existing positions of organizations and their collaboration strategies show an ineffective combination to support systemic innovation. This research suggests policies to achieve complementarities between technology and market innovations. Keywords: energy innovation, systemic innovation, exploitation, social network analysis, European Union
1. Introduction Disruptive innovation, which is the case of energy innovation, entails not only technological evolution but also a revolution in structures and behaviors that have been adapted to their current formats and specific societal relationships to preserve status quo (Doranova et al, 2012). Such transformative process requires the interaction of the entire innovation stages from research and development (R&D) of energy technologies to market exploitation of R&D outcomes. Thus, energy innovation requires the systemic innovation approach, which is based on a mechanism that influences one another in terms of parts of the system and their method of interactions (Doranova et al, 2012). Energy innovation is considered systemic when R&D results shift into market and market experience affects technology R&D, thereby creating synergistic effects between technology and market. An international network is expected to be viable for systemic energy innovation by overcoming difficulties in the transition process from R&D to demonstration. While the systemic approach is widely practiced in energy industries and highlighted by policymakers, academia has rarely addressed how far organizations have achieved a coordinated ecosystem for systemic energy innovation and how the means of support provided by policies have promoted their joint efforts, such as networking activities (Chen and Pang, 2010; Sagar and Zwaan, 2006). According to Poocharoen and Sovacool (2012), only a few studies dealt with the mechanisms of networks in the energy and environmental fields, particularly the performance variations among different networks and their performance determinants. At the European level, studies have investigated innovation networks in the general field or selected thematic fields, such as information and communication, health, and space. Yet network approaches in the energy area as well as political instruments to enhance systemic performance of energy innovation have been barely addressed. This study aims to analyze whether energy innovation networks funded by the European Union (EU) fulfilled idealized conditions for supporting systemic innovation activities and whether conditions have evolved in the systemic direction over time.
2. Literature review Various programs of the EU have funded international collaboration projects in general innovation fields, including energy innovation, that involve different actors, regions, and thematic expertise. Until 2013, international networks for energy innovation have been supported by the Framework Programs (FP) and Intelligent Energy Europe (IEE). While FP aimed to advance technical capacity through international R&D collaboration, IEE focused on international partnership to improve competitiveness and innovation capabilities
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Moon Jung Kang and Jongwoon Hwang of related markets. The dual execution of such programs contributed to linking R&D and market deployment activities. Since 2014, the current R&D and innovation funding scheme called Horizon 2020 program has integrated both funding programs to connect the entire innovation lifecycle. Studies utilized the techniques of social network analysis (SNA) to analyze the complex characteristics of networks formed by European innovation projects. Previous empirical investigations illuminated the innovation networks in emerging fields, including bio, nano, and information technologies, which require the participation of stakeholders from a variety of fields (Protogerou et al., 2010; Roediger–Schluga and Barber, 2006). Empirical studies have investigated the determinants of network formation (Paier and Scherngell, 2008; Scherngell and Barber, 2009), as well as the factors of behavioral patterns in knowledge production and sharing (Heringa et al, 2014). Different phases of the innovation cycle were also addressed by earlier network research. For example, a taxonomy of exploration, integration, and exploitation suggested by Balland et al (2013) investigated the structure of R&D project networks in the field of global navigation satellite systems at the European level and pattern of knowledge diffusion between different innovation phases. Targeting the European mobile phone industry, a similar framework was also proposed by Crespo et al (2015) to analyze the effect of changes in the structural properties of R&D networks of FPs on the innovation capabilities of the clusters throughout the industry’s lifecycle. Considering the current state of related research, this study can be differentiated from previous studies as follows: First, this study focuses on international networks in the energy area, which have been barely examined so far. Second, the explanation of market-oriented and systemic innovation aspects of energy networks is an original contribution of the current study, considering that the networks for market exploitation in the EU, such as those formed by CIP or IEE, have been rarely investigated. Third, the structural properties suggested by Crespo et al (2014, 2015) are extended and re-interpreted in this research to diagnose the state of systemic innovation. Finally, this research observes not only the static state of systemic innovation but also its dynamics for analyzing past and future trends.
3. Methodology This research proposes several structural settings that are particularly pertinent to probing the systemic energy innovation network based on terminologies and measurements from SNA. Findings from the previous section imply that a systemic innovation network can require structural conditions that promote the successful combination of both technology exploration and market exploitation. Therefore, this study examines whether the overall network structure supports the imposition of innovative technologies on the mass market (Crespo et al, 2014) and whether the interoperability of both dimensions is structurally ensured by the network. Finally, it also measures whether each actor is effectively positioned in the network considering the innovation strategy it employs to facilitate systemic innovation.
3.1 General characteristics of the network First, this paper measures the basic network structure to understand the innovation environment of the network. SNA measures the characteristics of the basic network structure, including size (the total number of actors in a network), overall density (the ratio of actual connections to possible existing connections within the network), path lengths (the average number of relations between actors), diameter (the influence scope of the actors), components (number of subgraphs in which any two vertices are connected to each other by paths), and component ratio (the inverse measure of cohesion based on the number of components in the network). Component ratio is measured with the number of components minus one divided by the number of nodes minus one. This work, then, tests whether the overall network conditions are favorable for supporting market exploitation. A network with a high level of structural closure can enhance the process of interpreting, validating, and internalizing resources through repetitive routes (Gilsing et al, 2008), thereby facilitating the dissemination of resources for market exploitation, such as sharing of infrastructures, market, generation outcomes, and institutional funding schemes. The structural closure of a network can be gauged by a property called smallworldness measured through a combination of overall clustering coefficient and average path length (Watts and Strogatz, 1998). While the the overall clustering coefficient reflects the mean number of a focal node’s neighbors that collaborate with each other, the average path length points to the average number of shortest relations between any two actors. The network’s small-worldness can be confirmed when a network has a significantly
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Moon Jung Kang and Jongwoon Hwang higher clustering coefficient than a random network, which consists of the same number of nodes and ties per node; however, the mean path lengths of both actual and random networks are at almost the same level (Watts and Strogatz, 1998). Simultaneously, this paper considers whether the general network structure can facilitate technology exploration. A network with low-level redundant connections can be structurally weak but effective for technology exploration. Redundant connections enhance the similarity in shared resources may be favorable for market exploitation but lead to negative R&D returns, such as undesirable knowledge leakages, especially in the exploration process (Gilsing et al, 2008). The non-redundancy of connections can be measured by the extent of constraints on each node. Constraints imposed on a specific node can emerge when the node is linked to other neighboring nodes that are connected to each other (Borgatti et al, 2002). If the neighbors are connected only through the focal node because of the lack of alternative relations, then the focal node has exclusive access to its neighbors’ resources, and the behavior of the focal node is rarely constrained by the others.
3.2 Technology-market interaction in the network Firstly, this work evaluates whether technology exploration and market exploitation can be facilitated in tandem based on a clear relational hierarchy among the network participants (Crespo et al, 2014). A hierarchical network leads to a core–periphery structure that includes densely connected core groups at the top and a set of periphery actors that are loosely connected to those core groups (Borgatti et al., 2002). The core generally facilitates market exploitation based on redundant connections, which can provide similar and repetitive resources either directly or indirectly but hinders the emergence of unique inventions especially in the technology exploration process (Gilsing et al, 2008). By contrast, actors at the periphery exhibit a lower level of relational redundancy and have greater access to alternative ways of thinking for technology exploration. An empirical study by Balland et al (2013) confirmed this phenomenon by disclosing that projects that are closer in the exploitative phase are more interlinked, whereas explorative activities tend to be located at the periphery of the network. Core– periphery structure can be determined by quantifying the distribution of degree centralities of network participants (Crespo et al, 2014). The degree of a particular node n is measured by aggregating the number of all direct ties that the respective node possesses. Following the rank size rule to know whether the degree centralities of nodes vary significantly in scale, the degrees of all nodes ݀ are distributed and arrayed by size and ݀ *, which is the rank of node n in the distribution, is derived; where C is a constant and a is the incline of the distribution. The equation is then converted into a log-log scale. The slope of distribution indicates the evenness of the degrees of the actors. A sharp slope indicates the existence of distinct core and periphery structures with a high level of hierarchy in the distribution of the actors’ degrees. Secondly, this work figures out whether the segmented core and peripheries have complementary and synergistic interactions to ensure the collective process of systemic innovation (Crespo et al, 2014). If a network is composed of disconnected groups, then new explorative ideas that are often produced in the peripheral part do not reach the exploitative stage that emerges around the core because of missing linkages between them. Therefore, connections between both sections are significant for the systemic performance of an innovation network. Connectivity between the core and periphery can be calculated by the correlation between the degree of a focal node and those of its direct neighbors (Crespo et al, 2014). The degree of each node n is denoted as ݀ and the mean degree of relevant neighbors ݀ҧ is derived. A linear relationship between ݀ҧ and ݀ is then estimated as follows, where D is a constant, and b signifies a correlation coefficient. Correlation b is a negative value when a focal node with a high degree is related to peripheries with low degrees. In this case, the complementarities of both core and periphery parts can be structurally supported because the densely connected actors are likely to interact with poorly connected nodes.
3.3 Behaviors of the network participants In the process of deploying and disseminating developed knowledge, on the one hand, collaborators tend to search for new resources that are harmonious with their existing resource backgrounds because it can enable them to absorb each other’s resources easily (March, 1991). Therefore, knowledge flows for market exploitation can be facilitated when actors are embedded in multiple networks within local clusters (Burt, 2004). On the other hand, a partnership for technology exploration can be intensified by the heterogeneity in exchanged resources. Studies found that a group of members with dissimilar resources and capabilities are superior in creating new combinations of emergent knowledge and solutions when they have access to alternative ways of
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Moon Jung Kang and Jongwoon Hwang thinking (Burt, 2004). Researchers suggest that knowledge gatekeepers, such as organizations that have distant and global relations, can take a prominent position in technology exploration by introducing non-redundant fresh ideas from external sources into the region (Bathelt et al, 2004; Morrison, 2008). This research supposes that systemic innovation can be assured if organizations at the periphery have more frequent access to dissimilar types of resources from diverse sources based on outward partnership strategies and that organizations that pursue inward partnership strategies are positioned at the densely connected core exposed to analogous resources from local sources. The correspondence between network position and partnership openness is measured in two steps. First, the openness of organizations to foreign organizations is determined by using an external–internal index (E–I index). In this study, country boundary is applied as a criterion to evaluate the extent to which an organization’s innovation is open to external resources under the premise that country-specific factors, such as geographic conditions, market readiness, and institutional schemes, can affect energy innovation considerably (Bathelt et al, 2004; Simmie, 2003). The E-I index partitions organizations into countries and calculates the total number of relations of an organization to the partners in the external partition minus the number of relations to the indigenous partners divided by the total number of internal and external relations of the focal organization (Borgatti et al, 2002). Second, the relation between E–I index and the degree of each organization is calculated. Overall, systemic innovation can be effectively supported by the network when the correlation between the degree and external openness of each actor tends to be negative, because actors have effective openness strategies for systemic innovation given their positions in the network.
4. Data This study employs data on projects under the FPs and IEEs to address both dimensions of systemic energy innovation. This research employs data retrieved from the CORDIS and IEE databases. Table 1 presents the collected data and splits them into two periods: Period I covers FP6 and IEE1 and Period II includes FP7 and IEE2.For each period, the project data from FP and IEE are aggregated and merged into one matrix to compare the systemic innovation performance of the networks in two different periods. Data on the organizations in each project consortium are processed and exported into a two-mode binary matrix of organization by project. The two-mode matrix is then transformed into a one-mode valued matrix of organization by organization. The onemode valued network embodies the partnership intensity between two organizations through project participations. Finally, the network properties are calculated using UCINET software. Table 1: Description of project data applied for the network analysis Funding period / project start date No. of projects / countries Targeted program No. of projects / countries Funding category
Period I: 2003–2007 590 / 2,862 FP6 IEE1 250 / 2,498 340 / 1,434 Sustainable All categories energy systems
Period II: 2008–2013 720 / 3,778 FP7 IEE2 341 / 1,943 379 / 2,105 Energy
All categories
5. Analysis 5.1 General characteristics of the network Table 2 describes the overall network structure. Given the declining overall network density from 0.0121 to 0.0066, the average relationship strength among the organizations has weakened over time. The short path lengths and diameters of the network imply the narrow influence scope of the organizations and the densely connected partnership networks. Over time, the number of components has notably increased, which means that network fragmentation has also intensified. The increasing component ratio, which means the inverse measure of cohesion, also signifies that a small number of giant components in Period I fell apart into smaller and disconnected components. Table 2: Overall structure of partnership networks: Period I vs. period II Network Properties Number of organizations (nodes) Number of relations (ties) Overall density (std. dev) Path lengths / Diameter Components / Component ratio
Period I (2003–2007) 2,862 98,735 0.0121 (0.1552) 2.817 / 7 8/ 0.0024
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Period II (2008–2013) 3,778 93,733 0.0066 (0.1066) 3.123 / 7 23 / 0.0058
Moon Jung Kang and Jongwoon Hwang Regarding the overall conditions for market exploitation, Table 3 evaluates the existence of small-worldness of networks by comparing the average clustering coefficients and path lengths of actual networks with those of their comparable random networks, which are constructed with the same number of nodes and ties for each case. The networks in both periods can be characterized as small worlds because the actual and random networks in each period have nearly equivalent degrees of path lengths of around 2.8 in Period I and 3.1 in Period II, respectively, whereas the overall clustering coefficients of the actual networks are much higher than those of the random ones. This finding implies that the EU-funded network is generally effective in the transmission and exploitation of resources in the market. Table 3: Small-worldness: Period I vs. period II Random network Actual network
Period I 2.822 0.546 2.817 1.115
Average path lengths Overall clustering coefficient Average path lengths Overall clustering coefficient
Period II 3.069 0.598 3.123 1.024
In Table 4, the overall conditions for technology exploration are measured with the average constraints on the organizations as a consequence of relational redundancy. The properties of actual networks observed under the EU-funded innovation programs are compared with those of random networks. In both Periods I and II, actual networks show higher constraints with 0.2665 and 0.2931 than the random networks. This result implies that significant relational redundancies are observed in energy innovation networks. Structurally vulnerable positions with low constraints, which can be beneficial for technology exploration, are rather limited. Despite the decreasing overall network density shown in Table 2, the relational redundancies of partial sub-networks have intensified over time from 0.2665 to 0.2931 and organizations in the second period were faced with higher redundancy in their resource flows. Table 4: Overall constraints: Period I vs. period II Random network (st. dev.) Actual network (st. dev.)
Period I 0.1828 (0.1066) 0.2665 (0.1777)
Period II 0.2168 (0.1180) 0.2931 (0.1663)
5.2 Technology-market interaction in the network Regarding the core–periphery structure, Figure 1 shows that slope ہȽ ۂof actual networks in Periods I and II accounts for 1.7891 and 1.8068, respectively. The inclination in each degree distribution is weaker than that of its comparable random network. The hierarchy of interorganizational relationships in both networks tends to be insignificant given the weak cohesion around the core organizations. In this case, core groups in both periods tend to have weak control over the exploitation of developed technologies in the market, while peripherals are less likely to promote the exploration and integration of new technologies.
Period I (2003–2007)
Period II (2008–2013)
Figure 1: Hierarchy in the networks: Period I vs. period II Regarding connections between the core and peripheral organizations, Figure 2 presents the relations between the degree of each focal organization and mean degree of its direct neighboring organizations. The actual networks in Periods I and II have positive degree correlations of 0.0582 and 0.0750, respectively. The positive relation points to the existence of assortative segmentations where densely connected organizations tend to have partnerships with densely connected ones and weakly connected organizations interact with weakly connected ones.
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Period I (2003–2007)
Period II (2008–2013)
Figure 2: Degree correlation in the networks: Period I vs. period II
5.3 Behaviors of network participants
Period I (2003–2007)
Period II (2008–2013)
Figure 3: Correlation between degree and E-I index: Period I vs. period II Figure 3 depicts the relation between the degree and the E-I index of organizations. Figure 3 shows that both networks show positive relations between the degrees and E-I indices with 0.001 and 0.002, respectively, which are slightly less than the slopes of random networks. Results indicate that exploitative organizations at the core tend to seek global partners, whereas explorative organizations at the periphery are likely to collaborate with local partners.
6. Discussion and policy implications In the first period, EU-funded energy innovation networks show segmented and decentralized sub-clusters that have highly connected and redundant structures within themselves. The networks have insignificant core– periphery structures that are poorly connected to each other. The lack of strong cores, which lead the markets, and peripherals, which create technology solutions, implies that networks did not provide an idealized structure to ensure the compatibility of technology exploration and market exploitation. The cohesiveness within subnetworks hinders the multiplication of channels for potential flows of fresh ideas from peripherals to the core (Cattani and Ferriani, 2008). In the second period, effective pipelines between the explorative core and exploitative peripheries in the network became rarer with increasing components ratio and assortativity. Simultaneously, the disconnected local clusters exhibit a higher level of relational redundancy within themselves. As a result, the outcomes of technology exploration from the peripheries may not reach the market deployment stage at the core; the market is likely to be led by existing standards which can become obsolete easily without input from the cutting-edge R&D. Market demands can be hardly reflected in the R&D phase. Eventually, the market can be reluctant to accept new innovative entrants.
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Moon Jung Kang and Jongwoon Hwang Overall, the network positions of organizations and their partnership behavior tend to show a mismatch to promote systemic innovation. This tendency intensifies over time, given the decreasing number of organizations with appropriate openness strategies based on their network positions. Central organizations tend to control the international resource exchange and consolidate their powers over international resource flows; periphery organizations still tend to conduct local searches for organizations with similar resources and confront with difficulties in technology exploration because of limited channels to novel knowledge. A weak core–periphery structure can be partly ascribed to extensive political efforts and funding programs to close the lifecycle from initial R&D to market exploitation. By operating a feed-in tariff system, Germany, Denmark, and Austria supported renewable energy area over a long period of time; which has evolved into a large-scale implementation of various technologies (Decker et al, 2007; Jacobsson and Lauber, 2006; Negro and Hekkert, 2008; Raven and Gregersen, 2007). The loosening of the core–periphery structure can also be partly due to the recent economic recession worldwide and the associated reduction of public and private funding. These economic factors might have altered the traditionally dominant settings of core and periphery structures. For example, budget cuts of the United Kingdom affected the funding eligibility of certain technologies and the scales of energy generation (Finney et al, 2012). The problem in assortative structure can be explained with some examples. The R&D of marine energy technologies in the UK is driven by a small number of small- and medium-sized enterprises (SMEs) with insufficient links to developers, component suppliers, and universities (Winskel et al, 2006). The Swedish biofuel heating market also showed that SMEs that develop latent and innovative technologies do not collaborate with providers of related products and services (Hillman and Sanden, 2008; Jacobsson, 2008; Ulmanen et al, 2009). Foxon et al (2005) argued that this dissonance can be associated with the fact that SMEs in the energy area pointed to difficulties in registering and negotiating intellectual properties due to the confidentiality. Some cases even revealed that assortative and closed clusters can enable incumbents to avoid new market competitors (Jacobsson and Bergek, 2004; Nill and Kemp, 2009).
7. Policy implications These results can derive several implications for EU’s policymakers who devise and maintain innovation funding programs. First, policies should stimulate pipeline organizations between technology exploration and market exploitation. As a top-down measure to the current innovation funding of the EU, eligibility of the pipeline organizations that serve as a bridge between R&D and deployment, can be differentiated. Balachandra et al (2010) underlined the role of the industrial sector as the link between R&D and commercialization in the energy area. The top-down provision of incentives for the industrial participation in the EU innovation program, such as Horizon 2020, means not only raising financial grants dedicated to them but also ensuring their opportunities to be part of collaborative projects in any forms of participation and enabling them to secure a strategic position in the network. In particular, Horizon 2020 supports market exploitation by assuring advantages to proposals that include industrial actors and weighting anticipated exploitation effects of the project results more than other criteria in the proposal evaluation process. As a bottom-up measures to the capability building programs of pipeline organizations, other support schemes of the EU, such as funding for researcher exchange or capacity building, can strengthen innovation capacities of pipeline organizations and their competitiveness in the long run. Second, policies should support the compatibility of large incumbent organizations at the core and burgeoning SMEs or innovative start-ups at the periphery and manifest their confrontation because each of them has different contributions to systemic energy innovation. Activities of leading mature organizations should not be constricted; however, the incumbent locked-in system should be avoided so that emerging technologies of new entrants can comply with existing standards. Both parties need to collaborate in EU-funded projects to jointly develop innovative solutions and set market standards. The policymaking process needs to secure opportunities for both incumbents and entrants to shape their expectations and formulate their needs to be reflected in the new policy. Tracing the history of energy innovation in the Netherlands, enthusiastic pioneers and their entrepreneurial activities were often not strongly coordinated in lobbying and improving institutional arrangements to adapt other system functions to their new technologies; the Dutch policymakers could control the lobby of incumbents and persuaded them to accept a sustainable transition (Negro et al, 2012; Verbong and Geels, 2007).
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Moon Jung Kang and Jongwoon Hwang An enhanced understanding of the structural pitfalls and inefficiencies of previous EU innovation programs can provide interesting initial results on the ability of networks to achieve systemic innovation performance in a particular energy domain. It can also enable EU policymakers to devise targeted incentives that will cover potential missing links in the EU innovation funding scheme. Despite its contributions, this research has limitations. First, this research covers entire energy innovation fields. Each energy area may have different innovation characteristics and networking structures. For accurate analysis, the network of each energy field should be addressed individually. Second, this research reduced the network complexity to several signatures of network structures. Future studies can employ regression analysis to analyze the influence of various interrelated factors on systemic performance of energy innovation projects. Third, the networks analyzed in this research are initiated by the EU and are therefore formed around European organizations. An extended approach can adopt the global partnership factor as an endogenous parameter to analyze the regional– international interactions of the systemic innovation networks. Finally, this research focuses on the two dimensions of systemic energy innovation: technology exploration and market exploitation. Considering the complex nature of innovation landscape, other dimensions of innovation lifecycle can be measured to develop strategic options of systemic energy innovation.
References Balachandra, P., Nathan, H.S.K., Reddy, B.S. (2010) Commercialization of sustainable energy technologies. Renewable Energy. 35(8), 1842-1851. Balland, P.A., Suire, R., Vicente, J. (2013) Structural and geographical patterns of knowledge networks in emerging technological standards: Evidence from the European GNSS industry. Economics of Innovation and New Technology. 22(1), 47-72. Bathelt, H., Malmberg, A., Maskell, P. (2004) Clusters and knowledge: local buzz, global pipelines and the process of knowledge creation. Progress in Human Geography. 28(1), 31-56. Borgatti, S.P., Everett, M.G., Freeman, L.C. (2002) Ucinet for Windows: Software for Social Network Analysis, MA: Analytic Technologies, Harvard. Burt, R.S. (2004) Structural holes and good ideas. American Journal of Sociology. 110(2), 349-399. Cattani, G., Ferriani, S. (2008) A core/periphery perspective on individual creative performance: Social networks and cinematic achievements in the Hollywood film industry. Organization Science. 19(6), 824-844. Chen, H.H., Pang, C. (2010) Organizational forms for knowledge management in photovoltaic solar energy industry. Knowledge-Based Systems. 23(8), 924-933. Crespo, J., Suire, R., Vicente, J. (2014) Lock-in or lock-out? How structural properties of knowledge networks affect regional resilience. Journal of Economic Geography. 14(1), 199-219. Crespo, J., Suire, R., Vicente, J. (2015) Network structural properties for cluster long run dynamics: Evidence from collaborative R&D networks in the European mobile phone industry. Industrial and Corporate Change, Forthcoming, available on line: http://icc.oxfordjournals.org/content/early/2015/07/03/icc.dtv032.abstract Decker, T., Menrad, K., Berenz, S., Wagner, R. (2007) Regulation and innovation in biogas technology in selected European countries. International Journal Public Policy. 2, 89-108. Doranova, A., Miedzinski, M., van der Veen, G., Reid, A., Leon, L.R., Ploeg, M., Carlberg, M., Joller, L. (2012) Business models for systemic eco-innovations, Final report, Technopolis group, Brussels. Finney, K.N., Sharifi, V.N., Swithenbank, J. (2012) The negative impacts of the global economic downturn on funding decentralised energy in the UK. Energy Policy. 51, 290-300. Gilsing, V.A., Nooteboom, B., Vanhaverbeke,W., Duysters, G., van den Oord, A. (2008) Network embeddedness and the exploration of novel technologies: Technological distance, betweenness centrality and density. Research Policy. 37(10), 1717–1731. Heringa, P., Horlings, E., van den Zouwen, M., van den Besselaar, P. and van Vierssen, W. (2014) How do dimensions of proximity relate to the outcomes of collaboration? A survey of knowledge-intensive networks in the Dutch water sector. Economics of Innovation and New Technology. 23(7), 689-716. Hillman, K.M., Sanden, B.A. (2008) Exploring technology paths: The development of alternative transport fuels in Sweden 2007–2020. Technological Forecasting and Social Change. 75(8), 1279–1302. Jacobsson, S. (2008) The emergence and troubled growth of a ‘biopower’ innovation system in Sweden. Energy Policy. 36(4), 1491–1508. Jacobsson, S., Bergek, A. (2004) Transforming the energy sector: The evolution of technological systems in renewable energy technology. Industrial and Corporate Change. 13(5), 815–849. Jacobsson, S., Lauber, V. (2006) The politics and policy of energy system transformation: Explaining the German diffusion of renewable energy technology. Energy Policy. 34(3), 256–276. March, J.G. (1991) Exploration and exploitation in organizational learning. Organization Science. 2(1), 71-87. Morrison, A. (2008) Gatekeepers of knowledge within industrial districts: Who they are, how they interact. Regional Studies. 42(6), 817–835. Negro, S.O., Alkemade, F., Hekkert, M.P. (2012) Why does renewable energy diffuse so slowly? A review of innovation system problems. Renewable and Sustainable Energy Reviews. 16(6), 3836-3846.
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Moon Jung Kang and Jongwoon Hwang Negro, S.O., Hekkert, M. (2008) Explaining the success of emerging technologies by innovation system functioning: The case of biomass digestion in Germany. Technology Analysis and Strategic Management. 20(4), 456–482. Nill, J., Kemp R. (2009) Evolutionary approaches for sustainable innovation policies: From niche to paradigm?. Research Policy. 38, 668–680. Paier, M., Scherngell, T. (2008) Determinants of collaboration in European R&D networks: Empirical evidence from a binary choice model perspective. Network Models, Governance and R&D Collaboration Networks. NEMO Working Paper 10. Poocharoen, O., Sovacool, B.K. (2012) Exploring the challenges of energy and resources network governance. Energy Policy. 42, 409-418. Protogerou, A., Caloghirou, J., Siokas, E. (2010) Technology fusion through EU-funded research collaborative networks, DRUID Conference 2010, London. Raven, R., Gregersen, K.H. (2007) Biogas plants in Denmark: Successes and setbacks. Renewable and Sustainable Energy Reviews. 11(1), 116–132. Roediger-Schluga, T., Barber, M. (2006) The structure of R&D collaboration networks in the European Framework Programmes, UNU-MERIT Working Paper Series 2006-036, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology, Maarstricht. Sagar, A.D., Van der Zwaan, B. (2006) Technological innovation in the energy sector: R&D, deployment, and learning-bydoing. Energy Policy. 34(17), 2601-2608. Scherngell, T., Barber, M.J. (2009) Spatial interaction modelling of cross-region R&D collaborations. Empirical evidence from the 5th EU Framework Programme. Papers in Regional Science. 88(3), 531-546. Simmie, J. (2003) Innovation and urban regions as national and international nodes for the transfer and sharing of knowledge. Regional Studies. 37(6-7), 607-620. Ulmanen, J.H., Verbong, G.P.J., Raven, R.P.J.M. (2009) Biofuel developments in Sweden and the Netherlands: Protection and socio-technical change in a longterm perspective. Renewable and Sustainable Energy Reviews. 13(6-7), 1406– 1417. Verbong, G., Geels, F. (2007) The ongoing energy transition: Lessons from a sociotechnical, multi-level analysis of the Dutch electricity system (1960–2004). Energy Policy. 35, 1025–1037. Watts, D.J., Strogatz, S.H. (1998) Collective dynamics of “small-world” networks. Nature. 393(6684), 440–442. Winskel, M., McLeod, A., Wallace, R., Williams, R. (2006) Energy policy and institutional context: marine energy innovation systems. Science and Public Policy. 33(5), 365-376.
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Design Thinking in Teaching: Product Concept Creation in the Devlab Program Janne Karjalainen Oulu University of Applied Sciences, Finland
[email protected]
Abstract: This paper summarizes a case study within which the concept of design thinking (Brown 2009) has been used to construct a practical user-centered process to support rapid product concept creation in an entrepreneurship education program. This process has been established within the DevLAB program at the Oulu University of Applied Sciences in Finland which acts as a permanent pre-incubator program for university level students and professionals accessing re-training. Design thinking was chosen as the basis of the program to support interdisciplinary teams that need to work together effectively. Design thinking is useful in this scenario since it is a suitable methodology for projects in any field. It is especially well suited to ill-defined problems. This paper will summarize the context, curriculum and preliminary outcomes associated with this design thinking process. It will also outline how design thinking has become an integral aspect of the development phases that interdisciplinary teams of students go through to build prototypes and create start-ups as part of their studies. While this program is still relatively new, preliminary feedback from participants suggests that the design thinking is an effective model for supporting the development of project work within entrepreneurship education at the higher education level. Ultimately, this case aims to educate people who can apply the tools of design thinking into their careers. Keywords: design thinking, project based learning, LAB studio model, concept creation
1. Introduction The need for interdisciplinary teams for solving complex problems is well recognized. The world and the problems in it are becoming more and more complex and change seems to be a constant. Experts are required to adapt to changing contexts and challenges that often cannot be addressed by routine solutions. Solutions and future development demands that the professionals are able to work together across disciplinary boundaries and in different contexts. (Engeström, Engeström & Kärkkäinen 1995.) Higher education is challenged to teach skills and competences for the future, which are often referred to as 21st Century Skills, to match the needs of the emerging models of economic and social development (Ananiadou & Claro 2009.). Solving complex problems requires a wealth of knowledge that a single person cannot possess and interdisciplinary team work is needed. How to train students for interdisciplinary work already during their education? Oamk LABs at the Oulu University of Applied Sciences in Finland is an educational setting based on studio pedagogy and project based learning. It brings together an international group of students from different fields to work on problems that are connected to real-world problems and phenomena. Working in an interdisciplinary and international team puts high demands to communication and collaboration. Cultural differences and language issues on top of the various professional viewpoints and frames of reference can create a very difficult work environment at first. In addition, creating anything new, innovative and worthwhile is very demanding. Given that we have a group of interdisciplinary students and a bunch of illdefined problems to solve, how do we instruct an interdisciplinary team in co-creation of a solution concept? What can we offer as an intermediary frame of reference for opening the communication and enabling collaboration? Design thinking has gained increasing popularity in the last decades both in management studies and as a tool for transforming education. We believe it is well suited to serve as the common ground in interdisciplinary concept creation projects as it also calls for radical collaboration across various fields. This paper highlights a case study on the use of design thinking as the concept creation methodology in a full-time project-based higher education program called DevLAB at Oamk LABs. The objective of this paper is to summarize the innovative uses of design thinking in DevLAB which is a permanent program at the Oulu University of Applied Sciences in Finland. This paper will first cover the basic definition of design thinking and make connections with related concepts. The second section will introduce the DevLAB program and the final section will outline some learnings and points relating to future development.
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2. Design thinking 2.1 Background on design thinking Using design thinking as a management tool to build strategy and solve complex problems started to gain traction roughly ten years ago and became more widespread in 2009 when IDEO a long running design company started to market itself as an innovation company rather than a design company. Designers have always been regarded as innovative. Design thinking has become popular because the way that designers work and the modes of thinking were used became packaged in a way that was accessible to others outside of the community of design professionals, coupled with the cachet that a successful firm like IDEO brings to it (Johansson-Sköldberg 2013). Tim Brown defines design thinking as, “a human-centered approach to innovation that draws from the designer's toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” (www.ideo.com/about) Tim Brown (2009) and the Stanford d.school online resources offer a set of tools for design thinking which have been used as a grounding for concept creation employed in DevLAB. Design thinking can further be seen as a collection of mindsets, five modes of thinking and a large set of tools. The mindsets highlight the need for a diverse team of collaborators with varied backgrounds and fields to bring various viewpoints and skillsets to the problem. Behaviours and culture should favour using visual communication and stories to create a clear vision and experimentation to learn quickly. The fundamental mindset is to focus on the human values through understanding the life of the user. These mindsets need to be connected to a process of thinking modes (Figure 1) where the current phase and its goals are clear for all participants (Bootcamp Bootleg 2013).
Figure 1: Design thinking modes (based on Bootcamp Bootleg 2013)
2.2 Design thinking modes and process The design thinking process begins with building empathy with the one you are designing for and work to answer the following questions: What are their experiences, what do they value, what drives their behaviour in their lives? Empathy can be built for example by observing the users, interviewing them and immersing yourself in their situation. Based on the discovered information and collected stories about the needs and insights, the next step is the distill it down to an actionable problem statement: a point of view (PoV). The PoV statement frames the problem in a way that focuses and inspires the team, provides a reference to evaluate against. It can also be an effective way to easily communicate to people you meet. This is the result of the define phase. Based on the PoV statement which in effect it a self-defined design challenge it is time for ideation, generating a large volume of diverse solution ideas. Based on evaluation of the ideas the most promising one or ones are taken forward to the prototyping phase. Prototyping should be understood here very broadly as anything that takes a physical form. Prototypes can be used learn more about the problem and users, develop the solution ideas further or test different options. Most importantly they can help to better communicate your vision to
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Janne Karjalainen team members or other parties. Testing provides you with learning which may lead you to refine the prototype or even reorient your point of view. It would be a mistake to think that Figure 1 represents a linear process that is conducted only once. Results from building a prototype or testing with users may loop back to any of the earlier modes.
2.3 Designerly thinking and design thinking Design thinking is increasingly being used and is applied to various different aspects of creating new objects, services and managing companies. It is also not simply used to define design or the act of design as is discussed in later sections. By conducting a literature review, Johansson-Sköldberg (2013) maps out two main discussions associated with design thinking. The first and more recent discussion, one which includes the definition used above, takes place within management studies and is less academic in nature. Discussion is typified with success stories and a view that anyone can think the way designers think. Within this discussion there are firstly people who frame design thinking as way to create innovative products (Brown 2009). Secondly, there are people who argue that design thinking is a way for businesses to explore new avenues and transform the corporate culture (Martin 2009). Thirdly, there is an aspect to this discussion that suggests that managers already think like designers, because management is inherently messy and ill-defined. The second discussion, which is more academic in nature, has a longer history focusing on designerly thinking, which centers around how designers think and create new concepts in design practice. It is also related to one's definition of design. Here designers are understood as mostly graphical or industrial designers and architects or design professionals. Within designerly thinking there are five distinct viewpoints (Johansson-Sköldberg 2013) related to the main activity of creating new concepts. !
Design as the creation of artifacts or ‘the transformation of existing conditions into preferred ones’ (Simon 1996). Creating anything can be considered designing.
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Design as reflexive practice sees focuses the practice of design on reflection of the creation and re-creating it based on the reflection (Schön 1983).
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Design as a problem solving activity, which is a step-by-step process, an analytical step for problem creation and synthetic sequence of problem solution (Buchanan 1992).
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Design as a way of making sense of things in the research of Nigel Cross (2006) and Bryan Lawson (†yu2005)
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Design as creation of meaning in the research of Klaus Krippendorff (2006)
For the purposes of this paper, design is defined very broadly as the creation of something new in line with Simon (1996). Simon talks about a “science of design” and writes, “Few engineers and composers, whether deaf, ignorant, or not, can carry on a mutually rewarding conversation about the content of each other's professional work. What I am suggesting is that they can carry on such a conversation about design, can begin to perceive the common creative activity in which they are both engaged, can begin to share their experiences of the creative, professional design process.” (p.137) Simon suggests that design should be an interdisciplinary subject of study, because the fundamental process is the same in any field. On the other hand, project work and studies are a practice that requires reflection as Schön’s arguments remind us. Thirdly, design is a process and in design thinking the problem creation step is part of a design thinking mode. Coming up with new solutions requires us to make sense of the needs and usage situations in new ways which can be argued as a cognitive process. Lastly, humans attach their own meaning to artifacts. For example, Ebay can represent a way to make money for some users or a convenient shopping site for other users. Ultimately, design is the creation of affordances that give raise to desired meanings.
3. DevLAB 3.1 Defining the DevLAB experience DevLAB is part of the university series of programs at the Oulu University of Applied Sciences (Oamk) called Oamk LABs which offer semester-long, full-time project studies within which projects are completed in interdisciplinary and international teams. Oamk LABs studies are based on the LAB studio model (Heikkinen and Stevenson, 2016). DevLAB is one of three LABs currently running at Oamk. DevLAB focuses on creating digital solutions and service concepts. During the academic year 2015-2016, projects were from the fields of health and
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Janne Karjalainen social care, tourism, energy and environment. The concept development process begins with a problem statement and it is the task of the team to come up with a solution. Teams are encouraged to challenge the problem statement, look for the business opportunities and research the issue thoroughly. The LAB studio model has two main phases which are the Lead phase, where the concept is created and the Lab phase, where the demo is built. During the Lead phase, there are two gates where a portion of the projects are cut and bigger teams are created for the more promising projects that continue. Teams are supported by professional coaches either from the university staff or from the industry. The goal of DevLAB is to create self-aware professionals that are able to develop new solutions and recognize their own skills as well as the skills needed from professionals from other fields. Additionally, DevLAB can be seen as a business pre-incubator, created to produce promising teams with solid and proven potential for creating their own new business (Heikkinen, Seppänen and Isokangas 2015).
3.2 Concept development and design thinking The concept development process generally starts from the needs of the users and is undertaken to identify the correct target users and then to generally understand the problem and possible business opportunities solving it may unlock. Oamk LABs concept creation process was not well defined, when the LAB studio model was initially formed in the original LAB focusing on the games industry, where intuition and a developer’s own sense of a fun game guided the game concept development. In DevLAB, students are creating solutions for various different user groups and to needs well outside of their own experience. Therefore, a more general purpose model and structure was needed. Design thinking was deemed as an effective way to map what the staff in the Oamk LAB program were already doing and provided them with a well-defined process and a set of tools. Furthermore, the radical collaboration across various fields that design thinking calls for is also one of the cornerstones of the LAB Studio Model. By bringing in a new concept creation process that is not based on any of the fields of the students, an equalizing force was initiated that allows for everyone to participate. The promise of design thinking is that anyone can do it if they follow the mindsets. Design thinking, service design and related tools had been offered to students already earlier, but in the fall semester 2015 they were made a part of the development process. For the spring semester 2016, the design thinking process (Figure 1) was fully implemented and realized as two subsequent cycles though the modes during the Lead phase to create a solution concept. In the Lab phase, participants kept iterating on the solution with prototypes and user testing.
4. Our findings with design thinking in DevLAB The LAB Studio model is based on values of trust and care (Heikkinen and Stevenson, 2016). This means that students are trusted to be responsible individuals and are given considerable freedom to run their project. They have 24/7 access to their work space, which they can organize to suit the needs of the project. Student teams largely self-organize and divide tasks. Importantly the team is ultimately in control of what the concept or solution will be. Coaching will give them feedback, but the team chooses their own path. The second part of the values, care means that we support them with information, tools, coaching and tutoring. We support the concept creation process, team dynamics and both professional and personal growth. However, as the design thinking methodology is mostly unknown to the students we need to initially run the process for them and teach the mindsets and provide the tools. This is cause for some internal debate on how much we provide structure and intermediate checkpoints. Design thinking literature does not offer much in the form of schedules or timeframes when it would be good to move from one mode to another or how to allocate the available time. I suspect that practical business matters often dictate how long each mode can take. The same is true with our school. One key purpose for the use of design thinking is to create creative and innovative solutions. Connected to this is the concept of creative confidence introduced by Kelley (2013) which is the ability to come up with a novel idea and the courage to act on that idea. We know that all children are creative until someone, most likely an elementary school teacher tells them that they are not creative. People also often equate creativity with artistic qualities or the ability to draw. Furthermore, we have seen how difficult it is for students to think of new ways for solving a problem. With this in mind, it is suggested that educators must further encourage and foster a
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Janne Karjalainen creative culture. As a result, there should be no fear of failure and judgment, because these kill creativity and lead to self-censorship. This creates a dilemma for coaches and potential for misunderstanding between feedback about the work result of the project and feedback about the team actions in project work. To characterize this, there is no right or wrong answer for the project result, but there is a preferred way, as instructed through team work, which teachers will evaluate. In other words, the team can be doing the right thing, but in a wrong way. Here the balance we need to strike is between project results and learning of the chosen concept development methodology. In DevLAB, teams are working on wicked problems which are characterized with confusing data, multiple users with differing values and not having a right or wrong answer. The possible explanation of the problem actually is dependent on the world view of the designer (Buchanan 1992). Although we might initially have trouble getting the students to generate alternative solutions, later we may end up in deep discussions on which solution the team should create. This forces the students to examine their own values and find arguments to make their view heard. Collaboration and showing unfinished work is key in building something new together. Ideas build on top of other’s ideas. Regular classes only call for delivering the finished work. Visual communication is necessary because it centers the conversation to something tangible and lowers the possibility for misunderstanding. By externalizing their thinking students will have to crystallize their ideas so that is can be shared, this is key in the SECI-model of knowledge creation (Nonaka & Takeuchi 1995). Drawing by hand rather than with a computer is better for communication of work in progress because it invites commenting by clearly not being finished work whereas a slick computer drawn image may feel ready and final and there is a risk that innovation is deterred. It is important that the team has a common understanding of the phase of the process they are currently in. In studio model learning the visual communication is important for creating awareness about the process phase, where the is and how they got here (Bull, Whittle and Cruickshank 2013). Designing requires the designer move between different logical level of the concept being created. The FBSmodel (Gero 1990) represents different aspects of the design object as function, behaviour and structure which describe what the object is for, what it does and what is is. This model connects with Simon Sinek's who notes the “why, how, what” idea of a communicating style (Sinek 2009). When we are building prototypes we are moving between the logical levels, building a structure to see if it enables or provides the right behaviour for example. Prototype is anything that represents a design idea. Anything can be prototyped, but it is important to be clear about what is the design idea you are testing and what is it that you want to learn. (Houde and Hill 1997) The result of the Define-mode allows the team to bring together user research insights collected from all team members and combine the information to a simple actionable statement. This forces the team to pick an aspect of a challenge they feel is worth solving and they feel energized by. This phase can be very difficult for students who are not used to setting a task for themselves, but would rather expect the teacher to define what needs to be done. During DevLAB, the team make up changes in the gate-process. A well defined design challenge in the form of a point of view statement can be very useful in bringing the new people into the team. There has been a critique to design thinking that just listing tools is not enough. Some tools like ethnographic observation sounds simple but is in fact demanding to do well. We have noticed ourselves for example that students struggle to create good interview questions, ones that would not include their own assumptions or be leading. Even for students whose training should prepare them to evaluate people in discussions, we have been using the problem interview method (Maurya 2012) with some success. The DevLAB environment and working modes are very different from traditional university courses. It would seem that students get so overwhelmed with the new environment and operating mode that they lose some of their own professional capacity. By learning to use new tools that come with design thinking, students acquire the mastery of confidence in the tool gradually. For example using the interview techniques first with other students in DevLAB and getting feedback before venturing out to interview others outside of the program. This is true for all the design thinking modes as well. We have been adding more granular checkpoints to provide moments of reflection and feedback for teams. Here our challenge is that teams in DevLAB can be working very different types of concepts with one team creating a festival experience while another building a smartphone
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Janne Karjalainen application to help parents deal with children with behavioural issues. How do we plan the checkpoints so that they are generic enough to help suit of these example teams, but specific enough to help them move forward?
5. Conclusion Creating something new is a demanding task. Doing it in an interdisciplinary and international team makes it even harder. Through the creation of the DevLAB program, it has been found that bringing the concepts of design thinking into university programs, although they are not easy to grasp let alone implement, provides value to creating product concepts. Design thinking creates a common frame of reference for the team members with its mindsets, modes of thinking and tools. This is valuable because it creates a vocabulary for the team that is outside of anyone's profession. There are a lot of development needed to gradually raise the level of confidence in the students to express new and perhaps wild ideas. Similarly, the bar should gradually rise for all checkpoints for students’ work established in the program. Our goal at DevLAB is to produce self-aware future professionals who are capable of developing new solutions in their future professions and recognize the other needed professionals and their skills to solve complex problems. It is believed that the design thinking mindsets will be a key factor in supporting this process.
References Ananiadou, K. & Claro, M. (2009) 21st Century Skills and competences for new millennium learners in OECD countries, OECD Education Working Papers 2009 (41), 33. Bull, C., Whittle, J. & Cruickshank, L. (2013) Studios in Software Engineering Education: Towards an Evaluable Model, 35th International Conference on Software Engineering (ICSE). Ieee. pp: 1063-1072. Brown, T. (2009) Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation, HarperBusiness, New York. Buchanan, R. (1992). Wicked Problems in Design Thinking. Design Issues, 8(2), 5-21. doi:1. Cross, N. (2006) Designerly Ways of Knowing, Springer Verlag, London. Gero, J. S. (1990) Design prototypes: a knowledge representation schema for design, AI Magazine Vol 11 No 4 pp. 26–36 Engeström, Y., Engeström, R. & Kärkkäinen, M. (1995) Polycontextuality and boundary crossing in expert cognition: Learning and problem solving in complex work activities. Learning and Instruction, 5(4), 319-336. Heikkinen, K.-P., Seppänen, U.-M. and Isokangas J., (2015) LAB studio model: Developing external networks for learning entrepreneurship in higher education. Education in the North, 22(Special Issue), pp.49-73. Heikkinen, K-P. and Stevenson, B. (2016) The LAB studio model: enhancing entrepreneurship skills in higher education, Int. J. Innovation and Learning, Vol. 20, No. 2, pp.154–168. Houde, S., Hill C. (1997) What do prototypes prototype, Handbook of Human-Computer Interaction edited by M.G. Helander, T.K. Landauer, P.V. Prabhu. Elsevier. Johansson-Sköldberg, U., Woodilla, J. and Çetinkaya M. (2013) Design Thinking: Past, Present and Possible Futures. Creativity and Innovation Management, Volume 22, Issue 2, pages 121–146. Kelley, T., Kelley, D. (2013) Creative confidence: unleashing the creative potential within us all, Crown Business, New York. Krippendorff, K. (2006) The Semantic Turn: A NewFoundation for Design. Taylor and Francis, Boca Raton, FL. Lawson, B. (2005 [1980]) How Designers Think: The Design Process Demyistfied, 4th edn, Architectual Press, Oxford. Maurya, A. (2012) Running Lean, O’Reilly Media, Sebastopol. Martin, R. (2009) The Design of Business, Harvard Business Press, Boston. Nonaka, I. & Takeuchi, H. (1995) The knowledge-creating company, Oxford University Press, New York. Sinek, S. (2009) Start with why : how great leaders inspire everyone to take action, Penguin Group, New York. Simon, H. (1996) The Sciences of the Artificial, 3rd edn, MIT Press, Cambridge, MA. Stanford d.school 2013 Bootcamp Bootleg (http://dschool.stanford.edu/wp-content/uploads/2013/10/METHODCARDS-v3slim.pdf) (9th April 2016)
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Managing Super Diverse Women Entrepreneurs in Aotearoa New Zealand Sangeeta Karmokar Auckland University of Technology, New Zealand
[email protected]
Abstract: New Zealand, like other countries, is becoming an increasingly multicultural society. Diversity of New Zealand has rapidly increased in the last ten years with 34 percent of the current population being Maori, Asian and Pacific community. We can see the reflection of super diversity in many areas of productivity, investment and particularly in innovation and entrepreneurial areas. Diversity has resulted in varied personal strengths such as language skills, social, cultural and international connections that can be channelled into entrepreneurship and easily transferable to New Zealand economy. New Zealand needs to adjust fast and invest in measures and programs to ensure we maximise the benefits of super diverse women population. These calls for a multi-voiced ``diversity'' discourse that would focus attention on the local demographics, cultural and political differences that adds value for entrepreneurial activities. As a country, New Zealand has acknowledged the influence of women on its growth and prosperity. Women entrepreneurs play a crucial role in country's economy, in terms of generating revenue and jobs, and creating an inclusive society; yet the entrepreneurial research to address diversity and promote entrepreneurial activities is largely invisible or marginal in mainstream entrepreneurship research. Despite a number of barriers, migrant women entrepreneurs are the fastest-growing group of business owners in advanced economies. In this paper, we aim to address the diversity of the women entrepreneurs and an attempt to provide a better understanding of the phenomenon by identifying and providing an overview of the possible barriers faced by diverse women entrepreneurs. It also explores challenges facing women entrepreneurs and various ethnic and cultural resources utilised by them to overcome such challenges. This paper will offer insights towards building a more inclusive framework for women’s entrepreneurship at a grass root level. Practical implication for future research and practice will be outlined. Keywords: women entrepreneurship, diversity, New Zealand, Maori, ethnic community
1. Introduction Aotearoa (New Zealand) is one of the most rapidly changing and ethnically diverse nations. The Super diversity is referred as the changing ethnic mosaic of New Zealand, it has taken on a new level of interest in recent years due to immigration policy changes and its impact on emigration. New Zealand’s ethnic diversity is evolving into a stage where as a nation we can celebrate our differences and take comfort from our similarities. New Zealand has become one of a small number of culturally and linguistically super diverse countries. New Zealand has 213 ethnicities; it is now home to 160 languages. Recent patterns of immigration have increased the ethnic diversity of the female population (Statistics New Zealand, 2013). In particular, immigration has expanded the proportion of diversity of women in the population. Our women’s population consists of European, Māori, Chinese, Pacifica Islands and Indian. The biggest increases in 2006 come from groups of the broader Asian category, led by the Chinese, Indian and Filipino ethnic groups (Statistics New Zealand, 2013; Affairs, 2013). As a result, New Zealand needs to adjust faster and invest in measures to ensure͒we are maximising the benefits of super diversity and managing the risks and challenges to a large number of new migrants living in New Zealand, some of whom come from very different social and cultural backgrounds. Global interest in women entrepreneurs has been growing (Marlow & Mcadam, 2013), as the number of women entrepreneurs increase and women-owned businesses continue to contribute to employment creation and the growth of local economies (Gender Entrepreneurship Monitor, 2011). New Zealand has also seen a rise in women entrepreneurial activities and their contribution to economy especially in its women immigrants (Pio & Dana, 2014). Skilled migrant and entrepreneur category women, refugees and asylum seekers generally come to New Zealand with few belongings and resources, further they may not have suitable skill set and experience that is easily transferable to the New Zealand economy. Women entrepreneurs from migrant backgrounds are among those who possess such strengths and skills. They may face particular challenges due to the combined identities of being women and ethnic migrants. Entrepreneurial framework needs to recognise an individual’s ability to take advantage of personal strengths such as language skills, social, cultural and international connections, channelling them into entrepreneurship. Research investigating women-owned businesses has developed considerably over the past two decades with specific social norms and values, yet there are many challenges faced by women, especially in today’s ethnic and culturally diverse women population. This paper discusses some challenges faced by women entrepreneurs in
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Sangeeta Karmokar New Zealand and explores various informal ethnic and cultural resources utilised by them to overcome such challenges. This paper provides some insights towards building a more inclusive framework of women’s entrepreneurship at a grass root level with examples of informal entrepreneurial activities that seem gradually shaping and encouraging women entrepreneurship in the context of New Zealand.
2. Landscape of New Zealand New Zealand is the melting pot of huge diversity of the population and business life where ethnic groups contribute to the cosmopolitan flavour of the city as well as being a source of potential business opportunities. This section provides a glimpse of diversity of Aotearoa and later contextualising to women entrepreneurship.
2.1 Diversity in Aotearoa Ethnic diversity of New Zealand has rapidly increased in the last ten years. The population group of New includes Pakeha/Western European New Zealander, Maori/indigenous people, Pacific Island communities, and what is considered ‘other’ ethnic groups (comprising people from Asia, Latin America, Africa, Central and Eastern Europe, and the Middle East) (Affairs, 2013). New Zealand is the fifth most ethnically diverse country in the OECD. One in every four residents in New Zealand was born overseas, and New Zealand has one of the highest immigration rates in the world (Affairs, 2013). New Zealand began to experience super diversity in the mid1990s, as the sources of immigration expanded from Pacific Islanders to include a significant proportion of immigrants from Asia (Chen, 2015). Super diversity means that there is no “business as usual” for any organisation or country. Diversity of New Zealand is not a new phenomenon, but the level of immigration occurred in the last ten years mean that those not born in New Zealand has passed the critical mass. Super diverse groups display strong ethnic and national identities, strong ethnic peer contacts and good English language proficiency. This group has endorsed integration in the society through the process of adopting the cultural and social values of New Zealand along with their values of their host country. Innovation and entrepreneurial activities are very common activities identified in the diverse population. They have different cultural and language skill sets, perspectives and ideas, particularly those from skilled migrants and entrepreneurial categories may help grow or seed new business. With the vast pool of skills and rich experience of diverse population there is a need to recognise an individual’s ability to take advantage of personal strengths such as language skills, social, cultural and international connections, channelling them into entrepreneurship (Light & Dana, 2013; Masurel, Nijkamp, & Vindigni, 2004). It is not just the employer, but the government policies need to recognise the culture difference and economic benefits of diversity (Clydesdale, 2011) with the urban life that is increasingly multi-cultural with an increase in ethnic entrepreneurship. Therefore, an understanding of the diversity of immigrant communities and enterprises has important implications for policy makers, educators and the community in general, including the immigrants themselves. Business and government need to be quicker and visionary on the opportunities from super diverse population that can benefit New Zealand economy. New Zealand needs to adjust fast and invest in measures and programs to ensure we maximise the benefits of super diverse women population.
2.2 Contextualising women’s entrepreneurship in New Zealand New Zealand predominately consists of Small and medium scale industries (employing up to 20 staff). Approximately 97.2% of New Zealand’s enterprises are accounted for by small and medium enterprises (Ministry of Business, Innovation and Employment, 2013). This is not a surprise given immigrants’ inclination towards selfemployment (Comeau, 2008; Kanas, Tubergen, & Lippe, 2009). According to Statistics New Zealand (2013), Asian women are the largest ethnic cohort likely to be self-employed. With the increasing ethnic diversity, New Zealand needs to leverage the economic potential for ethnic migrant women that are becoming important contributors in a competitive global economy. The contribution made by women entrepreneurs is creating substantial outcomes of the New Zealand economy (Dwyer, 2008), but yet it has gained little visibility in research and policy making. About 16.6% of employed women were self-employed and they made up 36% of all selfemployed. Self-employment is more common to Asian and European women than for Maori and Pacific women (Dwyer, 2008). Moreover, migrant women are underutilised source of talent, and are known to be part of the business.
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Sangeeta Karmokar Internationally there are only seven countries around the world where women are even close to participating in entrepreneurship par with men. The spectre of global economy can begin to shift by building a suitable and effective framework for women to purse a business. Tory Burch, a hugely successful woman entrepreneur, suggests that bringing more women into entrepreneurship could increase global income per person by 20% by 2030 (Hakobyan, 2016). Globally, it has been acknowledged that women immigrants are the fastest growing group of business owners (Baycen-Levent, 2010; Kerby, 2013). New Zealand was the first nation in the world to give women the right to vote. As a country, it has acknowledged the influence of women on its growth and prosperity. New Zealand has dominance of knowledge, creative and technology based enterprise. Women entrepreneur brings greater creativity and stronger business values than men (Hakobyan, 2016). Women are more likely than men to become serial entrepreneurs, creating great ideas, getting their business established and then moving on to the next project. This wealth of creativity can only help the economy adapt and change during a time of great technological flux. There are factors that motivate women to start a business. The most vital motivators for starting a business are personal factors, independence, flexibility of self-employment, achieve self actualisation, challenges, social status, influence of role models and insufficient family income (Ewere, Adu, & Ibrahim, 2015). Usually women start business to make a difference as they have more socially oriented intentions before starting a business (McClelland, Swail, Bell, & Ibbotson, 2005). New Zealand has several government policies favouring women entrepreneurs and number of role models exist in all areas. The diverse women entrepreneurs develop new opportunities by utilising a combination of well established skill sets and capitalising on their past social networks and cultural experience that is crucial for the success of the business. Women are currently underrepresented in entrepreneurship roles in New Zealand with a significant number of highly experienced women leaving the workforce, or unable to get past their initial ideas and move into business ownership positions. Globally, men dominate business accelerator programs, with women making up less than 20 per cent (Statistics New Zealand, 2013). It is clear that women entrepreneurs in New Zealand has it better than many places in the world, there is still work to be done before women have an equal footing to men in entrepreneurial circles. In fact, New Zealand has potential to be a leader, and become the destination for women entrepreneurs looking to start their ventures. In New Zealand like many developed nations, it is acceptable and indeed often encouraged for women to break out of traditional gender roles, and to get into business. Yet, despite the freedom to choose a career path and make their own way in the world, women do still face barriers and hurdles in entrepreneurial circles, along with their family commitments.
3. Challenges facing diverse women entrepreneurs Despite a number of problems faced by migrant women entrepreneurs, research suggests that they are the fastest-growing group of business owners (Baycen-Levent, 2010). This indicates their huge potential for future growth if the barriers are minimized and right support and resources are provided. When women have access to the resources necessary to run the business successfully their companies and economies are benefited from their growth. Despite the increasing number of women entrepreneurs in New Zealand, the fact is that they remain largely ignored and under researched. Clearly, there are some challenges and barriers faced by women entrepreneurs. These include: !
The lack of knowledge of local business culture, business related regulation and operating systems. Despite the vast information available to women entrepreneurs in New Zealand, it appears women have limited access to the knowledge and support base (Verheijen, Nguyen, & Chin, 2014). Especially if women have experience of different business practice and culture, adopting to the rules and regulations of New Zealand can be a huge culture shock.
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Risk of business conflicts due to cultural differences. Increased business between ethically diverse parties may create more cultural and misunderstanding. For example, in some ethnic community providing bribes in business operation is acceptable, but in New Zealand it is considered illegal activity.
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Women are less likely to have access to capital, may face more discrimination when compared to a male entrepreneur. Women have double disadvantages, one is being a female gender and second is coming from different ethnic, social and cultural background.
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Diverse women often lack the family and community support especially with childcare. Research has illustrated that motherhood had a significant impact on women’s decisions to establish and develop
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Sangeeta Karmokar enterprise (Department of Labour, 2008). New Zealand government offers support programs such as Working for Families and 20 hours free Early Child Care, but lacks support from extended families. !
Technology, education, and training are few of the main requirements for a successful business, and lack of knowledge in any of these areas can act as a barrier for women entrepreneurs to reach their potential. With the super diverse women population of New Zealand there is a huge diversity in the level of education, language and technology skill sets.
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Sometimes, in spite of having great ideas, women lack confidence in pursuing their concept and have inadequate information on the sources of help. There are many incubators and business accelerator programs offered by both government and private companies, but they need more support in building confidence at the grass root level before they could climb the steps of incubator programs.
4. Strategies to overcome the challenges Despite facing barriers and disadvantages, women entrepreneurs are growing fast in New Zealand. If proper support is provided with the right time and place, they can climb to new heights. Often, the number of women on state and private board measures success for women, but their contribution to businesses and the economy is so much more than that at the grass root level. Initiatives like KiwiConnect (Incubation Program in New Zealand) are certainly helping by highlighting the career opportunities that exist for New Zealand women today. However, while women are by no means invisible in entrepreneurial circles, they are still the exception rather than the norm. The potential for more women entrepreneurs to influence our economy and society through innovation is still largely untapped. We need to go beyond simply celebrating women for one day a year. There are initiatives, driven by both private and government sector to promote leadership and entrepreneurial activities ranging from NGO’s who work with South Auckland churches to promote entrepreneurial activities to private organisations that conduct leadership and entrepreneurial short courses for 8-10 weeks for new startups. Most of these programs are focused on existing entrepreneurs, but we have a huge gap and journey to be travelled from churches to accelerator programs. Still, there are untapped voices in the women community that can add a lot of value to the economy and society. It is not just about those women that are already on board, but who have shown promise and would bring a unique entrepreneurial skill to the society. They need support and access to complementary resources such as information, advice, emotional support, practical support and funding support. New Zealand has unique social and historical environment of women and this provides a new perspective for women to redefine their goal. The success strategies for diverse women entrepreneurs can be framed around cultural values, ethnic heritage, social network, personal qualities and family roles (Azmat, 2013; Verheijen et al., 2014). Strong social network, cultural difference with the host country, family roles and values act as a positive strategy in forming and creating a strong identity of the ventures. Creating a strong entrepreneurial space dedicated to women such as induction programme or a centre or facility to create awareness, educate, inspire and empower women entrepreneurs to reach their full potential to create economic and social value of themselves, their organizations, and society can encourage women to follow their dream. It is like, creating a pre-incubator space and providing framework and support towards building startups and participation in accelerator programs. The key focus of the new entrepreneurial space will be to create awareness, building confidence and inspire women from all walks life such as students, immigrants, housewives, refugees, community workers and women working in corporates. New Zealand’s women population is socially and culturally diverse, which provides them with a special niche to develop their business. The new entrepreneurial space creates a positive social environment for diverse women population of New Zealand. Potential women can be reached through social and cultural networks such as community workshops, real people telling real stories, being part with various church workshops, participating in the community events such as Pacifica Festival, Farmers Market, Chinese Events and various Food festivals. It provides a platform and opportunity to make their own community’s successful women entrepreneur visible by sharing their success and learning experience with their own people. An informal space motivates them to identify their potential and explore some niche business opportunities and promotes to build their social networks and connect with customers. This provides them with an opportunity to prepare adequately before venturing into a business and start with a strong network and knowledge. Framework of such initiatives can be achieved in various stages such as motivation stage, planning stage and establishment stage with different activities catering to each stage. It also creates a close network of angel investors, small and medium scale enterprises, investors, philanthropists, universities, decision and policy
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Sangeeta Karmokar makers. Thus, we can create a supportive environment and policies could also be made to proactively capitalise on immigrants’ expertise demonstrated in the form of entrepreneurial talents, skill sets and international connections. It definitely builds an environment that encourages women to build confidence and bring their amazing business ideas into life. There is also need for women that are successful in the community to assist other women that are just entering into the business programs such as community mentorship programs. Social connection is also one of the important strategy to build relationship between own ethnic community and with international network. It provides diverse women with more social capital connections and opportunities.
5. Discussion Despite being diverse, women entrepreneur population has contributed substantial outcomes to the New Zealand economy. As a country, New Zealand has acknowledged the valuable contribution and government have taken initiatives through various programs to promote inspiring women, but has gained little visibility in the diverse community. Despite the vast information available to entrepreneurs in New Zealand, it appears women have limited access to the knowledge support base especially at the grass root level. The real success of these strategies entails being proactive and reaching out to people in to order to build confidence and create supportive framework to nurture their business ideas. The strategy needs to build linkages and relationships with grass root level organisations such as NGO’s, community, churches, refugee camps, Maori-Marae (native indigenous society), and religious gatherings that exist in New Zealand. The development of an entrepreneurial space that connects to the root of community with the objective of creating confidence and support system for women has its own challenges and issues. Several challenges arise from both internal and external entities, including different timeframes between universities and industry; academic research focuses on long-term challenges and moves more slowly whereas business R&D is timesensitive. Several researchers and organisations have attempted to highlight the need of collaborative space in the context of an entrepreneurial environment. Of additional concern are, transactional and fragmented approaches between the parties, often without an understanding of each other’s value proposition. Securing on-going funding for such initiative is difficult as it is not easy to assess it’s economic and capital value. Government agencies with an economic focus need to provide and modify their approach to help diverse women entrepreneurs to obtain better understanding of the New Zealand business environment. Government, university and enterprise come together in mutual understanding and appreciation of each other’s value systems there should be an increase in the number of students working on applied research projects that benefits women population. New Zealand lacks both in-depth information and general statistics about ethnic businesses owned by migrant women. Various informal entrepreneurial activities exist in different pockets of the community, but there is lack of information and knowledge about these activities. These activities and initiative need to provide a strong connection between various ethnic communities, industries and government policy makers. A key part of this shift is the development of entrepreneurial mindsets and capabilities towards building knowledge space and appreciating social and cultural values.
6. Conclusion Overall, New Zealand women population is diverse and super diverse women entrepreneurs reveal strengths and characteristics such as optimism, passion, resilience, determination and commitment. The tenacity and adaptability observed in their entrepreneurship strategies display their aspirations and courage to turn entrepreneurial imagination into reality. With collaboration between government agencies, communities and enterprise, many policies and initiatives could be made to proactively capitalise on immigrants’ expertise, demonstrated in the form of entrepreneurial talents, skill sets and international connections. These can create a shared space for diverse women entrepreneurs to share social, cultural, heritage, personal values, which will potentially benefit New Zealand entrepreneurs and its long term economic scene. Future work will focus on building the new space in collaboration with university researchers, enterprise and government agencies with understanding each other’s value proposition and working for the benefit of women population.
References Affairs, M. o. E. (2013). Ethinicity Data. Retrieved from http://ethniccommunities.govt.nz/browse/ethnic-communities
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Sangeeta Karmokar Azmat, F. (2013). Opportunities or Obstacles? Understanding the Challenges Faced by Migrant Women Entrepreneurs. International Journal of Gender and Entrepreneurship, 5(2), 198-215. Badkar, J., Callister, P., Krishnan, V., Didham, R., & Bedford, R. (2007). Gender, Mobility and Migration into New Zealand: A Case Study of Asian Migration. Social Policy Journal of New Zealand, 32, 126-154. Baycen-Levent, T. (2010). Migrant Women Entrepreneurship in OECD Countries. Migrant Entrepreneurship in OECD Countries. Chen, M. (2015). Superdiversity Stocktake Clydesdale, G. (2011). Valuation, dDversity and Cultural Mis-Match: Immigration in New Zealand. Journal of Asia Business Studies, 5(1), 98-118. Comeau, M. T. (2008). Do Ethnic Enclaves and Networks Promote Immigrant Self-Employment? Social Science Research Network, 32(4), 30-50. Department of Labour. (2008). Critical Issues for New Zealand Women’s Employment, Now and in the Future, Wellington Report prepared for the National Advisory Council on the Employment of Women Retrieved from http://www.nacew.govt.nz/publications/files/critical- issues.pdf. Dwyer, M. (2008). Critical issues for New Zealand Women’s Employment, Now and in the Future. Ewere, A. D., Adu, E. O., & Ibrahim, S. I. (2015). Strategies Adopted by Women Entrepreneurs to Ensure Small Business Success in the Nkonkobe Municipality, Eastern Cape. Journal of Economics, 6(1), 1-7 Gender Entrepreneurship Monitor (2011) Report: Report: Women’s entrepreneurship worldwide. Babson College and Global Entrepreneurship Association. Retrieved from www.gemconsortium.org/docs/down- load/768. Hakobyan, M. (2016). Why Do We Need More Women Entrepreneurs? Retrieved from http://www.huffingtonpost.com/margarita-hakobyan/why-do-we-need-more-women_b_9178852.html Kanas, A., Tubergen, F. v., & Lippe, T. v. d. (2009). Immigrant Self-Employment: Testing Hypotheses About the role of Origin- and Host-Country Human Capital and Bonding and Bridging Social Capital. Work and Occupations, 36(3), 181208. Kerby, S. (2013). Why Global Economies Need to Invest in Women of Color Retrieved from https://www.americanprogress.org/issues/labor/news/2013/03/08/55790/why-global-economies-need-to-invest-inwomen-of-color/ Light, I., & Dana, L. P. (2013). Boundaries of Social Capital in Entrepreneurship. Entrepreneurship Theory and Practice, 37(3), 603-624. Marlow, S., & Mcadam, M. (2013). Gender and Entrepreneurship: Advancing Debate and Challenging Myths – Exploring the Mystery of the Under-Performing Female Entrepreneurship. International Journal of Entrepreneurship Behaviour and Research, 19(1), 114-124. Masurel, E., Nijkamp, P., & Vindigni, G. (2004). Breeding Places for Ethnic Entrepreneurs: A Comparative Marketing Approach. Entrepreneurship Theory and Practice, 16(1), 77-86. McClelland, E., Swail, J., Bell, J., & Ibbotson, P. (2005). Following the Pathway of Female Entrepreneurs: A Six-Country Investigation. International Journal of Entrepreneurial Behavior and Research, 11(2), 84-107. Ministry of Business, Innovation and Employment (2013) Small and Medium Enterprises. Retrieved from http://www.med.govt.nz/business/business-growth-internationalisation/small-andmedium- sized-enterprises. Pio, E., & Dana, L. o.-P. (2014). An Empirical Study of Indian Entrepreneurs in Christchurch, New Zealand. International Journal of Entrepreneurship and Small Business, 22(1), 2014. Verheijen, V. W., Nguyen, H., & Chin, B. (2014). The Making of Ethnic Migrant Women Entrepreneurs in New Zealand. International Journal of Entrepreneurship and Small Business, 23(3), 296-312. Statistics New Zealand. (2013). Ethnic Diversity of Women is Growing. Retrieved from http://www2.stats.govt.nz/domino/external/web/nzstories.nsf/092edeb76ed5aa6bcc256afe0081d84e/36039e7730 b7abdacc256b180007240e?OpenDocument
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The Double J-Curve: A Model for Incubated Start-ups Amr Kebbi and Dave Valliere Ted Rogers School of Management, Ryerson University, Canada
[email protected] [email protected]
Abstract: It is widely believed incubators are not as effective as they could be. Although incubators are intended to be a tool for supporting entrepreneurship, innovation, and regional development, there is little empirical evidence that incubators have fulfilled their expected role. Entrepreneurs applying to join an incubator expect to successfully graduate within a reasonable amount of time, and publicly funded incubators are expected to enhance the creation of new start-ups that create jobs and grow the economy. Therefore, the primary goal of a business incubator is supporting entrepreneurs to create successful start-ups within a reasonable time. Ultimately, a graduated start-up leaves the incubator after becoming a sustainable firm that can stand alone and maintain its growth outside this nurturing environment. The J-curve model illustrates the journey of any start-up during its opportunity development process until maturity. The successful graduation rate is an indicator of an incubator’s performance, particularly its indirect contribution to the economy. This study explores entrepreneurs’ perspectives on the factors leading to higher successful graduation rates from business incubators. Incubators offer three categories of services: infrastructure, coaching, and networking. This study analyzes qualitative data from interviews with entrepreneurs expecting to join a business incubator, currently affiliated with a business incubator, and already graduated from a business incubator. Based on the J-curve model and the services offered by incubators, a new model emerged: the double J-curve. The J-curve does not reflect the challenges incubated start-ups face directly after graduation when they are exposed to new expenses that were covered by their incubators. Incubated start-ups pass through a five-phased double J-curve rather than three-phased J-curve. Each phase is defined by a start-up’s milestones, its challenges, its needs, and its incubator’s services. These findings can have implications on incubators’ policies for accepting and evaluating start-ups. Keywords: incubators, successful graduation, Services at incubators, incubator performance, business creation and innovation, J-curve
1. Introduction The scholarly field of entrepreneurship studies the process of developing a business opportunity, and the environment affecting the process (Venkataraman, 1997). Entrepreneurial studies search for answers to the following questions: “why, when, and how opportunities for the creation of goods and services come into existence”(Shane and Venkataraman, 2000, p. 218). Enterprising individuals discover business opportunities and develop them into goods and services (Kirzner, 1997). Individuals that create and exploit the opportunities become entrepreneurs. The support offered for entrepreneurs enables them to exploit their recognized opportunities and build sustainable start-up businesses. Motivation is a major driver for individuals to become entrepreneurs (Bipp et al., 2008; Cooper, 1985), and their relevant knowledge and entrepreneurial competencies are fundamental requirements for their success (Shane, 2000). Incubators are supportive environments for entrepreneurs while they build their start-ups (Aernoudt, 2004). In this exploratory study, we suggest a model that describes the life of start-ups at an incubator. This model helps us understand the challenges and needs of these start-ups in order to build a sustainable business. The study is divided into five sections: literature review, methodology, findings, discussion, and conclusion. In the literature review, we discuss the role of an entrepreneur in the opportunity development process. We also talk about the influence an entrepreneurial environment has on this process. We focus our research on incubators as a supportive entrepreneurial environment to build sustainable businesses. We review various types of incubators, services they offer, and indicators used to evaluate their performance.
2. Literature review 2.1 The entrepreneur Entrepreneurs pursue opportunities regardless of their currently controlled resources (Stevenson and Jarillo, 2007). Entrepreneurs build start-ups that are beneficial to the economy. Through their start-ups, they can create employment opportunities, introduce new innovations, contribute to economic growth, and achieve selfsatisfaction (Van Praag and Versloot, 2007).
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Amr Kebbi and Dave Valliere The entrepreneurial process is a journey of turning an opportunity into a sustainable business (Stevenson and Jarillo, 2007, p. 27). The process starts when an entrepreneur spots an opportunity (Nicolaou et al., 2009; Shane and Nicolaou, 2015), continues with the entrepreneur developing this opportunity, and ends with the opportunity becoming a successful start-ups. The entrepreneurial process is also referred to as the opportunity recognition and development process (Ardichvili and Cardozo, 2000). In the opportunity recognition process, an entrepreneur produces a product or service, and in the opportunity development process, an entrepreneur constructs a new sustainable start-up business around this product and service. Opportunity recognition is dependent on an entrepreneur’s previous knowledge, experiences and alertness in spotting opportunities. (Baron and Ensley, 2006; Cha and Bae, 2010; Gaglio and Katz, 2001). Opportunity development, is the process of constructing the business model and writing the business plan to bring the service or product developed to the markets (Argyris and Schön, 1997). The opportunity development depends on the entrepreneur’s environment. Entrepreneurs interact with their environments in several ways such as learning (Corbett, 2007), researching, testing, networking (Birley, 1986), selling, buying, and recruiting (Ardichvili et al., 2003; Singh, 2001). During the opportunity development process, entrepreneurs expansively interact with their environments.
2.2 J-curve model The J-curve (Figure 1) illustrates the journey of any start-up during its opportunity development process. Startups deliver negative returns in their early days followed by rapid growth until they mature (Grabenwarter and Weidig, 2005). Several factors contribute to the negative returns in the early days of a start-up such as: technology, resources, and environment. It is the time when spending on product development is not balanced with revenue from sales. However, once a start-up begins generating revenue from sales, it rapidly grows crossing its breakeven point. When, later in the future, it becomes mature, it grows in a slower rate. The J-curve of a start-up could be divided into three phases: phase I is the product development phase; phase II is the product launch phase; phase III is the start-up growth phase. The entrepreneurial environment of a start-up modifies its J-curve.
Figure 1: Start-up J-Curve and its phases
2.3 The entrepreneurial environment To develop their opportunities, entrepreneurs have to build sustainable business models. In order to do that successfully, entrepreneurs need to acquire knowledge on how to build, manage, and grow a start-up business (Mitchelmore and Rowley, 2010). If the environment is transparent and supportive and has adequate recourses, success will be more likely. The environment can take several forms such as political (Patton and Marlow, 2011), economic (Feldman and Audretsch, 1999), social (Hayek, 1945), technological (Hisrich and Smilor, 1988), and legal (Avnimelech et al., 2007). Entrepreneurs can use their environments to leverage their start-ups.
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2.4 Incubators Incubators are environments to support individuals to start and grow their businesses (Aernoudt, 2004). Incubators are of several types. They can be classified based on their stakeholders or based on their objectives. Some incubators are affiliated with universities to help graduates develop their ideas into businesses, while others can be affiliated with governments or even private institutions (Mian, 1997). Incubators have been criticized for failing to meet their objectives. They are criticized of becoming not more than office space provider (Peters, Rice, & Sundararajan, 2004). There are also claims that success rates for start-ups at incubators are not better than outside incubators (Tamasy, 2007). However, they are still considered one of the best available tools for business development and start-ups creation (Avnimelech et al., 2007; Patton and Marlow, 2011). Incubators are supporting environments for entrepreneurs throughout the opportunity development process (Aernoudt, 2004; Patton and Marlow, 2011; Peters et al., 2004). They are also temporary protective environments for new start-ups to overcome their early challenges (Aernoudt, 2004). Start-ups are most vulnerable when entrepreneurs are in the process of developing their business models. At this stage, entrepreneurs have already invested time and money putting themselves under emotional and social pressure (Cha and Bae, 2010). Well-designed business models leads to sustainable growing businesses (Cooper, 1985). Business incubators can be one of the safest environments for entrepreneurs to improve their products and services, organize their teams, write their business plans, approach their first customers, and finance their operations (Peters et al., 2004). To understand the role of incubators as an entrepreneurial environment, it is more relevant to classify them based on their objectives rather than on their stakeholders (Feldman and Audretsch, 1999). Table 1 provides one such classification. Table 1: Typology of business incubators (Aernoudt, 2004, p. 128) Incubator General Business
Main Philosophy: Dealing with Business Gap
Main Objective
Secondary Objective Employment Creation
Sectors Involved
Create Start-ups
Regional
Local Disparity
Regional Development
Business Creation
All Sectors
Social
Social Gap
Integration of Social Categories
Employment Creation
Non-Profit Sector
Technology
Entrepreneurial Gap
Create Entrepreneurship
Stimulate Innovation, Technology Startups
Recent Technology, IT, Biotechnology
All Sectors
Technology incubators support entrepreneurs in developing their ideas and building their technology start-up businesses. Many technology incubators are closely related to educational institutions and technology clusters (Avnimelech et al., 2007; Bellotti et al., 2012; McAdam and McAdam, 2008). General business incubators are facing challenges. Many of them are turning out to be an office renting space funded by the public sector (Peters et al., 2004). There are evidence supported claims that incubators do not fulfill their roles in supporting entrepreneurs and developing regional economies (Tamasy, 2007). Technology incubators are more successful than general business incubators because they offer their start-ups more strategic advantage (Feeser and Willard, 1990). Industry dynamics interfere with the opportunity development process. Those dynamics could be customers, suppliers, consultants, and culture. Technology incubators offer their start-ups more relevant mentoring and networking services than the general business ones (Avnimelech et al., 2007; McAdam and McAdam, 2008). It is important when studying incubators as an environment for start-ups to identify the industry.
2.5 Services at incubators Incubators offer three categories of services: infrastructure, mentoring, and networking (Peters et al., 2004). As a form of infrastructure services, technology incubators offer new start-ups office space and reliable supporting communication services. The space is usually in a premium location offered for less than the market average. It is an open space that allows interaction among start-ups. This service attracts many start-ups, and they try to
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Amr Kebbi and Dave Valliere extend their stay due to its benefits (Cooper, 1985; McAdam and McAdam, 2008; Peters et al., 2004). Mentoring is another valuable service of the technology incubators. The opportunity to work with experienced mentors with entrepreneurial experiences brings added value to start-ups (Aernoudt, 2004; McAdam and McAdam, 2008; Peters et al., 2004). Being entrepreneurs themselves, mentors have been through the entrepreneurial process (Bisk, 2002; St-Jean, 2012). They have experienced the various challenges entrepreneurs face, and they understand many of the requirements for success. Networking is another service that entrepreneurs benefit from being in an incubator. With an open space culture, start-ups interact with each other on a daily basis. This allows an exchange of ideas, services, and information. Incubators also arrange for networking events where potential suppliers and customers might participate (Avnimelech et al., 2007; Birley, 1986). Also, incubators can become an environment where start-ups are being connected with potential investors. The main objective of incubators is to prepare new start-ups to successfully stand alone as quickly as possible (Peters et al., 2004). They have three major goals: supporting business start-ups, creating job opportunities, and producing innovative technology (Tamasy, 2007). Accordingly, their main objective is “to produce successful firms that will leave the incubator financially viable and free standing within a reasonable delay” (Aernoudt, 2004, p. 128). Incubators increase their efficacy by increasing the number of start-ups successfully graduating, and they increase their efficiency by reducing the incubation time while maintaining the same efficacy. Incubators can measure their performance based on their reputation among entrepreneurs, their rotational rates of start-ups, and the sustainability of graduated start-ups (Aernoudt, 2004; Peters et al., 2004).
2.6 Successful graduation of start-ups A successful graduation for a start-up from an incubator happens when it decides to leave the incubator and continues in its business activity for two years (Peters et al., 2004). It is difficult to keep track of start-ups for two years after graduation from an incubator, so incubators describe successful graduation as entrepreneurs deciding to leave the incubator to further grow the business. On the other hand, an unsuccessful graduation is when an incubator asks an underperforming start-up to leave. The successful graduation rate of an incubator represents the number of start-ups successfully leaving an incubator over a period of time. The successful graduation rate is used as an indicator for the performance of an incubator (Peters et al., 2004). It reflects both its efficacy and efficiency (Figure 2).
Figure2: Relational model explaining factors affecting the graduation rates of tenants in the incubator centers (Peters et al., 2004, p. 85) It is expected that incubators are supportive environment for start-ups. Incubation is a temporary condition, and successfully graduated start-ups leave their incubators with enough threshold to maintain their growth rates. Services at incubators are designed to satisfy the needs of their start-ups in order to build a sustainable business. In her study, Peters (2004) introduced a model that shows the relationship between the services offered by incubators and the number of their graduates. She developed her model after interviewing directors from incubators. There is also a need to understand the point of view of entrepreneurs working at incubators. This study explores the factors that influence the successful graduation rate from incubator. We are trying to understand the perception of entrepreneurs on how services offered to them at their incubators help them satisfy their needs and overcome their challenge (Peters et al., 2004). We want also to investigate how incubation modifies the J-curves of incubated start-ups.
3. Methodology The purpose of this study is to better understand the contributions of incubators to the process of developing an entrepreneurial opportunity. Entrepreneurs with opportunities seek support from incubators to overcome their challenges while building up a sustainable business. This qualitative study was based on interviews with entrepreneurs affiliated with incubators. The interview questions focused on experiences entrepreneurs had at their incubators. Analysis and coding of the interviews was based on the J-curve model for start-ups.
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Amr Kebbi and Dave Valliere For our interviews, we recruited entrepreneurs affiliated with incubators. Six technology incubators in Southwest Ontario helped us recruit from their networks of entrepreneurs. We asked them to forward our recruitment email stating the purpose of our study. We also highlighted the potential benefits of our findings for incubators and the opportunity for entrepreneurs to share their views. We targeted entrepreneurs applying to join an incubator, currently based in an incubator, graduated from an incubator recently, and graduated from an incubator two or more years ago. Nine entrepreneurs were interested in being interviewed; however, two dropped out, and only seven were interviewed. Out of the seven, one participant was applying to join an incubator. Two participants were currently based in an incubator. One participant had just chosen to leave an incubator to grow. One participant was pushed to leave the incubator from management a month before the interview. Finally, two participants had left their incubators more than two years before the interview. Six of the interviews were face to face on the Ryerson University campus while one interview was over the phone. All interviews were voice recorded, and all participants signed consent forms. The interview questions were open ended. We asked the participants to share their journey of their start-up before, during and after the incubation. We asked them to identify milestones in their journey, then we asked them about their feelings, challenges, and needs accordingly. We also asked them about their experiences at their incubators. We focused on how incubators satisfied their needs. Finally, we asked them whether it was possible to achieve their goals more efficiently and effectively. Interviews lasted between 30 minutes and two hours. Interviews were transcribed to Microsoft Word documents by interviewers using Dragon®, and coded using Qualitative Data Analysis Software: NVivo. The data from interviews were deductively analyzed. As a basis for analysis, we used the J-curve model (Grabenwarter and Weidig, 2005)and Peters’ (2004) model that relates services offered by incubators to number of graduates (Peters et al., 2004). Initial categories were derived from the J-curve model for start-ups: phase I refers to the time during product development and before sales transactions; phase II refers to the time after the first sales transaction and before the break-even point; phase III refers to the time after the break-even point. Each phase included subcategories: entrepreneurs’ challenges, entrepreneurs’ needs, and incubators’ services. Incubators’ services were divided into further subcategories: infrastructure, coaching, and networking. Our objective was to explore patterns that might lead to higher successful graduation rates from incubators.
4. Findings Technology incubators modify the J-curves of their start-ups during and after incubation. Incubation reduces the expenses of start-ups, which elevates their least net-cash position point on their J-curves. Incubation also introduces new growth opportunities to start-ups, which along with reduced expenses, cut their breakeven time shorter. Once a start-up leaves its incubator, new administrative expenses appear, and incubator-introduced opportunities cease to exist. These factors modify the start-up J-curve into a double J-curve (Figure 3).
4.1 Double J-curve Technology incubators cover some administrative expenses for their start-ups. They offer relatively low renting costs. As part of their renting agreement, they save their start-ups administrative costs, such as furniture, appliances, and maintenance. Highly skilled technicians work at incubators either as founders or as employees for start-ups. They create a pool of highly capable and affordable talent for all start-ups either as contractors for projects or as recruits for employment as stated by an interviewed entrepreneur: “A lot of my staff I met because of the DMZ my CTO, my lead developer, my top senior developer, my media scientist. All researchers are from the DMZ designer. I see 80% of my team is because of the DMZ. I didn’t know where to find talent, and how the special. Most of the talent that I wanted was working for big companies Facebook Google. You don’t know where to find people that got the entrepreneurial bug. They wanted to start and extremely smart as well. The DMZ helps us connect staff at the DMZ. If you want to hire the same quality performance.” Incubation saves start-ups money, which makes phase I of their J-curve, the product development phase, shorter and less costly. Incubators offer their start-ups growth opportunities, which emerge from networking events with potential customers and influence groups. Incubators organize activities that introduce customers to their start-ups. In technology incubators, other start-ups are potential customers and lead generators. When acquiring new
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Amr Kebbi and Dave Valliere customers, incubated start-ups have a prestigious address that signals confidence for potential customers as stated by an interviewed entrepreneur: “In the heart of Toronto rent-free gave me the ability to have some legitimacy.” These elements make incubators an environment that accelerate growth in sales and reduce administrative expenses. Incubation shrinks the time it takes for start-ups to achieve their breakeven points. Consequently, phase II, the growth in sales to achieve the breakeven point phase, gets shortened for incubated start-ups. After crossing their breakeven point, incubated start-ups grow faster. The reduction of administrative expenses and introduction of network opportunities reflects positively on phase III of the J-curve, the growth after breakeven point phase. However, soon, a healthy growing start-up has to leave its incubator. When this happens, new administrative expenses appear pulling the start-up down on the J-curve. Also, new opportunities, which used to be generated as a result of incubation, cease to exist. Therefore, the J-curve of a start-up leaving incubation has a downturn. At this point, if the startup is prepared with enough cash and threshold not to drop below the breakeven point, its cash flow increases once again. This appears as a second J-curve. If the start-up is not ready and drops below the breakeven point, this might lead to negative consequences and maybe bankruptcy.
Figure 3: Incubated start-up double J-Curve and its phases In the case of the second J-curve, two phases emerge. Phase IV begins after a start-up leaves its incubator and ends at the new lowest cash input point. This is the phase when a start-up absorbs the impact of leaving its incubator. Phase V begins after the lowest cash input point after incubation. It reflects the beginning of the recovery for a start-up. Phase V shows the new growth rate of a start-up without the effect of its incubator.
4.2 Five phases The five phases of the double J-curve are described based on the different stages in the life of an incubated startup. However, there are additional factors that emerged from the data and can help describe these phases. In each phase, a start-up has different challenges and needs. Consequently, it requires different services from its incubator (Table 2). In the life of an incubated start-up, phase I is the product development phase. At this stage, entrepreneurs are developing their ideas into a ready for sale product. They are spending money without any income. Their challenge is to finish their products as soon as possible with the limited resources available. At this phase, they need financial and technical support as noted by an interviewed entrepreneur: “I still had needs for technical leadership.” Being in an incubator, they benefit from the low rent space provided and other infrastructure services. They can get coaching on technologies to use for their product development. They also benefit from
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Amr Kebbi and Dave Valliere being in a technology incubator where they can network with other start-ups and learn from their relevant experiences. Phase II begins after a product is ready to be sold on the market. During this stage, income generation starts, but it is not yet enough to cover all the expenses. One challenge of start-ups is increasing customer base. Another one is fulfilling promises. Customers expect a quality product delivered on time. At this stage, products are new, and unexpected problems might emerge. Start-ups need sales leads for new customers, and technical support to improve their products. They benefit from the infrastructure of the incubator as a workplace to develop their product and a prestigious address that signals reliability to their potential customers. Start-ups benefit from sales coaching services offered by their incubators, which helps them manage their sales leads and transform them into customers as one entrepreneur stated in an interview: “Mentorship particularly in sales. We had a few customers. We want to really grow them. We didn’t know how.” Also, they benefit from networking events organized by their incubators. These events introduce start-ups to potential customers. Phase III begins after start-ups hit a major milestone: the breakeven point. Start-ups are growing and are now sustainable within an incubation environment. The new challenges are delivering on promises and growing teams. They need to maintain their growth of sales, and for this reason, they need to recruit more sales representatives and technical personnel. Although they are benefiting from the incubator’s infrastructure, at this point, start-ups consider leaving the incubation. They need a bigger and more private space to build their corporate culture. They are less dependent on coaching services; however, they still find value in the networking events that introduces them to new customers as stated by an interviewed entrepreneur: “It’s important to be there and to talk to people…We found things when we really needed them.” Phase IV begins when a start-up successfully graduates from its incubator. Successful graduation is when a startup leaves incubation, and they are ready to face its upcoming challenges. Phase IV is characterized by a drop in cash flow due to the emergence of administrative expenses, which had been covered by the incubator. Startups also lose the advantage of less expensive talent and many of the networking opportunities they used to get from the incubator. The challenges at this phase are managing their new expenses, changes in their environment, and growing their team. They need to develop a strategic plan to maintain growth and be ready with financing options for their newly emerging expenses as mentioned by an interviewed entrepreneur: “In order to stay alive, we need to sell the crap of the product. We need to keep iterating. We need to build a business to really build business.” They can benefit from their incubators’ infrastructure services and networking events. If they maintain their membership at their incubators, they can use the incubators’ meeting rooms and attend their networking events. Phase V begins after the cash flow of a start-up hits its minimum after graduating from its incubator. Startups face the challenges of quick recovery and rapid growth. At this point, there are two scenarios: one, a start-up is ready to grow again because it has enough financing to cover its newly emerged expenses; two, a start-up cannot recover and grow because it ran out of funds. The first case, a start-up is considered to be successfully graduated from its incubator while in the second case, a start-up is considered to be unsuccessfully graduated from its incubator. Successful graduation is also conditioned with building a sustainable business for at least three years after incubation (Schwartz, 2008). At this phase, start-ups need financing either internal or external to recover. They also need to recruit middle managers whose role is further development of sales and products to maintain growth. Start-ups can still benefit from their incubators’ networking events that introduces them to customers, contractors, and investors. Table 2: Characteristics that define the phases of the double J-Curve Phase Phase I Phase II
Start-up Milestones Product Development
Challenges
Needs
Incubator services
Time & Resources for Product Development
Financial & Technical support
Infrastructure, Technical Coaching, Networking
Growth before breakeven
Finding Customers, Fixing the Product
Sales Expertise, Customers’ Leads, Technical Support
Infrastructure, Technical and Sales Coaching, Networking with Customers
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Start-up Milestones After Breakeven & Before Graduation
Challenges
Needs
Incubator services
Delivery upon Commitment, Growing the team
Marketing & Sales Expertise, Recruiting Talent
Infrastructure (more space), Coaching (Recruitment & Leadership), Networking (Customers & Talent)
Phase IV
Shrinkage after Graduation
New Expenses, Environment Change, Managing & Leading,
Contingency Plan, Corporate Strategy, Financing
Infrastructure (Meetings & Events), Networking (Customers, Contractors, Investors, Events)
Phase V
Growth & Recovery
Growing Sales & Team, Developing More Products
Financing, Recruiting Leaders, Technical Expertise
Networking (Customers, Contractors, Investors, Events), Pay Back (Coaching Services)
5. Discussion The five phases, observed in the double J-curve, represent a model that can explain the evolution of an incubated start-up from an idea to a sustainable business. Comparing the J-curve with the double J-curve highlights contributions of incubation on start-ups. It shows when and how incubation can be an advantage or a disadvantage. Incubation can help reduce the spending rate of a start-up during its product development process and increase its growth rate during its market acquisition activity. This allows an incubated start-up to achieve its breakeven point earlier and cheaper than not being incubated. It is the result of it taking advantage of services offered at incubators such as: infrastructure, coaching and networking. These services reduce administrative and hiring costs for incubated start-ups and increases their business opportunities from networking. However, once a start-up leaves its incubator, administrative costs increase dramatically and disrupt its growth. This might be a challenge for several new start-ups and cause them to run out of funds. The double J-curve can be a roadmap for the success of incubated start-ups. Managers at incubators can use the five-phase double J-curve model to evaluate the progress of their start-ups. It can help them better assess their status based on the phases they are currently at and the characteristics of each phase. Knowing the current phase of a start-up, managers at incubators can have a better understanding of the current challenges this startup face, and the burning needs it requires to overcome these challenges. Consequently, managers at incubators can focus their services to satisfy the current needs of their start-ups. This allows incubated start-ups to successfully progress from one phase to the other until they graduate from their incubators and build sustainable businesses. The findings of this exploratory study are based on technology incubated start-ups from Southwest Ontario. This is a major limitation for the double J-curve model. The characteristics of each phase of the double J-curve needs further exploration. The generated themes are based on only seven interviews. Although three of the seven interviews are with graduated start-ups, the reflection of the interviewed on early phases might lack for accuracy.
6. Conclusion The major findings of this study is the double J-curve for incubated start-ups, its five phases, and their characteristics. The double J-curve model needs to be tested in future studies. Also, more studies are required to explore the characteristics of each phase: challenges, needs, services, and emotional status. Understanding the double J-curve and its phases might help improve the performance of incubators by increasing the successful graduation rate of their start-ups. A successful graduation of an incubated start-up from its incubator is the result of its successful termination of phases I, II, and III. It is beneficial for the start-up, the incubator, and the regional economy to achieve successful graduation in the least time possible. This saves the start-up money, increases the incubator’s turnover of successful start-ups, and creates more jobs in the regional economy. Incubators tend to be supportive environments for start-ups; however, they can further improve their efficacy and efficiency by understanding the challenges and the needs of their entrepreneurs. The double J-curve might be a useful model for this purpose.
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Acknowledgements We thank the participating entrepreneurs for their time and transparency. We are grateful to Dr. Sean Wise from Ted Rogesrs School of Management (TRSM), Alysha D'Souza and Jonathan Aellen from the Digital Media Zone (DMZ), Andrea Romero from the Fashion Zone, and Linda Maxwell and Brigitte Dreger-Smylie from the Biomedical Zone for their help in recruiting participants.
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Strategic Structure and Implementation of Regional Triple Helix Collaboration: Comparative Case Study Tuomo Kinnunen1, Satu Rinkinen2, Jukka Majava1 and Jay Gillette3 of Oulu, Finland 2Lappeenranta University of Technology, Finland 3Ball State University, Muncie, USA
1University
[email protected] [email protected] [email protected] [email protected]
Abstract: This study focuses on triple helix collaboration to support regional innovation-led development and economy. As global economic competition is getting more rigorous, regions are seeking new ways to boost innovativeness and the economic success of local enterprises. A potential way is the strategic approach of triple helix collaboration. However, regions have diverse, challenging options to structure and implement triple helix collaboration (Asheim & Coenen, 2006). Empirical knowledge currently is inadequate for stakeholders interested and involved in regional strategy processes and strategy implementation. Our research question is condensed into: What role can strategic structures and implementation of triple helix collaboration play in regional development? The strategic structure in this study is understood as a distinct organisational setting, with a shared strategic agenda to which the key triple helix parties are committed in the long-term. In this descriptive case study, we focus on the strategic structures and implementation of triple helix collaboration as a contemporary phenomenon in real-life context (Yin 2003). We selected two regional cases for analysis and comparison based on the following criteria: the regions are located outside metropolitan areas around medium-sized cities, and characterized at the highest level of innovation spirit in Europe (Giffinger et al. 2014); the researchers were able to gain in-depth understanding about the cases (Yin 2003); together with predominant strategic structures featuring long-term commitment by key triple helix parties in the regions. The research data was collected from multiple sources and included documents, meetings, and observation. The strategic structure of Case Brainport (Netherlands) was a foundation supervised by sixteen main triple helix parties. The implementation of shared strategy was organised by a dedicated joint development company. The structure in Case Brainport takes a holistic approach and high profile role in regional development. The strategic structure of Oulu Innovation Alliance (‘OIA’, Finland) is a strategic alliance agreement among five main triple helix parties. The implementation of strategic objectives was organised through five innovation centres. The structure in OIA strengthens the role of knowledge institutes in regional development in five spearhead areas. The cases illustrate two empirical ways to utilise triple helix mandate and strategic structures in regional development and strategy processes. The different societal contexts, visionary leaders, and legacies of past collaboration have clearly directed two regions to quite different outcomes. The comparison of these cases indicates the diverse options and scopes for structuring and organising regional triple helix collaboration globally. Keywords: regional development, regional innovation, triple helix, collaboration, innovation, empirical case studies
1. Introduction This study focuses on questions concerning the strategic structures of regional collaboration between government, industry and knowledge institutions. Regional innovation activity is often studied through the regional innovation systems lens. Such systems consist of several innovation networks which again consist of heterogeneous groups of actors such as firms, technology centres, higher education organisations and development organisations (Tura & Harmaakorpi, 2005). As global economic competition is getting tougher, regions seek new ways to boost regional innovativeness and economic success of local enterprises. Strategic triple helix collaboration is seen as one of these ways. ‘Strategic’ means long-term arrangements, decided as a result of strategy-development processes, between main triple helix organisations. However, triple helix collaboration can be implemented in various ways. Thus gaining more knowledge about the role and possible effects of different strategic triple helix structures on regional collaboration and development is important for actors and parties involved in regional strategy and implementation. In practice, the implementation of truly beneficial triple helix collaboration is a challenging task, where intermediary organisations are needed to support, facilitate and govern collaboration. However, despite the vast triple helix literature, implementation of triple helix collaboration is an acknowledged challenge (Asheim & Coenen, 2006) that lacks empirical knowledge.
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Tuomo Kinnunen et al. This study aims to clarify the role of strategic structures in regional triple helix collaboration. A strategic structure is understood as a distinct contractual and organisational setting where main regional triple helix parties are committed in the long-term to organise triple helix collaboration. The goal is to understand how triple helix actors in highly innovative regions can structure and implement triple helix collaboration to support innovationled economy. We condense this into the following research question: !
What role can strategic structures and implementation of triple helix collaboration play in regional development?
The research question can be answered by analysing two empirical case examples in highly innovative regions. For background, we review literature on triple helix collaboration and innovation-led regional development. Then our research design and data are explained. Case descriptions and analyses follow. Finally we present conclusions of the study.
2. Literature review 2.1 Triple helix collaboration The triple helix concept initiated by Etzkowitz and Leydesdorff in the 1990s represents the shift from industrygovernment combinations dominating Industrial Society, to the Knowledge Society where the potential for innovation lies more in university or research institutions and a triadic relationship between university, industry and government. In early triple-helix model publications (Etzkowitz & Leydesdorff, 1995; Etzkowitz & Leydesdorff, 2000) the model is discussed in national context. However, the concept since has been applied to regional contexts often, describing more regional collaboration between universities, firms and government. The principles of the triple helix model now have been adopted widely and triple helix collaboration itself is seen as vital for the success of regional innovation and development. During the past decades several theoretical research papers as well as empirical case studies dealing with triple helix cooperation at different regional levels have been published (Leydesdorff & Zawdie 2010, Todeva 2013). The strategies for triple helix collaboration are implemented in different ways in diverse countries, regions and cities. Ranga and Etzkowitz (2013) divide the body of triple helix literature to represent two different perspectives: (1) the (neo-) institutional perspective which examines the growing prominence of the university among innovation actors and (2) the (neo-) evolutionary perspective which views the university, industry and government as ‘co-evolving sub-sets of social systems that interact through an overlay of recursive networks and organizations that reshape their institutional arrangements’ (Ranga & Etzkowitz, 2013, p.240). The latest literature concerning triple helix implementation focuses on developing and economically growing countries such as China and Brazil (e.g., see Cai, 2014; Gebhardt, 2013; Durrani et al., 2012). Ranga and Etzkowitz (2013) suggest that the triple helix systems approach can be particularly relevant in the context of developing countries looking for novel models that can be adapted to their realities and challenges. However, though triple helix collaboration has proven beneficial, structural preconditions of a region have to be taken into account. When initiating triple helix collaboration in “weaker” regions, poor preconditions may lead to failure of such initiatives (Jensen & Trägårdh, 2004). In Europe the latest development and policy discussions have emphasised the need to renew traditional triple helix models to include the public as a fourth helix. Carayannis and Campbell (2009) identify this fourth helix consisting of a ’media-based and culture-based public’, which associates with ’media, creative industries, culture, values, life styles, art and perhaps also the notion of the creative class’ (Carayannis and Campbell, 2009, p. 206). This fourth helix is seen as a key part of promoting knowledge-based economy, since the public influence every national innovation system. Innovation policies must acknowledge the importance of the role of the public in achieving goals and objectives. This quadruple helix concept is also part of the new Smart Specialization concept, a regional policy framework for innovation-driven growth. Markkula (2014) argues that in the context of Smart Specialization and its extensive implementation in Europe, the triple helix concept needs to be taken into active use but in a more modern form (see also Foray et al. 2012). The advantage of the newer quadruple helix concept is that it allows for a variety of innovations other than strongly science- or technology-based ones, in the spirit of the wider concept of innovation, for example the
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Tuomo Kinnunen et al. Smart Specialization strategies. Many studies have brought out the idea of and need for a quadruple helix (e.g., see also McGregor et al., 2010; Curley & Salmelin, 2013; Lindberg et al., 2014). The triple helix model in its original form is a model for analyzing university-industry-government relations. In policy contexts, triple helix principles are often used rather loosely to underpin the importance of the relationships and collaboration among these three spheres. For example, when studying the development policy efforts in a small Portuguese municipality, Rodrigues and Melo (2012) noticed that the influence of scientific triple helix model to policy and planning was symbolic rather than objective. Rodrigues and Melo (2012) argue that the appealing idea of the interactive dynamics bringing together university, government and industry, supplemented by simple graphics presenting the institutional collaboration, has transformed the original triple helix model merely into an easy-to-use symbolic metaphor. In practice, the implementation of triple helix collaboration is a challenging task, wherein intermediary organisations have been utilized to support, facilitate and manage that collaboration. Smedlund (2006) has listed the roles of different intermediaries in the dynamics of a regional knowledge system and emphasises promoting triple helix cooperation as the main role of regional/meso level intermediaries in innovation networks. Todeva (2013) examines the governance of innovation and intermediation in Triple Helix interactions through case studies in Britain and states that empirical observations confirm the need for intermediaries to engage in triple helix network creation, and the management of networked relationships. The benefits of engaging an intermediary organisation in such collaboration (as with providing unique governance structure for the management of collaborative R&D projects, facilitating development of a regional innovation strategy) was also noted in Johnson’s 2008 research on the Canadian intermediary organization Precarn Incorporated. Johnson’s analysis shows that from the resource-based view, intermediaries exist to provide specific resources and to play specific roles that individual triple helix members cannot or are unwilling to play. Future research is suggested to focus on testing which specific resources lead to success for these intermediary organisations in helping facilitate triple helix collaboration.
2.2 Innovation-led regional development In knowledge-based economies, national and regional development activities are mostly innovation-led. These activities aim at enhancing competitiveness, creating new businesses and jobs and overall well-being in the society, through development of innovation environments and systems. In these activities and policies, innovation systems theory has been widely applied. This systems approach originates from discussion on national systems of innovation (Edquist, 1997; Freeman, 1987; Lundvall, 1992; Nelson, 1993). From these, the regional dimension of innovation systems was developed by Philip Cooke (e.g., see Cooke, 1992, 1998, 2001, 2008). This so-called Regional Innovation System (RIS) became a popular concept among practitioners developing and realizing innovation policies at the regional level. Policy tools and actions based on the innovation system approach focus not only on traditional input-output relationships, but also on social and institutional factors that affect economic development of the region (Kautonen, 2006). The RIS approach has been a useful tool for regional innovation policies, especially as a catalyst to promote innovativeness among small and medium-sized enterprises (SMEs), by connecting the SMEs with the regional innovation support infrastructure (Asheim & Coenen, 2006). Regional Innovation Systems consist of two subsystems: (1) the knowledge generation and diffusion subsystem that covers various institutions responsible for the production and diffusion of knowledge and skills; and (2) the knowledge application and exploitation subsystem that consists of companies and their clients, suppliers, competitors and industrial partners (Autio, 1998). As a policy approach, RIS seeks to enhance stronger collaboration and association between innovating partners (as RIS is considered a social system), and innovations are the result of social interaction of the triple helix of industry, government and university, – or other higher education organizations and research institutes (Cooke, 1998; Doloreux & Parto, 2005, Asheim & Coenen, 2006).
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Tuomo Kinnunen et al. Ranga and Etzkowitz (2013) have created a triple helix systems approach, which combines traditional triple helix models with innovation systems. Leydesdorff & Zawdie (2010) also consider the triple helix perspective of innovation systems: ‘triple helix provides a model of the structure and dynamics underlying the innovation system functioning at various levels’. Asheim and Coenen (2006) argue that even though the dynamic triple helix perspective has increased among policy makers and researchers there are challenges in its implementation. They state that this approach ‘does not give much guidance on how a triple-helix based collaboration could be functional, operational and implemented in concrete policy settings in order to contribute to constructing regional advantage’ (p. 91). This statement calls for research on triple helix implementation and both theoretical and practical advice on how to organise regional collaboration between industry, government and university. The triple helix perspective enables us to study innovation systems in empirical terms (the extent to which arrangements can be considered to constitute a system) and analyse best-practice trends (such as, are better knowledge-based arrangements possible?)
3. Research design Our qualitative case study compares triple helix collaboration in two regional contexts (Yin 2003). These cases represent regions around two medium-sized smart cities in Europe that have significantly high-level innovation spirit (Giffinger et al., 2014). In addition, triple helix collaboration and regionally predominant strategic structures appear clearly in both regions because of dominant triple helix components – a dominant city, a dominant university and a dominant university of applied sciences. The research data include several sources listed in Table 1. The primary data source consists of documents including official, publicly available publications, reports, research papers, presentation slides and internet sites. In addition, observation and meetings with key triple helix representatives from both regions were used to complement and verify the results. The comparative case analysis focuses on past, established triple helix structures and operations from 2005 to 2015. Table 1: Case data sources Brainport Eindhoven Documents: Brainport Eindhoven (2005) Brainport navigator 2013: Beyond Lissabon! - Summary; Brainport Development (2011) Summary Brainport 2020: top Economy, Smart Society; Brainport Development (2013) Brainport monitor annual publication; Brainport Development (2012) Brainport monitor 2012 – summary Presentations: The power of cooperation, 30th of October 2014 Eindhoven, Pieter Noordzij, Brainport Development; The Brainport model and the innovation strategy of our region, 6th May 2015 Oulu, Joep Brouwers, Vice Director, Brainport Development. Internet sites: http://www.brainport.nl, http://www.brainportdevelopment.nl/ Literature: Fernández-Maldonado & Romein (2010), Horlings, L. G. (2014), Schaap & Ostaaijen (2015)
Oulu Innovation Alliance (OIA) Documents: Oulu Triple Helix – Final report on advancing university activities as a part of innovation environment (the basis for establishing OIA), December 2007; OIA Alliance agreement 2.3.2009; OIA presentation slides 20.12.2013; OIA and innovation centres’ evaluation report (2015) - internal document Presentations: 30 years of cooperation, 5th May 2015 Oulu, panel discussion of six leaders of OIA alliance partners. Internet sites: http://www.ouluinnovationalliance.fi, http://cht.oulu.fi/, http://www.cie.fi/, http://www.cee.fi/, http://www.printocent.net/, http://www.maigbe.fi/ Literature: Rantakokko (2012), Rantakokko (2014)
4. Results The study provides case descriptions and comparative analysis of strategic triple helix structures in two highly innovative regions. The results illustrate retrospectively the case regions’ empirical setting for structuring, governing and facilitating triple helix collaboration to support innovation-led regional development. The main characteristics of the cases are described in Table 2. Table 2: Case descriptions Name and slogan Contractual basis
Brainport Eindhoven (Case Brainport) “Co-creating future” Brainport Foundation Founded 2005
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Oulu Innovation Alliance (Case OIA) “Ideas into Business” Strategic agreement Signed 2009
Tuomo Kinnunen et al. Name and slogan Strategic objective
Brainport Eindhoven (Case Brainport) “Co-creating future” To create a common vision and strategy and a strong focused regional development project portfolio (strategy and implementation)
Triple Helix Partners
The Supervisory Board of Brainport foundation: - representatives of five governmental organisations (including four city mayors) - leaders of six knowledge institutes - representatives of five industrial organisations Brainport Development company Owned 50 % by the strategic foundation and 50 % by the municipalities of the region Broad scope of activities that are categorised into the domains of People, Technology, Business and Basics and focused on regional innovation-led development: - Encourages and develops regional and (inter)national projects and programmes which, by preference, are carried out under the responsibility of the ‘problem owners’ - Builds Brainport brand and promotes Brainport nationally and internationally - Monitors set of macro-economic indicators and analyses concerning the regional ecosystem - Facilitates regional industry through business advice and funding, incubation facilities, business premises and business centres The five top sectors of Brainport Eindhoven: - High Tech Systems & Materials - Food & Technology - Automotive - Lifetec & Health - Design
Primary actor(s) The scope of activities
Target areas of activities
Oulu Innovation Alliance (Case OIA) “Ideas into Business” To strengthen strategic cooperation between the parties, advance co-planning of initiatives and develop partnership between OIA network, state government and regional administration OIA partners: 1 governmental organisation 3 knowledge institutes 1 industrial company Five OIA Innovation Centres Closely connected to the main knowledge institutes of the region Narrow scope of activities focusing around rather independently operating innovation centres and their focus areas to generate business from research, development and innovation (RDI) projects and ventures
The spearhead areas of OIA innovation centres: - Cleantech - Health and wellbeing technology - 3D internet - Printed intelligence - Research and education of global business and economics
4.1 Case Oulu Innovation Alliance (Case OIA) Case OIA presents a focused approach to strategic triple helix collaboration. The strategic structure of OIA is based on the strategic agreement signed 2009 between partners: one governmental, three knowledge institutional, and one industrial partner. The agreement resulted from a specific triple helix strategy preparation, conducted mainly in 2007. Case OIA was built on decades’ history of regional triple helix collaboration. Strategic triple helix collaboration was active in initiation phase of OIA (2008-2012) and its innovation centres. Since the OIA operations were established, the strategic alliance structure has served more as a discussion forum. Triple helix collaboration has been driven rather independently by each innovation centre – with shared ownership and triple helix mandate - that are closely connected with the operations of knowledge institutes. The centres are scoped to support, compose and coordinate research, development and innovation activities in the selected spearhead areas as seen in Table 3. Table 3: The innovation centres of Oulu Innovation Alliance in 2012 Centre for Environment and Energy
Centre for Health and Technology
Center for Internet Excellence
Focuses on turning innovations in the environmental, energy and cleantech sectors into business
Focuses on health and wellbeing technologies, especially connected health.
Focuses on research of internet technologies, especially 3D internet
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Martti Ahtisaari Institute of Global Business and Economics Focuses on research and education of global business and economics
PrintoCent
Focuses industrialisation and commercialisation of printed intelligence
Tuomo Kinnunen et al. The implementation of triple helix collaboration of Case OIA is focused around those five innovation centres, especially advancing and strengthening the role of universities in regional innovation-led economy. The role of implementation of triple helix collaboration in regional development is thus dependent on the innovation centres’ capabilities to generate business from research, development, and innovation (RDI) projects and ventures. Overall, the success of OIA as a strategic triple helix structure depends on selecting right focus areas, with good fit to regional strengths and competences, and success of the innovation centres in the long term.
4.2 Case Brainport Eindhoven Brainport Eindhoven has adopted a holistic approach to strategic triple helix collaboration. The strategic structure of Brainport Eindhoven is based on the foundation established 2005 and supervised by five governmental, six knowledge institutional and five industrial representatives. This structure and the strategic frame was formed in past regional development programs that successfully addressed the severe regional economy crisis in the preceding decade. Case Brainport is running an iterative triple helix strategy process to create and update the shared vision and strategy, and to facilitate a strong, focused regional development project portfolio. The central actor in triple helix collaboration of Case Brainport is the development company, Brainport Development. That company organises implementation of the shared agenda that is set by the supervisory board of the foundation. The shared agenda includes the range of diverse activities strengthening and connecting five existing and emerging knowledge-intensive clusters in regional innovation-led economy, as illustrated in Table 4. Table 4: Examples of Brainport programs and activities People Brainport talentBox online career platform Dutch Technology Week (DTW) – Mass event
Technology High Tech Campus Eindhoven – High tech business park and industrial R&D center Automotive Campus – Automotive business park and R&D center
Business Brainport Industries – An association of High Tech suppliers Brainport Networking Financials – A network of financiers
Basics Holland Expat Center South – Services for expats and their families to settle in Cross-border issues, e.g. traffic connections
The development company monitors annually a number of macro-economic indicators, studies and analyses about the region. Table 5 presents the quantitative indicators used to monitor annual regional development and effectiveness of shared agenda implementation. Table 5: Quantitative indicators of monitoring the regional development (Brainport monitor 2013) People 1 Population 2 Migration 3 Foreign nationals 4 Working population 5 Gross labor (of aged 15 -65) 6 Unemployment 7 Higher education 8 Lifelong learning
Technology 9 Total R & D expenses 10 Public R & D spending 11 Private R & D spending 12 Top 30 company R & D spending 13 Publications 14 Citations 15 Patents 16 Cooperation in innovation 17 Turnover from innovation
Business 18 Gross Regional Product 19 Economic Growth 20 Gross value added and labor productivity 21 Export; industry exports and export sectors 22 Net number of start-ups 23 Fast growing companies 24 Vacancies 25 Number of jobs 26 High tech: branches, net new companies and number of jobs 27 Spearhead sectors
Basics 28 Mobility 29 Shuttle 30 Traffic intensity 31 Flight connections 32 Quality of life 33 Entertainment 34 Culinary 35 Proximity to amenities
In this case, the triple helix structure and collaboration itself is branded as ‘Brainport’, and together with strong, fact-based narrative, is utilised for lobbying and advancing region-recognition, nationally and internationally.
4.3 Analysis Case Brainport shows that strategic triple helix structure and implementation may take a holistic and high-profile role in representing the region and supporting regional innovation-led development. Case Brainport emphasises the triple helix governance model with shared ownership and shared strategy. In Case Brainport, a triple helix development company has replaced several separate city development agencies. This company – with shared ownership and triple helix mandate – has taken a broad and active role in organising implementation of shared
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Tuomo Kinnunen et al. agenda, but is not necessarily responsible for implementing the activities. In comparison with the other case, the role of OIA is narrow, and directly connects knowledge institutes and RDI activities in selected technology focus areas. Case Brainport’s role is broad and connected to its government-led development company, together with any direct and indirect activities jointly decided as important for regional innovation-led development. The strategic structures are results of strategy processes reflecting certain temporal and contextual settings. These address particular needs and problems, i.e. severe regional economy crisis in Case Brainport, and globalisation challenges in Case OIA. The strategic structures and implementation of triple helix collaboration take very different roles and development paths in the compared cases. This indicates wide diversity of options for structuring and organising regional triple helix collaboration globally.
5. Conclusions Our results contribute to empirical understanding of triple helix collaboration and especially its implementation in the context of regional development. While societal contexts, visionary leaders, and the legacies of past collaboration have clearly directed the two regions to quite a different strategic structures and implementation of triple helix collaboration, the findings illustrate two empirical examples for regional innovation-led development. The study contributes to the current understanding of the role of strategic structures of triple helix collaboration in general. It particularly illustrates strategic alliance as triple helix partnership in advancing and strengthening the role of knowledge institutes (Case OIA) as well as foundation-based strategic structure that innovates the role and governance model of a municipal development company (Case Brainport). The study contributes to triple helix literature by presenting two empirical cases of strategic triple helix structures and explaining their role in the regions. Societal context and need, as well as regional development vision, have a significant effect on strategic triple helix structures. Globally there are numerous forms that the triple helix collaboration can take. This study focuses on two types of established structures in highly innovative regions. The results reflect on triple helix literature and understanding of regional innovation-led development. Other types of strategic triple helix structures, compared especially to triple helix collaboration that is implemented without specific strategic structure, can be considered as interesting focus areas for future research. The case analyses and comparison are especially useful for community leaders, policy makers, managers and other stakeholders involved in strategy processes within and between regional triple helix organisations: government, business and knowledge institutes. The strategic structures and empirical experiences about organising and utilising triple helix collaboration in highly innovative regions may be used as a benchmark in other regions and contexts as well. However, triple helix collaboration can be implemented in various ways. Gaining more knowledge about the role and possible effects of different strategic triple helix structures on regional collaboration and development is important for stakeholders involved in regional strategy processes and strategy implementation. Researchers and practitioners may find interesting insights by applying these findings to different organisational and regional contexts.
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The Changing Role of Universities in Economic Growth Dmitrij Kochetkov and Viola Larionova Ural Federal University, Russia
[email protected] [email protected]
Abstract: Social and economic evolution is described by numerous wave and cyclic concepts. Nevertheless, at certain historical periods, societies make great breakthroughs known as technological revolutions. Now we are on the threshold of the fourth industrial revolution characterized by a rapid development of such industries, as robotics, artificial intelligence, neuroscience, brain engineering, and 3D printing. Social and economic development always went in parallel with science. However, the role of science in economic processes has been changing throughout time. The focus of the present research is the university as a key actor of economic change. Historically, it is possible to allocate four types of universities by analogy with four industrial revolutions. Under the conditions of the fourth industrial revolution there is a radical shift in the university model. From R&D and technology transfer universities move to creation of intellectual capital. Universities do not simply conduct R&D for business, but also create essentially new industries. Universities become a centre round which new hi-tech enterprises grow. This phenomenon has been entitled an entrepreneurial university, which is considered to be the main actor of entrepreneurial (startup) economy. The research main objective is identification of key factors in the entrepreneurial university success. The authors analysed the Global University Venturing ranking leading universities. The research is not limited to the quantitative data; qualitative indicators are also of great importance. Various techniques to estimate the university entrepreneurial capacity (Reuters, EULP-Entrepreneurial Universities Leaders Program) have been considered, and their comparative analysis has been conducted. The final model is based both on quantitative or qualitative indicators; the model can be used not only for estimation of entrepreneurial capability, but for the development of university strategy as well. Keywords: knowledge economy, technology transfer, the fourth industrial revolution, R&D, entrepreneurial university, startup economy
1. Introduction At certain moments of history, societies make great breakthroughs known as technological revolutions. They interrupt a steady flow of social and economic evolution; they are always encouraged by an invention (sometimes not one), which sharply shifts the production possibility curve outward. The first technological revolution had an agrarian character. Its moving forces were irrigation and use of domesticated animals (first of all, horses) in agricultural works. The agrarian revolution generated great antique civilizations (Egypt, Mesopotamia, India). The invention of the steam engine at the end of the 17th century had led to appearance of large manufactory works that marked the first industrial revolution. The term “industrial revolution” was introduced in the 19th century by the French scientist Jerome Blanqui (Blanqui 1845). Machines replaced human labour. Having begun with weaving production, revolution covered all industries and came to an end in first half of 19th century with the emergence of modern fabric manufacturing. At the turn of the 19th-20th centuries, the second industrial revolution, which introduced the internal combustion engine, electrification, and mass assembly line production, began. Since then, hydrocarbon resources have become the key factor in not only economy, but all global policy and history as well. The third industrial revolution arose due to invention of the computer, which empowered wide automation of production operations. In 90th of the 20th century, the emergence of the Internet global network marked the entrance of the mankind into the new information era. Rates of scientific and technical progress became determined by the Moore's law, according to which productivity of the processor is doubled every 24 months. Now we are on the threshold the fourth industrial revolution characterized by a rapid development of a variety of industries, such as robotics, artificial intelligence, neuroscience, brain engineering, and 3D printing production. An advance in each of these areas leads to a chain reaction due to the externality effect. However, in the 21st century the mankind is expected to face the most serious challenges in the history. It is essential to note at least two of them. First, the proven oil reserves may come to an end already in the middle of the century. Secondly, the current level of carbon emissions in atmosphere can lead to a catastrophic temperature rise at the end of the century. Therefore, technologies of green economy will play an increasingly important role in social and economic development. Based on inventions and new technologies, social and economic evolution has always gone hand in hand with science. The authors of this research determine the latter as a regular activity aimed at production of new knowledge. However, the role of science and knowledge in economy has been changing over time. Historically,
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Dmitrij Kochetkov and Viola Larionova it is possible to allocate four types of universities by analogy to four industrial revolutions. The first European universities were focused on theology and philosophy; with the advent of early modern period fundamental research began to develop rapidly. The subsequent changes in the social and economic structure of societies brought the issues of knowledge translation and professional training to the forefront. Under the conditions of the post-industrial society, universities became market consultants for economic agents on a large scale. Science and business were diverging. A fundamental shift in the university model can be expected under the conditions of the fourth industrial revolution. From R&D and technology transfer, universities move towards creation of the intellectual capital. The university does not simply conduct research on demand for business, but also creates essentially new industries. The university becomes the centre round which new hi-tech enterprises are growing, with new startups constantly appearing. This phenomenon has been entitled as the entrepreneurial university, which is the main actor of entrepreneurial (startup) economy. Thus, this research is focused on universities as actors of economic growth. Universities are considered in a wide context of social and economic evolution. The main goal of research was to reveal key factors of the entrepreneurial university success. For these purposes, the authors studied 25 leading universities from the Global University Venturing ranking. The research methodology was not limited to quantitative data; quality indicators were also given due consideration. Various techniques to estimate the entrepreneurial capability of a university (Reuters, EULP-Entrepreneurial Universities Leaders Program) were considered, with their comparative analysis conducted. However, the role of a university in social and economic development cannot be described only in terms of figures and formal rules. Informal restrictions, such as traditions, customs, patterns of behaviour also play important role; usually, their formation is a long process. According to the authors, the analysis of a university in terms of the institutional economic theory is essential here. Therefore, an attempt to model an institutional structure of an entrepreneurial university has been undertaken in the Discussion. The final model is based both on quantitative or qualitative indicators. It can be used not only for estimation of the entrepreneurial capability, but for development of a university strategy as well. However, the statistical data on universities’ entrepreneurial activities is largely insufficient; therefore, this subject requires much further research.
2. Theoretical background Karl Marx was the first who paid attention to the laws of social and economic development, in particular, its cyclic character. Moreover, Marx directly connected production method (technology) with social formation (institutional structure of society); thus, Marx can be considered as the first institutionalist. Charles Darwin's work became the second development source for the evolutionary economic theory. Thorstein Veblen in his fundamental article estimated applicability of Darwin's evolutionary laws of natural selection to the research of a life cycle of economic agents (Veblen 1898). The following stage in development of the evolutionary theory became the work by Joseph Schumpeter (Schumpeter 1934), who formulated the concept of economic development based on distribution of innovations. According to Schumpeter, any innovation passes three stages in its development: invention, innovation (implementation of the invention by the entrepreneur), and imitation (copying of the innovation by other market players). Many terms introduced by Schumpeter remain applicable today (E.g., entrepreneurial profit and creative destruction). In the 20th century, a set of cyclic theories of social and economic development was formulated. Thus, the Russian economist Nikolaj Kondrat'ev advanced a theory of long cycles of economic conjuncture (Kondrat’ev 1925). According to Kondrat'ev's concept, economic development undergoes wavy cycles; every cycle consists of a 24 year-long growth period replaced by a 23-25 year-long recession. In the 80ties of the 20th century, another Russian economist S.JU.Glazyev started to develop a theory of long waves in the form of the technological way concept (L’vov and Glaz’ev 1985). According to this concept, any stage of social and economic development is determined by dominating technology. In 2018, a transition to the sixth technological way is expected to begin, with its characteristic features being nanotechnologies, gelio and nuclear power (Glaz’ev and Haritonov 2009). The author also highlights the importance of the interdisciplinary approach in studying long waves (Glaz’ev 2012). A number of recognized sociologists in the 20th century studied evolution in terms of social change caused by technological progress. Among them, it is essential to mark the works by Alvin Toffler (Toffler 1980), Daniel Bell (Bell 1973), and Pitirim Alexandrovich Sorokin (Sorokin 1964). On the turn of the century the institutional
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Dmitrij Kochetkov and Viola Larionova evolutionary theory emerged, presented, first of all, by the works of the Nobel winner Douglass North (North 1990) and the monograph of by Richard Nelson and Sidney Winter (Nelson and Winter 1982). This approach united substantive provisions of the evolutionary theory with transformation of economic institutions. The American philosopher and economist Jeremy Rifkin highlighted the role of power technologies connecting the future social and economic structure with development of alternative power (Rifkin 2011). In turn, scientists from the German Cluster of Excellence “Integrative Production Technology for High-Wage Countries” singled out the key features of the new industry 4.0, such as IT-globalization, single source of truth, automation, and cooperation (Schuh et al. 2015). However, all these theories are primarily devoted to the characteristics and outer effects of various economic development stages, rather than to the mechanism of social and economic transformation. Any change in the economic way is essentially determined by a change in the key factor/resource of economic growth. At the same time, social change is based on the evolution of the basic set of values. Under the conditions of the first industrial revolution, primary production factors were capital and labour; after the second industrial revolution, the main resource of global economic development became hydrocarbons. With the transition to the post-industrial society and economy, information began to play a bigger role. It was not an independent factor or production resource yet; however, it directly influenced utilization efficiency of labour, capital, and natural resources. With the advent of the fourth industrial revolution, knowledge has begun to play the key role in social and economic development of the mankind. For example, the role of knowledge as a prime factor of production is estimated in the studies of A.I. Tatarkin, the Academician of the Russian Academy of Sciences (Tatarkin and Pilipenko n.d.). However, knowledge is the production factor not in its abstract form, but in the form of the intellectual capital. To put it differently, the economic category knowledge means its direct use in the process of public welfare creation. Thus, Cobb-Douglas production function becomes: Q= A x Lα x Kβ x ICγ
(1)
Many researchers consider knowledge economy and knowledge-based society to be major (if not the only) way to solve social, economic, technological, and political issues facing global society (Melnikas, 2011). The author also makes an important assumption about the role of knowledge as a key factor of economic growth in the concept of knowledge economy; at the same time, for the knowledge-based society, knowledge becomes the basic value that encourages social development. A model of the knowledge-based society was offered by Henry Etzkowitz. The given model is known as a triple helix of university - industry - government (Etzkowitz and Leydesdorff 2000; Etzkowitz 2002). Etzkowitz argues with those researchers who consider a phenomenon of innovative regions (for example, Silicon Valley) to be unique (Etzkowitz and Klofsten 2005). In his opinion, the triple helix model is reduced to concrete mechanisms and institutional conditions. The entrepreneurial university is placed right in the centre of an innovative cluster. This hypothesis has been supported by a number of empirical studies (Acs and Szerb 2007; Reynolds et al. 1994; Glaeser and Kerr 2009; Guesnier 1994). These studies claimed a new type of regional economic system – the entrepreneurial (startup) economy. We determine the notion of the startup economy as an economic structure providing the best institutional conditions for creation of new innovative enterprises. However, this concept is narrower in comparison with those of knowledge economy and knowledge-based society. By creating not solely new enterprises, but wholly new industries, entrepreneurial universities has become key actors of a new-type economy. The issue is how to estimate the entrepreneurial capability of such a university and how to construct a strategic model that will yield similar results in various geographical, social, and cultural conditions.
3. Methodology Till 2009, QS-THES, issued by Times Higher Education (THE) together with Quacquarelli Symonds (QS), was considered to be the most authoritative world ranking of universities. According to this methodology, 40 % of estimation relied upon a poll of experts; 10 % - on the opinion of employers; 20 % - on the ratio of students/teachers; 20 % - on the quantity of citation on the employees' publications in Scopus over the last 5 years; 5 % on the shares of foreign students and foreign teachers. The technique was rather arguable; accordingly, in 2009 THE signed a contract with a leader in the information industry Thomson Reuters (TR). After brisk discussions on methodology in 2011/12 years, the first release of the World University Ranking (WUR) appeared. The methodology includes 13 indicators in 5 directions (Times Higher Education 2015): !
Teaching
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Dmitrij Kochetkov and Viola Larionova !
Research
!
Citations
!
International outlook
!
Industry income.
It should be noted that the indicator of industrial profit implies accounting of knowledge transfer; however, its weight in ranking calculation constitutes only 2.5 %. The company QS currently releases its own rating (Quacquarelli Symonds 2014b), with the methodology remaining essentially the same. Besides, QS releases rankings in subject categories (Quacquarelli Symonds 2014a); in some countries (for example, Russia), the process of reorientation to these criteria is taking place. Another recognized world ranking is the Academic Ranking of World Universities (ARWU), also known as the Shanghai rating. At the heart of its methodology 5 criteria (ShanghaiRanking Consultancy 2015) lie: !
Quality of Education;
!
Quality of Faculty;
!
Research Output;
!
Per Capita Performance.
Performance indicators are generally calculated on the basis of quantity of the Nobel winners; indicators of publications and citations are determined on the basis of Thomson Reuters Web of Science and, in particular, quantity of publications in the world most recognized journals Science and Nature. The CWTS Leiden Ranking (Leiden University 2015) also takes a data set from Thomson Reuters Web of Science for a basis; the indicators are grouped in 2 directions: Impact indicators and Collaboration indicators. Leiden Ranking has a number of specific features of calculation of indicators. Thus, calculation includes not all publications in Web of Science, but only the core publications matching the certain criteria. All indicators have two groups – size-dependent and size-independent. The second group implies a proportion from total quantity of employees of university that allows a relative indicator of the academic performance independently from the size to be estimated. In parallel with the classical accounting of the article quantity (1 article is considered in the list of publications of each of the co-authors; 1 article is considered in the list of publications of university independently from quantity of authors), a share (fraction) accounting is conducted. The second method is considered to be more preferable by the authors of the ranking. Thus, it is obvious that almost all leading world rankings estimate only academic indicators. At the same time, the mission of an entrepreneurial university as the main actor of the knowledge economy is technology transfer, or knowledge transfer in a wider understanding. The only exception is the World University Ranking from THE; however, this indicator has a weight of only 2.5 % in calculation. Subsequently, there is an essential need for a joint quantitative and qualitative methodology for estimating universities’ entrepreneurial capability. Global University Venturing (GUV) ranking has made an attempt to estimate the performance of technology transfer offices (TTO) of the leading world universities (Mawsonia 2014). The technique is based on the data on disclosures, patents and licenses, revenues from technological transfer activities, and quantity of the academic startups (spinouts). The ranking is of great practical importance. However, the authors of the ranking recognized that its weakness is statistics: the data is provided by universities; some universities do not provide any information at all. Another ranking also based on the quantitative data is the Thomson Reuters Ranking the World’s Most Innovative Universities (Thomson Reuters 2015b). The technique also considers the number of patents; besides, indicators of citations and quantity of articles in collaboration with industry (Thomson Reuters 2015a) are analysed. Thus, World’s Most Innovative Universities represents an intermediate alternative between the academic and entrepreneurial rankings of universities. The problem of quantitative indicators is that they show the final condition of a system, failing to reveal the mechanisms of its forming. Therefore, the institutional analysis of entrepreneurial university should be applied. Such an attempt was made in the UK (National Centre for Entrepreneurship in Education and Universities UK 2016), with its methodology being focused on 5 following directions:
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Dmitrij Kochetkov and Viola Larionova !
Mission, Governance, and Strategy;
!
Stakeholder Engagement;
!
Entrepreneurship Education;
!
Internalization;
!
Knowledge Transfer, Exchange and Support.
According to the authors of the methodology, these indicators influence the academic excellence, quantity of innovations, and competitiveness of a university. The corresponding questionnaire (National Centre for Entrepreneurship in Education n.d.) has been developed. Table 1 represents the comparative analysis of various rankings. Table 1: The comparative analysis of various university rankings Indicator/ Ranking
WUR
QS
ARWU
Data
qualitati ve/ quantitat ive +
qualitative/ quantitative
quantitative
CWTS Leiden Ranking quantitative
+
+
+
+
+
+
+ +
+ +
+
Research Performance Teaching Performance Internalisation Publications & Impact Knowledge Transfer Entrepreneuria l Education Strategy
GUV
Thomson Reuters
EULP
quantitative
quantitative
qualitative
+
+
+
+
+
+
+ + +
The authors have conducted research on the basis of the abovementioned rankings in three directions. First of all, the results, which are given by various university ranging methodologies, were compared, and possible correlations between the results were determined. Then, the sufficiency of the existing methodologies in terms of the entrepreneurial capability estimation was evaluated. Eventually, an attempt was made to create an institutional model of the university as the main actor of knowledge economy.
4. Results and discussion Results of a correlation analysis of relationships between various world university ratings and actual values of indicators of effective knowledge transfer are shown in Table 2. The calculation was conducted on the basis of disclosures, patents, licenses, startups, and revenues from technology transfer. The authors studied the relationship between the positions of the university in different rankings (expressed in points) with actual values of the abovementioned indicators. The levels of significance of the obtained coefficients of correlation are exhibited in the next columns. Table 2: Correlation analysis of various university rankings with knowledge transfer indicators Indicator
r_QS
t_QS
r_ARWU
t_ARWU
r_THE
t_THE
Disclosures
0.46804
2.33
0.31322
1.49
0.10075
0.46
Patents
0.71157
4.11
0.13830
0.64
0.29700
1.41
License
-0.07153
-0.34
-0.10088
-0.48
-0.03475
-0.17
Revenue, mln. $
-0.00312
-0.01
-0.04615
-0.22
-0.22374
-1.09
Startups
0.07651
0.35
-0.01300
-0.06
-0.05040
-0.24
Indicator
r_WUR
t_WUR
r_TR
t_TR
r_GUV
t_GUV
Disclosures
0.36063
1.74
0.63267
2.82
0.67961
3.82
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Dmitrij Kochetkov and Viola Larionova Indicator
r_QS
t_QS
r_ARWU
t_ARWU
r_THE
t_THE
Patents
0.32891
1.57
0.18201
0.69
0.67599
3.79
License
-0.10481
-0.50
0.10300
0.39
0.31057
1.48
Revenue, mln. $
-0.06027
-0.29
0.17572
0.67
0.33183
1.59
Startups
0.00424
0.02
0.29515
1.14
0.60218
3.21
As is apparent from Table 2, the rankings ARWU, THE and integral world ranking (THE+ARWU+QS) poorly correlate with the indicators of entrepreneurial activities of the universities; thus, the level of significance of the found coefficients of correlation are below the critical value of Student's coefficient equal 2.1 for confidential probability 0.95 and corresponding quantity of degrees of freedom. Moderate relationship (r=0.63267) is observed only at WUR ranking with the disclosure indicator, whereas correlation with other indicators is absent. It is important that one of the most authoritative university rankings QS reflects the relationship between two indicators of university entrepreneurial activities, i.e. disclosures (0.46804) and patents issued (0.71157); thus, the coefficient of correlation with patents is much greater, and its level of significance is high enough. The GUV ranking is calculated on the basis of technology transfer indicators; therefore, correlation with the indicators of disclosures, patents, and startups is more than 0.6, and significance levels exceed 3. Nevertheless, no ranking reflects the relationship between the entrepreneurial activity and the number of licenses and revenues from academic entrepreneurship. An absence of correlation between the results of rankings shows that existing techniques are not interrelated and estimate absolutely different functional areas. Meanwhile, a university is a complex system, and it is essential to consider it in terms of holism. A versatile methodology of estimation is still absent. Besides, available statistical data is not enough. In particular, the authors of Global University Venturing recognized that the ranking is based on the data given by universities. Thus, there are at least two problems. First, not all universities are ready to provide the necessary data (for example, Tokyo, Yale); secondly, the given data may be distorted. It should also be noted that quantitative indicators estimate only the final condition of a system, failing to reveal the mechanisms of its formation. Moreover, qualitative indicators used in a number of rankings analyse formal university rules, while a number of researchers have reported a prevailing role of informal factors and restrictions in the development of academic entrepreneurship. Thus, Guerrrero et al. have come to the conclusion that such informal factors as attitudes towards entrepreneurship and role models have more value than formal support measures to entrepreneurship or education and training programs (Guerrero et al. 2014). The given approach to the analysis of universities starts with D. North’s definition of institutions as formal rules and informal restrictions (North 1990). A number of researchers also consider the institutional theory as the best methodological approach to study knowledge economy (Makarov and Klejner 2007; Popov and Vlasov 2009; Popov 2015). The existing techniques of university rankings are focused on characteristics and quantitative indicators, while the institutional analysis elucidates internal mechanisms of forming and evolution of entrepreneurial universities. Therefore, we have made an attempt to apply methods of institutional modelling to investigate entrepreneurial universities. The model is based on the thesis concerning the role of a university as the fundamental manufacturer of knowledge. While conducting analysis, it is important not only to describe institutions, but also to provide their correct distribution. We have decided to use two classification features for distribution. First, according to the stages of knowledge generation, all institutions can be divided into production, exchange, distribution and consumption institutions. Secondly, functionally at each of the aforementioned stages, it is possible to allocate institutions of planning, organization, stimulation and control. Table 3 shows the final model. Table 3: Model of distribution of entrepreneurial university institutions Functions/ Stages of knowledge generation Planning
Production
Exchange
Distribution
Consumption
1. Planning of research with (a) short-term (1-2 years); (b) medium-
9. Strategic planning of communications;
13. Curricula;
20. Knowledge transfer strategy;
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Dmitrij Kochetkov and Viola Larionova Functions/ Stages of knowledge generation
Production
Exchange
Distribution
Consumption
14. Traditional education and training; 15. Massive open online courses (MOOC); 16. Other forms of open education; 17. Institution of tangible stimulation of the teaching staff (bonus payments); 18. Institution of intangible stimulation of the teaching staff (awards, certificates of honor, letters of gratitude);
21. Technology transfer; 22. Academic entrepreneurship;
19. Control of academic processes;
?
term (2-5 years); (c) long-term (over 5 years) horizon;
Organization
2. Fundamental research; 3. Applied studies;
10. Academic collaboration; Collaboration with industry; Professional and academic associations;
Stimulation
4. Institution of competitive funding of research; 5. Institution of tangible stimulation of the researchers (bonus payments); 6. Institution of intangible stimulation of the researchers (awards, certificates of honor, letters of gratitude); 7. The reporting by results of research; 8. The control of target use of the money funds allocated for funding of scientific research;
11. Externalities effect;
Control
12. Control of communications;
?
It should be taken into account that Table 3 allocates only 22 institutions; in fact, their number is larger. In addition, not all the fields are filled, since the subject demands further detailed research. Nevertheless, we believe this model may serve as a prospective methodological basis. An interested reader is invited to discuss the suggested approach.
5. Conclusions The fourth industrial revolution is changing both the technological way, and the social and economic structure. Currently, the world is on the threshold of knowledge economy and knowledge-based society. At the same time, global society faces the critical issues of global warming and hydrocarbons deficit. Knowledge has become an independent factor of production and development. Recently, the role of universities in economic growth has changed. Universities are considered to be the main engine of economic development and the key actor of knowledge economy. The modern model of the university as a phenomenon is the entrepreneurial university, which is focused on creation of the intellectual capital. Leading world rankings practically ignore the indicators of knowledge transfer. Entrepreneurial rankings, such as Global University Venturing and Thomson Reuters, also cannot be considered comprehensive because of the insufficient statistics and accounting of exclusively quantitative indicators. Qualitative techniques (E.g., Entrepreneurial University Leaders Program) remain local; besides, it is important to consider not only formal rules, but informal restrictions as well. We consider institutional analysis to be the most promising methodology for investigating modern universities. A first attempt to create the institutional model of a university has been made. Undoubtedly, this subject requires further research; the authors are open for discussion.
Acknowledgements The authors would like to express their deepest gratitude to the Russian scientific foundation for the support of research within the project No. 15-18-10014 "Designing optimal social and economic systems in the context of
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Dmitrij Kochetkov and Viola Larionova turbulence of external and internal environment". The authors are grateful to Natalia Popova, Head of the Foreign Languages Department, Institute of Law and Philosophy, Ural Branch of the Russian Academy of Sciences, for her invaluable help in preparing this manuscript for publication.
References Acs, Z.J. & Szerb, L., 2007. Entrepreneurship, economic growth and public policy. Small Business Economics, 28(2-3), pp.109–122. Bell, D., 1973. The Coming of Post-Industrial Society: A Venture in Social Forecasting, New York: Basic Books. Blanqui, M., 1845. Histoire de l’économie politique en Europe : depuis les anciens jusqu'à nos jours, suivie d'une bibliographie raisonnée des principaux ouvrages d'économie politique 3rd ed., Paris: Guillaumin. Etzkowitz, H., 2002. Incubation of incubators: Innovation as a triple helix of university-industry-government networks. Science and Public Policy, 29(2), pp.115–128. Etzkowitz, H. & Klofsten, M., 2005. The innovating region: Toward a theory of knowledge-based regional development. R and D Management, 35(3), pp.243–255. Etzkowitz, H. & Leydesdorff, L., 2000. The dynamics of innovation: From National Systems and “mode 2” to a Triple Helix of university-industry-government relations. Research Policy, 29(2), pp.109–123. Glaeser, E.L. & Kerr, W.R., 2009. Local industrial conditions and entrepreneurship: How much of the spatial distribution can we explain? Journal of Economics and Management Strategy, 18(3), pp.623–663. Glaz’ev, S.J., 2012. Sovremennaja teorija dlinnyh voln v razvitii jekonomiki [The modern theory of long waves in economy development]. Jekonomicheskaja nauka sovremennoj Rossii [Economic science of the modern Russia], 2 (57), pp.8–27. Available at: http://www.glazev.ru/upload/iblock/77b/77b8141cdfc1038b78520f79fc9acd40.pdf [Accessed March 30, 2016]. Glaz’ev, S.J. & Haritonov, V.V., 2009. Nanotehnologii kak kljuchevoj faktor novogo tehnologicheskogo uklada v jekonomike[Nano-technologies as the key driver of new technological way in economy], Moscow: Trovant. Guerrero, M., Urbano, D. & Fayolle, A., 2014. Entrepreneurial activity and regional competitiveness: evidence from European entrepreneurial universities. Journal of Technology Transfer, 41, pp.105–131. Available at: http://dx.doi.org/10.1007/s10961-014-9377-4. Guesnier, B., 1994. Regional Variations in New Firm Formation in France. Regional Studies, 28(4), pp.347–358. Kondrat’ev, N.D., 1925. Bol’shie cikly kon"junktury [Big cycles of conjuncture]. Voprosy kon"junktury [Conjuncture issues], 1(1). L’vov, D.S. & Glaz’ev, S.J., 1985. Teoreticheskie i prikladnye aspekty upravlenija NTP [Theoretical and application-oriented aspects of scientific and technical progress management]. Jekonomika i matematicheskie metody [Economics and mathematical methods], 1. Leiden University, 2015. CWTS Leiden Ranking. Available at: http://www.leidenranking.com/methodology [Accessed April 2, 2016]. Makarov, V. & Klejner, G., 2007. Mikrojekonomika znanij [Micro-economics of Knowledge], Moscow: Jekonomika. Mawsonia, 2014. Global University Venturing. Available at: http://www.globaluniversityventuring.com/article.php/3919/guv-tto-and-combined-world-rankings2014?tag_id=534 [Accessed April 2, 2016]. Melnikas, B., 2011. Knowledge Economy : Synergy Effects , Interinstitutional Interaction and Internationalization Processes. , 22(4), pp.367–379. National Centre for Entrepreneurship in Education, 2016. Entrepreneurial University Leaders Programme. Available at: http://eulp.co.uk/ [Accessed April 2, 2016]. National Centre for Entrepreneurship in Education, The University Entrepreneurial Scorecard (Reviewing the Entrepreneurial Potential of a University). Available at: http://eulp.co.uk/ [Accessed April 3, 2016]. Nelson, R.R. & Winter, S.G., 1982. An evolutionary theory of economic change, Cambridge, Mass.: Belknap Press of Harvard University Press. North, D.C., 1990. Institutions, institutional change, and economic performance, Cambridge; New York: Cambridge University Press. Popov, E.V., 2015. Instituty [Institutions], Ekaterinburg: Institute of Economics, UB RAS. Popov, E.V. & Vlasov, M.V., 2009. Instituty minijekonomiki znanij [Institutes of Minieconomy of Knowledge], Moscow: Academia. Quacquarelli Symonds, 2014a. 29 subjects ranked: first QS World University Rankings® by Subject. Available at: http://www.qs.com/qs-world-university-rankings-by-subject.html [Accessed April 2, 2016]. Quacquarelli Symonds, 2014b. QS World University Rankings® explained. Available at: http://www.qs.com/qs-worlduniversity-rankings.html [Accessed April 2, 2016]. Reynolds, P. et al., 1994. Cross-national Comparisons of the Variation in New Firm Formation Rates. Regional Studies, 28(4), pp.443–456. Rifkin, J., 2011. The Third Industrial Revolution, New York: Palgrave Macmillan. Schuh, G. et al., 2015. Hypotheses for a Theory of Production in the Context of Industrie 4.0. In C. Brecher, ed. Advances in Production Technology. Springer International Publishing, pp. 11–23. Schumpeter, J.A., 1934. The Theory of Economic Development, Cambridge: Harvard University Press.
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Best Practices for Internal Startups: Experiences From Practitioners in Finland Mervi Koivulahti-Ojala1 and Jukka Märijärvi2 1University of Jyväskylä, Finland 2Landon Oy, Finland
[email protected] [email protected]
Abstract: Internal startup is a startup within a corporation where a company launches a separate independent initiative to pursue a new innovation or idea. Internal startup can result as a launch of new product, spin-off or failure. During Need for Speed program partly funded by TEKES it was studied which best practices are in use in four Finnish corporations for internal startups. Case study was chosen as a methodology as we aim to provide new information about best practices that are used in the Finnish corporations. As a result, nine best practices were documented. The best practices were related to the role and responsibilities within a corporation and the lifecycle of the internal startup. The proposed roles are: Corporate Business Angel, Internal Startup Advisor and Corporate Entrepreneur. Our preliminary assumption is that if the internal startups are new for the company it is important that there is Corporate Business Angel but when the internal startups become business as usual, it is sufficient that there are Corporate Entrepreneurs who are able to work independently. The best practices related to internal startup lifecycle are: Avoid bureaucracy, Exiting practices, Learn from mistakes, Lifecycle for an internal startup, Top Management Involvement and Shadowing. We compare the best practices with the existing new product development best practice framework. Compared to the existing new product development best practice framework, practitioners emphasize avoiding bureaucracy and propose new roles. Our study provides new information in the area of internal startups and intrapreneurship. We believe that corporations may benefit for deploying these best practices. However, more research is needed. This list of best practices needs further verification as there was limited number of corporations and interviewees involved. Most importantly, it should be studied which best practices impact the success of internal startups. If we are able to find which best practices enable the success of internal startups, we are able to support corporations seeking for competitive advantage and growth. Keywords: innovation, new product development, intrapreneurship, best practice
1. Introduction New innovations are considered as a catalyst for long-term economic growth and competitive advantage of corporations. Consequently, entrepreneurship and intrapreneurship have been in the interest of the researchers with large body of research. The research topics have included such as managing spin-offs or labs, innovation culture, management of innovation process, and management of new product development process. In this study we are focusing on intrapreneurship where a corporation launches a separate independent initiative to pursue a new innovation or idea. During Need for Speed program partly funded by TEKES it became evident that the current body of research in the area of new product development best practices is not supporting the practitioners in their attempts to successfully run the startup initiatives inside the corporations. Practitioners were aware of the research and public press books but those were not considered useful from practitioners’ perspective mainly for two reasons. 1) Many best practices identified are such that there is a certain situation or output that they are expected to be applicable to i.e. new product development best practices are related to new product development with the assumption that there is a new product which will be launched. During the interviews the practitioners consider this as a limited view as the in the beginning of new initiative it may not be known whether the result of the initiative will be a new product for the existing product portfolio or a spin-off, 2) There are numerous methods and instruments which are proposed in the literature to be used in context of the new product development such as lean or agile practices and methods. Thus a practitioner has a large toolkit of different methods and practices from where they try to find those that are suitable in the context of internal startup. Therefore, we became interested which are such current best practices that practitioners use. The research questions for this study was: What best practices are in use for internal startups?
2. Related research Literature was reviewed to verify existing best practice related studies in the area of new product development. To find relevant literature we conducted a literature review. Literature review scope was articles and conference
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Mervi Koivulahti-Ojala and Jukka Märijärvi papers, thesis and other academic literature. The following research portals were used for searching: Scopus, ABI/INFORM (Proquest), and JSTOR. The following criteria and process were used !
The first criterion was to find related articles by searching words “best practice” and “new product development” in the title, abstract, or keywords. Total of 480 references was result after the search.
!
The second criterion was to categorize research according to whether the research reported best practices in a consolidated way over different practices, methods and instruments as our target was to get an overview for the best practices in new product development.
According to our literature review, in 21 studies there was a consolidated view to new product development best practices. The main line of best practice research was related to the trends in the area of best practices where the Product Development & Management Association (PDMA) and American Product Quality Center have initiated best practice research. Product Development & Management Association (PDMA) has conducted a series of studies where the focus has been the NPD process, the fuzzy front-end (FFE), portfolio management, organizing of new product development, market research tools, engineering design tools, technology and organizational tools supporting NPD, and product development outcomes. According to the third PDMA's best practices study conducted during 2003 firms have become more conservative in the portfolio of the NPD projects: Barczak, G., Griffin, A. and Kahn (2009: 7) reported that a formal process for NPD is a norm and a total of 69% of firms reported using a formal, cross-functional process for NPD with increase from 60% in 1995. There is also a series of studies initiated by American Productivity and Quality Center on performance and best practices in new product development (Cooper, Edget and Kleinschmidt, 2004a; Cooper, Edget and Kleinschmidt, 2004b; Cooper, Edget and Kleinschmidt, 2004c). For a practitioner these studies provide information about the context that companies are working in as well as the trends but no practical guidelines which to implement. There are several studies where it has been proposed that the best practices can be categorized or grouped into such groups as strategy, research, commercialization, process, project climate, company culture, metrics and performance measurement or evaluation (e.g. Barczak and Kahn, 2012; Metikurke and Shekar, 2011; Nicholas, Ledwith and Perks, 2011; Shum and Lin, 2007; Kahn, Barczak and Moss, 2006). In the recent study Barczak and Kahn (2012) presented a framework developed from prior best practice research, a Delphi methodology with 20 leading academics and opinion leaders in industry, and a survey involving over 300 NPD practitioners. They categorized NPD best practices across seven dimensions: Strategy, Research, Commercialization, Process, Project Climate, Company Culture, and Metrics/Performance Measurement. They also presented poor NPD practices as a starting point from which to improve as well as the best practices to which companies should deploy. However, their proposal cover large range of best practices that individual contributor in a company cannot impact such as company culture, strategy or research. Thus the target group for this research is higher level management. Rossi et al (2014: 456) propose a classification framework of NPD best practices based on literature and focus groups with experts (Figure 1). They have categorized best practices into three dimensions (A, B, C) and nine categories: (A) organization: (1) work organization, (2) roles and coordination, (3) training, skills and competences, (B) process: (4) process management, (5) activities and value, (6) decision making factors, (7) methods), and (C) knowledge management (8) formalization, 9) computerization). During the research process, 25 practitioners were involved for the development and refinement of the framework. From these best practices those presented by Rossi et al (2014: 456) are closest what based on our experience practitioners in senior and middle management working in internal startups are seeking for as it provides practical guidelines which can be adopted by practitioners and has been created based on practitioners input. The limitation of this research is that it is based on the assumption that there is a formal project established targeting to launch a new product. Later on, we will compare the best practices identified by practitioners within this study to those one presented by Rossi et al (2014: 456).
3. Research approach and research methodology This study was initiated as a part of the Need for Speed program partly funded by TEKES (2014-2017) with four Finnish corporations. During early phases of the project it became evident that the current body of research in the area of new product development best practices is not supporting the practitioners in their attempts to successfully run the startup initiatives inside the corporations. Practitioners were aware of the research and public press books but only some of them were considered useful. Therefore, we choose case study as a
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Mervi Koivulahti-Ojala and Jukka Märijärvi methodology as we aim to provide new information about best practices that are used in real life in the Finnish corporations. In case studies researchers find out the conditions of the target organizations by making observations, interviewing, archiving, and recording (Yin, 2003: 83).
Figure 1: Poor practices and best practices for new product development according to Rossi et al (2014: 456). The study was conducted in two phases. In the first phase the second author conducted the interviews and an initial set of best practices were collected and documented. The team working for Need for Speed program further reviewed those best practices. Team consisted of researchers and practitioners who had experience in leading internal startups or setting up organizational structure to support internal startups. During the process some best practices were removed and new ones added. This part of the process was not formal as the target was to provide room for sharing ideas. Finally, best practices were documented as a part of the book (Märijärvi et al, 2016). In the second phase the authors of this paper selected those best practices, which were not dependent on the software or other business domain for more formal review. Each best practice was specified and trough interviews and survey analyzed which of the best practices were in use in the corporation that the respondents were working for.
4. Research results The best practices proposed were related for roles and responsibilities and for the lifecycle of the internal startup. The interviewees were aware of the popular books and recent studies. They were able to name several sources for information including scientific studies, popular books and popular press. Based on the interviews, there were agile methods in use in the corporations.
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4.1 Roles and responsibilities The roles and responsibilities covered such roles and responsibilities, which according to the interviewees should exist as part of the organization structure. Thus, it is not sufficient that for selected ideas, an internal startup is initiated, but there should exist such structures which enable 1) initiating one or more internal startups, 2) decision making and management support during internal startup and 3) exiting. On the other hand, corporations have typically clear roles and responsibilities established. This may be a burden for innovation and internal startups and new ways of working are needed. To ensure that innovation and internal startups get enough focus it may be needed new roles. According to the interviews and survey results, not all of the roles were used in all of the companies. However, in all of the companies at least one role was in use. Our preliminary assumption is that if the internal startups are new for the company it is important that there is Corporate Business Angel but when the internal startups become business as usual, it is sufficient that there are Corporate Entrepreneurs who are able to work independently. The Corporate Business Angel The Corporate Business Angel role will be the main executive within the Corporate, which has the overall responsibility of internal startups. The Corporate Business Angel is the key person to promote that the corporate culture is developed into the direction where internal startups are utilized in the best way and internal startups are a part of the corporate vision and strategy. A Corporate Business Angel needs to understand the changes both in the corporate and the outside world and be able to run the changes needed to ensure success of internal startups. This may include among others impacting corporate culture, creating a new way of running startup projects and creating a front-end for collecting ideas for new startups. Co-operation with other executives is needed, as typically an internal startup’s initiation, running and exiting will require co-operation within several functions. The Corporate Business Angel has a key role ensuring that all the units are able to work together with internal startup. The Internal Startup Entrepreneur can turn to Corporate Business Angel in case there are conflicts of the interest, unclear things or other support needed to ensure progress of the startup. The key skills of the Corporate Business Angel are change management, product portfolio management, broad understanding on both the corporation’s current business and the future trends, persuasiveness, personal innovativeness, openness for other’s ideas, strength to carry both success and failure and readiness to take personal risks. Depending on the resources available, the business domain, size, culture, strategy and vision of the corporate the practical tasks may vary. The Corporate Business Angel should have the necessary authority to carry out this role. As with any Executive, this person should have been selected on the basis of their suitability in terms of knowledge, skills, experience, authority, and commitment. There is a threat that Executives do not recognize enough the difference of being responsible for startups compared to their normal executive roles, like Head of product development or CFO. The Corporate Entrepreneur The Corporate Entrepreneur is the person who potentially can identify and start a new business. The corporation can support this by identifying potential new business starters and support their efforts. We see that the corporate entrepreneur is the key role for the internal startup. Unfortunately, potential corporate entrepreneurs can be seen as a threat to the corporation or at least as difficult persons to manage. This kind of thinking can in worst-case lead to terminations of employment instead of identification of great potential. Creation of such culture inside the corporation, where conditions for internal startup growth exist, is an essential for entrepreneur type of persons. From the Corporate’s point of view the seed of growth and new innovations may be in the group of “difficult people”. They may have radical ideas not fitting in the normal corporate agenda as they challenge the existing business, products or way of doing. However, those ideas should be evaluated and potentially tested in the markets with the help of internal startup. Naturally not all radical ideas are good.
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Mervi Koivulahti-Ojala and Jukka Märijärvi Internal Startup Advisor An advisor is a person or a team to coach the internal startups. It is more efficient to have experts to maintain the company’s internal startup practices and processes, so that they can then train and coach people to work in internal startup teams. This advisor can coach and check presentations before they go for management or business angel review. This role might be the same as the one ramping up the internal operations at the first place. The reason for having this type of role is to speed up the innovation so that not all the ideas end up having unnecessarily different practices and use their startup time to invent the practices that already have been established with one internal startup. Also identifying and leveraging the best practices happens best this way.
4.2 Lifecycle of the internal startup A corporation has such assets are valuable for an internal startup including software and hardware, legal, or financial support. On the other hand, the corporation environment can also be a burden. In the new product development literature the role of documentation is often emphasized (e.g. Rossi et al., 2014). However, the need to create and maintain mandatory documentation may not be viable option to ensure the focus. According to the interviews and survey results, all of these best practices were in use in two or more companies. Avoid bureaucracy In an internal startup employees need to concentrate on their work and avoid routines that are not necessary for them. In a corporation there may be different mandatory tasks, which employees need to manage from travel claims to info sessions. This best practice is that those working for internal startups should be able to fully concentrate on that work. Administrative type of roles, like secretaries and administration, can take care of routines that are required (travel claims, receipts etc). It is also recommended to avoid working in several projects at the same time. It may be assumed that working for an internal startup is not as important as contributing for a new product or a new customer and therefore expected that employees are working at the same time for an internal startup. Practitioners do not recommend this. Working for an internal startup should be considered important enough that employees could fully concentrate on that. Exiting The corporation may have a number of options to exit and the possibility to choose the best way to receive immediate benefit from the exit plan. There needs to be a process and agreed criteria how to make the exit decision and plan. There are several path to exit, create a corporate spin off while mother company owns shares in the startup; sell the solution through the corporate’s business and customer network; contributing to a social cause and improves the corporate brand, reputation and social responsibility. Exiting related best practices include process for exiting, decision-making, criteria for exiting and promotion mechanism, which is linked to exiting. In this way it is know when and how the decision will be made, who will make the decision and which the criteria for exiting. Learn from mistakes The organization will see failures as possibilities and part of normal product development process rather than negative events. Projects that are not promising are ended early enough so that the company and its employees can concentrate on more potential project. Employees need to know this and you must somehow promote positive working atmosphere towards failures, e.g. by positive learning events when a failure is recognized and a project cancelled. Lifecycle for an internal startup Different organizational decisions need to be made throughout internal startup life cycle from idea to market. The related questions are such as what control is needed for internal startup? When to end the startup life of internal startup and make it a part of company’s normal offerings? The practitioners urge not to merge the results of an internal startup to business lines too early. There is a risk that once the company sees that internal startup is actually a good undertaking, it can scale up the team and integrate it into the rest of the company too early. Integrating the operation too early makes the fast moving internal startup slow and inflexible, and it is
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Mervi Koivulahti-Ojala and Jukka Märijärvi easy to miss the next important insights and product features the internal startup could bring if it were to let experiment for a while longer. During the lifecycle of the internal startup it is proposed to measure the progress and success of the internal startups using Key Process Indicators (KPI). But the KPIs need to change during the course of the internal startups (Starting phase KPIs, Progress follow-up KPIs , Exiting KPIs). Essential is to define and communicate the KPIs to be used in different phases. Clearly agreed measuring benefits the company and the internal startup, and cuts away unnecessary hassle and reactive reporting. However, too comprehensive KPI will require substantial effort to create and focus may be lost. Top Management Involvement To allow internal startups achieve its purpose, top management needs to be involved and committed. Practitioners recommend that at least one committed and powerful sponsor in the top management is required to support internal startups. The right sponsor should be willing and motivated to take a progressive role in the internal startup. Shadowing Shadowing means that you have a prototype or a working product and you want to know how users feel about it and make improvements to it. Shadowing is one of the methods that can be used to understand how users may think and feel about the product. The problem with shadowing was pointed out being the difficulty to scale the operation. Therefore instrumenting the code, and getting feedback from the usage that way seemed to be better when the number of customers increases.
5. Discussion We compare the list of the best practices with the one proposed by Rossi et al (2014: 456) to find key differences and similarities (Table 1). Key difference is that the practitioners did not consider that formal model or tooling is possible to apply. Internal startups differ from each other and therefore different KPIs, methods, tools and resource models are applicable. On contrary, avoiding bureaucracy was one of the best practices which was mentioned as practitioners consider as a risk if the corporate documentation and other practices are followed in full extent. However, this does not mean that no control is needed. Interestingly, lean and agile methods were not proposed as best practices even though they were known and in some cases in use. We see that practitioners may emphasize the most important results from those methods (avoid bureaucracy, shadowing). It is possible that they have experienced such cases where agile and lean methods have not been applied in a such way that it would support their efforts and therefore did not propose any method which they do not see directly adding value. Table 1: Best practices for new product development according to Rossi et al (2014: 456) compared to the best practices presented in this paper Rossi et al (2014: 456) Formal DPN model, properly followed and documented Considerable amount of time is spent for value adding activities Strongly collaborative development process
This paper Avoid bureaucracy Ensure that resources can concentrate for the internal startup related tasks and avoid multitasking. No one model which to follow. Shadowing and other collaborative development methods in use.
Clear definition of roles and responsibilities for individuals High flexibility on task execution There is an overall responsible with technical background Involvement of experienced designers from the earliest stages of the projects
Roles and responsibilities within a corporation so that management support and decision making is clear. No proposal for internal inside internal startup. May vary depending on the scope, competences needed, and expected outcome.
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Conclusion Importance of focusing on value adding activities and collaborative development process (e.g. shadowing) shared. Difference that no one model was seen suitable for all initiatives and following one model e.g. exiting is risky. No one way of doing for internal startup in terms of roles and responsibilities inside the internal startup. Expectation that inside the company clear roles and responsibilities ensure
Mervi Koivulahti-Ojala and Jukka Märijärvi Rossi et al (2014: 456)
This paper
Formal programs support multidisciplinary skills development One to one tutoring KPIs to assess training outcomes
Internal startup may require in the whole corporation new skills and knowledge KPIs often so comprehensive that they loose the focus; Focus on key issues and few metrics Shadowing, lean and agile principles in use. Early failing supported. Selected KPIs.
Regular projects launch plan with no delays Complete set of KPIs to measure NPD performance Considerable efforts are made at the early stages of the NPD Continuous improvement Initiative
Many solutions are designed, inferior solutions are progressively discarded when new info becomes available. Complete focus on customer value. Full customer involvement in development Formalized process for analyze competitors High impact of NPD choices on the life cycle Lifecycle perspective vision Formal engineering/design methods
Formal knowledge management plan Main source of knowledge is given by written design rules defined by the company Formal sources of knowledge continuously updated and reviewed Rely on previous knowledge for NPD projects Various tool and techniques formally used to capture, share and reuse knowledge Knowledge management during development projects is strongly supported by software platforms such as PLM Data/information are stored and shared trough collaborative and easy access IT supports
Customer focus Fail fast and learn from mistakes Shadowing to enable customer involvement as early as possible
Conclusion management support and clear decision-making. Agree that there new skills and knowledge requirements in the whole corporation
Agree with regular projects launch, focus on early stage and continuous improvement as long as those are targeting for better customer experience Disagree with KPI. Comprehensive KPIs require time and effort to generate. Focus on key KPIs and value adding work. Agree with customer focus and fail fast approach
Roles and responsibilities within a corporation so that management support and decision making is clear including exiting.
Agree that there are decisions that needs to be made and it is important that decisions are made e.g. exiting.
Select the right methods for right purpose; Those methods used for corporate may not be valuable for an internal startup Ensure that the internal startup team can share information efficiently. Working in one location preferred.
Disagree. Practitioners consider that not all methods and tools are suitable for or needed by internal startups.
Choose tools which adds value to the internal startups Use administrator resources when appropriate e.g. if needed to order components ensure that it can be done quickly and without major effort from the term perspective
Disagree. Choose tools which adds value to the internal startups. Use administrator resources when appropriate.
Disagree. Practitioners consider that not all methods and tools are suitable for or needed by internal startups.
6. Conclusions and future research In our study nine best practices for internal startups were identified and documented. The best practices were related to the role and responsibilities within a corporation and the lifecycle of the internal startup. Proposed roles are: Corporate Business Angel, Internal Startup Advisor and Corporate Entrepreneur. The best practices related to internal startup lifecycle are: Avoid bureaucracy, Exiting practices, Learn from mistakes, Lifecycle for an internal startup, Top Management Involvement and Shadowing. We compared these best practices with the
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Mervi Koivulahti-Ojala and Jukka Märijärvi existing new product development best practice framework. Compared to the existing new product development best practice framework, practitioners emphasize avoiding bureaucracy and proposed new roles. Our study provides new information in the area of internal startups and intrapreneurship. We believe that collecting and publishing best practices for internal startups is relevant and that corporations may benefit for deploying best practices. However, more research is needed. This list of best practices needs further verification as there was limited number of corporations and interviewees involved. Most importantly, it should be studied which best practices impact the success of internal startups. If we are able to find which best practices enable the success of internal startups, we are able to support corporations seeking for competitive advantage and growth.
References Barczak, G., Griffin, A. and Kahn, K.B. (2009) “Perspective: trends and drivers of success in NPD practices: results of the 2003 PDMA best practices study”, Journal of Product Innovation Management, Vol 26, No. 1, pp 3–23. Barczak, G. and Kahn, K.B. (2012) “Identifying new product development best practice”, Business Horizons, Vol 55, No. 3, pp 293–305. Cooper, R.G., Edgett, S.J. and Kleinschmidt, E.J. (2004a) “Benchmarking best NPD Practices – I”, Research-Technology Management, Vol 47, No. 1, pp 31-43. Cooper, R.G., Edgett, S.J. and Kleinschmidt, E.J. (2004b) “Benchmarking best NPD Practices – II”, Research-Technology Management, Vol 47, No. 3, pp 50-59. Cooper, R.G., Edgett, S.J. and Kleinschmidt, E.J. (2004b) “Benchmarking best NPD Practices – III”, Research-Technology Management, Vol 47, No. 6, pp 43-55. Kahn, K.B, Barczak, G. and Moss, R. (2006) “Perspective: establishing an NPD best practices framework”, Journal of Product Innovation Management, Vol 23, No. 2, pp 106–116. Metikurke, S. and Shekar, A. (2011) “An empirical study of important dimensions of New Product Development practices in small and medium enterprises in New Zealand”, International Journal of Industrial Engineering : Theory Applications and Practice, Vol 18, No. 2, pp 83–91. Märijärvi, J. (ed.) (2016) The cookbook for successful internal startups, Available at: http://www.n4s.fi/publication/cookbook-successful-internal-startups/ Nicholas, J., Ledwith, A. and Perks, H. (2011) “New product development best practice in SME and large organisations: theory vs practice”, European Journal of Innovation Management, Vol 14, No. 2, pp 227–251. Rossi, M., Kerga, A., Taisch, M. and Terzi, S. (2014). Engineering and Design Best Practices in New Product Development: an Empirical Research. In: CIRP Design Conference. 455-460. Shum, P. and Lin, G. (2007) “A world class new product development best practices model”, International Journal of Production Research, Vol 45, No. 7, pp 1609–1629. Yin, R. K. (2003). Case study research: Design and methods, 3rd edition, Thousand Oaks: Sage Publications.
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HYRRÄT: Promoting Entrepreneurship in Welfare Services Sirkka-Liisa Kolehmainen Helsinki Metropolia University of Applied Sciences, Health Care Diagnostic Services and Service Management, Finland
[email protected]
Abstract: Objectives: Helsinki Metropolia University of Applied Sciences conducted 2/2013 - 3/2015 HYRRÄT- Promoting Entrepreneurship in Welfare Services ESR project. The project involved the whole of Social Services and Health Care, 18 training program. The need for welfare services is growing rapidly as a result of an aging population and service expectations diversification. Alongside the public services needed to an increasing extent, private and third-sector services. It has increased the need in Welfare Services education for reinforcing positive attitude to entrepreneurship and developing business skills. Changes in the operating environment in the welfare sector entrepreneurs need support in the early days of the company until the change of ownership. The project aimed at raising and encouragement of entrepreneurship in the welfare sector students' entrepreneurial skills; promotion of teachers' entrepreneurship education excellence and the development of entrepreneurship education teaching methods and materials; The development of the welfare sector of the business environment; Production of support material in different stages of the life of the company and an explanation of the significance of gender welfare entrepreneurship and entrepreneurship education. Approach; Action finished in the Uusimaa region and events held in Helsinki. Held in the operational phase of the project entrepreneurs intending, entrepreneurs and companies, as well as giving up prosperity in the field of students and teachers encounters and ushered in a common goal-oriented work. An example of this are implemented for students HYRRÄT 10, an intensive corporate farming day, entrepreneurship pedagogical development of teachers, entrepreneurship fairs, Foresight workshops, Networking workshops, service design and business transfer workshops. Results: As a result of this development was born Routes for the entrepreneurship of Welfare Services – Web pages, which includes the outputs created during the project activities, such as advanced materials, business models and tool boxes activities and a report on the significance of gender welfare entrepreneurship. Web pages material is classified under the following headings: entrepreneurship in the welfare sector, entrepreneurial skills, launching the company, stacks up in the market, high-quality services, business transfer and entrepreneurship education. Implications: The project has triggered the development of entrepreneurship education in Helsinki Metropolia University of Applied Sciences. The results of the project are all freely accessible online from http://hyrrat.metropolia.fi. Pages will be updated by the wellness areas of entrepreneurship teachers and students. Value/Originality: The results are intended for entrepreneurs Welfare Sectors professionals, students, teachers, organizations, and business advisory organizations intending to use. Keywords: entrepreneurship, entrepreneurship education, well-being
1. Introduction Helsinki Metropolia University of Applied Sciences conducted HYRRÄT – Promoting Entrepreneurship in Welfare Services ESF project between 2/2013 - 3/2015. The project involved the whole of Social Services and Health Care, 18 training programs, about 4,500 students and about 300 teachers (Helsinki Metropolia UAS in 2012 and 2014). Well-being is seen as a broad umbrella concept, including education, leisure, entertainment and social and health related activities (Kainlauri 2007: 16-17). Social services and health care entrepreneurship is seen as one part of the wide spectrum of welfare entrepreneurship (Rissanen 2009; Oske 2008). Global trends, such as internationalization, digitalization, the rise of people's level of education, service diversification, the aging of the population and economic pressures, are increasing the need for welfare services and at the same time increasing the pressure to create more efficient, more economical and more individual service packages. In addition to the publicly funded social and health services, private and third sector services and networked collaboration are needed to an increasing extent. Within the wellness education sector the need for reinforcing positive attitudes towards entrepreneurship and business skills development has increased. Due to the changes in the operating environment in the welfare sector entrepreneurs need support from the early days of the company until the change of ownership. Increasing entrepreneurship has been suggested as means for surviving the western economic recession. This increase could be achieved by improving the business environment for small and medium-sized enterprises, introducing measures to encourage changes of ownership, as well as through education, research, innovation and development targeting these areas (European Commission, 2003 and 2010, the Commission of the European Communities, 2008).
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Sirkka-Liisa Kolehmainen In Finland, small and medium-sized enterprises play a key role in the creation of new jobs and economic growth. According to the statistics of the Finnish business register 2013, the majority of enterprises, 93.3 % are microenterprises (1-9 employees), which is 264 000 companies out of 283 000 companies. With small businesses (10 to 49 people) included, the number rises to 98.8 % of enterprises. In Finland, aging also applies to the entrepreneurial base. Over the next ten years, more than 70 000 companies which employ well over 200 000 people, will face ownership transfer. The universities of applied sciences have a special opportunity to find successors for these companies. (Ahmaniemi et al. 2015, 5.) This development is also reflected in the welfare sector companies. It is estimated that as a result of aging about 4 500 welfare companies face the change of ownership in the next ten years. The Finnish education system has seen the importance of entrepreneurship education. Thanks to a number of development projects (YES, YVI et al.) a continuum of entrepreneurship education from early childhood to universities has been achieved in Finland. The entrepreneurship education of universities of applied sciences and science universities emphasizes the strengthening of students' entrepreneurial attitude; supporting entrepreneurial motivation; the development of the acquired higher education knowledge and innovation into a business enterprise; and strengthening research and development knowledge (Ministry of Education 2009). The aim of the Rectors’ Conference, ARENE, already in 2011 was that "all Bachelor's graduates have embraced intrapreneurship and 15% of bachelor's graduates start an entrepreneurial career within 10 years of the completion of the degree" (Arene 2011). At the moment, about 5% of UAS students work as entrepreneurs at the time of graduation (Laitinen-Väänänen et al. 2013,3; Ahmaniemi et al. 2015, 5), so the goal is still to be reached. The current view holds that entrepreneurship is not a profession or a career, but a way of thinking, acting and dealing with work and life in general. It may therefore occur in detecting opportunities; as innovative and proactive activity; risk taking and managing change and uncertainty in any area of life considering ethics, corporate social responsibility and sustainable development and thus take different forms depending on the context. (Rae 2010, Peltonen 2014, 13.) Training programs are expected to provide students with the skills and entrepreneurial spirit to strengthen their views on the environment and to develop business skills (Jussila, Hytönen and Salminen, 2005). Entrepreneurship education should aim not only to learn about entrepreneurship and for entrepreneurship, but, above all, it should consist of entrepreneurial learning and learning in an entrepreneurial environment (Cabin and Gorman 2004; Kyrö and Ripatti, 2006; Paasio et al., 2005). Therefore, entrepreneurship should be seen more holistically, considering the dimensions of self- and organizational entrepreneurship in addition to external entrepreneurship. The process of becoming an entrepreneur is found to be affected by many factors and the journey of becoming an entrepreneur may be a long one and take years. Recent entrepreneurial research has brought clarity on how the student's attitude towards a career in business, the immediate environment support, self-efficacy beliefs and entrepreneurial abilities affect the entrepreneurial intentions that can create entrepreneurship. Of these, the support of the immediate environment, attitudes towards entrepreneurial careers and self-efficacy beliefs appear as the most relevant factors for entrepreneurial intentions. (Joensuu et al. 2014.) This article describes the project HYRRÄT – Promoting Entrepreneurship in Welfare Services ESF conducted by Helsinki Metropolia UAS and the project’s objectives, methods and results. At the end there is discussion about the importance of the results, what was learned in the project, how the results of the project can be utilized in the future, and what kind of further development work is required. The project aimed at improving students’ entrepreneurship skills in the well-being field and encouraging entrepreneurship; promoting teachers’ skills in entrepreneurship education; developing entrepreneurship education teaching methods and materials as well as the business environment of well-being companies; producing supporting material for the different stages of life of the company and carrying out a survey on the significance of gender in welfare entrepreneurship and entrepreneurship education.
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2. Implementation of the project The project took place in the Uusimaa region and the events were held in Helsinki. Meetings between prospective entrepreneurs, entrepreneurs and ownership transfer companies, as well as students and teachers in the welfare sector were organized as part of the project and common goal-oriented work was supported in these meetings. Examples of these are the Hyrrät 10, an intensive business education day for the students, pedagogical entrepreneurship development program for teachers, entrepreneurship fairs, foresight workshops, networking workshops, service design and ownership transfer workshops. The project was designed for a 2-year term for the years 2013 - 2014. The project decision was finalized in February 2013 and the project start-up was delayed due to the organization of staff working time. The labor hired on a tight budget was placed in teaching positions at the beginning of the semester, so it was difficult for the project workers to contribute fully to the project. Labor turnover took place during the project: at the end of the first year fixed-term employers finished and in the summer of 2014 the project manager changed. This contributed to the fact that the project came in under the estimated budget. Fortunately, it was possible to use the money to disseminate the results of the project. For the year 2014 additional funding was received for the project to model and to develop measures for promoting ownership transfer. In addition to the student representation, representatives of entrepreneurship -promoting parties in the metropolitan area, as well as welfare sector business organizations were elected for the project's steering committee. The steering group worked throughout the project meeting about 4 times a year. Project evaluation was carried out in every meeting and therefore any shortcomings could be addressed immediately. The project team met about once a month, and the project was managed co-operatively by dividing the responsibilities of the different areas of the project between the team members. The project target groups were students, teachers and welfare sector entrepreneurs. One goal of the project was also to form a network for supporting the welfare sector enterprises. Initial and final surveys were conducted as part of the project for Metropolia UAS’ welfare sector students and teachers. The survey was intended to direct the project activities. The chosen project activities were: courses offered, various workshops, welfare entrepreneurship fairs, ownership transfer theme day and the creation of welfare entrepreneurship web pages for presenting the results of the project instead of a traditional printed publication.
3. Results 3.1 Increasing entrepreneurial skills and encouraging entrepreneurship among the well-being students An initial and final survey measuring entrepreneurial skills was made during the project. In addition to background knowledge and experience, the interest and attitudes towards entrepreneurship and the willingness to participate in entrepreneurship courses organized by the UAS was studied as well as the entrepreneurial skills acquired in the degree program. The number of respondents in the surveys was very low and the respondents were from very different degree programs in the initial and final surveys. The initial questionnaire was answered by 0.2% (N = 35/4500), mostly students from the degree programs of the welfare and human functioning faculty (24/35) and the final survey by 2% (N = 89/4500), most of the respondents were healthcare and nursing students (63/89). The respondents had experience of being employed in a company and of entrepreneurship and in some cases, the experience was very long-term. Also, the respondents reported having family members or close relatives who work as entrepreneurs, and in the final survey, up to 40 students reported having a member of the family or close relative working as an entrepreneur in the welfare sector. This was about 45% of all student respondents. In the final survey, 26 students (N = 89) indicated that they intend to continue in the company of the family or close relative within 1-5 years. In both of the surveys, answers to questions concerning interest and attitudes were quite similar: The interest was moderate. The students felt that entrepreneurship requires realistic thinking and a positive attitude, and believed that entrepreneurship requires much more work compared to paid work. The least interest was expressed towards participating UAS entrepreneurship courses.
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Sirkka-Liisa Kolehmainen The areas the students felt least competent in were business law, financial management and corporate communications. These subjects are not included in the curricula of the welfare degree programs. Entrepreneurship in the field of well-being is highly regulated and knowledge of these subjects would be needed. The survey revealed that interest in entrepreneurship is still quite low, but that there is potential in utilizing the entrepreneurial experience in the students' family and relatives, for example. Ownership transfer training is also something that should be invested in in the future. In this survey, only 3 students participated in the events organized by the project, so the effects of the project on entrepreneurial skills could not be evaluated. The courses organized were welfare entrepreneurship 1 cr and Hyrrät 10, as an intensive 1 cr course. Of these, the most popular was Hyrrät 10, which was carried out on three occasions during the project and later in the spring of 2015 during the implementation stage of the project in entrepreneurial education in various fields. In addition to teaching, workshops on foresight, networking, ownership transfer and service design were organized during the project, as well as one international workshop. Student participation in these workshops was very low. Descriptions of the courses and other events can be found on the website: http://hyrrat.metropolia.fi.
3.2 Promotion of teachers’ entrepreneurship education competence For the promotion of teachers' entrepreneurship education skills an entrepreneurship development program was organized during the project, with Outi Hägg from the Aalto University participating and providing her expertise. 12 teachers from Metropolia and one teacher from Omnia Adult Education Centre participated in the program. The aim of the training program was to model the entrepreneurship skills development process in the well-being field and describe what welfare sector entrepreneurship education expertise is all about. This process was greatly facilitated by two principal lecturers of the faculty of welfare and human functioning utilizing the methods of collaborative development work. They also presented the results in the Active learning environments in health care -congress in the summer of 2015. The development program was scheduled for one academic year and consisted of four workshops and independent studying by utilizing the Moodle learning platform. The themes of the workshops were the perceptions and experiences of entrepreneurship, entrepreneurial skills, strengthening entrepreneurship skills and entrepreneurship education. During the training, the EnTree -model of entrepreneurship (Hägg and Peltonen 2014) was further developed and the bases of entrepreneurship education in the field of welfare were discussed. Teachers also considered how entrepreneurship could be integrated in their own teaching. “Come for a visit”, entrepreneurship education theme day, was held during the project. In addition to entrepreneurship education themes the Helsinki Entrepreneurship village was visited during the project. The theme day was attended by teachers of Metropolia and also by teachers from other universities of applied sciences. During the day a benchmarking visit to Lahti University of Applied Sciences’ student co-operative in social and healthcare was also agreed on. This experience can be used in the future for implementing entrepreneurship education in the form of a cooperative. Three meetings were held with the teachers who participated in the entrepreneurship education in the welfare sector. These meetings covered topics such as the situation of entrepreneurship education and the possibilities for its development in the future. The goal is to continue collaborative educational planning each semester. The project produced a website called “Reittejä hyvinvointialan yrittäjyyteen” (Routes to entrepreneurship in welfare services) for the development of entrepreneurship education, teaching methods and materials. The website includes the material produced during the project, such as operating models and tool boxes and a review on the role of gender in welfare entrepreneurship. The materials on the website are classified under the following headings: entrepreneurship in the welfare sector, entrepreneurial skills, the start-up of the company, succeeding in the market, high-quality services, ownership transfer and entrepreneurship during education. The materials have been used in teaching and students have assessed the benefits and usability of the website as part of various assignments. We have received a lot of useful feedback for developing the platform, and the aim is to update the platform in the future.
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3.3 The development of the business environment of well-being sector companies Workshops on foresight, networking and service design were organized for developing the business environment of well-being sector companies. Only a few entrepreneurs participated in the workshops, but enthusiasm towards co-operation and development was clear. Through the workshops we developed our knowhow on current themes of supporting entrepreneurship and formed a network for promoting entrepreneurship education. A welfare entrepreneurship fair was held in spring 2014 together with actors supporting welfare entrepreneurship (Social and health care entrepreneurs TESO, Finnish physiotherapy and rehabilitation companies FYSI ry, Finnish Association of Physiotherapists FAP). The fair was also attended by a business angelpatron, MP Sari Sarkomaa and due to the interesting lineup of guest speakers we had a full auditorium of participants. A fair number of entrepreneurs also took part in the service design workshop and ownership transfer meeting place. During the ownership transfer part of the project, organized with the help of additional financing received, workshops were held in co-operation with the national ownership transfer project of the Federation of Finnish Enterprises. Participation of entrepreneurs in these workshops was low. However, through the workshops the UAS acquired ownership transfer know-how and networks were created with regional supporters of ownership transfer. As a result of the project, supporting ownership transfers in welfare sector entrepreneurship has been integrated into the learner's path curriculum as part of entrepreneurship education courses. The project has launched the development of entrepreneurship education in Helsinki Metropolia UAS. The results of the project are freely available online at http://hyrrat.metropolia.fi. The pages will be updated by the welfare department’s entrepreneurship teachers and students. The results are intended for the use of entrepreneurs-to-be welfare sector professionals, students, teachers, organizations, and business advisory organizations.
4. Discussion HYRRÄT- Promoting Entrepreneurship in Welfare Services project was the first ESF-project on entrepreneurship promotion in Metropolia UAS. The project funding decision came in the middle of the semester, when it was hard to get project workers due to their teaching responsibilities. At the launch of the project all project workers were working full-time in their own areas of responsibility, so the project start-up was delayed and project started running properly only in the autumn term 2013. During the project, the project workers also changed, and the project came in under budget. Fortunately, we got an extension to the project and for implementing its results. The initial surveys were carried out by a person who did not have experience in teaching entrepreneurship and therefore the topic was unfamiliar to her. At the beginning of the project knowledge of the Entre Intention survey was lacking, so it was not utilized in measuring students’ entrepreneurial attitudes. Questionnaires were compiled on the basis of surveys conducted in several universities of applied sciences. The number of students and teachers participating in the survey remained very low, despite multiple reminders. At the time of the project, Helsinki Metropolia UAS was going through a wide-ranging administrative reform and fixed-term teachers were laid off. These factors might have had an influence on the teachers’ eagerness to answer the questionnaire. Students in Helsinki Metropolia UAS generally answer very poorly to various inquires, so the low response rate did not come as a surprise. Both teachers and students had experience of working as an employee and also of entrepreneurship. In addition, they had family members and relatives working as entrepreneurs. In the final survey, the number of students who had close people working as welfare -sector entrepreneurs were surprising. Is it possible that such a large number of welfare sector companies are in the students' sphere of influence? It would be important to get this experience introduced into the entrepreneurship education. In order to gain a comprehensive, reliable picture of the phenomena in question, the inquiry should be carried out linked to a course, for example in the form of a graded assignment. In the future, it would be very important to identify students with this experience already at the beginning of studies so that entrepreneurship education provision could be focused for their needs. In achieving this, the Entre intention -survey would be an important tool. The ASTEE-survey, published in summer 2014 would also serve this purpose well.
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Sirkka-Liisa Kolehmainen It was also surprising how common ownership transfer in companies of students’ close ones within 1-5 years seemed to be according to the answers, especially since during the ownership transfer process only four students participated in the events. Out of these four, two occupational therapy students participated in arranging the ownership transfer meeting place at the welfare entrepreneurship fair and two students participated in the first workshop (May 23) and one of them also made an assignment on the initial status of a company starting the ownership transfer process. Ownership transfer processes tend to be long-lasting, so the students intending to continue the business as well as the entrepreneurs giving up their company would both benefit from the guidance. Unfortunately, the survey was anonymous, and we did not receive the students' contact information. Teachers and students expressed moderate interest towards entrepreneurship in both surveys. Teachers stressed the importance of developing entrepreneurship in co-operation with different fields of education. The weakest average score in teachers’ responses was for the claim "I need training or coaching related to entrepreneurship". The students felt that entrepreneurship requires realistic thinking and a positive attitude, and believed that entrepreneurship requires much more work compared to paid work. Least enthusiasm was expressed towards participation in entrepreneurship courses. The differences between the initial and final survey are probably due to the diversity of educational programs of the students who answered. Only three students responding this survey took part in the student events organized by the project. Teachers' views on entrepreneurship training provided by the degree program were consistent with the students' responses in questions assessing entrepreneurship readiness. The students felt they had least competence in the areas of were business law, financial management and corporate communications. These subjects are not included in the curricula of the welfare degree programs. Entrepreneurship in the field of wellbeing is highly regulated and knowledge of these subjects would be needed. Increasing co-operation with the business degree programs in areas of business law, financial management and corporate communications is important in the future. Nowadays it is recognized that entrepreneurship education should be carried out in close co-operation with businesses and parties promoting entrepreneurship utilizing the most practical and authentic methods. In the welfare degree programs of Helsinki Metropolia UAS´ the practical training would offer a very good opportunity for this. The number of private sector companies among possible providers of practice placements is still disproportionately low. In addition, entrepreneurship could be one way of gaining business experience already during studies. Co-operative enterprises could be good starting points for this. Entrepreneurship education should not be based on lecture-based teaching and should not be restricted to field specific curricula. Based on this survey, teachers seem to be ready to apply various very creative forms of entrepreneurship education. Students should be provided education according to their existing knowledge level, and the Entre Intention –survey could be used as the basis of group division. Already at the beginning of studies, students could be grouped based on their interest towards entrepreneurship: Students showing a strong intention; those showing weak intention and those who have a negative attitude towards entrepreneurship. Based on this division, educational activities could be planned for example as follows: Providing those with a strong intention practical opportunities to build their own businesses as well as to continue and develop their existing businesses; motivating those with a weaker intention using various means, for example by having those with a strong intention tutoring them; focusing on developing internal entrepreneurship as a working life competence in the students holding a negative attitude. Similar ideas have been presented by the Seinäjoki University of Applied Sciences research team (Joensuu et. al.2014). The integration of entrepreneurship, innovation, leadership and thesis project studies should be developed to build a seamless continuum, whereby time is given to entrepreneurial maturation. Innovation Project studies have been carried out as multidisciplinary 10-credit courses in Helsinki Metropolia University of Applied Sciences for many years. In case of new innovations, it would be really important to support the development of Start Up - and Spin-Off -entrepreneurship. In addition, growing and internationalizing companies could be created in ownership transfer situations with the help of new, innovative products. From the project participants’ perspective, the project has given the resources to address welfare sector entrepreneurship and entrepreneurship education. We as teachers have increased our expertise and formed useful contacts with promoters of entrepreneurship in the metropolitan area and beyond. Teachers involved in
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Sirkka-Liisa Kolehmainen entrepreneurship education have strengthened their co-operation. Co-operation with entrepreneurs is considered important and, therefore, creating strong co-operation with local entrepreneurs is linked to the planning of the new Metropolia UAS campus in Myllypuro. The development of entrepreneurship education has not been a development priority in Helsinki Metropolia UAS. The current vision and strategy do not support or guide these activities. In connection with the project we were able to be involved in developing the Helsinki entrepreneurship education strategy in a project called HYPPYRI. The strategy supports entrepreneurship education in the capital region. The city of Helsinki is one of our major financiers, so hopefully the entrepreneurship education strategy is also adopted in Helsinki Metropolia UAS. Strategically controlled operations are resourced and organized with continuity in mind. Leadership and enthusiastic actors from different fields of education are needed for entrepreneurship education in Helsinki Metropolia UAS. Co-operation between different fields of education is needed so that the teaching resources, RDI activities and entrepreneurship networks can be strategically developed. Collaboration between the higher education institutions in the metropolitan area and the development of entrepreneurship education continuum with the vocational and upper secondary schools would be really significant and bring added value also for the development of entrepreneurship in the welfare sector. The development of these types of projects would enhance co-operation in the education sector and create operational models. A useful tool for the assessment of entrepreneurship promotion quality in educational institutions has been published in the EU, A Guiding Framework for Entrepreneurial Universities (European Commission & OECD 2012). The introduction of the framework across the university and UAS field in the country would be important. This would provide comparative information on the emphasis placed in different higher education institutions on entrepreneurship education. In the HYRRÄT project, a preliminary translation of the framework was made (Kolehmainen 2014) and it was sent to Metropolia UAS management and the metropolitan area higher education co-operation partners for fine-tuning. In the future, the Entre Intention –survey, measuring students’ entrepreneurial intentions, should be introduced in Metropolia University. In addition, the ASTEE –measurement tool for the effectiveness of entrepreneurship education published in the summer of 2014 should also be tested in practice. (Vestergaard et al. 2014.) Teachers’ entrepreneurship education competence could be assessed by using the Measurement tool for Enterprise Education (LUT, Lappeenranta University of Technology 2012). This is what every teacher in the welfare sector could use for self-evaluation, for example when preparing for development discussions: How have I developed in the field of entrepreneurship education? And what are the areas I want to develop in the future? Reliable and comparable indicators for assessing entrepreneurship education would provide knowledge on the state of entrepreneurship education in different degree programs, departments and the whole of Metropolia. We could compare our operations to other universities of applied sciences in Finland and even abroad. With the help of the evaluation we could focus our entrepreneurship education activities accurately and estimate their effectiveness. The response rate to the initial and final inquiry we made was extremely low. In the future, in order to obtain reliable results, the inquiries must be part of work duties so that everybody would be obliged to answer. The information could be gathered from new students as part of orientation studies at beginning of their studies, and from graduating students together with the Opala-feedback after the maturity test. Teachers could answer the inquiry as part of the annual development discussions. This small survey carried out in the HYRRÄT project shows that there is still a lot to be done in the promotion of entrepreneurship. This welfare entrepreneurship project in Metropolia UAS has had an effect on various parties in the UAS, but also started the development of entrepreneurship promotion strategies in the Helsinki metropolitan area. The project brought out not only the importance of a control strategy but also the importance of continuous and diverse quality assessment of entrepreneurship education. The school functions should be evaluated, teachers' entrepreneurship activities should be evaluated and the students' entrepreneurial intentions and entrepreneurial skills should be evaluated as well. The introduction of converging indicators will allow comparisons to be made between various educational institutions nationally as well as internationally. With the help of measurements, entrepreneurship promotion as well as financing can be better directed to meet the need.
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References Ahmaniemi, R., Ristimäki, K., Tuomi, L., Tuuliainen, M. Niinistö-Sivuranta, S., Vieltojärvi, M. and Rissanen, R. (2015) Arenen yrittäjyyssuositukset. 12.3.2015. Arene, Suomen Yrittäjät. [online], http://www.arene.fi/sites/default/files/PDF/2015/Arenen%20YS%2012032015.pdf Arene (2011. Ammattikorkeakoulujen yrittäjyyden kehittämistä koskevat suunnitelmat, release 16.3.2011. [online], http://www.arene.fi/data/dokumentit/05d9734c-6aab-43ff-9756-fc2742462e9b_.pdf Euroopan komissio (2003) Vihreä kirja. Yrittäjyys Euroopassa. Yritystoiminta julkaisut. [online], http://www.yrittajakoulu.fi/tietotori/Liikanen_EU_%20green.paper.fi.pdf Euroopan komissio (2010) Komission tiedonanto. Eurooppa 2020. Älykkään, kestävän ja osallistavan kasvun strategia. Bryssel 3.3.2010. KOM (2010), 2020 lopullinen. [online], http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:FI:PDF Euroopan yhteisöjen komissio (2008) Komission tiedonanto neuvostolle, Euroopan parlamentille, Euroopan talous- ja sosiaalikomitealle ja alueiden komitealle. ”Pienet ensin” – Eurooppalaisia pk-yrityksiä tukeva aloite” (”Small Business Act”) Bryssel 25.6.2008. KOM (2008) 394 lopullinen. [online], http://eur-lex.europa.eu/legalcontent/FI/TXT/PDF/?uri=CELEX:52008DC0394&from=EN European Commission and OECD (2012) A Guiding Framework for Entrepreneurial Universities. [online], http://www.oecd.org/site/cfecpr/EC-OECD%20Entrepreneurial%20Universities%20Framework.pdf Hytti, U. and O’Gorman, C. (2004) What is “enterprise education? An analysis of the objectives and methods of enterprise education programmes in four European countries", Education + Training, Vol. 46 No.1, 11 – 23. Hägg, O. and Peltonen, K. (2014) Towards a conceptual understanding of entrepreneurial pedagogy. Yrittäjyyskasvatuksen Aikakauskirja 01/2013, 21-44. Joensuu, S., Varamäki, E., Viljamaa, A., Heikkilä, T. and Katajavirta, M. (2014) Yrittäjyysaikomukset, yrittäjyysaikomusten muutos ja niihin vaikuttavat tekijät koulutuksen aikana. Seinäjoen ammattikorkeakoulun julkaisusarja A. Tutkimuksia 16. Seinäjoen ammattikorkeakoulu. [online], http://www.theseus.fi/bitstream/handle/10024/74669/A16.pdf?sequence=1 Jussila, E, Hytönen, J. and Salminen, H. (2005) Yrittäjyyskasvatus. Yrittäjyyskasvatus ammattikorkeakoulujen koulutusohjelmien opetussuunnitelmissa -benchmarking-hanke. Korkeakoulujen arviointineuvoston verkkojulkaisuja 3:2005. Kolehmainen, S-L (2014) EU, OECD 2012: A Guiding Framework for Entrepreneurial Universities alustava käännös ja sovellus Metropolia ammattikorkeakoulun tarpeisiin. [online], http://hyrrat.metropolia.fi/wpcontent/uploads/2014/12/SK-yritt-keh-EU-OECD-Guiding-Frameworkin-pohjalta.pdf Kyrö, P. and Ripatti, A. (2006) Yrittäjyyden opetuksen uudet tuulet. Teoksessa Yrittäjyyskasvatuksen uusia tuulia Kyrö, P. & Ripatti, A. (Toim.), Yrittäjyyskasvatuksen julkaisusarja 4/206, Tampereen yliopiston kauppakorkeakoulu, Hämeenlinna, 10–31. Laitinen-Väänänen, S., Vanhanen-Nuutinen, L., Ahmaniemi, R., Boman, S. and Lamppu, V-M (2013) AMK-tutka, Suomen Yrittäjät, Arene. [online], http://www.yrittajat.fi/File/28763d79-6fba-4f88-a7244d0a830130b5/AMKyhteistyo_pk_yritysten_nakpkulmasta.pdf Lappeenrannan teknillinen yliopisto (2012) Yrittäjyyskasvatuksen mittaristo™. [online], https://developmentcentre.lut.fi/muut/mittaristo/ Metropolia (2012). Metropolia Ammattikorkeakoulun henkilöstöraportti 2012. Metropolia (2014). opiskelijamäärien tilasto 2014. [online], https://tuubi.metropolia.fi/portal/delegate/getfile/Opiskelijam%C3%A4%C3%A4r%C3%A4%20syyskuu%202014%20t oimipisteitt%C3%A4in.pdf?nodeRef=workspace://SpacesStore/d96444b9-547e-4d95-b202-a1d491064856 Opetusministeriö (2009) Yrittäjyyskasvatuksen suuntaviivat. Opetusministeriön julkaisuja 2009: 7. Helsinki: Yliopistopaino. [online], http://www.minedu.fi/export/sites/default/OPM/Julkaisut/2009/liitteet/opm07.pdf Oske (2008) Hyvinvoinnin klusteriohjelma 2007-2013. [online], http://www.hyvinvointiklusteri.fi/tiedostot/File/Hyvinvoinnin%20ohjelma-asiakirja.pdf Paasio, K., Nurmi, P. and Heinonen, J. (2005) Yrittäjyys yliopistojen tehtävänä? Opetusministeriön työryhmämuistioita ja selvityksiä 2005: 10. Helsinki: Yliopistopaino. Peltonen, K. (2014) Opettajien yrittäjyyskasvatusvalmiuksien kehittyminen ja siihen vaikuttavat tekijät. Doctoral Dissertations 175/2014. Aalto University publication series. Aalto-yliopisto. Kauppakorkeakoulu. Johtamisen laitos. Helsinki. Rae, D. (2010) Universities and enterprise education: responding to the challenges of the new era. Journal of Small Business and Enterprise Development. Vol. 17 No. 4, 2010, 591-606. Rissanen, S. (2009) Hyvinvointimatkailu edellyttää hyvinvointiyrittäjiä. [online], http://www.tem.fi/files/24945/Rissanen_Sari.pdf Vestergaard, L., Fayolle, A., Redford, D., Sailer, KK., Cooney, T., Singer, S. and Filip, D. (2014) How to assess and evaluate the influence of entrepreneurship education. Astee – Assessment tools and indicators for entrepreneurship education. A report of the ASTEE project with a user guide to the tools. [online], http://ntsnet.dk/sites/default/files/ASTEE%20rapport%20juni%202014.pdf
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Agile Business Strategies: How to Adjust to Rapidly Changing Environments? Andreas Kompalla, Michael Studeny, Andreas Bartels and Gabriela Tigu The Bucharest University of Economic Studies, Romania
[email protected] [email protected] [email protected] [email protected]
Abstract: Annual reports with respective KPIs do reflect the current status of a company and provide a glimpse into the future development of an enterprise. But these are results of a longterm plan, a vision, which is transformed into a business strategy by the management many years before this point of time. These strategic outlines are often branch-specific. But characteristics and corresponding risks of branches and their environment, the competitors, the suppliers and especially customer demands can change over time. In order to face the challenges of such a volatile, uncertain, complex and ambiguous (VUCA) world specifically traditional industries could increase their efficiency and their long-term performance by adapting methods of highly agile as well as adaptive network and IT-related enterprises such as Google, Facebook, Amazon or Alibaba. Based on a qualitative analysis consisting of case studies extracted from the automotive industry this research will analyze the efficiency of applying agile methods instead of strictly plan-based strategies considering the special characteristics of this branch. Furthermore this paper will focus on adaptions of already implemented agile principles within volatile environments in order to customize them for the special setting and surrounding of traditional branches. In conclusion the research indicates that only a minority of agile principles that have been applied on strategy development are efficient to improve business strategy performance within the automotive branch. The efficiency varies based on the respective environment considering customer demands, supplier structure, competitors, retailer, external regulations and branch developments. A pure copy of agile methods and principles on business strategies without a selection or adaption based on the business environment will not be beneficial with respect to the company performance. Keywords: agile manifesto, business strategy, business performance, flexibility, efficiency, automotive industry
1. Introduction: Scientific research provides evidence that business strategies within traditional branches do show a high degree of similarity. Their qualitative targets are mainly focusing on quality, efficiency, growth and sustainability. Whereas the quantitative goals concentrate on operating margin, sales growth and return on investment (Kompalla & Kopia 2015). Highly innovative online-based enterprises such as Google, Facebook or Amazon pursue different approaches for strategy formulation and adaption. By applying agile methods they target to increase flexibility within their strategies as well as to improve long-term business performance. But the application efficiency of agile principles and methods could be dependent on various aspects. The branch, for example, is defining direct competitors, substitutes, customer expectations and suppliers. Additionally, shareholders are funding the business and look carefully on the strategic decisions of companies (Porter’s 5 forces: (Porter & Roach 1996)). Additionally the branch and its environment contain various risks for a company, which could be reduced via a more flexible and agile approach for a business strategy. Based on the analysis of business strategies in general and within the automotive industry in specific as well as the evaluation of branch specific characteristics this research will concentrate on the efficiency of agile principles on business strategies within traditional industries. Case studies will be used in order to provide a qualitative judgment by the authors regarding the usefulness and especially the efficiency of the application of the specific agile principles within the automotive industry (see chapter 3.2). Additionally, future developments within the branch and of its industry characteristics will be considered, in order to estimate if agile principles could become more important in branches, which are just currently defined as “traditional” industry such as the automotive industry (Akamatsu et al. 2013).
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2. Business strategy and specific approaches within traditional branches (e.g. automotive industry) Strategy can be adopted from its concept within military disciplines to business and management. Strategy separated itself from daily actions and short-term manoeuvers. It provides a direction and defines respective goals (Segal-Horn 1998). Within scientific literature there are various defintions for the term strategy. According to Hiriyappa, strategy can be defined as a longterm plan of action in order to achieve a superior goal. It outlines how the management decides and plans to achieve the corporate goals and objectives. A corporate or business strategy is the hypothesis for what the corporation should be doing in specific. This is a longterm direction for companies in order to achieve sustainable development or also called a long range bluebrint of a desired image. On the other hand, companies that do not have a corporate strategy face risks. These are for example missed opportunities, fragmented and wasted effort or working at cross purpose (Hiriyappa 2013). Hiriyappa explained the last topic of unstrcutured working via the following sentence: ’’There is nothing which rots morale more quickly and more completely than [...] the feeling that those in authority do not know their own minds.” Strategies can have proactive and reactive components. Proactive components are used in order to improve a company’s position and reactive components are required in order to react to unforeseeable developments in new markets, new customers or market competition. This research will evaluate if the reactive components are represented within business strategies in the automotive industry and if agile principles can increase business performance by its application. (Hiriyappa 2013) According to Mintzberg and Quinn there are four possible and interrelating dimensions of strategy. The first one is to define strategy as a plan. Therefore it is formulated consciously and in advance of obtaining the respective operative actions. The strategy ties all corporate goals, its policy and the actions into a plan which considers the allocation of resources as well as the external competitive environment and internal capabilties. The second dimension is to define strategy as a pattern. By doing this, the term strategy also considers the realization of the plan. Plans may not be realized but by planning the respective actions for realization a pattern can be deducted. The third dimension is to see strategy as a position. This view especially considers the external effects and the environment in which a company acts. Thereby the strategy locates the enterprise within the surroundings. The last dimension considers the aspect of perspective. While the positioning of a company is rather focused on the environment the perspective looks into the company itself. Thereby the strategy should reflect the intentions and actions of a companys members (Mintzberg & Quinn 1998). The nature of strategy is concerned with the different choice of businesses, products and markets of a company (Hiriyappa 2013). As strategy is affecting all apects of a company there are different targets which can be pursued with the respective strategic outline. Main strategic goals can be for example to develop a brand image, increase market share, increase transparency (e.g. via a balanced score card of the entire company), to create a competitive advantage in the market (e. g. cost leadership, differentiation, niches) or to break down specific topgoals to single departments. Especially the aspect of competitive advantage has been discussed in scientific literature and in specific with respect to the automotive industry as different core capabilities and development phases of manufacturers lead to respective strategic plans. According to Porter there are 3 main generic and competitive strategies, which are clustered into the dimension of competitive advantage and competitive scope. The differentiation strategy is based on a unique product, marketing or delivery system, which leads to price premium. The cost leadership strategy results out of a standardized product, which can be sold on a low level price. Economies of scale and mass production make it profitable for the company to pursue this strategy. The focus strategy itself can be divided into cost focus and differentiation focus (Porter 1980). Within this strategy the scope is rather narrow which means that the company focuses on either a selected range of products or a distinct local market and in some cases a distinct range of customers (Miller & Friesen 1986). According to Porter a company, which does not clearly assigns its position within one of the four generic strategies cannot be successful. He described this as “stuck in the middle” (Porter 1980). But in fact there are many examples within the automotive industry, which provide evidence that it can be beneficial to select more than one position. A company can change its generic strategy with respect to the developments in the environment and the internal decisions. In case of Volkswagen and Porsche both companies have used, to some extent, opposite strategic
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Andreas Kompalla et al. options in the corporate lifecycle. With respect to the McKinsey growth path model (McKinsey Company et al. 2015), Porsche first developed from being a specialist in engineering (VW Beetle development), then in racing car development and manufacturing to a provider of a premium sports car series. This development ran from a “specializer” to an innovation champion by skipping the individualization barrier i.e., the more or less “single manufacturing” of custom-made racing cars to an innovation champion in the form of the series manufacturing of a high-quality road sports car through continuous innovation. From this point on Porsche mastered the control crisis in the 1990s with line extension, based on high investments into research and development and into an excellence quality management system. Thus, Porsche became competence leader in quality management, innovation and brand management, and remained a luxury-brand, premium car manufacturer with a product portfolio of more than one series and thus covered a “mass of niches” (Haric, P., Pollack, C., Grüblbauer, J., Rintersbacher 2013).Due to the rapid detection of the control and strategy crisis and the subsequent turnaround management in the 1990s, Porsche mastered two significant demand crises in the first decade of the 21st Century. The year 2010 was the best in the company's history. Sales amounted to 16,000 cars sold in Germany alone, with EUR 11 bn. revenue and EUR 1.3 bn. net income worldwide (Morningstar 2015). So each management has to consider possible unexpected and respectively unpredicted events in strategy in means of maneuvers due to changing political climate, shifting market requirements or shifting technologies. Even though a business performs a deep analysis and very thorough estimation of future developments it can happen that developments are not as intended. These unpredicted events are called „black swan”. In order to be prepared for changes within the business environment or within the company itself there are several actions that can prevent businesses from bankrupcy (Arbeitgeberverband 2015). One way of „spreading” the risk across various businesses is diversification (Furrer 2016). This can be done either on market or product level. While stakeholder’s accept diversification as a positive way for risk reduction, shareholder’s only accpet this method if it generates value. For diversification money needs to be invested e.g. via Mergers and Aquisition e.g. in order to spread the portfolio. But Stakeholders can spread their risk also via investing into various companies instead of inveting into one company that aquired further ones. (Jensen & Meckling 1976). A second method to reduce risks is the adjustment of capital structure e.g. via increasing the amount of equity. Especially for unexpected problems or investments a high degree of equity is suitable to reduce the risk of not being able to compensate these unforeseen efforts. The disadvantage of this method is that equity results in tax interest efforts (Chew 2012). In order to evaluate diversification or an increase of equity a risk management system can be applied. This can help to evaluate the contribution of a specific risk to the total firm risk and to analysze the costs of reducing this risk. Possible classifications are financial risks (e.g. exchange rate changes), legal risks (e.g. lawsuits due to product weakness), product market risk (e.g. shrinking market size), operational risks (such as break down of machines), tax risks (e.g. growth of tax sales), regulations (e.g. environmental rules) and input risks (e.g. derease of corporate knowledge due to leaving employees) (Chew 2012). If risks can be foreseen and their intensity estimated then targeted financial instruments can be applied. These are for example hedging of exchange rates or crucial materials. If companies are depending on crucial raw amterials such as oil, they can hedge this risk via oil futures. By that they have safety for a longer period regardless of the actually market circumstances. On the other hand they cannot participate as much if the price of the raw material drops (Chew 2012). This can been seen within the airline industry. Air Berlin, Lufthansa and Condor hedged oil prices for a long period (up to 24 months) and therefore could not leverage the oil price drop within 2015. Air Berlin is hedging the oil price for 75 % of their total purchasing volume of kerosine (Handelsblatt 2015). As risk can be classified via frequency and severity there are further ways to customize risk reduction measures. If lean approaches cannot further reduce e.g. the stock without risking a high severity of the risk outcome, an increase of redundancies (e.g. human capital, stock material or machines) can reduce or prevent production outtakes as well as further severe problems (Walker 2013). The disadvantage of many risk buffers is that they always result in costs at least in opportunity costs, so that possible investments cannot be obtained. Further costs are the risk management efforts. Each risk needs to be assessed, evaluated and controlled. The resources which need to complete these actions need to employed. (Hall 1998)
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Andreas Kompalla et al. Table 1: Measures for risk reduction (Source: Own presentation c.f. (Furrer 2016); (Chew 2012); (Walker 2013); (Hall 1998)) Possible risk reduction measures
Negative aspects of risk reduction measures
Integrated Risk Management: Evaluation of costs and contribution of a specific risk to total company risk Diversification of business: In order to switch focus by the time a product or market has a downfall. Capital Structure: Increase percentage of own equity to increase liquidity for unexpected risks. Target finance instruments: Ways of Insurances if a risk occurs or hedging for estimated future risks. Operational buffer: Increasing flexibility via redundant human or material resources.
Costs for establishing and controling of risk buffers Effort to assess and manage risk buffers
Next to integrated risk management strategies corporate business strategies are mainly focusing on global developments of the next 5 to 10 years. These megatrends are affecting the competitive environment of companies and therefore also their corporate strategy. Development of BRIC countries, demographic changes or digitalization are also reflected within the business strategies of enterprises such as BMW resulting in “BMWBRIC”- Strategy, “BMW-1” strategy and “Car connectivity” strategy (Icgrowth 2012); (Arbeitgeberverband 2015). So businesses do have to be prepared for their changing surroundings.
3. Efficiency of agile principles within automotive business strategies In order to evaluate if agile principles do show the same effect on business performance within the traditional industry as they do within the network-based and software development sector, the automotive industry will be examined regarding branch characteristics, direct competitors, customers (expectations), suppliers, retail structure and substitutes. In a second phase this input will be used in order to analyze each of the agile principles regarding its efficiency within the automotive industry (chapter 3.2).
3.1 Characteristics of automotive industry This chapter is describing the current observations regarding automotive branch characteristics. The evaluation provides an instant picture but can change in a long-term view and this should be considered for further research. Additionally it is important to analyze if definitions of branches, competitors, customers and suppliers are taken as given or if the player itself is able to change these aspects. Scientific studies are currently focusing on demand increase, segmentation, technology advancements, supplier structures as well as political changes affecting products and production environments (Wolters et al. 2013). All these aspects are reflected within the description of the automotive branch within this section. The following table provides an overview of the aspects, which have been analyzed regarding the past and future definition. Table 2: Characteristics of the automotive branch in the past and in future (Source: Own representation c.f. (Akamatsu et al. 2013); (Statista 2015); (Singh et al. 2015); (Berylls Strategy Advisors 2015); (Lippautz et al.; (Subic et al. 2012);(OESA 2015); (Zeltwanger 2014); ( Monga 2015)) Criteria
1900 – 2010
Trend
Branch in general
Traditional manufacturers with core competence in machinery, quality management and production.
Electronic software & hardware focus with innovative business models such as car sharing and autonomous driving
Direct Competitors
Most of automotive direct compe-titors are in business for decades or are emerging since several years.
New technology-focused competitors are entering the market.
Customer
High attention to the product. Pro-duct as “love affair”(Singh et al. 2015).
Supplier
Relatively small amount of strong suppliers (in business for decades)
Retail
High degree of contact to the customer. Dealer Networks.
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Due to less importance of the product itself, customers are shifting to shared service providers (potential new customer). Consolidation of suppliers. Increasing dependency of OEMs on mega-suppliers. Decreasing direct touchpoints to customers. Online marketplaces and augmented reality in order to experience the product.
Andreas Kompalla et al. Criteria Substitute (not examined in this research)
1900 – 2010 Proportion of alternative means of transportation is consistent.
Trend New service providers from other branches could offer the mean of transportation as a service instead of as a (material) product.
3.1.1 Branch The automotive branch has its origin in 1886 when Karl Benz created the first vehicle. Within the next 130 years this industry evolved to an important part of a countries gross domestic product (GDP). Specific product characteristics, which differ from consumer goods, are especially durability and reliability (Akamatsu, Green, and Bengler 2013). As vehicles can reach high speeds any failure in material, software or hardware can have a lethal effect. This is not the same case neither for consumer goods such as smartphones or wearables nor for softwarebased products such as applications or marketplaces. Often automotive vehicles are seen as part of an “old” and” traditional” industry (Akamatsu et al. 2013) but it is continuing to grow and the products themselves as well as manufacturing processes or methods are based on new technologies. There are two further aspects which are specific for the automotive industry and which need to be considered by the management especially within the next 5 to 10 years within their business strategies. The first one is the external factor of political or ecological regulations. Though car manufacturers are global players and employ a considerable proportion of a country’s workforce they are affected by many political judgments and regulations. Research and development investments are highly dependent on strategic political guidelines promoting or punishing certain materials, liquids or technological inventions. Two main areas are ecological regulations, which result in increasing efforts for engine developments and exhaust processing as well as a new model mix and the standards for safety devices. Increased ecological regulations raise the costs per vehicle, but customers do not see a direct benefit and therefore are not willing to pay an equivalent amount of money for that. This increases pressure on manufacturers to be innovative and e.g. to experiment with new lightweight material. (Singh et al. 2015). The second very important aspect, which will change the products and business within this branch, is digitalization. Due to an increase of electronic devices in all areas of life also the car manufacturers are affected by this trend. The costs for electronics within cars have increased from 20 % in 2005 to 35 % in 2015 ((Singh et al. 2015)). New competitors, that have strong capabilities within this area, emerge and OEMs become more dependent on the innovations of suppliers. Additionally there is a switch from hardware to software innovations (e.g. a software update in order to enable semi-autonomous driving in the Tesla Model S in October 2015). Infotainment and driving assistance becomes a crucial selling point for the customer and companies still struggle especially in infotainment (C.f. Consumer Report study - (Report 2013)). 3.1.2 Direct competitors Compared to the new economy and online-based businesses the automotive branch is relatively old with grown structures as well as many key players which have started business more than 100 years ago. Roughly 77 million cars are sold per year worldwide in 2014 with a constant growth from the 1990s with roughly 40 Million units sold. Approximately 16 OEMs share more than 90 % of the sales revenue in this branch. While there are volume oriented companies like Toyota, Volkswagen and Toyota (with approx. 10 million units sold in 2015), there is also a high-price sector with BMW, Lexus, Daimler etc. and a luxury brand section (Rolls-Royce, Bentley, Maserati) as well as the sports car segment (Porsche, Ferrari, Lamborghini). (EY (2014) accessed via Kfzbetrieb.vogel.de (2014),(Statista 2015)). Although the model mix varies their core product is still the vehicle itself. Some of the bigger OEMs do have their own financial services incorporations and they invest in strategic suppliers e.g. in order to extend battery supply or to participate in maps or car sharing services. Although there is a big amount of traditional automotive manufacturers, there is a trend for new and emerging competitors which are focusing on new business models as well as on new technologies such as electric driven vehicles ((Lippautz, S., Winterhoff, M., Little 2010) (Subic et al. 2012)).
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Andreas Kompalla et al. 3.1.3 Demand/customers: The shift from traditionally strong markets regarding sales proportions such as the US market or Europe to East Asia with the new main sales region China has affected all automotive OEMs in the last 15 years. But also this relatively “new” market is now slowing down in sales increases. Next to a change in sales region focus the OEMs need to react to switching customer demands. The connection to the product is shifting from a close and long lasting “love affair” to a pure mean of transportation (Singh, Akshay, Wilk, Reid; Hirsh, Evan; Kakkar 2015). Additionally the consumer electronics are luring demands and increasing standards of cars. On the other hand the data gathered from customers while using the product has yet to be used in a lucrative way. Furthermore the quality standards are merging as well as the series-luxury equipment within mass-market cars, which affects the development cycles and the supplier connection of OEMs. (Singh, Akshay, Wilk, Reid; Hirsh, Evan; Kakkar 2015). 3.1.4 Suppliers The biggest suppliers according to revenue are settled in the market since several decades such as Continental, Bosch, Magna, Denso or Johnson Controls. (Berylls Strategy Advisors 2015) Profitability has been increased in the past 5 years overproportionally compared to the Top 10 OEMs. Due to high competition between suppliers as well as due to desired growth, suppliers are being increasingly consolidated. Up form a peak of more than 30.000 suppliers OESA (Original Equipment Supplier Association) predicts a shrinking of supplier base to 2500 in 2020 (“OESA,” 2015);(Mario Zeltwanger 2014). Increased cost pressure due to regulations and the need for a higher variety in products manufacturers tend to concentrate on few model platforms, which can be used to customize dedicated model variants. E.g. Ford reduced platforms from 27 in 2007 to 14 in 2013 and is planning to reach the target of 9 platforms by 2017). Hence the amount of common parts increases and purchasing costs per part as well as development costs are deceased. In order to manage complexity large Vehicle Manufacturers are reducing supplier bases and increase the proportion of purchasing complete modules. (e. g. Ford reducing the supplier base from 1260 to 750 (Trudell 2013)). 3.1.5 Retail base: The purchasing experience of car customers is still not comparable to buying a product on an electronic marketplace such as Amazon, eBay or similar platforms. But a push to augmented reality devices and car simulators improve the online experience of customers.(Anuj Monga 2015) Online-based marketplaces are already available and manufacturers themselves evaluate a direct shopping button for new cars.
3.2 Evaluation of agile principles within different branches In order to cope with “black swans” and the lack of predictability, agile principles can be applied. Based on the environment these can be more or less efficient. In specific, this research will focus on the aspects within the automotive environment, the branch itself, the competitors, the suppliers, customer demand, substitutes and retail, which have been described in detail within the previous chapter. At the end of this chapter, Table 2 provides a summary of agile principles according to the agile manifesto (Highsmith 2001), their current application within online-based industries and the automotive industry (Reeves et al. 2015; Kompalla et al. 2016), as well as the evaluation of a potential efficiency within the automotive industry. The qualitative evaluation of efficiency is based on the case studies provided by Reeves et al. (2015) as well as Kompalla et al. (2016). The comparison of the characteristics within an agile and traditional environment leads to the judgment regarding the application efficiency of the agile principle within the automotive industry. The term efficiency has been chosen as it considers both the input and the output variables. Not only the fulfillment of a target is in the focus of efficiency but also the minimum input for the fulfillment is required for proofing efficiency.(Gupta 2015) Additionally to the general definition of efficiency, in specific the term Pareto efficiency is relevant for this analysis. According to that a method is efficient if it improves at least one aspect without decreasing the utility of all other aspects.(Cooter 2000) Adapted to the research paper this means that an agile principle can only be efficient within the specific industry (in this case the automotive industry) if it improves at least one characteristic without decreasing the utility of other aspects, which are considered.
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Andreas Kompalla et al. The first agile principle is “flexibility to change”. This means that working products are delivered frequently, changes in customer demands are accepted in late phases of product development/manufacturing and there is a close alignment between the business and management. Decisions, which have been made once are not easy to change even if there is evidence showing that the decision might not be correct. Therefore People tend to increase effort to defend their decision especially if there are certain facts that counterfeit the decision (Staw 1976). This is characteristic for traditional branches such as the automotive industry and leads to a low degree of flexibility. Agile Management has to cope with this effect and overcome it. If there is enough evidence proofing that a strategic direction might not be successful in the longterm, management need to be willing to change the direction or to test new possibilities. But, a “one-toone” adaption of the first principle - “flexibility to change” - is not efficient for business strategies according to the Pareto efficiency definition within traditional manufacturing branches. Due to high amount of fixed assets, long-term investments and huge organizations it is not as efficient and easy to apply this principle within the automotive branch compared to e.g. online-based or network related industries especially as strategy can also lead as a guideline for operative and long-term decisions. Based on the analysis of Kompalla et al. (2016) the automotive branch is characterized by high amount of fixed assets, high percentage of investments for new developments and a traditional stakeholder structure therefore frequent changes and adaptions to internal and external factors can increase instability and decrease trust in a company’s success as well as steady structure. The second agile method is the “execution based on continuous feedback” which is represented via iterative product development phases, customer driven pull-systems, on-site communications with stakeholders as well as sustainable R&D. Current changes within the automotive environment regarding regulations, information technology and new and emerging competitors from other branches (see chapter 3.1) force OEMs to apply this principle in a short term. New business models surrounding the core product such as car-Sharing apps, financial services, In-Car applications as well as new technologies regarding electric driven or autonomous driving cars are tested in iterative steps. In many cases there are pilot projects or strategic ventures, which are extended by the time the model shows a positive business case. Thereby OEMs can remain flexible in a small scale, to decrease risk and to keep access to innovative and unconventional suppliers. This can also be realized via coinvestments with suppliers (e.g. at Volkswagen with the “FAST” initiative). Close connections to stakeholders are difficult and on-site communication is decreasing especially due to the increasing globalization and the wide spread of organizational structures. In contrast to the consumer electronics industry, external factors do influence the business models of automotive branch deeply. This can be seen in governmental incentives for electric driven cars. But customer demands are shifting almost in the same speed within both industries. In some way the network and IT-Based industries are affecting the general demand of customers and thereby also the wishes for new vehicles or automotive business models. In order to increase flexibility and to remain competitive in the VUCA world, the third agile principle – “execution by the whole” - could also be efficient to be applied on traditional business strategies. Within software development this principles is reflected via continuous improvement (CI), motivation as well as trust and selforganization (decentralization). The last method, decentralization, has been discussed in literature in depth. Considering the complex organizational structure, involved departments and the formerly scattered supplier base, this would not be highly efficient for application on business strategies of automotive OEMs. But on the other hand, decentralization and self-organization, reduces risk of wrong decisions and motivates all involved parties. An example is Volkswagen, which is currently emphasizing this aspect within the whole management structure. An increase of self-organization especially would be a good combination of decentralization, which does not increase administrative effort while decreasing the queue of decision on top management level. Due to the experiences within lean manufacturing the continuous improvement of business strategies and models should be common in this industry. But due to high dependency of shareholder investments and due to traditional structures, business strategies are scarcely adapted or fine-tuned (Kompalla et al. 2016). And especially a complete turnaround of strategy is only done if the company is close to bankruptcy. The last principle – “focus on working products” – is reflected via the methods of concentrating on the working product, technical excellence and simplicity. The future of the automotive industry will most probably not be focusing solely on the traditional fuel-driven vehicle. New business models (car sharing, car customer networks etc.) will need to be evaluated and therefore KPIs need to be extended to capture these changes. The second method, technical excellence, is a traditional characteristic of the automotive branch. But a pure focus on the
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Andreas Kompalla et al. technical and design excellence will not be efficient. Innovative models which need to be tested and fine-tuned, will increase efficiency of business strategies in the future. The last method, simplicity, is applied widely in the automotive branch within the production of the products. The strategies themselves try to target many aspects without a clear focus. An extension of this method can be as efficient as in other branches. The summary of the analysis can be seen in the following table (see table 3): Table 3: Agile principles/clusters and their application within the Automotive industry (Own elaboration c.f. (Reeves et al. 2015; Kompalla et al. 2016; Kompalla & Kopia 2015 Highsmith 2001; Beck et al. 2007)
Example Cluster
1. Flexibility to change
2. Execution based on continuous feedback
Agile principles (Highsmith 2001; Beck et al. 2007)
Application of principles on strategy in adaptive sector (Reeves et al. 2015; Kompalla et al. 2016)
Evaluation of principles within “traditional” sector (Kompalla & Kopia 2015)
Efficiency of application within automotive industry (Own judgment based on chapter 3.1 & 3.2 and definition of pareto efficiency)
Agile software development
Business strategy of Alibaba (2008 – 2014)
Automotive Business strategy (2007 – 2015)
Branch characteristics of automotive industry (2000 – 2020)
Working software is delivered frequently (within weeks)
Core principles: Modulate, Shape, Modify
Core principles: Define, Follow, Achieve
High amount of investments for business opportunities " It is neither possible nor efficient to support all opportunities at a time.
Accept and adapt to changing requirements, (even in late development stages)
After testing of business model options, scaling up the most promising ones and closing down or reabsorbing those that are less promising.
Longterm fixed strategic plans, defined cycle plans for pro-ducts & fixed product development process.
High amount of fixed assets, long tooling creation & production lead times " Late changes in production are expensive & time consuming. Changing strategies frequently, can lead to mistrust of stakeholders.
Close and regular cooperation of management and developers
Close connection of stra-tegy and lower manage-ment levels via empo-werment to generate and test business models.
Strategy is a topmanagement topic supported by consulters or dedicated departments
Huge & globalized companies have more difficulties to regularly align strategy with operating levels. " Empowerment of people to parti-cipate mostly via idea management.
Customer satisfaction via early and continuous delivery of developments & Built-to-order and pull-systems
Experimenting with business models. Customer and demand decides which strategic path will be promoted
Strategic investments based on predictions and periodic data analysis
Close and thorough customer interaction in initial development phases of products. Pilot phases within new business models (e.g. car sharing, app offerings)
Face-to-face conversation is favoured (colocation)
Not examined
Not examined
Decentralized companies " Encourage communication via videoconferencing and screensharing in order to decrease costs
Sustainable development, able to maintain a constant pace
Constant or increasing generation of business options (in order to avoid rigidity and generate options)
New business models and strategic orienttations are adjusted periodically or according to need but scarcely proactive
Strategies are still long-term for 5 to 9 years. Changing automotive environment and new competitors will require a more sustainable and constant change of strategic aspects.
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Andreas Kompalla et al.
3. Execution by the whole
4. Focus on working products
Agile principles (Highsmith 2001; Beck et al. 2007)
Application of principles on strategy in adaptive sector (Reeves et al. 2015; Kompalla et al. 2016)
Evaluation of principles within “traditional” sector (Kompalla & Kopia 2015)
Efficiency of application within automotive industry (Own judgment based on chapter 3.1 & 3.2 and definition of pareto efficiency)
The team continuously looks for efficiencies and adjusts accordingly (CI)
At any time strategy is customized to environment; Focus is shifted every 1 -3 years; Self adjusting strategy;
Vision and strategy is fixed for 5 to 7 years. Adjustments in between are not common.
Small adaptions to quantitative targets and respective information for investors are required e.g. due to rules of stock markets
Projects are based on motivated and trusted individuals
Supporting and promoting managers to create business models
Relying on topmanagement decisions
Big company size and regional spread " Higher degree of partici-pation increases awareness of re-gions and departments while slowing down decision processes.
Decentralized decisions & Selforganizing teams support architectures, requirements, and designs
Decisions are pulled by the market / Neither centralistic nor time-point based but continuous; Management rotates frequently
Decisions mostly centralistic, Management rotates in general every 3 years.
High administrative effort for alignment of innovative ideas regarding business models and strategic outlines if all people are involved. But, pro-active and self-responsible trial and error method decreases administration expenses.
Sales increase, Return on investment, operating margin matching planned values
Strong focus on one type of product (major revenue factor). All costs are broken down to one vehicle. But strategic investments do not have a direct connection to the working product " Wider focus can be more efficient in a long-term.
Not examined
Pure focus on technical emphasis itself will not be sufficient in the automotive future " Innovative and interdependent business models are crucial for business success.
Not examined
Lean principles are widespread within operative level. But, business strategies themselves try to target many aspects at once.
Working software is the principal measure of progress
Positive business cases for business models
Continuous emphasis to technical excellence and good design
Continuous improvement embedded in high level business strategy
Simplicity: The art of maximizing the amount of work not done, is essential (Lean principle)
Not examined
4. Conclusion Considering the traditional definition of the automotive branch up to the first decade of the 21th century, with its suppliers, customers, competitors and substitutes as well as the internal business organization, culture and processes most of the agile principles are not (pareto) efficient to be applied on OEM business strategies (in specific if compared to other industries such as highly adaptive sectors). But considering the upcoming changes within the environment and also internal corporate culture many of the principles can, slightly adapted, be crucial for continuous business success. These findings are a qualitative judgment based on case study comparisons. In conclusion, these results can help to adapt current business strategies to remain flexible to upcoming changes within the competitive environment and future business models as well as to external
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Andreas Kompalla et al. regulations. Automotive enterprises should adapt certain agile characteristics within the strategic outlines in order to improve their business performance and especially to be prepared for new competitors. In further research KPIs need to be defined for the efficiency and a study across automotive manufacturers needs to be obtained in order to quantify the results. In order to evaluate the importance of increased agility within business strategies, it will be important to analyze the proportion of enterprises located in the VUCA environment (as well as considering the development of the business environment), which are especially leveraging from the agile principles. In a further research it is important to identify external or internal triggers that lead or should lead to strategic changes next to the general approach of reacting flexibly to changing customer demands or to further actors within the frameworks of Porter’s 5 forces. External factors such as political regulations within a specific industry have not been yet evaluated in depth within this research and require further investigation in a dedicated analysis. Additionally the influence of competitors and the efficiency of alignment or copy of their targets and methods need to be evaluated. Accordingly, it should not be the ultimative goal to be superior to competitors. It is rather the impetus to fulfill customer demands which makes companies successful (Magretta 2013). A strict copy of agile principles from other branches just to avoid success of new competitors could decrease the focus on the target of value creation - the customer.
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Analyzing Educators’ Perspectives on the Effects of Entrepreneurship Education on Students’ Entrepreneurial Intentions Lidia Kritskaya1 and Victoria Kritskaya2 1School of Business and Law, University of Agder, Norway 2Department of Management, Northern (Arctic) Federal University, Russia
[email protected] [email protected] Abstract: Understanding the effects of entrepreneurship education on students’ entrepreneurial intentions is essential to improve effectiveness and complementarity of entrepreneurship education programs. Accordingly, a multitude of researches has attempted to capture such effects by surveying students under various sampling frames. And while great insights have been harnessed from such efforts, these remained limited by their short term perspective, and by a multitude of conflicting evidence. This paper attempts to find out the reason for previous inconclusive results within the field by examining the effects of entrepreneurship education on students’ entrepreneurial intentions from the educators’ perspective. Doing so, the authors engage in theory development through comparative qualitative cross-case analysis of educators from Norway and Russia. The analysis results in a detailed theoretical model. The model was refined by exploring the perspective of educators rather than students, doing so qualitatively rather than quantitatively; both allowing a broader and longer term perspective, anchored in experience and theory. Moreover, the different historical preconditions of entrepreneurship in both Norway and Russia have affected people’s entrepreneurial intentions and the outcomes of the entrepreneurship education programs aiming to increase these intentions. Hence, a comparative approach allowed authors to identify factors that depend on cultural and socio-economic conditions of the two countries, and moderate entrepreneurship education – entrepreneurial intentions relations. Finally, the authors discuss practical implications, limitations and directions for future research. Overall, the model, research design and context taken together represent the contribution of the study. Keywords: entrepreneurship, entrepreneurship education, entrepreneurial intentions, educators, Norway, Russia
1. Introduction Interest in the effects of entrepreneurship education on students has been growing significantly in the last few decades, while being triggered by its assumed potential for supporting entrepreneurial outcomes. Such outcomes are often associated with entrepreneurial intentions in the short term and entrepreneurial behavior in the long term. In psychological literature intentions have proven to be the best antecedent of planned behavior if that behavior is rare, involves unpredictable time lags and is hard to observe. The entrepreneurship process could be classified as a planned behavior because it emerges over time and requires substantial planning. Therefore, entrepreneurial intentions are the best predictors of entrepreneurial behaviour (Ajzen, 1991; Bird, 1988). Furthermore, entrepreneurial intentions could be influenced through exogenous factors such as entrepreneurship education (Tokila & Tervo, 2011). Unfortunately, research findings on the entrepreneurship education’s influence on entrepreneurial intentions are inconsistent (Fayolle & Gailly, 2008; Hindle & Cutting, 2002). One of the possible reasons to the inconsistency effects on students’ is the lack of any qualitative exploratory research papers within the field. The other reason is the gap of educators’ perspective on this particular topic. Since educators stand at the interaction between instructors, partners and participants, it is important to examine their perspective on the relations between entrepreneurship education and entrepreneurial intentions, based on their work and experience. More specifically, such investigation may help us to identify elements that are not recognized in student-focused studies. Finally, instructors’ experience with multiple programs and course’ graduates could shed light about the important elements that may be evident only from longitudinal perspective, which has been absent in most research in this area.
2. Literature review In order to obtain relevant information for the research topic, meet quality standards and criteria for the inclusion into the literature review, the practical and methodological quality screens of the research literature were used. The study received 31 articles to work with during the literature review.
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Lidia Kritskaya and Victoria Kritskaya Research papers at the intersection of entrepreneurial intentions define dependent variable as “entrepreneurial intentions” and “intentions to self-employment”, while overall the literature presents thirty independent variables. The most common independent variables, represented in the Research Model 1 are: Entrepreneurship education (EE) is a variable aiming to capture educational program’s influence on students. Most of the articles (27) present positive direct effect of entrepreneurship education on students’ entrepreneurial intentions. Contrary to it, three articles present insignificant effect (A. Fayolle & Gailly, 2014; Mayer et al., 2014; Shinnar et al., 2014), while one article emphasizes a negative effect on students’ entrepreneurial intentions (von Graevenitz et al, 2010). The literature review demonstrates that all articles written about compulsory and theoretical entrepreneurship education identify negative or insignificant effect of entrepreneurship education on students’ entrepreneurial intentions. Contrary, the studies of voluntary and active types of entrepreneurship education show positive direct effect on students’ entrepreneurial intentions. The reason might be the “one-size-fit-all” nature of the compulsory theoretical entrepreneurship education programs. They reduce students’ motivation and, as a result, decrease entrepreneurship education’ effects (Hamidi et al., 2008; Minniti & Bygrave, 2001). Furthermore, the effect of entrepreneurship education on entrepreneurial intentions is found to be positively moderated by closer contact with professors and role models through the motivational teaching approach (Petridou & Sarri, 2011; Zainuddin & Rejab, 2010). Gender is an independent variable used to explain contradictory relationships in the research findings. Researchers consider that the gender-based expectations lead people to act accordingly gender stereotypes. Five of seven articles have reported positive general moderation effect of gender on entrepreneurship education’s influence on entrepreneurial intentions (Bae et al., 2014; Bilić et al., 2011; Nabi et al., 2010; Petridou & Sarri, 2011). Antecedences of entrepreneurial intentions are variables playing mediation role between entrepreneurship education and students’ entrepreneurial intentions. The most frequent variables are entrepreneurial attitudes and self-efficacy (ESE). Entrepreneurial self-efficacy measures individuals’ confidence in his/her abilities to successfully perform entrepreneurial behavior. The literature review testifies the mediation effect of entrepreneurial self-efficacy on entrepreneurship education’s influence on entrepreneurial intentions’ formation, and an indirect effect of entrepreneurship education on students’ entrepreneurial self-efficacy through the effect on students’ entrepreneurial knowledge and skills (Sanchez, 2011; Shinnar et al., 2014). Attitudes are an independent variable measuring personal attraction towards entrepreneurship (Ajzen, 1991; Kolvereid, 1996). The literature states that human capital has been viewed as a determinant of entrepreneurial intentions, and entrepreneurship education might cultivate students’ entrepreneurial attitudes towards increase of entrepreneurial intentions (Davidsson & Honig, 2003). Family member’s entrepreneurial experience (FMEE) is an independent variable that measures influence of selfemployed member of the family on their siblings. The research literature states the positive moderation effect of the variable through the stimulation of the motivation and entrepreneurial understanding among the siblings (Laviolete et al., 2012; Shapero & Sokol, 1982). Pre-education entrepreneurial intentions (Prior EI) are an independent variable measuring students’ entrepreneurial intentions before taking an entrepreneurship education. All articles, which have studied the variable, report negative moderation effect on entrepreneurship education’s influence on entrepreneurial intentions (Bae et al., 2014; von Graevenitz et al., 2010).
3. Methods The qualitative multiple case study design was chosen as a tool for the theory development study. For the purpose of the research, the authors have chosen the depth interview with a semi-structured interview guide. The interview guide included only open-ended questions to avoid leading questions and collect most exploratory response. The population for the research is entrepreneurship educators. They are to have a good experience and research work within entrepreneurship. Due to the qualitative nature of this research, a purposeful non-random probability selection of cases was chosen. Due to the time limitation and qualitative research method, the
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Lidia Kritskaya and Victoria Kritskaya sample was narrowed to two cases from Norwegian- and two cases from Russian universities. During the interviews, professors clarified the opinions they had about entrepreneurship education’s and intentions’ antecedences’ relationships with students’ entrepreneurial intentions.
Figure 1: Research model 1 As soon as interviews were executed, a coding of interview transcripts and case/cross-case analyses were performed. To ensure the credibility of the research, we contacted the professors to obtain a confirmation of findings from their cases. To exclude any influence on respondents, we did not show or discuss with them the results from other cases.
4. Results Answering the research question, we have identified the positive effect of entrepreneurship education on students’ entrepreneurial intentions. Moreover, entrepreneurship education impact on students’ entrepreneurial intentions is a complex phenomenon, which includes both intern and extern mediators and moderators, some of which entrepreneurship education is unable to control. Despite that fact, we have been able to recognize variables that mediate entrepreneurship education’s effect on students’ entrepreneurial intentions: !
Skills and knowledge. It enhances students’ entrepreneurial self-efficacy, attitudes and entrepreneurial intentions. The effect of these variables is caused by the main purpose of entrepreneurship education, which is to increase students’ awareness of entrepreneurship as a process and a career choice. The variable was neglected by the previous research. It led to concealment of additional entrepreneurship education’s power on– and through the variables– on entrepreneurial intentions;
!
Subjective norms represent entrepreneurial networks and social environment in the university. The variable appears to be affected by entrepreneurship education and has a power on students’ attitudes and entrepreneurial intentions;
!
Attitudes. All the respondents notice the positive effect of entrepreneurship education on students’ attitudes mediated by subjective norms, skills and knowledge, which students receive during entrepreneurship education.
In addition, the cross-case analysis identified five factors enhancing entrepreneurship education’s effects on students’ entrepreneurial intentions. These factors are entrepreneurship education components, prior background, family member’s entrepreneurial experience, personal traits and gender variables. Finally, the
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Lidia Kritskaya and Victoria Kritskaya research has highlighted some differences between variables’ effects due to the cultural and historical entrepreneurship preconditions in Russia and Norway.
Figure 2: Research model 2
5. Discussion The study has confirmed a positive effect of entrepreneurship education on students’ entrepreneurial intentions. However, this effect varies under the influence of intern and extern moderators. Similarly, the GEM Norway Report (2013) shows that only 8% of entrepreneurship education programs increase students’ entrepreneurial intentions, while 5% of them have the reverse effect (Alsos et al., 2014). Furthermore, the results obtained in the literature review were also inconclusive. On the whole, these controversial findings and lack of robust researches are caused by the complex nature of entrepreneurship, entrepreneurship education and entrepreneurial intentions. Hence, future studies have to provide more credible alignment of entrepreneurship education courses within the research, including the entrepreneurship education components and objectives, mediators and moderators influencing its results.
5.1 Mediators 5.1.1 Skills and knowledge The entrepreneurship education’s positive impact on the skills and knowledge variable matches its objective towards the improvement of students’ entrepreneurship awareness, which further empowers other variables. Hence, the researchers, who study entrepreneurship education effects, emphasize that the development of students’ skills and knowledge is the main foundation towards the improvement of their entrepreneurial selfefficacy (Singer et al., 2015; Verhovskaya et al., 2014). According to the cross-case analysis, the influence of the variable depends on entrepreneurship education components, which moderates its effects. We consider the necessity of the future research within the topic, searching for the effects of different variables on skills and knowledge and their mediation effect on entrepreneurship education influences.
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Lidia Kritskaya and Victoria Kritskaya 5.1.2 Entrepreneurial self-efficacy The educators emphasize that due to the positive effect of a person’s entrepreneurial self-efficacy on entrepreneurial intentions, the variable substantially mediates entrepreneurship education effect on students’ entrepreneurial intentions. According to the GEM Reports (2014) results,which show the significant mediation effect of entrepreneurial self-efficacy on entrepreneurial intentions, the entrepreneurial self-efficacy of the Norwegian respondents is 30.5%, while the entrepreneurial self-efficacy of the Russian respondents is 28.5%. It is rather interesting, considering that entrepreneurial intentions in Norway are 5%, while entrepreneurial intentions in Russia are 1.5% lower, which corresponds to 3.5% (Alsos et al., 2014; Verhovskaya et al., 2014). The EI difference (1,5%) matches the entrepreneurial self-efficacy difference (1,5%). Moreover, eight out of ten papers in the literature review indicate a positive effect of the variable on entrepreneurship education’ influence on student’s entrepreneurial intentions (Farashah, 2013; Laviolette et al., 2012; Mayer et al., 2014; Sanchez, 2011; von Graevenitz et al., 2010; Zainuddin & Rejab, 2010; Zhao et al., 2005). 5.1.3 Subjective norms Entrepreneurship education provides access to motivated class-mates, experienced guest-lectures and network. Hence, it engages students into the learning process and entrepreneurial activities through the opportunities to share and to relate to coevals’ experiences. Consequently, the educators suppose that subjective norms within the university and the study group improve students’ attitudes and mediate entrepreneurship education effects on students’ entrepreneurial intentions. The research literature supports this conclusion within the Norwegian context. Thus, Shneor and Jenssen (2014) have analysed 1972 students at the University of Agder and found mediation effect of the variable on students’ entrepreneurial intentions (Shneor & Jenssen, 2014). Contrary, Zainuddin et al (2010) implemented the quantitative ex-post survey of the final year entrepreneurship students from four major universities in Malaysia, and found no effect of professors’ subjective norms on students’ entrepreneurial intentions. However, he noticed that the professors lacked the experience within entrepreneurship and the universities had a weak entrepreneurial culture. Therefore, the practical experienced educator and entrepreneurial university’s culture are expected to be important moderators of subjective norms’ effects. Not to be forgotten, the professors expect a positive subjective norms effect on females’ entrepreneurial selfefficacy, which corresponds to the findings of the Norwegian professors (Shneor & Jenssen, 2014). 5.1.4 Attitudes Attitudes are the complex variable, which is difficult to observe and to manage within the short-time entrepreneurship education program. Moreover, contrary to the literature review, the cross-case analysis repudiates the existence of the direct effect of entrepreneurship education on students’ attitudes. All respondents agree that entrepreneurship education influences on the students’ entrepreneurial attitudes through skills and knowledge, and subjective norms variables. Skills and knowledge, which students receive during entrepreneurship education courses, increase their awareness of entrepreneurship. An entrepreneurial environment drives students’ subjective norms, due to the social behavioral factor. As a result, it might mediate entrepreneurship education effects on their attitudes. Not to be forgotten, in order to enhance this effect, the educator should provide information about both entrepreneurship as a process and its meaning for economic and social development of the region. This conclusion is in alignment with the results of the research literature (Rasmussen & Sørheim, 2006).
5.2 Moderators 5.2.1 Combination of entrepreneurship education tools The study emphasizes the combination of entrepreneurship education tools as the main key to manage the power of all its effects on students.
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Lidia Kritskaya and Victoria Kritskaya 5.2.2 Active elements versus theory The research points out that theory builds a foundation for students’ entrepreneurial awareness and has a positive effect on students’ knowledge. On the other hand, the cross-case analysis highlights the weak effect of theory on students’ entrepreneurial skills. Moreover, it might even reduce students’ entrepreneurial selfefficacy and entrepreneurial intentions due to the increase of the students’ awareness about amounts of challenges within the entrepreneurship process. Contrary to the theory, active elements within entrepreneurship education positively affect entrepreneurship education - entrepreneurial intentions relations. These elements allow students to gain practical experience and entrepreneurial self-efficacy through real-life problem-solving tasks within the low risk environment of their universities (A. Fayolle et al., 2006; Walter & Dohse, 2012). Consequently, all respondents insist on the essence of the combination of the theory and active elements within entrepreneurship education due to their complementarities. This finding is confirmed by other researches, who argue that including training and learning-by-doing elements should empower entrepreneurship education’s effects on students’ entrepreneurial self-efficacy, skills and knowledge (Bandura, 1986; Minniti & Bygrave, 2001). Finally, the combination of the entrepreneurship education elements allows educators to shift from the “knowwhat” to “know-how” and from the supply- to the demand-competence models of pedagogy, which have been proved to be the most effective towards entrepreneurial intentions formation (Walter & Dohse, 2012; Wang & Verzat, 2011). 5.2.3 Compulsory versus voluntarily entrepreneurship education Furthermore, the study found that the type of entrepreneurship education might enhance its effects on students. All professors explain that compulsory entrepreneurship education courses involve much bigger groups of students; some of them are not very interested in entrepreneurship. Therefore, it might negatively influence the study group’s entrepreneurial self-efficacy and subjective norms and, as a result, entrepreneurial intentions. It is interesting to notice that the literature within the field contains a predominance of articles reporting negative or insignificant effects of compulsory entrepreneurship education programs on students’ entrepreneurial intentions. Contrary, the researchers, who studied effects of the elective entrepreneurship education courses on students’ entrepreneurial intentions, unanimously conclude that there is a positive effect (Bilic et al., 2011; Linan et al., 2011; Sanchez, 2011). 5.2.4 Inspirational and experienced educator An educator is a knowledge provider. His/her ability to communicate with students and to present relevant study material define entrepreneurship education effects. The theory of the triadic reciprocal causation states that feedback from others and mentoring significantly moderate entrepreneurship education effects, especially the effect on individuals’ entrepreneurial self-efficacy (Bandura, 1986; Shinnar et al., 2014). Moreover, three of four professors insist on the necessity of the entrepreneurship practical-experienced educators, which could be substituted by guest-lectures as entrepreneurs’ role models. The research literature indicates that the lack of the educators’ experience and relevance of entrepreneurship education to regional and industrial contexts moderates negatively entrepreneurship education effect on students’ entrepreneurial intentions (Petridou & Sarri, 2011; Walter & Dohse, 2012; Zainuddin & Rejab, 2010). 5.2.5 Successful and unsuccessful stories The respondents agree that the content of the entrepreneurship education might influence its effect. Nevertheless, its effect would depend on educators’ ability to present the learning outcomes from both kinds of cases. Hence, both successful and unsuccessful cases should be included into entrepreneurship education. This assumption is supported by the Laviolette et al. (2012), who found out that examples of unsuccessful role models positively mediate entrepreneurial self-efficacy effect on students’ entrepreneurial intentions, while
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Lidia Kritskaya and Victoria Kritskaya entrepreneurship education effect on students’ entrepreneurial intentions is better moderated by stories than by role models (Laviolette et al., 2012). 5.2.6 Gender The professors suppose that females are less interested in self-employment due to the male nature of entrepreneurship, lack of female role models and high probability of risk during the process. At the same time, the professors argue that entrepreneurship education might improve females’ entrepreneurial self-efficacy through the subjective norms, skills and knowledge mediators. The finding is supported by the literature review results. The articles show that females’ pre- entrepreneurship education’s entrepreneurial self-efficacy negatively moderates entrepreneurship education effect on women’s entrepreneurial intentions. Females’ entrepreneurial self-efficacy could be improved by entrepreneurship education through contact with female entrepreneurial role models and practical experience in a risk-free environment ( Laviolette et al., 2012; Paco et al., 2015). 5.2.7 Prior background The variable consists of the factors of Pre-education entrepreneurial intentions, Family member’s entrepreneurial experience, and Background and Specialization due to their common effects on the same factors. The variable forms students’ ability to understand the learning material due to the pre-entrepreneurship education established interest and knowledge within the field. Hence, the variable improves entrepreneurial self-efficacy and attitudes’ effects on entrepreneurship education - entrepreneurial intentions relations. All the research papers within the field of the Background and Specialization effects unanimously report positive moderation effect of students’ background and specialization on entrepreneurship education effects (Mohamed et al., 2012; Nabi et al., 2010; Wu & Wu, 2008). Contrary, the majority of the articles, which study the preeducation entrepreneurial intentions’ and Family member’s entrepreneurial experience’s effects, show significant negative moderation of entrepreneurship education effect on students’ entrepreneurial intentions (Bae et al., 2014; A. Fayolle & Gailly, 2014; von Graevenitz et al., 2010). On the other hand, Hamidi et al. (2008), and Shneor and Jenssen (2014) found a direct positive effect of students’ entrepreneurial experience on their entrepreneurial intentions (Shneor & Jenssen, 2014; Hamidi et al., 2008), while Mohamed et al. (2012) found a significant positive effect of Family member’s entrepreneurial experience on entrepreneurship education effect (Mohamed et al., 2012). We expect that the inconsistencies of the research findings are caused by the type of the research. The majority of the papers assessed students using survey tools. These tools might complicate both educators’ and students’ ability to single out entrepreneurship education and moderators’ effects on entrepreneurial intentions. Moreover, we assume that entrepreneurship education cannot affect students’ families and pre-education entrepreneurial intentions due to the fact that they had been established in the past. Therefore, future research should study variables’ influence on entrepreneurship education effects on students’ during and afterentrepreneurship education’s entrepreneurial intentions, and exclude the attempt to test entrepreneurship education effect on pre-education entrepreneurial intentions and Family member’s entrepreneurial experience. Finally, the professors expect students with relevant prior background to have higher expectations of entrepreneurship education courses. Thus, their entrepreneurial intentions could be reduced during a theoretical and introductory entrepreneurship education. Similarly, Petridou and Sarri (2011) report negative moderation of students’ expectations on entrepreneurship education effect on entrepreneurial knowledge, skills and attitudes (Petridou & Sarri, 2011). Consequently, the better students’ prior background is, the more active elements should be included in the entrepreneurship education. 5.2.8 Personal traits All the respondents agree that the variable affects the influence of entrepreneurial self-efficacy on students’ entrepreneurial intentions. Hence, students with entrepreneurial personal traits are expected to be more active during entrepreneurship education. However, the presence of the personal traits should not be a requirement to students, because entrepreneurship education provides an opportunity for students to adapt and to improve the required personal traits. Similarly, the research papers unanimously confirm positive effect of students’
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Lidia Kritskaya and Victoria Kritskaya qualities on entrepreneurial intentions and entrepreneurship education effect on students’ entrepreneurial intentions (Mayer et al., 2014; Sanchez, 2011; Walter & Dohse, 2012; Wang & Verzat, 2011).
5.3 Russia versus Norway Geert Hofstede identifies Russia as a country with a high power distance and uncertainty avoidance (Hofstede, 2015). Moreover, the majority of educational modules at the universities are compulsory. Therefore, it is not surprising that Russian professors identified positive moderation of students’ entrepreneurial intentions by the compulsory theoretical entrepreneurship education. In addition, the fact of high power distance in the Russian culture explains the moderation effect of the inspirational teaching and the warning of the Russian professors that Family member’s entrepreneurial experience moderator might have both positive and negative effects on entrepreneurship education outcomes; where the negative effects might be caused by forcing children towards EE or working for family business. On the contrary, Norwegians exhibit middle uncertainty avoidance characteristics of the social structures (Hofstede, 2015). Norwegian entrepreneurial behavior has been inspired by a chance to improve the quality of life, and due to the low power distance, the government has never forced people towards anything (Dalgaard, et al., 2011). Similarly, this study indicates that compulsory theoretical entrepreneurship education courses have only weak effect on students in Norway. Moreover, we found differences between Russian and Norwegian professors’ perceptions on attitudes’ effects on students’ entrepreneurial self-efficacy. There seemed to be the lack of attitudes’ effect on students’ entrepreneurial self-efficacy in Norway. Similarly, GEM Norway (2013) states that, despite favorable conditions for entrepreneurship and high social attitudes, Norwegians demonstrated dramatically low entrepreneurial selfefficacy and entrepreneurial intentions (Alsos et al., 07. 2014). On the contrary, GEM Report (2014) explains that attitudes of the Russian respondents about entrepreneurship as a preferable career choice are higher than in Norway. However, the perceived opportunities are much lower (Singer et al., 2015; Verhovskaya et al., 2014). The Russian history of forbidden entrepreneurship activity, unfavorable financial system, and the lack of information have leveled out entrepreneurial self-efficacy among non-entrepreneurs in Russia. Finally, the paper found a difference between entrepreneurship education effect on out-of-towners and local students in bigger city in Russia. The professors suppose that out-of-towners’ entrepreneurial intentions are lower due to the necessity to survive in the big city; these students have to prioritize employment in order to procure money. Besides, the GEM Russia (2013) states that entrepreneurship opportunities depend on the infrastructure and the density of population. The study found a quite low level of entrepreneurial behavior among population in the countryside, whereas they have demonstrated the highest entrepreneurial intentions. However, the highest amount of new staged entrepreneurs was found in the cities of a million people (Verhovskaya et al., 2014). The literature review reports the moderation effect of the regional context on entrepreneurship education - entrepreneurial intentions relationship (Mohamed et al., 2012; Walter & Dohse, 2012).
6. Conclusion The paper contributes to the field by evaluating the entrepreneurship education - entrepreneurial intentions relations from the educators’ perspectives, which allows us to provide additional– and to re-evaluate existent– factors that influence entrepreneurship education effect on students’ entrepreneurial intentions. As a result, this study provides evidence that the main explanation for the discrepancy concerning entrepreneurship education effects on students’ entrepreneurial intentions lies in the variables moderating entrepreneurship education effects. Serious attention should be paid to the entrepreneurship education components as the main tool towards designing entrepreneurship education and providing entrepreneurship education effects. The perspective of the educators from both Russia and Norway allows us to identify influence of the cultural and socio-economic realities on students’ entrepreneurial intentions. Finally, the research presents a number of findings, which should be re-evaluated and used as a framework for future studies with the purpose to measure the power of discovered factors on entrepreneurship education outcomes. In addition, the further quantitative research within the topic is required to make sure that the results can be representative for the whole population in Norway and Russia.
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Tacit Knowledge Sharing and Personal Branding: How to Derive Innovation From Project Teams? Wioleta Kucharska and Jakub Dąbrowski Gdansk University of Technology, Poland
[email protected] [email protected]
Abstract: Innovation, relationships, cooperation, and knowledge are key factors which determine a competitive advantage in the network economy. A network serves as a contemporary form of market process coordination. Network economy, according to the idea of prosumerism, is founded on collaboration of individual creators based on a network of values instead of hierarchical dependencies. Another feature of a network is that it imposes symmetry of advantages. In such conditions, a set of relationships of a company in an arrangement: “one to many” changes into a relationship “many to many” (networking), and creates a complete network of company values including: business partners and customers (external network), as well as the company’s employees (internal network). The importance of knowledge and relationship in the process of network value creation by innovation is significant. In light of all the above, identifying valuable innovations takes place as a result of symmetrical co-creation and cooperation of members of a consciously configured value network. The objective of the study is to highlight that building a personal brand could be a natural motivator for knowledge workers to share the tacit knowledge they possess. This knowledge, next to explicit knowledge, innovation, relationship, and cooperation, is a key determinant of competitive advantage in the networked economy. Knowledge, as a source of innovation, determines an advantage of one network arrangement over another. This situation has completely changed the role of knowledge workers who now become independent knowledge producers. Modern companies are increasingly likely to work in a project management environment because it ensures their success in the implementation of innovation. Knowledge sharing and team cooperation encourage innovative solutions creation and consequently positively affect project performance. Bearing this fact in mind, the authors studied how tacit knowledge sharing affects the process of building a personal brand and project performance. For this purpose, the authors conducted a study among Polish professionals with different roles and experience in managing projects in various industries. The data collected during the study has been analysed using the equal structural modelling method. The results indicate that tacit knowledge sharing is used when developing a personal brand of knowledge workers. The intermediary role of personal branding in the relationship of tacit knowledge sharing and project performance points to a new context of tacit knowledge sharing as a key factor of knowledge management in learning organisations, which can be used for designing incentive schemes. A personal brand as a strong motivator for tacit knowledge sharing is a gain based not on financial benefits but on creating a perspective of future income whose foundation is a good reputation of one’s strengthened brand. Tacit knowledge being a source of innovation stimulated by tailored incentive schemes enhances growth of successful innovation. Keywords: tacit knowledge, personal branding, project performance, knowledge management, network economy
1. Introduction Innovation, relationships, cooperation, and knowledge are key factors which determine a competitive advantage in the networked economy (Tapscott, 1989; Perechuda, 2007; Mazurek, 2012). A network serves as a contemporary form of market process coordination. Network economy, according to the idea of prosumerism (Toffler, 1981), is founded on collaboration of individual creators based on a network of values instead of hierarchical dependencies. Another feature of a network is that it imposes symmetry of advantages (Powell, 1990). In such conditions, a set of relationships of a company in an arrangement: “one to many” changes into a relationship “many to many” (networking) and creates a complete network of company values including: business partners and customers (external network), as well as the company’s employees (internal network). Knowledge, as a source of innovation, determines an advantage of one network arrangement over another. This situation has completely changed the role of knowledge workers who now become independent knowledge producers. Being a source of intellectual capital they can, independently from for example a corporate hierarchy, distribute the value which they generate in an already existing network, or they can build such a network themselves. The named network, in pursuit of its highest efficiency, looks for such knowledge workers in order to increase its productivity. Intellectual capital as a source of value in the networked economy is generated outside hierarchies. Thus, the network economy imposes building a relational equity (Sawhney and Zabin, 2012) which is the essence of efficiency in a network. In reference to Hunt’s resource-advantage (R-A) theory (2014) the relationship in itself also constitutes a resource. Thus personal branding of knowledge workers, whose goal is to build business relationships, becomes a natural consequence of their empowerment in the contemporary economy. The importance of knowledge and relationship in the process of network value creation by innovation
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Wioleta Kucharska and Jakub Dąbrowski is significant. In light of all the above, identifying valuable innovations takes place as a result of symmetrical cocreation and cooperation of members of a consciously configured value network. Innovation consists in implementing a new or significantly improved product (a good or a service) or process, a new marketing method or a new organisational method, into business practice, organisation of a work place or relationships with the surrounding world (Eurostat, 2005). An organisation may create innovations both within an internal and external network as places where ideas are born. Likewise, the innovations may be dedicated to internal and external values of the network as a beneficiary of the bundle of benefits such innovation may bring. Innovation equals change. Efficient implementation of changes more and more frequently is done through a project. Worthy of particular attention here are project organisations called temporarily for the purpose of a specific goal (business product). Teams of such organisations usually include people with different skills and knowledge who come from different functional divisions of an organisation, and sometimes even from different organisations. Project management is linked to the idea of organisation as a network of activities by Czarniawska (2010), under this principle it can be assumed that functional and process management, however necessary, is not sufficient in the network economy. Project organisations are the answer to the necessity of working in a change implementation mode. Efficiently functioning companies organise a project, whose goals is to develop and implement a change, in such a way as to achieve desired results in time and framework of allotted resources (Portny, 2010). Apart from the best known methodologies and approaches to project management popularised by Project Management Institute (PMI) and Organisation of Government Commerce (OGC), such as PRINCE2, Project Management Body of Knowledge (PMBoK), OPMA Competence Baseline, „agile” methodologies, Project Cycle Management (PCM) there are many approaches now deployed by companies successfully in innovation implementation. The probability of an effective change (innovation) implementation in an organisation thanks to the application of a project approach is even greater, since each of the above mentioned methodologies of project management enjoins the people responsible for its implementation to maintain a continuum of business justification of an enterprise (PRINCE2). Keeping the information organised and complete, and free flow of knowledge assured by the project method of change implementation are an effective way to achieve a final success not only related to a particular innovation, but also a long term success achieved thanks to creating a knowledge sharing culture in a learning organisation.
2. Knowledge workers and personal branding The notion of personal branding (Peters, 1997) has taken on major importance in the blooming era of social media (Dutta, 2010; Labrecque, Markos and Milne, 2011; Karaduman, 2013) and refers to all users of the medium (Shepherd, 2005). A personal brand, analogically to a commercial brand, is about gathering the capital in minds of friends and colleagues. Creating a reputation of one’s own personal brand in the era of the network economy, including social media, is crucial. Consciously creating a desired personal image, based on credible and coherent information, in order to generate income and personal development by pursuing ambitious professional challenges is very popular among professionals (Kang, 2013) and knowledge workers who become increasingly more autonomous (Mladkova, Zouharova and Novy, 2015; Mladkova, 2015). The idea of personal branding is in agreement with human nature, which is characterised by the inner need to belong and be recognised. The transience of peer to peer relation in the network economy makes knowledge workers to function as an independent personal brand whose reputation is significant in the process of network value creation. This can be a stronger motivator for knowledge sharing than the trust which is difficult to gain in a cursory reality of transient project organisation. Contextuality of knowledge and the key role of knowledge workers in modern network arrangements contribute to the growing self-awareness of the need for personal development among such workers. It can be assumed that a vital element of the training is intellectual dexterity in various contexts. Skills of knowledge workers become sales objects, which makes them vividly interested in completing, training and expanding their knowledge which requires an attitude open to knowledge but also to colleagues with whom they come in contact, and who enhance such knowledge creation. Knowledge creating is a dynamic social process characterised by profound human interactions. Sharing informal knowledge is an informal voluntary act of the knowledge owner. It is impossible to formalise the act of commitment, for you cannot express your commitment in a not-commitment way (Polanyi 1966, p.25). That is why skills of producing, storing and sharing tacit knowledge depend also on personality, skills, explicit knowledge, and the ability to use external resources of explicit knowledge, as well as own and other people’s experiences. Environmental conditions, so-called organisational culture also affect the production and sharing of tacit knowledge (Walczak, 2012). Hence, this
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Wioleta Kucharska and Jakub Dąbrowski article’s goal is to study the relationship between the construct of personal branding of knowledge workers who work using a project method and tacit knowledge sharing as determinants of innovation.
3. Tacit knowledge sharing: Challenge for knowledge management Knowledge management is a process of creating new knowledge, identifying sources of knowledge, as well as elicitation and distribution of knowledge (McInerney, 2002). Tacit knowledge is crucial today because, in contrast to explicit knowledge, it is absolutely novel, which makes it truly advantageous. Tacit knowledge is specific: it is produced and stored in people’s minds. Tacit knowledge as an intangible asset is closely related to social capital. The main source of know-how and experience are knowledge workers, for whom knowledge is the major tool and resource of their work (Mladkova, Zouharova and Novy, 2015). In order to become innovative and generate market advantage a modern network organisation must manage this resource, which in no way belongs to it, until tacit knowledge is transferred into explicit knowledge. Explicit knowledge can be codified and is easier to transfer compared to tacit which is hard to codify or write down and thus commonly needs to be acquired through practical experience in a relevant context (Lindström, Delsing and Gustafsson, 2015). Since this type of knowledge is contextual, it basically cannot be codified because a changed situational context causes the codified knowledge to expire, if only, with the present day dynamics of the environment, an organisation will manage to codify it. What is the key then to tacit knowledge management when it comes to independent knowledge creators? How to transfer tacit knowledge? How to convert tacit to explicit knowledge (Lindström, Delsing, and Gustafsson, 2015)? How to distribute tacit knowledge in order to develop an organisation, increase its innovation and build a market advantage? The literature suggests that the key to meet this challenge is to build an organisational culture which encourages knowledge sharing and one where relationships are based on trust and cooperation (Munns, 1995; Park and Lee, 2014; Buvik and Rolfsen, 2015). According to the authors of this paper the list of elements should include one more, and in our opinion the strongest, motivator which is one’s own personal gain based not on financial benefits related to a current salary but on creating a perspective of future income whose foundation is a good reputation of one’s personal brand.
4. Conceptual framework The goal of this research is to highlight that personal branding of knowledge workers can be a natural motivator to share their tacit knowledge which also affects final project performance. In order to prove it, a research model has been designed, where a theoretical assumption was made related to the influence of knowledge management on Tacit Knowledge Sharing and project performance, with personal branding playing the role of a mediator. Figure 1 illustrates the assumed conceptual framework. The relationship between general knowledge management and project performance was examined by Reich, Gemino and Sauer (2014) and CalvoMora et al (2015). Based on their research, the following hypotheses have been formulated: H1: Knowledge Management has a positive influence on Project Performance. H2: Knowledge Management has a positive influence on Tacit Knowledge Sharing. In relation to the above hypotheses, as well as the research of Hau et al (2013) related to the influence of Tacit Knowledge Sharing on explicit knowledge, which according to the quoted research of Gemino, Reich and Sauer (2015) and also Park and Lee (2014) affects project performance, following a logical inference, it has been assumed that analogically to knowledge sharing, tacit knowledge sharing has a positive influence on project performance, which is reflected in hypothesis 3: H3: Tacit Knowledge sharing has a direct positive influence on Project Performance Based on the theory of planned behavior by Ajzen (1991) and the idea of personal branding by Peters (1997) a hypothesis has been developed which talks about tacit knowledge sharing in order to build a personal brand, namely: Tacit Knowledge sharing has a positive influence on Personal Branding of the team member who shares his knowledge. A significant determinant of sharing creates a positive attitude of other team members towards the sharing member of the team. Tacit knowledge sharing affects a positive attitude towards that member’s personal brand. H4: Tacit Knowledge sharing has a positive influence on Personal Branding of the team member who shares his own tacit knowledge. Regarding Project Performance, and as a consequence of the above assumption that personal branding is a sharing motivator, a hypothesis has been made which says that personal branding is a mediator between tacit knowledge and project performance, hence the hypothesis below:
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Wioleta Kucharska and Jakub Dąbrowski H5: Personal Branding of team members has a positive influence on Project Performance The Figure 1 below illustrates the theoretical model.
Source: authors own study Figure 1: Conceptual framework Source: authors own study based on Ajzen (2002), Calvo-Mora et al (2015), Gemino, Reich and Sauer (2015), Reich, Gemino and Sauer (2014), Hau et al (2013), Park and Lee (2014)
5. Methodology The study was conducted based on the data originally collected among Polish professionals with different roles and experience in managing projects in various industries. The sample comprised 60% of team members, 19% of project managers, 15% of team leaders, 3% of steering committee, 2% of project sponsors and 1% others. The industries included in the study are as follows: 27% production, 16% marketing & sales, 12% IT, 9% science & education, 7% services, 6% construction, 5% society projects, 5% media, 4% logistics & supply, 3% finance, 3% controlling, 3% others. 60% of the respondents were male and 40% were female. The data was collected from January to February 2016 with the use of a questionnaire. The questionnaire’s design was based on measurement scales and their sources presented in Appendix 1. The respondents reacted to statements based on a 7- point Likert scale, which goes from 1 – definitely NOT, through 4 – neither YES nor NOT, until 7 – definitely YES. The questionnaire was preceded by a short introduction explaining the purpose and subject matter of the study. The first qualifying question directly referred to the subject matter of the study and regarded the respondent’s affiliation to any project whose performance was assessed. The subsequent part of the structure of the questionnaire led from general to detailed questions which required more precise answers. The proper study was preceded by a pilot study (24 persons). The pilot study made it possible to optimize statements. In effect, for the benefit of the study reliability, problematic statements have been eliminated. Data collection took place electronically, using mainly the “snowball method”, and started with managers who were then willing to recommend our study to their acquaintances. The data was collected from January to March 2016 among Polish professional project members. The sample size was 305 respondents, 225 cases were accepted for further analysis, after rejecting faulty and incomplete questionnaires. The analysis was conducted using the structural equation modelling method. For the theoretical model presented in Figure 1, a measurement and later a structural Confirmatory Factor Analysis (CFA) models have been developed. The model was then estimated and assessed. Estimation was conducted according to a maximum likelihood method (ML). The evaluation of the model quality was conducted based on tests such as: Root Mean Square Error of Approximation (RMSEA), CMIN/DF, Comparative Fit Index (CFI), and HOELTER with the use of SPSS AMOS 23 software. Table 1 presents test results of the model’s goodness of fit. Table 1: Test results of the model’s goodness of fit. CMIN/DF 1.95
RMSEA 0.065
NFI 0.92
RFI 0.90
IFI 0.96
Source: author’s own study developed with SPSS AMOS 23
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TLI 0.95
CFI 0.96
HOELTER 0.05 146
Wioleta Kucharska and Jakub Dąbrowski Based on the readings, CFA model presented in Figure 2 may be considered as well fit in relation to the data. Model reliability level 1.95 can be viewed as high, with the reference ≤5 (Wheaton, 1977). Model fit to the data based on approximation average error RMSEA at 0.065 also meets the reference values, referring to Stieger & Lind (1980), below 0.08. Measurements of goodness of fit came close to 1 (Bollen, 1986, 1989), which confirms the mentioned above quality. Hoelter’s coefficient exceeded 146, which also corroborates the above statements (Hoelter, 1983). A positive evaluation of the model allows to proceed to the presentation of test results.
6. Results The results indicate that personal brands of knowledge workers are built with the use of tacit knowledge sharing, which affects final project performance. As a result, there is not a direct influence of tacit knowledge sharing on project performance but the influence is indirect, it is strongly mediated by personal branding. Figure 2 Graphical presentation of achieved results.
Source: authors own study with the use of SPSS AMOS 23 Figure 2: CFA Model p " ln L(> ) " # ln f ( xi ,> ) " max l (> ) .
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T
>
i "1
We have to estimate 11 independent parameters of the model, and the sample size is quite enough to cope with this problem.
4. Modelling results As we can see on Fig.1, the correlation between logarithms of output of innovative products and services and costs on technological innovations is about 0.8, and it reaches its maximum value when the lag between these variables is one year. This value of lag is explainable, it characterize how fast is the return of costs on technological potential improvement in Russian federation.
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Viacheslav Sirotin and Marina Arkhipova
Source: own elaboration Figure 1: Correlation between logarithm of output of innovative goods and services (2012 –dashed line, 2013solid line) and lagged logarithm of expenditure on technological innovations (lags from 2 to 0 on the horizontal axis) Two homogeneous groups have been identified as a result of the pdf parameters maximum likelihood estimation, and the estimates are presented in the table 1. The most numerous is the group of leading regions which exceeds the following group on each parameter. Table 1: Estimates of parameters year 2010 2011 2012 2013 2014
№ of the component 1 2 1 2 1 2 1 2 1 2
! q
,1
,2
!
=1
!
=2
!
! 2
0,68 0,32 0,52 0,48 0,80 0,20 0,78 0,22 0,79 0,21
9,34 6,64 10,17 7,61 10,01 5,45 9,89 5,80 10,07 5,49
8,26 6,01 9,17 6,67 8,80 5,75 8,99 5,60 8,99 5,59
1,15 1,51 1,07 1,37 1,28 1,74 1,36 1,96 1,20 1,71
1,08 1,41 1,00 1,15 1,19 0,95 1,27 0,84 1,26 0,77
0,24 0,10 0,27 0,22 0,26 0,22 0,26 0,33 0,30 0,11
!
Source: own elaboration The distance between the centres of the groups remain just the same since 2010 till 2014 (see Fig. 2 – Fig. 6). Tver, Yaroslavl, Rostov, and Stavropol are the most typical regions of the leading group at this period of time, while the most typical following regions are Orel, Kaliningrad, Kamchatka regions and Kabardino-Balkaria.
Source: own elaboration using data of http://www.gks.ru/bgd/regl/b15_14p/Main.htm Figure 2: Russian regions in the space of logarithm of output of innovative goods and services and logarithm of expenditure on technological innovations with the centres of groups, 2010 year
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Viacheslav Sirotin and Marina Arkhipova
Source: own elaboration using data of http://www.gks.ru/bgd/regl/b15_14p/Main.htm Figure 3: Russian regions in the space of logarithm of output of innovative goods and services and logarithm of expenditure on technological innovations with the centres of groups, 2011 year
Source: own elaboration using data of http://www.gks.ru/bgd/regl/b15_14p/Main.htm Figure 4: Russian regions in the space of logarithm of output of innovative goods and services and logarithm of expenditure on technological innovations with the centres of groups, 2012 year
Source: own elaboration using data of http://www.gks.ru/bgd/regl/b15_14p/Main.htm Figure 5: Russian regions in the space of logarithm of output of innovative goods and services and logarithm of expenditure on technological innovations with the centres of groups, 2013 year
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Viacheslav Sirotin and Marina Arkhipova
Source: own elaboration using data of http://www.gks.ru/bgd/regl/b15_14p/Main.htm Figure 6: Russian regions in the space of logarithm of output of innovative goods and services and logarithm of expenditure on technological innovations with the centres of groups, 2014 year The share of regions that change their membership in the structure is relatively low, so we can say about that the structure is stable with low fluctuations inside of it.
5. Conclusion The hypothesis of substantial difference in innovative development in such a vast country as Russian Federation is supported by the model of probability density function. It shows that country includes two relatively homogenous groups that differ substantially from each other in costs and results of innovative activity. The features of these groups are the matter of further research. The output of innovative goods and services expenditure on technological innovations can be used as the relevant indicators of costs and results of innovative activity. The regional structure of innovation activity as a whole is relatively stable and sustainable. It is supported by changes of some regions positions in opposite directions. The progress in measuring additional indicators on regional level needs improvement of statistical base and providing up-to-date information.
References Blind, K. (2012) The influence of regulations on innovation: a quantitative assessment for OECD countries. Research Policy, 41 (2), pp. 391-400 Bogliacino, F., Pianta, M. (2011) Engines of growth, Innovation and productivity in industry groups. Structural Change and Economic Dynamics, 22, pp. 41-53 Ciftci, M., Cready, W.M. (2011) Scale effects of R&D as reflected in earnings and returns, Journal of Accounting and Economics 52, pp. 62-80 Fagerberg, J., Feldman, M, Srholec, M. (2011) Technological Dynamics and Social Capability: Comparing U.S. States and European Nations, Working Papers on Innovation Studies 20111114, Centre for Technology, Innovation and Culture, University of Oslo ICT and Human Development: Towards Building a Composite Index for Asia, (2004) UNDP Indicators of innovative activity (2012), National Research University Higher School of Economics, Moscow Regions of Russia: Social and Economic Indicators (2015) [online] http://www.gks.ru/bgd/regl/b15_14p/Main.htm The Global Innovation Index [online] http://www.globalinnovationindex.org/gii/
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A Case Study of Entrepreneurial Ecosystem Related to Growth Firms Kirsti Sorama and Sanna Joensuu-Salo Seinäjoki University of Applied Sciences, Finland
[email protected] [email protected]
Abstract: Firm growth has received wide attention from policy makers during recent years. However, there is a research gap in examining the value of entrepreneurial ecosystem related to growth firms. The concept of entrepreneurial ecosystem refers to the interaction that takes place between a range of institutional and individual stakeholders so as to foster entrepreneurship, innovation and SME growth (Isenberg 2010). The aim of this paper is to examine how the entrepreneurial ecosystem can either enhance or hinder firm growth. This paper contributes to understanding the effects of the entrepreneurial ecosystem related to growth firms using case study method. The objective of this study is to analyse how the entrepreneurial ecosystem related to growth firms supports 1) the motivation of entrepreneurs to grow the firm, (2) the organic and non-organic growth strategies of firms and (3) managing the consequences of firm growth. The data of this case study consists of thirteen interviews from different stakeholders of the entrepreneurial ecosystem related to growth firms in the region of South Ostrobothnia in Finland. The stakeholders represent the fields of finance, private and public experts, education and local universities as part of the ecosystem. Data is analysed using conventional content analysis. Results show that the entrepreneurial ecosystem acts in three levels: individual/firm level, micro-environmental level and macroenvironmental level. The support of the entrepreneurial ecosystem is seen most difficult in the individual/firm level. Motivation of entrepreneurs to firm growth is hindered with different psychological factors of acting stakeholders. On microenvironmental level the support is active especially with non-organic growth strategies but there seems to be a problem with the connectivity and with the finance. Macro-environmental level refers to public policy and cultural attitudes to firm growth. These results shed the light on how to design growth policy initiatives and how such policies actually impact to the growth of SMEs. Keywords: entrepreneurial ecosystem, growth firms, SME, entrepreneurship
1. Introduction Nordic firms very rarely grow into large firms in a short period of time. According to Nordic Growth Entrepreneurship Review (2012), a good level of start-up activity exists across the region, and also a relatively good level of young gazelle companies; it is with the scaling up of young companies that the Nordic region seems to struggle most. It can be said that the entrepreneurship ecosystem works, but the entrepreneurial ecosystem doesn’t. Over time, policy initiatives have grown in variety and scope, and much effort is today attached to enhancing co-ordination among different support initiatives to nurture entrepreneurship ecosystem (Autio et al. 2014). Growth orientation in Finnish start-up companies has been among the lowest in global comparisons in GEM studies. In recent GEM study, recognition of business opportunities was higher in Finland than in most innovation-driven economies, but the downturn in the economy discourages people to exploit them (GEM, Finnish 2014 report). According to a growth report (TEM 2016), the number of highly growth-oriented enterprises is limited in Finland and these companies accounted for all SMEs is only 8 percent. Although there is wide interest in entrepreneurship as a way to solve emerging societal challenges such as unemployment (Autio et al. 2014) Policy makers have explicitly targeted SMEs and new ventures during the past 30 years (Autio et al. 2014). Entrepreneurship policy has targeted to start-ups. There are much less policies targeted to established companies. However, currently regional policies for entrepreneurship are going through a transition from increasing the quantity of entrepreneurship to the quality of entrepreneurship. The entrepreneurial ecosystem approach has been heralded as a new framework accommodating these transitions. (Stam 2015.) The entrepreneurial ecosystem approach has only occurred during the last few years. There is not yet a widely shared definition. Isenberg (2010) defined that the concept of entrepreneurial ecosystem refers to the interaction that takes place between a range of institutional and individual stakeholders so as to foster entrepreneurship, innovation and SME growth (Isenberg 2010). The aim of this paper is to examine how the entrepreneurial ecosystem can either enhance or hinder firm growth. This paper contributes to understanding the effects of the entrepreneurial ecosystem related to growth
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Kirsti Sorama and Sanna Joensuu-Salo firms using case study method. The objective of this study is to analyse how the entrepreneurial ecosystem related to growth firms supports 1) the motivation of entrepreneurs to grow the firm, (2) the organic and nonorganic growth strategies of firms and (3) managing the consequences of firm growth. The present study aims thus at filling some gaps in previous research
2. Literature review 2.1 Growth firms and firm growth In this study, growth firm refers to a firm that increases its sales and also creates new jobs. These kind of firms have also been called ”high-impact” firms: they play an especially important role in the process of job creation over time compared with either the plants of large existing firms or very small startups that tend not to grow (Acs, Parsons and Tracy 2008). The growth of the company may be restrained because of inadequate resources and/or low growth motivation of entrepreneur. Hence, ecosystem should support the company’s ability and entrepreneur’s motivation to grow the company. According to Davidsson (1991), the company and entrepreneur should also have need to grow. In addition, environment should provide opportunities for grow, too. Researchers has found a positive relationship between growth motivation and actual growth (Delmar & Wiklund 2008). In other words, growth motivation has a causal effect on firm growth. However, past growth would be a better predictor of future growth than would growth motivation (Sorama et al. 2015). It has also been noticed that environmental constraints are instrumental in firm growth. Environment provide resources such as funding, know-how and manpower. Small business managers may want to expand their firms but can achieve growth of the business in many different ways: they can grow organically or they can acquire another firm, they can increasing sale by outsourcing production and thus expanding sales but not employment. (Delmar & Wiklund 2008.) These options are different ways dependent on the resources. The possibility of implementation will depend on the opportunities offered by the environment.
2.2 Entrepreneurial ecosystem High-growth firms need access to specialized resources that differ significantly from resources supporting new start-up firms. Well-functioning ecosystems have critical mass of dedicated investors, established businesses, knowledge institutions and service providers specialized and geared towards working with growth firms. The present of these actors is crucial. Strong ecosystems are characterized by dense network and collaboration between the key actors. Although strong ecosystems for growth firms are not easy to replicate, it is important to understand the dynamics, driving forces, value creation and collaborations in the ecosystems. (Napier & Hansen 2011.) However, the entrepreneurial ecosystem approach often narrows entrepreneurship down to “high-growth start-ups”. Entrepreneurial ecosystem is rather recent concept, with no shared definition yet. The entrepreneurial ecosystem concept stresses how entrepreneurship is enabled by a comprehensive set of resources and actors, which have important role to play in enabling entrepreneurial action. Most of these appear to be locally, often requiring face-to-face contacts or local mobility. (Stam 2014.) Stam (2014) defined an entrepreneurial ecosystem as an interdependent set of actors that is governed in such a way that it enables entrepreneurial action. The entrepreneurial ecosystem approach does not include the traditional statistical indicators of entrepreneurship, but more adequate measures such as innovations and growth-oriented entrepreneurship is increasingly emphasized in the entrepreneurship literature (Stam 2015; Henrekson & Sanandaji 2014).
3. Methods and collection of empirical data This study is qualitative in nature and represents a constructivist perspective. As Merriam (2014) notes, the purpose of the qualitative research is to understand the meaning people have constructed. The focus is in deepening the understanding of the phenomena by examining a single case: one entrepreneurial ecosystem in South Ostrobothnia in Finland. Qualitative case study is a research strategy that is in search for meaning and understanding, the researcher is the primary instrument of data collection and analysis, inductive investigative strategy is applied and the end product is richly descriptive (Merriam 2014). Yin (2008) defines a case study as an empirical inquiry that investigates a contemporary phenomenon within its real-life context. A case can be a
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Kirsti Sorama and Sanna Joensuu-Salo single person, a program, a group, an institution, a community or a specific policy (Merriam 2014). In our study, the case is one entrepreneurial ecosystem especially related to growth firms. The data was gathered by interviewing thirteen different stakeholders of the ecosystem. Table 1 presents the basic description of the interviewees. Table 1: Basic description of the interviewed stakeholders of the entrepreneurial ecosystem Interviewee Interviewee 1 Interviewee 2 Interviewee 3 Interviewee 4 Interviewee 5 Interviewee 6 Interviewee 7 Interviewee 8 Interviewee 9 Interviewee 10 Interviewee 11 Interviewee 12 Interviewee 13
Field Finance (Bank) Finance (Finnvera) Higher education (University of applied sciences) Higher education (University) Private expert (consultant) Private expert (consultant) Public expert (local public development company) Public expert (Centre for Economic Development, Transport and the Environment, also representing TEKES) Public expert (The Regional Organization of Enterprises in South Ostrobothnia) Public expert (The regional Chamber of Commerce) Education (Vocational Adult Education) Education (Finnish Institute of Entreprise Management) Entrepreneur (Entrepreneur of a high growth firm, also consulting other growth firms)
Gender Female Male Female Male Male Male Male Male Female Male Female Female Male
All of the interviewees were actively involved in developing the regional entrepreneurial ecosystem for enhancing firm growth. They represent different actors that are building conditions for growth firms by offering finance, research, capabilities and networks. The theme interviews were made in fall 2015. First an open question “How do you think this current ecosystem supports growth firms?” was presented to interviewees. After that the following questions related to three themes: 1) How the motivation of entrepreneurs to grow the firm is supported, (2) how the organic and nonorganic growth strategies of firms are supported and (3) how the managing of the consequences of firm growth is supported. Themes were based in the framework of Davidsson, Achtenhagen and Naldi (2013), where the growth is seen as a complex phenomenon of antecedents of growth (in our study the motivation to grow), growth mode (in our study organic and non-organic growth strategies) and effects of growth (in our study managing the consequences of firm growth). Interviews lasted from 45 minutes to two hours. All of the interviews were recorded and transcribed. Data analysis was made with content analysis by coding and building categories. In coding phase, analytical coding was used. Analytical coding is a process of grouping open codes. Richards (2005) notes that analytical coding comes from interpretation and reflection on meaning.
4. Results The results are presented in relation to research questions. In all of the different themes (motivation of entrepreneurs to grow the firm, the organic and non-organic growth strategies and managing consequences of firm growth) were found three levels: individual/firm level, micro-environmental level and macro-environmental level. In this study individual/firm level refers to the psychological factors of the entrepreneur and to the resources of the firm. Micro-environmental level refers to the regional level of the entrepreneurial ecosystem and also to the business environment of firms that the ecosystem tries to influence. Macro-environmental level refers to the wider operating environment.
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4.1 Motivation of entrepreneurs to grow the firm Most of the stakeholders felt that on the individual level, it is really difficult to affect the motivation of entrepreneurs. Some felt that this kind of task is almost impossible, like interviewee 11 says: “Nobody can bring motivation from outside, it is an inside matter”. Stakeholders also felt that this was the major obstacle for firm growth: there are too little entrepreneurs with a desire to grow the firm. However, they felt that motivating the entrepreneurs is the main task for the entrepreneurial ecosystem. Interviewee 9 describes this as follows: “It should be our main concern how we could get more enterprises and more entrepreneurs to pursue growth, however I am not convinced that we have enough firms here that are motivated to grow”. Also a negative aspect on the individual/firm level was that there are many services for firms to support firm growth but the firms do not find these services. So the problem is connectivity: these services are not connected with each other and are still separate functions despite of efforts to connect them. Interviewee 13 looks this from a growth firm perspective: “We need someone to build bridges with public services and firms. We need someone to find firms with a motivation to grow the firm and then bring these services to them.” However, some interviewees were certain, that a motivated entrepreneur will find these services, but the major problem is that there are not enough motivated entrepreneurs. Stakeholders felt that the entrepreneurial ecosystem related to growth firms is really active on microenvironmental level. This was seen as many intervention programmes related to growth firms and as active communication and forums where firm growth is the major issue. The regional organisations are very active in developing projects to enhance firm growth. Also research organisations in the region are focusing on firm growth. Interviewee 5 describes this as follows: “We have put much of our efforts systematically in recent years to foster growth firms. I don’t think much more could have been done”. However, psychological factors are still hindering the communication on micro-environmental level. The word “growth” was seen problematic. Interviewee 10 clarifies this: “We are too afraid to use the word “growth”, because it evokes strong feelings in the target group. We should more boldly say that the firm growth is an important goal.” The macro-environmental level was felt to be really important in relation to motivation of entrepreneurs to grow the firm. This macro-environmental level is reflected on all the other levels of the entrepreneurial ecosystem. Interviewee 4 feels that it is not so easy to be a growth oriented entrepreneur in Finland: “There are many factors in Finland that do not support growth entrepreneurs and incentives are weaker than in other countries.” Also Interviewee 8 feels the same way: “In a longitudinal perspective, it is really important what is done on the macropolitical level to motivate entrepreneurs to growth.” On the other hand stakeholders feel that there are many positive factors to support growth firms on macro-environmental level: good infrastructure, public policies and the rising importance of enterprise education in all school levels. Table 2 summarizes the results of the first theme. Table 2: Factors hindering and fostering the motivation of entrepreneurs to grow the firm How entrepreneurial ecosystem supports the motivation of entrepreneurs to grow the firm Individual/firm level Positive Negative Active entrepreneurs (“elite”) have the Not enough entrepreneurs motivated to ability to search for services related to growth growth firms Inner motivation impossible to create from the outside Problem with the connectivity: many entrepreneurs do not find suitable supporting activities Micro-environmental Supporting interventions Fear of to use the word “growth” when level Funded projects related to growth firms communicating with target firms about Active communication about growth firms business environment Forums connecting different stakeholders related to growth firms Macro-environmental Good infrastructure No incentives for entrepreneurs level Public policy Attitudinal climate in Finland Enterprise education at all school levels
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4.2 Organic and non-organic growth strategies On the individual/firm level the entrepreneurial ecosystem supports growth firms by offering support for single firms to develop opportunities for growth, which means resources, new markets and customers. Interviewee 5 says: “No firm grows organically without the growth of the business. It is important to activate demand and offer resources to firms.” However, the same problem exists with the growth strategies than with the motivational issue: majority of the firms do not even have a goal to grow. Majority of the stakeholders felt that the entrepreneurial ecosystem supports very well non-organic growth strategies on the micro-environmental level. Much effort has been put to non-organic growth in the region by actively communicating the possibilities of acquisitions. Interviewee 10 describes the situation: “There has been good work related to successions and acquisitions about ten years in this region. I think most of the growth comes by non-organic growth strategies”. There are many experts specialized in non-organic growth, so many services are available. Also there has been years of research in the area focusing on acquisitions and successions. However, some stakeholders thought that organic growth is more demanding and there is not enough support on micro-environmental level for organic growth. For non-organic growth there is more of “a straight way” to find support in contrast to organic growth. Also there seems to be a lack in integration of these different strategies. Support for designing growth does not exist. A big problem is also funding. There is a lack of private capital and investors in the region. Interviewee 9 states: “Entrepreneurs have a strong opinion that there is no funding matching the needs.” On the macro-environmental level many stakeholders expressed their concern related to taxing and the cost of succession in Finland. In table 3 the results are summarized. Table 3: Factors related to growth strategies and the support of the entrepreneurial ecosystem How entrepreneurial ecosystem supports the organic and non-organic growth strategies of firms Individual/firm level Positive Negative Firm level activation: building Not enough entrepreneurs motivated to opportunities for demand and growth by grow the firm with either strategies offering resources to firms Micro-environmental Expert services for non-organic growth No clear support for organic growth Problem with funding: no private capital level strategy and investors Active communication about the possibilities in acquisitions and No integration between different growth strategies: no support in designing growth successions Strong research related to non-organic growth Macro-environmental Taxing level Cost of succession
4.3 Managing the consequences of firm growth On the individual/firm level some stakeholders expressed that entrepreneurs have a fear towards growth. Interviewee 8 describes the situation: “Many entrepreneurs are satisfied with a certain firm size and they have a kind of glass ceiling related to firm growth. There is not enough courage to go global.” A positive thing is that there are programmes designed for growth entrepreneurs, but the problem is that they do not participate in these programmes. Most of the participants are consultants or sparring partners. One aspect is also a difficulty in changing the mode from an entrepreneur to enterprise mode. “They want to keep the power in their own hands”, as interviewee 8 says. On micro-environmental level stakeholders feel that the regional infrastructure supports well growth firms. There is a wide network of experts to help in managing the consequences of firm growth. Strong research related in the consequences of growth exists. However, some stakeholders thought that there is a lack in expertise related to financial management, funding, legal issues and export. Interviewee 3 states: “We have strong research in this area but the rest of the ecosystem is not working properly. We need more financial expertise and services related in managing firm growth.” The ecosystem needs also more connectivity with different counterparts. More tailoring should be made for different kind of growth firms. Educational institutions are key actors in developing programmes for growth firms.
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Kirsti Sorama and Sanna Joensuu-Salo There were not many mentions related to managing the consequences of firm growth on macro-environmental level. Only some stakeholders noted that the operations of national public organisations supporting export activities are not sufficient. Table 4 summarized the results. Table 4: Entrepreneurial ecosystem and managing the consequences of firm growth How entrepreneurial ecosystem supports managing the consequences of firm growth Individual/firm level Positive Negative Programmes designed for firms to help Target group does not participate in the managing the consequences of firm programmes designed for growth firms growth Fear towards growth Difficulty to move from entrepreneur mode to enterprise mode Micro-environmental Good local infrastructure Not enough expertise in financial level Network of experts management and services related to Strong research management Lack of funding expertise Lack of legal expertise Not enough tailoring of the services for different kind of growth firms Network not connected enough Lack of expertise in export Macro-environmental Lack of supporting export activities level nationally
5. Conclusions The objective of this study was to analyse how the entrepreneurial ecosystem related to growth firms supports 1) the motivation of entrepreneurs to grow the firm, (2) the organic and non-organic growth strategies of firms and (3) managing the consequences of firm growth. This study shows that the entrepreneurial ecosystem acts on individual and firm level and on two environmental levels: micro- and macro-level. Micro-level refers to the factors related to business environment in which the entrepreneurial ecosystem tries to influence and the regional aspect of the ecosystem. Macro-level refers to the wider operating environment. This is consistent with previous research. Although no uniform model for the firm growth has been created (Wiklund, Patzelt and Shepherd 2009; McKelvie and Wiklund 2010; Shepherd and Wiklund 2009; Gilbert, McDougall and Audretsch 2006; Davidsson 1991), former research has recognized different growth factors that are related to growth. As in this research, these factors relate to entrepreneur as a person, to the resources and strategies of the firm and to the environment (Davidsson et al. 2002; Naldi and Sjöberg 2003; Davidsson 1989, Delmar 1996). These levels appears through all the growth process: the motivational issues, the growth strategies and managing consequences of firm growth. There appears to be also positive and negative aspects with these levels. When examining the entrepreneurial ecosystem, the most problematic challenges relate to the individual/firm level. The most difficult task of the stakeholders in the ecosystem was to try to influence the motivational issues of growth. However, stakeholders of the entrepreneurial ecosystem can more easily influence on the micro-environmental level by offering services related to different growth-strategies and actively communicating the possibilities for growth. Like Davidsson et al. (2009) states, one important factor that enables firm growth is the profitability of the firm. Entrepreneurial ecosystem can enhance firm growth by offering services, funding, consultancy, education and development projects to growth firms. In addition to micro-level, the macro-environmental level is also important in creation of operating environment favorable to growth firms. As Napier and Hansen (2014) stated it makes little sense to view ecosystems as global or even national entities, although strong ecosystems certainly are well connected both nationally and globally. Authors argued that ecosystems for growth firms are regional enclaves. (Napier & Hanse 2011.) The entrepreneurial ecosystem can either enhance or hinder growth firms. There are challenges on the individual/firm level (motivational and attitudinal issues), on the micro-environmental level (connectivity, funding and expertise issues) and on the macro-environmental level (public policy, lack of incentives) but also many supportive factors exist. In order to improve the impact of the entire ecosystem, more connectivity with the stakeholders would be important. In this study, the importance of entrepreneurial recycling was not raised by the stakeholders. However, like Mason
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Kirsti Sorama and Sanna Joensuu-Salo and Brown (2013) claim, the most supportive entrepreneurial ecosystems have this kind of recycling where successful entrepreneurs support new entrepreneurial activity. In case of developing entrepreneurial ecosystem, the impact of this entrepreneurial recycling should be noted.
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(2000) “Corporate restructuring and entrepreneurship: what can large organizations learn from small?”, Enterprise and Innovation Management Studies, Vol 1, No. 1, pp 19-37. Gilbert, B., McDougall, P. and Audretsch, D. (2006) “New venture growth: A review and extension”, Journal of Management, Vol 22, pp 926-950. Hamilton, R. (2010) “How firms grow and the influence of size and age”, International Small Business Journal, Vol 30, No. 6, pp 611-621. Henrekson, M. and Sanandaji, T. (2014). Competences and institutions fostering high-growth firms. Foundations and Trends in Entrepreneurship 5(1). 1–80. Hutchinson, P. (1989) The financial profile of small firms in Australia, Accounting research Study No 10, Department of Accounting and Financial Management, University of New England, Armidale, New South Wales. Isenberg, D. (2011) The entrepreneurship ecosystem strategy as a new paradigm for economic policy: Principles for cultivating entrepreneurship, Institute of International European Affairs, Dublin, Ireland. Kasvuyrityskatsaus (2012) Innovaatio, [online], Työ- ja elinkeinoministeriön julkaisuja 20, http://www.tem.fi/files/32926/TEMjul_20_2012_web.pdf Mason, C. and Brown, R. (2014) “Entrepreneurial ecosystems and growth oriented entrepreneurship”, [online], Background paper prepared for the workshop organised by the OECD LEED Programme and the Dutch Ministry of Economic Affairs. Hague: Netherlands. http://www.oecd.org/cfe/leed/entrepreneurial-ecosystems.pdf McKelvie, A. and Davidsson, P. (2009) “From resource base to dynamic capability: An investigation of new firms”, British Journal of Management, Vol 20, pp 63-80. McKelvie, A. and Wiklund, J. (2010) “Advancing firm growth research: A focus on growth mode instead of growth rate”, Entrepreneurship Theory and Practice, Vol 34, No. 2, pp 261-288. Merriam, S. (2014) Qualitative Research: A Guide to Design and Implementation, Jossey-Bass, San Francisco. Moore, J. F. (2006) “Business ecosystems and the view from the firm”, Antitrust Bull., Vol 51, pp 31. Mukhopadhyay, A. and AmirKhalkhali, S. (2010) “Profitability performance and firm size-growth Relationship”, Journal of Business & Economics Research, Vol 8, No. 9, pp 121-126. Naldi, L. and Sjöberg, K. (2003) “Entrepreneurial firms and growth: the growth of the CEO, managers and board of directors”, RENT XVII, Research in entrepreneurship and small business, November 20-21, 2003, Lodz, Poland.
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Kirsti Sorama and Sanna Joensuu-Salo Napier, G. and Hansen, C. (2011) Ecosystems for young scalable firms. http://www.kauffman.org/~/media/kauffman_org/z_archive/resource/2012/5/irpr_2012_napier.pdf Nordic Growth Entrepreneurship Review (2012) Nordic Innovation Publications 2012:25, Nordic Innovation, Oslo. Pajarinen, M. and Rouvinen, P. (2006) Mistä yrittäjät tulevat? Teknologiakatsaus 198/2006. Helsinki: Tekes. Pajarinen, M., Rouvinen, P. and Ylä-Anttila, P. (2006) Uusyrittäjien kasvuhakuisuus. KTM Julkaisuja 29/2006. Penrose, E. (1959) The theory of the growth of the firm, Oxford University Press, Oxford. Richards, L. (2005) Handling qualitative data, Sage, London. Roper, S. (1999) “Modelling small business growth and profitability”, Small Business Economics, Vol 13, No. 3, pp 235-252. Shepherd, D. and Wiklund, J. (2009) “Are we comparing apples with apples or apples with oranges? Appropriateness of knowledge accumulation across growth studies”, Entrepreneurship Theory and Practice, Vol 33, No. 1,pp 105-123. Sorama, K., Varamäki, E., Joensuu, S., Viljamaa, A., Laitinen, E., Petäjä, E., Länsiluoto, A., Heikkilä, T. and Vuorinen, T. (2015) In search for growth – A follow-up study of growth firms in South Ostrobotnia. Seinäjoki University of Applied Sciences A. Research Reports 20. Stam, E. (2015) Entrepreneurial ecosystems and regional policy: A sympathetic critique. U.S.E Discussion Paper Series nr: 15-07. Stam, E. (2014) The Dutch entrepreneurial ecosystem. Birch research Entrepreneurship and Innovation July 2014. TEM (2016) Voimakkaasti kasvuhakuiset pk-yritykset, [online], Työ- ja elinkeinoministeriön julkaisuja 1/2016, http://www.tem.fi/files/44764/TEM_oppaat_1_2016_voimakkaasti_kasvuhakuiset_pk_yritykset_15022016.pdf. Wiklund, J., Patzelt, H. and Shepherd, D. (2009) “Building an integrative model of small business growth”, Journal of Small Business Economy, Vol 32, pp 351-374. Yin, R. K. (2008) Case study research: Design and methods (4th ed.), Sage, Thousand Oaks, CA.
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The Creation of a Fast Track, Large-Group Intervention Method: A Case Study Fernando Cardoso de Sousa1, João Pissarra1 and Ileana Pardal Monteiro2 1CIEO/University of the Algarve, Portugal 2CIS/ISCTE, Portugal
[email protected] [email protected] [email protected]
Abstract: This article reports the testing of a fast track, large-group intervention method, designed to initiate a change process of a Portuguese SME in the IT sector, aiming at increasing the proactivity of its employees. Based on previous work, mixing third generation large-group organizational change methods, classical Organizational Development (OD) approaches, and an adapted version of Creative Problem-Solving (CPS) protocol, the presentation of the case includes an extended diagnosis, the preparation and execution of the company meeting, and the beginning of the implementation of innovation projects. The company meeting was designed to last for just four hours, instead of the two to four days of the present methods. The diagnosis, made in close collaboration with management, includes the results of more than 30 interviews conducted with internal and external stakeholders, and a small-world analysis technique to determine the existing communication networks, together with possible clusters and brokers. Furthermore, using a content analysis, success stories were collected in order to clarify the strong points for a future organizational culture. The results support the effectiveness of the selected methodology in establishing innovation projects, involving the entire organization, and clarified desirable characteristics for the improvement of the present intervention method, adapted to Portuguese companies. The analysis of the success stories helped to determine the strengths of a future organizational culture, while the use of measures of smallworld networks allowed to analyze the existing informal organization, and the way knowledge flows out of the necessary tension between clustering and bridging, necessary for creative benefits. Although this study does not include the entire completion of the projects, due to unpredicted company emergencies, it provides a solid basis for application in future interventions, and to initiate another line of investigation, related with the preparation of team leaders as group facilitators. Keywords: organizational change, organizational innovation, organizational diagnosis, large-group methods, small-world networks, creative problem-solving
1. Introduction Organizational Development (OD), devoted to the understanding of planned change, has been subjected to intense research, mainly because, as stated by Kurt Lewin, just by trying to change an organization one can understand it. Nevertheless, experts recognize (Bartunek & Woodman, 2015) that practitioners and scholars often proceed in separate ways, and the urge to develop new approaches makes people forget that the classic ones continue its own way. This is the case with problem-solving and organizational diagnosis, considered outdated (Bartunek, Balogun & Boram, 2011) against present large-group intervention methods, requiring companies to stop their activities for more than two days. As the situation of companies in Portugal does not allow them to stop for such a long period, we considered appropriate to create a fast track intervention method by adapting classic OD approaches (McLean, 2006) with present large-group intervention methods, to suit company situations, without losing its effectiveness. And so this article is intended to report an adaptation of large-group intervention methods, in order to suit the needs of a Portuguese SME in the IT sector, aiming at an organizational change process. The methods taken as references were Future Search, with Weisbord and Janoff (2010), and Appreciative Inquiry, with Cooperrider and Whitney (2005). These methods are distributed among the organizational change theories of second and third generations, Appreciative Inquiry being generally connoted with the last (Seo, Putnam & Bartunek, 2004). Although an evolution is indicated from the first generation, in the 40s (eg. action-research, sensory training, team building, socio-technical systems, and the famous T-Groups, of Kurt Lewin), to the second generation (eg. organizational transformation and interventions with large groups) and, finally, the third generation, in the '80s (summarized by Peter Senge’s learning organizations, and Appreciative Inquiry), several authors agree (Beer & Walton, 1994 ; Worley, Mohrman & Nevitt, 2011) that there has not been any marked improvement in the intervention methods, since each approach has continued its own way. The same happens with organizational diagnosis, a form on intervention on its own, where Howard and Associates (1994) report
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Fernando Cardoso de Sousa, João Pissarra and Ileana Pardal Monteiro that there are no precise rules on the most appropriate sequence or model to follow, as well as in the evaluation of results. It was precisely because the complexity of systems and the theoretical limitations to field intervention that the authors have made an attempt to summarize the most important principles of the various forms of intervention in their own approach. This approach reduces the duration of the meeting to less than one day, while extending the diagnosis to comprise aspects normally included in the “whole-system in the room” meeting by present large-group intervention methods.
2. Large-Group methods Research on large-group methods, intended to bring innovation and change to organizations and communities, through the involvement of people in the decision making process, is well-documented. Weisbord (2012), and Bunker and Alban (1997; 2006), are just a few to make extensive reviews about the theoretical foundations of large-group methods. Large-group methods are tailored to suit group interventions with between 30 and 150 participants (ideally 7080), meeting in sessions ranging from two to four days. Although large-group methods may deal with similar types of objectives, each has its own sequence of procedures. In general, sessions begin by asking the groups of eight (around tables of approximately 1,5m in diameter) for a vision of the desirable future, followed by a diagnosis of the present. This is made to understand the history of the organization and to create the necessary tension in attaining the ideal future. The definition of its strategic directions and required actions and timelines, together with follow-up procedures, generally close the sessions. Given the involvement of all stakeholders in the same location at the same time, large-group methods allow for a change to occur at a much quicker than normal pace. They also allow opportunities for conflict management by establishing a focus on common ground rather than on differences, and to promote a flat hierarchy (Garcia, 2007). Future Search was adopted as a reference methodology, due to its suitability for group decision making, its extensive description in the literature (Weisbord & Janoff, 2010), and the authors’ previous experience. The method brings together 60 - 70 participants for a period of 16 hours, over three days. On the first day, the first two and half hours are dedicated to defining the milestones of the history of the organization. At this point, the various types of stakeholders gather around mixed tables with stakeholders coming from different fields and experiences. This is because homogeneous groups have more difficulty in building a comprehensive picture. On the morning of the second day, participants work around tables by stakeholders, i.e., belonging to similar fields, gaining the homogeneity necessary for the construction of common scenarios. Time is devoted to the analysis of the present and future trends. The afternoon is dedicated to defining the future in terms of the "common ground" and a plan of action is determined on the morning of the third day. The other method taken as a reference was Appreciative Inquiry (Cooperrider & Whitney, 2005), with a similar design to Future Search, but lasting up to four days, with no limit to the number of participants, who develop the work into four phases: discovery (interviews and stories emphasizing the strong points), dream (building the desired future), design (system changes to meet the desired changes) and delivery (drawing up plans to implement the changes). Much of the action takes place around interviews conducted by the participants themselves, who seek to bring out images of the future, based on success stories of the past of the organization. So, for four days, participants designated by the planning committee as representing the "complete system" in the same room (can be several hundred people) define organizational culture through stories, which will represent the reality of the organization. Ludema, Whitney, Mohr and Griffin (2003) draw attention to the fact that the "whole system" in the room cause the participants the feeling of being part of a larger system, as well as the drawbacks of the approach based on problem solving, instead the examples of success, given that it makes people concentrate on the negative aspects of the organization. This principle, as many of the remaining ones, can be put to cause with attempts to gather scientific data to support it (Worley, Mohrman & Nevitt, 2011). That is why so many methods proliferate with a kind of “faith” beneath, instead of serious scientific considerations.
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3. Adoption of a small-group problem-solving method Following previous studies on small-group creative problem-solving procedures (Sousa, Monteiro, Walton & Pissarra, 2014), a four-step model was designed, comprising Objective-Finding, Problem-Definition, ActionPlanning, and the Action itself. The sequence of divergence () is maintained only during the Objective-Finding and Problem-Definition steps, so that more options are available to choose from. In Objective-Finding a pre-consultation takes place with the manager in charge, so that the objective, group composition, and administrative requirements may be set. During Problem-Definition, the team enumerates all possible barriers to reach the objective, and then the manager selects a final problem definition to work with, after transforming it into a challenge, instead of an obstacle. During Action-Planning the team starts by listing all actions needed to achieve the goal and then puts them in order of execution. In coordination with the manager, each task is assigned to a sub-team, which defines deadlines and the entity responsible for evaluation of the output. The last step (Action) starts after the planning session. This model focuses team members on implementation, using management control measures, communication and acceptance-related tasks. This approach provides an initial structure for the group, during the divergent phase of Problem-Definition, followed by an emotional linkage between members, as efforts are focused on reaching consensus during the convergent phase, so that the group may start working like a team. Another structuring step follows during Action-Planning, when team members’ creativity is expressed during the “how to?” development of each task in the plan. During the Action phase, the establishment of an effective communication structure within the team facilitates the collective awareness of what each team member is doing. Also, advertising the project within the organization reduces organizational resistance to task accomplishment and increases peer pressure for the team to comply with the project’s milestones and goals. A designated team leader, responsible before management for group coordination and project accomplishment, is very important. This small-group problem-solving method was adapted to work with large groups in a study with higher education students, described in Sousa, Monteiro and Pellissier (2015), aiming at bringing 62 participants, randomly arranged in ten groups, to solve the challenge consisting in the preparation of a single common essay, which would involve all students. The groups discussed the issue for an hour, resulting in a consensual problem: "What are the steps needed to structure the project, so that the physical constraints (e.g. difficulty in meeting) can be overcome?". The groups, after some time of discussion, identified five key tasks to solve the problem: (1) define the topics and subtopics; (2) establish the process of assigning the sub-themes to groups; (3) create a platform for virtual communication and establish personal meeting schedules; (5) list individual skills in each of the defined sub-themes. Then the students were asked to regroup into five groups, around each of the five identified tasks, according with personal preference, and asked to establish action plans to be implemented within one month. At the end of the period (one month), all tasks were performed as planned and, about three months after, in a session held at the appointed day, almost all students attended the presentation, during which each component of the collective work was demonstrated. The study included the use of small-world network analysis, before and after completion of the project, in order to appreciate the evolution of the whole group.
4. Small-World networks Uzzi and Spiro (2005) defined a small-world network as a structure that is both highly locally clustered and has a short path-length (i.e. the average number of steps that it takes all the actors in the network to reach each other). As explained by Kastelle and Steen (2010), social network analysis is made by examining dimensions such as path-length, density, geodesic distance, betweenness, and nbetweenness. Here path-length is the average number of steps that it takes for all of the actors in the network to reach each other; density represents the average existing percentage of ties over the total possible connections; geodesic distance represents the distances between nodes in the network, i.e., for each pair of nodes the shortest path can be determined; at network level, geodesic distance refers to the average number of paths between nodes; betweenness measures the subject’s position and the extent to which other people depend on him or her to access information or connect to other subjects; nbetweenness is the normalised betweenness, obtained by dividing simple
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Fernando Cardoso de Sousa, João Pissarra and Ileana Pardal Monteiro betweenness by its maximum value, and represents the extent to which, on average, a node is connected to other nodes that are not connected to each other, expressed as a percentage. The essence of a small-world structure is the linkage of locally intense clusters by occasionally bridging ties that provide the necessary tension between clustering and bridging, necessary for creative benefits. As Fleming and Marx (2006) explain, clustering alone may not be enough for creativity and may even be harmful due to the overabundance of connections, some of which may be redundant and favor insulation of groups from new information. Nevertheless, the cohesion of clusters, although harmful for ideation when the density of direct versus indirect ties is too large, may help the subsequent stages of development and diffusion of innovations (Ahuja, 2000). Direct ties refer to a connection between two nodes; indirect ties refer to the connection of two nodes via one or more nodes. The clusters are bridged by people between them (the gatekeepers, or brokers) who, according to Burt (2004), have earlier access to a broader diversity of information and are central to translate that information across groups. These brokers may help ideas to travel between structural wholes (gaps of information flows), or clusters, and accumulate value in each one through a process of rediscovery and adaptation of the various constraints and requirements that may turn an idea into a valuable innovation for the organization (Ahuja, 2000).
5. “Quidgest” case study This presentation reports the intervention in the company, aiming at an organizational change process towards a greater proactivity of employees. It includes the diagnosis and the beginning of the implementation of the innovation projects, based on an adapted model of third generation large-group organizational change methods. To make the company diagnosis, thirty collaborators and two external stakeholders were interviewed and a small-world network analysis was made in order to understand the informal organization. A content analysis of the collected success stories was made in order to define the company’s perceived strong points.
5.1 Description and diagnosis Created in 1988, Quidgest is a Portuguese IT company acting as a consultant and developer of management software, which has increased to nearly 100 coworkers in the last few years. The company is organized in a matrix structure, by projects in conjunction with specialized software departments. The company was a pioneer in the computerization of the Portuguese Public Administration and since 1992 conceived an applications generator called “GENIO”, a platform for rapid development of comprehensive information systems, combining model-based development with automatic code generation in different programming languages. Any employee can re-generate all the codes for a project and get access to functional specifications (metadata). This ensures superior standards of agility and maintenance, increases the systems’ stability and allows the continuous monitoring of technological developments. Each new version, generated automatically, incorporates all the improvements in the technology layer, allowing building programs in less time and with smaller and less specialized teams. The organization has no particular system of idea management, as the company encourages concrete changes (there are money awards for initiatives), instead of just ideas for others to do. This was repeatedly referred to by the interviewees who, sometimes, also mentioned the existence of too many individual initiatives. The diagnosis was made in close relation with the CEO, who selected the interviewees and adapted the objectives of the intervention to the feedback received. Management concerns were related with the difficulties that some coworkers had in transforming them into challenges. Decision decentralization was another management concern, aware of the need to strengthen the collective effort to improve efficiency and increase the employees’ performance, thus motivating them to adopt a more international approach and a permanent attention to market trends. In a contrasting view, some interviewees considered that there was an excessive centralization in management, although acknowledging a close relationship. On the other hand, others referred to the existence of something like a “complaint culture” fostered by some opinion leaders who focus only on negative aspects.
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Fernando Cardoso de Sousa, João Pissarra and Ileana Pardal Monteiro 5.1.1 Small-World diagnosis The following analysis shows the existing small-world network at the time of the study. Data were collected by a questionnaire administered electronically to every company member, asking to signal each colleague with whom he or she had exchanged information for performance purposes a FEW TIMES (1) SOME TIMES (2) or OFTEN (3). The response rate was 100% and the answers were submitted to UCINET 6 program for analysis.
Figure 1: Density by working area. Area managers are indicated by a circle As Figure 1 shows, the only consistent cluster appeared in the Finance Management area. Other visible clusters, although more dispersed, were Special Projects, and R&D. Human Resources Management showed two clusters, probably because there were two distinct roles in that area. All the other areas were more disseminated. The level of betweenness centrality (the extent to which an actor falls on the paths between other pairs of actors in the network) is shown on Figure 2, in which the larger points refer to the individuals with a degree above 100, indicating they may assume the role of brokers in the communication network.
Figure 2: Graphic presentation of the level of betweenness centrality. Area managers are in boxes The node 54JC is the CEO and 17BG, 38FS e 78RS are area managers. Number 54JC was connected with everyone else, as expected, and only surpassed by 27CB, responsible for salary management.; 17BG was located at the center of the network, but his area was dispersed; 38FS appears as a broker in her own area, alongside with
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Fernando Cardoso de Sousa, João Pissarra and Ileana Pardal Monteiro 64MA, also a broker; 78RS was in the center of his area, communicating with the others through 84SJ, but connected to the company’s networks. 5.1.2 Success stories The twenty-two success stories received were submitted to a content analysis, from which a strong client orientation emerged, as well as the effort to renew or create new products and the pride to work as a company team. Using the software T-Lab, version 8.2, the cognitive map associated to the word “client” was built, as Figure 3 illustrates. The distances refer to the frequency and proximity that the different words are positioned in the original text, without any categorization or change. These distances measure the frequency each word had in the original text when associated with the word “client”. Thus, the words “new solutions”, “different ways” and “doing business” indicate the coworkers’ main concerns in answering the clients’ challenges.
Figure 3: Associative network of the word “client” The keywords’ map, in the coworkers’ discourse, reinforces the focus on the client and the high affective commitment drive to the projects, and the search for new solutions or business opportunities.
5.2 Preparation, intervention and follow up The intervention preparation took the time needed for the diagnosis and the negotiation with management of the several possible objectives, until the final one – to define the challenges and actions needed to commit everyone in fighting the “common enemy”. A session was scheduled with all the company members and, a week before, a handout explaining the objective and the agenda of the meeting was issued to everyone. After that, management made sure all coworkers knew its content. In the appointed day, about 80 participants (almost the entire company), randomly organized in 10 groups, took part in a four-hour session, aimed at developing projects contributing to the designated objective. In the first hour and a half, the groups engaged in defining the most important challenges within the objective, followed by a selection of the CEO - What are the steps needed to increase people’s accountability? Then, teams were asked to list projects to match this challenge, producing a large number of possible projects, which, during the break, were categorized in eleven categories. After the re-start, participants were asked to choose the project each one would like to develop, thus reorganizing in eight groups (three categories were left blank). The next sixty minutes were used to defining the action plan. Each group designated a facilitator for this second round. The eight projects planned were: (1) organizational Structure – area coordination; (2) review of HR politics; (3) organizational structure (outside area coordination); (4) professional consideration (rewards); (5) objectives, deadlines and priority management; (6) work methods; (7) competencies improvement to achieve objectives; and (8) accountability for project delivery. Follow up meetings were scheduled and a general coordinator was designated along with a communications team.
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Fernando Cardoso de Sousa, João Pissarra and Ileana Pardal Monteiro The first follow up session showed every team had run at least one face-to-face meeting to deepen up the action plan. In addition, the communications team created a virtual platform where the team members could show their work. Due to the complexity of some projects, it was necessary to negotiate its reduction, so they would become feasible and, therefore, the CEO met with each team facilitator to redefine each project output. However, since the distance between the imagined and the negotiated projects was sometimes very large, the facilitators encountered difficulties in making the teams accept the changes. After some time, the company faced new and urgent challenges, which led the groups to postpone some of the projects’ outputs.
6. Discussion and conclusions Despite not having totally completed the cycle determined by the intervention, it became clear that the adaptation made to large-group intervention was effective in creating organizational innovation projects in the company, in a meeting of just four hours. Indeed, although many details must be changed, the intervention was a key stage in the work that the authors have developed and, more importantly, enabled the design of more effective interventions. The same happened with the diagnosis and the measurements taken, namely those related to small-world networks, which were not possible to replicate, but that were explicit enough to understand how the informal organization had established itself. Indeed, this first analysis was a good radiography of the company, and allowed for the identification of brokers in communication, facilitating the understanding of how organizational learning and innovation could be improved, as explained by Mascia, Magnusson and Björk, 2015. As to success stories, its analysis confirmed the desirable future direction, coinciding with the intentions of management. Finally, and although some of the projects have not yet been completed, many aspects influenced changes in the company, either resulting from the diagnosis or from the session. If it were possible to repeat the entire process, carried out in the company, we would have deepen the diagnosis, either in the selection of interviewees or by extending the time spent with each one. The way to stay in tune with the concerns expressed by management was the most salient aspect of the whole process, as recommended by several authors (Howard & Associates, 2009; Beer & Walton, 2009). This embodiment of the diagnosis, through which came out varied and contrasting views on the objectives set by management, was an important synthesis of information for management and for the preparation and monitoring of the intervention. The measures related to small-world networks and collection of success stories, seemed to be appropriate. Indeed, any data collection beyond what is perceived as important by management and employees has no use for the kind of work that was needed. However, there are aspects that should be modified, including some related with the large-group method and its previous preparation, such as: !
The operation of the organizing committee was not fully tested. Since the entire company participated, it was not necessary to make a preliminary selection of participants and the organizational work was done directly by management, which also appointed someone responsible for the logistics team.
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The duration of the session (four hours) is in clear contrast with other large-group methods but the steps taken to bring it short are well explained in previous articles (Sousa et al, 2014; 2015). Nevertheless, the time was too short, requiring additional meetings to define action plans for the projects. In this case, the physical meeting of the teams was not very difficult, due to the location and type of activity of the company; in other cases, this probably would have been more difficult. Hence, six hours instead of four seem more appropriated for the duration of the session, in order to allow for the complete construction of action plans.
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Taking into consideration all the pros and cons, we believe that the facilitators should be pre-appointed and trained to work during the session, thus forcing small changes in the development of the session. The biggest advantage will be the increase in the feasibility of the projects, which, in this case, has very weak and led to a difficult negotiation with the teams.
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The project selection should not be left to management only, but to a small committee appointed by management. Indeed, management must decide on the fundamental aspects, but also should be far enough from the definition of projects to allow the teams to have freedom of decision. On the other hand, asking management to select only one problem/challenge, from the list provided by the teams, is clearly
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Fernando Cardoso de Sousa, João Pissarra and Ileana Pardal Monteiro insufficient and should be extended to every problem considered important and achievable by management. Since the authors have had the opportunity to successfully put into practice the suggested changes, it is thought that future research should be directed towards improving efficiency in the training of facilitators, and to provide them with virtual refreshment training, as well as in the ability to build a more thorough understanding of the organization, based on deeper interviews, during diagnosis.
References Ahuja, G. (2000) “Collaboration networks, structural holes, and innovation: A longitudinal study”, Administrative Science Quarterly, Vol 45, No.3, pp 425-455. Bartunek, J. M. and Woodman, R. W. (2015) “Beyond Lewin: Toward a temporal approximation of organization development and change”, Annual Review of Organizational Psychology and Organizational Behavior, No. 2, pp 157– 82. Bartunek, J. M., Balogun, J., and Boram, D. (2011) “Considering planned change a new: Stretching large group interventions strategically, emotionally, and meaningfully”, The Academy of Management Annals, Vol 5, pp 1–52. Beer, M. and Walton A. (1994) “Organization change and development”, in: W. Burke, D. Lake and D. Paine (eds.), Organization change: A comprehensive reader. John Wiley & Sons. San Francisco, pp 63-69. Bunker, B. and Alban, B. (1997) Large-group interventions: Engaging the whole system for rapid change, CA: Jossey-Bass, San Francisco. Bunker, B. and Alban, B. (2006) The handbook of large group methods: Creating systemic change in organizations and communities, Jossey-Bass Publishers, San Francisco. Burt, R. (2004) “Structural holes and good ideas”, American Journal of Sociology, Vol 110, No.2, pp 349-399. Cooperrider, D. and Withney, D. (2005) Appreciative inquiry: A positive revolution in change, Berret-Koehler Publishers, San Francisco. Fleming, L. e Marx, M. (2006) “Managing creativity in small-worlds”, California Management Review, Vol 48, No. 4, pp 627. Garcia, S.K. (2007) “Developing social network propositions to explain large-group intervention theory and practice”, Advances in Developing Human Resources, No. 9, pp 341-358. Howard, A. and Associates (1994) “Toward integrated organizational diagnosis”, in: W. Burke, D. Lake, and D. Paine (eds.), Organization change: A comprehensive reader. John Wiley & Sons. San Francisco, pp 360-373. Kastelle, T. and Steen, J. (2010) “Are small-world networks always best for innovation? Innovation: Management, Policy & Practice, Vol 12, No. 1, pp 75-87. Ludema, J., Whitney, D. Mohr, B. and Griffin, T. (2003) The appreciative inquiry summit: A practitioner’s guide for leading large group change, Berret-Koehler Publishers, San Francisco. Mascia, D., Magnusson, M and Björk, J. (2015) “The Role of Social Networks in Organizing Ideation, Creativity and Innovation: An Introduction”, Creativity and Innovation Management. Vol 24, No. 1, pp 102-108. McLean, G. (2006) Organization development: Principles, processes, performances, Berrett-Koehler Publishers, San Francisco. Seo, M., Putnam, L. and Bartunek, J. (2004) “Dualities and tensions of planned organizational change”, in: M. Poole and A. Van de Ven (Eds.), Handbook of organizational change and innovation, Oxford University Press , London, pp 73-107. Sousa, F, Monteiro, I., Walton, A. and Pissarra, J. (2014) “Adapting creative problem solving to an organizational context: A study of its effectiveness with a student population”, Creativity and Innovation Management, Vol 23, No. 2, pp 111120. Sousa, F., Monteiro, I., and Pellissier, R. (2015) “Adapting large group methods to build small world networks in higher education, The Quality in Higher Education, No. 11, pp 66-87 Uzzi, B. e Spiro, J. (2005) “Collaboration and creativity: The small-world problem” American Journal of Sociology, Vol 111, No. 2, pp 447-504. Weisbord, M. (2012) Productive workplaces: Dignity, meaning and community in the 21st Century, Jossey-Bass Publishers, San Francisco. Weisbord, M. and Janoff, S. (2010) Future search: Getting the whole system in the room for vision, commitment, and action, Berrett-Koehler Publishers, San Francisco. Worley, C., Mohrman, S. and Nevitt, J. (2011) “Large Group Interventions: An Empirical Field Study of their Composition, Process, and Outcomes”, The Journal of Applied Behavioral Science, Vol 47, No. 4, pp 404-431.
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Business Model Innovation: A Comparative Analysis Erik Steinhöfel1; Holger Kohl2 and Ronald Orth1 IPK, Division Corporate Management, Germany 2Technische Universität Berlin, Department Sustainable Corporate Development, Germany
1Fraunhofer
[email protected] [email protected] [email protected]
Abstract: In the past, companies often maintained a business model (BM) for long periods. Today, this is no longer possible as changes in the business environment such as inter-industry competition, shifting patterns of demand, new products, production or distribution technologies erode the power of established BMs. As a consequence, companies are forced to systematically manage or reinvent their BMs and become able at doing so. Although companies believe that the management and innovation of BMs can significantly contribute to business success they are often not able to realize such transformation due to a lack of required abilities and knowledge as well as suited processes and mechanisms to support them. Against this background, the focus of this contribution is on current approaches and procedures for managing and innovating BMs. Based on a literature review within the BM discipline and further associated disciplines BMI approaches have been identified and are described, analysed and compared regarding a practical application. Thus, giving the reader an overview of current comprehensive approaches and thereby establishing a basis for further research and development is the aim of this paper. Keywords: business model, business model innovation, literature review
1. Introduction Many studies concentrate on organisational challenges and list possible resources, capacity limitations and success factors, but do not provide a (generic) process model, which supports BMI in practice. As the current state of BM research is still in a relatively early stage, Wirtz et al. (2015) carried out a study to determine the need for future research. Through the written survey of experts, who are dealing with BMs in practice or do research in this area, a great need to achieve a standardization of terminology and consolidation of morphology (dimensions and attributes) into a commonly accepted model was determined. Thus, it is difficult to design viable BMs without the consistent application of the BM design elements and it has also been identified that it is imperative to concentrate future research on the procedural view of BMI. To meet this demand the actual study will focus on current procedural approaches for BMI in order to promote progress in the BM research field and meet the needs of application-orientation.
2. Objectives and approach of this paper The main aim of this contribution is to investigate a selection of current BMI approaches to identify existing research and partial gaps for further research to thereby provide a potential basis for the development of a comprehensive approach to be applied in practice. From the authors' point of view and relating to Gassmann, Frankenberger and Csik (2014) without a complete and coherent procedural model BMI will not be successful. For evaluating existing concepts on BMI the classification scheme of Method Engineering (ME) is applied (Gutzwiller 1994). ME is a systematic and structured process for the development, modification, and adaptation of methods based on the description of their components and relations (Heym 1995). For the analysis and comparison, specific criteria have been defined based on the five building blocks of ME (Gutzwiller 1994). Table 1: ME building blocks and defined criteria for evaluation and comparison
As a basis for carrying out the analysis, a variety of approaches were scanned and finally selected for further examination, namely: Osterwalder and Pigneur (2010), Wirtz (2013) and Gassmann, Frankenberger and Csik
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Erik Steinhöfel; Holger Kohl and Ronald Orth (2013). Besides, further approaches have been initially identified, but were not considered further on (e.g. Bieger, Rüegg-Stürm and Rohr 2002; Zollenkop 2006; Grasl 2009; Teece 2010; Nemeth 2011; Roos 2013; Trapp 2014; Bruun-Jensen and Porter 2015; Schwarz, Krajger and Holzmann 2016). Building upon the results of their examination differences between the focused approaches, further need for research and steps towards a comprehensive BMI approach are outlined in chapter 4 and 5.
3. Evaluation of business model innovation approaches 3.1 Osterwalder and Pigneur (2010) – the business model canvas The BM canvas was initially introduced by Alexander Osterwalder based on his previous work on BM ontologies (Osterwalder 2004). According to Osterwalder and Pigneur (2010), a “BM describes the rationale of how an organisation creates, delivers, and captures value” and BMI “[…] is not about looking back, because the past indicates little about what is possible in terms of future BMs. BMI is not about looking to competitors since BMI is not about copying or benchmarking, but about creating new mechanisms to create value and derive revenues. Rather, BMI is about challenging orthodoxies to design original models that meet unsatisfied, new, or hidden customer needs.“ The BM canvas is made up of nine building blocks which cover the four main areas of a business (see Figure 1).
Figure 1: The BM canvas (according to Osterwalder and Pigneur 2010) The buildings blocks are customer segments an organisation serves, value propositions by which an organisation solves its customers’ problems and satisfies needs, communication, distribution and sales channels an organisation uses to deliver value propositions to its customers, customer relationships an organisation establishes and maintains with each of its customer segments, revenue streams an organisation creates through successfully providing value propositions to its customers, key resources an organisation uses to offer and deliver the before mentioned elements, key activities the organisation performs to provide these elements, key partners and finally cost structure which results from the different elements. Based on business literature Osterwalder and Pigneur (2010) categorise BMs with similar characteristics, similar arrangements of building blocks or similar mechanisms into five BM patterns and recast them in the form of the canvas to make them usable for organizations. In the frame of the canvas approach, the BM environment is explicitly taken into account as a sort of “design space” which provides the context for conceiving or modifying a BM and supports making more informed decisions. For capturing this design space it is proposed to roughly map four areas of an organisation’s environment. Market forces comprise issues that drive and transform the market from a customer and offer perspective, major and potential market segments, market needs and their satisfaction, issues concerning customers switching to competitors and attractiveness regarding revenues. Industry forces subsume major competitors and their relative strengths, market entrants and their BM, substitute products and services including those from other markets and industries, current and emerging key players in the industry value chain and further stakeholders that may impact an organisation’s BM. Key trends in the fields of technology, regulation, society, and culture, as well as socioeconomics, might influence an organisation’s BM or might be used to evolve it. Lastly, macroeconomic forces summarize overall global market conditions, capital market
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Erik Steinhöfel; Holger Kohl and Ronald Orth conditions concerning an organisation’s capital need, prices and price trends for commodities and other resources required by an organisation and the economic infrastructure (Osterwalder and Pigneur 2010). The process as outlined by the authors is illustrated below.
Figure 2: The business model design process according to Osterwalder and Pigneur (2010) The objective of the phase mobilise is to prepare the BM design project for being successful. This comprises the framing of specific project objectives, the planning of the first three phases and the configuration of the project team as well as the preliminary testing of basic business ideas by using the canvas whereby a common language is established. The phase understand aims at establishing the informational basis for the development of a new BM. Activities comprise the scanning of the environment through market studies, investigation and integration of customers, interviews of experts for the organisation’s domain and the outlining of competitors’ BMs. Furthermore, generally accepted assumptions regarding an industry and established BM patterns should be scrutinised and already taken attempts should be collected with regard to failures and their causes. Throughout this phase ideas and feedback should be collected to create and test preliminary BM directions. The design phase’s objective is to generate and test different BM options and select the most suitable one through brainstorming, visual thinking, prototyping and by applying the BM patterns provided by Osterwalder and Pigneur (2010). Ideas on different partnership models, alternative revenue streams, and multiple distribution channels are generated while abandoning the current BM. These are then tested by developing respective narratives and providing them to external experts or potential customers. Lastly, the most promising option is selected. The phase implement aims at implementing the selected BM prototype in the field. Activities comprise the translation of the selected BM into an implementation plan. In essence, this includes the definition of necessary projects for the implementation and related project management tasks as well as the organisation of any legal structures. For executing the implementation successfully it is paramount to communicate the new BM, involve affected parties and manage uncertainties. During the manage phase, the focus is on the adaptation and modification of the BM regarding market changes. To this end, tasks carried out in the previous phases are continuously repeated. This includes the establishment of a responsible person or team which consecutively scans the organisation’s environment, assesses the BM, rethinks or adapts it on the basis of new ideas or market transformations and aligns different BMs within a company to establish synergies or avoid conflicts. For carrying out such a project Osterwalder and Pigneur (2010) provide a variety of techniques, tools, and templates for the different phases, whereby the central one being the canvas itself. Further ones to be used for the design of BMs comprise the empathy map to gain customer insights, creative techniques for ideation, visualisation techniques, different techniques for storytelling, and different prototype levels for BM as well as scenarios. In addition, supporting questions to scan an organisation’s environment, case studies, and templates to conduct strengths, weaknesses, opportunities and threats analysis for each building block are provided. For generating new ideas on BM the authors also provide suggestions regarding the composition of an adequate team for a BM design project. Accordingly, the team should consist of people from various business units, with different areas of expertise and a mixture of experience, with different demographic characteristics as well as a neutral facilitator for key meetings. Moreover, such a team may also include external parties or even children. Beyond, the establishment of a team for the continuous management of BM of an organization is outlined. The results of the approach by Osterwalder and Pigneur (2010) are an implemented new BM illustrated in the form of the BM canvas and established structures for continuously monitoring, adapting and managing BMs in an organisation.
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3.2 Wirtz (2013) – Integrated business model According to Wirtz (2013), a BM represents a significantly simplified and aggregated illustration of a company’s relevant activities and explains how marketable information, products and/or services are created through a value creation component. Besides the architecture of value creation a strategic component as well as a customer and market component are considered to achieve the overarching objective of generating or protecting competitive advantage. Building upon this understanding, Wirtz defines BMI as the design process for creating an as new as possible BM which is accompanied by an adaptation of the value proposition and/or the value constellation and aims at the creation or protection of sustainable competitive advantage. According to the author the composition of a BM is significantly depending on the structure of its single “partial models” and thus he distinguishes between strategic partial models, partial models relating to customers and the market as well as partial models relating to value creation (see Figure 3). These create an interdependent network of structural elements. Therefore, according to Wirtz (2013) the single elements as well as the respective components cannot be considered separately, but their causes and effects have to be applied to the entire spectrum of partial models.
Figure 3: Partial models of the integrated business model (following Wirtz 2013) Strategy, resources, and networks form a superior unit in the frame of the integrated BM and therefore also incorporate great relevance for analysing value creation in BMs. In this context, the strategy model comprises the definition of corporate goals and activities, the positioning of the organisation and identification of development opportunities as well as the management of the BM value proposition. The resource model displays the core competencies and assets of an organisation as well as the underlying elements relevant for the organisation’s value creation. In the BM context, special attention is given to resources that are valuable, intangible and hard to imitate by competitors. The network model provides an overview of the value constellation partners in value creation and the connection between BMs. The partial models concerning customers and markets represent key determinants for the design and operation of BM and information at this level illustrate the corporate environment and link it to the internal value creation via the revenue streams. The customer model includes the segmentation of customers and target groups as well as the determination of respective channels and customer touchpoints. The market offer model refers to crossindustry competitors regarding the market offer, the characteristics of the market structure and the alignment of value proposition through value offering and market potential. The revenue model depicts how value is captured and explains how and to what extent generated value can be monetised through different coordinated revenue streams. The focus of the partial models concerning value creation is on how and under which prerequisites value can be created in the BM through a central value creation logic. The production of goods and services constitutes how lower value goods and services are transformed into higher value goods and services through business
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Erik Steinhöfel; Holger Kohl and Ronald Orth processes. The procurement model comprises the structures and sources of raw material as well as goods and services required for the production of goods and services. The financial model shows how an organisation is financed through equity and borrowed capital as well as the cost structure of the BM. In the frame of this approach, the corporate environment is considered during the design process in an environmental analysis focusing on the technological, regulatory, economic and social environment, an industry and market analysis dealing with the market structure, the consumer behaviour, and existing industries as well as a competitive analysis where focus is put on the competitor behaviour and the intensity of competition. The procedural model of this approach comprises the six phases illustrated in the figure below. It needs to be considered that in the case of this approach BMI is part of a more comprehensive BM management process.
Figure 4: The business model innovation process according to Wirtz (2013) The idea generation phase aims at developing a large number of ideas through applying different creative techniques and analysing other organizations’ BMs to identify weaknesses as a basis for further development. Focus can either be put on innovation, where the BM must show novelty, or on imitation by adopting core elements of competitors’ BMs. Having decided on the focus a first rough concept is created. Here the strategy component is considered in more detail and first ideas are illustrated regarding the related partial models. These have to be designed first as they influence the remaining models. In the frame of the feasibility analysis, the corporate environment and existing industries are analysed regarding implications for the developed rough concept in an environmental analysis, an industry and a market and competitive analysis. On this basis, the customer and market component are developed in detail. The detailing of the underlying partial models might require changes in the strategy component to achieve coherence. In subsequence, the prototyping phase is carried out. Ideas with the greatest potential are taken up and different development paths are created in order to compare different implementation options and to decide on them at a later point. This means that for each prototype all partial models of the integrated BM are observed. The central task is to develop and detail the value creation component whereas the before defined strategy and customer and market components provide the frame. Afterwards, the previously detailed components are considered and aligned. In the course of the decision making phase, the developed prototypes are evaluated and compared regarding strengths and weaknesses as well as completeness. Thereby, the number of prototypes can be reduced to a maximum number of three for which a business plan is elaborated and a business case is calculated to evaluate profitability. On this basis, the most promising prototype regarding creating competitive advantage and guarantee profitability is selected. The implementation phase comprises the planning of the implementation, which mainly consists of budgeting the implementation project and creating detailed schedules, the design of a communications structure within the implementation team and for communicating objectives and procedures of the implementation to other stakeholders. Additionally, it includes setting up an implementation team responsible for the execution as well as the evaluation of the implementation where the focus is put on capturing knowledge created throughout the implementation. The monitoring & controlling phase focuses on the success of the implemented BM regarding the realisation of the promise of service, the satisfaction of customer needs and the profitability of the BM. For carrying out the different phases provides the integrated BM with its partial models and components as well as various checklists with guiding questions for the respective models and components as well as phases are
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Erik Steinhöfel; Holger Kohl and Ronald Orth provided. In addition, techniques and methods to be applied in the frame of his approach are listed, often described in detail and supported by case studies. Roles and responsibilities are only raised regarding setting up an implementation team. The members of such a team should have a similar level of knowledge and capabilities, a sufficient degree of social competence as well as the preference for teamwork and methodical competence. Besides, the viewpoint of a single entrepreneur is taken during the preceding phases. After having carried out the approach of Wirtz (2013) all partial models of the new integrated BM have been implemented.
3.3 Gassmann et al. (2013) – The business model navigator Different than the other approaches Gassmann, Frankenberger and Csik (2013) put a strong focus on reoccurring principals for innovation. The methodology is based on their central finding that 90 % of all BMs are recombinations of existing BM’s elements and are based on 55 BM patterns identified by them. According to Gassmann, Frankenberger and Csik’s (2013) a BM is defined via who the customers are, what is offered and how a value proposition, as well as revenue, is created. BMI occurs when at least two of these four so-called dimensions are changed. Their concept consisting of the customer (segment), value proposition, value chain and revenue model is illustrated in what they call a “magic triangle” (see Figure 5) since the optimisation of one of the corner points automatically requests an adoption of the other two. The four questions provided in the figure below and the detailing of the four dimensions make a BM comprehensible and build the basis for innovating it.
Figure 5: The magic triangle and the four dimensions of a BM (Gassmann, Frankenberger and Csik 2013) The element customer (segment) takes into account that a successful BM requires an organisation to exactly understand which customer segments are relevant. The value proposition describes what is offered to the target customers to satisfy their needs and includes all services of an organisation that are valuable to them. The dimension value chain explains how an organisation produces goods and services. In order to be able to provide the value proposition, an organisation has to carry out certain activities and processes and coordinate these as well as the resources and capabilities along the value chain. The fourth dimension, the revenue model, explains why a BM is financially viable. It describes how value is captured and comprises aspects such as the cost structure as well as the revenue streams. In this approach, the environment is taken into account by analysing the important actors customers, partners and competitors as well as the major influencing factors technologies, trends and regulatory changes. Additionally, the dynamics of the environment are taken into account. From a procedural perspective, the approach consists of four phases, namely initiation, ideation, integration and implementation (see Figure 6). In the initiation phase, the foundation of BMI is established by describing the current BM according to the four dimensions mentioned above to identify weaknesses and inconsistencies and to thereby provide stimuli for changing the BM. In this context, the corporate environment is analysed regarding important actors and major influencing factors as described above. During the ideation phase, the 55 BM patterns are applied to the organisation’s existing BM to develop new BM ideas. The patterns can be applied either according to the similarity principle or the confrontation principle. The
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Erik Steinhöfel; Holger Kohl and Ronald Orth former principle focuses on BM patterns already applied in analogue sectors, while the latter focuses on BM patterns which completely differ regarding the logic of the own sector. In the case of both principles, 5-8 patterns are identified and transferred to the current BM of the organisation to identify suitable ideas to solve the previously identified challenges of the organisation.
Figure 6: St. Gallen business model navigator (Gassmann, Frankenberger and Csik 2013) For the assessment and the selection of BM ideas the iterative NABC approach (need, approach, benefits and competition) has proven successful. On the basis of key questions, each idea or ideas that can be clustered are described regarding four different perspectives. Afterwards, they are presented in an elevator pitch and then discussed. On this basis, weaknesses and challenges are addressed, novel ideas are applied, assumptions are revised and a new NABC is elaborated. Subsequently another cycle of presenting and discussing ideas is carried out and one to two ideas are selected.
Figure 7: The NABC approach (Gassmann, Frankenberger and Csik 2013) Subsequently, in the integration phase, the ideas are transferred into new, coherent BMs considering internal requirements of an organisation and the external environment. BMs are described in detail regarding the four dimensions and coordinated among each other to achieve internal consistency. For the external consistency, it is questioned to which extent the new BMs respond to needs of different actors and how trends and competitive conditions are encountered. For this purpose, the external environment is considered in detail against the background of the new BMs. After the designing of the new BM, the implementation phase is carried out. For a smooth implementation, it is suggested to minimise risk by testing the BMs at small scale. Therefore, prototypes are elaborated either in the form of a detailed presentation, a business plan or a pilot project in a small market. The objective is to identify functioning dimensions and potential weak points. The feedback from important internal and external stakeholders is used to optimize and further develop prototypes or even to reject them. After selecting a prototype the market launch can be initiated. In this respect, it is crucial to include employees from different hierarchy levels to avoid internal resistances to change processes and tasks. Furthermore, management should show commitment by living and communicating the new BM as well as supporting the respective project and providing sufficient resources. Another important issue is the establishment of structures, processes and objectives. New BMs should initially receive a protected status and mostly be realised in the form of a new legal and structural entity. For the new BM, SMART (specific, measurable, achievable, relevant and time-bound)
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Erik Steinhöfel; Holger Kohl and Ronald Orth objectives should be defined and measured via a performance measurement system. Furthermore, missing capabilities to implement the new BM can be obtained through developing it within the organisation, forming partnerships and the acquiring capabilities or businesses. The main supporting material Gassmann, Frankenberger and Csik (2013) provide comprise the 55 BM patterns. In addition, the authors supply checklists with guiding questions for BM elements, hints and background information, interactive software for computers and tablets, online learning course as well as case studies. The team for carrying out a BMI project should include the functional units research and development, marketing, strategy, sales, production, logistics, procurement as well as customers and suppliers, ideally complemented by externals The result of carrying out this approach is a new marketable BM, which is launched in the subsequence.
4. Discussion By analysing and comparing selected BMI approaches applying the classification scheme of ME, this paper aimed at identifying similarities and differences regarding the underlying building blocks (meta model, activities, techniques, roles, result). In the following, the results of the analysis are presented and summarized in table 2. Meta Model Even though all of the analysed approaches feature a specific meta model, they differ in terminology, number and delimitation of elements. The elements are referred to dimensions (Gassmann, Frankenberger and Csik 2013), partial models Wirtz (2013) as well as building blocks (Osterwalder and Pigneur 2010) and their number per meta model ranges from four (Gassmann, Frankenberger and Csik 2013) to nine (Wirtz 2013) or even to 23 when further breaking down the partial models of Wirtz (2013). Differences regarding the delimitation of the elements can be attributed to the different level of aggregation. Besides putting the focus on the single elements, all approaches acknowledge the importance of interdependencies between BM elements for BMI. Although the BM environment is taken into account in all approaches certain differences have been identified In the case of Wirtz (2013), the environment is primarily focused during the feasibility analysis after the idea generation in the frame of an analysis of the environment, an industry and market analysis as well as well as a competitive analysis. Osterwalder and Pigneur (2010) in contrast propose a detailed analysis of the environment before starting to focus on ideas for potential BMs and an ongoing observation during the following phases. For this purpose, they propose the analysis of market forces, industry forces, key trends and macro-economic forces. Gassmann, Frankenberger and Csik (2013) also propose an initial analysis of the environment in the initiation phase of the BMI process as well as a continuous observation in order to secure the external consistency of a specific BM during the integration phase. In conclusion, progress in the field of BMI requires a standardisation of terminology and the integration of elements into a holistic meta model which enables organisations to easily apply any BM approach despite the one it has been using before to make use of the advantages of different approaches. In addition, it shows that the environment is paramount for BMs and should, therefore, be considered throughout the whole BMI process. Activities From a procedural perspective certain similarities and differences between the approaches are obvious. Generally, all approaches are iterative by nature as the development of new sound BMs requires repetitions to adapt initial ideas after testing them. One difference can be observed regarding the number of phases, which ranges from four (Gassmann, Frankenberger and Csik 2013) to six phases (Wirtz 2013). Furthermore, differences can be found regarding their order, the content and the level of detail of the phases. A paramount difference is that Wirtz (2013) elaborates BM elements in the frame of the different BMI phases sequentially whereas a rough direction for the BM development is already set at the beginning of his procedure. The other two approaches do not follow a procedure where single or several elements are developed step by step in different phases building up on each
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Erik Steinhöfel; Holger Kohl and Ronald Orth other and Gassmann, Frankenberger and Csik (2013) do not predetermine a development direction. In addition, the latter two approaches include a first description of the current BM to establish the basis for the following steps in contrast to Wirtz (2013). Besides, all approaches generally comprise activities concerning the analysis of the environment, idea generation and selection, design of a new BM (prototyping), testing and adaptation of prototypes as well as their implementation and controlling. In contrast to the development of BMs, the implementation of BMS receives less attention by all approaches. The latter is only described at a very general level and includes issues concerning change, leadership and project management whereas Wirtz (2013) deals with it in more detail. From these observations, it becomes evident that all of the focused approaches incorporate similar activities which are partly carried out in different chronology. In order to be able to provide organisations with a best practice regarding the sequence of activities insights from the application of the different approaches in practice should be collected and evaluated. In addition, more research and attention should focus on the implementation of BMs as it is critical to the success of an organisation. Techniques All approaches considered in the frame of this paper provide techniques supporting the execution of activities within different phases of BMI whereas the applied techniques differ in their type and regarding the level of detail. Generic BMs also called BM patterns are for example only considered by Gassmann, Frankenberger and Csik (2013) and Osterwalder and Pigneur (2010). The different techniques can partly be assigned to different disciplines. For analysing the environment for example use is made of components of common analytical approaches and methods from the field of strategic management and marketing such as Porter’s five forces for the industry structure analysis or the PEST analysis (political, economic, social and technological framework conditions) for the environmental analysis. Further techniques especially those applied for the generation of new ideas such as brainstorming or design thinking can be assigned to the field of innovation management. Besides already established techniques the different authors also provide further supporting material such as templates and guiding questions for the description of BMs according to the respective meta models as well as case studies and examples to support their application in practice. In this context, it needs to be mentioned that the least techniques are provided for the implementation of BMs. In conclusion, it seems promising to collect different techniques from different approaches and merge them in a toolbox to provide them to companies as well as to describe them in more detail for practical application. Additionally, further techniques especially focusing on the implementation of BMs should be investigated. Roles Regarding roles, relatively few information and guidance are provided. Wirtz (2013) for example takes the viewpoint of an entrepreneur throughout all phases and suggests setting up an implementation team consisting of members with similar capabilities and characteristics. Osterwalder and Pigneur (2010) emphasize the diversity of a team (e. g. in the seniority, age, experience level etc.) from across the organisation as paramount for developing effective new BM ideas. In addition, a neutral facilitator for key workshops as well as the integration of externals and the establishment of a team or person which continuously focuses on BM is suggested is suggested. Gassmann, Frankenberger and Csik (2013) also highlight the importance of a cross-functional, interdivisional team when focusing BMs of large corporations and the integration of external stakeholders as well as of a neutral moderator for workshops. In addition, a team for generating ideas should be multidisciplinary with a broad experience background according to the authors. In conclusion, more focus needs to be put on the roles within the BMI process in order to provide companies with more specific advice on how to involve different people at different points of BMI. Against this background, to consider differences between organizations of different size and structure could be of particular interest.
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Erik Steinhöfel; Holger Kohl and Ronald Orth Results The results of the approaches are very similar. In the end, the envisioned result is the successful implementation of a new BM which secures the viability of an organisation. Table 2: Overview on analysed BMI approaches with regard to method engineering building blocks
5. Outlook The discussion above allows drawing some conclusion regarding the practical applicability of the approaches and a certain demand for further research and development. In order to be able to draw reliable conclusions with regard to their practical suitability, the application of these approaches in practice and related strengths and weaknesses should be investigated. This would provide the opportunity to improve the single approaches themselves or to exploit synergies between these where possible. The latter issue seems particularly promising as each of the approaches shows another focus and relies on other techniques or supporting material. In this context, the consideration of further comprehensive approaches like those initially identified in the frame of this paper as well as of contributions focusing on certain phases or other aspects of BMI could advance the development of more sophisticated approaches. From a subjective viewpoint, the discussed BMI approaches do not seem adequate for organizations willing to develop and implement new BMs themselves. For example, suggesting practitioners to test a new BM in the form of a pilot project in a small market before implementing it large scale (Gassmann, Frankenberger and Csik 2013) leaves much room for interpretation. Instructions should be more precise and prepared in the form of a coherent guideline for practical application. Additionally, roles as well as the BM implementation demand for further research as they are not covered to the same degree as other aspects Finally, BMI is always seen as a separate issue. Promoting the integration of BMI into organisations’ innovation management processes might provide great synergy potentials though and should be further investigated.
References Bieger, T.; Rüegg-Stürm, J.; Rohr, T. (2002): Strukturen und Ansätze einer Gestaltung von Beziehungskonfigurationen. Das Konzept Geschäftsmodell. In: Thomas Bieger (Hg.): Zukünftige Geschäftsmodelle. Konzept und Anwendung in der Netzökonomie. Berlin, Heidelberg: Springer (Roland Berger Strategy Consultants - Academic network), S. 35–61.
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Erik Steinhöfel; Holger Kohl and Ronald Orth Bruun-Jensen, J.; Porter, K. (2015): Business model innovation in consumer goods. How companies are configuring their business to deliver exceptional performance. Hg. v. Deloitte University Press. Deloitte. Gassmann, O.; Frankenberger, K.; Csik, M. (2013): Geschäftsmodelle entwickeln. 55 innovative Konzepte mit dem St. Galler Business Model Navigator. München: Hanser. Gassmann, Oliver; Frankenberger, Karolin; Csik, Michaela (2014): The business model navigator. 55 models that will revolutionise your business. Harlow: Pearson. Grasl, O. (2009): Professional service firms: Business model analysis – method and cases studies. University of St. Gallen, St. Gallen. Bookstation GmbH. Gutzwiller, T. A. (1994): Das CC RIM-Referenzmodell für den Entwurf von betrieblichen, transaktionsorientierten Informationssystemen. Heidelberg: Physica-Verlag HD (Betriebs- und Wirtschaftsinformatik, 54). Heym, M. (1995): Prozeß- und Methoden-Management für Informationssysteme. Überblick und Referenzmodell. Berlin, Heidelberg: Springer. Nemeth, A. (2011): Geschäftsmodellinnovation. Theorie und Praxis der erfolgreichen Realisierung von strategischen Innovationen in Großunternehmen. Dissertation. Universität St. Gallen, St. Gallen. Osterwalder, A. (2004): The business model ontology a proposition in a design approach. Dissertation. Universite de Lausanne. Osterwalder, A.; Pigneur, Y. (2010): Business model generation. A handbook for visionaries, game changers, and challengers. Hoboken, New Jersey: Wiley. Roos, G. (2013): The role of intellectual capital in business model innovation. An empirical study. In: Patricia Ordóñez de Pablos, Robert D. Tennyson und Jingyuan Zhao (Hg.): Intellectual capital strategy management for knowledge-based organizations. Hershey, Pa.: Business Science Reference, S. 76–121. Schwarz, E. J.; Krajger, I.; Holzmann, P. (2016): Prozessmodell zur systematischen Geschäftsmodellinnovation. In: Peter Granig, Erich Hartlieb und Doris Lingenhel (Hg.): Geschäftsmodellinnovationen. Vom Trend zum Geschäftsmodell. 1. Aufl. 2016. Wiesbaden, s.l.: Springer Fachmedien Wiesbaden. Teece, D. J. (2010): Business Models, Business Strategy and Innovation. In: Long Range Planning 43 (2-3), S. 172–194. Trapp, M. (2014): Realizing business model innovation. A strategic approach for business unit managers. Wiesbaden: Springer Gabler. Wirtz, B. W. (2013): Business Model Management. Design - Instrumente - Erfolgsfaktoren von Geschäftsmodellen. 3., aktuelle und überarbeitete Auflage. Wiesbaden: Springer Gabler. Wirtz, B. W.; Pistoia, A.; Ullrich, S.; Göttel, V. (2015): Business Models. Origin, Development and Future Research Perspectives. In: Long Range Planning. Zollenkop, M. (2006): Geschäftsmodellinnovation. Initiierung eines systematischen Innovationsmanagements für Geschäftsmodelle auf Basis lebenszyklusorientierter Frühaufklärung. Univ., Diss.--Bamberg, 2006. 1. Aufl. Wiesbaden: Dt. Univ.-Verl. (Gabler Edition Wissenschaft Schriften zum europäischen Management).
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Interdisciplinarity in Entrepreneurship Education: A Conceptual Framework Focusing on Pedagogy for Innovation Blair Stevenson and Erkki Nuottila Oulu University of Applied Sciences, Finland
[email protected] [email protected]
Abstract: This paper articulates a conceptual framework for exploring how interdisciplinarity connects with entrepreneurship education. The framework offered in this paper links the themes of entrepreneurship, innovation and pedagogy together with a focus on exploring how interdisciplinary methods of teaching can support educational outcomes in entrepreneurship education. Based on the on-going research conducted within the LAB research group at the Oulu University of Applied Sciences in Finland, this conceptual paper summarizes and integrates relevant concepts to construct a theoretical grounding for entrepreneurship education that targets innovation and real-world business development (Potter, 2008). Specifically, this framework draws upon existing concepts such as project-based learning (Blumenfeld et al, 1991), self-regulated learning (Winne, 2010) and expands upon current directions in interdisciplinary education (Lattuca, Voigt and Fath, 2004) to describe pedagogical foundations that point toward interdisciplinary methods as a support for entrepreneurship education at the higher education level. In addition, the concepts discussed are linked to interdisciplinary practices at the Oulu University of Applied Sciences LAB pre-incubator programs as an example to demonstrate how this framework can be used to research educational outcomes in practice. Keywords: interdisciplinarity, entrepreneurship, innovation, pedagogy
1. Introduction Entrepreneurship as a subject is increasingly offered in higher education institutions internationally (Potter, 2008). The number of programs that include entrepreneurship education has grown across the spectrum of disciplines to not only find its way into business schools, but to also connect with entrepreneurship development in other fields such as health, engineering and technology. In many ways, this growth has paralleled a movement within universities to build programming that allows for the commercialization of academic pursuits and to support business development generally. Increasingly, entrepreneurship in higher education is also seen as a pathway for innovation at the national level in many countries. While the number of entrepreneurship programs at universities continues to increase, a corresponding need has developed to connect applied programs with theory and assess this work at a conceptual level. More specifically, as universities begin to develop different ways to teach content through entrepreneurship, these pedagogical practices should be positioned according to theories relating to innovation, pedagogy and entrepreneurship. As a result, the key objective of this paper is to articulate a conceptual framework for exploring how interdisciplinarity connects with entrepreneurship education. The concept of interdisciplinarity is highlighted under the hypothesis that interdisciplinary higher education programs represent an effective pedagogical methodology for training for innovation and entrepreneurship. Additionally, a conceptual discussion of interdisciplinarity is connected to the specific example of a current interdisciplinary program of entrepreneurship education within a Finnish university: the LAB studio model at the Oulu University of Applied Sciences. Overall, a conceptual framework is articulated in this paper principally as a mechanism to support research on the LAB studio model and similar interdisciplinary higher education programs. This paper is structured into five sections. The first and second sections include an introduction and a summary of the theoretical background, while the third section summarizes the LAB studio model as an example of interdisciplinary education and outlines a corresponding framework for a pedagogy for innovation. The fourth section includes a discussion of the LAB framework and how this framework connects with specific aspects of the LAB studio model, followed by a conclusion.
2. Theoretical background The following section will summarize key concepts associated with the theoretical foundations addressed in this paper. The key concepts covered are: interdisciplinarity; pedagogy; innovation and entrepreneurship. This summary is offered in order to ground the conceptual framework associated with the interdisciplinary higher education model of instruction introduced in this paper which is referred to as the LAB studio model (Heikkinen
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Blair Stevenson and Erkki Nuottila and Stevenson 2016). This model in turn is grounded on the pedagogical principles of studio education (Schön 1984; Wang 2010) and is used in the university level entrepreneurship education programs at the Oulu University of Applied Sciences in Finland known as Oamk LABs.
2.1 Interdisciplinarity For the purposes of this paper, the concept of interdisciplinarity is defined as an ‘integrative’ process (Klein, 1990) as opposed to ‘additive’ which is more often associated with multidisciplinary processes or ‘transcendent’ as is connected with the transdisciplinary process (Choi and Pak, 2006). In this way, interdisciplinarity is seen as a concept that brings together different disciplines of knowledge and studies for work together on a specific problem (Rosenfield 1992; Repko, 2011). This particular term is used rather than multidisciplinarity or transdisciplinarity since the education program under discussion brings individuals from diverging disciplines together into teams to commonly work on a problem at the same time. As a result, this type of work is not defined as multidisciplinary since teams work together and not in a sequential way as would be expected in a multidisciplinary process, while at the same time this program is not seen as transdisciplinary since individuals are still expected to develop competences relevant for their own disciplines. While interdisciplinarity is not new at the higher education level, this paper attempts to support connections made between interdisciplinary practices and the development of models of entrepreneurship education that support innovation (Lattuca, Voigt and Fath, 2004).
2.2 Pedagogy The concept of pedagogy is a critical component of the discussion on entrepreneurship education since it grounds the pedagogical assumptions at the core of this form of education. With respect to this paper, pedagogy is seen as the practice of teaching and the tradition of the studio is highlighted as a learning environment and as a form of pedagogy that has long recognized the utility of interdisciplinary pedagogical methods. In many cases, studio education focuses on one profession or one discipline, however examples do exist of interprofessional or interdisciplinary studios being established (Shraiky and Lamb 2013). While studios as learning environments have existed for centuries, these environments are increasingly been used outside of the traditional fields of architecture, arts and design to bring together teams of students to focus on solving problems in a wide range of fields such as health, engineering and business (Bull, Whittle and Cruickshank 2013; Carter and Hundhouser 2011). A studio pedagogy is theoretically based on a number of related approaches to learning such as constructivism (Clinton and Rieber 2010), self-regulated learning (Winne, 2010), and blended and/or inquiry based learning (Khan and Mahmood 2013; Mor and Mogolevsky, 2013). The pedagogy associated with a studio model of teaching can also be seen as a combination of project-based and problem-based learning (PBL), where students work to solve ill-defined and open-ended problems (Brandt, Cennamo, Douglass, Vernon, McGrath and Reimer 2011; Bull and Whittle 2014). In PBL, a student is given a problem and expected to solve the problem using established principles or carrying out research in order to come up with a satisfactory solution, whereas in project-based learning students are given a problem as a starting point in order to find or establish the real problem (Green and Bonollo, 2003). And yet, studio learning can be differentiated from typical problem-based learning since studios have a strong culture of critique and collaboration between students. In a studio model of learning, students are frequently giving feedback and receiving critique from peers, mentors, coaches and experts. Another difference is that PBL does not necessarily require a physical space that students can take ownership over as is often the case in studio learning. Furthermore, Forest, Moore, Jariwala, Fasse, Lindsey, Newstetter, Ngo and Quintero (2014) suggest that studio learning supports creativity, invention and innovations, while Lee, Kotonya, Whittle, and Bull (2015) point to the need for strong connections to industry in this form of pedagogy.
2.3 Innovation Innovation can be simply defined as changing or altering a substance or process into something new and can be observed at work in any discipline. However, this paper emphasizes the social processes of innovation rather than the psychological aspects of innovation. This view of innovation as a process is grounded through the lens of commercial innovation and is more specifically used to describe the development of product innovations and related systems. With this in mind, innovation is more specifically defined in this context as “an iterative process
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Blair Stevenson and Erkki Nuottila initiated by the perception of a new market and/or new service opportunity for a technology-based invention which leads to development, production, and marketing tasks striving for the commercial success of the invention” (Garcia and Calantone, 2002: 112). Garcia and Calantone (2002) go on to suggest that an ‘innovation process’ exists that is iterative and made up of both a technological development of an invention and the market introduction of that invention. To further conceptualize the term, it is suggested that innovations are a managed phenomenon. Therefore, instead of focusing on mere product innovation, this paper expands the view on the specific process of innovation management. Innovation management can be viewed in a number of ways. Firstly, it can be seen as a strategic process (Baghai, Coley and White, 2000). Additionally, it can take on a cultural aspect as in the nurturing of a culture of innovation (Gawer and Cusumano, 2002), whereas it can also take more of a logistical form as in the development of product planning (Ulrich and Eppinger, 2000). Connecting these different aspects of innovation management is the underlying notion that these facets should be addressed in education methods that attempt to train individuals to support innovation. As a result, it is suggested that entrepreneurship education is strongly connected with building the skills necessary for managing people and processes to support product innovations.
2.4 Entrepreneurship Entrepreneurship is defined generally in this paper as the process of creating a new business, but also follows Shane and Venkataraman’s notion that entrepreneurship can be defined as both the “discovery and exploitation of an opportunity” (2000: 222) which in turn holds strong parallels to Garcia and Calantone’s (2002) focus on both the creation and market introduction of an innovation. Entrepreneurship has also been seen as a phenomenon connected with changes in an operating environment, innovations, and human activities, while also being ultimately future-orientation (Shane, Locke and Collins 2003). Over the last two decades, universities increasingly expanded support for business development and entrepreneurship within their institutions. With a growing number of entrepreneurship study programs being established as exemplified in the growth of business pre-incubators, incubators and accelerators as part of the institutional structures of universities, higher education programming has become a focal point for the linkages between academic and commercial interests (Potter, 2008). With the rise of these types of education programs, their presence is often described as a way for higher education to provide ‘hands-on’ opportunities for students to development their professional training and networks. In this way, entrepreneurship education can be seen as grounded in an applied approach to learning linked to constructivist perspectives or to activity theory as outlined by Engeström’s (1991) view of expansive learning in work. Overall, this paper draws from the view that entrepreneurship education should parallel the real-life process of entrepreneurship (Fiet 2001).
3. Overview of the LAB framework: A pedagogy for innovation The need for a conceptual framework focusing on interdisciplinarity in entrepreneurship arose from the development of Oamk LABs as an entrepreneurship education program at the Oulu University of Applied Sciences in Finland. Oamk LABs studies are based on the LAB studio model (Heikkinen and Stevenson 2016) which is an interdisciplinary education model aimed at producing skilled professionals, self-directive teams and company start-ups within a specific industry focus. The LAB studio model has two main phases: the Lead phase, where concepts are defined and articulated; and the Lab phase, where a demo is built. Teams are supported by professional coaches either from the university staff or from a relevant industry. Overall, the model can be defined as a business pre-incubator. As of 2016, Oamk LABs consist of three pre-incubators or LABs which are defined according to their industry focus. Each LAB educates future professionals from several different fields (e.g. business, education, engineering, media, and health and social care). LAB participants are either university students involved in Bachelor or Master’s degree programs from different universities and countries, or unemployed professionals looking for retraining. One additional noteworthy characteristic of Oamk LABs is that each LAB has a specific industry focus leading to strong connections to work life and existing companies in that particular field. As the educational activities using the LAB studio model have expanded since the model was first used at the Oulu University of Applied Sciences in 2012, a LAB research group has been formed to conceptualize, explore and assess both the theoretical arguments for such a type of program as well as their observable outcomes. As
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Blair Stevenson and Erkki Nuottila a result, the LAB research group held a series of four internal research seminars at the university to begin to construct a framework that could be used to ground teaching and research activities within the LAB programs. The outcomes of these seminars were the LAB conceptual framework.
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Figure 1: LAB conceptual framework for pedagogy of innovation Figure 1 represents a graphic visualization of the LAB conceptual framework. This framework is titled as a LAB framework since it is used as the basis for conceptualizing the key aspects of the LAB studio model used and researched at the Oulu University of Applied Sciences. The three areas forming the framework are: pedagogy, innovation management and entrepreneurship, which connect together with interdisciplinarity at its core.
4. Discussion By bringing the concepts of pedagogy, innovation management and entrepreneurship together and placing interdisciplinarity at its centre, the framework above is constructed with the assumption that interdisciplinarity is a critical component for bridging any pedagogical process at the higher education level with the applied and commercial aspects of innovations and entrepreneurship. The following section will further detail the basis of this assumption by making specific references to aspects of the LAB studio model used at the Oulu University of Applied Sciences. Furthermore, it is argued that the LAB conceptual framework can be observed in practice within the Oamk LABs based on the pedagogical methods used to teach and support students to complete their work and develop in their discipline. However, it should be noted that empirical evidence relating to the longtern success of the LAB studio model as an entrepreneurship education program is still being collected and therefore more time and further research is necessary to produce valid results relating to its success. Ultimately, the LAB conceptual framework will be used to ground and structure this future research. Interdisciplinarity is currently observable in Oamk LABs in a number of ways such as the management processes of the program, the internal team work processes and communications and the transition of teams between the LABs and start-ups. With respect to the innovation management process in LAB studio learning, LAB teams are encouraged to work in interdisciplinary teams and as teams would work in a corporate work environment. This includes the designation of roles such as project managers and the building of trust associated with tasks being completed on time and at a sufficient quality. In this way, students and teams are exposed to processes and procedures about how innovation can be managed at the team level and can view how they must rely on the expertise of individuals from different disciplines to complete the project. More importantly, the successful completion of the projects takes place as a result of individuals not only working on their tasks, but building together in an interdisciplinary process and environment. The LAB studio model is heavily dependent on feedback by both peers and mentors. In this way, participants are structured within a pedagogical process that involves them learning about each other’s work. As a result, peer
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Blair Stevenson and Erkki Nuottila assessment becomes an essential aspect of the project work. Additionally, this type of feedback process encourages participants to not only reflect and assess their own skills in a particular discipline, but gain exposure about how their own work relates to other disciplines. In order to develop new products, students are encouraged to take on an innovative mindset that is grounded on the interaction of individuals from different disciplines. Interdisciplinarity can also be seen within the LAB studio model programs at the Oulu University of Applied Sciences since teams are encouraged to create real and viable start-up companies at the conclusion of their studies. And, the creation of viable companies from these programs so far has been observed to rely on a diverse mixture of individuals from different disciplines that can work together to develop a product. While individuals can often learn from each other and can take on multiple tasks in a new company, preliminary observations suggest that those teams that have successfully continued though the LAB studio model to create a start-up business have optimized an interdisciplinary approach. Ultimately, the further development of data collection and analysis methodologies in connection to the observable occurrences of interdisciplinarity outlined above is a priority for Oamk LABs and connected research moving forward.
5. Conclusion This paper offers a framework of a pedagogy for innovation that together supports a view of interdisciplinarity as a core aspect of entrepreneurship education at the higher education level. This framework is founded on the view that interdisciplinarity is a critical aspect of how higher education can develop pedagogical practices that bridge applied and academic pursuits to solve real problems and create businesses and innovations. With links to current theories on pedagogy, innovation and entrepreneurship, a framework has been outlined to explore how interdisciplinary work can be placed at the core of a higher education pedagogy that specifically expands the development of entrepreneurship skills and drives the creation of innovation. It is suggested that this framework can support further research to explore how this hypothesis can be validated as it is applied to higher education programs focusing on entrepreneurship. More specifically, a series of future research projects grounded by this framework are currently being planned by the LAB research group at the Oulu University of Applied Sciences to explore issues of applicability and efficacy when using interdisciplinary pedagogical practices. Moreover, robust and longitudinal research processes are needed in order to offer empirical evidence to support this claim.
References Baghai, M., Coley, S. & White, D. (2000) The alchemy of growth, New York, Basic Books. Blumenfeld, P.C. Soloway, E. Marx, R.W. Krajcik, J.S. Guzdial, M. & Palincsar, A. (1991) Motivating project-based learning: sustaining the doing, supporting the learning, Educational Psychologist, vol. 26, pp. 369-398. Brandt, C. Cennamo, K. Douglas, S. Vernon, M. McGrath, M. & Reimer, Y. (2013) A theoretical framework for the studio as a learning environment. International Journal of Technology and Design Education, vol. 23, no. 2, pp. 329-348. Bull, C. Whittle, J. & Cruickshank, L. (2013) Studios in Software Engineering Education: Towards an Evaluable Model. 35th International Conference on Software Engineering (ICSE), IEEE, pp 1063-1072. Bull, C. & Whittle, J. (2014) Supporting Reflective Practice in Software Engineering Education through a Studio-based Approach, IEEE Software, vol. 31, no. 4, pp. 44-50. Carter, A. & Hundhausen, C. (2011) A review of studio-based learning in computer science, Journal of Computing Sciences in Colleges, vol. 27, no. 1, pp. 105-111. Engeström, Y. (2001) Expansive Learning at Work: Toward an activity theoretical reconceptualization, Journal of Education and Work, vol. 14, no.1, pp. 133-156. Fiet, J. (2001) The Theoretical Side of Teaching Entrepreneurship, Journal of Business Venturing, vol. 16, no. 1, pp. 1-24. Forest, C., Moore, R., Jariwala, A., Fasse, B., Linsey, J., Newstetter, W., Ngo, P. & Quintero C. (2014) The invention studio: A university maker space and culture. Advances in Engineering Education. vol. 4, no. 2, pp. 1-32. Garcia, R. & Calantone, R. (2002) A critical look at technological innovation typology and innovativeness terminology: a literature review, Journal of Product Innovation Management, vol 19, pp. 110-132. Gawer, A. & Cusumano, M. A. (2002) Platform leadership: how Intel, Microsoft, and Cisco drive industry innovation. Boston: Harvard Business School Press. Green, L.N. & Bonollo, E. (2003) Studio-based teaching: history and advantages in the teaching of design. World Transactions on Engineering and Technology Education. vol.2, no.2. pp. 269-272. Heikkinen, K-P & Stevenson, B. (2016) The LAB studio model: enhancing entrepreneurship skills in higher education, International Journal of Innovation and Learning, vol. 20, no. 2, pp.154–168. Khan, M. & Mahmood, S. (2013) Implementing Blended Learning through Studio Course. Fourth International Conference on e-Learning "Best Practices in Management, Design and Development of e-Courses: Standards of Excellence and Creativity" pp. 241-244.
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Blair Stevenson and Erkki Nuottila Klein, J.T. (1990) Interdisciplinarity: History, Theory, and Practice, Detroit, Wayne State University Press. Lattuca, L.R. Voigt, L.J. & Fath, K.Q. (2004) Does Interdisciplinarity Promote Learning? Theoretical Support and Researchable Questions. The Review of Higher Education, vol. 28, no. 1, pp. 23-48. Lee, J., Kotonya, G., Whittle, J. & Bull, C. (2015) Software Design Studio: A Practical Example. Proceedings of the 37th International Conference on Software Engineering (ICSE '15). Mor, Y. & Mogilevsky, O. (2013) Learning design studio: educational practice as design inquiry of learning. Open Research Online. Springler-Verlag. http://dx.doi.org/doi:10.1007/978-3-642-40814-419. Potter, J. (2008) Entrepreneurship and higher education: future policy directions, in Potter, J. (Ed.) Entrepreneurship and Higher Education, pp. 313–335, Paris, OECD Publishing. Repko, A.F. (2011) Interdisciplinary Research: Process and Theory, LA, Sage. Rosenfield PL. (1992) The potential of transdisciplinary research for sustaining and extending linkages between the health and social sciences, Social Sciences and Medicine, vol. 1992, no. 35, pp. 1343-1357. Schö n, D. A. (1984) The architectural studio as an exemplar of education for reflection-in-action, Journal of Architectural Education, vol. 38, no. 1, pp. 2–9. Shane, S. & Venkataraman, S. (2000) The promise of entrepreneurship as a field of research, Academy of Management Review, vol.25, no. 1, pp. 217-226. Shane, S. Locke, E. A. & Collins, C. J. (2012) Entrepreneurial motivation [Electronic version]. Retrieved April 4, 2016, from Cornell University, ILR School site: http://digitalcommons.ilr.cornell.edu/articles/830 Shraiky, J.R. & Lamb, G. (2013) Studio-based learning in interprofessional education, Journal of Interprofessional Care, vol. 27, no. 6, pp. 461-468. Ulrich, K. T. & Eppinger, S. D. (2000) Product design and development, 2nd ed. Boston, Irwin McGraw-Hill. Wang, T. (2010) A new paradigm for design studio education, International Journal of Art and Design Education, vol. 29, no. 2, pp. 173-183. Winne, P.H. (2010) Bootstrapping learner’s self-regulated learning, Psychological Test and Assessment Modeling, vol. 52, no.4, pp. 472-490.
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Design Thinking and Organizational Change: Developing a HumanCentered Culture Christy Suciu and Chris Baughn Department of Management, College of Business and Economics, Boise State University, USA
[email protected] [email protected]
Abstract: As practitioners work to incorporate design thinking in their innovation efforts, they often encounter roadblocks. Though comfortable employing design thinking tools and methods for product, process and service innovation, they find themselves on uncertain ground when it comes to infusing design thinking in their own organization’s culture. As a result, there is a strong call for guidance on how to align company culture with a more human-centered and user-driven orientation to foster innovation and creativity in solving problems and creating new value. This paper discusses many successful endeavors in bringing about this organizational change. Examples of effective incorporation of design into organizational values and practice have been collected across a wide range of industries, including manufacturing, sales, service, and public sectors. This study demonstrates a strong marriage between organizational change processes and design thinking tools and methods. Several key themes emerge from this study. One theme involves the use of co-creation, whereby users and employees are engaged in identifying needs and developing solutions. Another theme relates to the use of an experimental process of moving from small prototypes to pilot tests to both gather information and garner organizational support. Visualization, a key tool in design thinking, is also used to develop organizational consensus around future direction and gain commitment for change. Change efforts were often facilitated by providing education and training in design practices used to incorporate user perspectives and create common understanding throughout the organization. Keywords: design thinking, organizational change, co-creation, innovation
1. Introduction Innovative efforts in organizations are increasingly drawing from the field of design. Cognitive processes, tools and methods underlying design practice are being employed to drive innovation, not only in industrial and consumer product firms, but also in service industries such as healthcare, insurance, and banking (Brown, 2009; Liedtka & Ogilve, 2011; Kolko, 2015; Vianna, Vianna, Adler, Lucena, & Russo, 2011). This represents a substantial evolution in the field of design. Historically, design was treated as a downstream step in the product development process. Designers were primarily expected to provide late-stage add-ons to products to make them more aesthetically attractive. Over the years, design has moved upstream, taking a greater role in adding value at earlier stages of the innovation process (Brown, 2008). Design’s evolution has been depicted by Richard Buchanan (2001) as moving from the first and second orders of design, dealing with graphic and industrial design, to the third and fourth orders of design--arenas of human interaction and environmental design, including organizational change. Substantive innovation is accompanied by needs for organizational change (Junginger, 2007; Deserti & Rizzo, 2014). As design thinking increases its scope to more strategic aspects of organizational activity, the development of a greater understanding of organizational processes, including the complex issues underlying organizational change, is needed. This paper seeks to address the demands placed on change agents when attempting to employ design thinking in organizational settings. To that end, a review of the organizational change literature is followed by a discussion of key practices based on many accounts of effective incorporation of design into organizational values and practice. This paper describes the intersection of organizational change processes and design, and how organizational change can be facilitated by effective use of and design thinking tools and methods.
2. Literature review: Organizational change John Kotter’s (1996) seminal work in the field of change management found that only 30 percent of organization’s change efforts succeed. Following Kotter’s work, McKinsey and company surveyed 3,199 executives from around the world and confirmed the findings with only one in three change management programs succeeding (Price, & Lawson, 2009). A more recent review of the organizational change literature finds the success rate to be less than 30 percent (Al-Haddad & Kotnour, 2015). Organizations naturally develop a resistance to change. Over the years, organizations develop mechanisms to produce stability, which are
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Christy Suciu and Chris Baughn reflected in formal policies, work process, structure, and roles. Such factors may contribute to structural inertia, inhibiting change efforts (Hannan & Freeman, 1984). Further, organizations must balance pressures for innovation and change with those providing ongoing efficient operations—needs for exploration are countered by needs to efficiently leverage existing knowledge to refine products and production (March 1991). In a similar vein, the processes and skills needed for discovery will be different from those needed for ongoing “delivery” (Dyer, Gregersen, and Christensen, 2011). As Junginger (2009) noted, organizations need stability to function well, but they need change to survive. Innovation and organizational change initiatives generate uncertainty. Surprise and fear of the unknown, fear of failure, and disruption of cultural traditions all generate resistance to change (Ford, Ford, & Amelio, 2008). Employee resistance is exacerbated in conditions of inadequate communication (Messingger, 2008). The work of Kurt Lewin (1951) provided a foundation for research addressing change. He conceived of an organization’s current state as representing and equilibrium resulting from counteracting forces that drive and restrain change. Organizational change, therefore, results from increasing the driving forces and/or decreasing the restraining forces. Research over the past sixty years has provided guidance as to how such change should be managed. Lewin’s three-step model of change, for example, begins with unfreezing, which creates the motivation for change. This is followed by the improvement initiatives, whether in technologies, processes or procedures. The third stage of refreezing seeks to stabilize the new situation by balancing driving and restraining forces. The change method presented by Judson (1991) follows a similar pattern, starting with analyzing and planning for change, communicating the change, gaining acceptance for new behavior, changing the status quo to desired state, and reinforcing and institutionalizing (Judson, 1991). The work of John Kotter (1996) builds on Lewin’s framework as well. Kotter (1996) presented eight steps for leading organizational change. These steps consist of: (1) Establish a sense of urgency (2) Create the guiding coalition (3) Develop a vision and strategy (4) Communicate the change vision (5) Empower broad-based actions (6) Generate short-term wins (7) Consolidate gains and produce more change, and (8) Anchor new approaches in the culture. Hamel (2000) proposed a change model starting with building a point of view, then writing a manifesto and creating a strong coalition or team, then implementing the change into the organization. He emphasized that there needs to be continued inputs of imagination, design, experimentation, assessment, and scaling the innovative ideas. The skill set needed for change leaders is consistent with the activities noted here. These include “tuning in to the environment,” “communicating a compelling aspiration,” “building coalitions,” and “transferring ownership to a working team” (Kantner 2000, p. 34). Adopting the perspective of those expected to enact the proposed change, Price & Lawson (2009) suggest that four basic conditions are necessary before employees will change their behavior: a) a compelling story, because employees must see the point of the change and agree with it; b) role modeling, because they must also see the CEO and colleagues they admire behaving in the new way; c) reinforcing mechanisms, because systems, processes, and incentives must be in line with the new behavior; and d) capability building, because employees must have the skills required to make the desired changes. The research cited above provides consistency in stressing the importance of generating a sense of urgency and creating a common vision or compelling story. This facilitates movement away from the status quo and helps to align employees in a common effort. This support and commitment needs to be supported by empowered teams, provided both with the capability and authority to undertake the change. Practices associated with design thinking can help address the the demands placed on those undertaking organizational change. Design thinking is an iterative, exploratory process involving visualization, experimentation, the creation and prototyping of models, and gathering feedback (Glen, Suciu, & Baughn, 2014). Design thinking is human-centered. It couples ethnographic methods to develop an understanding of the needs and problems experienced by users, and visual methods represent and share insights. Rapid learning is facilitated through this process, as insights are rapidly translated into tangible outcomes for testing and feedback (Brown, 2009; Lawson, 2006; Liedtka & Ogilvie, 2011). While design thinking has generally addressed product and service innovation, a design approach to organizational change would build on these same practices—but with innovation of the organization itself as a key target.
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3. Design approaches to organizational change In this paper we augment the current literature by collecting examples of initiatives of successful infusion of design into organizational values and practice. Examples were collected through survey of the literature as well as through contacts with practitioners. The examples include organizational change taking place in a wide range of industries, including manufacturing, sales, service, and public sectors. The change initiatives addressed such needs as seeding a culture of innovation for social change to build new business, creating a new culture for scaling new products and services in an entrenched older culture, and bringing together different cultures during a company merger. Once the accounts of these design approaches for organizational change were captured, we organized them into underlying themes of practice. These themes include: co-creating a new vision and aligning employees, visualization and observation, testing and prototyping, and education for the designer and user. 1. Co-Creation In design thinking co-creating is an innovative method for aligning employees, customers, and businesses in jointly creating a new vision, product or service. When tasked for opportunities for innovation, co-creation offers new ways of collaborating and communicating with colleagues, partners, and customers as well as fostering behaviors that build creative confidence and critical thinking (Ben Grossman Kahn, personal communication, March 2016). Throughout the innovation journey there needs to be interaction with the user and other stakeholders to weed out the bad design and build on the successful ones (Brown & Martin, 2015). For example, LEGO wanted to reinforce its competitive strategies and market position, especially with the emerging videogame market as a constant threat to its business. They needed to create a better gaming experience. With the use of crowd sourcing they developed LEGO Mindstorm. They moved from a model of internal innovation to a model of open innovation based on co-creation with interactions from a community of hackers, developers, and designers who were literate in LEGO products and technologically competent. Together they created LEGO-Technic—a line of products built together with customers who were Lego-literate enough to design complex models on their own. The opportunity for co-creation changed LEGO from a culture of intellectual property and copyrights towards a model for open innovation (Deserti & Rizzo, 2014). Co-creation, in which customers and partners listen to their wants and needs and jointly design frontline ideas, builds support in the innovation process (Brooks, 2016). For example, three departments at Concordia University: Student services, and Institute for Community Development, and continuing education were tasked to develop a School of Extended Learning for the community without adding new resources and to break-even or be profitable. A workshop for these three merging areas was co-created and called it “Discover and Innovate.” They examined what was going on, met new people and used paper-based Facebook type profiles to get to know each department a what each person did (de Guerre et al, 2012). Co-creation was used by Carlos Rodriquez-Pastor Jr., who grew his company Intercorp Group, into one of Peru’s biggest corporations. In developing supermarkets, the firm partnered with local producers, helping farmers and small manufacturers upgrade their capabilities enough to supply their local supermarkets. Next, Intercorp entered the education business with the value proposition of targeting at the middle class families. Winning social acceptability for education for the middle class was the challenge. Intercorp, used human-centered design (HCD) and other design thinking practices along with working with the design consultancy IDEO to co-create a model of education similar to a Khan academy with laptops and online education. They won over teachers and parents to the idea that conglomerates could provide education, and called it “Innova” which today has a great reputation (Brown & Martin, 2015). Another example involved 3M. 3M had developed an initial discovery-based strategy, then moved to a more delivery based culture. After losses in revenue they went back to implementing a more innovative culture with discovery based learning. To address this, 3M hired a consulting company to introduce a design culture back into 3M. The consultant began by involving external consultants and the different labs and stakeholders from the beginning. He used a participatory, bottoms-up approach in performing concurrent design process and aligning everyone in the new vision. Through this approach, the process of developing new products acted as an agent for cultural change in the company. The design of the new product was an occasion for aligning everyone with the new approach (Deserti & Rizzo, 2014).
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Christy Suciu and Chris Baughn Mass Mutual adopted a participative model with users to provide the firm with fresh insights in developing financial planning services for young adults. Rather than delivering the program purely as an online course, the company made it a multichannel experience, with state-of-the-art digital budgeting and financial-planning tools. Offices with classrooms and a library customers could visit were provided, as well as a curriculum that included everything from investing in 401(k) to buying good-value wine. Every aspect of the organization had to be redesigned for this new service, which has evolved as a participative model allowing Mass Mutual to gain fresh insights into their users’ needs (Brown & Martin 2015). 2. Observation and Visualization Design thinking emphasizes observation for the purpose of understanding people, leading to empathy, insights and analysis. Gaining an unfiltered understanding for the user’s experience allows one to “walk a mile in their moccasins.” While observation involves sensing information, visualization techniques help a group piece together observational artifacts and feelings to help spark new connections, perspectives and insights. Both of these techniques engage design thinking methods to explore empathy and intuition as well as logic and memory, to discover new patterns and themes. (Glen et al., 2015). For example, FedEx felt they needed to bring about organizational change. The existing process for delivering packages to customers was logistical and technical with updates designed to get packages delivered faster and more efficient. What was missing was the customer, so FedEx hired ZIBA design and worked with them to integrate the human element into FedEx’s processes and products. Observation was at the forefront for ZIBA to bring about a more modern brand image, yet to stay true to their traditional values of being trusted. They went to FedEx headquarters, and watched presentation and delivery processes by the different FedEx divisions. Human-centered design was introduced with ethnographic videos, behavior observation, environment mapping, metaphors and 180 interviews with customers, agents, and couriers in three different cities. They went into neighborhoods to observe deliveries and record data. Personality characteristics, perceptual maps and verbal exercise were completed to create brand personality and consumer behaviors for FedEx and its competitors. Quantum, a design language for FedEx was thereby created to differentiate FedEx from the competition. They also created Courier Tools, a project to run concurrently with FedEx projects (Breslin, 2008). Intergroup founder and CEO, Carlos Rodriquez-Pastor Jr used observation in order to build a strong management team. He knew that if he used simply his own ideas, buy in to new innovative businesses would be largely be on his authority—and not conducive to social transformation. In 1995, he took an investor tour of US banks and he talked his friend into allowing four of his colleagues to join the tour. He needed his managers to learn how to develop insights, so they too could spot and seize opportunities for advancing his businesses. By 2015, Interbank employed 55,000 people and revenue of $5 billion (Brown & Martin, 2015). Organizational mergers entail substantial changes in organizational processes and culture. Suncorp, a centralized organization, and Promina, a decentralized organization, merged in Australia. Coming from two different cultures, there was a lot of apprehension as this merger needed to be completed without the loss of momentum in a cutthroat and competitive environment of banking, investments and insurance. To create a common vision, they hired Second Road Consulting from Australia. Integration began with a one week meeting, with conversations to build a common vision using design tools of visualization, metaphors, storytelling, brainstorming, and rapid prototyping. Discussions were about their present situation and perception, their future vision using imagination, and designing connections and consequences. Teams used metaphors (cards from a box) with pictures of cafes, markets, natural landscapes, people and art to build the type of look and feel they wanted for their new companies. They also used metaphors for “what is marriage”- and answered: love, children, happiness, and then were asked to replace marriage with merger. Conversations looped back and forth with clarity and alignment. Using a city as a metaphor for the new firm, managers built representations of their “city” and its neighborhoods, including what stakeholders would say, feel and do. Each manager visited the other “neighborhoods” to learn about their counterparts. The managers came away with a feeling of energy, enthusiasm and a sense of how the components of these different business units came together (Liedtka, King, & Bennett, 2013). In the first quarter this merged firm saw a 1% increase and an 8% growth in the second quarter, in an industry that shrunk 8% that year. Customer satisfaction increased 2-3 points. Employee engagement was 80% (Liedtka, King, & Bennett, 2013).
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Christy Suciu and Chris Baughn Virginia Hamilton from the US Department of Labor launched a webinar Human Centered Design (HCD), which was viewed by 10,000 employees. She wanted to create a feeling of purpose vs. function and needed the VA employees to understand the end-to-end customer journey—their wants and needs. To accomplish this, they created customer journey maps and personas, looking outside in, rather than inside out. The result was a program called “My VA” which is customer driven and human centered. In order to build a more innovative culture at BEI, their innovation director stated their employees needed to go outside of the building and use personal observing with customers and common networks to stay close to the consumer and see their lifestyle and experiences. This allowed them to adapt to new ways of seeing their customers using design thinking methods. Similarly, the telecommunication firm Sprint is creating an innovation lab using design thinking influences from IDEO. Sprint started by looking at a story for the employees to create their own vision for a future state, using story walls, metrics, pain points, touch points, episodes. Executives were included to tell about episodes of their pain points (Andrea Andrews, personal communication, March, 2016) 3. Testing and Prototyping In design thinking, prototyping focuses on representing the idea for the purposes of feedback and learning. Generating as many low fidelity, throw-away prototypes for customers to react to is the goal, as fast and cheap as possible (Glen, R., et al., 2015). The design process is iterative. Iterative prototyping is a helps to understand and predict customers’ reactions to a new artifact. No matter how deep the up-front understanding was for a customer, it is difficult for designers to predict the users’ reactions. Early engagement with the user, along with very low-resolution prototyping cycles of iterations and getting feedback until the user is delighted facilitates success. For example, PalmPilot was developed by Jeff Hawkins with the idea of having only three components—a calendar, contacts, and notes. He realized that the first task was to build user acceptance with the solution being simple and later adding the desired complexity for the user. Initially the iPod was created with the pitch, “1,000 songs in your pocket” and as the user understood and later welcomed more complexity came the iTunes store, photos, games, and apps (Brown & Martin 2015). Both FedEx and the English National Health Service used modeling, planning, prototyping and testing to facilitate organizational change underlying their design thinking innovation for improved health care and work process. They increased their knowledge exploitation, coming up with something new that might work through action and implementation (Bevan, et al, 2007; Breslin, 2001). Through the design thinking process, Nordstroms discovered that their customers wanted a “pocket stylist.” To test their value proposition they used “Launchrock” which has a splash page and customer validation. Texting customers was also successful as they received 50 immediate responses from customers describing their need for a fashion forward experience. Another project focused on the importance for social feedback and the validation when buying cosmetics. Therefore they asked “who does a really good job of creating a social environment” and bartenders were the first persons who came to mind. So, they prototyped the idea and went out to a local mall, equipped it with furniture from IKEA and brought in two part time beauty consultants to be the bartenders for the day and ran the experiment. They learned it wasn’t about trying to sell the product, it was about the low pressure message for exploring and playing in a comfortable environment. They also iterated this same experience with a sorority on campus and with their new “Nordstroms Beauty Bar” (Ben Grossman Kahn, personal communication, March 2016). Other types of prototyping were done when LEGO Mindstorm used crowd sourcing as an innovation tool for prototyping an “open software” approach and generated dramatic engagement (Deserti, Rizzo F., 2014). The “My VA” project created a customer experience engagement model—designing and testing an ecosystem of services to get constructive criticism (Brooks. S., 2016). 4. Education Many companies also use the process of educating their employees in the application of design thinking practices. Intercorp Group, one of Peru’s biggest corporations, sent their executive leadership team to top
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Christy Suciu and Chris Baughn schools at Harvard and to IDEO to learn how to deepen their skills to increase their design know-how. They also brought in expert managers from other businesses – banking, supermarkets and mapped out barriers and those stakeholders who would be resistant to change in order to develop new programs. The School of Extended Learning, Concordia University, engaged in competency building on open systems theory, appreciative inquiry, and human-centered design. Teams met for three days and used positive questioning with the exploration of similarities and differences between these approaches. They found that appreciative inquiry was significant evidence-based inquiry method for change that delivers hard tangible results to organizations and their people (De Guerre et al, 2012). Virginia Hamilton of the US Department of Labor uses coaches to provide on-going encouragement and help with connections to the other teams working on the same challenge and for feedback. This was important for the 400 employees who have also taken the free online IDEO+acumen Human Centered Design class. In January, 2016 Ms. Hamilton also gave a keynote speech about the VA design thinking program to state officials from every state in the nation. In this presentation, some of the VA teams gave real live examples of the way humancentered design changed their service design (Virginia, Hamilton, 2016 personal communication). Sarah Brooks from the VA equipped employees with the tools, training, and support they needed in order to give customers great experiences. Three different levels for the program were created: Enterprise level (to reframe conversations about policy), Program level (to provide ethnographic research and an empathetic understanding for the customers, and Local level, conducting co-design workshops with employees to understand the customer experience and create a path for empowerment (Brooks, 2016).
4. Integration and implications Organizational change has often been presented as a prescriptive and top-down practice. The examples presented in this paper represent approaches which would better be described as “bottom-up” (Deserti & Rizzo, 2013, p. 36), and “outside-in” (Junginger, 2009). The accounts of organizational change discussed in this paper emphasize the interaction between organizational change processes and design thinking tools and methods used for human centered design. Highlighted in the research are the how the different businesses used cocreation, visualization, observation, prototyping, testing, and education in their design thinking projects. The design-based approaches presented here provide means to address the demands the challenges noted in the literature on organizational change. As noted earlier, the literature provides consistency in stressing the importance of generating a sense of urgency and creating a common vision or compelling story. The resulting commitment needs to be supported by empowered teams, provided both with the capability and authority to undertake the change. The engagement with users and corresponding observation (as seen at FedEx, the InterGroup, and the U.S. Department of Labor) enhances the perceived need for change. The many examples of visualization seen in these accounts (including FedEx, and SunCorp’s merger) helps to provide a common vision for the change. These change efforts involved empowered teams, in a process of co-creation, rather than topdown compliance with pre-set agenda. These efforts were supported by capacity building, as seen in change efforts at Intercorp Group and Concordia University. Change requires learning. However, humans and organizations tend to learn as a reaction to events. Design processes applied to organizational change provide shared experiences as those involved in the change gather understanding of needs, create a common vision, and engage in ongoing experimentation to refine their innovation. The demands for innovation and change in today’s organizations are endless. Design processes provide a means for ongoing adaptation and revitalization.
References Al-Haddad, S., & Kotnour, T. (2015) Integrating the Organizational Change Literature: A Model for Successful Change”, Journal of Organizational Change Management, Vol 28, No. 2, pp. 234-262. Andrea Andrews, personal communication April 2016. Bevan, H., Robert, G., Bate, P., Maher, L., Wells, J., (2007) Using a Design Approach to Assist Large-Scale Organizational Change: “10 High Impact Changes” to Improve the National Health Service in England. The Journal of Applied Behavioral Sciences 43.1 (Mar 2007): pp. 135-152. Breslin, M. (2008) Massachusetts Institute of Technology. Design Issues: Volume 24, Number 1 Winter 2008. pp. 41-49. Brooks. S., 2016, Customer Experience at Veterans Affairs- DMI Vol27, Issue 1, 2016. Brown, T. & Martin, R., (2015), Design for Action, Harvard Business Review, pp. 56-64. Brown, T. (2008) “Design Thinking”, Harvard Business Review, Vol 86, No. 6, pp 84-92.
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Christy Suciu and Chris Baughn Brown, T. (2009) Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation, Harper and Collins, New York. Buchanan, R. (2001). “Design Research and the New Learning,” Design Issues: 17:4 , pp 3-23. Dyer, J., Gregersen, H. & Christensen, C.M. 2011. The innovator's DNA: mastering the five skills of disruptive innovators. Boston, Mass: Harvard Business Review Press. de Guerre, D., Séguin, D., Pace, A., Burke, N., (2012) IDEA: A Collaborative Organizational Design Process Integrating Innovation, Design, Engagement, and Action. Springer Science+Business Media New York, 2012. Published online: 10 October, 2012, pp. 258- 263. Deserti A., Rizzo F., 2014, “Design and the Cultures of Enterprises.’ Massachusetts Institute of Technology, Design Issues: volume 20, Number 1 Winter, 2014. pp. 43-51. Emery, M., (2000) The current version of Emery’s open systems theory. Syst Pract Action Res 13(5):685-703. Ford, J.D., Ford L.W., & Amelio, A.D., 2008, “Resistance to Change: The Rest of the Story,” Academy of Management Review, pp 362-377.Fraser, H. (2007) “The Practice of Breakthrough Strategies by Design”, Journal of Business Strategy, Vol 28, No. 4, pp 66–74. Glen, R., Suciu, C., Baughn, C., Anson, R. (2015). Teaching Design Thinking in Business Schools. The International Journal of Management Education, 13(2), 182-192. Glen, R., Suciu, C., & Baughn, C. (2014) “The need for design thinking in business schools”, Academy of Management Learning & Education, Vol. 13, No. 4, pp. 653-667. Gormley,G., Fidelity Labs, personal communication, April 2016. Grossman Kahn, Ben., “Design Thinking for 21st Century Teams,” March 4, 2016, personal communication personal communication, April 2016. Hamel, G. (2000) Leading the Revolution, Harvard Business School Press, Boston, MA. Hannan, M.T., & Freeman, J. (1984) “Structural Inertia and Organizational Change,” American Sociological Review, Vol 49, No. 2, pp 149-164. Hamiltion, Virginia, April 2016, personal communication. Judson, A.S. (1991), Changing Behavior in Organizations” Minimizing Resistance to Change B, Blackwell. Junginger, S. 2007. Product Development as a Vehicle for Organizational Change. Design Issues, Vol 24, No. 1, pp. 26-35. Kanter, R.M., Stein, B. and Jick, T. (1992), The Challenge of Organizational Change: How Companies Experience it and Leaders Guide it, Free Press/Maxwell Macmillan Canada/Maxwell Macmillan International, New York, NY/Toronto/New York, NY. Kanter, R.M. (2000) Leaders with passion, conviction and confidence can use several techniques to take charge of change rather than react to it” Ivey Business Journal, Vol 64, No 5. pp 32-34. Kolko, J. (2015). Design thinking comes of Age, Vol 93, No. 9, pp. 66-71. Kotter, J, (1996) Leading Change, Boston Harvard Business Press. John P. Kotter, Lewin, K. (1951) Field Theory in Social Science. New York: Harper and Row. Lawson, B. (2006). How designers think: The design process demystified. Amsterdam: Elsevier. Liedtka, J. King, A., & Bennett, K. (2013) Solving problems with design thinking: 10 stories of what works. NewYork. Columbia Business School. Liedtka, J. and Ogilvie T. (2011) Designing for Growth: A Design Thinking tool Kit for Managers, Columbia Business School, New York., pp. 35-50. Luecke, R. (2003). Harvard Business Essentials, Managing Change and Transition, Harvard Business School Press, Boston, MA. March, J. G. 1991. Exploration and exploitation in organizational learning. Organization Science, 2 (1): 71-87 Messingger, C., March 2008, “Change Management and HR’s Role,” HR Magazine, pp. 8. Nadler, D.A. & Tuchman, M.L, “Organizational Frame Bending: Principles for Managing Reorientation,” Academy of Management Executive, August 1989, pp 194-203. Price, C., & Lawson, E., 2003. “The psychology of change management,” mckinseyquarterly.com, June 2003. Stewart, T.A., “Architects of Change. “ Harvard Business Review,” April 2006. pg 10. Vianna, M., Vianna, Y., Adler, I., Lucena, B., & Russo, B. (2011). Design thinking: Business innovation (2013 electronic version). Rio de Janerio: MJV Press. designthinkingbook.cn/?page id=433.
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Entrepreneurial Intention and Interest in Entrepreneurship Program Among the new Generation in Thailand Mullika Sungsanit Suranaree University of Technology, Thailand
[email protected]
Abstract: Entrepreneurship education and support are gaining great interest in Thailand. Despite the interest, less is known regarding the level of entrepreneurial intention and the interest to study in such a program. The aims of this research were (1) to study the level of entrepreneurial intention and factors affecting the entrepreneurial intention among the senior students at Suranaree University of Technology (SUT) and Rajamangala University of Technology Isan Nakhonratchasima (RMUT), the alumni, and others and (2) to study the intention to study in entrepreneurship program. This research adopted a quantitative research method using an online questionnaire to collect data. Questionnaires were developed and adapted from Liñán’s EIQ questionnaire. Questionnaires were posted and spread via Facebook groups and Email. Descriptive data analysis was used to analyse the data. Four hundred and twenty-nine people responded to the questionnaire. The results showed that the respondents indicated high-level of intention to be entrepreneurs, however, they indicated the medium level of readiness to be entrepreneurs. Approximately 60% of the variance of the entrepreneurial intention can be accounted for by the linear combination of the 4 measured variables, i.e., the entrepreneurial attraction, perceived social norm, perceived entrepreneurial efficacy, and perceived entrepreneurial skills. Most of the respondents intend to study entrepreneurship at the master level. The preferred characteristics of the master program in Entrepreneurship as suggested by the respondents are the practicality of the lessons, using experiential learning method, internationalization, teaching by lecturers who have experience in business & technology, ability to graduate in the program time frame, and weekend classes. Keywords: entrepreneurship, entrepreneurial intention, entrepreneurial readiness, entrepreneurship education, program preferences, Thailand
1. Introduction Entrepreneurship education ranks high in policy agendas in developed countries like Europe and the US. However, in developing countries, like Thailand, it is more of the interest of the academics that pushed the practice and implementation. However, recently, the Thai government has emphasized the value of entrepreneurship education in the policy agenda. New Generation or the millennials are choosing the self-employed entrepreneurial route more than ever. Strauss and Howe (1991) explain that Generation Y is also called millennial, which refers to a generation born in between 1982 to 2000. According to the research done by the Millennial Branding and analytics firm, it indicated that Generation Y might be more entrepreneurial than anyone thought (Sataline, 2012). They found that young people are starting or running their own businesses or freelancing. The high propensity of interest in entrepreneurship path coupling with the strong policy support currently promoted in Thailand create much worried around the country. Could entrepreneurship education particular at the master level add any value to the new generation? Would anyone want to study in such a program since there had so many supports around? Researchers have suggested and started agreeing that entrepreneurs are made not born in which it suggested that entrepreneurs can be trained. Therefore, it is important to look at the factors that make someone into an entrepreneur and the issues related to the development of entrepreneurs. Researchers have also suggested that entrepreneurial activities are intentional based (Krueger et al., 2000), that means entrepreneurs would start with some extent of entrepreneurial intention before they became ones. Entrepreneurship is relatively a young field of study, therefore, researching the field of entrepreneurship is still considered necessary and practical. Moreover, understanding what factors affecting entrepreneurial intent is considered critical in entrepreneurship research (Schwarz et al, 2009). Therefore, investigating determinants of entrepreneurial intention is a crucial step in identifying ways to promote and develop entrepreneurship.
2. Literature review The theory of planned behaviour and entrepreneurial intention The decision to choose entrepreneurship as a career path has been one of the main focuses of entrepreneurship researchers and educators around the world. Researchers (Ferreira et al, 2012; Gelderen et al, 2008; Liñán, 2004;
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Mullika Sungsanit Liñán and Chen, 2009) have predominantly used the theory of planned behaviour to explain one’s career choice as an entrepreneur. The theory of planned behaviour, is based on the premise that much human behaviour is planned and is therefore preceded by intention toward that behaviour (Ajzen, 1991; Fishbein and Ajzen 1975). The theory of planned behaviour contends that intentions are a function of three sets of factors: attitudes, subjective norms, and perceived behavioural control. It is argued that social norms are less predictive of intentions for individuals who have a high internal locus of control (Krueger et al, 2000). Applying the theory of planned behaviour to explain entrepreneurial intention, Liñán (2004) suggested that entrepreneurial intention is dependent on an individual’s attitude toward the desirability of an entrepreneurial career (individual awareness of the importance and value of entrepreneurship), subjective/social norms (individual perception of the significance of how others value and support the establishment of a new business), and perceived behavioural control (individual perceptions of their abilities to perform entrepreneurial tasks) or the perceived ability to execute the intended behaviour of entering entrepreneurship path (Liñán,2004; Liñán and Chen, 2009). Liñán had developed the Entrepreneurial Intention Questionnaire (EIQ) and tested the questionnaire in different cultural settings (Liñán and Chen, 2009). Researchers had investigated the level of entrepreneurial intention in students in many countries and found that students these days tend to report a high level of entrepreneurial intention (Samuel et al, 2013; Ferreira et al, 2012). However, one factor in the model that seems to have been reported conflicting result is the subjective social norm. Some studies have simply omitted social norms (Veciana et al., 2005) while others found them to be non-significant (Krueger et al., 2000; Fayolle and Gailly, 2004; Liñán, 2005). Exploring whether the social norm is an important factor in predicting entrepreneurial intention in Thailand would be an important contribution to the theory. Moreover, researchers suggested that attitudes toward entrepreneurship depend on exogenous factors like demographics, traits, skills, culture, and social and financial support (Shapero and Sokol, 1982). Prior exposure to entrepreneurial activity would be included as one determinant. Prior exposure could be in the form of early exposure to a family business, which influences attitudes toward entrepreneurship (Krueger, 1993). Drennan et al (2005) found that those who reported a positive view of their family’s business experience perceived starting a business as both desirable and feasible. Ferreira et al (2012) had developed and tested a comprehensive structural equation model aiming to identify what variables have influence on the entrepreneurial intention of secondary students, and the results show that need for achievement, self-confidence, and personal attitude positively affect entrepreneurial intention. Self-Efficacy Self-efficacy has traditionally been used to explain entrepreneurs’ motivations and performances as well as students’ entrepreneurial intentions and behaviours (Tyszka et al., 2011; DePillis and Reardon, 2007; Segal et al., 2005; DeNoble et al., 1999). Grounded in social cognitive theory (Bandura 1997), self-efficacy is the personal cognitive evaluation of one’s ability to successfully perform a specific task (Bandura 2012). Entrepreneurial selfefficacy can be defined as "the belief in one's efficacy in performing entrepreneurial tasks" (Bryant 2007, 735). Entrepreneurial self-efficacy has been highlighted as one of the key personal traits that motivate entrepreneurial behaviours (Tyszka et al., 2011; DePillis and Reardon 2007) and enhances individual’s motivation and competence when beginning new ventures (Boyd and Vozikis, 1994). It also enables entrepreneurs to cope with uncertainties and challenges during the entrepreneurship process. (McGee et al., 2009; Bryant, 2007). Education and training programs can improve entrepreneurial intentions. Several studies have demonstrated that entrepreneurial education significantly influences students’ intention to start their own businesses (Peterman & Kennedy, 2003). These programs nurture students’ intention to become entrepreneurs through developing their entrepreneurial skills, highlighting the merits and benefits of entrepreneurship for personal and social developments (Souitaris et al., 2007; Segal et al., 2005). Furthermore, entrepreneurship education improves students’ entrepreneurial intention by enhancing their self-efficacy (Souitaris et al., 2007). Theory of self-regulatory focus The theory of self-regulatory focus suggests that human has the ability to set and achieve goals despite the presence of personal and environmental obstacles (Higgins et al., 2001). Promotion and prevention are two
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Mullika Sungsanit driving forces that can direct people’s motivation towards the goals. Scholars strongly believe that systematic and purposeful interventions, such as education and training, can improve self-regulation and thereby the students' desires and competencies to become entrepreneurs (Bryant, 2007). The entrepreneurial intention has been extensively researched in the West. However, it hasn’t been much research in Thailand. There always the questions of appropriateness and applicability in applying Western studied results and theories in Thailand. As findings on determinants that predict entrepreneurial intention varies across countries and cultures (Moriano et al., 2012). Moreover, Liñán and Chen (2009) suggested that there is a need to consider the existence of relevant country difference. Therefore, the key research questions were (1) to what extent the new generation in Thailand have the intention to pursue entrepreneurial path? (2) what were the factors affected the entrepreneurial intention? (3) to what extent that this new generation have the intention to study in the master program in entrepreneurship. Research Objectives: !
To study the level of entrepreneurial intention and factors affecting the entrepreneurial intention
!
To study the intention to study in entrepreneurship program
3. Methodology 3.1 Research method and sample This research was a quantitative research method using an online questionnaire to collect data. The populations were the 4th year students at Suranaree University of Technology (SUT) and Rajamangala University of Technology Isan Nakhonratchasima (RMUT), the alumni, and others. The convenience sampling method was used to select the sample. The data was collected via online survey platform, i.e., surveymonkey.com for about 30 days. The questionnaires were distributed and spread through (1) Facebook Pages, specific Groups, and instructors’ personal Facebook messages and groups with their students, and (2) direct email to instructors. There were 429 people responded to the questionnaires, but only 313 responses that were completed.
3.2 Instruments The questionnaires were developed and adapted from Liñán’s EIQ questionnaire (Liñán and Chen, 2009). The questionnaires were divided into 3 parts, i.e., (1) respondents’ demographic information, (2) entrepreneurial intention and attitudes, and (3) interest and preferences in the master program in technology entrepreneurship. The first and third parts of the questionnaire were developed. The second part of the questionnaire was adapted from Liñán’s EIQ questionnaire. The author had got the permission from Liñán to use the EIQ. The questionnaires were designed using the yes/no type and the 5-point rating scale. Then the questionnaires were put together and pretested with 31 students at SUT. The internal consistency using Cronbach’s Alpha Coefficient was used to test the reliability of the instruments. The acceptable level was .70 (Nunally and Bernstein, 1994). The internal consistency score results of the pre-test and the final version used in the study were shown in the table below. Table 1: Reliability of the instruments List
Variables
1 2 3 4 5 6 7
Knowledge of entrepreneurial supports Entrepreneurial Attraction Perceived Social norms Reference Groups’ Acceptance Entrepreneurial Efficacy Entrepreneurial Skills Entrepreneurial intention
Numbers of Items 5 5 5 3 6 6 6
Cronbach’s Alpha Coefficient Pre-test (n=31) Actual Study (n=313) .91 .94 .89 .92 .76 .76 .82 .67 .89 .91 .79 .90 .94 .93
3.3 Analysis and results To answer the research questions, descriptive analysis, Pearson correlation, and multiple regression analysis were conducted on the sample data. The results were as following.
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Mullika Sungsanit The respondents’ demographic information was analysed and the results as shown in Table 2. Table 2: Respondents’ demographic information Demographics Gender Male Female Age 18-25 years 25-30 years 31 years and above Educational Areas Engineering and Architect Management Technology, Business Admin, and Infor. Tech Public Health Agricultural Tech Others Educational Institutions Suranaree University of Technology Rajamangala University of Technology Isan Others Occupations Students Employees in private organization Business owners Government officials Self-employed others Experience in business No Yes
Frequencies
%
172 259
40.10 59.90
294 80 36
68.50 20.70 10.70
158 126 50 17 78
36.80 29.37 11.70 4.0 18.18
313 40 76
73.00 9.30 17.72
224 102 30 21 19 33
52.20 23.80 7.00 4.80 4.40 7.69
282 147
65.70 34.30
The respondents’ demographic results from Table2 and 3 showed that the majority of the respondents (52.20%) were senior students from the SUT and RMUT, employees in private companies (23.80 %), and currently have businesses (7%) respectively. The majority of respondents were female (59.90%) with an age range between 1825 years old (68.50%). The majority of respondents were studying or alumni from the school of engineering and school of architect (36.80%) and the school of management, business administration, and information technology (29.37%). The majority of respondents had never had experience in business (65.70%). Regarding family background, the majority of respondents have fathers working as government officials while mother owing business. Objectives 1: to study the level of entrepreneurial intention and factors affecting the entrepreneurial intention Descriptive data analysis was conducted on the 7 variables. The results are shown in Table 3. Table 3: Descriptive data of the entrepreneurial intentions and related variables List 1 2 3 4 5 6 7
Variables Entrepreneurial Intention Knowledge of Entrepreneurial Supports Entrepreneurial Attraction Perceived Social Norms Reference Groups’ Acceptance Entrepreneurial Efficacy Entrepreneurial Skills
n 314 391 322 322 322 314 314
? 3.61 2.35 4.01 2.70 3.80 3.05 3.37
std .81 .93 .67 .62 .66 .81 .69
Level High Low High Low High Medium Medium
The results showed that the respondents indicated somewhat high-level of intention to be entrepreneurs and high level of entrepreneurial attraction (good attitude toward becoming entrepreneurs). They perceived a high level of acceptance from reference groups, i.e., parents, friends, and colleague, but they indicated a low level of social acceptance (social norm) of becoming an entrepreneur. The results also indicated that the respondents perceived a medium level of readiness to be entrepreneurs as indicated by entrepreneurial efficacy and entrepreneurial skills. They indicated a low level of knowledge regarding existing supports to entrepreneurs.
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Mullika Sungsanit To evaluate the strength of effects of these variables on respondents’ entrepreneurial intention, the Pearson’s correlation and the multiple regression analysis were conducted. The predictors were 6 indices while the criterion variable was the entrepreneurial intention. The results are presented in Table 4 and 5. Table 4: Correlation among variables Factors Knowledge of Support Entrepreneurial Attraction Perceived Social Norm Reference Group Entrepreneurial Efficacy Entrepreneurial Skills Entrepreneurial Intention
1 1 .17** -.09 .07 .37** .35** .26**
2
3
4
5
6
7
1 -.13* .48** .35** .39** .64**
1 -.21** -.28** -.19** -.07
1 .16** .23** .31**
1 .69** .60**
1 .58**
1
Note: *p @ 0.05, ** p @ 0.001 (2-tailed). Table 5: Regression model of entrepreneurial intention (n = 313), R2 = .60, Adjusted R2 = .53 Predictor variables
?
std
Entrepreneurial attraction Perceived Social Norms Entrepreneurial Efficacy Entrepreneurial skills
4.00 2.71 3.05 3.37
.68 .61 .81 .69
Correlation with intention .64 -.07 .60 .58
b
β
.55 .16 .34 .22
.46 .12 .34 .18
The results indicated that the linear combination of predictors was significantly affected the entrepreneurial intention (F = 77.07, p @ .01). The sample multiple correlation coefficient was .78, indicating that approximately 60% of the variance of the entrepreneurial intention in the sample can be accounted for by the linear combination of the 4 measured variables, i.e., the entrepreneurial attraction, perceived social norm, perceived entrepreneurial efficacy, and perceived entrepreneurial skills. Moreover, entrepreneurial attraction and entrepreneurial efficacy had shown the strongest effects on entrepreneurial intention. Objectives 2: to study the intention to study in entrepreneurship program among the senior students at Suranaree University of Technology (SUT) and Rajamangala University of Technology Isan Nakhonratchasima (RMUT), the alumni, and others. Frequencies and percentage were conducted on the intention to study and the preference on the characteristics of the master program suggested by the respondents. The results of the descriptive analysis indicated that the majority of the respondents showed an intention to study in a master program in entrepreneurship (n=218, 62.46%). The reason they would want to study in such a program was because they want to be an entrepreneur. The majority of the respondents (70.77%) indicated that they would like the program to be offered during the weekend. To explore more on the relationship between the level of entrepreneurial intention, knowledge of supporting services for entrepreneurs, entrepreneurial attraction, perceived social norm, entrepreneurial efficacy and skills, and the intention to study, One-way ANOVA was conducted. The respondents were grouped into 3 groups that were (1) the ones who intend to study the entrepreneurship program, (2) the ones who did not intend to study, and (3) the ones who were not sure. The results were presented in Table 6. Table 6: One-Way ANOVA results List
Variables
Total
1 2 3 4 5 6 7
Entrepreneurial Intention Knowledge of Entrepreneurial Supports Entrepreneurial Attraction Perceived Social Norms Reference Groups’ Acceptance Entrepreneurial Efficacy Entrepreneurial Skills
? 3.61 2.35 4.01 2.70 3.80 3.05 3.37
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Intend to Study (n=198) ? 3.83 2.54 4.12 2.65 3.84 3.19 3.44
Not Intend to (n=59) ? 2.94 1.95 3.69 2.67 3.66 2.66 3.13
Not Sure (n=57) ? 3.53 2.33 3.96 2.88 3.80 2.93 3.37
F
Sig.
33.62 11.36 10.47 3.23 1.82 11.23 4.61
0.00 0.00 0.00 0.04 0.16 0.00 0.01
Mullika Sungsanit The results from Table 6 were interesting that the respondents who do not want to study were different from respondents who want to study and who were not sure in all variables except for the reference group’s acceptance. Respondents who want to study entrepreneurship reported a highest level (among three groups) of knowledge of supporting services for entrepreneurs, entrepreneurial attraction, entrepreneurial efficacy and skills, and entrepreneurial intention. Moreover, from the open-ended suggestions on preferred characteristics of the master program in entrepreneurship, the respondents indicated their preferences regarding the entrepreneurship program as (1) be practical, i.e., they program should have many related case study to practice, have opportunity to practice the debate in class, have opportunity to practice what have been learnt (2) should be international program (3) teach by professional or lecturers who have business and practical experiences (4) up to date curriculum and (5) availability of Scholarship and/or international internship
4. In conclusions The findings of this research yield an interesting information. !
Regarding demographic, it is interesting to see that the majority of respondents were female with an age range between 18-25 years old. The majority of respondents have fathers working as government officials while mother owing business. They were studying or the alumni from the school of engineering and school of architect and the school of management, business administration, and information technology. The majority of respondents has never had experience in business. Moreover, there were more female response and report intention to take on entrepreneurship path. This is very interesting to the fact that while many information has indicated we need to encourage more female to the entrepreneurship path, but the result of this study indicates the opposite. Female seems to be interested in an entrepreneurial path and want to learn and develop skills to become an entrepreneur.
!
In terms of entrepreneurial intention, the results showed that the respondents indicated high-level of entrepreneurial intention, however, they perceived themselves as having a medium level of readiness to be entrepreneurs as indicated by medium levels of perceived entrepreneurial efficacy and entrepreneurial skills. They indicated a low level of knowledge regarding existing supports offered to entrepreneurs. The results of regression analysis indicated that 4 factors, namely, the entrepreneurial attraction, perceived social norm, perceived entrepreneurial efficacy, and perceived entrepreneurial skills, can affect the level of entrepreneurial intention. This results confirm the position of Liñán and Chen (2009) and contribute to the theory of planned behavior suggested by Ajzen (2001) regarding the traditionally weak role of subjective social norms (Krueger et al., 2000; Fayolle and Gailly, 2004; Liñán, 2005; Veciana et al., 2005)
!
This study has also confirmed the influence of self-efficacy on the entrepreneurial intention. Social cognitive theory has indicated that people determine and choose career paths according to their perceptions about their capacities. Launching a new venture or starting one’s own business is an intentional and purposive action. Therefore, the result of this study has shown an influence of entrepreneurial efficacy as a main predictor of entrepreneurial intention as suggested by Kruger et al (2000).
!
Most of the respondents intend to study entrepreneurship at the master level. The preferred characteristics of the master program in Entrepreneurship as suggested by the respondents are the practicality of the lessons, using experiential learning method, internationalization, teaching by lecturers who have experience in business & technology, ability to graduate in the program time frame, and weekend classes.
!
Furthermore, the One-Way ANOVA was conducted to check if there were any differences of entrepreneurial intention. Entrepreneurial attraction, and the perceptions of efficacy, skills, social norms, the reference group's acceptation, and the knowledge of sources of supports for entrepreneurs among the 3 groups of respondents, i.e., who indicated an intention to study in entrepreneurship program, who did not intend to study, and who were not sure. The results mostly aligned with the regression result that is the respondents who did not intend to study indicated a lower level of these variables (except reference group's acceptation) than the other 2 groups. The ones who did not intend to study have low-level knowledge of supports and pretty low level of entrepreneurial efficacy. The most interesting information from the result is that the respondents who intended to study the entrepreneurship program seemed to perceived lowest level of the social norm in accepting entrepreneur as a good career choice. Nevertheless, these people indicated a good attitude toward an entrepreneurial career. They intend to be entrepreneur no matter what. They want to
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Mullika Sungsanit further their study in order to help them build skills and knowledge to become successful entrepreneurs. They want the program to be practical and taught by experienced lecturers.
5. Limitation Some limitations of this study have been recognized. Firstly, the sample size of this study was quite small, therefore, they couldn't be the best representative of the population. Secondly, the convenience sampling method was used, therefore, the generalizability of the result is limited. The majority of the respondents were the students and alumni of the Suranaree University of Technology, hence, the results may not be able to generalize to the population.
Acknowledgements This research was supported by Suranaree University of Technology’s institutional research fund. The author would like to express appreciation to Prof. Liñán for the permission to use the EIQ as the instrument in this research.
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Testing the Relationship Between Resource Availability and Innovation in the Construction Industry Eva Švandová Department of Corporate Economy, Faculty of Economics and Administration, Masaryk University, The Czech Republic
[email protected]
Abstract: This study focuses on testing the importance of the availability of intangible resources for increasing product innovation. The relationship is verified quantitatively on a sample of 245 SMEs in the construction industry. Small businesses are the ones which struggle most with a lack of resources, while the construction industry lags behind the manufacturing industry in both product and process innovation. The question remains which resources contribute to higher product innovation in small and medium-sized companies within the construction industry. Studies have analysed the influence of individual resources on innovation. This study analyses organizational and reputational resources in relation to innovation output and tests the influence of third variables (the age of the business, strategic focus and the owner’s active involvement in the business). In the case of SMEs in the construction industry, a lack of reputation and stable cooperation with suppliers leads to higher innovation output. The relationship between cooperation and innovation performance is moderated by the strategic focus of the company. Keywords: innovation, resources, reputation, construction industry
1. Introduction In comparison with the EU, companies in the construction industry achieve average innovation performance, though innovation in construction still lags behind manufacturing – particularly in product and process innovation, though organizational innovation is implemented to a greater extent (SBA, 2014). Innovation in the construction industry, as with other mature industries, is affected by modern technology from surrounding sectors (computers, robots, ceramics, chemistry) and by independent investors and start-up companies (Inc, 1963, p.179; Moavenzadeh, 1985). Innovation in traditional sectors such as the construction industry comes mainly from small companies, rather than from large firms which have been operating on the market for a long time (Utterback, 1974). The question is what contributes to this state of affairs, as innovation in the construction industry is inhibited by several sets of circumstances. The construction industry is characterized by significant legislative regulation (Moavenzadeh, 1985; Bygballe and Ingemansson, 2014). SMEs have less capital, fewer highly qualified employees, less knowledge and limited time opportunities (Bos-Brouwers, 2010), and they lack long-term relationships and integration within supply chains (Bygballe and Ingemansson, 2014; Moavenzadeh, 1985). On the other hand, one positive for SMEs in terms of innovation compared with larger companies is the different role of the manager/owner, who is dynamic, has a direct influence on the creation of ideas, and has a horizontal leadership style and organizational flexibility (Bos-Brouwers, 2010). In the case of smaller firms in the construction industry, the owner dominates, which allows for quick decision-making and participation in innovative activities (Sexton and Barrett, 2003). In addition, if companies have limited resources, then the management is compelled to come up with unconventional methods (Kahneman, 2012) which can contribute towards greater innovation performance. The impact of a shortage or surplus of resources has been given different evaluations in the literature. From the perspective of “slack resource literature”, a lack of resources hampers innovation and has a negative impact on innovation performance (Bourgeois III, 1981; Levinthal and March, 1993). However, a lack of resources can also be viewed positively in terms of innovation. In the case of the “resource-limited innovation” literature, the authors point out that limited resources can lead to being more focused, being on the lookout for various types of information and being more creative. The authors also mention that a surplus of resources lowers a company’s innovative capabilities (Bicen and Johnson, 2014; Katila and Shane, 2005). Bicen and Johnson (2014) describe in more detail the classification of authors and their studies into one of these two approaches. Studies have often tested the influence of individual resources on innovation performance. However, the testing of a combination of factors, or the influence of individual factors in connection with a third variable, has been overlooked in the research. Authors have considered the existence of a synergic effect when the actions of
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Eva Švandová resources are linked and point to the need to look for a combination of resources which will actually result in synergic effects (Huesch, 2013). With regard to the above-mentioned characteristics of innovation in the construction industry, this study sets out to verify the importance of the availability of individual resources (organizational and reputational resources) in relation to the innovation performance of SMEs. Due to the small number of studies which have examined a combination of resources, this paper also sets out to evaluate the relationship between resources and innovation with the inclusion of moderating variables in the analysis of the relationship (the age of the business, the owner’s active involvement and the strategic focus of the business).
2. Theoretical background In order to describe the resources, this study used a resource-based view of the companies. The basis of the resource-based view is linking the success of a company with its resources. Competitive advantage can be achieved through the renovation of resources and competences (Enríquez-De-La-O, 2015). Companies have a wide range of resources at their disposal – financial, physical, legal, human, relational, organizational and informational (Hunt, 2000). These resources can be divided into two basic groups – tangible and intangible resources. The tangible resources include financial and physical resources. In the case of intangible resources, some authors distinguish between assets and capabilities (Galbreath, 2005; Hall, 1992; Halme and Korpela, 2014). Assets are owned by the company, and capabilities describe what the company actually does (Galbreath, 2005; Hall, 1992). Some authors consider resources to be assets and categorize capabilities separately (Grant, 1991). In this case, resources are business inputs, while capabilities connect and coordinate these inputs (Grant, 1991). However, this description does not create an entirely straightforward differentiation between assets and capabilities (Galbreath, 2005). A further simplification might be the idea of an intangible activity as something which remains within a company once everyone leaves (Edvinsson and Malone, 1997). For the purposes of this study, the classification of intangible resources has been based on the division established by Galbreath (2005) in his study focusing on testing the influence of different types of resources on a company’s success, these being a) intellectual property assets, b) organizational assets and c) reputational assets. He then classifies capabilities, or skills, as a separate category within intangible resources. In the aforementioned study, it was demonstrated that organizational and reputational assets have a greater influence on a company’s success than tangible resources. In comparison with tangible resources, intellectual property assets are not significant. Capabilities had the greatest influence on performance. It is on this basis that the study will verify the significance of organizational resources and reputational assets for product innovation. Within the construction industry, Blayse and Manley (2004) define organizational resources as internal approaches and processes supporting innovation. Organizational resources usually include organizational culture, human resource management and the HRM-related availability of a qualified and motivated workforce (Galbreath, 2005; Blayse and Manley, 2004; Sexton and Barrett, 2003). We have also included cooperation with companies amongst the organizational resources, which is not so unambiguous in the literature. Some authors consider cooperation as a capability (Douma and Schreuder, 2013; Galbreath, 2005), others as an activity or a resource connected to social capital (Halme and Korpela, 2014; Khaire, 2010). Based on Grant’s definition of resources and capabilities, cooperation can be included amongst the resources which remain within the company (Grant, 1991). Galbreath (2005) distinguishes between licences and external relationships, where licences (most likely due to the formalization of cooperation) are considered to be an organizational activity and external relationships are more of a capability. In this study, external cooperation is seen as formalized cooperation and is considered to be a resource. Using case studies, Halme and Korpela (2014) concluded that a company’s reputation plays an important role in the acquisition of more resources. They evaluated reputation as a necessary condition for the commercial success of innovation. Galbreath (2005) does not link reputation directly with innovation but with business success. Reputation will also be examined in this study.
3. Problem statement In light of the financial crisis from 2008 to 2010, which led to significant losses amongst firms in the construction industry, the focus of this study on the construction sector is unambiguous. The construction industry is
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Eva Švandová characterized by a large number of small and medium-sized companies (99% of all construction companies in the Czech Republic and 98% of all construction companies in Austria), and it is these small and medium-sized companies which are less innovative than large companies, as can be seen in Figure 1. In order to solve this problem, there has to be an identification of the resources required to increase a company’s innovation performance.
Figure 1: Innovative and non-innovative companies according to company size Based on a resource-based view, we believe that small companies need better access to resources than their competitors in order to improve their operation and product innovation (Bourgeois III, 1981; Levinthal and March, 1993). A greater reputation, stable cooperation with companies, a culture of innovation and a motivated workforce lead to a greater share of innovative products within sales (H1). On the other hand, we presume that the reliance on resources to increase a company’s innovativeness will be reduced if the owner of a company is actively engaged in the management of the company (Bos-Brouwers, 2010; Kahneman, 2012; Sexton and Barrett, 2003). We predict that resource slack has no influence on product innovation where the owner is actively involved in the business. On the contrary, we predict that the availability of resources positively influences product innovation where the owner is not actively involved in the business (H2). The manager plays a particularly important role during the so-called pre-bureaucratic phase of a company’s development, which is where SMEs most commonly find themselves (Nam and Tatum, 1997). We therefore regard the active involvement of the owner as a resource or capability which supports innovation in the case of newer companies. For older companies we do not assume the existence of a relationship between the owner’s active involvement in the business and product innovation (H3). Another specific feature which should be incorporated into resource analysis is the project-based focus of contracts in the construction industry. Project management affects the complexity of the construction process. The effect of a project’s complexity on a lack of success may be influenced by appropriate planning and control (Gidado, 1996). We believe that if a company is not strategically focused, then it cannot use its resources properly, in which case even sufficient resources will not lead to increased product innovation. This means that there is a positive relationship between resource availability and innovation in the case of the strategic focus of a company. If a company is not strategically focused, then the availability of resources does not lead to increased innovation (H4).
4. Research study method The data was obtained from the survey “Development of small and medium-sized construction enterprises within South Moravia and the Vienna regions” conducted in 2012 and 2013. The survey sample contained small and medium-sized construction companies from Austria and the Czech Republic. The responses were given by
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Eva Švandová managers of companies who were aware of the complex functioning of the enterprises. For this paper we used 245 Czech and Austrian companies from the survey. The study is based on a quantitative approach. Among the organizational resources in this study we have included qualified and motivated employees (OR_empl), a culture of innovation (OR_cult) which considers employees as a creative tool and stable interorganizational cooperation (subcontracting included) (OR_coop). We also investigated reputation within the industry (RR_reput). Due to the complexity of the analysis, we also added financial resources represented by “conditions for acquiring loans and credit”. Influential factors are the personal efforts of the entrepreneur (M_effort), the age of the company (M_age) and the company’s strategic focus (M_stratf). Resource availability, including the owner’s active involvement in the business, was evaluated by the respondents on a 5-point scale. The wording of the question was as follows: Rate the following factors in comparison with your main competitors on a scale from 1 (much better) to 5 (much worse). The company’s strategic focus is an interval variable which was obtained using factor analysis. The items included in the factor analysis represent the individual areas of strategic management (strategic analysis of the environment, strategic planning, operational planning, the implementation of preventive measures, controlling, reporting and monitoring events). Factor analysis is a suitable method for reducing the dimensionality of data in this case (KMO=0.856, Bartlett´s test Sig=0.000). For individual activities the respondents were asked how satisfied they were with the management’s activities on a scale from 1 (highly dissatisfied) to 5 (highly satisfied). The age of the company (M_age) is again an interval variable which expresses how long a company has operated in the market and was calculated using (2016-year of establishment). The innovation output (IO_product) was determined using an open question: In 2012, what percentage of sales consisted of sales of goods and services launched in the last 3 years (as new products)? In order to verify hypothesis H1, correlation analysis and linear regression were used. For the verification of hypotheses H2, H3 and H4, where the relationship between resources and innovation with the inclusion of third variables was to be verified, the technique known as moderation analysis was used. In moderation analysis, the interaction term between two independent variables within a linear model is tested (Jose, 2013, p.11). One of these variables is the so-called moderator. This is a variable which affects the strength or direction of the relationship between two variables (Field, 2013, p. 396; Jose, 2013, p.22). We used the PROCESS tool created by Andrew F. Hayes for SPSS (Hayes, 2013) to test the models. This tool contains all the necessary procedures, such as centring predictors and moderators, creating an interaction variable, and performing a simple slope analysis and regression analysis.
5. Results The first step was to test the influence of the individual resources and the moderating variables on the company’s innovation performance. The analysis was based on the Pearson correlation coefficient for testing the existence of a linear relation between dependent variables and independent variables. The results are presented in Table 1. Of the resources, reputation and cooperation influence innovation performance. However, the direction of the relationship between reputation and product innovation is also interesting, with lower corporate reputation leading to higher innovation performance. The analysis also shows that there is a linear relationship between the age of the company and innovation performance. Newer companies are more innovative than older ones. Table 1: Pearson correlation results IO_product Pearson Correlation Sig. (2-tailed) N
RR_reput 0.180 0.006 229
OR_cult 0.001 0.990 233
OR_empl 0.034 0,606 238
OR_coop - 0.157 0.018 229
F_cred 0,047 0,477 228
M_effort 0.044 0.494 242
M_age -0,137 0.034 240
M_stratf - 0.063 0.326 245
Linear regression was used to assess the size of the effect of the individual variables. An overview of the models tested is shown in Table 2. The third model explains most of the innovation output variability, even though it is only 5.7 % with a statistical significance of 0.007. Table 2: Model summary Model 1 2 3
R 0.142a 0.206b 0.240c
R Square 0.020 0.042 0.057
Adjusted R Square 0.016 0.033 0.044
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Std. Error of the Estimate 24.096 23.881 23.748
F 4.296 4.568 4.188
Sig 0.039 0.011 0.007
Eva Švandová a. Predictors: (Constant), RR_reputation b. Predictors: (Constant), RR_reputation, OR_coop c. Predictors: (Constant), RR_reputation, OR_coop, M_age Table 3 shows the coefficients for the individual items for the last model tested. Even though the model is significant, the influence of the factors tested on product innovation was only 5.7%. The greater part of the variability in comparison with the other variables tested is accounted for by stable cooperation with other companies (2.2 %). Table 3: Linear regression coefficients for individual items
3
Model (Constant) RR_reput OR_coop M_age
Unstandardized Coefficients Standardized Coefficients B Std. Error Beta 19.000 2.836 0.005 4.569 2.315 0.022 -4.122 -1.924 0.056 -0.150 -1.823 0.070 a. Dependent Variable: IO_product
t 2.836 2.315 -1.924 -1.823
Sig. 0.005 0.022 0.056 0.070
As is clear from the following table (Table 4), there is only one case where the influence of the third variable can be considered a moderator in the relationship between resources and innovation. Table 4: Testing the third variables influence Interaction: M_effort RR_reput OR_cult OR_empl OR_coop FR_cred Interaction: M_stratf RR_reput OR_cult OR_empl OR_coop FR_cred Interaction: M_age RR_reput OR_cult OR_empl OR_coop FR_cred
coeff -0.4168 2.6931 -1.0911 -1.462 3.9365 coeff -1.8266 -0.8659 -1.5597 4.3228 -2.7366 coeff 0.0123 0.0751 0.1311 0.0601 -0.1435
se 2.4807 2.7696 2.6607 3.2285 2.6967 se 2.6317 1.9274 1.9638 2.1712 1.9788 se 0.0967 0.1206 0.0827 0.1204 0.0841
t -0.168 0,9724 -0.4101 -0.4528 1.4598 t -0.6941 -0.4493 -0.7942 1.991 -1.3829 t 0.1274 0.6221 1.5863 0.4994 -1.7049
p 0.8667 0.3319 0.6821 0.6511 0.1458 p 0.4884 0.6537 0.4279 0.0477 0.1681 p 0.8988 0.5345 0.1141 0.618 0.0897
The strategic focus of the company influences the relationship between interorganizational cooperation and innovation. The direction of the relationship can be seen in the following table (Table 5) and figure (Figure 2). Where the strategic focus of the company is medium to high, then there is a statistically significant positive relationship between cooperation and innovation. Where the strategic focus of the company is high, then the company achieves higher innovation if there is a shortage of resources. Nevertheless, the relationship is not statistically significant. Hypothesis H4 can be confirmed. Table 5: Relationship between interorganizational cooperation and innovation moderated by strategic focus M_stratf high medium low
Effect -8.7842 -3.7975 1.1893
se 3.2078 2.0221 3.2302
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t -2.7384 -1.878 0.3682
p 0.0067 0.0617 0.7131
Eva Švandová
Figure 2: Relationship between interorganizational cooperation and innovation moderated by strategic focus The owner's active involvement and age of the business do not influence the relationship between resources and innovation and so hypotheses H2 and H3 cannot be confirmed.
6. Discussion and conclusion Having tested the hypothetical relationships, we reached the conclusion that intangible resources have only a marginal influence on product innovation for small and medium-sized companies. The most important resources are company reputation and strategic cooperation with suppliers. Low corporate reputation in the sector, plus stable cooperation with companies, leads to a higher share of product innovation within sales. However, it is important to note that these variables account for only a small part of the variability. In the case of reputation, one might tend to favour the hypothesis from the resource-limited literature, where a shortage of resources leads to greater innovation. A lack of corporate reputation leads companies to target and focus more on innovation, which can be viewed as a tool for improving reputation. With regard to the importance of stable cooperation with companies for product innovation, strategic partnership could be considered an appropriate strategy for SMEs. A shortage of resources may be compensated for by cooperation with companies (BosBrouwers, 2010). The hypothesis H1 was confirmed, though only for the two resources shown. A motivated workforce and culture of innovation do not influence innovation output in the form of product innovation. There were some very surprising results from the analysis of the influence of the personal efforts of the entrepreneur on the relationship between resource availability and product innovation. In the case of SMEs in the construction industry, the importance of the company owner is overestimated. The involvement of the company owner in the innovation process is considered to be vital, as the owner is also an investor. If he is involved in the business, we expect greater local knowledge and a better estimate of the need for innovation in the company (Amabile et al., 1996). The entrepreneur’s personal efforts do not lead to a higher share of innovation within sales (H2 must be rejected), nor does further analysis confirm a relationship between the age of a company and the need for the entrepreneur’s personal efforts to achieve product innovation. Therefore, hypothesis H3 can also be rejected. With regard to the verification of hypothesis H4, we can conclude that the influence of strategic cooperation on innovation is limited. The positive influence of company cooperation on company innovation was only confirmed if the company was strategically focused. Therefore, hypothesis H4 was confirmed. Data analysis showed that cooperation leads to greater innovation if the company is strategically focused. Cooperation without strategic analysis and strategic focus of the company harms the company.
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Eva Švandová It is easy to purchase tangible resources if the company has suitable credit conditions. That is why we included credit conditions as a resource. The analysis confirmed that these do not influence success in comparison with the intangibles (Galbreath, 2005). One limitation of the study is the fact that the construction industry is not an entirely homogeneous market and contains various subsectors. Not every subsector is characterized, for example, by project management. In addition, as was pointed out in the introduction, organizational innovation is more common in the construction industry, while product innovation appears much less often in the construction industry because it is a traditional sector which tends to be based on craft technologies. Another suitable variable for incorporation into the analysis of the relationship between resources and information is the uncertainty of the environment. An unstable environment encourages what is called marketbased innovation. Innovation is not particularly safe. A small company cannot influence a turbulent environment to any great extent, so their strategy is more or less a given, with the focus more on the organization of work, technology and people. (Sexton and Barrett, 2003).
Acknowledgements The paper was supported by the Masaryk University research project: Innovation capability as the basis for measurement of organizational innovation performance.
References Bicen, P., Johnson, W.H.A., 2014. How do firms innovate with limited resources in turbulent markets? Innov. Manag. Policy Pract. 16, 430–444. doi:10.5172/impp.2014.16.3.430 Blayse, A.M., Manley, K., 2004. Key influences on construction innovation. Constr. Innov. Sage Publ. Ltd 4, 143–154. Bos-Brouwers, H.E.J., 2010. Corporate Sustainability and Innovation in SMEs: Evidence of Themes and Activities in Practice. Bus. Strategy Environ. John Wiley Sons Inc 19, 417–435. doi:10.1002/bse.652 Bourgeois III, L. j., 1981. On the Measurement of Organizational Slack. Acad. Manage. Rev. 6, 29–39. doi:10.5465/AMR.1981.4287985 Bygballe, L.E., Ingemansson, M., 2014. The logic of innovation in construction. Ind. Mark. Manag. 43, 512–524. Douma, S., Schreuder, H., 2013. Economic Approaches to Organisations, 5th edition. Pearson, Harlow, England ; New York. Edvinsson, L., Malone, M.S., 1997. Intellectual capital : realizing your company’s true value by finding its hidden brainpower. New York : HarperCollins, 1997. Enríquez-De-La-O, J.F., 2015. Resource-Based View and Dynamic Capabilities Resource-Based View and Dynamic Capabilities. Veztud. Bp. Manag. Rev. 46, 50–61. Field, A.P., 2013. Discovering statistics using IBM SPSS statistics : and sex and drugs and rock 'n' roll. Los Angeles : Sage, [2013]. Galbreath, J., 2005. Which resources matter the most to firm success? An exploratory study of resource-based theory. Technovation 25, 979–987. doi:10.1016/j.technovation.2004.02.008 Gidado, K.I., 1996. Project complexity: The focal point of construction production planning. Constr. Manag. Econ. 14, 213– 225. doi:10.1080/014461996373476 Grant, R.M., 1991. The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. Calif. Manage. Rev. 33, 114–135. Hall, R., 1992. The Strategic Analysis of Intangible Resources. Strateg. Manag. J. 13, 135–144. Halme, M., Korpela, M., 2014. Responsible Innovation Toward Sustainable Development in Small and Medium-Sized Enterprises: a Resource Perspective. Bus. Strategy Environ. John Wiley Sons Inc 23, 547–566. doi:10.1002/bse.1801 Hayes, A.F., 2013. Introduction to mediation, moderation, and conditional process analysis: A regression-based approach, Methodology in the social sciences. New York : Guilford Press, 2013. Huesch, M.D., 2013. Are there always synergies between productive resources and resource deployment capabilities? Strateg. Manag. J. 34, 1288–1313. doi:10.1002/smj.2068 Inc, A.D.L., (U.S.), N.S.F., 1963. Patterns and problems of technical innovation in American industry: report to National Science Foundation. U.S. Dept. of Commerce, Office of Technical Services [distributed by Clearinghouse for Federal Scientific and Technical Information]. Jose, P.E., 2013. Doing statistical mediation and moderation, Methodology in the social sciences. New York : Guilford Press, 2013. Kahneman, D., 2012. Thinking, fast and slow. London : Penguin Books, 2012. Katila, R., Shane, S., 2005. When Does Lack of Resources Make New Firms Innovative? Acad. Manage. J. 48, 814–829. doi:10.5465/AMJ.2005.18803924 Khaire, M., 2010. Young and No Money? Never Mind: The Material Impact of Social Resources on New Venture Growth. Organ. Sci. 168. Levinthal, D.A., March, J.G., 1993. The Myopia of Learning. Strateg. Manag. J. 14, 95–112.
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Co-Operative Platforms: Harnessing the Full Potential of Crowdfunding Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen University of Tampere, Finland
[email protected] [email protected] [email protected]
Abstract: Technology driven change across industries has put pressure on companies to re-evaluate their relationship between different stakeholders. Furthermore, extended role of consumers has stressed a need to deepen the proximity between the company and its’ customers. This is well illustrated by the distinguishing features and fast growth of crowdsourcing and -funding industries. What comes to crowdfunding, stock-ownership based platforms are the norm in this novel form of funding, but the dominant platform ownership models fail to harness the full potential of individuals’ will to participate and cooperate. Therefore, the industry is still looking for efficient and sustainable model that would alleviate these problems and challenges. In addition, scientific discussion haven’t considered the role of company form in organizing crowdfunding platforms. Consequently, there is a clear need to set up and spur discussion on the role and implications of co-operative company form in crowdfunding. We propose a co-operative structure for crowdfunding as a solution to these and number of other problems encountered in the industry. Accordingly, the purpose of the article is to illustrate the relevance of company form in organizing crowdfunding. This is achieved by considering the implications of co-operative form on economic and non-economic features of crowdfunding. In addition, as co-operatives are based on cooperation between individuals, we consider the potential of co-operative form in terms of frequency of interaction of the member-owners. Concludingly, we put forward propositions that illustrate the relevance of company form in organizing crowdfunding. Keywords: crowdfunding, co-operatives, platform cooperativism
1. Introduction During the last few years, technology driven change has provided new means for revolutionary business models. This change has been characterized by high level of user participation and the value of these businesses is often created by the users (e.g. AirBnB, UberTaxi, Youtube). Recently, new business models have been used to provide an alternative way to access and provide finance. The concept of crowdfunding has evolved from broader concept of crowdsourcing, which refers to decentralized problem solving and production model, where the online crowd is used to obtain services, ideas, feedback and solutions to develop corporate activities (Bayus 2013; Howe 2008, Kleeman et al. 2008, Belleflamme et al. 2013). In the case of crowdfunding, the objective is to obtain financing for a project or a venture without standard financial intermediaries by using online communities where each individual participates with a small contribution of the total funding amount (Schwienbacher & Larralde 2010; Belleflamme et al. 2013). These individual contributions can take several forms (e.g. donation, pre-ordering the product, loan or equity purchase) that result in different crowdfunding models. There is no uniform classification established in the research literature. In this paper, following Bradford 2012 and Massolution 2015 we divide the different types of crowdfunding into donation-based, support-based, lending-based and equity-based model. In most cases, a crowdfunding platform rely on only a single model, but some crowdfunding platforms exploit several models (common combination is the reward and donation models on a single web site). The funders of donation-based platform do not literally receive any compensation of their investment. Thus, the funders’ motives are charitable and the donation-based platforms are founded on altruism. The support-based model include both reward- and pre-purchase platforms that have several features in common. The funders of support-based platforms receive either some small perquisite (reward-based) or the ready product (prepurchase) as a return for the contribution. (Bradford 2012; Massolution 2015) Contrary to donation- and support-based crowdfunding, lending and equity models usually offer funders financial return for their investment. Lending-based crowdfunding enables individual and corporate borrowing without traditional financial intermediaries. One can divide lending-based crowdfunding into peer-to-peer lending and peer-to-business lending depending on the applicant’s status (individual or organization). Secondly,
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen the lending model can be divided into social lending and traditional lending. Social lending does not offer any financial or material return on investment whereas traditional lending-based platforms offer financial return as a form of interest for the funders. (Bradford 2012; Massolution 2015) The equity model resemble traditional capital funding, where funders receive a share of the profits or return of the business they are funding. Thus, equity crowdfunders’ motives are usually purely economic. Equity model most clearly involves the sale of a security, which raises regulatory issues and makes the crowdfunding model a slightly more complex compared to the previously mentioned models. (Bradford 2012; Massolution 2015) The crowdfunding industry has experienced a remarkable growth during the past few years. In 2015 crowdfunding reached altogether 34,4 USD billion growth being 212 % compared to 2014 (Massolution 2015). Despite significant growth, current crowdfunding practices have been under criticism. Issues like asymmetric information, lack of trust, and transaction costs have spurred discussion on how to develop and improve crowdfunding practices. Similar ideas have been put forward widely in related to new business models in sharing economy. For instance, crowdsourcing platforms are criticized for treating their user-workers badly as paying low wages (e.g. www.medium.com). Different avenues of criticism have engendered an idea of co-operative platforms that could tackle the incentive problems between users and owners of the platform (Cherry 2016). This new thinking, called platform cooperativism, has emerged to address some of the problems found in various platforms. Being a new and practical idea, there is a clear scientific gap of knowledge related to different organizational forms of digital platforms. In addition, scholars have put forward criticism concerning existing conceptualizations of consumer participation and empowerment. Accordingly, we should find ways to allow consumers to participate in steering the companies and society without restrictions defined by corporations (McShane and Sabadoz 2015). As it comes to crowdfunding, research has up to now concentrated more on the different features of applicants and funders than the structure of the platform where this activity is conducted. As Moritz and Block (2016) note studies focusing on the role of platforms and their optimal business models remain scarce. Consequently, these issues lead us to believe that there is a notable need to consider the role of co-operative business model in crowdfunding. Thus, the purpose of the article is to illustrate the relevance of company form in organizing crowdfunding. This is achieved by considering the implications of co-operative form on economic and non-economic features of crowdfunding. In addition, as co-operatives are based on cooperation between individuals, we consider the potential of co-operative form in terms of frequency of interaction of the memberowners. Concludingly, we put forward propositions that illustrate the relevance of company form in organizing crowdfunding. It should be noted that the two-sidedness of the crowdfunding platform gives extra complication to the ownership argument. In this paper we don’t address the question which side of the market should own the site. That question is left for future study. Finally, few words concerning the terminology. In this paper we refer to people who request funds as “applicants” and people who provide resources as “funders”. These terms are usable despite of the platform type because of their generality. The structure of the article is as follows. We start by reflecting economic features of crowdfunding sites with earlier research on co-operatives. This is followed by non-economic features. Conclusions conclude the study.
2. Economic features of crowdfunding sites When adopting a narrow view of pure economics there are a number of key economic processes that are conducted in crowdfunding. As Haas et al (2014) point out the two pivotal ideas in the crowdfunding are the financial intermediation aspect and the existence of two sided market. The three major financial intermediation functions that the crowdfunding site has are lot size transformation, risk transformation and information transformation. Crowdfunding platforms are two sided markets where participants exchange information about prices and offerings. In these settings the key hurdles to overcome are transaction costs and asymmetrical information
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen problems. The platform has to set functionalities of pricing and strategy to get each side participating in the market. As Haas et al (2014) note, these two aspects determine the site’s funding mechanism. These, in turn, are affected by the organization form of the site. In most of the cases crowdfunding sites do not borrow, pool or lend money in their own account. They just act as intermediaries to facilitate the setting of price-quality pairs close to efficient combinations. Therefore the size of the transaction fees that the site has to charge in order to cover its costs is a key determinant of the efficiency of intermediation and lucrativeness of the site to market participants. The total costs of providing funding through a crowdfunding site can be divided into following components: the required return of capital for the owners of the crowdfunding site, the operational costs of the site, the payment transaction and processing fees and the required return for the funders. When the site charges more than the minimum for these components, it generates economic profit for the owners of the site. It should be noted that the required return for the funders can be zero in case of donations or in case of support and thus do not need to be monetary. The economic case for cooperative ownership emerges, if it leads to a situation where the possible excess profits generated by the site could be redistributed to the users of the site or if the cooperative ownership leads to a lower required return on the capital that is used to finance the operations of the site.
2.1 Revenue models of existing crowdfunding platforms Revenue model of crowdfunding platforms is usually based on platform commissions charged as a percentage of the total funds raised by the campaign. In addition, lending and equity-based platforms may charge various other fees (e.g. joining or listing fee, servicing fee and carried interest). One of the basic predictions of agency theory is that there is a conflict of interest between owners and customers of a firm. This is due to the contradiction between owners’ will to maximize company’s profit and thus their share value and customers’ interest to minimize the price they have to pay. This conflict of interest can be avoided by merging customer and owner functions. By doing this, customers become the residual claimants (e.g. Fama & Jensen 1983) of the company and should have better possibilities to maximize their economic value while the possible surplus (profit) belongs to them (e.g. Tuominen, Tuominen & Jussila, 2013). In other words, co-operative platform model can act as tool to change status quo (e.g. monopolistic or oligopolistic market) by removing the possibility to generate excess returns in detriment to the users of the platform (e.g. Nilsson, 2001, Spear, 2000). Proposition 1: Co-operative company form is a suitable option for platforms that are able to generate excess returns.
2.2 Return on capital and ownership form Regardless of the type of the product the crowdfunding site intermediates, it itself requires funding for its day to day operations. This funding has a cost of capital that has to be generated in order to have access to that funding. Who will supply that capital defines the ownership structure of the site. Moreover, what is the required remuneration for the capital tied up in the crowdfunding platform – the profit motive - is the crucial element in the competitiveness and attractiveness of the site. When the site is stock owned with outside investors supplying the capital to run the site, the required return on the investment can exercise a major effect on the level of the costs that have to be charged from the market participants. This is due to the return on capital required that is generally based on the risk premium calculated for the investment. However, co-operative ownership may lead to lower risk premium compared to investor ownership. This is due to at least two reasons. First, merging the roles of an owner and customer may lead to lower degree of asymmetrical information and increased trust. This in turn decreases the contracting costs that spur from the interaction between two different contracting parties (e.g. Hansmann, 1999) and lowers the expected risk of the company. Second, as we discuss in detail in the next chapter, member-owners’ interest to join a co-operative is not defined in terms of return on invested capital, but rather in terms of received benefits when consuming the services of the co-operative (Borgen, 2004). As such, co-operative company form has the potential to lower the required risk premium.
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen Proposition 2: Co-operative company form can lower the required return on capital of a crowdfunding platform.
3. The role non-monetary factors in crowdfunding platforms When studying the operation of crowdfunding sites it is possible to adopt either a narrow or a wider perspective. In the narrow perspective only the structure of monetary transactions are investigated. This might be a too limited view when the interest is on the choice between cooperative or investor owned ownership. When only monetary features are investigated, the discussion tends to emphasize investor perspective and economic value rather than understanding member-owner’s versatile needs and interests. This is where the purpose of different company forms come into picture. The main and usually the only purpose of investor owned company is to produce maximum economic value for its shareholders in form of dividend and increased share value (e.g. Hansmann 1996). This is derived from the shareholders interest in maximum return on capital. In co-operatives on the contrary, individuals become owners in order to maximize the value and benefits of the services they receive by trading with the co-operative. In other words, co-operative is the member-owners’ mechanism for “protecting their interests and meeting their needs in the market” (Byrne et al. 2015). Thus, co-operatives should identify and invest in businesses where there is the greatest demand by the member-owners rather than seeking for greatest possibilities to make money (Mazzarol et al. 2011). Further, it can be argued that co-operative’s performance should not be measured only by the profit made in the end of the year, but also by the user satisfaction and perceived value for the services (e.g. Peterson and Anderson 1996; Jussila, Tuominen & Saksa 2008). As such, the owners of the co-operative should be understood as users rather than investors (Borgen 2004). Following the above idea, in many cases crowdfunding sites provide a number of additional services to the users of the sites besides economic benefits. For example, Beaulieu (2015) note that there is a wide set of operational measures that a crowdfunding site fulfills besides just transferring funding between different sides of the market. The sites have a role to play in both discovery, communication and contribution stages of the process. For example Hagedorn and Pinkwart (2016) note that equity type crowdfunding process has a seven stages: application, screening, contracting, roadshow, subscription, holding and exit. All these give support to use of an additional value elements that the users of the site looks for. Whether the site is organized as a cooperative or stock-owned can have an important effect on the ease of ensuring these different incentives and avoiding disincentives. They are meditated by the different psychological and tangible ownership structures that different organizational forms give rise to. Proposition 3: The more additional objectives the crowdfunding site fulfills, the more it is suited for cooperative form. The wider perspective takes into account the different incentives and disincentives for different participants to participate in the market as many of these are non-monetary in the nature. Agrawal et al (2013) note that for applicants the incentive is to secure a lower cost of capital, which is achieved by matching those with highest willingness to pay for the equity, by bundling funding with rewards and by generating more information and thus lowering informational problems. The applicant can also get information about the viability and general interest of his venture. The disincentive for applicant is higher disclosure requirements. For funders the incentives are the access to investment opportunities that might not be found otherwise, the access to new products, involvement of community, philanthropy and the possibility to formalize otherwise informal contractual relationship. The disincentives for funders are the possibility of delays or non-fulfillment of rewards, outright fraud and project failure. The different roles and rewards that the possible funder gets are also larger than just providing the funding. Gerber et al. (2012) enumerate them as giving finance, forming relationships and networks, self-affirmation, replication of success stories and increased awareness of products.
3.1 Asymmetric information and trust It has been argued that co-operative form will be chosen if the costs of market contracting are too high (Hansmann, 1999). This is due to the possibility to reduce information asymmetry and related transaction costs by merging the two parties through ownership (e.g. customer-owners). Furthermore, it may have an influence on the behavior of the member-owners as well. While service users are also the owners of the company, they have an incentive to behave and act according to the success of the company. This is due to the fact that the
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen user-owners bear the risk of the company and success is dependent on their own behavior. Similar ideas have been put forward related to mutual insurance companies, where the company form has been seen as a tool to prevent moral hazard and adverse selection (e.g. Smith & Stutzer 1995; Ligon & Thistle 2005; Adams, Andersson, Jia & Lindmark 2011). Furthermore, Moreover, while co-operatives’ first and only mission should be to provide member-owners with maximum benefits and value, the idea of co-operatives is to provide a tool for individuals to pool their resources and come together to achieve these benefits. In other words, member-owners are dependent on each other to achieve individual level benefits. Accordingly, this collective level interdependency engenders a social tool and incentive for individuals to act according to the co-operative’s success (cf. Social capital, e.g. Nilsson, Svendsen & Svendsen 2012, Tuominen, Tuominen, Tuominen & Jussila, 2013). The main way to reduce asymmetric information between the applicants and funders is to build trust. Beside regulation and platform rules, Agrawal et al (2013) highlight three different ways to signal about the reputation. First is quality signals by leveraging brand reputation or patents. The second is the feedback systems built into the site and the third is the use of third-party intermediaries to certificate or validate the offering. What is missing from their list is the organizational form of the site that can exercise a major effect on the reputation of the site. Furthermore, trust can be cultivated by providing information and enabling communication between both sides of the market. Beaulieu (2015) investigated how different tools offered by the site vary based on the type of funding transferred based on the large survey of different crowdfunding sites. In equity-based the site provides the largest communication facilities between market participants. However, it is often the case that person searching for funding has discretion who to contact for possible sources for funding. In lending-based platforms the tools are provided to estimate the credit worthiness of the prospective funder. In support-based there is close communication tools between funders and applicants. Social media is also used a lot to highlight the project. In donation-based funding there is room for describing the project but social media is not prominent. One of the key elements of trust is the point when applicant is allowed to access the funds generated. This structure of intermediated funding differ between different sites. The key distinction is between all-or-nothingprinciple and keep-it-all-principle. All-or-nothing-principle refers to a mechanism where applicant is allowed to receive funding if it reaches a predetermined level whereas keep-it-all doesn’t include predetermined levels. Accordingly, all-or-nothing principle provides funders a clear mechanism to ensure that the funded project will gather enough money to maximize its potential to succeed. In contrast, Wash and Salomon (2014) got an experimental result that there is a tendency to contribute more if all-or-nothing rule is used instead of the keepit-all rule. Hence, platforms operating with keep-it-all principle need to provide another mechanism to reduce asymmetric information. In addition, Agrawal et al. (2013) note that funding propensity increases with accumulated capital, thus non-equity-based funding is highly skewed for projects. Finally, Agrawal et al (2013) note that there exists fundamental informational difference between support-based and equity-based funding. In support-based funding the funder needs to estimate the probability of a particular product to be successfully delivered. In the equity-based funding the funder needs to assess the viability and the future prospects of the whole business. Therefore the informational problems are much higher in equity- based funding. Proposition 4: Co-operative company form is more suitable for platforms that utilize keep-it-all principle.
3.2 Frequency of interaction It should be noted, however, that the relationship between funders and their platform can be more diverse. Recent studies reveal that vast majority of funders on support-based platforms back only one certain project (Inbar & Barzilay 2014; Marom & Sade 2013) and the present donor retention rates in donation-based platforms are rather low (Sargeant 2008; Song et al. 2015; Althoff & Leskovec 2015). These one-time-funders usually have a personal attachment to a specific project. However, there are also repeat funders, whose role is significant on the platforms. For example Kickstarter's repeat funders account for 30% of all funders and they are in charge of 72% of the pledges on the platform (Inbar & Barzilay 2014). It could be argued that funders with highly altruistic motivation have a longer-time relationship due to their willingness to participate frequently on several
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen charitable causes. In addition, funders in lending- and equity-based platforms might also have a long-term relationship, if the driving motivator is to earn profit and diversify investments. One important determinant of the trust that can be cultivated in the platforms is a function of the frequency of the interaction between partners. According to social exchange theory, exchange between parties can take two different forms – negotiated or generalized exchange. Negotiated exchange refers to openly agreed terms of the exchange and is favored when parties act on self-interest (Cropanzano & Mitchell 2005). This in turn increases the risk for opportunism. Generalized exchange, on the contrary, refers to benefits that are given and received during a longer time horizon. Furthermore, it contains a deep nature of reciprocity and is characterized by trust and collectivistic orientation, since the group members are putting common interests over short-term individual interests. In co-operative context, it is important that individuals perceive short-term benefits and can thus understand the immediate gains. However, co-operative’s success requires the members to understand and commit to a longer time horizon that enables the members to achieve benefits in the future by uniting together. Thus, cooperatives are characterized by member-owners commitment, participation and deep long-term relationship with the co-operative. Accordingly, it can be seen that both, negotiated and generalized exchange, take place in successful co-operatives and a balance between these two needs to be found. According to Jussila, Goel & Tuominen (2012) dominance of the negotiated form increases opportunistic behavior and undermines the longer-term benefits. Further, dominance of the generalized form doesn’t pay attention to the short-term benefits for the member and makes it hard for the member to justify their participation. In other words, immediate terms are negotiated, but can be altered or completed in the future. In summary, co-operative provides a tool for individuals to pool their resources together to achieve individual level benefits. In other words, individuals are dependent on each other to achieve these benefits (e.g. Puusa et al. 2016). It is the cooperation and unification of individuals that matters. Thus, co-operatives include a high level of collective interdependency that has a longer time horizon than investor owned firms have. Proposition 5: Co-operative company form is more suitable for platforms that are characterized by long-term relationships between the platform and the users rather than short-term relationships.
4. Conclusions Crowdfunding sites are mostly investor-owned. This paper explored conceptually the conditions when a cooperative crowdfunding platform would be a feasible alternative to investor-owned one. Because crowdfunding sites are characterized by two side markets, the other question investigated was which side in a given case should own the site. It turned out that the ownership is complex question that is affected by many features of the crowdfunding site. Both economic and non-economic reasons for the choice of ownership structure were proposed. The economic factors were the size of the costs imposed on the market participants and the return on the capital that the owners of the crowdfunding platform demand. The non-monetary factors were the asymmetry of the information between market participants and the mechanisms of trust building between them. Also the frequency of interaction was shown to have a role. Key economic feature that gives rise to a co-operative form is the amount of excess profits that the platform can generate. In investor owned site these excess profits will be collected by the investor. However, if the business becomes co-operatively owned – thus merging the customer and owner functions – the case for excess profits disappears as the customer who pays for them is also the owner that collects them. This gives the cooperative ownership form a price advantage in a competitive settings, which is difficult for investor owned site to match. The second economic feature is the return on the capital that owner of the crowdfunding site demands. The riskier the investment, the higher the required return. In this paper it is argued that co-operative form can lead to a situation where the riskiness of the investment is lowered. This can happen if the amount of asymmetric information is reduced, more trust is being generated by the market participants, or the owners have better information of the riskiness of the projects because they are also market participants. In addition, while member-owners should be viewed as users rather than investors, the role of the profit changes. Accordingly, co-operative’s (and member-owners’) interest is to gather profit to develop the platform further.
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen One aspect of trust is how much – if any – of the collected funding is passed to the applicant. In keep-it-all any amount collected is given but in all-or-nothing the total applied amount has to be collected before distributed to the applicant. It is argued that keep-it-all-principle requires more trust as it can lead to a situation where the completion of the project is more uncertain. Therefore co-operative structure would be more suitable. Co-operative literature sees member-owner as having a wider set of objectives that he/she tries to fulfill. In traditional consumer and economics literature the owner of the company is seen to be motivated only by monetary factors. Therefore it is argued, that if the crowdfunding platform has more additional services that it offers to customers, it is more suitable to be cooperative. In addition it should be remembered that member-owners have the possibility to influence on the co-operative’s success and efficiency by increasing the amount of services purchased. Consequently, improved efficiency makes it possible to facilitate even better economic value for the member-owners. Accordingly, ownership provides the users with a tool to steer the co-operative in a direction that captures the maximum value. There is also possibility to reward frequent use through distributing patronage refunds according to the amount of participation. Thus, the co-operative model acts as a fair model of revenue sharing and provides a solid base for practicing cooperation. Future research While this article acts as an initial set of scientific discussion related to the role and implications of co-operative company form in crowdfunding, there exist a wide variety of research questions that needs to be addressed. First, future research should consider more widely how existing knowledge on co-operatives can be applied into crowdfunding- and sourcing practices. Issues as the role of co-operative principles (e.g. Novkovic, 2008), sense of psychological ownership (e.g. Jussila & Tuominen, 2010), implications of social capital (e.g. Tuominen, Tuominen, Tuominen & Jussila, 2013) and creation of member value (e.g. Suter & Gmür, 2013) could provide us with important insight related to the relationship between the co-operative platform and the member-owners. In addition, it would be interesting to develop understanding of the ways how Internet-based co-operative platforms can be managed efficiently. The importance of this question is further amplified by the fact that cooperative research is traditionally focused on geographically restrained co-operatives and local impact. Consequently, research on the management of digitized and globally owned co-operatives could contribute broadly to co-operative knowledge. Furthermore, as the discussion is taking its’ first steps, it is vital to move on to empirical research as well. Although there are no co-operative platforms in crowdfunding at the moment, data from the existing platforms could be used to deepen understanding of the challenges the industry faces. Second, discussion on co-operative platforms could benefit from a multidisciplinary research. As co-operative research in general, there are lots of opportunities in domains as sociology, law, economics, marketing and management. Accordingly, we encourage academics from different scientific domains to take part in discussion. Third, it should be noted that platform-based business models in the digitized age are often defined in terms of two-sided markets. This creates more complexity when considering who or which group of the platform users should own the site. As this question was left outside of this articles scope, we encourage academics to look at this direction. (for a review of two sided markets see Rochet and Tirole, 2006. For specific models see Rochet and Tirole, 2003, and Weyl, 2010.) All in all, the question of two-sided markets is not limited to co-operative company form, but should be considered more broadly when developing understanding of the expanding roles of consumers and users of the platforms. Fourth, crowdfunding industry is rather diverse and is characterized by different models as support, equity, donation and lending platforms. Thus research could benefit from a more detailed articles that consider different models of crowdfunding in terms of different company forms. This is due to the fact that different models of crowdfunding have different features and relationships with their users. Policy implications For the policy implications of the paper it should be noted that comprehensive legislation and regulation of crowdfunding platforms is still missing in the majority of markets. What shape the future regulation of the crowdfunding sites takes affects the magnitude of the risks that these sites have and can has an implication on
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen the amount of trust these sites generate. For example the crowdfunding industry is still in the early stages so not many defaults have been recorded. The regulation can also have an implication on the attractiveness of different organizational forms. This paper has been the first exploratory look at the new crowdfunding industry and the possible different ownership structures that could emerge in the industry. There are still a number of questions to be studied further and more will become apparent as the industry matures. As in other industries the diversity in ownership usually increases as the new practices and solutions are implemented and face their market test.
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Antti Talonen, Jarna Kulmala and Olli-Pekka Ruuskanen McShane, L. and Sabadoz, C. (2015) “Rethinking the concept of consumer empowerment: recognizing consumers as citizens”, International Journal of Consumer Studies, Vol. 39, No. 5, pp 544-551. Marom, D., and Sade, O. (2013) “Are the life and death of an early stage venture indeed in the power of the tongue? Lessons from online crowdfunding pitches”, [online], http://ssrn.com/abstract=2255707. Massolution (2015) “The crowdfunding industry report”, Preview retrieved from www.crowdsourcing.org. Moritz, A. and Block, J. (2016) “Crowdfunding: A literature review and research directions”, in Brunte, D. and Gajda, O. (eds.) Crowdfunding in Europé – A state of art and theory in practice, Springer Verlag. Nilsson, J. (2001) “Organizational principles for co-operative firms”, Scandinavian Journal of Management, Vol. 17, No. 3, pp. 329-356. Nilsson, J., Svendsen, G. L. H., & Svendsen, G. T. (2012) “Are large and complex agricultural cooperatives losing their social capital?”, Agribusiness, Vol. 28 No. 2, pp. 187–204. Novkovic, S. (2008) “Defining the co-operative difference”, The Journal of Socio-Economics, Vol. 37, No. 6, pp. 2168-2177. Peterson, H. C. and Anderson, B. L. (1996) “Co-operative strategy: Theory and practice”, Agribusiness, Vol. 12, No. 4, pp 371-383. Puusa, A., Hokkila, K., & Varis, A. (2016) ”Individuality vs. communality – a new dual role of co-operatives?”, Journal of Cooperative Organization and Management, Vol. 4, No. 1, pp. 22-30. Rochet, J.-C. and Tirole, J. (2003) “Platform competition in two-sided markets”, Journal of European Economic Association, Vol. 1, No.4, June, pp. 990-1029. Rochet, J.-C. and Tirole, J. (2006) “Two-sided markets: a progress report”, Rand Journal of Economics, Vol. 37, No. 3, Autumn, pp. 645-667. Sargeant, A. (2008) “Donor retention: What do we know and what can we do about it”, A Report for the Association of Fundraising Professionals, Washington DC. Scholtz, T. (2014). Platform Cooperativism vs. the Sharing Economy. [online] www.medium.com. Available at: https://medium.com/@trebors/platform-cooperativism-vs-the-sharing-economy-2ea737f1b5ad#.4zmnfu96l [Accessed 10.4.2016] Schwienbacher, A., Larralde, B. (2012) “Crowdfunding of small entrepreneurial ventures”, In: Cumming, D.J. (Ed.), The Oxford Handbook of Entrepreneurial Finance, Oxford University Press, Oxford. Smith, B. D. and Stutzer, M. (1995) “A theory of mutual formation and moral hazard with evidence from the history of the insurance industry”, The Review of Financial Studies, Vol. 8, No. 2, pp 545-577. Song, A., Lee, H. I., Ko, M. and Lee, U. (2015) “Every Little Helps: Understanding Donor Behavior in a Crowdfunding Platform for Non-profits”, In Proceedings of the 33rd Annual ACM Conference Extended Abstracts on Human Factors in Computiig Systems, pp 1103-1108. Spear, R. (2000) “The co-operative advantage”, Annals of Public and Co-operative Economics, Vol. 71, No. 4, pp. 507-523. Suter, P. & Gmür, M. (2013) “Member value in co-operatives (Working Paper SES 10.2013 No. 444)”, Retrieved June 10th, 2016 from https://doc.rero.ch/record/200987/files/WP_SES_444.pdf. Tuominen, T., Tuominen, P., and Jussila I. (2013) “A tool to be used deliberately: Investigating the role of profit in consumer co-operatives”, International Business Research, Vol. 6, No. 11, pp 122-133. Tuominen, T., Tuominen, P., Tuominen, H., & Jussila, I. (2013) ”Social capital: a source of sustained competitive advantage for consumer co-operatives”, International Business Research, Vol. 6, No. 12, pp. 60-73. Wash, R. and Salomon, J. (2014) “Coordinating Donors on Crowdfunding Websites”, in Proceedings of the 17th ACM conference on computer supported cooperative work and social computing, pp 38-48. Weyl, E. G. (2010) “A price theory of multi-sided platforms”, American Economic Review, Vol 100, No.4, September, pp. 1642-1672.
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Entrepreneurial Policy for Tribal Societies: Case Study of Mizo Entrepreneurs In India Shailaja Thakur Department of Economics, Sri Venkateswara College, University of Delhi, India
[email protected]
Abstract: Entrepreneurship variously defined as innovation, leadership, management, coordination; is essentially about ‘risk taking’. Social sciences have looked into different influences on entrepreneurial behaviour, ranging from personality traits to institutional environment to social and cultural factors. Coming specifically to entrepreneurs in tribal societies, they have typically been associated with lack of risk appetite and business acumen. The argument goes that they discount the future highly and their ‘tribal mind-set’ takes them away from saving and investment and towards consumption, dampening their entrepreneurial aptitude. Hence, policy makers opine that though indigenously grown entrepreneurship is the best route for sustainable development of these societies, it has to be suitably supported by government sops and assistance from outside entrepreneurs. Through my field study on entrepreneurs belonging to the Mizo tribe in the north eastern state of Mizoram, India; I question this popular discourse and come out with the conclusion that the Mizos instead have a significant pro enterprise history as well as attitude. My study underlines the fact that this feature of the Mizo tribal society which could have been an important asset for cultivating entrepreneurship among these people, has not only been largely ignored rather has been dampened by government intervention. Through questionnaire analysis and basic econometric tools, I have been able to establish the counterproductive impact of government policies on the entrepreneurial attitude and performance of these people. I argue for more proactive steps like providing professional education and training to cultivate entrepreneurial skills among these people, rather than offering artificial sops and subsidies which seem to be inducing complacency. My field study corroborated with quantitative analysis emphasizes the role of socio cultural context in policy making and provides an interesting insight into the working of tribal economies. Keywords: tribal, Mizo entrepreneurship, institutions, socio- cultural context, innovation in entrepreneurial policy
1. Introduction The classical definition of an entrepreneur revolves around his role as an organizer and coordinator of factors in the process of production. He is supposed to bear the risk involved in production for which he is rewarded with profits emerging from production and sale of products. While sociologists and psychologists relate entrepreneurial behavior to the presence of certain personality traits, processes of socialization, cultural and religious factors; economists see him as someone who discovers, evaluates and exploits opportunities (Kirzner, 1973; Shane and Venkataraman, 2000). Entrepreneurial literature is considerably vast and gives due importance to both economic as well as non-economic factors in understanding the trajectory of the entrepreneurial process. An interesting interface of these factors can be observed in the functioning of entrepreneurs in indigenous societies. These societies have their unique social, economic, cultural and political institutions that influence various spheres of their activities, including their entrepreneurial behavior. Focussing on the Mizo entrepreneurs of the north east state of Mizoram in India, I seek to establish the argument that the institutional mechanism and policies that intend to promote entrepreneurship need to be in sync with the culture of the community; otherwise their ability to influence the development process will be undermined and development will be blocked. I present my argument in the subsequent sections. Section 1 gives a theoretical perspective on the impact of institutional factors on entrepreneurial behavior and in Section 2 my focus is on the uniqueness of indigenous entrepreneurs. Section 3 deals with the Mizo entrepreneurs, their brief history and important defining features. Section 4 is a description of my study and results. Section 5 relates the performance of these entrepreneurs to the government policies and schemes. Section 6 outlines certain innovative proposals for entrepreneurial policy making in these societies and concludes.
2. Section 1: Institutions and entrepreneurship North (1994) defines institutions as ‘humanly devised constraints that structure human interaction’ and constitute the incentive structure of a society. Institutions are made of formal constraints (rules, laws and constitution), informal constraints (norms of behavior, conventions, self-imposed codes of conduct) and enforcement mechanisms. It is more or less established that economic coordination cannot always be a matter
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Shailaja Thakur of price signaling in markets; rather it is necessarily supported by a wide range of other social and economic institutions. Considering the important influence of institutions on economic behavior, it seems plausible that entrepreneurs do not act in isolation and that their behavior is also institutionally embedded. Gnyawali and Fogel (1994) have developed a framework linking various dimensions of institutional environment to the core elements of the venture creation process.
Figure 1: Institutional environment and venture creation Opportunities available to the entrepreneurs can be related broadly to the ‘macroeconomic policies and procedures’, while the propensity to enterprise is a reflection of the innate characteristics of individuals like need for achievement, capacity to innovate, internal locus of control and propensity for taking risks. As is evident, this propensity is very much a function of the socio- cultural factors, another important dimension of the institutional environment. Lastly, business and technical skills that are required by an individual to start and manage a business define the ability to enterprise. A crucial requirement in the process of new venture creation is a match between these three components of entrepreneurship. A high level of opportunity, propensity and ability to enterprise will positively correlate with an individual’s likelihood to enterprise, given the right financial and non-financial assistance. The Global Entrepreneurship Monitor (GEM) framework too, addresses the relation between national level business activity and institutional environment. The Entrepreneurial Framework Conditions (EFCs) as developed by GEM include access to finance, government policies, presence of entrepreneurship specific training and access to R& D and technology. The GEM model proposes that the EFCs affect entrepreneurial activity by enhancing opportunity recognition and skills perception. The role of the government in fostering entrepreneurship and influencing the level of competitiveness has also been shown by country studies (Acs& Amoros, 2008). Though a stable macroeconomic environment and promotional policies provide a stimulus to entrepreneurial activity, some policy interventions can have negative impact on entrepreneurship. Henrekson (2005) describes how welfare state institutions create disincentives for innovative and growth oriented entrepreneurs. Hessels, Gelderen and Thurik (2008) have shown that countries with generous social security systems land up hampering the ambitions of individuals striving for innovation and growth. The policy prescription is not to do away with social security arrangements, rather to develop social security mechanisms that provide sufficient income security along with incentives for innovative and growth oriented behavior. So, the social, political and cultural environment together with societal attitudes towards entrepreneurship, norms and values; should be considered to understand the nature and extent of entrepreneurship existing in a society.
3. Section 2: Institutions and indigenous entrepreneurs Does there exist, and can one define anything such as ‘tribal ethos’? If so, how does it influence the entrepreneurial spirit of the indigenous people? Indigenous people are deeply attached to land and nature. They design their own socio- cultural institutions to perpetuate their norms and values, serve their social and economic interests and maintain their distinctness. Their economic behaviour too has a strong imprint of the
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Shailaja Thakur socio- cultural environment. Thus applying standard ideas and concepts of economics to these societies is not only difficult but also improper. Hindle and Lansdowne (2005) define indigenous entrepreneurship as ‘…the creation, management and development of new ventures by Indigenous people for the benefit of Indigenous people. The desired and achieved benefits of venturing can range from the narrow view of economic profit for a single individual to the broad view of multiple, social and economic advantages for entire communities’. While exploring the world of indigenous entrepreneurs, Cochran (1960) and Dana (1995) argue that such entrepreneurship should not be defined on the basis of opportunity, rather on ‘cultural perception of opportunity’. The objectives of the entrepreneurs are also ‘overwhelmingly cultural’ since attitudes and perceptions are culturally coloured (Dana, 1995). Licht& Seidel (in Casson and Yeung 2006) suggest that mainstream entrepreneurs rate power and achievement above traditional cultural values, religion, and universalism, and note that many facets of entrepreneurship apply especially to Western industrialized nations and cannot be used to understand indigenous entrepreneurs. Among others, Garsombke (2000), Madunga (2005) while researching on tribal entrepreneurs from different parts of the world find significant differences in their thinking process, orientation, aspiration levels, business education and communication skills. These studies also find that for indigenous entrepreneurs, preserving and maintaining the ‘soul and spirit’ through relationships is more important than making money. Management style tends to be more participative and inclusive and community involvement was found to be critical for the success of these enterprises. The uniqueness of indigenous entrepreneurs also warrants a unique institutional support mechanism, as underlined by a Harvard Project on American Indian Reservations (Cornell and Kalt, 1990). Their study of about sixty-seven Reservations shows that ‘culture and institutions of governance’ is the crucial pair of factors in development of these indigenous people. They propose political sovereignty for the tribal regions so that the priorities of these people get reflected in the strategies designed for them. They opine that the natives should alter their institutions themselves and bring them in line with their development strategies. Entrepreneurial projects in line with natural and/ or human resources most available to them and consistent with their cultures are expected to be most successful. Against this background, we take up the specific case study of Mizo entrepreneurs. I chose Mizoram for the case study for two reasons. It is almost a fully tribal state, with around 95% of its population belonging to the tribal community. Secondly, though there are various tribes that inhabit the state, they bear the generic name ‘Mizos’ or people of the hills. Their society is much more homogenous than other tribal states of the country. Hence, the inter-tribal differences need not be considered and do not interfere with our study. We begin with a brief introduction of Mizo society, economy and entrepreneurship.
4. Section 3: Mizo society, economy and entrepreneurship Mizoram is one of the ‘seven sisters’ states that cover the north eastern part of India. India houses the highest tribal population in the world, and the North East is a major region of the country with more than 200 tribes. Tribals of Northeast India lived a life of comparative autonomy and followed their own customs and systems of administration till the British arrived. Mizoram was then called Lusei Hills, taking its name from the dominant tribe of the region- the Lushai. The British confronted the Lushais when the latter started raiding their tea and rubber plantations. After several expeditions against them, the Lushai Hills was formally annexed by the British in 1898. Till independence, the Lushai Hills District continued to be ruled directly by the District Superintendent as well as the Chiefs. After India gained independence in 1947, democracy was introduced in this region but it was only in 1987 that the full-fledged state of Mizoram was created. The Mizo society has traditionally been egalitarian, with no class distinction and no discrimination on grounds of class or gender. Though the Chief was at the top of the hierarchy, there was a strong sense of cohesion and equality in the traditional Mizo society. The Mizos showed strong community involvement in their lives. There was no prevalence of paid labour and the system called ‘Hnatlang’ was followed wherein all members of the community pooled their labour for some activity or the other. This enhanced the selflessness and community orientation of the people. Though with time and exposure to different agents of change, their social values and
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Shailaja Thakur attitudes have evolved, the Mizos have been able to preserve their traditions and their tribal values have shown great resilience. Mizos indulged in economic activities much before the introduction of a formal market economy, and their village life had a strong economic basis. Their economy was based on land and they were mainly farmers and hunters. Though resource mobilization and disposal was centred on the chief, the common man did have considerable freedom in his economic pursuits. The Mizos followed the jhum (slash and burn) method of cultivation, the oldest form of cultivation in human society. This made them lead a nomadic life moving constantly in search of land for settlement. These constant moves ‘...disinclined them to amass more than is absolutely necessary and gradually become content with very little. They preferred ease and idleness to toiling in the hope of being able to add to worldly possessions’ (Shakespear, 1912). To them, not accumulation, but disposal of goods was the primary aim of economic activities. We see the same aversion to savings and accumulation among the Mizos of the current day. At the same time, they have traditionally been traders, beginning with barter exchange and then using forest products and elephant teeth as medium of exchange to facilitate trade. Though they were primarily agriculturists, they did manufacture items like cane and bamboo mats, baskets, iron tools and weapons in their spare time, and bartered these for other items in the village market. Cash made its appearance around 1820s and assumed greater significance after annexation by the British in early 1870s. Mizos then began to use and earn money by selling their goods especially to the English and Bengali traders. We see high cash consciousness among these people as mentioned in various historical accounts (Chatterjee, 1999). Historically as well as at present, Mizoram economy is primarily service driven with this sector contributing around 60% to the state domestic product (2008- 13). Manufacturing sector contributes less than 2% to the SDP and has even witnessed a decline between 2004/5 and 2011/12. Despite ample institutional measures, large scale enterprises are more or less absent and the state falls within the category of a ‘No- Industry’ state. The tiny (micro) and small scale industries dominate the industrial profile of the state. There is predominance of agro based industries using raw materials such as bamboo, cane, timber and fruits such as passion fruit and pineapples. Metal fabrication, handlooms are other major enterprises in the state. The industries and enterprises in the state are usually high cost and are run using primitive technologies. Typical Mizo entrepreneurs are first generation entrepreneurs. Their earlier generations were agriculturists and if in business, were involved mainly in trading activities. Their enterprises are mainly sole proprietorships where the proprietor along with his family members manages all aspects of his business himself- right from product development to finance, marketing and human resource management. The entrepreneurs lack proper marketing platforms and are not aggressive marketers themselves. Local market is their primary target, though there are a few progressive entrepreneurs who are looking beyond the state. The work culture is marked by cooperation rather than hierarchy. This very much follows the tribal ethos where equality is one of the most important values. Majority of the entrepreneurs in the state have had no formal business education. The Mizo entrepreneurs seem to show a positive attitude towards work and want to be on their own in business. Though they are comfortable exchanging ideas with each other and even with entrepreneurs from outside the state, they are apprehensive about any formal collaboration. They seem to be enjoying a respectable position in the Mizo society as entrepreneurs, especially if they are able to contribute physically and financially to the community and to the church. They exhibit a strong commitment towards family and community and try to blend their business practices and professionalism with the existing socio- cultural fabric. If we are to look at the institutional environment facing the Mizo entrepreneur, we find that there are both positive and negative aspects. On the negative side, there is lack of connectivity, bad roads, serious power and water shortage and low business literacy. On the other hand, a relatively stable and peaceful political and economic environment, almost total literacy, and active chambers of commerce and industry in the state provide a favourable environment for entrepreneurship. The policy framework for entrepreneurial development and industrialization in the state includes setting up of organizations and providing financial as well as non-financial benefits to private entrepreneurs. Dedicated organizations have been designed to hand hold the entrepreneurs, by providing them raw materials and even finance, training in business management and also helping them in marketing. At the same time, fiscal support in the form of subsidies and tax benefits on various inputs has become the mainstay of entrepreneurship promotion programs in the state.
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5. Section 4: The study and results This brings us to the central research question as to what is it that is constraining entrepreneurial growth among the Mizos? Why is it that despite significant policy impetus, entrepreneurship is not taking root there? Is it the case that the ‘tribal ethos’ of the Mizos and their attitudes have dampened their entrepreneurial spirit and reduced, if not totally annulled the impact of positive institutional factors on entrepreneurship? In the preceding section I have outlined some of the defining characteristics of the Mizo entrepreneurs as gauged during my engagement with them. The notion that the basic motivation for becoming entrepreneurs is absent among the tribals, that these people do not have saving and investment habit and heavily discount the future, that the inner ‘fire’ of competition, excellence and success is overpowered by community interest and spirit of cooperation rather than competition, is put to question in my study of the Mizo entrepreneurs. Similarly, a question mark is put on the efficacy of the measures that are proposed for entrepreneurial development in these societies. My argument is that there is a key missing ingredient in the way these policies are conceptualized and implemented leading to unintended results. My study based on field work and detailed questionnaire analysis of about 150 Mizo entrepreneurs sought to understand and relate the dynamism and performance of the Mizo entrepreneurs to various social, cultural, religious and institutional factors. I culled out the names of the entrepreneurs from the databases of the Department of industries, Government of Mizoram and the Chambers of Commerce and Industry of the state. I chose 150 sample points from a list of around 1200 (around 13%) entrepreneurs listed in these databases. I used judgement or purposive sampling methodology and chose the respondents on basis of their accessibility, activity levels, sectoral representation and basic familiarity with English (though we had a local interpreter). These respondents were spread across five districts of the state with 75% belonged to the capital district of Aizawl itself. My questionnaire had around 100 questions looking at different aspects of entrepreneurial activity as well as values and attitudes of the respondents and the institutional environment. Participant observation method was employed with open ended, close ended questions as well as questions with prompts to elicit responses. The responses were broadly divided into two areas- variables that adduce to dynamism and performance of the entrepreneurs; and variables that reflect the social, cultural, political and economic environment influencing the entrepreneur. The responses were both qualitative as well as quantitative. The former were codified and collated, facilitating analysis. I had responses related to tribal values, religious and social values and other values and attitudes of the respondents; as well as institutional factors affecting entrepreneurial activity. While the first three attributes could be considered as informal institutions; government policy framework, financial and nonfinancial support, education and association with business and industry chambers can be viewed as the formal processes and institutions having an impact on the entrepreneurial behavior among the Mizos. The attributes were grouped together using the Principal Component Analysis, to form the various independent variables impacting the dynamism and profitability of the entrepreneurs. Dynamism was gauged with the help of a dynamism index that was created by giving different weights to the various strategies that the entrepreneurs employed in their business. Similarly, profitability was estimated by the ratio of profits to turnover of the businesses. Regression results showed that there is a positive and significant impact of education (t value= 2.34) and involvement in the chambers of commerce and industry (t value= 1.76) on entrepreneurial dynamism. While this was to be expected, a highly positive and significant impact of tribal values on their dynamism (t value= 3.91) that also came out of this analysis is indeed interesting. This result helped us buttress our perception about the pro entrepreneurial attitude of these people. The tribal values that we considered in our analysis were values of equality, creating employment and helping fellow Mizos, networking with Mizos living outside the state, heavy social commitments and apprehension of investment from outside the state. These are the very same values that could have compromised on the professionalism of conventional enterprises, but have helped the Mizo entrepreneurs to survive in the state. Moreover, it was discovered simultaneously that the Mizo entrepreneur does not get influenced significantly by ‘mainstream values and attitudes’ (t value= 0.88) that define a conventional entrepreneur. This is again an important result since it shows that it is futile to judge these entrepreneurs on a standard definition of entrepreneurship. When it comes to the performance of these entrepreneurs judged by their profitability, another interesting and rather striking result was obtained. I found that the institutional variable defined by the use of various subsidies
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Shailaja Thakur and other promotional policies of the government by the entrepreneurs, had a negative and significant impact on their profitability (t value= -2.04). This was quite contrary to our expectations. The results seem to be indicating that not only did the entrepreneurs not benefit from such policies of the government; rather their profitability declined when they availed these schemes and programs. Delving deeper into the policy area, the next section tries to understand this result and subsequently hypothesise about the missing ingredient in entrepreneurial policy making in the state.
6. Section 5: Entrepreneurial policy and performance of the Mizo Entrepreneurs In my sample survey, 80% of the respondents cited lack of sufficient power supply, 48% cited poor roads and lack of water as their major concern areas. More than two- thirds of the respondents went with lack of finance as their major constraint. As regards the impact of government policies, more than half of the entrepreneurs (53%) considered this to be the main problem in carrying out their business in the state. On a scale of 10, the respondents gave an abysmal average score of 3.96 to the government for its role in supporting local industry. So, despite the push being given to entrepreneurship and industrialization in the state, the entrepreneurs find the environment rather unfavourable for their growth. I also found that about one third of the respondents were unaware of government schemes that could be made use of by their enterprise and few were able to avail the benefits of the same, as shown in the table below. Table 1: Percentage of respondents who were availing the different fiscal schemes Tax exemption Finance (investment subsidy) Transportation subsidy Miscellaneous
93.4% 25% 28% 11%
Subsidy schemes have been touted as the most important promotion steps taken by the state and central governments for enterprise development, yet lack of awareness and also difficulties related to documentation and paperwork were given as the main reasons for the inability of most of the entrepreneurs in benefiting from the same. This is a problem zone for policy makers in the state who seem to feel that promotional policies would automatically lead to entrepreneurial development in the state. We hazard two possible explanations for our result. It could be the case, and it was indeed observed, that there is a lot of diversion and loss of energy in availing government schemes and benefits by the entrepreneurs. The entrepreneurs who are more accustomed to informal ways of doing business, find paper work and documentation very difficult to internalize in their business practices. In addition to streamlining and simplifying the procedures, better business education could help them deal with this situation. Another possible reason could be that those who avail these benefits, get used to these support measures and do not feel the need to work more for their business and improve their profitability. The ‘handout mentality’ that they appear to be getting used to may be compromising their dynamism and hard work- again leading to decline in profitability. The institutional mechanism that is in place to promote these entrepreneurs is very much similar to what it is for other so called ‘mainstream’ entrepreneurs. Taxation benefits and subsidies on almost all inputs including land, finance, manpower development; skill enhancement, marketing support, training in business practices are very important ingredients of an effective entrepreneurial policy, but we need to recognize that the desired results might not always follow. A mismatch between policies and the socio- cultural context dampens the impact of the former- this, according to me, is the missing ingredient.
7. Section 6: Innovation in entrepreneurial policy making I therefore argue in this paper that entrepreneurship development policies in the state lack the cutting edge not only because of poor implementation but because these are not in line with the tribal ethos and value system of the Mizos. Tribal values of egalitarianism, community bonding, apprehension of outsiders should be made use of in designing these policies. Moreover, it needs to be acknowledged that conventional attributes such as making money, willingness to collaborate with others, are not applicable to these entrepreneurs. So, I propose the following innovations in entrepreneurial policy making for tribal societies:
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Involve local entrepreneurs and their representatives at each stage of policy making and implementation to improve the utilization of such schemes by the beneficiaries. Greater say in policy making and resource utilization creates greater chances of success in a tribal enterprise, as the Harvard Project also endorses.
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Associate sociologists and anthropologists with the formulation and implementation of any plans that aim at development of these societies.
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Design policies that build on the inherent entrepreneurial traits of the people. Policies should be designed to cultivate and nurture the confidence of these people rather than make them permanently dependent on government sops. Hence, performance related incentives could be more effective measures for development of their enterprise rather than passive intervention schemes.
!
Infrastructure support in form of good roads and connectivity, power, water and finance; education and business literacy are areas that need more active involvement of the government. Tribal colleges and universities, a concept in place in the United States for native Indian population is an interesting innovation helping in education and entrepreneurship development of these people. Here the tribal people themselves identify their major needs and evolve their own programs. These programs, designed in line with local needs and cultural sensitivities, provide business education, information infrastructure, community driven support, leadership training and even hands- on business experience to the potential entrepreneurs. This has been found to be effective in blending traditional and modern activities with holistic ideas that focus on community, family and cooperation.
8. Conclusion As we have seen, tribal entrepreneurship, in its purest form, is about promoting and perpetuating the tribe’s identity and values alongside entrepreneurial activity. There are instances of tribal societies lacking the entrepreneurial drive, but my study of Mizo entrepreneurs shows that their tribal ethos and history, is strongly pro- enterprise. One therefore needs to understand the complexities of tribal economies and create as well as navigate innovative paths for their development. Though my study was primarily aimed at Mizo entrepreneurs, the conclusions can be generalized for entrepreneurial policy making as such. Impact of formal and informal institutions on economic behavior in general and entrepreneurial behavior in particular, needs to be understood and appreciated. For greatest efficacy, the policies need to evolve from within the milieu in which they are to operate, rather than be imposed from above. A one- fit- all approach would not and indeed does not work, when it comes to operating in different socio- cultural spaces.
References Acs, Zoltan J. and Amoros Jose Ernesto (2008) “Entrepreneurship and Competitiveness Dynamics in Latin America”, The Jena Economic Research Papers, No. 2008 – 059. Casson, M. and Yeung, B., eds., (2006) Oxford Handbook of Entrepreneurship, Oxford University Press, Oxford. Chatterjee, Suhas (1999) A History of Mizo Economy, Vol. 1, Printwell Publishers Distributors, Jaipur, India. Cochran, Thomas C. (1960) “Cultural Factors in Economic Growth”, The Journal of Economic Growth, Vol. 20, No. 4, pp 51530. Cornell, Stephen and Kalt Joseph P. (1990) "Pathways from Poverty: Economic Development and Institution-Building on American Indian Reservations", American Indian Culture and Research Journal, Vol. 14, No. 1, pp 89-125. Dana, Leo- Paul (1995) “Entrepreneurship in A Remote Sub Arctic Community: Nome, Alaska”, Entrepreneurship: Theory and Practice, Vol 20, No. 1, Fall, pp 55- 72. Garsombke Diane J. and Garsombke Thomas W (2000) “Non Traditional vs. Traditional Entrepreneurs: Emergence of a Native American Comparative Profile of Characteristics and Barriers”, Academy of Entrepreneurship Journal, Vol. 6, No. 1. Gnyawali, Devi R. and Fogel Daniel S (1994) “Environments for Entrepreneurship Development: Key Dimensions and Research Implications”, Entrepreneurship Theory and Practice, Vol. 18, No. 4, pp 43- 62. Henrekson, Magnus (2005) “Entrepreneurship: A Weak Link in The Welfare State?” Industrial and Corporate Change, Vol. 14, No. 3, pp 437- 467. Hessels Jolanda, Gelderen Marco van and Thurik Roy (2008) “Entrepreneurial Aspirations, Motivations and their Drivers”, Small Business Economics, Vol. 31, No. 3, pp 323- 339. Hindle, Kevin and Lansdowne Michele (2005) “Brave Spirits on New Paths: Towards A Globally Relevant Paradigm of Indigenous Entrepreneurship Research”, Journal of Small Business and Entrepreneurship, Vol. 18, No. 2 (Spring 2005), pp 131- 142. Kirzner, Israel M. (1973) Competition and Entrepreneurship, University of Chicago Press, Chicago.
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Shailaja Thakur Mapunda (2005) “Traditional Societies and Entrepreneurship: An Analysis of Australian and Tanzanian Businesses”, Journal of Asia Entrepreneurship and Sustainability, Vol. 1, No. 2, pp 1-23. North, Douglass (1990) Institutions, Institutional Change and Economic Performance, Cambridge University Press, Cambridge. Shakespear, J Lt. Col. (1912) The Lushei Kuki Clans, McMillan& Co. Ltd, London. Shane, S. and Venkataraman S. (2000) “The Promise of Entrepreneurship as a Field of Research”, Academy of Management Review, Vol. 25, No. 1, pp 217- 226.
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Parenting of the Micro Enterprise Founders; Does the Parental Approach Make any Difference in the Choice of a Family Business Successor? Minna Tunkkari-Eskelinen JAMK University of Applied Sciences, Finland
[email protected]
Abstract: According to several studies and authors all over the world (see e.g. Ward 1987; Koiranen 2002), there are difficulties in the search for a family business successor within a family. The next generation of SME founders may not see the running of the family business to be attractive enough. Some families have offspring willing to take over the business. If there are signs of a different parental approach towards a successor and non-successor, this qualitative study focuses on the issue within four case family firms. How have the founders as parents approached their offspring during their childhood and early adulthood? In particular, the ones taking over the firm are under investigation in this ongoing study. The parents of the family in business were interviewed, as well. The study aims to find a theoretical match by using empirical qualitative interviews in which a varying amount of siblings were informants for the study. Baumrind’s (1978) parenting typology was used to reflect empirical evidence amongst three family business cases. The contribution of the study refers to the possibility to identify potential successors within a family by analyzing the experiences of being a family member under the command of the founder of the family business. The practitioners may help families in business in their search for a motivated successor and ownership transfer. The family business scholars are encouraged to utilize educational theories when studying families in business. This study will open up the path for using an educational, family study approach. Keywords: family business, succession, parental style, childhood experiences
1. Introduction into family business field This paper was created in anxiety to know how some families have offspring willing to take over their family business. The question here is “How have the founders as parents approached their offspring during their childhood and early adulthood?” The problem appears in the core of family business practitioners, since many business owners do not know how to commit or attract an intra-family successor (Koiranen 2002). A similar trend is no doubt taking place all over the world. A key theme in the family business research literature for decades has been succession topics. Already in 1987, John Ward published a book “Keeping the Family Business Healthy”, whereas family dynamics were already mentioned as being the main additional concern to healthy business. The ideal case is when a family is in harmony, conflicts are managed, and business continuity is successfully guaranteed. The quality of the relationship between an incumbent and potential successor is important preceding a succession process (Lansberg 1988; Massis, Chua, & Chrisman, 2008). They also refer to the importance of the transfer of parental-child knowledge and sibling rivalry as possible relational factors preventing succession occur. Several authors point out the importance of family dynamics in the family business context (Kets de Vries 1985; Ward 1987; Lansberg 1988). Family dynamics are already created during the family continuum. It is relevant to understand family life in more depth, and the aim of this study is to learn more from the parental roles in business families. This perspective is lacking in the family business literature. Family business succession as a phenomenon appears when a firm faces the need for business and ownership continuity. Succession process models including the chronological perspective have been established from early on up to the present time in the literature (Longenecker& Schoen 1978; Handler 1990; Barach&Ganitsky 1995; Ibrahim & Ellis 1994; Morris, Williams &Nel 1996; Sharma, Chrisman, Pablo & Chua 2001; Sharma, Chrisman & Chua 2003; Murray 2003). Management succession is the most researched topic (Massis, Chrisman & Chua 2008). It is valuable describing family business through a life-cycle model by Gersick, Davis, McCollom and Lansberg (1997), which consists of the business, family and ownership axis along a time continuum. Typically, the first level of each business process contains the association of offspring with the firm through part-time employment. Some offspring may decline any participation in the firm. This should also be considered an important part of planning. Succession is about the transfer of control of the firm from a previous generation to the next generation (Miller et al., 2003). It therefore consists of dialogue about the incumbent/predecessor having a willingness to give up and the successor taking power (Sharma et al., 2001). This is only one factor amongst several other factors listed preventing the occurrence of an intra-family succession (Massis, Chua & Chrisman, 2008).
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Minna Tunkkari-Eskelinen In order to run successful business (Ward 1987), and according to several researchers (Mazzola, Marchisio, &Astrachan, 2008; Bigliardi&Dormio (2009), it is suggested to have a long-term succession plan. A plan usually consists of written deals with different ownership functions and, in particular, family-based decisions. Researchers Gilding, Gregory and Cosson (2015, 299) state that “family business specialists attempt to identify the predictors of effective succession planning, and the obstacles in its way” without the doubts about the role of (un)motivated incumbents in the process. They introduced four ideal types (using business continuity and family harmony as measurements) of family business succession outcomes associated with different combinations of motives that can be used as a ‘diagnostic tool’ to better understand the complexity and consequences during the succession process. It is also the goal of this study to show such a tool or frame for practitioner use. However, before succession planning, it is suggested to confirm the potential successor’s intention to join and take over the business. Stavrou (1999) emphasis succession as being “a long-term process initiated early in the heirs’ lives”. She found out that offspring may not in most of the cases want to join or take over the firm, but it is a preference with the parents’ plan or desire. Therefore, attention should be paid more on assessing and discussing whether offspring should join the business. She calls for more studies investigating the time line before a formal succession. The commitment of the next generation successor appears to be a relevant topic. Sharma and Irving (2005, 28) proposed a commitment having different mind-sets that can “guide next-generation family members’ decisions to pursue a career in their family firms”. Since each type of commitment is both a product of different antecedents and behavioural consequences to change on that basis, one cannot say which type of commitment is ideal for the particular case in hand. It was found that several adaptation stages are needed in the process of entering the firm successor (Tunkkari-Eskelinen 2005). Most of the studies present a framework in order to serve the case companies, open communication within the partners involved in the succession process and prevent succession dysfunction (Ward 1987; Lansberg 1988; Kets de Vries 1996). All of these can be prevented if the family recognizes the motives of the predecessors and also already considers the potential of other family members before actual succession. The setting in this paper is to show the meaning of family life functions by taking the retrospective viewpoint of the business family members. In Asian cultures, it is typical that the oldest son is taken for granted as a successor of the traditional family firm. The first sons of the families are more likely to establish a firm of their own in general, not just in family businesses (McClelland, 1966; see also Claxton, McIntyre, & Wheatley, 1995). In western cultures, the daughter can also be the successor. According to Wang (2010, 478), it is typically for the firstborn son to receive the leadership mantle. As a result, daughters are neither encouraged into family businesses nor groomed for leadership, and are “almost always overlooked as succession candidates” (Wang 2010, 475). According to several authors, the role of the daughter should consider to be relevant in succession topics (Danes & Olsson 2003). In this study, the successors under investigation were merely daughters. There is not much attention paid to case differences based on the business industries. In the study about the mentoring experiences of next generation members of family businesses, no relevance of the business industry was found amongst informants (Tunkkari-Eskelinen 2015). It is typical that micro sized family firms in tourism and hospitality hardly make it to the second generation of sibling partnership stage or the third generation of cousin consortium stage. Getz, Carlsen and Morrison (2004) point out that less is known about long-standing family businesses in the rural tourism service sector. Low entry barriers in the industry, amongst other reasons, reveal a very high level of start-ups. It is crucial to ask why people - and especially next generation members get into and remain in tourism and hospitality businesses, since it often delivers a poor return on investments. However, this paper focuses on the family system and, more specific, parental activities already carried out in the families in business. If there are any industry-related differences in parenting, it cannot be argued according this study, since all the cases represent the tourism service industry in a rural area. As a basis in this study, it is assumed that a family in business represents a similar family function in the childhood that the other families do. It is different when one talks about the socialization process (see e.g. Bowen 1981; Maccoby& Martin 1983; Morris, Williams &Nel 1996), in which a family member needs to adapt into the family business culture. For example, Björnberg and Nicholson (2007, 239) found out that “business ownership in the family made no difference to perceptions of family climate. Business-owning families may have specific experiences that influence factors such as frequency, type, and intensity of interaction among family members,
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Minna Tunkkari-Eskelinen yet it appears that these do not differentiate them from others in terms of perceived family functioning.” They used the term intergenerational style in an active succession process, replacing the term parental style, which is relevant in a family and childhood context. Furthermore, family as an institution is typically older than the business in concern. The concept of family orientation (FO) created by Lumpkin, Martin and Vaugh (2008) expresses five dimensions with certain characteristics. They stated that one family member may value family politics or rules differently, and they called for studies investigating as to which extent family orientation varies between family members. This study will broaden up this view by showing family members’ experiencing parental styles differently, however, revealing that the parental styles differed, compared to which sibling is concerned. In entrepreneurial research, it has been clearly established that the children of self-employed parents are far more likely to replicate such choices, whether through family business succession or through their own selfemployment (Arum & Müller, 2004; Fairlie& Robb, 2009; Storey& Greene, 2010). Green, Han and Marlow (2013, 700) found that “if a mother was self-employed when her daughter was born, the daughter was also more likely to become self-employed. The results also revealed that the mothers’ attitudes toward women and work had a direct influence on the entrepreneurial propensities of their daughters”. This kind of role model effect is also meaningful when talking about career choice, which, however, was not a key point in this paper. Instead, the question “What kind of parental style supports the intention of the next generation to take over the family firm?” is valid in this matter. Eva Schmitt-Rodermund (2007) found that ”the parenting style in the family of origin was shown to be relevant for career success”. Parental style is defined as the attitudinal way of approaching the child as a raising method. In this study, Baumrind’s parental styles are used as a theoretical framework of the three family business cases. Is there something different in the approaches of the parents of the next generation members of the family businesses? The paper aims to give new views, for example, assessing family functions and solving the successor’s choice problem. Already in the 1960’s, David McClelland found out that a warm and supportive parental behaviour was related in the achievement orientation of the individual, and in that sense fostering the development of the entrepreneurial competence. Manfred Kets de Vries (1985) took a psychoanalytical perspective when investigating entrepreneurs, and he found out that the father-son relationship being weak, or the absence of the father, had an effect on the approaching autonomy of the son. The role of the outsider, especially as a mentor, appeared meaningful in the successor manager’s growth context (Tunkkari-Eskelinen 2005). The influence of one’s own father was so strong that the next generation became willing to feel free from the family context from time to time. Due to this appearance, the term ’business parenting’ was launched. This is similar to what is meant by Baumrind’s parental styles, which is a classical typology explaining the behaviour of the parents.
2. Parental styles There are original terms and definitions of Diana Baumrind’s theory from year 1967. The theoretical frame of the determinants in parental styles contains five main characters in the behaviour of the parents. These, as also themes for interviews in this study, are summarized as !
demandingness (number and types of demands made by a parent)
!
autonomy as a goal
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support the child’s needs
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amount of rules and
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discipline.
The definitions and characteristics of each parental style are shown here: “The authoritarian parent attempts to shape, control, and evaluate the behavior and attitudes of the child in accordance with a set standard of conduct, usually an absolute standard, theologically motivated and formulated by a higher authority. She [the parent] values obedience as a virtue and favors punitive, forceful measures to curb self-will at points where the child's actions or beliefs conflict with what she thinks is right conduct. She believes in keeping the child in his place, in restricting his autonomy, and in assigning household responsibilities in order to inculcate respect for work. She regards the preservation of order and traditional structure as a highly valued end in
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Minna Tunkkari-Eskelinen itself. She does not encourage verbal give and take, believing that the child should accept her word for what is right (p. 890).” According to Moscatelli & Rubini (2009, 342) “authoritarian parents demand obedience and conformity, and do not appreciate children’s autonomy and independency. They are low in responsiveness and support to the child, and favor punitive, forceful disciplinary measures over dialogue.” “The authoritative parent attempts to direct the child's activities but in a rational, issue-oriented manner. She [the parent] encourages verbal give and take, shares with the child the reasoning behind her policy, and solicits his objections when he refuses to conform. Both autonomous selfwill and disciplined conformity are valued. [She values both expressive and instrumental attributes, both autonomous self-will and disciplined conformity]. Therefore she exerts firm control at points of parent-child divergence, but does not hem the child in with restrictions. She enforces her own perspective as an adult, but recognizes the child's individual interests and special ways. The authoritative parent affirms the child's present qualities, but also sets standards for future conduct. She uses reason, power, and shaping by regime and reinforcement to achieve her objectives, and does not base her decisions on group consensus or the individual child's desires. [... but also does not regard herself as infallible, or divinely inspired.] (p. 891) [Note that portions in brackets are significant additions to the prototype in Baumrind (1967).] According to Moscatelli & Rubini (2009, 342) “authoritative parenting, characterized by high degrees of support and acceptance, continuous promotion of dialogue and discussion within the family, and also by clear expectations and behavioral norms ruling the child’s behavior.” “The permissive parent attempts to behave in a nonpunitive, acceptant and affirmative manner towards the child's impulses, desires, and actions. She [the parent] consults with him [the child] about policy decisions and gives explanations for family rules. She makes few demands for household responsibility and orderly behavior. She presents herself to the child as a resource for him to use as he wishes, not as an ideal for him to emulate, nor as an active agent responsible for shaping or altering his ongoing or future behavior. She allows the child to regulate his own activities as much as possible, avoids the exercise of control, and does not encourage him to obey externally defined standards. She attempts to use reason and manipulation, but not overt power to accomplish her ends (p. 889).” According to Moscatelli & Rubini (2009, 342) “indulgent (or permissive) parents are very responsive and adopt supportive behaviors towards their child; on the other hand, they give the child a high degree of freedom, do not fix many rules and do not promote discipline.” The following type of parental style was added to Baumrind’s classic typology later on. It is not considered as a frame in this study. “Neglectful (or indifferent) parents are very low in responsiveness and spend little time in interacting and dialoguing with their children; at the same time, they are low in demandingness and fail in providing behavioral standards and rules.” (Moscatelli & Rubini 2009, 342). There can be one pre-assumption in this study if the children are raised differently, based on the birth order. Eva Schmitt-Rodermund refers to the term ‘differential treatment through parents’ and ‘rates of achievement on the end of the children’ when talking about the birth order within one family (see also Zajonc, 2001). ”Over the past five decades, research on child rearing has identified the core dimensions of parenting style – warmth, strictness/supervision, and psychological autonomy granting”. Steinberg & Silk, 2002 (see also Silvia Moscatelli* and Monica Rubini) sees the authoritative style as psychologically wellbeing and the social growth of the youngsters. (to review, see also Steinberg 2001). IppolytiVassi, Alexandra Veltsista and ChryssaBakoula (2003) claim a family is a structured environment in which the parents are role models and effective sources for career decisions. Studies on family and the individual development state that the dynamics in the family of origin become a legacy that influence the future relationships of an individual, and individuals who surround them. In this way, these behavioural patterns are transmitted from generation to generation (Sabatelli&Bartleharing, 2003). This study neither focuses on career decisions strictly nor relationships between the siblings of the family. The parental style experienced in history and the role model of a parent at home that were realized afterwards are more relevant viewpoints in this study. Is there something different in the approaches of the parents of the next generation members of the family businesses? The paper aims to give new views, for example, assessing family functions and the solving successor’s choice problem.
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3. Methodology This study is qualitative and explorative in nature. All together, three case firms in the tourism and hospitality industry are involved in the project. Approximately 13 in-depth interviews have been conducted by the researcher. A varying amount of siblings was shown, since the structure of the family was different in each case. The empirical data was collected from those siblings who were involved with business operations, and the sibling excluded in the business operations was not interviewed. Both the mother and father told their stories. But the mothers could remember more examples than fathers about who typically worked a lot, compared to other family representatives. In a credibility matter, the stories of the parents were consistent with the offsprings’ examples. Furthermore, the interviewed family members described the parental style of their father quite the same as did the fathers in their stories. The most important background knowledge is collected through the following facts: the birth order of the children in one family, the age difference between the siblings, the amount of working experience in the firm/business, educational facts. These are the demographics that are evidenced as being meaningful in different parenting styles. The retrospective approach is present in this study. Memory trace is important to identify. One remembers one’s own experience in the past. It was possible to use categorizing as the analysis method and Baumrind’s concepts as a frame for categories. The most critical in the credibility matter is what is the age of the informants, and how many years have passed since the experienced parental approach and business management. It appeared to have an impact if the next generation members are already parents themselves. Interestingly, the informants reflected their own childhood experiences as effecting their current family practices and principles.
4. Case overview Next, each case family is presented shortly, and the successors’ quotations are focused in the examples due to the limited space in this paper. Business as an independent context seemed to be a second priority talk in this paper. All the firms run tourism service businesses and they are located in an urban rural area. Family firm A is still run by the parents in practice, and the second oldest sister out of three is given a lead of the business operations. The oldest sister considers joining the operations next to her sister later on, since she is still working elsewhere but suffering motivational issues. Due to this, she is studying in a Master’s level program. The youngest sister is unwilling to get involved in a business or a firm. In case B, there are four siblings all together. The three youngest daughters have decided to take over the business. They had clear roles, based on competences. The parents support them mentally, but both the father and mother had prior roles elsewhere from current business. The oldest sister wants to be excluded from the new business. In case C, only a male offspring took over the firm. His sister was 14 years younger and still at school when he decided to take over the firm. However, the sister performed some assistant work in a kitchen before her conflict with the successor’s wife. After this episode, she was not interested in family business and found work in a city centre. Later on, due to the divorce of her brother, she could join in business activities to some extent. The parents are primarily retired, but work as a helping hand for their son. The background of the families regarding the siblings seemed quite the same in each of the cases; there is an approximately 2-3 years age difference between the siblings. In all the cases, one sibling was excluded during the active succession process.
5. Results The question in this study was first “How have the founders as parents approached their offspring during their childhood and early adulthood?” The main goal is to find out whether the successor was raised differently from others. The analysis process contained five main topics by Baumrind theory to recover the parental style content.
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5.1 Demandingness Firstly, demandingness was interpreted through a question of how much the parents were asking for the children involvement in the daily family life. What type of demand was it in any circumstances? It was clearly the major focus in the data. In all the cases, the children were adopted into operative work early on, and they also worked as a sibling team whenever possible. They were allowed to do mostly what they felt convenient, for example, taking care of animals in a farm, cooking in a kitchen or growing one’s own plants. Work at home was shared among the siblings. Daughters in case A “We always needed to work or help the parents in their working processes.” Mother in case A: “They had their own space for growing vegetables and strawberries, and they sold them in the yard.” The second youngest daughter in case B: “I felt like doing even more working tasks outside in the yard that my father let me or ask me to do.” Money issues came out in each of the cases. The children reflected hard work requirements, and how you need to earn your money, i.e. they learnt to understand the meaning of money already during the childhood. It has helped them later on with their own family practices. Son in case C: “Nobody asked me to come to work at home, but I was always let in. And when you had your decision to help others, one needs to take responsibility for it. This is also a basis for trust in business nowadays. We were not treated differently from external employees. “ Daughters in case B: “If we wish to ride on horses, we needed to work on it more than just for fun.” Good behaviour was learnt through role modelling when the parents met customers or other stakeholder representatives. Habits, such as regarding elderly people as an authority, were required. In particular, fathers had high quality requirements for the hospitality of the visitors, and it has been regarded as a value ever since.
5.2 Autonomy Secondly, it was analyzed how much parents had control over the children? And was it similar with all of the siblings? Was someone allowed more freedom to act? In all the cases, one of the siblings had a totally different experience over the parental role in a family. Typically, the oldest daughter felt parental resistance from some activities at a young age. Somehow she was seen as the rebel one in the family, extending the way for the followers in a family. Mother in case B: “I did not mean to control them when they were out weekends. I felt that my role as a mother was to make sure they were safe. I could not sleep until they had come back home. Of course, they could stay with the friends, but I asked them to inform me.” Father B: Whenever they had not made their beds, I created an innovative way to show my disappointment. And they needed to make the beds in any case. One of the girls (oldest) was so rebellious that I needed to manage her twice.” Son in case C: “My parents never controlled my school involvement. This might be why I haven’t had a particular ambition towards school performance, and I luckily survived through high school and got a Diploma. I was always allowed to do what I wanted to do. It was not the same with my sister, who started studying the catering and food business –maybe because the parents recommended this course. My mother was very actively involved in the food industry and networks. “
5.3 Support Thirdly, what kind of needs have the siblings and, especially, the successors typically had during their business family life? How did the parents respond to them? In case A, there was a strong emphasis on gardening activities. The children were very interested in nature and living organics. They were allowed to establish own small yard of plants.
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Minna Tunkkari-Eskelinen In case B, more emphasis was paid on the daughters’ willingness to experience an international context. Most of the siblings were encouraged to go abroad as an au-pair or school exchange. In case C, the son wanted to work outside the family business and earn some more money. And he was always also welcome to join the family business operations.
5.4 Rules The fourth dimension concerned the issue of what kind of rules there were in the families? The rules in a business family were quite rare, if any, and if there were rules they linked to, for example, daily routines, a time line for coming back home from city activities and good habits within guests. Daughters: ”The first thing after we came back from school was to do our homework.” Daughter in case B: ”We needed to make up our beds, open the curtains every morning. Also at a dinner table, we had certain routines that cannot be skipped.” Son C: My mother also worked elsewhere, but she never let me be alone at home. This was her strong principle during my childhood.”
5.5 Discipline The fifth dimension referred to an intimate topic of sanctions or rewards in use. What kind of discipline was used amongst families in business? Any methods? Mother in case A: “The girls were not bad and this is why I did not feel comfortable to give any sanctions. I always discuss with them if some foolish behaviour appeared.” Mother in case B: “I had a very soft approach towards the daughters, totally different from the father.“ Son in case C: ”What do you mean by this, heh?” (when asking about discipline issues) To sum up the results here, there is one particular parental style which is shared by all the successors’ experiences. Furthermore, there was a different parental style and approach towards the offspring that did want to take over the firm. !
Case A successor representative experienced Permissive parenting. However, the other siblings faced more Authoritative parenting. This was evidenced by both the mother and all the daughters. According to Baumrind, authoritative parents make demands that fit with the children's ability to take responsibility for their own behaviour. This is shown in the quotations below: Mother: ”Once she was caught in making a mess with cakes at the table; eating only a part of it. Her face was covered with whipped cream…I could only laugh, but we went through the whole case why this was to happen –and why it was not acceptable.”
!
Case B: Following Baumrind’s typology, all three successors face Permissive parents. They appreciated family values and especially traditions. The control over the daughters was not present yet, since the business is in its first stage. However, the oldest sister, who was excluded in the succession case, faced Baumrind’s Authoritarian parenting in which style restrictions for autonomy and punishment activities appeared. Daughter(s): “Discipline in our family was held by our father. The oldest sister was the only one not interested in involvement in the family business. She was also the only one who challenged our father with bad behaviour.”…”In our case (three daughters), the father only needed to use a different voice and we knew that this was strict command by him. It wasn’t worth resistance.”…” I remember having one day without a bicycle.” But not that much else. A strict command was strong enough.“
!
Case C’s successor experienced Permissive parenting style in their childhood. The parents used Authoritarian style when trying to control his sister who was much younger than a son, and a sister did not want to take over a firm seriously. The controlling activities of the parents can be seen nowadays when they try to give up their entrepreneurial career, and they have retired years ago, but are still actively involved in catering operations. Son: “My job has always been with me here, around my family home. I took some initiative to work outside of the family business, and it was fine with my parents.”
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Minna Tunkkari-Eskelinen Family tradition and continuity were pointed out as the most obvious reason for taking over the firm. The daughters in case B: “Tradition, tradition and once again tradition. I couldn’t imagine some outsider owning the house and land of our family.” A similar voice of a male successor in case C: “Once my friend suggested me to invest first in order to show the better shape of the business, and then sell the facilities. I could not even think about it anymore, even though it has been a hard time economically.” It was shown in the data that family values played an important role in family experiences. The issues that came out constantly in each of the empirical cases were the feeling of togetherness and social community or binds of the family members. The offspring mainly appreciated older people and, therefore, also their own parents. Sanction activities in the family were hardly ever used. The basic nature of arguing was present in the dialogue between generation representatives. Emotions play a strong role in each of the cases –in both a negative and positive sense. Hard work and on the other hand possibilities for enjoyment were typical elements of family life experiences.
6. Conclusions Successors were approached by Baumrind’s Permissive parental style. Furthermore, successors as a sibling team focused on their personal competence, and following this principle, they were able to go towards a shared vision. There was no clear evidence when this vision already existed. The parents were using Authoritarian parenting towards the siblings that are not the first born. In the cases here, none of the first born siblings were interested in taking over the firm. Families in business treat their children differently, depending on the birth order. This is supported by several authors (see e.g. Zajonc, 2001; Schmitt-Rodermund 2007). Permissive style refers to the autonomy of the children. Autonomy from the family is an ideal case by the next generation member (see Tunkkari-Eskelinen 2005), and due to that reason, it is possible to see the family differently as a context. Autonomy is related to the parenting style. To combine the terms, it will be a challenge worth further investigation. In the talk of the family business context, it may not be possible to face pure autonomy. It is almost impossible to experience it because the presence of the previous generation, and giving up the firm is painful to the predecessor. This also came out in the study here. It is suggested that the parental style is meaningful, especially when it concerns the continuity of the business. Whenever the parents plan to make an intergenerational business transfer, it would be valuable to reflect one’s own behaviour towards the offspring. The study has contributed in the family business research field by exploring a new viewpoint (parental style) inside the business family system. It may help consultants choose the successor, together with the family members, with open discussion. It is shown here how valuable it is to first analyze how the successors were approached in the family before making the successor choice decision. A previous generation may understand behaviour patterns better when one is aware of the basis of the communication. Whether it is possible to set goals for the parental role already at the beginning of one’s childhood, it cannot say. Does the parents’ goaloriented treatment towards small children in a family have any meaning at the end? And can the entrepreneurial goals be achieved by conscious and controlled parental behaviour during one’s childhood? These are interesting topics in the future studies. Lumpkin, Martin and Vaughn (2008) conceptualized the family orientation framework on how individual perceptions of the family affect family business processes and outcomes. Similarly, this study adds value by explaining the motive or commitment level of the siblings in the family firm. It is important to already notify before succession planning how all the potential successors are and could be committed to the firm.
References Arum, R. and Müller, W. (Eds.) (2004) Reemergence of Self-Employment: A Comparative Study of Self-Employment Dynamics and Social Inequality. New Jersey: Princeton University Press. pp 1-35. Barach, J. A. and Ganitsky, J. B. (1995) “Successful Succession in Family Business”, Family Business Review 8:2, pp 131-155. Baumrind, D. (1978) Parental Disciplinary Patterns and Social Competence in Children. Youth and Society, 9, pp 238-276. Bigliardi, B. and Dormio, A. I. (2009) "Successful generational change in family business", Measuring Business Excellence, Vol 13 Issue 2, pp 44 – 50. Björnberg, Å. and Nicholson, N. (2007) “The Family Climate Scales-Development of a New Measure for Use in Family Business Research”, Family Business Review, Sep, 20, 3; pp 229-246.
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Minna Tunkkari-Eskelinen Claxton, R. P., Mc Intyre, R. P. and Wheatley, E. W. (1995) “Birth Order and Need for Cognition in Marketing Entrepreneurship”, Psychological Reports, October 1, 77, pp 626-628. Danes, S. M. and Olsson, P. D. (2003) “Women’s Role Involvement in Family Businesses, Business tensions and Business Success” Family Business Review, 16 (1), pp 53-68. Fairlie, R. and Robb, A (2009) "Gender differences in business performance: evidence from the Characteristics of Business Owners survey," Small Business Economics, Springer, vol 33(4), pp 375-395, December. Getz, D., Carlsen, J. and Morrison, A. (2004) The Family Business in Tourism and Hospitality. UK: Cromwell. Gersick, K. E., Davis, J. A. McCollom, H. M. and Lansberg, I. (1997) Generation to Generation: Life Cycles of the Family Businesses. Boston: Harvard Business School. Gilding, M., Gregory, S. & Cosson, B. (2015) “Motives and Outcomes in Family Business Succession Planning”, Entrepreneurship Theory & Practice, March, pp 299-312. Green, F. J., Han, L. and Marlow, S. (2013) “Like Mother, Like Daughter? Analyzing Maternal Influences Upon Women's Entrepreneurial Propensity”, Entrepreneurship Theory and Practice, Vol 37, Issue 4, July, pp 687–711. Handler, W.C. (1990) “Succession in Family Firms: A Mutual Role Adjustment between Entrepreneur and Next-Generation Family Members”, Entrepreneurship Theory and Practice, 15:1, pp 37-51. Ibrahim, A. B. and Ellis, W. H. (1994) Family Business Management: Concepts and Practice. Dubuque, Iowa: Kendall. Kets de Vries, M. (1996) Family Business Human Dilemmas in the Family Firm. London: Thompson. Koiranen, M. (2002) “Over 100 Years of Age but still Entrepreneurially Active in Business: Exploring the Values and Family Characteristics of Old Finnish Family Firms”, Family Business Review, Vol 15, Issue 3, pp 175–187. Lansberg, I. (1988) The Succession Conspiracy. Family Business Review, Vol 1, Issue 2 June, pp 119–143. Longenecker, J. and Schoen, J.E. (1978) Management Succession in the Family Business, Journal of Small Business Management 16:3, pp 1-6. Lumpkin, G. T., Martin, W. and Vaughn, M. 2008. Family Orientation: Individual-Level Influences on Family Firm Outcomes, Family Business Review vol 21, number 2 June, pp 127-138. Maccoby, E. E. and Martin, J. A. (1983) Socialization in the context of the family: Parent-child interaction. In P. H. Mussein and E. M. Hetherington (Eds.) Handbook on Child Psychology Vol 4: Socialization, Personality and Social Development, 4th edition, pp 1-101. New York: Wiley. Massis, A.D., Chua, J. H., and Chrisman, J. J. (2008) Factors Preventing Intra-Family Succession, Family Business Review; Jun 2008; 21, 2; pp 183-199. Mazzola, P., Marchisio, G. and Astrachan, J. (2008) “Strategic Planning in Family Business: A Powerful Developmental Tool for the Next Generation”, Family Business Review, Vol 21, Issue 3 September, pp 239–258. McClelland, David (1966) “Longitudinal Trends in the Relation of Thought to Action”, Journal of Consulting Psychology, 30, pp. 479-483. Miller, D., Steier, L., and Le Breton-Miller, I. (2003) “Lost in time: Intergenerational succession, change, and failure in family business”, Journal of Business Venturing, 18, pp 513–531. Morris, M. H., Williams, R.O. and Nel, D. (1996) Factors Influencing Family Business Succession, International Journal of Entrepreneurial Behaviour & Research 2:3, pp 68-81. Moscatelli, S. and Rubini, M. (2009) Parenting styles in adolescence: The role of warmth, strictness, and psychological autonomy granting in influencing collective self-esteem and expectations for the future. In Krause, P. H. and Dailey, T. M.(Eds.) Handbook of Parenting: Styles, Stresses & Strategies. Murray, B. (2003) The Succession Transition Process: A Longitudinal Perspective, Family Business Review 16:1, pp 17-33. Schmitt-Rodermund, E. (2007) The Long Way to Entrepreneurship: Personality, Parenting, Early Interests, and Competencies as Precursors for Entrepreneurial Activity among the ‘Termites’1 in (eds.) Rainer K. Silbereisen & Richard M. Lerner: Approaches to Positive Youth Development. Sharma, P., Chrisman, J.J., Pablo, A.L., and Chua, J.H. (2001) “Determinants of initial satisfaction with the succession process in family firms: A conceptual model”, Entrepreneurship Theory and Practice, 25, pp 17–35. Sharma, P., Chrisman, J. J. and Chua, J. H. (2003) “Succession Planning as Planned Behavior: Some Empirical Results”, Family Business Review 16:1, pp 1-15. Sharma, P. and Irving, P.G. (2005) “Four bases of family business successor commitment: Antecedents and consequences”, Entrepreneurship Theory and Practice, 29(1), pp 13–33. Stavrou, E. T. (1999) “Succession in Family Businesses. Exploring the Effects of Demographic Factors on Offspring Intentions to Join and Take Over the Business”, Journal of Small Business Management 37 (3), pp 43-61. Steinberg, L. (2001) “We Know Some Things: Parent–Adolescent Relationships in Retrospect and Prospect”, Journal of Research Adolescence, Vol 11, Issue 1 March 2001, pp 1–19. Storey, D. J. and Greene, F. J. (2010) Small business and entrepreneurship. Financial Times/Prentice Hall: Toronto. Tunkkari-Eskelinen, M. (2005) Mentored to feel free. Doctoral dissertation. University of Jyväskylä, Publication Series 44. Zajonc, R. B. (2001) Birth order debate resolved? American Psychologist, 56(6-7), pp 522-523. Vassi, I. Veltsista, A. and Bakoula, C. (2003) Report of the Task Force on the Family. Pediatrics, 111, pp 1541-71. Ward, J. (1987) Keeping the family business healthy: How to Plan for Continuing Growth, Profitability and Family Leadership. San Francisco: Jossey-Bass.
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Organizational Network Analysis of the Interplay Between Business Model Components Anna Ujwary-Gil Department of Management, Wyższa Szkoła Biznesu – National-Louis University, Poland
[email protected]
Abstract: The paper has both conceptual and empirical nature. The former is manifested in an attempt at applying the network approach to the analysis of interrelationship between components of a business model in companies involved in the European research project – Reinvent, which concerns the analysis of business models in small and medium-sized enterprises of the creative sector. Thus it is worth conducting an analysis of the relationships, influence, and importance of particular components of business models, applying basic prominence measures. In order to accomplish its goals and provide answers to the research questions posed in this paper, both visualization (graphic presentation of the relationship network between business model components) and quantitative measures allowing to measure prominence (closeness and centrality) of business model components have been used. Keywords: organizational network analysis, ONA, social network analysis, SNA, business model, components
1. Introduction The organizational network analysis (ONA) expands on a popular concept of the social network analysis (SNA), in which the main node is a human being, called an actor or an agent in the network. The analysis of business model components1 therefore not an element of the social network analysis, since business model components do not act intentionally. Thus, it is essential to differentiate between these two approaches, SNA, and ONA, which derive from each other. This mostly concerns techniques and measures used in SNA to measure the prominence of network nodes, to analyze their relationships and influence, which can be used in ONA. Another issue is theoretical background, in the case of SNA is sociology, which is not used in the analysis of the interrelationship of business model components. SNA has gained acceptance in such disperse fields of science, industries or services as: airline industry (Daft and Albers, 2013; Lange et al., 2015; Lohmann and Koo, 2013; Pearson et al., 2015; Pereira and Caetano, 2015), banking (Chen et al., 2014; DeYoung, 2005; Koehler, 2015), fashion industry (Haubro et al., 2015) (Lueg et al., 2015), tourism (Sotiriadis et al., 2015) and countless other areas. On the other hand, ONA usually takes the shape of a meta-network, which means it consists of not only actors but also resources, tasks, knowledge, and many other elements which may constitute network nodes (Li et al., 2014, 2015). Thus, ONA is an application of SNA in an organizational context as a descriptive and empirical and analytical method of mapping and measuring relationships between any selected network elements. Business models are generally viewed as a tool for describing the value creation, for the producer, the customer and an organization as a whole (Beattie and Smith, 2013; McNamara et al., 2013; Sanchez and Ricart, 2010). A vital issue emerging out of management of contemporary organizations is how to design a business model favorable to value creation (see the special issue on Business Model Innovation edited by Freiling, 2015: Straker and Wrigley, 2015; Harima and Vemuri, 2015; Müller and Vorbach, 2015; Günzel-Jensen and Holm, 2015; Jokela and Elo, 2015; Balboni and Bortoluzzi, 2015). Such models are a specific combination of tangible assets and intellectual capital aimed at accomplishing a strategy of value growth appropriate for a particular market situation. The concepts of business model and intellectual capital of a company dates back to 1990’s. It is notable that for past twenty years there have been few publications analyzing the influence of intellectual capital on creation, operation or innovativeness of business models . The concept of a business model has not been widely reflected in writings on management and measurement of intellectual capital in a company, either. However, within these two concepts there are many overlapping areas of analysis, such as value creation, added value, competitive edge, skills, competencies, tangible and intangible assets or dynamics of relationships between them. Furthermore, many business model components are similar to intellectual capital components. This 1 A component in a business model has a totally different meaning than a component in the social network analysis (SNA). A component in business models is treated as its element (for example, this can be: value proposition, financial model, client segments and many others), which becomes an object of management. In SNA a component is considered a minimal requirement for a coherent sub-group. Here a component consists of a sub-group of individuals, where all individuals are linked with each other by means of at least one path (Prell, 2012, p.153).
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Anna Ujwary-Gil research focuses on assessing the relative influence of business model components on each other, thus filling a gap in the literature related to the dynamic relationships and business model components.
2. Research questions and methodology Within the concept of a company’s business model, we used the SNA (e.g. Borgatti et al., 2013; Prell, 2012) in order to identify key components allowing us to control and manage a business model, simultaneously indicating its most important and influential factors. Thus, the analysis of the network of relations between business model components does not relate to a classical social network analysis per se. We used here the analysis of social networks in a new context – analysis of cause and effect ties and dependencies between components (resources), not actors, as the main network nodes. For this analysis, a business model is defined as the relationships between various resources and activities used by an enterprise to generate a value proposition for customers. The configuration of these resources and activities creates a business model. The taxonomy of business model components adopted includes the following: content (the value proposition); structure, activities and processes; human capital; partners and channels; customers. The work was divided into the following stages: !
We determined the taxonomy of a business model.
!
We identified key components of business models in companies selected for research.
!
We used the social networks analysis in order to visualize the dynamics of ties and significance of the analyzed factors in a given network.
Within the organizational network analysis, our goal was to visualize the components of a business model in the form of a graph covering networks of relations as well as to quantify the most important measurements determining significance and influence of particular components on a business model. For the purpose of such analyses, components (resources and activities) of a business model contained in Table 1 become nodes while links are constituted by the relationship and dependencies between particular components of a business model. Three companies took part in our research, their components (resources and activities) are listed below: Table 1: Taxonomy of business model components Companies Business model taxonomy Content (what is the value proposition) Structure, activities and processes Partners and channels
Customers Human capital
ID
ST
VA
Product and service sales Direct sales R&D
Design concept
Design Intellectual property Personal meetings Project acquisition Emails/telephones
Co-creation Used-based research Office Equipment Industry partners Networking Social capital Producers
Personal contacts Investors Universities Freelancers Technical universities Hardware suppliers Education and public Universities Technical universities Corporate Staff
Large businesses City/community
Other professionals
Public sector customers Private sector customer Users Human resources
ID, ST, VA = companies. The calculations and presentations included in this paper use one of the programs for social network analyses, known as Organizational Risk Analyzer (ORA). The program is used by scientists all over the world (e.g. Effken et al., 2013; Effken et al., 2011, Merrill et al., 2007; McCulloh, et al., 2012; Everton, 2013). ORA was developed by Kathleen Carley at the Center for Computational Analysis of Social and Organizational Systems (CASOS). We dichotomized data obtained within the sensitivity model (see other research of Ujwary-Gil, 2016 and UjwaryGil, Candi 2014) to a binary shape: 0 and 1, where the value of 0 on a three-grade scale corresponds to lack of influence (0), whereas 1 and 2 take the value of 1 – there is influence. The aim of the graphic presentation is to
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Anna Ujwary-Gil identify and analyze possible relations between components, identified as key ones for the operations of a business model. Networks are asymmetrical whereas relationships are non-reciprocated. Such analysis, based on quantitative measures used in the social network analysis (SNA), will allow us to diagnose the model dynamics. For the purposes of this analysis we applied two measures of influence exerted by components: !
Closeness centrality, out-closeness ݀݅ ݐݏൌ ݀ீ ሺݒǡ ݅ሻ א
Let: G = (V,E) be a representation of matrix and א ݒV Where: ݀ீ ሺݒǡ ݅ሻ ൌ ȁܸȁ If: i is unobtainable with z v, then: ݒൌ ሺȁݒȁ-ͳሻȀ݀݅ݐݏ
Closeness centrality stands for the average closeness of a node to other nodes in the network. Closeness is an opposite of average distance between a node and all other nodes in the network. It determines which node occupies a central position in a network of relations. According to Freeman (1979), this measure allows us to examine the resistance of an individual to influence and its ability to influence others. In our examination, this measure will denote direct influence exerted by a particular component on other components through the closeness of a given component to others in the network. !
In-degree centrality
ͳ
ൌ ሺǡ ሻ ݉ ୀଵ
It determines the number of in-coming relations received by a node from other nodes. For the needs of our analysis, the goal is to identify a node that is not strongly influenced by other factors. Therefore the number of influences on particular nodes (factors) should be low. It determines the influence of direct relations, interpreted as a possibility of being directly influenced. Looking at it from a different perspective, it is also a measure of significance that a particular component has in a given network. The position of business model components in the network and their centrality determine their significance and influence in the network (McCulloh, et al., 2013). The above measures will provide the answers to the following questions: !
Which component is characterized by the high centrality of the node? Which component has the greatest significance and is most critical? (in-degree centrality)
!
Which component shows a high value of closeness centrality indicator and how influential is it in a network of relations? (closeness centrality)
!
How do the components of business models influence each other?
3. Data analysis An important stage in our analysis is a visualization of components (resources) and determining the dynamics of their relations. Figures: 1,2,32 present relations between components in the analyzed companies. However, in order to correctly interpret the significance of components, it is necessary to conduct a quantitative analysis based on subject measures from the social network analysis. In our research, these are, closeness centrality and in-degree centrality (see Table 2).
2 A thinner line in drawings symbolizes rank 1, a thicker line – rank 2 (on a three-degree scale defined in Research question and methodology).
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Anna Ujwary-Gil
Figure 1: Visualization of company ID network of components
Figure 2: Visualization of company ST network of components
Figure 3: Visualization of company VA network of components
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Anna Ujwary-Gil For company ID, the components which have the biggest influence on other components in the network are investors and universities, for which the closeness centrality indicator was in both cases 0.688. The higher this coefficient, the more dominant position is occupied by a given node in the network. A slightly lower value (0.647) was achieved by personal contacts. On the other hand, the highest value of in-degree centrality coefficient was observed in the product & service sales component (0.818), related to all remaining eleven components by incoming relations. Thus, we can consider it the key component here. The components that are least susceptible to the influence of other components in the business model of this company are hardware supplier (0.045) and technical university (0.227). In company ST, the most influential components are equipment and large businesses (0.6875), the most significant one – large businesses (0.909). Finally, company VA has the lowest values of coefficients, which means that none of them, in fact, can be considered the most influential one. Two components hold the same position: other professionals and e-mails/telephone (0.346). The most significant component is design (0.889), the least susceptible to influence are e-mail/telephone and intellectual property (0.222). Table 2: Scaled centrality measures Components of business model technical university hardware suppliers investors R&D product & service sales personal contacts staff freelancers direct sales corporate education & public universities MIN MAX AVG STDDEV GINICOEFFICIENT HERFINDAHL -INDEX BRILLOUININDEX MIN/MAX NODE
Closeness
ID
0.579 0.478 0.688 0.524 0.478 0.647 0.423 0.393 0.478 0.524 0.579 0.688 0.393 0.688 0.540 0.094 0.098 0.003 0.806 freelancers / investors, universities
Degree 0.227 0.045 0.545 0.727 0.818 0.591 0.636 0.455 0.591 0.545 0.682 0.455 0.045 0.818 0.527 0.205 0.207 0.014 0.896 hardwar e suppliers / product & service sales
Components of business model producers industry partners design concept user-based research human capital
Closeness 0.611
0.524 0.550 0.579 0.524 0.6875*
social capital
0.550
co-creation
0.597 0.611
office large businesses city / community MIN MAX AVG STDDEV GINICOEFFICIENT HERFINDAHL -INDEX BRILLOUININDEX MIN/MAX NODE
Degree 0.455 0.818
equipment
networking
ST
0.818 0.682 0.864 0.409 0.682 0.682 0.864
0.597
0.500
0.6875*
0.9091
0.647
0.864
0.524 0.688 0.594 0.054 0.051
0.409 0.909 0.712 0.167 0.129
0.001
0.005
0.772
0.786
industry partners, human capital/ equipmen t, large businesses
ID, ST, VA = companies.
840
equipment / large businesses
Components of business model users other professional s design project acquisition public sector customers private sector customers personal meetings emails / telephone human resources intellectual property
MIN MAX AVG STDDEV GINICOEFFICIENT HERFINDAHL -INDEX BRILLOUININDEX MIN/MAX NODE
Closeness
VA
Degree
0.250
0.556
0.3462*
0.667
0.250
0.8889*
0.250
0.583
0.300 0.281 0.281 0.3462* 0.265 0.281
0.556 0.500 0.722 0.222 0.611 0.222
0.250 0.346 0.285 0.034 0.064
0.222 0.889 0.553 0.195 0.190
0.002
0.014
0.717
0.908
users, design, project acquisition/ other professional s, emails, telephone
emails, telephone, intellectual property/des ign
Anna Ujwary-Gil Centralization at the network level measures potentially prominent nodes in the network (Table 3). If the index equals 0, it means that no node has a dominant position in the network. 1 – only one node dominates over others. In the context of in-degree centralization measure, there is no risk of network fragmentation. As a result of removing the node with the highest value of this coefficient, no node is tied by in-coming relations with all other nodes in the network. Similarly, in the case of closeness centralization, in the analyzed networks, there is no node with more centralized position than other nodes. Table 3: Centralization and centrality at the level of network and node Measure Network-level measure: Count, Colum, node, and row Network centralization, Closeness Network centralization, In-degree
ID
ST
VA
12 0.338 0.318
12 0.214 0.215
10 0.144 0.373
Node-level measure: Average closeness centrality Average in-degree centrality
0.540 0.527
0.594 0.712
0.285 0.553
ID, ST, VA = companies. Thus, less variation yields lower network centralization scores. In general, the smaller a centralization index is, the more likely is that there is no single dominant node in the network. The average closeness for the ID and ST network are 0.540 and 0.594, and are greater than the VA network at 0.285, once again indicating that there is little evidence of one dominant node. The nodes in these networks have different closeness and in-degree centralities measure (the highest, however, is 0.712 in ST company) as can be seen in details in the Average and Min/Max columns.
4. Concluding discussion The main purpose of our research was to indicate the most influential and important components of particular business models. The method applied here was to point out the components which should be of a primary focus for management staff. From the first perspective, it seems that the scores differ. The social network analysis demonstrated that investors and universities components are the most influential ones, while product & service sales are the most significant one. In the business model of company ST large businesses prevail. The design turned out to be an important component. Table 4 presents only those components which had the highest value ascribed to them. Table 4: Importance and influence of business model components Components of business model Most influential Most important
ID
ST
VA
Investors, universities
Equipment Large businesses
Other professionals Email/telephone
Product & service sales
Large businesses
Design
ID, ST, VA = companies. The article presented the main issues of the business model. It emphasized the problem of value and its creation as presented in these concepts. It is worth emphasizing that the measurement and operationalization of a business model is a wider issue, especially as the decision on what is to be measured. Therefore, the approach presented here may constitute an important supplementation of measurement methodology and assessment of the dynamics of ties between components in a business model.
5. Limitations and future research Obviously, we need to take into account various algorithms of component evaluation used in SNA, as well as different measurement scales. Above all, SNA generally does not take into account qualitative data which has to be dichotomized into the binary form (0;1) to make calculations. A closer look at network visualization of components (Figures 1, 2 and 3) indicates that in the business model of company ID, investors and universities are directly related to product & service sales with reciprocal ties. On the other hand, in company ST, the
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Anna Ujwary-Gil reciprocal relationship is observed between equipment and large businesses and producers, while in VA – between other professionals and design. It is worth emphasizing that we used classical measurement indicators, such as centrality closeness and in-degree centrality, which do not make the analysis complete. We can also take into account components with indirect, though significant, influence. For this purpose, we could use the betweenness centrality indicator. Although the research focused on business models and their components, we should not forget that we could apply it to intellectual capital, whose elements and their dynamics may analogically be analyzed and interpreted. The research perspective may also be directed onto examining the influence of a business model on intellectual capital, where differentiation of value-creating activities, such as development of distribution channels, human resources, or intellectual property protection cause changes in intellectual capital accumulation. Another research may concern the problem of creating intellectual capital and learning how dynamics of changes, relations and ties between elements of this capital influence the current business model of an enterprise. On the other hand, the business model itself may be an element of a structural capital as legally protected intellectual property. These issues deserve closer examination, as they may inspire scientists to further research in this area and discover its utilitarian nature. Currently, the dynamics of changes and ties between components of intellectual capital and a business model may be measured by the social network analysis.
Acknowledgements The project was financed by the Marie Curie Industry-Academia Partnerships and Pathways Programme (IAPP) - project number 324448, and partly by the National Science Center on the basis of decision number DEC2012/05/D/HS4/01338.
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Anna Ujwary-Gil Li, Y., Qian, L., He, Q. and Duan, Y. (2014), “Meta-network Based Fitness Measurement of Projects Organization and Tasks Assignment”, in Wang, J., Ding, Z., Zou, L. and Zuo, J. (Eds.), Proceedings of the 17th International Symposium on Advancement of Construction Management and Real Estate, Springer Berlin Heidelberg, Berlin, Heidelberg, pp. 643– 655. Lohmann, G. and Koo, T.T.R. (2013), “The airline business model spectrum”, Journal of Air Transport Management, Vol. 31, pp. 7–9. Lueg, R., Pedersen, M.M. and Clemmensen, S.N. (2015), “The Role of Corporate Sustainability in a Low-Cost Business Model - A Case Study in the Scandinavian Fashion Industry”, Business Strategy and the Environment, Vol. 24 No. 5, pp. 344– 359. McCulloh, I., Armstrong, H., Johnson, A. (2013), Social Network Analysis with Applications, Wiley. Merrill, J., Bakken, S., Rockoff, M. (2007), "Description of a method to support public health information management: organizational network analysis", Journal of Biomedical Informatics, Vol. 40 No. 4, pp. 422-428. Müller, C., Vorbach, S.(2015), "Enabling Business Model Change: Evidence from High Technology Firms", Journal of Entrepreneurship, Management and Innovation, Vol. 11 No. 1, pp. 53-76. McNamara, P., Peck, S.I. and Sasson, A. (2013), “Competing Business Models, Value Creation and Appropriation in English Football”, Long Range Planning, Vol. 46 No. 6, pp. 475–487. Pearson, J., Pitfield, D. and Ryley, T. (2015), “Intangible resources of competitive advantage: Analysis of 49 Asian airlines across three business models”, Journal of Air Transport Management, Vol. 47, pp. 179–189. Pereira, B.A. and Caetano, M. (2015), “A conceptual business model framework applied to air transport”, Journal of Air Transport Management, Vol. 44–45, pp. 70–76. Prell, C. (2012), Social Network Analysis: History, Theory and Methodology, SAGE. Sanchez, P. and Ricart, J.E. (2010), “Business model innovation and sources of value creation in low-income markets”, European Management Review, Vol. 7 No. 3, pp. 138–154. Sotiriadis, M., Loedolff, C. and Sarmaniotis, C. (2015), Tourism E-Mediaries: Business Models and Relationships with Providers of Tourism Services, edited by Gursoy, D., Saayman, M. and Sotiriadis, M. Straker, K., Wrigley, C. (2015), "The Role of Emotion in Product, Service and Business Model Design", Journal of Entrepreneurship, Management and Innovation, Vol. 11 No. 1, pp. 11-28. Ujwary-Gil, A., "Wykorzystanie SNA w analizie powiązań komponentów modelu biznesu", Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu (in print). Ujwary-Gil, A., Candi, M., Analyzing business model components using the sensitivity model [in:] Ujwary-Gil A. Nalepka A. (eds.), Business and Non-Profit Organizations Facing Increased Competition and Growing Customers’ Demands, Volume 13, WSB-NLU, Nowy Sącz 2014, pp. 84-102.
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The Study of Successful Entrepreneurs (The Case of a Province in Iran) Younos Vakil Alroaia and Roja Asgar Department of Management, Semnan Branch, Islamic Azad University, Iran
[email protected]
Abstract: The purpose of this study is to identify the effective factors on the success of entrepreneurs, and its impact on the development of the production section. Although, various researches have already been conducted on this issue, but there have been no vital parameters with specific degree of effectiveness found on a network of factors so far. In this research, the population is all of the production sector in Semnan Province. By using Delphi method and commends of the experts’ eight main Indicators selected from GEM were recognized. Then, a sample size of 100 active firms was determined. Then, Structural equation modeling (SEM) was used to study the effect of independent variables of entrepreneurial activities and entrepreneurial perceptions between 2012 until 2015. The Analytical Hierarchy Process (AHP) has been employed to calculate the success potential of each entrepreneurs. The finding indicates that the factors to selection best alternatives of GEM Indices from eight critical factors among the most important factors in this category are “Entrepreneurial Intention, Early-Stage Entrepreneur. The preference orders are; Entrepreneurial Intention, Early Stage Entrepreneurship, New Business, Fear of Failure, Nascent Business, Perceived Capability, Established Entrepreneurship, Perceived Opportunity. Keywords: entrepreneurship, entrepreneurial development, successful entrepreneur, entrepreneurial activities
1. Introduction For more than half a century, entrepreneurship as a scientific issue has received considerable attention from well-known universities like Harvard, policy makers of international organizations like International Labor Organization (ILO) and World Bank. In recent years, entrepreneurship development in countries like Iran requires systematic research studies. However, such an endeavor needs to be taken in the light of global indices and standards so that we are able to have a clear picture of entrepreneurial activities in Iran and make a comparison with the least and the most developed countries in the realm of entrepreneurship. Global Entrepreneurship Monitor (GEM), which is the pioneer of defining and designing global research indices and data in the area of entrepreneurship, presents entrepreneurial activities among its member countries through the publication of global reports (Bosma & et al, 2007). In 1997, GEM was launched with the cooperation of outstanding university students from England, United States, Finland, Ireland, Babson College, Business School of London, and with the strong support of Coffman entrepreneurship institution. The aim of the research project of GEM is annual estimation of entrepreneurial activities and perceptions for individual countries. Generally, the unique ability of GEM in providing the vision of a country’s entrepreneurship in the international level has turned its information into an important source for serious attempts to study and scrutinize global entrepreneurial behavior. The information presents a comprehensive collection of criteria for multi-faceted description of a country’s entrepreneurial behavior. GEM research measures not only early-stage entrepreneurial activities, but also the index of established business owners, who are the ones that are at least 42 months old and have been paid wages. In fact, their business has passed the dangerous stage of entrepreneurship process. We can learn a lot of things by comparing nascent and established businesses (Zali, 2007). Entrepreneurial activities are the ones which are related to launching or managing a new business which can be done by oneself or with the help of others. The definition of the concept of opportunism in entrepreneurship science is totally different from that in literature. For example, Kerzener (1973) believes that opportunities are like paper money spreading over the sidewalk which are expecting a watchful person to pick them up. In contrast, Schumpeter (1942) claims that opportunities need a lot of investment to be exploited and commitment to their exploitation can only be found in the most organized minds. Casson and Wadeson (2007) in Hike’s research (1945) reflected the concept of opportunity is in localized knowledge of market factors in competitive prices, which is a symptom of relevant shortage, as well as how they change from place to place and time to time. Casson (1982) believes that entrepreneurial opportunities are the ones that are used for making new goods, giving new services, providing raw materials, and designing new organizing ways, all of which make it possible for the output to be sold with a price higher than that of the production. From Krouger’s (2006) perspective, opportunity is a condition which by itself will be considered desirable and possible for future decision makers. Venkatraraman (2002) defines opportunity as an idea or
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Younos Vakil Alroaia and Roja Asgar innovation which will lead to financial gains and believes that their achievement depends on the appropriateness of conditions and activities which make the results practical through financial artifacts. Timmons (1999) states that “in fact, opportunities constitute a process which is like particles clash in an atomic reaction or the reproduction of the fish in an ocean after the hurricane." Ideas coincide in the world of reality and as a result of entrepreneurial innovation and lead to an opportunity. Timmons believes that an opportunity must be attractive and on time, and create added value for buyer or consumer (Dellabaraca, 2002). Entrepreneurial perception involves perceived entrepreneurial capabilities, i.e. people’s perception of their own knowledge and experience to launch a business (Bosma& et al, 2008). Human beings always act based on their perception of reality, rather than reality itself. In fact, they look at the world from their own perspective. If a person thinks that s/he can start a business or recognize an opportunity, s/he has the ability to do it in practice. That’s why it is said that if you think that you can or you cannot, most probably you are right. Therefore, a person’s behavior, performance, and perspective are under the influence of their perceptions. It is due to this reason that perceiving individual capabilities and recognizing entrepreneurial opportunities is a completely perceptional topic. In other words, what is important is people’s understanding of their abilities rather than their abilities themselves. It might happen that people do not have the capability to perform a job, but they think that they are able to recognize an entrepreneurial opportunity (even if there is no real opportunity). Anyway, the more negative is the perception people have of their own abilities, the less intensive would be their entrepreneurial activities. With respect to entrepreneurship, individual perceptions can be classified into the following categories: perceived capabilities, perceived opportunities, fear of failure, and entrepreneurial intention (Zali, 2008). Of course, these individual perceptions are greatly influenced by the entrepreneurial atmosphere which is dominant in business. More precisely, in a suitable business environment, individuals can know their capabilities in a better way and recognize good entrepreneurial opportunities which lead to the formation of potential entrepreneurial activities (GEM, 2007). As Wennekers (2005) states, the evaluation of “opportunity costs” is a variable which moderates the possibility of the conversion of potential entrepreneurs’ activities into entrepreneurial intention rate. In other words, he thinks that if entrepreneurship is an attractive option for individuals, they develop entrepreneurial intention which finally ends up in entrepreneurial activities. Therefore, the aim of this study is to find out empirically at making a comparative investigation of entrepreneurship in Iran and countries of global entrepreneurship monitor. In this case, the next section explains the theoretical framework of the study and methodology used in measuring entrepreneurship. The forth section finds out the decision-making processing entrepreneurship in Iran and countries. The last section is the conclusion.
2. Theoretical framework of the study This study focuses on comparing entrepreneurship condition in Iran with that in GEM countries. In this regard, a conceptual model has been developed which demonstrates the relationship between latent and observed variables. In this model, the relationship between the latent variables of entrepreneurial perceptions and entrepreneurial activities has been investigated. In the case of the first variable (i.e. entrepreneurial perceptions), the observed variables are nascent entrepreneurship, early-stage entrepreneurship, new business ownership, and established business ownership. In contrast, in the case of the second one (i.e., entrepreneurial activities), observed variables are perceived opportunities, perceived capabilities, entrepreneurial intention, and fear of failure.
3. Methodology With respect to the aim, this study is classified as an applied research and, with the consideration of methodology; it is categorized as a co-relational one. The information obtained from global entrepreneurship monitor constituted the data for the study. Also, structural equation modeling (SEM) were used for data analysis. The sample included all the countries which are the members of GEM; it included Iran and 22 OECD countries. Entrepreneurial perceptions variables which have been introduced by GEM and have been recognized as international indices include: Nascent entrepreneurship rate, New business ownership rate, Established business ownership rate, Early-stage entrepreneurial activity (TEA) (GEM,2010) and entrepreneurial activities variables which have been introduced by GEM and have been recognized as international indices include: Perceived opportunities, Perceived capabilities, Entrepreneurial intention, Fear of failure rate (GEM,2009).
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Younos Vakil Alroaia and Roja Asgar In this article Structural equation modeling was used to study the effect of independent variables of entrepreneurial activities and entrepreneurial perceptions between 2008 until 2010 Structural equation modeling is a comprehensive statistical method for testing hypotheses about the relation between observed and latent variables and is usually known as covariance SME, causal modeling, and LISREL; (Human,2005). There are at least for reasons for its wide use: first, researchers have become more conscious about the need to use multiple observed variables for better understanding of their scientific, research based area; second, researchers are paying more attention to the importance of the validity and reliability of the scores obtained through measurement instruments; third, in the last thirty years, SEM has been able to analyze more advanced conceptual structural models; finally, SEM software are increasingly becoming user friendly (Richard,2009). Confirmatory factor model is plotted in Figure 1 and included 8 Measurement equation in the model like this: Nascent entrepreneurship rate = function of Entrepreneurial perceptions + e1 New business ownership rate = function of Entrepreneurial perceptions + e 2 Established business ownership rate = function of Entrepreneurial perceptions +e3 Early-stage entrepreneurial activity = function of Entrepreneurial perceptions + e 4 Perceived opportunities = function of entrepreneurial activities + d 1 Perceived capabilities = function of entrepreneurial activities + d2 Entrepreneurial intention = function of entrepreneurial activities + d 3 Fear of failure rate = function of entrepreneurial activities + d 4 Most experts suggest that to increase the accuracy of the study, it is better used several criteria for evaluating the model, to comparison economic and the models. The formula to calculate the Root Mean Square error of Approximation( RMSEA), Comparative Fit Index(CFI), Adjusted goodness of fit index(GFI) and normed fit index (NFI) IS: GFI= 1- (χ2m / χ2n) NFI= (χ2n - χ2m)/ χ2n CFI= 1- [ (χ2n – dfm)/( χ2n / dfn) – 1] RMSEA= √[ χ2m- dfm] / (N – 1) dfm] Then, the Fuzzy Analytical Hierarchical Process (FAHP) was used to rank of the factor selected as the best from a set of different indices. Hence, in this section, the briefly review the technique that we make in our study to identify the best indices of entrepreneurial activities. Fuzzy Analytical Hierarchical Process: The AHP generates relative ratio scales of measurement. The measurements of a set of objects on a standard scale can be converted to relative scale measurements through normalization (Saaty, 1992). The definitions of the criteria and hierarchy are shown in figure 1. As a result, each line of hierarchical levels in AHP uses paired comparative judgments and algebraic matrix for identification and estimation relative priorities from the criteria and options (Saaty, 1992)
Figure 1: Hierarchical structure of AHP AHP is not able to calculate uncertainty in the time of problem evaluation and solution. To solve these problems, the extended model of AHP, i.e. Fuzzy Analysis of Hierarchical Process (FAHP) has been suggested. This method first, transforms inaccurate and vague concepts and variable in to mathematical form and then it prepares grounds for reasoning and decision making in uncertainty condition. FAHP using Fuzzy scales with high, medium and low values resolves more efficiently the problem of ambiguous and unclear decisions (Seongkon et al, 2010). Fuzzy numbers are made of membership and sets functions of the used Fuzzy in FAHP weights using AHP ninepoint scale. Although FAHP needs heavy computational process, it is more systematic than other MCDM
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Younos Vakil Alroaia and Roja Asgar methods. FAHP takes possession of paired comparisons of options, criteria, ambiguity and unclearness of human assessments. For paired comparison of Fuzzy scales, Table 1 has been used. Table 1: Trilateral Fuzzy numbers Linguistic variables Identical / similar Few / little Much Very much Completely
Trilateral Fuzzy numbers (1, 1, 1) (2.3, 1, 3.2) (3.2, 2, 5.2) (5.2, 3, 7.2) (7.2, 4, 9.2)
Membership degree [μ(x)]
Figure 2: Transformation of lingual words into Fuzzy numbers The used phases for FAHP are as follows: First step: formation of paired comparisons combinatory matrix ݆݅ܧൌ
ଵ
ൈ ሺܧଵ ݆݅ ܧଶ ݆݅ ڮ ݆݅ܧ
(1)
Eij is general assessment of individual I in terms of j-index and m is number of evaluators. Second step: for each line of paired comparisons matrix, value of S k which itself is a triangular number is calculated as follows:
(2) In which, k indicates the line’s number and I and j, respectively, represent options and indices. Third step: calculation of Sks magnitude degree relative to each other. ݒሺ ͳܯ ʹܯሻ ൌ ͳ݂݅ͳ ʹ ൝ݒሺ ͳܯ ʹܯሻ ൌ ݄݃ݐሺʹܯ ת ͳܯሻ (3)
Also, we have:
(4) Magnitude of triangular Fuzzy number from k other triangular Fuzzy numbers is obtained from the below relation: (5) Fourth step: calculation of indices’ weight in paired comparison matrix Fifth step: obtaining abnormal weight ሺ௫ሻ
◌َ ݓ
ൌ ݊݅ܯቄ߭ሺݏଵ ݏ ሻቅ ǡ݇ ൌ ͳǡ ʹǡ ǥ ǡ ݊ǡ݇ ് ݅ 847
(6)
Younos Vakil Alroaia and Roja Asgar Normalization of abnormal coefficients vector (W’) in order to obtain weights’ normal vector (Lee et al, 2007; Lee et al, 2009). ◌َ ݓൌ ቂ◌َ ݓሺܿଵ ሻǡ ܹ َ◌ሺܿଶ ሻ ǥ Ǥ َ◌ሺܥ ሻቃ (7)
Sixth step: calculation of incompatibility degree A. First, we de-Fuzzy the paired comparisons table through method of Area Center. ሺܿ െ ܽሻ ሺܾ െ ܽሻ ܣܥൌ ܽ ͵ B. Multiplication of De-Fuzzy matrix by vector of relative weights WSV = D X W
C. Calculation of compatibility vector (CV): quotient of WSV on vector of indices’ relative weights D. calculation of λ max: arithmetic mean of compatible vector’s elements E. Incompatibility index (II) and compatibility rate (IR) are calculated as follows: II =
ఒ௫
IR =
ିଵ
ூூ
ூோூ
F. According to Mehregan (2006) random incompatibility indexes have been identified with the following numbers: Table 2. Random incompatibility index n IRI
1 0
2 0
3 0.58
4 0.9
5 1.12
6 1.24
7 1.35
8 1.41
9 1.45
10 1.49
11 1.51
12 1.48
13 1.59
In incompatibility rate is less than or equal to 0.10 (IR ≤ 0.10), there is compatibility in paired comparisons and we can continue the work. Otherwise, decision maker should reconsider the pared comparisons.
4. Empirical results Based on the interpretations and the statement of competitive advantages of the enhancement of entrepreneurial perceptions, one can conclude that more than the any other time, the world’s countries are in need of educations about entrepreneurial perceptions as a factor which enhances entrepreneurial activities. Analysis of the survey data is classified into two categories: First, descriptive information about the respondents to the questionnaire in terms of gender, age, educational level has been studied. Second, inferred research information that is achieved from the results of a distributed questionnaire andits translation. In addition, the techniques used in this article are: Structural Equation Modeling (SEM) and FHAP. Structural equation modeling is in fact a model for drawing the relationship between variables. Its basic aim is providing a ground for quantitative analysis of conceptual models. The present study has used data from GEM; countries’ data on entrepreneurial activities and perceptions in 2008, 2009, and 2010 was collected. The basic hypothesis is that there is a relationship between entrepreneurial activities and perceptions. Table 3 demonstrates the average rate of entrepreneurial activity and perceptions of the GEM Members’ from 2008 until 2010. Table 3: The average rate of entrepreneurial activity and perceptions from 2008 – 2010
number
country
1 2 3 4
Germany Spain Slovenia Uk
Entrepreneurial perceptions Establishe EarlyNascent stage d business entrepren ownershi entrepren eurship p rate eurial rate activity 4.93 7.73 5.36 6.16
4.03 2.93 2.3 3.13
2.36 2.6 3.16 3
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New busin ess owne rship rate 1.8 2.93 2.3 3.13
entrepreneurial activities Entre Fear Perce Perceive d pren of ived euria failur capa opportu l nities e bilitie rate inten s tion 5.13 39.9 28.5 28.23 4.93 44.46 22.26 43.56 8.56 30.1 36.93 41.9 4.7 33.43 31.4 49
Younos Vakil Alroaia and Roja Asgar
number
country
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
United states Italy Iran Ireland Iceland Belgium Turkey Denmark Japan Switzerland Chile France Finland Korea Hungary Mexico Netherland s Norway Egypt
Entrepreneurial perceptions Establishe EarlyNascent d business entrepren stage entrepren ownershi eurship p rate eurial rate activity
entrepreneurial activities Entre Fear Perce Perceive pren of ived d opportu euria failur capa l nities e bilitie inten s rate tion 7.23 27.23 35.6 49.8
7.3
3.63
5.2
New busin ess owne rship rate 3.63
5.33 6.86 8.7 7.8 2.6 7.83 6.16 7.7 8.36 6.5 2.8 9.03 11.93 5.8 4.36 8.1
1.86 11.16 7.13 10.7 3.36 4.1 5.1 1.8 3.2 15.26 5.23 5.23 5.23 7.6 4.06 3.56
1.7 6.3 3.85 7.166 2.1 3.45 1.9 2.2 3.15 6.43 3.53 3.13 2.66 3.53 9.3 3.06
1.86 5.1 3.46 3.7 4 3.9 2.16 1.8 3.2 5.83 1.86 3 5.23 3.03 3.83 3.56
5 33 6.03 14.23 6.4 20.13 4.63 3.3 6.96 34.1 14.4 4.63 13.7 10.93 23.76 5.166
41.26 28 34.8 35.23 31.03 32 37.16 42.2 28.66 26.36 46.8 28.86 32.16 40.73 32 26.6
28.23 36 28.5 43.56 25.86 40.7 49.8 8.96 35.1 49 30.63 48.36 16 30.76 57.2 40.26
34.4 56.86 30.76 30.63 8.96 48.36 22.26 35.1 48.26 16 25.86 25.63 35.6 28.83 36 36.93
7.56 14.16
3.76 8.06
4.8 3.93
3.76 4.26
7.53 14.56
26.53 50.3
48.26 25.63
40.4 28.5
Therefore, in the above model, first the relation between these two variables was investigated. Then, the relation between each of the latent variables (activities and perceptions) with their observed variables was studied. Finally, the correlation between the two sets of latent variables was investigated. The important point in the above model is the existence of a negative relationship between government’s technological products and innovation. Of course, it is worth noting that fear of failure is one of the serious obstacles for entrepreneurial development and active people’s attraction to entrepreneurship. Fear of failure involves fear of losing employment and financial account, others’ diatribe, and relatives’, colleagues’, and rivals’ humiliation and domination due to failure. In fact, in a society, adults do not take any actions to practice their business ideas because of their fear of failure. Despite the limited area of the research, the obtained result demonstrates this negative relationship. Having the final model and assuming the equality of variance, we can have the estimations and test the hypotheses for each element of the model. Figure 2 demonstrates the SEM and the relationship between variables.
Figure 3: Structural equation modeling for the main variables
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Younos Vakil Alroaia and Roja Asgar For evaluating the fitness of the model variables and the final model, we can use many indices like the ones shown in table 4 Table 4: Fitness indices of the model Acceptance criteria statistical indices of the model for entrepreneurial activities and perceptions Results
χ2/df >3 .9
RMSEA1 .09 0.73
CFI3 >.09 0.76
GFI >.09 0.40
AGFI4 >.09 -0.136
According to the obtained results from the above table 4, the two variables are not acceptable; however, this does not constitute a basis for rejecting the model. Comparing the presented indices and the acceptable value for model fitness shows that there is a suitable fitness for the research model. Moreover, since in many cases the correlations are close to 1, we can claim that the correlations are significant even at the P value of 0.01. Based on the research hypotheses and the structural equation modeling, the effect of entrepreneurial activities on entrepreneurial perceptions equals 20.3. Therefore, in the studied countries, there is a strong effect of entrepreneurial activities on entrepreneurial perceptions. We can claim that with the enhancement of entrepreneurial perceptions through education, entrepreneurial activities will have a considerable improvement. Regarding to Figure 2. The Results of structural equation modeling is: Nascent Entrepreneurship Rate = 0.74 Entrepreneurial Perceptions + 0.33 New Business Ownership Rate = 1.15 Entrepreneurial Perceptions + 0.55 Established Business Ownership Rate = 1 Entrepreneurial Perceptions +0.85 Early-stage Entrepreneurial activity = 0.50 Entrepreneurial Perceptions + 0.34 Perceived Opportunities = 1.40 Entrepreneurial Activities + 0.43 d1 Perceived Capabilities = 1.88 Entrepreneurial Activities + 0.34 d2 Entrepreneurial Intention = 1.18 Entrepreneurial Activities + 0.22 d3 Fear of Failure Rate = 1 Entrepreneurial Activities + 0.34 d4
e1 e2 e3 e4
Table 5: The results of research hypotheses Hypotheses 1 2 3 4
Description of the hypotheses There is a relationship between the observed variables of and those of entrepreneurial activities There is a relationship between the latent variable of entrepreneurial perceptions and observed variables of entrepreneurial activities There is a relationship between the latent variable of entrepreneurial activities and its observed variables Entrepreneurial perceptions have an effect on entrepreneurial activities
Results
As it has been demonstrated in the above table, the research hypotheses are confirmed. The Analytical Hierarchy Process (AHP) has been employed to calculate the success potential of each entrepreneurs. Hence, the research indicators shown in table 6. Table 6: Research indicators Established Entrepreneurship Early Stage Entrepreneurship New Business Nascent Business Fear of Failure Entrepreneurial Intention Perceived Opportunity Perceived Capability
1 .Root Mean Square error of Approximation 2 .Comparative Fit Index 3 .Comparative Fit Index 4. Adjusted Goodness of Fit Index
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X1 X2 X3 X4 X5 X6 X7 X8
Younos Vakil Alroaia and Roja Asgar Base on the FAHP method evaluates the following decision matrix. Hence, the decision matrix of the success entrepreneurship after the quantification of non-numerical attributes of nine factors shown in Table 7 presents the average matrix for success entrepreneurship decisions. Table 7: Average matrix for success entrepreneurship decisions Index X1 X2 X3 X4 X5 X6 X7 X8 Total
X1 1 2 0.33 0.25 0.16 0.2 0.14 0.125 4.205
X2 0.5 1 0.5 0.33 0.2 0.14 0.25 0.16 3.08
X3 3 2 1 0.33 0.25 0.2 0.14 0.33 7.25
X4 4 3 3 1 0.5 0.25 0.2 0.5 12.45
X5 6 5 4 2 1 0.14 0.2 2 20.34
X6 5 7 5 4 7 1 0.5 4 33.5
X7 7 4 7 5 5 2 1 0.33 31.33
X8 8 6 3 2 0.5 0.25 3 1 23.75
Table 8 given the relative weights decision matrix and ranking of success entrepreneurs that is equal to; Table 8: Ranking of success entrepreneurs Ranking 1 2 3 4 5 6 7 8
Indices Entrepreneurial Intention Early Stage Entrepreneurship New Business Fear of Failure Nascent Business Perceived Capability Established Entrepreneurship Perceived Opportunity
Weights 2.152206508 2.1397377146 1.315364934 0.75396779 0.616391916 0.437722153 0.332829424 0.251780129
5. Conclusion The purpose of this study is to identify the effective factors on the success of entrepreneurs, and ranking them and its impact on the development of the production section. One of the basic aims of GEM is investigating the relationship between entrepreneurial activities and perceptions among the member countries of this consortium. However, the development of entrepreneurship requires constant investigation of entrepreneurial activities and perceptions in the country. The results of the structural equation modeling for testing the research hypotheses showed that for the relation between the variables of entrepreneurial activities and perceptions, the standardized coefficient was 1.01 and the significance coefficient was 20.3 (more than 1.96). As a result, one can infer that, among the studied countries, entrepreneurial perceptions have a significant effect on entrepreneurial activities. Based on the findings of the study which indicate the significant influence of perceptions on activities and Pearson correlation coefficient which shows the significant relationship between these two variables, one can infer that, with respect to entrepreneurial perceptions, the behavior and features of nascent entrepreneurs, new business owners, and established business owners necessarily leads to a significant effect on entrepreneurial activities in these countries. It is also suggested that entrepreneurial opportunities are detected and prioritized in each of the provinces of the country, the information about which are then provided through an Internet-based information bank of entrepreneurial opportunities in Iran. Furthermore, it is suggested that the effect of entrepreneurial perceptions on activities is studied in each region of the country. Finally, we can help the improvement of entrepreneurship level by designing the strategic development of entrepreneurship document in Iran. And finally, The Analytical Hierarchy Process (AHP) has been employed to calculate the success potential of each entrepreneurs. The finding indicates that the factors to selection best alternatives of GEM Indices from eight critical factors among the most important factors in this category are “Entrepreneurial Intention, Early-Stage Entrepreneur. The preference orders are; Entrepreneurial Intention, Early Stage Entrepreneurship, New Business, Fear of Failure, Nascent Business, Perceived Capability, Established Entrepreneurship, Perceived Opportunity.
References Bosma, N.S. and V.A.J.M. Schutjens. (2007). Outlook on Europe: Patterns of Promising Entrepreneurial Activity in European Regions. Tijdschrift voor economische en sociale geografie 98(5): 675-686.
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Younos Vakil Alroaia and Roja Asgar Bosma, N.S., Van Stel, A. & Suddle, K. (2008). "The geography of new firm formation: Evidence from independent start-ups and new subsidiaries in the Netherlands", International Entrepreneurship and Management Journal, 4 (2), pp. 129146 Casson mark & wadeson , Neiler, (2007). “The Discovery of Opportunities: Extending the Economic Theory of the entrepreneurship". Small Business Economics. (2007, SPRINGER) 28:285-300 Casson, M. (1982), The Entrepreneur: An Economic Theory, Martin Robertson, Oxford. De Clercq, D. and Bosma, N.S. 2008, “An Exploratory Study of International Commitment by Nascent and Existing Firms”, Journal of Small Business and Entrepreneurship 21(3) 21(3), pp. 223–237 Dellabaraca, Richard (2002). " Understanding the Opportunity Recognition Process in Entrepreneurship, and Consideration of Whether Serial Entrepreneurs Undrtake opportunity Recognition Better than Novice Entrepreneurs". MBA Disseration, University Cambridge.Drive of New and Mature Business Owner-Managers. Journal of Business Global entrepreneurship Monitor 2008 Global entrepreneurship Monitor 2009 Global entrepreneurship Monitor 2010 Kirzner, I.M.(1973). Competition and entrepreneurship. Chicago, University of Chicago Press. KRUGER, J., SCHNEIDER, J., AND WESTERMANN, R. 2006. Clearview: An interactive context preserving hotspot visualization technique. Visualization and Computer raphics, IEEE Transactions on 12, 5 (Sept.-Oct.), 941–948. Nawaser, Khaled. Sadeq Khaksar, Seyed Mohammad. Shakhsian, Fatemeh. Afshar Jahanshahi, Asghar,(2011), Motivational and Legal Barriers of Entrepreneurship Development , International Journal of Business and Management, Vol. 6, No. 11; November 2011 Randall A, Schumacher. And Richard J., Lvmks. (2009). Structural equation modeling, translation Vahid Ghasemi, Tehran: sociologists Saaty T.L. (1992) ,"How to make a decision: the analytic hierarchy process". European Journal of Operational Research;48.pp. 9–26. SeongKonlee,Gento Mogi ,Sang Kon Lee ,K.S,Hui,Jongwook , Kim( 2010) ,”Econometric analysis of the R&D performance in the national hydrogen energy technology development for measuring relative efficiency :the fuzzy AHP/DEA integrated model” approach International Journal of hydrogen energy 35,pp.2236-2246. Schumpeter, J. (1934). The theory of economic development. Harvard University Press, Cambridge, MA. Shane, S. 2000. Prior knowledge and the discovery of entrepreneurial opportunities. Organization Science 11: 448 Timmons, Jeffry A. (1999) New Venture Creation: Entrepreneurship for the 21st Century Van Stel, Andre. 2005. “Entrepreneurship and Economic Growth: Some Empirical Studies.” Tinbergen Institute Research Series, Vol. 350, Amsterdam: Thela Thesis Venkataraman, S. 2002. The distinctive domain of entrepreneurship research: An editor'sperspective. In Advances in entrepreneurship, 119-38. Greenwich: JAI Press. Wennekers, S., A. van Stel, R. Thurik and P. Reynolds. 2005. Nascent entrepreneurship and the level of economic development. Small Business Economics 24(3): 293-309 www.gemconsortium.org Yeganegi abarghuee, mohamadreza (2008), Estimate model parameters using logarithmic LGNN Genetics, Ninth Iranian Statistics Conference, Isfahan University zali. Mohamadreza(2007), Global entrepreneurship Monitor (Introduction), Tehran entrepreneurship university. zali. Mohamadreza, razavi. Mostafa (2008), Barriers to Entrepreneurship Development in Iran, Tehran Entrepreneurship University. zali. Mohamadreza, razavi. Mostafa, yadolahi. Jahangir, kordnaich. Asadolah (2010), Global entrepreneurship Monitor ( program) in Iran, Institute of Labor and Social Affairs.
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Business Proposition Development in new Ventures as a Process of Initiation, Design, Engineering and Realization (IDER) Robin van Oorschot, Frido Smulders and Erik Jan Hultink Delft University of Technology, Faculty of Industrial Design Engineering, , The Netherlands
[email protected] [email protected] [email protected]
Abstract: This paper describes the development of the business proposition of high tech new ventures as a design and innovation process. We use the innovation model of Initiation, Design, Engineering and Realization (IDER) to portray the IDER activities that multiple new ventures go through in differing degrees. We conducted two rounds of interviews with an interval of four years with 10 high tech new ventures. The main question in the first interview was “How and by what activities did the business proposition evolve?” The second interview focused on how the business proposition progressed during the following four years. The analyses of the interviews focused on the following question: Through what kind of combinations of Initiation, Design, Engineering, and Realization activities does the business proposition of a new high-tech venture develop over time? Based on our analyses, we create IDER visualizations of all ten new ventures and describe seven themes that are illustrative when the IDER-logic is applied to the process of new venture creation. Through the IDER-model we propose a new (visual) vocabulary to better understand the new high-tech venture creation process, and its opportunities and challenges. Keywords: new venture creation, entrepreneurship, process, innovation, IDER
1. Introduction For centuries, researchers have aimed to get a grip on the entrepreneurial new venture creation process. There are multiple views on what an entrepreneur actually does. For instance, Cantillon wrote in the 1700’s about entrepreneurs as specialists in taking risks (e.g. Murphy, 1989), and Knight (1921) described entrepreneurs as operating in uncertainty. Further, Schumpeter (1934) pointed out how entrepreneurs implement change within markets through carrying out new combinations. Schumpeter described this process as creative destruction. Finally, Kirzner (1973) discussed how entrepreneurs discover previously unknown market opportunities. Entrepreneurship researchers have so far not come to an agreement which line of thought to follow although many of them described the entrepreneurial process in a particular model. This research stream has resulted, amongst others, in stage models (e.g. Bhave, 1994; Vohora, 2004; Baker and Nelson, 2005; Bygrave, 2010), static frameworks (e.g. Gartner, 1985; Covin and Slevin, 1991; Ardichvili et al., 2003; Eckhardt and Shane, 2003), and dynamic process models (e.g. Sarasvathy, 2001; Sarasonet al., 2006). However, there is still little agreement on what entrepreneurs do to create their venture, and how they do it (Moroz and Hindle, 2012). Moroz and Hindle (2012) stated that few entrepreneurship models are generic. Furthermore, they described how few models of entrepreneurial process are grounded in empirical investigations. The entrepreneurship literature has not provided a clear answer yet on how to understand the entrepreneurial process. In this article we use theory from the field of innovation sciences to make sense of the new high-tech venture creation process. Link and Siegel (2007) already argued that innovation is an important element in the new venture creation process, especially for high tech new ventures (Martin, 1994), since high tech products are often introduced in unknown new markets. The innovation literature is strong in providing innovation process models. A majority of these innovation models are described as a stage gate or with feedback loops. Recent research by Smulders (2014) presented the IDER-model that deviates from the traditional stage gate approach, by presenting a model where multiple activities take place simultaneously and are presented on the timeline of an innovation process. This is a promising approach to capture the fuzzy first steps of the new venture creation process in which several activities take place at the same time. Therefore, this article will empirically investigate the new high-tech venture creation process through the IDER-model.
2. IDER Before we go into the implications of the IDER-model for new high-tech venture creation processes, we quote the original work of Smulders (2014):
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Robin van Oorschot, Frido Smulders and Erik Jan Hultink Based on observations and discussing the role of design thinking beyond its traditional application within product development, we came to an abstracted IDER-model that is illustrative for four sequentially dependent phases of innovating where each is characterized by a different set of dominant process characteristics (Smulders et al. 2014). The first element ‘I’ of initiating covers the front end of product development by, for instance, market research and/or ethnographic studies. The second element D of designing concerns the development of concepts of the new product/service. The third element E covers the engineering and embodiment of the artifact and the associated development of the necessary manufacturing processes and tools. Engineering aims to validate and consolidate what comes out of the D element and to prepare that content for implementation in the totality of the R element. The fourth realizing element R aims at inserting ‘life’ in the value chain, that is, ramping up all activities associated with, e.g., purchasing, logistics, production, sales and use of the new product. The R-element is to be seen as a new or adapted socio-technical reality in which actors perform on a routine basis activities that are part of the overall value chain, including the use of the new product or service. This situation marks the end of the innovation-cycle and possible the beginning of a new one (Smulders 2014:821) Visually, the IDER model can be represented as in Figure 1.
Figure 1: Visual representation of the IDER-model (based on Smulders 2014) An important characteristic of the IDER model is that all activities can take place simultaneously, but the proportions change over time: from only initiation activities at the start, to a mix of Initiation (I), Design (D), Engineering (E) and Realization (R) activities throughout the process, to almost full Realization at the end of the new venture creation process. Throughout the process, for D activities there is new I input needed, as well as there is new I and D input needed for E activities. Finally, also when an innovation process consists of almost full R activities, there are still I, D and E activities needed at that specific moment in time. Although I, D, E and R activities will take place simultaneously, these of activities are different from each other. Table 1 provides an overview of the differences among the Initiation, Design, Engineering and Realization activities. Table 1: Differences in initiation, design, engineering, and realization activities Initiation
Design
Engineering
Realization
Market research Ethnographic studies Brainstorming
Concept development New products/services Integrative convergence
Validation Consolidation Assembly
Purchasing Logistics Production
Team formation
Conceptualizing contracts
Robustinizing Field tests prototypes
Sales Use of product
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Robin van Oorschot, Frido Smulders and Erik Jan Hultink Our article aims to illustrate how the theoretical model of IDER provides new vocabulary to describe the new high-tech venture creation process. Smulders (2014) presented the IDER innovation process as a theoretical model in which the I, D, E and R activities transfer smoothly over time, while the practice of innovation processes of new venture creation rarely goes as smoothly. Especially new high tech ventures face uncertainty (Bürgel, 2000), which will trigger the entrepreneurs to change their activities constantly throughout their venture creation process. Therefore, we aim to use the IDER-logic to describe how new ventures develop their business proposition in their new venture creation processes. We define the business proposition development processes as going from the initial idea, via a business concept that has economic value, to the final product that can be produced and sold. We follow Sarasvathy (2009) who illustrated how the business proposition changes by the activities of the entrepreneurs. This leads to our main theoretical and empirical research question: Through what kind of combinations of Initiation, Design, Engineering, and Realization activities does the business proposition of a new high-tech venture develop over time?
3. Method To answer our research question, the present study employs an exploratory case study of 10 new high-tech ventures located within the confines of one university based incubator. This incubator has strong academic ties and aims to support students, professionals and researchers in all phases of starting up and running a high-tech venture. An inductive approach is chosen in order to develop a rich understanding of the process of creating a new high-tech venture. The multiple-case study design allows for a method of constant comparative analysis (Glaser and Strauss, 1967). The selected cases are considered as multiple experiments, which either replicate results from previous cases in the study or, as in our situation, expand the theory under development (Eisenhardt, 1989; Yin, 2003). Hence, the emergent results are grounded in empirical data (Glaser and Strauss, 1967). Our study consisted of two rounds of open ended interviews with 10 new high-tech ventures. The two rounds of interviews were four years apart, and were conducted in 2010 and 2014. During the first round of interviews, when the cases were selected, all cases were an emergent high-tech venture, which was defined as an independently owned company that (1) was established less than 5 years ago, (2) was based on the exploitation of a technological innovation or innovative application of existing technology, and (3) was facing substantial uncertainty is the development of the new venture (McDougall et al., 1994; Storey and Tether, 1998; Bürgel, 2000). All cases were selected from the same business incubator as these high-tech ventures in the business incubator met our incubator’s selection criteria (technical feasibility, commercial feasibility and growth potential) and they all received the same level of support from the incubator. This choice reduced the sources of extraneous variation and clarifies the domain of the findings. The 10 new technology ventures were theoretically sampled on the basis that they represented substantial variance within the defined scope (Eisenhardt, 1989). The selected companies were in different stages of the new venture creation process in order to capture the emergent character of this process. Hence, at the moment of data collection in the first round, in most cases it was not known yet if the company would become successful. Further, the cases operate in different industries and their founders have different educational backgrounds, although all had an MSc-degree. Table 2 provides an overview of the new ventures in our sample. Table 2: Sample characteristics of the 10 new ventures New Venture A
Technology Offshore access solutions
Year of Start-up 2005
B C D E F G H I
Measuring and visualizing processes with smart sensors Interactive augmented reality solutions Aerodynamic product solutions and consultancy Online registration tool for events Aerodynamic truck wings that reduce fuel use Real time infrastructural monitoring system Online communication tool for professional groups Air purification system
2009 2009 2005 2009 2008 2008 2006 2007
J
Cooling system for beds
2006
In the first round of interviews, the main question asked was “How and by what activities did the business proposition and model evolve?” The entrepreneurs were asked to critically reflect on the activities they had
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Robin van Oorschot, Frido Smulders and Erik Jan Hultink undertaken so far to develop their business proposition, and to explain the activities they were working on at that moment, and the activities they planned for the next five years. We also probed our interviewees to share any positive and negative experiences in the new venture creation process so far. The second round of interviews asked the entrepreneurs to reflect on what they said during the first round of interviews. We introduced quotes from the first round of interviews stating what the entrepreneurs were planning to do, and the entrepreneurs were then asked to critically reflect how the proposed activities evolved over the last four years.
3.1 Coding the interviews and visualizing the IDER-models The 2x10 interviews were transcribed and coded (Glaser, 1978) for I, D, E and R activities, based on the activities as described in table 1. This qualitative coding on the various IDER-activities informed the development of IDERmodels for all 10 new high-tech ventures. Based on the codes we could identify what activities the new ventures did in which moment in time. That allowed us to visualize the various IDER-activities as performed over time by the entrepreneurs by elaborating on the schematic visualization (Figure 1) from Smulders (2014). The temporal dimension and recursive quality of the IDER-model allows for the creation of visual perspectives on iterative behaviors by the entrepreneurs in their ‘struggle’ to identify a potential profitable business proposition.
4. Results Figure 2 presents the IDER visualizations of the 10 new high-tech ventures with a short explanation of the process for every new venture.
New venture A had several fluctuations in all I, D, E and R activities early on in the process in order to find the right proposition for the market. Later on they were able to engage in more and more R activities and presently their main focus is R activities.
New venture B developed all their I, D, E and R activities at first and then experienced they had to lower their R activities and engage in more D activities to tweak their business proposition for other markets. After they unexpectedly needed more I activities again, they presently focus fully on R activities.
New venture C went through two early ‘ups and downs’ of all IDER activities. After that, they moderately engaged in more R activities, while also
New venture D moved very quick through I, D and E activities only to find out that their first proposition was not what the market was looking for. Several iterations were needed before a promising
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Robin van Oorschot, Frido Smulders and Erik Jan Hultink still designing and engineering the business proposition nowadays.
proposition was identified. Presently they dominantly focus on E activities.
New venture E follows the IDER model as described in figure 1 to the largest extend. They engaged in almost fulltime I activities at the start to chose the right business proposition. Presently the dominantly focus on R activities.
New venture F experienced several D, E fluctuations in order to develop their business proposition. Towards full R activities they unexpectedly had to engage in more I activities again but presently they focus almost fully on R activities.
New venture G went through a steady IDER development process at first, to only discover later that they were not working on exactly the right business proposition. Presently, they engage in all I, D, E and R activities again to get the business proposition right.
New venture H engaged early on in several R activities in an attempt to quickly bring the business proposition to the market. This did not work out which resulted in the fact that they are presently engaged in all I, D, E and R activities to get the business proposition right.
New venture I focused on D activities early on in the progress, which allowed them to accelerate their E activities halfway the process. Presently they dominantly focus on R activities.
New venture J follows the IDER logic till halfway their timeline. Then, they experience they can not fully Realize the business proposition, which results in the fact that presently they are engaged in all I, D, E and R activities.
Figure 2: The IDER-models of the 10 new high-tech ventures The 10 visualizations present a variety of IDER models. Interestingly, there is no dominant visualization of the new high-tech venture creation process. However, there are some similarities and differences across the models that are a first indication of characteristics of the new high-tech venture creation process.
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4.1 Seven themes Analyzing the 10 visualizations resulted in seven themes that are relevant for entrepreneurs while they go through the new high-tech venture creation process. 4.1.1 Following IDER Our 10 visualizations show that all new ventures followed to a certain extent the IDER logic. We were able to describe the business proposition development process of all ventures using I, D, E and R activities, and by doing so, we can provide a coherent and temporal overview of this important process. However, analyzing the visualization of the 10 ventures in detail also shows that only few new ventures follow the IDER-model precisely. Only new venture E and I follow the logic of the IDER model as visualized in Figure 1. Interestingly, E and I are the two ventures that are working on the least technological business proposition. The other eight new ventures had certain ‘variations’ on the theoretical IDER-model. Some variations were beneficial for the business proposition, while others were not. We will describe these variations in the following six sections. 4.1.2 The short I Nine out of 10 new ventures went through a relatively short phase of engaging in I-activities. Only one startup (new venture E) mentioned that they consciously chose to spend a significant amount of time to fully understand what would be the best business idea for them. They came up with over twenty business propositions and continued with the proposition they believed they could bring as soon as possible to a full scale up and operations (100% R activity in the IDER model). The IDER visualization of new venture E illustrates how they were able to go through a rather smooth process with almost full R activities later on in the process. The other new ventures already knew from the start what their initial idea would be and tended to stick to this initial idea throughout the process, where the I activities were aimed at sharpening the business proposition, rather than radically changing it. 4.1.3 The Early D Half of the new ventures (B, D, F, G, and I) indicated that they consciously invested time and resources in D activities early on in the process. They realized they could not go into proficient E activities without first being fully involved in D activities. The founder of new venture I explained that her main expertise is what we would call R activities, but she realized that the concept development (D) was essential at the start of the new venture creation process. Hence, she decided to work with design interns and design graduation students who helped her out conceptualizing her original ideas. Later on in this process, her own expertise became more important, in moving the business proposition from E to R activities. 4.1.4 The D-E Wiggle Whereas Smulders (2014) described in the original IDER work how the I, D, E and R activities should go through a rather fluent transition over time, the visualizations of new ventures A and F illustrate what we call a ‘D-E wiggle’. Both new ventures A and F are working on large industrial solutions, and both entrepreneurs indicated that at some point in time, they just had to start to fully engineer their business proposition. Due to the complexity of their product, they could no longer just ‘Design’ their business proposition, but needed to engineer it in order to test its ‘robustness’. Both entrepreneurs also indicated that they did not expect that they would be able to fully engineer their business proposition at once. The E activities were employed as new input for their D activities. In the other new ventures, who did not work on large industrial applications, the drop in E activities was an indication that there had been a mistake in the D activities, or in the transition from D to E activities. These “mistakes” forced the new ventures to have more D activities again in order to create new concepts that could be engineered and realized. 4.1.5 The D-E-R Wiggle The new venture C went through a D-E-R Wiggle. The entrepreneur indicated that he consciously conceptualized, engineered and produced his product, not with the intention to produce this product on the long run but rather to learn from selling the product as input for new D activities. This approach is consistent
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Robin van Oorschot, Frido Smulders and Erik Jan Hultink with the Lean Startup logic (Ries, 2011). However, our data shows that only new venture C truly went through such a lean start-up process. 4.1.6 The R-drop Seven new ventures (A, B, D, F, G, H and J) experienced what we would call an ‘R-drop’. Whereas new venture C explained how they engaged in early R activities (in their D-E-R wiggle) with the aim to generate new knowledge, the R-drop illustrates that many new ventures thought that they could start to work towards full R activities, but were forced to engage in more I, D and/or E activities which they did not foresee. This change had serious implications since R activities are expensive. For example, new venture D developed the full functioning product for a client in the automotive industry, to later discover that this product was not legally allowed in its present form in the market. This new venture was forced to engage again in new I, D and E activities to develop a new business proposition that would fulfill market needs and legislation. 4.1.7 Little Final R Half of the new ventures (C, D, G, H and J) did not fully engage in R activities at the final stage of their IDERprocess. Apparently, it was difficult to reach a state in which the venture is involved in R activities only. However, all those five new ventures indicated that they were producing and selling their business proposition but did not succeed in creating a product that they could scale up and sell in the same way to numerous customers. They engaged in specific I, D and E activities for each individual customer. Two new ventures (C and H) decided to start consultancy work with their original business proposition. Their clients could choose to work with the new venture on the original business proposition, but if the client had other requirements, both new ventures should be willing to invest time and recourses to start a new development cycle from stretch. Hence, they were involved in all four I, D, E and R activities constantly. The other three new ventures (D, G and J) created a standardized product and managed to fully realize the business proposition. However, they often discovered that their clients would not buy the standard product but needed adjustments to better fit their needs. All three new ventures were willing to make these adjustments of the clients and hence they were involved in I, D, E and R activities all the time.
5. Conclusions and implications Through the IDER-model, we introduced a new vocabulary and visual vocabulary to make sense of the new hightech venture creation process. By adding the time element to the several kind of activities that are part of the new venture creation process, we drift away from the more traditional stage gate models. We aim to better embrace the complexity of the early phases of new venture creation, in which several activities are always taking place simultaneously. The visualizations of the IDER-model do however still allow for an understandable view and sense making of this process. By doing so, we contribute to the ongoing discussion by offering a new tool for trying to get a grip on the new venture creation process. By empirically investigating 10 new ventures we discovered that there is most likely not one ‘perfect’ IDER-model that could function as a blue print for new venture creation processes. However, we were able to create seven themes that provide implications for several situations that new ventures can find themselves in. In future research with a larger sample of new ventures, we can sharpen these themes, by testing which of these themes occur more often in the new venture creation process. The theme ‘an early D’ as described in 4.1.3 has our particular interest. In innovation literature, and also entrepreneurship literature, there is already a focus on the exploration phase (what we would call Initiation activities) of new ventures, in which opportunities are discovered or creation. As well, there is a strong focus on the exploitation phase (what we would call Realization activities), where the product is produced and sold. But the transition from exploration to exploitation has proven to be a struggle. Our first findings indicate that an early engagement in Design activities might help new venture to better develop their business proposition. So there might be something to learn for the field of entrepreneurship research from the field of design research, in order to get a better grip on how to develop the business proposition in the new venture creation process.
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Towards an Emerging Paradigm: Is Social Entrepreneurship an Insight into Contemporary Society? Qian Wang and Iiris Aaltio Jyväskylä University School of Business and Economics, University of Jyväskylä, Finland
[email protected] [email protected]
Abstract: From historical till contemporary era, overwhelming changes happening within varieties of contextual factors (namely, society, economy, culture, environment and education) challenge the field of research in entrepreneurship. “Old” nature with “mold and cliché” of entrepreneurship is thus moving to a new direction by embracing community and related social value attributed to its concern. Defined as “social change agents”, the ultimate goal of social entrepreneurs is to promote “social justice” as a whole by “dealing with social needs”, blurring the edges between “society and enterprises” among “public, private and non-profit sectors”. With a critical thinking of current literature related to social entrepreneurship, series of concepts are emerging and gaining interests from both theoretical and practical perspectives, such as ethics, morality, ethical suspect behaviour, (corporate) social responsibility (CSR), social justice, philanthropy, charity, altruism, virtuous, sustainability, etc. By borrowing social constructivism as our theoretical lens, we plan to meet our research objectives through gathering findings based on the following questions: theoretically, why is it important to analyse social entrepreneurship? What are the inner-relationships among those emerging concepts in the horizon of social entrepreneurship research? What are the interrelationships between those concepts and social entrepreneurship? Although this study is still in a preliminary stage, it can to some extent lead more worthwhile explorations further such as theoretical and practical argumentations. Additionally, it is also significant to envision practically for the future research - what contributions our research can make for improving social entrepreneurship education and how to develop the relevant concepts into education and training programs. By collecting the literature material as covering recent 10 years (from 2005 to 2015), 37 articles have been targeted which are necessary for us to conduct a meta-analysis of relevant sociallyconstructed discourses. Considering those corresponding concepts, social entrepreneurship is giving inspiring ideas for traditional entrepreneurship research and vitalizing it towards a more developing trend. And more relevant concepts will evolve in social entrepreneurship research; they can be involved into consideration and debate. It is also necessarily important to realize the way how to educate students and how to train entrepreneurs for the social changes in our contemporary era. ATLAS.ti will be utilized as a support tool. Keywords: social entrepreneurship, ethics and morality, CSR (corporate social responsibility), sustainability, social entrepreneurship education
1. Overview of the aims “In particular, it will be enterprising academic leaders of the future, in ‘universities for Modern Renaissance’, who will: look where every one is looking / See what no one else can see / Do what no one else can do / Uniquely by / Co-identifying worthy problems / Co-designing their systemic solution / Co-producing sustainable outputs and outcomes / Which are fit-for-purpose for / All in the knowledge economy / Enabling socially inclusive wealth creation / And the highest impact for real improvement” (Powell, 2012: 414-415) Originally as Schumpeter (1934) remarked that individual profit orientation initiates both the private company and social wealth, entrepreneurship has already been perceived as bridging the reciprocation between the whole society and the other profit-based enterprises. (Anderson & Smith, 2007) Entrepreneurship, in this sense, can be fertile not only as a traditional stereotype generated from and for personal wealth accumulation, but also aiming at common-value achievement. (Anderson & Smith, 2007; Lajovic, 2012) From historical till contemporary era, many contextual facets vary from different angles - society, economy, culture, environment and education - as “an explosion of innovation and experimentation caused by rising international community of individuals” (Lajovic, 2012). A concern for humanity is increasing due to the conflicts happening in our social and economic environments as well as even certain irreversible damages caused in our natural surroundings. Meanwhile, the imbalance derived from certain educational institutions also calls our attention - asymmetry between the actual knowledge production and the inner didactical system. (Rae, 2010) “Old” nature (Rae, 2010) and “mold and cliché” (Lajovic, 2012) of entrepreneurship is thus moving towards a new direction developed as with more care not just for economy but also for community and environment. (Evans & Sawyer, 2010; Rahman & Hussain, 2012)
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Qian Wang and Iiris Aaltio A concept is indeed needed as “social entrepreneurship” is opportunely “emerging as an inventive approach for dealing with complex social needs…and emphasize hybrid models of for-profit and non-profit activities…as the process of applying entrepreneurial principles to creative vision, leadership, and the will to succeed in inducing social change” (Prieto, Phipps & Friedrich, 2012). With the notion that “social entrepreneurship has taken the world by storm giving rise to a new wave of civil consciousness and movement” (Tsai, 2013), social enterprises are booming globally and also in particular locally as in the U.K., U.S. and the South East Asian region. (Tsai, 2013) Being attributed to such a novel trend and acting differently from business entrepreneurs, social entrepreneurs have been defined as “innovative, opportunity-oriented, resourceful, value-creating” (Dees et al. 2001) “social change agents” (Nandan & London, 2013), with a mission “to recognize when a part of society is not working and to solve the problem by fixing the system” (Prieto, Phipps & Friedrich, 2012) and with a vision “spreading solutions and persuading entire societies to take new leaps” (Prieto, Phipps & Friedrich, 2012). As taking social concern into consideration, orthodox entrepreneurial behaviour to some extent is “unproductive or destructive of value” or even involving “amoral concept” (Rae, 2010), social entrepreneurs intend to “balance the economic and social goals” (Nandan & London, 2013) by setting out solving “social”, “ethical” and “environmental” issues into agenda (Evans & Sawyer, 2010; Rae, 2010; Tsai, 2013). Their final objective is to make “social value” and promote “social justice” as a whole, blurring the edges between “society and enterprises” among “public, private and non-profit sectors” (Nandan & London, 2013; Tsai, 2013).
1.1 Social constructivism theoretical lens and the structure of study According to Anderson and Smith (2007), they did a research to explore whether there is a moral space within entrepreneurship or not by utilizing a social constructivism theoretical lens. We hereby borrow such lens to probe our study as “a key assumption of the sociology of enterprise is that entrepreneurship, development and related economic activities are primarily complex social processes” (Zafirovski in Anderson & Smith 2007: 483). Social entrepreneurship, apparently conceptualized as highly socially inclusive, can be studied as a socially constructed phenomenon. Meanwhile, social constructivism can provide us a way or framework for “interpreting the social environment” with “language which guides our sense of social reality, by framing, filtering and creation to transform the subjective into a more tangible reality”, which in fact “reflects the relationships between processes, context, and discourse” (Anderson & Smith, 2007). It hence fits well our study – a qualitative meta-analysis of the literature discourses concerning social entrepreneurship research. With critically thinking upon a variety of concepts emerged from the related literature materials corresponding to social entrepreneurship, our goal is to answer the research questions as “why is it important to analyse social entrepreneurship? What are the inner-relationships among those emerging concepts in the horizon of social entrepreneurship research? What are the interrelationships between those concepts and social entrepreneurship?” In addition, those concepts include morality and ethics (Anderson & Smith, 2007; Neubaum et al. 2009), unethical issues (e.g. ethical suspect behaviour) (Tang, Khan & Zhu, 2012; Khan, Tang & Zhu, 2013), corporate social responsibility (CSR) (Strautmanis, 2008; Evans & Sawyer, 2010; Wang & Juslin, 2012), and sustainability (Gibbs, 2009; James & Schmitz, 2011; Mysen, 2012; Tsai, 2013). Still concerning social responsibility, certain ethics-related issues are also mentioned as social justice (Peterson & Jun, 2006; Strautmanis, 2008; James & Schmitz, 2011; Berkovich, 2014), philanthropy and charity (Peterson & Jun, 2006; James & Schmitz, 2011; Tsai, 2013), altruism (Peterson & Jun, 2006), and virtuous (Peterson & Jun, 2006; Venezia et al. 2011). The basic structure of our study involves herewith methodology and methods (a qualitative meta-analytical literature review), findings (discourses of relevant concepts within social entrepreneurship), discussions and implications (theoretical perspectives discussing the relationships between social entrepreneurship and relevant concepts; practical perspectives furthering future research concerning social entrepreneurship education) as well as conclusion.
2. Methodology and methods In this study, we plan to apply qualitative meta-analysis as a technique to synthesize our findings in the field of social entrepreneurship research. Relevant literature has been reviewed through searching two databases which are EBSCOhost and ProQuest. Such keywords were considered as from both theoretical and practical perspectives: “social entrepreneur”, “social enterprise”, “socially responsible”, “ethical issues”, “social entrepreneurship education” (ethics as a relatively critical concept related to social responsibility has also been added). Publications range from 2005 till 2015 as covering the last 10 years. Meanwhile, we will just concentrate our study on papers published in peer-reviewed scholarly journals and written in English. After the first-round
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Qian Wang and Iiris Aaltio searching, there were 369 papers found in ProQuest and 103 papers from EBSCOhost. Nevertheless, we targeted 24 papers for ProQuest and 13 papers from EBSCOhost, after reading through the articles and removing the duplicates. 37 papers in total appeared displaying both comparatively proper quantity and quality for the further analysis. We will use ATLAS.ti as a software supporting tool for defining codes by searching concepts relevant to social entrepreneurship and those keywords. By the means of social constructivism lens borrowed as our theoretical basis, we will gather relevant discourses from the texts in the literature in the following session. A critical thinking will be built up in order to find social inclusion among those concepts (including morality and ethics, corporate social responsibility, and sustainability) and their relationships with social entrepreneurship.
3. Findings Those concepts mentioned in the first session have been categorized into three general items – morality and ethics, corporate social responsibility (CSR), and sustainability. In this part, we will explore their interaction and the relationships between them and social entrepreneurship. Theoretical debate with discourses will be illustrated. (Words or phrases related to those concepts and social entrepreneurship will be highlighted in italics.)
3.1 Morality and ethics Morality is usually related to “personal values” and “individual behaviour” (Anderson & Smith, 2007), which refers to “the set of beliefs, attitudes, and values providing a framework for shaping and considering ethical dilemmas” (Neubaum et al. 2009) with “the growth of a person’s ability to distinguish right from wrong, to develop a system of ethical values, and to learn to act morally” (Venezia et al. 2011). Albeit no universal definition achieved, ethics are considerably categorized in terms of a systematic viewpoint which consists in “socialized moral norms that reflect the social systems in which morals are embedded” (Anderson & Smith, 2007). Notwithstanding, the obvious distinction between those two concepts is that morality is relatively ranged under a notion of subjectivity often influenced by contingent environmental factors (Acevedo, 2013; Venezia et al. 2011); ethics “identifies, develops, and justifies basic universal and objective principles regarding what the moral agent ought to be and do” (Acevedo, 2013). Thus in this paper, we discuss more on ethics-related issues which in a sense is consistent with our socially-constructed orientation. Contextualized in a business/commercial setting, pertinent ethical rules and principles can be applied aiming to regulate entrepreneurial values and behaviours. Buckley and Casson (in Anderson & Smith 2007: 480) posited that “entrepreneurship is a morally ambiguous role” (entrepreneurs could act in converse ways - either ethically or unethically). Sometimes, to be enterprising may be simply for maximizing profit showing a cynical disregard for the social good advancement; entrepreneurially good is not analogues to socially good. (Anderson & Smith, 2007; Rae, 2010; Tang, Khan & Zhu, 2012) In fact, such negative conduct has been defined germane to ethically suspect behaviour (ESB) according to Khan, Tang and Zhu (2013) as “those acts of omission or commission, by individuals acting in their entrepreneurial roles, which violate socially constructed normative, regulatory, and/or legal structures, on behalf of firm goals”. On the other hand, Dreyfus et al. (in Anderson & Smith 2007: 487) posited a “virtuous citizen” which is heterogonous from such ethical wrongdoing but “judged ‘authentic’” with considering “entrepreneurship and social solidarity together”. Seemingly but in an unequivocal manner, Khan, Tang and Zhu (2013) provided more critical suggestions for entrepreneurs to deter ESB, for example “to actively develop their social networks and engage in mutually benefiting firm network relationships…evaluate their actions in light of socially accepted ethical criteria”. Based on the conceptual understanding of social entrepreneurship, social entrepreneurs - “a new generation of entrepreneurs” - are “more sensitive to community problems” with “a more modern vision of business in which environmental sustainability concern for employees and wealth distribution provide both ethical and economic returns” (Vives in Evans and Sawyer 2010: 437). Social entrepreneurs are proved socially responsible with endorsing “positive social change” and anchoring “social inclusion” by advocating for “environmental and economic development” and endowing “communities to take responsibility for themselves”, which is to promote “the level of ethical business standards and corporate social responsibilities (CSR)”. (Lajovic, 2012) In the following sessions, we will synthesize ethics into corporate social responsibility (CSR) and sustainability respectively and interactively.
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3.2 Corporate social responsibility (CSR) Corporate social responsibility (CSR) has been defined as “all situations where the firm goes beyond compliance and engages in actions that appear to further some social good, beyond the interests of the firm and the social obligations required by law” (Campopiano, Massis & Cassia, 2012). Marked in italics, the term of CSR is naturally socially responsible. If an enterprise is able to implement CSR successfully, it can be featured as a “responsible entrepreneurship” with “responsible business practice”. (Nandan & London, 2013; Lourenco, 2013) With solving “community-based challenges” demanded in contemporary society, it requires an inter-professional collaboration between CSR and social entrepreneurship venture initiatives , as they explicate “a nondichotomous, integrated knowledge framework and action system” (Lawson in Nandan & London 2013: 817). Besides creating values for social welfare as a whole, CSR emphasizes such responsibilities for their stakeholders as “economic (profitability), legal (no environmental or safety judicial problems), ethical (expectations…over and above legal requirements) and discretionary (philanthropic activities and the nature of the firm’s involvement in the communities) responsibilities” (Campopiano, Massis & Cassia, 2012) by integrating economic (including relationship with consumers and employees), social, environmental (ecological and sustainable), ethical (moral), and human rights concerns (Acevedo, 2013; Christensen et al. 2007; Pless, Maark & Waldman, 2012; Tsai, 2013). Although concepts of CSR vary a lot, it is intrinsically a “voluntary activity” without being detached from business strategy but considering social and environmental side-effects caused by entrepreneurship. (Strautmanis, 2008) Presenting triple-bottom lines (economy, society and environment), CSR helps enterprises edge towards longterm interests. Being referred to as business ethics or at least as an important part of it, CSR resonates with “successive compliance with the ethical norms of the enterprise and participation in the economical development along with improvement of…the society…” (Holme & Watts in Strautmanis 2008: 348). However argued by Acevedo (2013) as taking Enron as an example, CSR policies in this sense are merely executed for increasing profit and enhancing social image instead of examining its “ethical wrongdoing (massive fraud)”. Therefore, CSR and ethical codes are not mutually exclusive; shouldering social responsibilities, the enterprise does not necessarily act ethically - its entrepreneurial behaviour still needs to be assessed by sound ethical judgments. “Strategic philanthropy” and “charity efforts” should be grounded in both “effectiveness (corporate competitiveness) and efficiency (social welfare)”. (Tsai, 2013) In addition to its “social cohesion”, contents of sustainability exemplify more concern for a proper use of natural resources and can be interchanged with certain terms and rules of CSR. (Lourenco, 2013; Mathew, 2009)
3.3 Sustainability Mathew (2009) defined sustainability “conjoint with improving the organizational performance and increase in the responsibilities of organizations towards stakeholders”, which indicates “a match of resources…organizational change essential for the current implementation beneficial for the future generation”. Although the similar definition proposed by Bruntland in 1987 contained much ambiguity in reinforcing relevant behaviour (sustainable development is “development that meets the needs of the present without comprising the ability of future generations to meet their needs”) (Mathew, 2009; Mysen, 2012), social and environmental responsibilities are not being considered as burdensome so longer particularly in contemporary society if compared retrospectively. (Lourenco, 2013) Indeed, a sustainable enterprise is not merely to facilitate incremental solutions in favour of economic and environmental benefits; ultimately, rather long-run objective is for constitutionally creating social good (e.g. social justice and social equity) for the communities. (Lourenco, 2013; Mathew, 2009; Mysen, 2012) It contributes to a multifaceted perception akin to the understanding of “sustainable entrepreneurship” in some way - holistically merging “environmental, economic and social components” “on the long-standing concept of creative destruction in entrepreneurship” (Gibbs, 2009). Generally as Pacheco et al (in Lourenco 2013: 294) demonstrated sustainable entrepreneurship is “the discovery, creation, evaluation, and exploration of opportunities to create future goods and services that is consistent with sustainable development goals”, more details have been furthered with “the continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life…the local and global community as well as future generations” (Mathew, 2009 corporate sustainability entrepreneurship was also mentioned as considering “continuous process to changing corporate responsibilities” from a micro dimensional perspective within an enterprise). Relevant sustainable behaviour also needs to be evaluated according to certain ethical principles as aforementioned.
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Qian Wang and Iiris Aaltio Meanwhile, sustainability corresponds closely to the fundamental points of social entrepreneurship (“social value-creating” in this sense) - it does not mean they can finally substitute for each other. The idea hence furnishes an “interdisciplinary” and “inter-professional” approach retained in both social enterprise program and sustainability education over last few years. (James & Schmitz, 2011; Tsai, 2013) Furthermore a crucial subconcept cannot be neglected is that the “ecopreneur” “aspires to restructure the corporate culture and social relations of their business sectors through proactive, ecologically oriented business strategies” (Isaak in Gibbs 2009: 69). Ecopreneurship, as a novel pedagogical source engaged recently in business studies, will shed lights on “exemplary solutions for a social transformation…’green-green’ businesses from outset on an environmentally friendly basis which seek to achieve the social and ethical transformation…” (Isaak in Gibbs 2009: 70).
4. Discussions and implications 4.1 Relationships among concepts Anderson and Smith (2007) suggested there indeed is a moral space existing in entrepreneurship besides its profit-oriented concern. By borrowing the social constructivism theoretical lens, we have found ethical role and behaviour shared in both converging sessions between CSR with social entrepreneurship and sustainability with social entrepreneurship. Environmental responsibilities are more related sustainability concept but it also concerns the social impacts as a whole. (See Figure 1) Ethics, in the domain of social entrepreneurship, can be understood more with instructional or institutional functions as an epistemological belief. In a positive manner, social entrepreneurs can act ethically by taking social and environmental responsibilities (a “virtuous” entrepreneur with “strategic philanthropy” and “charity efforts); otherwise, they are assessed as unethical (ethical suspect behaviour). In this case, we can propose an idea that there is an ethical space in social entrepreneurship by considering a corporation’s social role in the society and environmental role for a sustainable scenario. Since we did not articulate the literature materials based on their empirical distinctions (including different companies exemplified), an empty space is still left for relevant debate accordingly. Both meaningful theoretical and practical argumentations can be discussed in our future exploratory research.
Figure 1: Relationship between concepts and social entrepreneurship
4.2 Implications and future concerns Additionally, how to educate relevant entrepreneurs has also been frequently discussed in the literatures. Contemporary study on entrepreneurship education is gaining its strength with attempts on furthering analysis in a more broadened manner. (Honig, 2004) Meanwhile, a relatively new mode – social entrepreneurship education - is emerging from conventional disciplines, as entrepreneurship education is strongly oriented with concern for responsibility and sustainability. (Rae, 2011) Defined by Muscat and Whitty (2009), social entrepreneurship training is “a new paradigm for management education taking form within the untapped market niche of serving real societal needs without producing ‘good’ profit margins. Part of this new thinking
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Qian Wang and Iiris Aaltio intersects the tools of traditional entrepreneurship with small-scale economic and community development”. Literally and naturally, social entrepreneurs are aiming for common good – not only associated with the evaluation from relevant stakeholders but also reckoning the extensively social obligation. To teach social entrepreneurship is thus clarified as containing “hybrid set of knowledge and skills grounded by and a reflection of personal and organizational values, ethics, and attitudes” (Miller, Wesley II & Williams, 2011), and at the same time the programs and curricular are highly context-specific differentiated as they need to be set based on different cultural backgrounds. Moreover, it is important to engage students or entrepreneurs with relatively new pedagogical approaches, by taking such concepts into consideration – ethics (Acevedo, 2013; Neubaum, 2009), CSR (Baden & Parkes, 2013; Wang & Juslin, 2012) and sustainability (James & Schmitz, 2011; Lourenco, 2013). Experiential learning (Baden & Parkes, 2013) and work-based learning (Huq & Gilbert, 2013) are rather effective tools. However, only few studies have emphasized the significance for coaching social entrepreneurship as a program in business schools. A well-structured view concerning social entrepreneurship education research is still remaining insufficient, which calls for both theoretical anatomy and practical development. (Howorth, Smith & Parkinson, 2012; Miller, Wesley II & Williams, 2012; Pache & Chowdhury, 2012; Smith & Woodworth, 2012) Nevertheless, we can get useful points from “a generic teaching model in entrepreneurship education” suggested by Fayolle (2013) who has asked series of important questions from both “philosophical and didactical levels” (including “what, why, how, for whom, for which results”). Additionally, there is another idea which is also very inspiring for the social entrepreneurship in our contemporary society – “critical pedagogy” (Freire in Prieto, Phipps & Friedrich 2012: 6) – “adamantly and steadfastly dismisses the mainstream assumption of knowledge as objective and neutral” (Cho in Prieto, Phipps & Friedrich 2012: 6). To stay in accordance with the social reality is the starting point for a transformation in the old educational system; “university education needs to move beyond normalized conceptions of knowledge and truth and include counter and oppositional narratives” (Prieto, Phipps & Friedrich 2012). We plan to generalize more useful suggestions in our paper in the next stage.
5. Conclusion In this sense, the main goal is to propose certain research directions by reviewing pertinent literature regarding current research of social entrepreneurship, which is giving emerging ideas for traditional entrepreneurship research and evolving it towards a rising trend. It is a relatively refreshing research proposal to explore social entrepreneurship using a social constructivism lens by critical thinking. In this respect, more concepts can be involved such as ethics, CSR and sustainability et al (or even other concepts regarding social inclusion can be likewise worth thinking about). And their interactions with social entrepreneurship can be developed and explored further via collecting more valuable literature (and/or fruitful empirical material). Besides the limitation - lack of literature debate, it is also necessarily important to realize the way how to educate students and how to train entrepreneurs for the social changes in our contemporary era from a more concrete perspective. Whereas, our data is still insufficiency which is appropriate for commencing a research idea instead of generalizing absolute conclusions. Research questions need to be furthered in future studies. This step can be considered as a cornerstone which following paper is able to be based on, notwithstanding.
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Qian Wang and Iiris Aaltio Evans, N. and Sawyer, J. (2010) “CSR and Stakeholders of Small Businesses in Regional South Australia”, Social Responsibility Journal, Vol 6, No. 3, pp 433-451. Fayolle, A. (2013) “Personal Views on the Future of Entrepreneurship Education”, Entrepreneurship & Regional Development, Vol 25, No. 7/8, pp 692-701. Gibbs, D. (2009) “Sustainability Entrepreneurs, Ecopreneurs and the Development of a Sustainable Economy”, Greener Management International, Vol 55, No. winter, pp 63-78. Honig, B. (2004) “Entrepreneurship Education: Toward a Model of Contingency-based Business Planning”, Academy of Management Learning & Education, Vol 3, No. 3, pp 258-273. Howorth, C., Smith, S. and Parkinson, C. (2012) “Social Learning and Social entrepreneurship Education”, Academy of Management Learning & Education, Vol 11, No. (3), pp 371-389. Huq, A. and Gilbert, D. H. 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Commercialisation Strategies: Choosing the Right Route to Commercialise Your Research Results Urszula Wnuk, Adam Mazurkiewicz and Beata Poteralska Institute for Sustainable Technologies – National Research Institute (ITeE-PIB), Poland
[email protected] [email protected] [email protected]
Abstract: The emergence of knowledge and innovation-based economies means that much focus is being put on the commercialisation of intellectual property originating from publicly funded research. The commercialisation of research results is a complex process building on excellent knowledge translated into market ready products and services. An essential stage of the commercialisation process consists in the selection of the right path to enter the market – a critical strategic decision that determines the commercial success of an innovation. The paper tackles the problem of innovation commercialisation. It addresses questions about decision criteria and factors influencing the selection of different innovation commercialisation routes. Although there are essentially two main routes to the commercialisation of research results, i.e. licensing to existing companies or spin-off venture creation, other paths to enter the market, like services, and direct and indirect sales are also considered by the authors, because they are not a rare phenomenon. The paper is based on a literature review and the empirical study of commercialisation strategies applied at universities and research institutes worldwide, particularly on the authors’ experience gained in the course of the “Innovative Systems of Technical Support for Sustainable Development of Economy” Strategic Programme. Keywords: commercialisation, licensing, spin-off, sale, services
1. Introduction Since commercialisation of research results is considered to be a prime example for generating academic impact, creating changes within a work setting, and establishing strong university-industry ties (Etzkowitz, 2003; Markman et al., 2008), academic literature has paid a lot of attention to this issue (e.g., Siegel et al. 2004, Phan and Siegel, 2006, Mustar et al. 2006, O'Shea et al., 2008). A large pool of publications on this topic deals with the two main channels of innovation commercialisation, i.e. licensing a patented innovation against a contracted receipt of royalties (Jensen and Thursby, 2001; Powers and McDougall, 2005) or direct market penetration through a spin-off or start-up company to exploit patented innovation or a body of unpatented expertise (Shane, 2005). As noted by Marx and Hsu (2015), many authors in economics and technology management tend to focus their analyses on conditions under which an invention should be self-commercialised rather than brought to the market in cooperation with partners. Many scholars also view the commercialisation of research results as a static process in which the authors of innovations either choose to license or enter the market on their own. However, practice shows that there are also other commercialisation routes that can be taken. Within the “Innovative Systems of Technical Support for Sustainable Development of Economy” Strategic Programme executed by the authors of the article, innovative technologies were also brought to the market through the application of additional commercialisation strategies, i.e. services, direct sales, and indirect sales through intermediary organisations, which also proved extremely effective in the case of the Programme’s material results. Although majority of universities, research institutes, and industrial research centres across the world have introduced technology transfer and commercialisation guidelines promoting different commercialisation routes and set up commercialisation structures such as technology transfer offices or entrepreneurship incubators (Thursby et al., 2001; Siegel et al., 2003; Clarysse et al 2005, Wnuk 2013), there still are problems as to which paths to choose. The paper gives an insight into theory and practice concerning the commercialisation of research results and discusses the best paths to commercialise intellectual property originating from publicly funded research. The authors analyse factors to innovation commercialisation and the relationship between them and commercialisation routes to be taken, and they list advantages and disadvantages of such innovation commercialisation mechanisms like licensing, spin-off company creation, sales, and services.
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2. Criteria for selection of commercialisation mechanisms The analysis of academic articles and commercialisation handbooks (Cervantes, 2003; Wunker, 2006; Ryan, 2011; Godinho and Mamede 2011; Meigounpoory and Ahmadi, 2012; Marx and Hsu, 2013; Evers, Cunningham, and Hoholm, 2014; Invent, 2015; Woolley, 2015) revealed that the main criteria for the selection of commercialisation mechanisms are the following: !
Character of innovation (incremental or radical),
!
The type of expected profit (immediate or long-term), and
!
The market situation (competitors or monopolists).
As far as the “innovation character” criterion is concerned, the authors of the analysed publications indicate that the application of the two major commercialisation paths (i.e. licensing, spin-off) is possible for incremental and radical innovations alike; however, they point out that licensing is preferred for incremental innovations, while the establishment of a new company is preferred for radical innovations. Marx and Hsu (2015) also add that the adoption of a licensing strategy allows the inventors to specialise on technical development at the outset with direct market penetration through company set-up facilitates the development of new, breakthrough technologies. When analysing the “expected profit” criterion, the authors propose licensing as the best commercialisation path, as it creates long-term revenue streams. When inventors are interested in immediate profit, they should opt for the sale of their innovation, because it gives quick access to money, while long-term revenue is generated by licensing. The establishment of a spin-off company, on the other hand, should be considered when there are no potential licensees and long-term benefits are higher than initial costs and risks connected with their own business activity. The authors also stress that market situation plays a crucial role in deciding which commercialisation route to choose. In the case when there are strong market players with renowned reputation, the authors suggest that establishing a company is the least advisable commercialisation route due to fierce competition or the fact that monopolists will likely prevent smaller and cheaper competitors from entering the market. Therefore, in such a situation, the authors of the analysed publications propose either licensing or selling research results, with the latter option being most favourable, particularly in the case when there is only one market for a developed innovation or when the research results can offer competitive advantage to the market monopolist. Woolley (2015) adds that a licence is a particularly good option when there is a suitable company already developing very similar technology that can take the IP and develop it with its R&D and product innovation resources. The results of analyses are synthetically presented in Table 1. Table 1: Dependency between commercialisation routes and the criteria for their selection Criteria for selecting commercialisation mechanisms Innovation type Expected profit Market situation
Incremental Radical Immediate Long-term Monopolised Scattered
Licence +
+ + +
Commercialisation mechanisms Spin-off + +
Sale + + +
+ + +
Source: Authors Even though the above listed criteria for the selection of commercialisation mechanisms for research results seem to be the most essential, the literature also discusses other factors that determine the type of a commercialisation route to choose. According to Cervantes (2003), the selection of commercialisation mechanisms depends on the nature of the technology to be transferred, the market for this technology, and the institution's mission. Godinho and Mamede (2005), on the other hand, are of the opinion that the underlying factor in the selection of the commercialisation route is in fact the nature of the knowledge used to develop a novel technology, i.e. tacit or codified knowledge. They conclude that technologies developed using codified knowledge are far more likely to be patented and licensed, whereas for technologies developed using tacit
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Urszula Wnuk, Adam Mazurkiewicz and Beata Poteralska knowledge, spin-off companies are a more probable means of their commercialisation. Meigounpoory and Ahmadi (2012) divide criteria for the selection of commercialisation routes into internal, external, and technological criteria. Among internal criteria, they name the organisation’s structure and resources, experience in commercialisation, and the organisation’s policy on science-industry cooperation as the essential factors. As far as the external factors are concerned, the authors stress the importance of market demand or government support for research commercialisation, and with reference to technological factors, the ones that are considered to be of key importance are technology readiness and IP protection. Woolley (2015) suggests that scientists generally choose between two direct commercialisation routes, i.e. licensing and spin-off companies, and the motivations for this choice are often a combination of the personal challenge of getting the research used in the real world and the financial benefits they offer. Case studies previously conducted by the authors (Wnuk et al., 2014; Wnuk, 2015) involving global research organisations worldwide (i.e. the Harvard University (USA); University of Cambridge (UK); the Swiss Federal Institute of Technology in Zurich (ETH Zurich) (CH); the Fraunhofer Society (DE); the Technical Research Centre of Finland (VTT) (FI); the Netherlands Organisation for Applied Scientific Research (TNO) (NL); the Massachusetts Institute of Technology (USA), the Oxford University (UK), the Max Planck Institute (DE), etc.) showed that the preferred mechanisms for the transfer of technologies originating from research organisations and universities are in fact licensing and commercialisation through start-up or spin-off companies, while the sale of IPR or provision of services are not widely used forms of innovation commercialisation. Additionally, these studies also revealed that, to some extent, there is also a correlation between commercialisation mechanisms and the research area the innovation represents. The authors noticed that licensing is most common when ICT innovations are commercialised, while biotechnological and medical innovations are frequently brought to the market through spin-off companies.
3. Benefits and drawbacks of given commercialisation routes Creation of a spin-off company Research-based spin-off companies are considered to be one of the main facilitators of the development of science and technology policy in all industrialised countries (Mustar, 2001). They are of economic significance for innovation activity (Helm and Mauroner, 2007), and they stimulate economic development and boost market competitiveness by introducing state-of-the-art technologies (Shane, 2005), and they also trigger regional growth and modernisation through the establishment of a growing technology base (Parker, 2001, Bramwell et al., 2008). Research-based spin-off companies also generate more income for the parent institution than licensing to established companies. However, the creation of a spin-off company is also a very difficult process which is influenced by many external factors (Invent, 2015).Spin-off companies also need cutting edge technologies that do not duplicate technologies already existing on the market (Shane, 2005); therefore, they involve a lot of risk. As the technology is usually unproven and not verified industrially, it needs to be financed by external investors, who may not wish to take the high investment risk, when the return on investment is highly uncertain. The fact that the technology commercialised through this route is also frequently at its early stage of development, it also poses additional implementation risks. The establishment of a spin-off company requires sufficient business knowledge and experience, because the success of the company depends on the quality of management. Additionally, contribution in kind to the company is also taxed high. Licensing Licensing is the most popular way to commercialise research results (Mowery et al., 2001; Thursby et al., 2001; Thursby and Thursby, 2002), and this commercialisation route is a fundamental means by which university inventions contribute to economic growth (Wu et al., 2015). Licensing allows the licensor to minimise capital investment and risks involved in commercialisation through a spin-off company. The researchers keep the ownership to the IP; however, they lose some control over it, and sometimes their own possibilities to use it may even be limited. Licensing research results means that the risks involved in their practical application are shared between the licensor and the licensee. A license agreement helps the author of innovation to generate quick revenue, but this revenue is significantly lower than in the case of commercialising through establishing a spin-off company. In the case when non-exclusive licenses are signed with different business entities, these can even be multiple sources of revenue, and different markets can be penetrated. One licence agreement can also concern different types of intellectual property and many patents. In the case when the licence is based on
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Urszula Wnuk, Adam Mazurkiewicz and Beata Poteralska know-how, not on technology, the licensee can, in the long run, become the licensor’s competitor. Both in the case of licensing and spin-off creation, the costs and risks must be evaluated against the potential returns. Sale Sale of IPR is advisable in the case when the market is monopolised and other forms of commercialisation are not possible (Invent, 2015). It generates immediate revenue; however, it is equivalent to losing the right to the sold research results and control over its usage, because the IP ownership is transferred onto the buyer. The sale is at a fixed price, which is much lower than the revenue generated through licensing or spin-off creation, and the return on investment is capped at this price, as no royalties or bonus payments are included. Provision of services Although publications analysed by the authors did not cover the provision of scientific or technological services as a commercialisation mechanisms, the authors’ experience in the execution of research programmes shows that this is also an important commercialisation route for research results. This commercialisation mechanism is preferred when business entities have no R&D infrastructure and therefore commission research organisations to perform research for them. Services can be provided regardless of the type of innovation offered or the market situation; however, being a particular type of a sale agreement, they ensure only immediate profit that is not accumulated over time.
4. Commercialisation routes in practice: A case of a research programme from Poland The Institute for Sustainable Technologies – National Research Institute has much experience in the execution of R&D programmes in the domain of national innovativeness and competitiveness that include contract research commissioned by the Polish government and administrative bodies, grant projects, and targeted projects that have finished with the successful implementation of their results. The Institute also has much experience in the execution of strategic research programmes within which numerous Polish academic and nonacademic centres and enterprises (particularly from the SME sector) participate. The examples of such programmes include, inter alia, The PW-004 Multi-year Programme “Development of Innovative Systems of Manufacturing and Maintenance 2004-2008” or the “Innovative Systems of Technical Support for Sustainable Development of Economy” Strategic Programme for the 2010-2015 period executed within the Innovative Economy Operational Programme and co-financed from EU structural funds. Within the latter Programme, the Institute has so far signed 525 transfer agreements for its results. Figure 1 presents commercialisation mechanisms that were applied.
Figure 1: Commercialisation mechanisms in the “innovative systems of technical support for sustainable development of economy” strategic programme Source: Authors
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Urszula Wnuk, Adam Mazurkiewicz and Beata Poteralska The research tasks within the Strategic Programme were executed under 5 thematic groups concerning different research areas. Group 1 concerned systems research in the field of technology transfer and IT systems supporting the commercialisation of research results. Group 2 was devoted to advanced technologies supporting the development and maintenance of machines and technical devices. Tasks within Group 3 concerned the development of original test and research instrumentation. Group 4 was devoted to environmental issues, particularly systems and methods for rational use of resources, and the last, but not least, Group 5 included research tasks devoted to systems of diagnostics and safe maintenance of technical objects. As presented in Figure 1, research results in Group 4 were most commonly commercialised, which is not surprising taking into consideration the fact that environmental issues are now among one of the most important priorities in Polish and EU regulations. Figure 1 also shows that the provision of services was the most commonly applied mechanism of research commercialisation within the Strategic Programme. The high applicability of this mechanism is connected with the originality of the developed technologies and systems with reference to which it was applied. Services were mainly provided with the use of the following results of the Programme: Group 1: a method for the assessment of the implementation maturity level applied for the assessment of technological investments for the needs of technological parks and enterprises; Group 2: surface engineering material solutions meant for special applications for military purposes, and material solutions for multifunctional protection applied in manufacturing companies; Group 4: assessment of physicochemical properties of various operating fluids; and, Group 5: heat recuperation efficiency tests for heat exchangers used in ventilation systems in modern buildings. Sale constituted the second most common mechanism used for the commercialisation of results of research conducted within the “Innovative Systems of Technical Support for Sustainable Development of Economy” Strategic Programme. Noteworthy is the fact that this was not the sale of IPR but retail sale of individual systems, technologies, or devices developed within the Programme with the application of original know-how. This mechanism was mainly used with reference to unique devices and research and test instrumentation whose connection to technological lines significantly improves manufacturing processes and enables the inspection of the quality of manufactured goods. These research results were either directly sold to end users or indirectly sold through intermediaries. Examples of direct sale include devices supporting ecological use of industrial oils implemented in numerous enterprises; a chamber for testing the emission of volatile organic compounds sold to manufacturing companies including a factory producing paints and varnishes; multi-functional bearing lubricants sold in numerous SMEs companies (mainly from the food industry); and, systems (e.g. automated optical inspection systems implemented in numerous manufacturing firms for quality control). Original penetrometers were sold with the assistance of firms acting as sale intermediaries. From Figure 1 it is also evident that mechanisms like licensing and spin-offs are not common at the Institute. Their scarce application is the result of numerous barriers to technology transfer that impede the commercialisation of results of research like tax issues, the lengthy process of spin-off creation and the difficulties in finding industrial partners for co-financing and joint establishment of a spin-off company, the need of the high engagement of researchers in the activity of a spin-off company, and problems with marketing and legal obstructions to the establishment of spin-off companies. Summarising the aforementioned, the popularity and application of selected commercialisation mechanisms at the Institute for Sustainable Technologies – National Research Institute can be summarized as follows (Table 2). Table 2: Commercialisation mechanisms applied for the results of the “innovative systems of technical support for sustainable development of economy” strategic programme Mechanism
Popularity of application
Sale Licensing Spin-off Services
++ + +++
+++ frequent, ++ moderate, + rare, - non existent Source: Authors
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Urszula Wnuk, Adam Mazurkiewicz and Beata Poteralska The Institute is striving to improve the effectiveness of the commercialisation of the results of the research projects it conducts. Several measures aimed at boosting the effectiveness of these processes have already been taken (e.g., a platform for the dissemination of research results addressed to scientific institutions, enterprises and intermediary organisations), and as a result of their application, numerous technological, process, and system solutions have found their way to the market.
5. Summary In the contemporary world, innovations are viewed as the drivers for productivity and social and economic development. The changing understanding of knowledge and technology transfer in the knowledge-based economies complies with the priorities of economic sustainable development. In this new reality, it is extremely important for all entities (be it research institutes, universities, or businesses) engaged in the development and commercialisation of their research results to ensure the effectiveness of the commercialisation process, and the selection of a commercialisation mechanism is one of the prerequisites for its success. There are no good or bad commercialisation strategies, and different routes to the market can prove effective in different contexts. Organisations planning to commercialise their research results need to carefully plan the commercialisation process and analyse all the possible pros and cons of a considered commercialisation mechanism before applying it. It needs to be remembered that commercialisation does not happen in a vacuum and that internal and external factors need to be scrupulously analysed and assessed. These include, inter alia, human, organizational, legal, technological, and market-related factors but also innovation specific factors like character of innovation or its technological readiness or IP ownership, and economic factors like return on investment, revenue generation, or financial risk. The processes of technology development and transfer are hampered by various barriers hindering the practical application of innovations in the economy. The barriers must be recognised before taking the decisions concerning technology development in the course of the process as well as at the technology transfer stage.
Acknowledgements Scientific work executed within the Strategic Programme “Innovative Systems of Technical Support for Sustainable Development of Economy” within Innovative Economy Operational Programme.
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Urszula Wnuk, Adam Mazurkiewicz and Beata Poteralska Mustar P., Renault M., Colombo M., Piva E., Fontes M., Lockett A., Wright M., Clarysse B., Moray N. (2006) Conceptualising the heterogeneity of research-based spin-offs: A multi-dimensional taxonomy Research Policy, 35 (2006), pp. 289– 308 O'Shea R., Chugh H., Allen T. (2008) Determinants and consequences of university spinoff activity: a conceptual framework Journal of Technology Transfer, 33 (2008), pp. 653–666 Parker P. (2001) Local–global partnerships for high-tech development: integrating top-down and bottom-up models, Economic Development Quarterly, 15 (2001), pp. 149–167 Phan P.H., Siegel D.S. (2006) The effectiveness of university technology transfer: lessons learned from qualitative and quantitative research in the US and UK Foundations and Trends in Entrepreneurship, 2 (2006), pp. 66–144 Powers J.B., McDougall P.P. (2005) University start-up formation and technology licensing with firms that go public: a resource-based view of academic entrepreneurship, Journal of Business Venturing 20 (2005) 291 – 311 Ryan S. (2011) Commercialisation 101 – Choose the best path to market, Alchemy Equities, Sydney, Australia Shane, S. (2005) Academic entrepreneurship. University Spinoffs and Wealth Creation, Edward Elgar Publishing Ltd, Cheltenham, UK, Edward Elgar Publishing Inc., Northampton, MA, USA. Siegel D.S., Waldman D., Link A. (2003) Assessing the impact of organizational practices on the relative productivity of university technology transfer offices: an exploratory study Research Policy, 32 (2003), pp. 27–48 Siegel, D. S., Waldman, D., Atwater, L. & Link, A.N (2004). Toward a model of the effective transfer of scientific knowledge from academicians to practitioners: qualitative evidence from the commercialization of university technologies, J. of Eng. and Tech. Management. Thursby J., Jensen R., Thursby M. (2001) “Objectives, Characteristics and Outcomes of University Licensing: A Survey of Major U.S. Universities,” Journal of Technology Transfer, 59-72. Thursby J., M. Thursby (2002) “Who is Selling the Ivory Tower: the Sources of Growth in University Licensing,” Management Science 48, 90-104. Wnuk U. (2013) Struktury wsparcia procesu transferu technologii w Polsce na tle doświadczeń europejskich, E-mentor nr 1 (48) / 2013 4-8, SGH, Warszawa Wnuk U. (2015) Organisation and management of knowledge and technology transfer processes at research organisations: empirical study, Problemy Ekslpoatacji/ Maintenace Problems 2015(4) 55-64 Wnuk U., Mazurkiewicz A., Poteralska B.: Toward an Effective Model of Technology Transfer from Polish Public Research Organisations, Galbraith B. (ed.) Proceedings of the 9th European Conference on Innovation and Entrepreneurship, Version ISSN: 2049-1069 pp. 472–479. Woolley D. (2015) Licensing or spinout? An overview of your options https://futureworlds.com/licensing-spinout-overviewoptions/ Wu Y., Welch E.W., Huang W-L. (2015) Commercialization of university inventions: Individual and institutional factors affecting licensing of university patents, Technovation 36-37 (2015) 12–25 Wunker S. (2006) Choosing the path to market penetration, Strategy and Innovation, vol. 4, no 6/ 2006
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Incorporating Design Thinking in Entrepreneurship Education Blaž Zupan1 and Anja Svetina Nabergoj1, 2 1Faculty of Economics, University of Ljubljana, Slovenia 2Stanford University, USA
[email protected] [email protected]
Abstract: One of the approaches that is currently being tested by several universities to improve entrepreneurial education is the use of design thinking as a teaching methodology. Even though emerging literature attests to the effectiveness of design thinking as a teaching methodology, no well-defined, comprehensive conceptual model has been developed to date, identifying components likely to be associated with effective entrepreneurial learning when design thinking is used to develop entrepreneurial projects. Therefore, there is a need to develop a conceptual (theoretical) model in order to guide researchers in evaluating the utility of design thinking in entrepreneurship education as a method of teaching and to guide them in designing course content and delivery. We conducted in-depth interviews of educators and students from four institutions from Europe and the US that are on the cutting edge of integrating design thinking into entrepreneurship courses. The purpose of the interviews was to explore successful entrepreneurial projects where design thinking was used as a teaching or project development methodology and to distill from the interviews, with a carefully-designed coding and analysis procedure, the components which contribute to the success of the project. To analyze the data, we employed both a deductive approach and an inductive thematic analysis approach. The insights of educators and students were used to construct a “conceptual model of design thinking-based entrepreneurship education” that is comprised of nine components. The environmental set of components includes mentoring, tools and spaces, and external recognition. The process components include interdisciplinarity, fieldwork, experimentation, and user-centered research. As the basis for effective learning experience, we propose the meaningfulness of the project and continuity as a measure of effectiveness of the course. It is proposed that, in order to achieve continuity as a measure of effectiveness, all other eight components should be present and sufficient care should be taken in course design and deployment to support their development and use in the learning process. Our research bridges the literature gap between the disciplines of design thinking and entrepreneurial education. This integration promotes greater understanding on how design thinking improves entrepreneurship pedagogy which, in turn, could also lead to improvements in student learning particularly in competencies, such as effective communication, networking, and innovative thinking that are necessary in the twenty-first century. Keywords: entrepreneurship education, design thinking, constructivist pedagogy, competencies, conceptual model
1. Introduction Despite attempts to incorporate research findings, early strategies for teaching entrepreneurship have been deemed ineffective (Kuratko, 2005), in some cases showing no correlation with cognitive entrepreneurial skills (Huber, Sloof, & Van Praag, 2012) or venture performance (Chrisman, McMullan, Ring, & Holt, 2012) and in others actually diminishing students’ entrepreneurial ambitions (Oosterbeek, van Praag, & Ijsselstein, 2010). The problem, it seems, is that the methods in entrepreneurial education seldom support the realities of entrepreneurship (Collins, Hannon, & Smith, 2004). Rather than didactically teaching specific content, critics suggest we should educate students by providing opportunities to practice entrepreneurship (Neck & Greene, 2011). A growing body of research argues that design and entrepreneurship share a number of similarities (Sarasvathy (2004). Penaluna and Penaluna (2009) point to characteristics such as experiential learning, non-linearity, unpredictability, development of mindsets, and response to constraints to illustrate analogous experiences of designers and entrepreneurs. Matthews (2009) corroborates this relationship between design and entrepreneurship, suggesting that both disciplines create value and bring about change. A relationship between design thinking and entrepreneurship is also suggested by language that includes “innovation” in descriptions of design thinking. Stanford University has defined design thinking as “a catalyst for innovation and bringing new things into the world” (Plattner, Meinel, & Leifer, 2011), and Tim Brown (2008, p. 1) has called it “a methodology that imbues the full spectrum of innovation activities with a human-centered design ethos.” Further, design thinking has recently received increased attention in both business literature (Neck & Greene, 2011; Plattner et al., 2011) and pedagogy. Part of the attraction to the analysis of design approaches is the potential promise that a multidisciplinary approach that includes design principles, may bring to entrepreneurial education. Rauth, Köppen, Jobst, and
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Blaž Zupan and Anja Svetina Nabergoj Meinel (2010, p. 7) define such a strategy as “a learning model which supports design creativity, utilizing a project and process based learning process by emphasizing creative confidence and competence.”
2. Constructivist learning theory It is essential that a discussion about a teaching construct, such as design thinking, be situated within applicable learning theories. As the constructivist learning theory postulates that learners construct knowledge for themselves, we need to focus on the learner and not on the subject/lesson and induce learning by attaching meaning to learning experiences (Hein, 1991). In the past 20 years, constructivist learning theory has been receiving increased attention in learning and teaching as researchers started emphasizing that knowledge is constructed through meaning-making in cultural and social communities, and therefore constructivist scholars call for a substantively different approach to instruction from that used at most schools (Fosnot, 2013), as experience with concepts and relations in school is substantively different from the real world. In a presidential note, Resnick (1987) compared learning in everyday activities to school learning and identified four notable differences which at the same time describe the foundation of the constructivist view on learning: !
Emphasizing socially shared activities with
!
direct engagement with the environment by
!
using cognitive tools and
!
learning situation-specific rather than general skills.
The constructivist learning theory argues why contextual learning is important and which concepts are its basic building blocks, but does not provide a clear answer on how should learning be organized to achieve desirable learning outcomes (Tobias & Duffy, 2009). Moreover, some sort of strategic prescriptions or frameworks on how instruction should be organized is needed and theories in learning should also be practically oriented towards instructional practices (Jonassen, 1999). Additionally, it is lacking in practical applicability, as it proposes no practical application (Wagner, 2010) and no process to support holistic and interdisciplinary learning. A variety of operationalizational approaches to the constructivist learning theory have been proposed. One of them is Design thinking, which has already been recognized as a possible answer to the shortcomings and dilemmas of the constructivist framework (Withell & Haigh, 2013), as it offers a practice-oriented and holistic constructivist learning environment in which competencies are developed through interdisciplinary projects. However, no empirical studies have been conducted and a clear gap still exists in understanding of the actual processes and the environment guiding design thinking constructivist pedagogy at the university level entrepreneurship education. Because entrepreneurship as a social phenomenon cannot be separated from its highly complex context, which, some argue, is the most important part of the entrepreneurial process (Moroz & Hindle, 2012), it can hardly be learned in a meaningful way without bringing learning to an authentic context and vice versa. What an authentic context is differs from case to case and it is beyond the scope of this research to make any predictions about what constitutes the environment in specific cases. What we explore is the context which design thinking, due to its characteristics, inherently applies to entrepreneurship education. Consequently, we will be interested in components of the context (defined very broadly) which influence effective learning.
3. Design thinking as a teaching methodology Design thinking was adopted by entrepreneurship academia because it was seen as one of the most promising new teaching methods in entrepreneurship education (Neck & Greene, 2011). There have been several attempts to define design thinking. One study labels it simply as a method of creative problem-solving (Tischler & Alto, 2009), while another study classifies it as a learning model which supports design creativity, and utilizes a project- and process-based learning process by emphasizing creative confidence and competence (Rauth et al., 2010). Another study defines design thinking as a “generic innovation process” (Beckman & Barry, 2007, p. 25), while Tim Brown of IDEO characterizes it as “a discipline that uses the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity” (Brown, 2008). Rauth et al. (2010) interviewed 17 teachers of design thinking from US and Germany and drafted a set of methods which constitute design thinking. These methods fall into five steps in the design thinking process:
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Blaž Zupan and Anja Svetina Nabergoj !
Understanding in which observation and empathy are used in gathering data and understanding users through ethnographic methods such as interviewing and videography;
!
Defining problems with tools such as Venn diagrams, scenarios, or storyboards to formulate problem statements. The design team develops a point of view by defining what problems should be solved and for whom;
!
Generating ideas with different methods such as brainstorming;
!
Prototyping a series of representations by using simple methods such as sketching, or complex methods such as physical prototyping and computer simulations (Brown, 2008); and
!
Testing and assessing prototypes in order to gather constructive feedback by users so that the design can be improved before “final” implementation.
Several mindsets have also been identified as an important part of design thinking methodology (Rauth et al., 2010), such as human centeredness, empathy, culture of prototyping and collaboration among disciplines. As designers’ ways of doing and thinking always come into view through contexts, design thinking as a problemsolving methodology inherently provides rich teaching contexts where students learn academic content as well as personal and professional competencies to deal with real-life problems. As design thinking is slowly entering the mainstream entrepreneurship education, several authors have been researching different aspects of this phenomenon. While all studies into an emerging field are important, an investigation into how design thinking enhances the context of entrepreneurship education at the University level is also necessary. We were particularly interested in the components (words such as “factors”, “elements”, and “variables” are also interchangeably used in the relevant literature) of the context, which appear to be a consequence of using design thinking as a teaching methodology. These components might partly describe why design thinking is a promising complementary method of teaching entrepreneurship. Our goal is to address gaps that the literature has not adequately addressed. Design thinking has been proposed as one of the possible answers to the dilemmas of the constructivist learning theory (Scheer, Noweski, & Meinel, 2012), however no frameworks have been developed, describing the situation when design thinking is used as an effective teaching methodology and which concepts (components) explain this situation. As educators should be teaching content through contextual practice (Neck & Greene, 2011), the literature has yet to provide a conceptual model, taking into account the importance of environmental and process specific (or together known as contextual) components in delivering an effective entrepreneurship education.
4. Methodology The research goal was to develop a conceptualization of components responsible for the success of an entrepreneurial project in which design thinking was used as a teaching methodology. Three research settings were used and interviews were chosen as a data acquisition technique because we were interested in what a set of people considered knowledgeable in the researched topic think, and thus gather rich data concerning central issues of the research project. We moderated the number of interviews according to the number of codes that each additional interview added to our study. We used purposive sampling, combining critical case sampling and snowball sampling, which is often used in the early stages of investigations into new topics and is a common sampling method in explorative qualitative studies (Noy, 2008). Taking into account the explanations listed above, and that the use of purposive sampling permits for different sample sizes, these sample sizes are perceived as adequate (Onwuegbuzie & Leech, 2007). The research institutions selected were The University of Wales Trinity Saint David with six participants; The University of Ljubljana with four participants; Stanford University with one participant; and Cornell University with one participant. In-depth interviews were used as a data collection method, which is commonly used as an exclusive data acquisition technique in qualitative research (see for instance Bogle, 2008). Interviews, especially in-depth interviews, are conversations which attempt to understand the subject matter from the participant’s point of view, usually by telling stories (Seidman, 2013). They are a popular form of inquiry in qualitative research (Yin, 2010), especially in the educational context as, in contrast to other sciences, in social science the subjects of inquiry can talk and think (Bertaux, 1981).
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Blaž Zupan and Anja Svetina Nabergoj The process of interviewing was directed towards minimizing the effect of the interviewer and the situation (Seidman, 2013) so that the studies are credible or correct in terms of description, conclusion, explanation, and interpretation. However, researchers and readers alike need to acknowledge that under relativist inquiry, multiple interpretations might exist and perceive this as an opportunity for further theoretical advancements when applying different methodological and investigator lenses to data and interpretations in further research. Based on the research questions and the nature of data, a combined deductive and inductive approach is methodologically consistent with the under-researched topic (Yin, 2010). During the coding process, using nVivo software, relevant segments of data were related to codes, thus organizing and ordering data (Lewins & Silver, 2007; Yin, 2010) to be retrieved under the later phases, namely analysis and interpretation. The data analysis process is iterative in which the researcher constantly moves between reorganizing, exploring, and integrating data and interpreting it by making connections, comparing subsets, and identifying patterns (Lewins & Silver, 2007). This process was repeated until sufficient categories, now named “components” of the conceptual model, were defined to explain what has been observed and a consensus was made among the researcher and committee members. During this iterative process, literature was frequently consulted with regards to emerging categories (components).
5. From meaningfulness to continuity: conceptualizing design thinking-based entrepreneurship education As inductive codes were assigned during the actual coding process according to the insights from the analyzed text, coding was done twice. First, we went through the interviews and assigned codes on an “as you go” basis. In the second step, all interviews were deductively coded based on codes assigned in the first step. Three additional insights emerged during the secondary coding so the interviews were analyzed for the third and last time, and the additional insights were coded. In the first round of coding we came up with 35 codes, which were color-coded according to shared characteristics. For instance, the phases and characteristics of the design thinking process represented one color, connection with community and project outreach another, codes regarding mentors yet another, and so on. In total, 46 coded were assigned, out of which 12 were excluded from the analysis as they had only a small number of sources. The remaining 34 codes were logically integrated into nine concepts (or components of a conceptual model). The concepts include meaningfulness of the project as a prerequisite for effective course delivery and continuity as a theorized measure of effective course delivery. All of the concepts listed in Error! Reference source not found. were common to all of the projects described during the interviews. The components, however, manifested in different ways, for instance, the tools and spaces used depend heavily on the characteristics of the project. Some projects only needed basic prototyping materials such as post-it notes and a computer, while others required advanced machinery such as CNC machines. Access to project relevant tools and spaces was one of the vital aspects of successful projects. We will, in this study, use a compiled working definition of a conceptual model aimed at studying the context of learning as a set of cooperating components that make up the broad context in which learning takes place. Figure 1 depicts the proposed conceptual model. The proposed conceptual model of design thinking-based entrepreneurship education is both a theoretical representation of the context in which effective learning takes place and at the same time provides a framework for supporting course designers in developing an effective learning environment for developing entrepreneurial competencies. Continuity, as the measure of success of entrepreneurial projects developed as part of a coursework, is dependent on two sets of components and meaningfulness of the project. The first set are project processes and the second set, overarching the project, are environmental components. The criteria of meaningfulness of the project argues which projects should be developed, and the process components describe how; specifically what tasks should be used to achieve high levels of meaningful learning. The results indicate that an important part of learning is fieldwork where students develop their projects in an authentic context. Additionally, interdisciplinarity manifests itself through several different ways, either through interdisciplinary teams, gaining knowledge from different disciplines, or working with people from other disciplines, who are either mentors or professional collaborators but not part of the team. Experimentation and user-centered research are basic elements of design thinking process and, as expected, played a crucial role in the process of effective project development.
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Blaž Zupan and Anja Svetina Nabergoj The environmental set of components describes how the environment in which successful projects are developed, is structured. It answers a question of where and with whom process components should be carried out or where and with whom tasks should be performed. The analysis shows, that tools and spaces, whatever is needed according to the characteristics of the projects, should be readily available. The analysis of researched class projects also indicated that mentors play a crucial role by supporting personal and professional development of individuals and teams. External approval, either by the industry or student peers, general public, media, or other interested audiences, adds motivation and contributes to the continuity of projects as a proposed criteria for successful design thinking-based entrepreneurship projects. Continuity, meaning that the projects continued after the course was over, was seemingly a criterion, by which one could differentiate between successful and unsuccessful projects, or a measure of effectiveness of entrepreneurship education. However it arguably can be planned for and certain measures can be taken to promote it. These measures would include, besides the identified components, incubators, help with long-term financing, and the like.
Figure 1: Conceptual model of design thinking-based entrepreneurship education
6. Discussion of results Generally speaking the results of the analysis were surprising, as it was evident that there is no uniform way of applying design thinking as a teaching methodology, in terms of interdisciplinarity, mentoring, etc., when developing entrepreneurial projects. In cases where design thinking is used as a methodology to develop entrepreneurial mindsets, using it in a more technocratic way arguably makes sense as certain parts of the methodology work towards developing certain mindsets, for instance the brainstorming part develops creative thinking and the implementation part develops negotiation skills. However, in our case, the overarching aim of the courses was to support entrepreneurial behavior in general, apart from building competencies without a context. Design thinking was applied in numerous ways, however common overarching parallels were drawn representing general approaches (components), common to all 12 projects. Based on our findings, we introduced a conceptual model for design thinking-based entrepreneurship education. The model includes nine components which might play an important role in advancing entrepreneurship education. The model postulates that the success of projects can be measured by the element of continuity, which in turn is dependent on a certain set of environmental and process components, as depicted in Figure 1. The basic precondition and component of the whole design thinking-based entrepreneurial project development process is the meaningfulness of the project, which allows the whole learning experience to be meaningful. However, the analysis suggests that whether a meaningful project will be adequately developed to result in continuity, is connected to the use of fieldwork, experimentation, interdisciplinarity, user-centered research, mentoring, and external recognition. It is also proposed, that experimentation, mentoring, user-centered research, external recognition, and continuity also strengthen the notion of meaningfulness of the project. However, as continuity by definition can only be measured after the course is finished, this relates to a timeframe that is not a part of our research.
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Blaž Zupan and Anja Svetina Nabergoj Moreover, even if these conditions are met, there are three additional environmental components which provide for successful project development, as projects cannot be developed outside of their authentic contexts. Mentoring and external recognition are proposed to be interconnected as mentors can contribute to external recognition, if they are not part of the core teaching team. Tools and spaces are proposed to be connected to fieldwork, experimentation, and interdisciplinarity since they are used in those processes. Mentoring is also proposed to be connected to user-centered research, experimentation, and interdisciplinarity since mentors might play a crucial role in facilitating those processes. Thus, the connections between proposed concepts are explored and while being reasonably supported by the constructivist approach to learning, further research endeavors will be needed to refute or confirm these assertions. It is also important to note that the conceptual model is only a proposition and that several other unidentified variables might be present, having an effect on continuity of projects.
7. Implications An argument towards the quality of research has been established in Chapter 3, where several procedures for strengthening the validity were described (Creswell, 2014). Additionally, we have studied with an appropriate bottom-up approach (Eisenhardt, 1989) suitable sources of data which are as close to the phenomenon as possible, thus increasing the reliability of conclusions. Such conceptual research, synthesizing previous research, and including real-world descriptions, adds additional weight to external validity of our research findings. The conceptual model, through a logic of causality, proposes how the components are linked as the continuity is preceded by both process and environmental components as well as meaningfulness of the project. It is therefore argued that the model describes and, if applied to a project-based university level entrepreneurship education, predicts an effective design thinking-based learning experience. It presents, in a systematic way, an understanding of how effective project work might be structured, limited of course to the context in which the empirical analysis was conducted. As an important implication, continuity of projects after the course is finished is suggested to be an innovative measure of effectiveness of complex constructivist approaches to entrepreneurship education. We thus add to the existing literature on measuring the effectiveness of constructivist learning approaches. These approaches include the theory of authentic learning (Lindsay & Wood, 2014) and the experiential learning theory, as well as the design thinking approach (Noweski et al., 2012), where several different measures have been proposed in assessing student work, however the continuity of the project has, until now, never been identified as one of the measures of course or project quality. The overarching practical implication is the improvement of entrepreneurship education by building in design thinking into the course content and curriculum. Design thinking is already to some extent theoreticallygrounded and empirically researched. We have found that learning was elevated and projects exhibited a tendency to carry on even though the formal course was over. This may translate into the bigger possibility that students actually develop a product, therefore the proposed model can be a valuable addition to entrepreneurship courses whose aim is to develop actionable entrepreneurs. The conceptual model aspires to be usable in entrepreneurship education, hopefully in a variety of educational contexts. It would be interesting to see if an application of the conceptual model in fact aids in producing projects with a higher probability of being continued after the course is over. It is hoped that the educational community will come to accept design thinking in existing educational programs throughout the educational system where authentic project work is part of the course curricula. In general, policy-makers could take action to promote improvements in entrepreneurship education by systematically improving the curricula at all levels of education.
8. Limitations and future research As with all studies, the research includes several biases and limitations rooted in the data collection instrument, data collection technique, analysis process, and the qualitative research methodology in general. Additionally, lack of prior research studies on the topic does not provide for a boilerplate on which the research questions, research methodologies or the analysis process could be based. Moreover, the participants consisted only of university students and university professors, from four institutions. Their jargon, working/teaching protocols, specificities of using design thinking as a teaching methodology, and understanding of the educational system might be unique thus interfering with data analysis and interpretation, and limiting the generalization. This
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Blaž Zupan and Anja Svetina Nabergoj study is not intended to evaluate the quality of analyzed projects or courses or to assess any effects the courses or project work had on the students. Testing the propositions with further qualitative and quantitative research undertakings needs to be considered to reaffirm the validity of the conceptual model. In subsequent phases of the research, testing by structural equation modeling might be considered to better understand which components are good indicators of the continuity of the projects.
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Blaž Zupan and Anja Svetina Nabergoj Scheer, A., Noweski, C., & Meinel, C. (2012) “Transforming Constructivist Learning Into Action: Design Thinking in Education”, Design and Technology Education: an International Journal, Vol 17, No. 3, pp 8-19. Seidman, I. (2013) “Interviewing as Qualitative Research: A Guide for Researchers in Education and the Social Sciences”, Teachers College Press, New York. Tischler, L., & Alto, P. (2009) “Ideo's David Kelley on "Design Thinking"”, Fast Company, Vol 5, 2009. Tobias, S., & Duffy, T. M. (2009) “The Success or Failure of Constructivist Instruction: An Introduction”, In S. Tobias & T. M. Duffy (Eds.), Constructivist Instruction: Success or Failure?, Taylor & Francis, New York. Wagner, T. (2010) The Global Achievement gap: Why Even our Best Schools don't Teach the new Survival Skills our Children Need--And What we can do About it, Basic Books, New York. Withell, A., & Haigh, N. (2013) “Developing Design Thinking Expertise in Higher Education”, Paper presented at the CUMULUS 2013: 2nd International Conference for Design Education Researchers, Oslo, Norway. Yin, R. K. (2010) Qualitative Research From Start to Finish, Guilford Press, New York.
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Stimulating Innovative Entrepreneurship: How to Apply US Experience for Azerbaijan Odiljon Abdurazzakov Qafqaz University, Azerbaijan
[email protected]
Abstract: Many nations strongly reliant on natural resources are taking measures to diversify their economy. One of the opportunities for developing non-oil sector is stimulating and supporting innovative entrepreneurship. Emerging economies in the post soviet region including Azerbaijan view economic growth based on innovation as a tool for ensuring sustainable growth in the 21st century. As these nations develop models for stimulating innovative entrepreneurship, it is important to study the experience of the successful startup ecosystems. This paper discusses the factors behind the success of world’s highest ranked startup ecosystems, with special emphasis on the startup ecosystem in the US. It analysis the relationship between such elements as availability of talent pool, access to forms of risk finance such as angel investments and venture capital firms, existence of legal framework that protects the rights of entrepreneurs as well as investors and regulates relationships between them. The paper also discusses the importance of catalysts of innovative entrepreneurship – incubators and accelerators and their importance in increasing the innovative potential of startup ecosystems. The final section of the paper discusses the emerging startup ecosystem in Azerbaijan and analyses the newly established incubators and accelerators in Baku, capital of Azerbaijan. The paper concludes with recommendations on stimulating innovation based entrepreneurship in Azerbaijan. A strategy on increasing the role of universities and research centres in this process is discussed. Keywords: innovation, start-up, ecosystem, entrepreneurship
1. Introduction A dynamic and vibrant private sector is essential to economic growth. Creation of new, sustainable businesses is important for the continued dynamism of the private sector. Like other emerging economies, this notion holds true for Azerbaijan, a country with rich natural resources, but has been taking measures to diversify its economy. Over the past decade, Azerbaijan’s economy was one of the fastest growing economies in the world mainly thanks to extraction and export of oil. The share of oil industry in the national economy increased almost two fold from 31.7% to 61.8% between 2000 and 2007 (Kuriakose, Smita, 2013, Hasanov 2013). While the boom of the oil sector led to significant increases in government spending on infrastructure, education, healthcare and other important sectors, the government has realized the importance of developing non-oil sectors to ensure the sustainable growth of the national economy. One of the opportunities for developing non-oil sector is stimulating and supporting innovative entrepreneurship. Emerging economies in the post soviet region view economic growth based on innovation as a tool for ensuring sustainable growth in the 21st century. In light of this, governments of Caucasus and Central Asian countries have adopted state programs on stimulating innovation among small and medium businesses. The resource rich developing countries in the region including Azerbaijan, are trying to develop new technology based firms (NTBF) since policy makers in these countries have increasingly realized that economic development based on exports of natural resources, such as oil, natural gas, gold, etc., is not sustainable. The Development Concept of Azerbaijan Republic approved by the President in 2012, “Azerbaijan 2020: Look Into The Future” emphasizes the establishment of market infrastructure network that serves to develop the non-oil sector. In Azerbaijan, some projects intended to stimulate innovative entrepreneurship have been launched by both international organizations and the government agencies. For example, the Ministry of Information and Communication Technology of Azerbaijan recently has launched two projects: Regional Innovation Zone and High-Tech Park. High-Tech Park of Azerbaijan was established in 2012 to serve as a seedbed for new technology based startups. It currently serves as a business incubator and provides organizational and some financial support to startups. The government of Azerbaijan is planning to expand this project by building a High-Tech City in capital city Baku. The second project, Regional Innovation Zone, was created with five goals: fostering SME and technology innovation; enabling HR development and establishing an IT university; assessing International data center perspectives; defining measures to help investment activities, in particularly foreign direct investment.
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Odiljon Abdurazzakov Since the government of Azerbaijan views moving away from an economy based on natural resources to an economy based on innovative entrepreneurship as one of the high priority tasks, there is a need to study international experience in this field to develop proposals for policy makers. Although there are arguments against using the experience of developed countries in formulating strategies for emerging economies, there is evidence in favor of a “follow the leader approach” (Rostow, 1960), i.e. that emerging economies should adopt the models and follow the recipes of developed countries. In this context, it is critical to study the national innovation policies of developed countries and modify it for the Azerbaijani economy in order to stimulate innovative entrepreneurship in Azerbaijan. Since United States is home to the leading startup ecosystems, such as Silicon Valley, Boston, New York and Los Angeles, it is worth studying the experience of the US as emerging ecosystems like Baku craft their strategy. This paper analyses the factors behind the success of the startup ecosystems in the US and develops recommendations for Azerbaijan. The rest of the paper proceeds as follows: the second section of this paper discusses the factors contributing to the top ranking startup ecosystems globally. The third section focuses on the US experience in technology entrepreneurship with the purpose of developing a model for Azerbaijan. The concluding remarks and recommends are given in the last section.
2. Reshaping of the global technology entreprneurship scene During the last few decades of the 20th century technology startup scene has been dominated by the US tech hubs Silicon Valley, Boston, New York City and Los Angeles. However, during the first decade of the 21 st century, tech entrepreneurship has started to expand globally. Canadian cities such as Toronto, Vancouver and Montreal as well as European cities London, Berlin and Paris have developed startup ecosystems similar to that of the US hubs. Despite its small population size and relatively small local market, Tel Aviv was also quick to transform itself into a successful hub for tech entrepreneurship. Vibrant ecosystems also emerged in the Asia Pacific region, namely in cities Singapore, Sydney and Bangalore. With populations exceeding 20 million and 15 million correspondingly, Sao Paulo and Moscow have also demonstrated their ambition to become a nucleus for new technology based startups. Consistently ranked among top 20 ecosystems by Startup Compass (Startup Genome 2012, Startup Compass 2015), what makes these technology hubs more successful than others? This section of the paper analyses the factors that contribute to the success of the top ranked ecosystems which will be used later in the paper to derive recommendations. Academic literature and reports on startup ecosystems are in consensus about the importance of the following factors to the success of technology hubs: !
Access to talent – all of the high performing ecosystems have access to a richer pool of talent, which includes those with advanced degrees (master’s and PhD) as well as higher concentration of engineers.
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Availability of funding – while access to seed capital is vital, it is also important to consider whether there is any gap in funding across different stages of startup’s life cycle. High ranking ecosystems offer better access to startup financing through all stages.
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Entrepreneurial mindset – successful hubs tend to have more entrepreneurs with high ambitions as evidenced by the number of working hours, willingness to commit full time on the business idea at early stages of the startup as well as openness to risk. Entrepreneurial mindset is also demonstrated by the market pursued (consumer vs. enterprise market). Successful ecosystems have more founders pursuing enterprise markets.
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Support – supporting entrepreneurs throughout all stages (from ideation to scaling) is important to take great product ideas into market. Among other elements, this includes incubators and accelerators where entrepreneurs get access to mentorship and network as well as pre-seed funding.
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Market access – the size of the market the startups in an ecosystem try to reach is significantly larger in high ranked ecosystems than in others.
Each of these factors will be discussed in detail next and will be used in developing a set of recommendations for new ecosystems to follow in order to create a more nurturing environment for technology based startups.
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2.1 Access to talent The literature discusses two alternative paradigms of increasing the rate of innovation – demand side policies such as favorable tax policies (Goolsbee 1998) and supply side policies including investment in human capital and STEM education as well as immigration policies (Kerr and Lincoln, 2013). Highest ranking ecosystems also rank higher in education, with higher concentration of entrepreneurs who have master’s degree and PhD. They are also in close proximity to top ranked engineering schools. Universities have played a key role in the establishment of successful tech hubs such as Silicon Valley, Boston and Tel Aviv and Moscow (Slinger et al., 2015, Astebro et al., 2012). It is essential to have access to software engineers at affordable cost for startups to thrive.
2.2 Availability of funding Access to funding is critical throughout the life of a startup, from pre-seed stage to exit stage. Best ecosystems offer funding at all stages, whereas startups in other ecosystems may face lack of funding or gaps in financing (Figure 1). In order to ensure that the startups with the greatest potential are given a chance to be nurtured in earlier stages of their life cycle, presence of accelerators and angel investors is important. In addition to providing funding at the most vulnerable stage of the startups’ lifecycle, accelerators and angel investors also provide key advice with regard to product development and market entry. Moreover, startups benefit from the rich networks of angels at early stages (Erikson and Sørheim, 2005).
(Source: IBRD/WB Report on Enhancing Access to Finance for Technology Entrepreneurs, 2014) Figure 1: Sources and stages of financing Description of different funding sources for startups (risk capital) is discussed below: Accelerators. Sometimes also referred to as incubators, accelerators typically offer space, seed or pre-seed funding and basic services such as legal and accounting in return for small equities of the companies under their roof. While public perceptions about the impact of accelerators differ (Phillips 2002, Gema and Pejvak 2015), some accelerators such as Y Combinator and TechStars have been quite successful in nurturing large, industry shaping businesses. Angel Investors. Due to a high level of competition among startups willing to get into accelerator programs, most startups have to look at other sources of funding to be able to take their idea to the market. Because of relatively smaller size of investment and their focus on early stage startups, the first option is typically angel investors. Angel investors are affluent individuals who invest their own personal funds often on startups within their areas of experience and interest. Angel investors can invest in startups individually or in groups (Calcaterra R, 2014). Individual angels joining groups or networks of angels pool their resources and invest jointly. They typically share their efforts with regard to due diligence and management advice. Third category of angel investors is called super-angels. Super-angels invest their own funds as well as funds from other investors in a similar way to venture capital firms.
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Odiljon Abdurazzakov Venture Capital firms. As startups continue to grow, they need investments much greater in size than what angel investors offer. If angel investors are the most important sources of financing in the early stages of startups, venture capital becomes more important in later stages. Venture capital refers to funds invested in startups with exceptional growth potential. Venture capital firms are managed by general partners who raise funds from limited partners such as university endowment funds, pension funds as well as high net worth individuals and invest them in startups in return for equity. In return for their investments, limited partners receive a share of the profits earned from the investments, typically around 80%. General partners earn about 20% of the profits from investments, which is called carried interest or carry. Additionally, limited partners are paid management fees, typically 2% of the venture fund (Lerner et al., 2012). One of the challenges startups in most developing countries face is financing gap. Most founders start with their savings or support from their family members to finance pre-seed stages. While founders have more options to finance pre-seed stages and later stages, the hardest part is to find financing for the seed stage where founders try to prove the concept – often referred to as missing middle (Figure 2).
(Source: IBRD/WB Report on Enhancing Access to Finance for Technology Entrepreneurs, 2014) Figure 2: Financing gap for technology based startups
2.3 Entrepreneurial mindset Startup Genome Report (2012) ranks entrepreneurial attitude in different ecosystems using mindset index. The mindset index measures how well founders in a given ecosystem thinks like a great entrepreneur, where a great entrepreneur is visionary, resilient, has a high appetite for risk, a strong work ethic and an ability to overcome the typical challenges startups face.
2.4 Entrepreneurial experience Previous entrepreneurial experience of the founders plays a key role in the future success of startups. The lessons from previous ventures serve as important input in the creation of new ones. High ranked ecosystems have higher concentration of serial entrepreneurs. Business dictionary differentiates a typical entrepreneur with a serial entrepreneur. As opposed to a typical entrepreneur, who will often come up with an idea, start the company, and then see it through and play an important role in the day to day functioning of the new company, a serial entrepreneur will often come up with the idea and get things started, but then give responsibility to someone else and move on to a new idea and a new venture. According to Startup Genome Report (2012), 56% of founders in Silicon Valley were serial entrepreneurs, which is 35% higher than the global average of all startup ecosystems. In comparison, Los Angeles had 55%, Boston 55%, Moscow 50%, Tel Aviv 47%, Paris 37%, Sao Paolo 23%.
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2.5 Support Successful ecosystems provide more support to nurture technology based startups by creating an entrepreneur friendly environment during all stages of a business - pre-seed, seed, startup, scaling and exit. Support is especially important at earlier stages when startups involve greater uncertainty. Founders and investors are faced with uncertainty with regard to product’s performance, customer reaction, startup’s ability to scale, etc (Figure 3). Low
High
Figure 3: The information availability for startups Accelerators and incubators discussed in section 2 of the paper provide the much needed support, including preseed financing, legal and accounting support to selected startups. Beyond accelerators, entrepreneur friendly ecosystems offer financing options for startups at different stages. In addition to accelerators and investors, startup founders in such ecosystems also feel the support of local and federal government. Governments can support ecosystems by reducing regulations that become an obstacle to founding or growing a business. Among other policies, favorable policies include ease of handling of immigration issues of founders and key employees of startups who are not citizens. Chile is a good example of a country where government took significant steps to transform a city into a successful tech hub. Chilean government initiated Startup Chile in 2010 to attract world class early stage entrepreneurs to start their businesses in Chile. During the first two years of the initiative, Startup Chile attracted 482 startups from 36 countries that receive $40,000 of unconditional financial support to cover living costs in Santiago. Governments of Israel and Iceland also took serious steps to foster technology based startups (Startup Genome Report, 2012).
2.6 Market access It goes without saying that ecosystems which offer access to larger markets help startups thrive more easily. Due to the nature of the products and services the technology based startups offer, the markets they pursue is not limited to their own geography. For example, founders of startups in Singapore - an ecosystem which ranked in top ten in 2015 Compass global ecosystem ranking - go after markets of China, India, Indonesia and Malaysia. In isolation Singapore, with a population of a little over 5 million people, is not attractive enough for startups as it does not offer opportunities to scale. However, its proximity to such huge markets as China, India and Indonesia certainly enable startups to go after much larger markets. Markets also different with respect to characteristics – business markets (B2B) versus consumer markets (B2C). Ratio of B2B markets to B2C markets is higher in Sydney (5:1), Paris (3:1), Boston (2.7:1), Silicon Valley (2:1), London (1.8:1) and Tel Aviv (1.6:1) but lower in Los Angeles (0.25:1) and in Moscow (1:2.5) (Startup Genome, 2012). Since B2B markets are much greater in size than consumer markets, higher ratio of B2B markets pursued and served by entrepreneurs means greater revenues for startups. The next section of the paper discusses the US experience of stimulating innovative (technology based) entrepreneurship with a focus on US tech hubs.
3. Innovative entrepreneurship in the US The wave of technology entrepreneurship which started with the emergence of Silicon Valley expanded to other American cities such as Boston, New York, Los Angeles, Chicago and Austin transforming them into leading global startup hubs. Although it is true that some other countries also aggressively pursued their ambitions to become hi tech hubs, New York City, Los Angeles and Boston still hold the lead globally. Given the level of success of the US startup hubs as well as their continued accomplishments, it is worth studying the US experience with the purpose of developing recommendations for emerging markets such as Azerbaijan. This section analyzes the US experience in the field of stimulating innovative entrepreneurship. The analysis includes the factors mentioned
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3.1 Managing talent pool in the US American universities such as Stanford University, Massachusetts Institute of Technology, University of California Berkeley have played a major role in supplying experienced engineers, especially in the field of information technology. The strong and significant pool of talent supplied by these universities have often been noted by researchers as fundament of emergence of high-tech hubs. In addition to training high-caliber engineers, proximity of these universities to local businesses is also an important contributor to the establishments of an ecosystem which is supportive of take entrepreneurship. Stanford University works in close partnership with companies located in San Francisco, especially the bay area known as Silicon Valley. Similarly, MIT maintains " close collaboration with the companies located in Boston and the East Coast. It is also important for universities to focus on applied research rather than solely on basic research. Technology transfer offices (TTO) of universities are critical in commercializing research. For example, Technology Licensing Office of Massachusetts Institute of Technology (MIT) brings in investment and licenses inventions and discoveries flowing out of MIT. The immigration policy of the US also plays a key role in managing the pool of talented experts in the US. Silicon Valley and US cities ranking high in the Global Ecosystem ranking (Startup Compass 2012, 2015) have a high ratio of foreign talent both among founders of technology based firms and among key employees.
3.2 Startup financing infrastructure in the US Prior to looking for external funding, startup founders in the US typically use their savings or get funding from their family and friends. Bootstrapping, a third alternative, refers to finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any means necessary (J. Cornwall. Bootstrapping Upper Saddle River, NJ Prentice Hall, 2009). However, in the absence of such resources or once these resources have been depleted, startups need to approach external funding alternatives. One of the first sources of external funding comes from incubators and accelerators which provide startups free office, legal/accounting advice and pre-seed or seed funding. Unlike typical incubators, Silicon Valley based accelerator Y Combinator (YC) does not provide offices for its cohort startups. Instead, it offers them advice (both by the founder of YC and other YC partners), networking with YC alumni and investors, and a community of startups. Initially, YC admitted 8 teams each session and invested about $20,000 for 7% equity of the business. However, YC has increased the number of teams accepted to each cohort from 8 teams to 85 and now invests $120,000 for 7% equity (https://www.ycombinator.com). Startups admitted to YC move to Silicon Valley for 3 months during which they undergo intensive trainings at YC and get help in refining their pitches to investors. Teams also have access to regular office hours with Paul Graham, YC cofounder during which startup teams get advice on product market fit. During the last two weeks of the session, YC startups present their products to investors at an event called “Demo Day”. Alumni of YC include DropBox, valued at $10 billion (Wall Street Journal Tech, October 19, 2015 - http://www.wsj.com/articles/tech-startups-feel-an-ipo-chill-1445309822), Airbnb $25.5 billion (CNN Money, New York, June 27, 2015 - http://money.cnn.com/2015/06/27/technology/airbnbfunding-valuation-update/). Another US based accelerator often compared to YC is TechStars, founded in 2006 and operates in Boulder, Colorado, New York City, Boston, Seattle, San Antonio, AustinChicago. Similar to YC, TechStars also offers 3 months long mentoring to selected startup teams. Each company accepted to TechStars gets $18,000 in exchange for 6% of common stock (Fields, Jonathan. Uncertainty: Turning Fear and Doubt into Fuel for Brilliance. Portfolio Hardcover, 2011). Admission to accelerators such as YC and TechStars is very competitive. For example, less than 1% of the applicant teams are admitted to TechStar (Chafkin, Max. Future Techstars, Step Forward. Inc.. April 2, 2012).As Figure 1 shows, startup teams admitted to TechStar have significantly higher potential to attract funding and through angels, VCs and acquisitions. Section 4 of the paper discusses in detail the significance of accelerators to a startup ecosystem.
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Source: http://www.techstars.com/companies/ Figure 4: Level of success of TechStar startups While some accelerators including YC and TechStars seek equity in the startups they invest, there are other US based accelerators such as MassChallenge that are nonprofit and therefore do not require admitted startups to give up equity. MassChallenge was launched in 2010 in Boston with the support of entrepreneurs, Boston city mayor and the Blackstone Charitable Foundation. The main reason behind launching MassChallenge was to bring together startups and experienced entrepreneurs who have resources who are willing to support new entrepreneurs. MassChallenge is open to early stage entrepreneurs from any industry and from anywhere in the world. Selected teams are offered four months long training, office space, mentorship and other resources (http://masschallenge.org/accelerator/model). In addition to Boston, MassChallenge programs are also offered in UK and Israel. While most accelerators focus on software startups, new type of accelerators and seed stage investors focusing on hardware ventures is emerging in the US. One of such investors is Boston based Bolt seed venture capital firm. Bolt’s full time engineering staff works with portfolio companies on a daily basis. Unlike advisors and mentors at typical accelerators, Bolt’s engineers help hardware startups work on all stages of startup, including ideation, prototyping, market test, scaling, etc. Bolt invests between $100,000 - $500,000 in startups at the intersection of hardware and software (https://www.bolt.io). Startups which have graduated from accelerator programs, typically look for equity financing either through angel investors or venture capital firms. Due to relatively smaller size of investment and their focus on early stage startups, the first option is typically angel investors. According to the Center for Venture Research, in the US, angel investments totaled $22.9 billion in 2012 and funded 67,030 entrepreneurial ventures. There were 268, 160 active investors in 2012 and the average deal size was $341,800. Thirty five percent of angel investments in 2012 were seed and startup stage, 33% were early stage, and 29% were for expansion financing (Sohl, 2013). As startups continue to grow, they need investments much greater in size than what angel investors offer. If angel investors are the most important sources of financing in the early stages of startups, venture capital becomes more important in later stages. Venture capital refers to funds invested in startups with exceptional growth potential. Venture capital firms are managed by general partners who raise funds from limited partners such as university endowment funds, pension plans as well as high net worth individuals and invest them in startups in return for equity. In return for their investments, limited partners receive a share of the profits earned from the investments, typically around 80%. General partners earn about 20% of the profits from investments, which is called carried interest or carry. Additionally, limited partners are paid management fees, typically 2% of the venture fund (Lerner et al., 2012). There are about 800 venture capital firms in the United States, which have approximately $179 billion under management. In 2010, venture capital firms invested $21.8 billion in 3276 deals. In 2009, average fund size was
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Odiljon Abdurazzakov $151 million (PWC, Money Tree Report). Venture capital firms may specialize by industry (clean tech, biotech, information technology) or by stage of the startup’s life. Venture investors typically concentrate on industries with a great deal of uncertainty, where the information gaps among entrepreneurs and investors are commonplace (Gompers and Lerner 2004). Although the history of venture capital firms in the US date back to the first half of the 20th century, it wasn’t until late 1970’s and early 1980s that the private equity industry experienced significant growth. Researchers (Lerner and Kortum, 2000) attribute that shift to the US State Department of Labor’s clarification of the Employee Retirement Income Security Act’s “prudent man” rule in 1979. Prior to this change, the legislation limited the ability of pension funds to invest substantial amounts of capital into venture capital and other high risk asset classes. The clarification allowed pension managers to invest in venture capital. The second wave of increase in venture capital came in the in late 1990s and lasted until the internet bubble of 2000. Analysis of the impact of venture capital on innovative activeness demonstrates a strong positive correlation. According to Lerner and Kortum (2000), a dollar of venture capital is three times more potent in stimulating patenting innovations than a dollar of traditional corporate R&D.
4. Conclusion and recommendations Emerging economies planning to establish an effective startup ecosystem can benefit from the experience of successful tech entrepreneurship hubs. Of particular interest to many developed and developing countries is to replicate the success of the US based startup ecosystems. Due to strong performance and leading position in all aspects (managing talent pool, risk capital, support and market access), the US based startup ecosystems can serve as a benchmark. This section discusses how Azerbaijan may benefit from the US experience in stimulating innovative entrepreneurship. Role of universities in creating a talent pool which will supply founders and employees for technology based startups cannot be emphasized enough. Currently in Azerbaijan, there are many public and private universities supplying engineers and business students. Some universities have taken the initiative to contribute to the creation of a high tech ecosystems by creating accelerators and innovation centers where students can launch their startups under guidance and support of universities and outside investors. Another important step in this direction is that universities are also improving their curriculum to include more elective courses on innovation and entrepreneurship, especially among engineering students. Government is taking measures to support high tech entrepreneurs by creating High Tech Park and by adopting new legislation which offers tax advantages to businesses housed at accelerators. High Tech Park houses selected startup teams and provides them free office space as well as training and mentorship programs. Additionally, universities and businesses also offer spaces at their accelerators. For example, QU Technopark based at Qafqaz University, offers free space for selected startups for a year and up to 10,000 manats in addition to trainings and mentoring. Similar opportunities for startups are available at Next Step accelerator based at the University of Oil and Industry as well as at Barama accelerator of Azercell. While it is too early to assess the performance of these incubators and accelerators, benchmarking US incubators such as TechStars and Y Combinator would increase the chances of success. American experience would be especially helpful in the area of recruiting startups to incubators, and managing relationships between owners/managers of incubators and founders and supporting founders in finding investors. While the reforms taking place in Azerbaijan are inspiring, there is a need for further reform in order to establish a successful startup ecosystem. The modifications are needed at the university level, government and enterprise level in order to improve the size and quality of talent pool, to eliminate obstacles for early stage financing and improve access to larger markets for startups. Recommendations on further improvements are developed based on the analysis of the US experience. The example of US based ecosystems, such as Silicon Valley and New York shows that talent pool is improved with the inclusion of foreign talents. For example, Silicon Valley has 45% foreign employees, while New York and Boston have 34% and 33% foreign employees, respectively (Startup Compass, 2015). Since the supply of talent plays a crucial role in creation and effective functioning of a startup ecosystem, the government of Azerbaijan should make it a priority to attract foreign talent. More flexible immigration policy as well as incentives to attract and keep tech experts in Azerbaijan will be important in turning Baku to a high tech hub. Such incentives may help to attract software engineers and tech entrepreneurs
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Odiljon Abdurazzakov from neighbouring ecosystems, such as Moscow and Istanbul. As the startup ecosystem surfaces in Azerbaijan it is essential to entice international talent. Another important requirement for creating a successful startup ecosystem is creation of financial infrastructure supportive of new technology based firms. Since funding is especially challenging in the early stages of a startup, it is important to establish a climate that nurtures businesses at the initial stages. Considering insufficient number of early stage investors, the government should play a role by facilitating startup financing in the form of matching grants to early stage investors as well as direct grants to startups. Given that currently Azerbaijan startup ecosystem is at early stages, it is essential to take measures to boost the supply of early stage investing, particularly angel investors who can provide capital to new technology based firms at the early stages of their life cycle. Legal framework that makes it attractive for wealthy and experienced entrepreneurs to invest in new technology based startups as well legislation that regulates relationships between investors and entrepreneurs is crucial. In the long run, a similar legislation to the 1979 legislative amendment in the US which freed up pension funds on high risk investments would increase the supply of risk capital. Top ranked ecosystems, such as Silicon Valley, New York and Boston also reveal the importance of entrepreneurial mindset in creating a startup ecosystem. While Azerbaijani people are very entrepreneurial, the culture of risk averseness is present especially when it comes to technology based businesses, which involve significantly higher risk than traditional businesses. To encourage more entrepreneurial activity among potential entrepreneurs, more universities should offer degrees and modules on entrepreneurship. Currently, only a few universities in Azerbaijan have modules on entrepreneurship. Moreover, trainings can be organized by government and non-government organizations. Trainings in areas such as feasibility analysis, startup financing, marketing research, investor relations would help potential entrepreneurs in successfully starting and managing their businesses. Geographical location of Azerbaijan as well as cultural similarities with Central Asian nations makes it easier for founders of startups in Azerbaijan to access Central Asian markets, such as Uzbekistan, Kazakhstan, Kyrgyzstan, Turkmenistan and Tajikistan. Other potential markets for Azerbaijani startups are Turkey and Russia, since most Azerbaijani entrepreneurs are fluent in Turkish and Russian languages and are familiar with culture in these countries. Government can facilitate closer ties among businesses in order to boost the presence of Azerbaijani businesses in the region. As mentioned in the state program “Azerbaijan 2020: Look Into the Future”, development of innovative entrepreneurship is and will remain a top priority in the country. If the government takes further steps to improve the climate for new technology businesses by utilizing the experience of developed ecosystem, it is expected that such measures will give fruit in the near future.
References Astebro T., Bazzazian N and Braguinsky Serguey (2012) “Startups by recent university graduates and their faculty: Implications for university entrepreneurship policy” Research Policy, volume 41, issue 4, 663-677; Calcaterra R (2014) “Securing Angel Capital and Understanding How Angel Networks Operate”, Biotechnology Entrepreneurship, 285-291; Chafkin, Max. Future Techstars, Step Forward. Inc.. April 2, 2012 http://www.techstars.com/companies/ CNN Money, New York, June 27, 2015 (http://money.cnn.com/2015/06/27/technology/airbnb-funding-valuation-update/) Cornwall J. (2009) Bootstrapping Upper Saddle River, NJ Prentice Hall; Erikson T. and Sørheim R. (2005) ‘Technology angels’ and other informal investors Technovation, vol 25, issue 5, 489-496; Gema A. and Pejvak O. (2015) “How useful are incubators for new entrepreneurs?” Journal of Business Research Golsbee A. (1998) “Taxes, Organizational Form, and the Deadweight Loss of the Corporate Income Tax.” Journal of Public Economics vol. 69 143-152. Gompers P. and Lerner J. (2014) Venture Capital Cycle, 2nd edition, MIT Press Hasanov F. (2013) Dutch Disease and the Azerbaijan Economy, Communist and Post-Communist Studies https://www.ycombinator.com, accessed on December 20, 2015. http://masschallenge.org/accelerator/model accessed on December 22, 2015. https://www.bolt.io accessed on December 24, 2015. International Bank for Reconstruction and Development / The World Bank (2014) Enhancing Access to Finance for Technology Entrepreneurs Kerr, W. and Lincoln F. (2010) The supply side of innovation: H-1B Visa reforms and U.S. ethnic invention. Journal of Labor Economics, 28(3): 473-508. Kortum, S. and Lerner J. (2000) "Does Venture Capital Spur Innovation?" Rand Journal of Eco- nomics. (31) 674-92.
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Odiljon Abdurazzakov Kuriakose S. (2013) Fostering Entrepreneurship in Azerbaijan, World Bank Lerner J., Leamon A. and Hardymon F., Venture Capital, Private Equity, and the Financing of Entrepreneurship (2012), Wiley Phillips R. (2002) “Technology business incubators: how effective as technology transfer mechanisms?” Technology in Society, vol 24, issue 3, 299-316 PricewaterhouseCoopers/National Venture Capital Association, Money Tree Report Rostow W. (1960) "The Five Stages of Growth-A Summary". The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge: Cambridge University Press. 4–16. Slinger J., Tommy Z., Sjaak B., Erik S., Vasudeva V. (2015) “How education, stimulation, and incubation encourage student entrepreneurship: Observations from MIT, IIIT, and Utrecht University” The International Journal of Management Education, vol 13, issue 2, 170-181 Startup Compass (2015) The Global Startup Ecosystem Ranking Startup Genome (2012) Startup Ecosystem Report Sohl J. (2013) “The Angel Investor Market in 2012: A Moderate Recovery Continues”, Center for Venture Research WB Report on Enhancing Access to Finance for Technology Entrepreneurs (2014)
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Acquiring Legitimacy in Institutional Entrepreneurship: A Case for Emerging Economies Parisa Baig and Andrew Godley Henley Business School, University of Reading, UK
[email protected] [email protected]
Abstract: This study evaluates the extant literature on the acquisition of legitimacy of an institutional entrepreneurial activity in emerging economies. Emerging economies have less developed governmental and regulatory frameworks and, at a more basic level, less developed regulatory and enforcement environments. Consequently, market regulation, corporate governance, transparency, accounting standards, and intellectual property protection are often less robust than in more advanced economies. Moreover, in emerging economies, where there is less contestation about any given institutional structure, changes in institutional structures are likely to be more frequent than when compared with an advanced economy. Under these conditions, there is an increased possibility of an individual or an organization having the authority or economic resources to change the rules of the game; the participants might reap the benefits of such an opportunity, a phenomenon referred to as institutional entrepreneurship. Such change in the ‘rules-of-the-game’ may be beneficial to wider society and lead to productive activity, or in some cases become unproductive and lead to opportunistic activity. The existing literature on institutional entrepreneurship in emerging economies offers some understanding into how such individuals or organizations acquire power to influence change. However, the mechanisms that enable these institutional innovations to become accepted either by key stakeholders or the general society within the specific context of emerging economies remain unclear and call for further investigation. For novel institutional arrangements to become accepted implies that they have acquired legitimacy. Using the context of Dubai, in the United Arab Emirates, this paper offers an integrating conceptual framework that opens up our understanding of the process of gaining legitimacy for institutional entrepreneurship with that particular focus on emerging economies. Following, it proposes methodological considerations for such research undertaking in emerging economies. Keywords: institutional entrepreneurship, legitimacy, emerging economies
1. Introduction This paper explores that how an institutional entrepreneurial activity becomes legitimate? An emerging concept - institutional entrepreneurship - has gained much importance recently. There are a few studies, which examines the relationship between institutional entrepreneurship and organizational emergence from the perspective of legitimacy. Yet the correlation between legitimacy and institutional entrepreneurship has not been fully explored explicitly (Zimmerman and Zeitz 2002). Entrepreneurs, typically, have been declared as a backbone of any healthy economy supporting innovation and creativeness (Schumpeter 1934). Entrepreneurship is considered to be one of the reasons for any country’s economic growth as it creates new businesses, provides job opportunities, escalate competition and increase productivity. Thus, it can be said that high levels of entrepreneurship are parallel to high levels of economic growth. The notion of ‘institutional entrepreneurship’ gained attention within the field of entrepreneurship, when a change involving human agency became prominent, overriding the power of institutions (formal and informal practices). ‘Institutional entrepreneurship’ is a term used when a change in the social/institutional structure occurs triggered by an individual or an organization (DiMaggio 1988). The constructs of a traditional entrepreneur and institutional entrepreneur appear to be similar but the main difference, which makes them apart, is that successful institutional entrepreneurs act as change agents and replace the existing institutional arrangements with the new ones. While the traditional entrepreneurs build their designs that conform to the boundaries of existing institutional structures. However, both these types of entrepreneurs have to acquire legitimacy for their innovations to be able to get approved by their patrons. But institutional entrepreneurs go through a much bigger challenge in getting their ideas accepted, as they deliver an opinion that is entirely or partially different from the existing solution for which they have to convince the key stakeholders of the validity of their idea. Institutional theory has proved to be insightful into explaining the reasons about why any organization succeeds or fails. This concept signals the link between entrepreneurship and institutional context of countries. Additionally, it explains the differences in economic development and growth between developed and emerging economies. Entrepreneurs and their pursuits are especially critical to the growth of emerging economies. The
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Parisa Baig and Andrew Godley association between entrepreneurship and institutional theory has gained much notice in the recent times since the researchers have found considerable evidence of institutional effect on the economic growth of countries (Aldrich 2011; Hwang and Powell 2005; Phillips and Tracey 2007; Tolbert, David and Sine 2011). Institutions provide guidance to entrepreneurs that help them to identify and shape the opportunities to the existing methods and schemes. Whereas institutional entrepreneurs have been declared as the change agents who bring change to these institutions either by modifying the existing arrangements or creating entirely new structures and systems for their novel innovations (DiMaggio 1988). This phenomenon has been helpful to look at the role of the entrepreneurs from a different angle where entrepreneurs are not swayed by the institutions. Though the intersection of institutions and entrepreneurship – institutional entrepreneurship – has provided some answers to the structure – agency debate (Maguire 2007), with a few studies investigating that how actors influence any context, for example, by having different temporal orientations (Emirbayer and Mische 1998), assuming different subject positions (Maguire et al. 2004) or carrying out different types of activities, entrepreneurial as well as supportive in creating, maintaining and disrupting institutions (Lawrence and Suddaby 2006); there are still some accounts on which it has been criticized for giving too much power to agency over structure (Purdy and Gray 2009). Thus, it would be interesting to further examine that how the agency factor shapes a context over time with the institutionalization of its distinct and novel entrepreneurial activities. Besides, prior research has tried to identify and examine the phenomenon from the characteristic perspective of institutional entrepreneurs; much less prevalent are “detailed descriptions of precisely what it is that institutional entrepreneurs do” (Lawrence and Suddaby 2006, p 220). Though, a few studies have stated that how new organizational forms and new suborganizational structures, practices and roles are legitimated (e.g., Greenwood et al. 2002, Reay et al. 2006, Zietsma and Lawrence 2010). Scholars have also pointed out that how new fields are proliferated with the development of new practices within established organizations (e.g., Maguire et al. 2004, Powell et al 2005). However, not much has been elucidated about how these agents manage to legitimate their new ideas and innovations (Dacin et al. 2002, Perkmann and Spicer 2007, Tracey et al. 2011). Significant information has been relayed in the literature about the enabling conditions, which leads ultimately to the change (e.g., Ruef 2000; Seo and Creed 2002), less attention has been paid on the process through which change happens. Hence, the relationship between institutional theory and entrepreneurship “remains rich with opportunities for further scholarship that can enhance our understanding of entrepreneurial phenomena and contribute to the intellectual tradition of institutional theory” (Tolbert et al. 2011, p 9). Since there is lack of research presently that how these novel activities of institutional entrepreneurs become accepted and approved by the key people or the mass population in general. Therefore, the focus of this paper is to seek that how the institutional entrepreneurs being the initiator of new innovations and structural forms legitimate their institutional innovations. Subsequently, we seek that how do institutional entrepreneurs legitimate new structures in emerging economies? In order to better understand this interplay between institutional entrepreneurship and legitimacy, the current study draws in detail from the major areas of literature to investigate this dependency discussed in the following section. These areas include institutions, institutional entrepreneurship, legitimacy and emerging economies.
2. Literature review Traditionally, institutions have been referred to as the ‘rules of the game’ (North 1990). These ‘rules of the game’ comprise of formal and informal institutions that are based on rules, regulations, values, norms and beliefs. These formal and informal parameters create path dependencies as they provide stability and strength to the structure of an economy (North 1990). The institutions were assumed to be background conditions in earlier studies but recently there has been a shift in literature such that institutions are no more taken as taken-forgranted systems. Institutions are considered as one of the basic component of strategy in conjunction with industry-based view and resource-based view (Peng 2009) that helps to clarify and illuminate the hidden complexities in any organization’s route of ‘accomplishment’ and ‘breakdown’. The scholars have started emphasizing on the role of these institutions as they found that these formal and informal conditions are able to explain the differences in economic development between emerging economies and more developed countries. Emerging economies suffer through a number of challenges which includes low literacy rate, poor communication network, underdeveloped rules and regulations, and frequent changes in the policies to name a few. Though with the increase in market liberalization and globalization, some of these emerging economies have benefited themselves from these new initiatives and are in a transition mode, trying to be self-sufficient
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Parisa Baig and Andrew Godley by restructuring their policies and by adhering to more firm guidelines and structures. However, the institutional structures of these emerging economies do not yet appear to be as adept and mature as compared to their western counterparts. The embryonic state of these structures creates unclear boundaries for the businesses. Such kind of uncertainty in markets in emerging economies may hinder any innovative entrepreneurial activities (Marcotte et al. 2010) that could threaten the growth rate of such economies. As aforementioned, the entrepreneurs altering the institutional structures are considered to be ‘institutional entrepreneurs’ who break away from the existing patterns and shape new ideologies and structures despite the path dependencies involved (Garud et al. 2007). The change in institutions occurs where there is some form of pressure on the institutional patterns of an economy (Dacin, Goodstein and Scott, 2002). The activities of such entrepreneurs disrupt the existing structures either by altering it or by completely modifying it. The endeavors of institutional entrepreneurs impact the social, cultural and political structure of a society (Rao 1998). These institutional entrepreneurs does not necessarily have to be traditional entrepreneurs; they can be anyone, a traditional entrepreneur, an official, an organization, a government who either has the resources or ability to bring about that change in spite of all the intricacies involved in the entire process (Maguire et al. 2004). These institutional entrepreneurs are powerful actors that take an interest in a particular setting and deploy their means to craft and empower such arrangements. They disrupt the already prevailing patterns associated with the dominated institutional logics and replace it (Maguire et al. 2004) with their own version of modified and altered structures, rules and practices that benefits them (Garud and Karnoe 2001; Battilana 2006). They bring about change while advancing their own agendas (Mizruchi and Fein 1999; Dirsmith 2007); whilst such entrepreneurial activity can either be productive or unproductive (Baumol 1990). These change agents, through their power and socials skills, try to influence the stakeholders by projecting a positive and beneficial image of their activities (DiMaggio 1988, 1991; Fligstein 2001). They try to get the co-operation from stakeholders and other social groups for their designs in the change process by trying to advertise the benefits of their proposed innovations while underscoring the shortcomings of the alternate activities to gain the support from the field (Greenwood et al. 2002, Maguire et al. 2004). Hence, institutional entrepreneurs can be said to change the character of the institutions partially or completely (Dacin et al. 2002). Mostly, these actors are assumed to be powerful as they shape the institutional change process. However, there may be a case of less powerful actors, for example, in a case of emerging fields, which was demonstrated by a study into HIV/AIDS treatment advocacy in Canada (Maguire et al. 2004). Any organization when established within any structured boundaries needs resources to perform business activities (Katz and Gartner 1988). According to Aldrich and Martinez (2001, p 45), the transformation of an idea into a tangible outcome means that entrepreneurs need resources. Moreover, Aldrich (1999) argues that for organizations to gain access to resources, they need to be perceived as ‘legitimate’. Subsequently, it led us to believe that organizations need to prove to be efficient and effective to be worthy of these resources (Zimerman and Zeitz 2002). Similarly, it was argued further by Shane and Stuart (2002, p 155) that the decision of a stakeholder to support an entrepreneurial activity is based on his or her perception on the attractiveness of that opportunity. That is, it needs to be perceived as legitimate by the people in a cognitive way and further requires its activities to be appropriate and beneficial in a sociopolitical sense as well. However, it is quite difficult for new organizations to prove themselves, as they do not have usually a very long successful track record or any associations with big organizations. It is rather more difficult for nascent organizations to follow the same route, as they have no proven history with particularly zero resources compared to new organizations. Therefore, they lack the means to insure stakeholders in any exchange in which they do partake (Stinchcombe 1965). It can be inferred easily then that nascent organizations face a dilemma as they are less experienced to acquire resources to become operational and resource gatekeepers are also hesitant in dealing with such type of organizations due to their lack of legitimacy. Earlier studies on organizational legitimacy implied that organizations, which conform their ways and values to such universal beliefs are judged as legitimate simply by association (Sherer and Lee 2002; DiMaggio and Powel 1983; Meyer and Rowan 1977). The taken-for-granted status for any organizational form is achieved when it fulfills the widespread understandings and beliefs (Zucker 1977). As the time passes, the characteristic, which makes any organization legitimate, becomes common and acquires the status of ‘institutionalized ‘as a basic requirement for existence. These beliefs and expectations transmit the perception of legitimacy acquired, which means a social judgment of acceptance, appropriateness, and desirability (DiMaggio and Powel 1991). Eventually, by being similar to existing organizations, that organization’s ways are not interrogated and probed,
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Parisa Baig and Andrew Godley making it more trustworthy and legitimate in the eyes of stakeholders and key resource exchange allies (Hawley 1968; Meyer and Rowan 1977), thereby improving its performance and survival prospects (Deephouse 1996). This gives birth to an isomorphic process for alike organizations, which is a group of organizations that follow and reflect like forms and practices while other organizations, which do not follow the norms, are left out from being a part of this cluster (DiMaggio and Powel 1983). However, there have been instances where organizations are seen to proactively manipulate and deploy evocative symbols to garner legitimacy (Suchman 1995; Zimmerman and Zeitz 2002). In this manner, legitimacy can be considered as a resource which can be strategically gained from the stakeholders or the environment, in general, by influencing the perception of external audiences in a more calculated way (Ashforth and Gibbs 1990; Dowling and Pfeffer 1975; Suchman 1995), such as by shaping or manipulating the environment (Dowling and Pfeffer 1975; Pfeffer and Salancik 1978; Suchman 1995). Thus, this type of legitimacy (strategic legitimacy) is acquired not by the reliance on passive characteristics, but rather through active behavior. In support, Maguire et al. (2004) find that new institutions often come into being when their advocates reflect a certain demographic profile and actively seek to garner support for them through some combination of persuasion, negotiation, or affirmation of the institutions’ intrinsic value, which implies that such institutional activities gain legitimacy by purposefully controlling the environment. In reality, organizations are likely to obtain legitimacy via some combination of both approaches, that is, by adhering to the existing arrangements and by influencing and altering the structures. Therefore, it can be inferred from above that organizations might have to rely on different combinations and mechanisms considered as suitable by the environment to be deemed as legitimate that follow the expectations of legitimate entities from stakeholder’s perspective. The concept for an activity to get credibility and reliability and possess legitimacy relays the importance that such activities or organizations, which are legitimate, are reflected as to be more meaningful and reliable (Suchman 1995). Starr and MacMillan (1990, p 83) further stated that an entity is deemed as appropriate and trustworthy with the attainment of legitimacy. Therefore, legitimacy might be taken as an operational resource for any entity since it bridges the gap between resources and legitimates the organization to attract customers (Wiewel and Hunter 1985), recruit employees (Williamson 2000) and gain access to other critical resources (Baum and Oliver 1991). We argue that it becomes quite challenging in the case of emerging economies if such a situation arises because they typically do not have defined and detailed structures to follow for their new innovations or ideas as compared to their western counterparts with more structured patterns. Which leaves these emerging economies in an uncertain environment with unclear edges. Additionally, as the idea proposed by institutional entrepreneurs can either be beneficial to the economy or it can prove to be detrimental to the society. Since there is no clear authority on the institutional structure and no set fields formed, there is a possibility that there might not be any contestation for these new views when introduced. The economy might not fare well if the activity introduced is actually the opposite of what it has promised. Hence, the relatively immature and adolescent institutional structures of emerging economies might provide these institutional entrepreneurs a better chance to alter the institutional structure without much challenge. Subsequently, it implies that an institutional entrepreneurial activity acquired legitimacy to be implemented in the institutional environment. Therefore, the concept of institutional entrepreneurship through the lens of ‘legitimacy’ helps to understand that how novel institutions emerge and get accepted and implemented over time. It encompasses the agency, interests and power concepts all together into institutional analysis of organizations (Garud et al. 2007). If institutions on one hand promote an entrepreneurial activity, on the other hand, it has power to inhibit the activity as well. Change occurs in the institutions but it is the result of power plays of human agency that how they bring their concepts on the forefront and gets it validated by the key people. Clearly, legitimacy is a perception that helps the organization to access resources for their projects (Suchman 1999) that an institutional entrepreneur requires. Hence, the institutional entrepreneurs play an important role in the institutionalization of new structures and practices such that these new structures are granted a taken-for granted status and are legitimated even though it is a divergence from the original source. This ‘acquisition of legitimacy’ provides a very exciting area to explore as it can unpack the complexities involved in the acceptance of unique and novel ideas.
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3. Methodology The research study will be carried out in Dubai, UAE taking it as a unique case. Dubai is one of the seven emirates in a federal state of UAE, which emerged on the world map as a kingdom in 1971. Along with other countries in the Middle East, Dubai also follows a similar religion – Islam on which the constitution of UAE is based (Lee 2005). Islam is considered to be a comprehensive religion with laws provided for every aspect of life – from civil laws to trade laws. Although Dubai is considered to be one of the oil rich countries but it did not fare well with oil reserves as compared to its neighboring estates (Davidson 2008). However, in the recent years, Dubai has gained a lot of attention from the world due to its exponential growth mainly due to its service sector and business activities taking place in its numerous free zones. These free zones contribute a major portion towards Dubai’s total revenue (Haldane 1990), which according to the recent figures is approximately about 25% (Staff 2015). The element, which makes Dubai, an exceptional case is its dual institutional structure with having both Islamic Sharia laws and international market laws functioning together at a same time (Nasra and Dacin 2010). The free zones in Dubai operate under the international market standards without the influence of Islamic Sharia laws and are able to interest both local and international firms because of it. Whereas the business activity taking place outside these zones follows the traditional federal laws (Islamic Sharia laws). A conflict cannot be avoided when two entirely different logics are merged together especially in a region based on a faith with its own very defined principles. But Dubai managed it successfully by the development of free zones as detached entities from regular trading areas with their own distinct boundaries respectively. The first free zone ‘JAFZA’ was established in 1985 (Martin 1998) followed by a number of other free zones catering to various fields. JAFZA’s successful implementation and its subsequent progress made possible the establishment of other free zones. Eventually, a change in constitution of UAE in context of these free zones was made in 2004 when DIFC (Dubai International Financial Center) was formed (Stevenson 2009) which indicates the success and formal acceptance of this dual institutional structure. The key people primarily involved in the establishment of the first free zone ‘JAFZA’ will be interviewed to look at the factors and conditions involved in the process of the getting such a novel institutional structure accepted by population at large that smoothed out the process for other free zones formation.
4. Conclusion With emerging economies having relatively fragile institutional structures in comparison with more developed and mature economies, there is a greater possibility for an entrepreneurial activity to be able to bend the rules of the game, making it an institutional innovation. Since, little understanding has been provided so far that how institutional innovations acquire legitimacy. This study will facilitate the understanding of acquisition of legitimacy under the umbrella of institutional entrepreneurship in emerging markets context.
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The Links Between Innovation, Strategy and Internationalization Processes: A Comprehensive Literature Review Fernando Barbosa and Fernando Romero Department of Production and Systems, University of Minho, Portugal ALGORITMI Research Centre, University of Minho, Portugal
[email protected] [email protected]
Abstract: Globalization of the economy has revived the interest on the theme of internationalization of companies. There may be several motives for a company to expand its markets, but whatever they are, the success of the process depends on specific and characteristic assets that the company possesses and on their capacity to provide competitive muscle. Among other strategic choices, the development of innovation capabilities is a possible path to provide the firm with knowledge and organizational assets that confer it a competitive edge. Knowledge assets are increasingly important in an interconnected and open world market, where traditional localized competitive factors, such as low labour costs, are rapidly losing appeal as drivers of sustainable and continued value creation. In a highly competitive international market, innovation and internationalization seem to be themes that are intrinsically related to each other, in the sense that knowledge and innovation capabilities seem to be a necessary prerequisite to an internationalization process. However, per se, innovation capabilities, and the assets behind it, may not be enough to a successful endeavour. In the absence of privileged, localized knowledge of the national market, strategic considerations are of paramount importance to the internationalization process. Strategic actions are important, not only at the planning stage but also at the implementation stage. It is argued in this paper that these aspects, knowledge, innovation and strategy, are crucial to understand actual internationalization processes and dynamics. This paper intends to examine the above concepts and the links between these factors and their effects on business performance and competitiveness and comprehend internationalization processes. It provides a comprehensive review on the literature regarding the possible connections between the three concepts and it identifies the main ideas and variables that have been suggested and are being regarded. It provides a useful synthesis and it suggests future research paths. Keywords: innovation, strategy, internationalization, strategy implementation, review
1. Introduction The research developed on the strategic management field since its origins has been focused on the understanding of the factors and determinants that makes a firm success or fail in its relationship with his environment, typically by looking at the interplay between the internal and external aspects and how to manage such process. Several different theories and models have been developed to explain these issues and to propose pathways to action (Axelsson, 1992). Companies have to deal with the new and tremendous challenges posed by the so-called fourth industrial revolution on their competitive landscape. The rate of technological change and the speed at which new technologies become available, the globalization, the information age and the increasing knowledge intensity leads to hyper competition where the firm’s survival becomes even more difficult. There is a relative gap on the literature regarding the knowledge about these complex processes and competitiveness at an international level (Rumelt, Schendel, & Teece; 1994), although Internationalization is an increasingly important strategic choice for many firms, including small ones. The capacity to internationalize seems to be intrinsically related to knowledge and innovation capabilities, and the capability to implement strategic options. The paper explores the under researched links between these issues and provides insights that may be useful to understand the internationalization processes.
2. Literature review 2.1 Strategy It may seem odd, but the first reference to the concept of Strategy or Strategic Management dates back to the Old Testament of the Bible, in the context of the challenges faced by Moses in conducting his people out of Egypt, and which are discussed by some Greek authors like Homer and Euripides). The etymology is related to the Greek word Strategos, a ´general´, which in turn comes from roots meaning ´army´and ´lead´ (Bracker, 1980). The Greek verb Stratego means to ´plan the destruction of one´s enemies through effective use of resources’.
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Fernando Barbosa and Fernando Romero This etymological origin contains itself some critical issues related to strategy that even nowadays are still essential to the company’s survival and reveals its strong military connotation and influence, since its meaning was associated with military operations. This influence throughout the history is also visible on the teachings contained on some famous treatises of the military strategy that can be easily translated to the modern business strategy. In The Art of War (IV BC), written by the Chinese general Sun Tzu, the most ancient and famous military treatise, the first chapter is dedicated to strategy and it highlights the planning importance (Tzu, 1988), linked to resource availability. According to Mintzberg (1990) this treatise established the foundations of the positioning school on its “first wave” which he labelled as the “military maxims”. On ancient Greece, this concept assumed a political and management direction with Pericles (450 BC), a politician - general, and its meaning was associated with skills attributable to management like leadership, the exercise of power and persuasion (Mintzberg and Quinn, 1996). In spite of its importance and inspirational influence throughout history, being discussed by many well-known writers, politicians and the armed forces, strategy will only be related with business in 1944, with the work of Von Neumann and Morgenstern called Theory of the Games and Economic Behaviour (Ferreira, 2011). This pioneer work applies math to the decision making process in competitive situations. According to Mintzberg (1990) it was Newman (1951) the first author applying the word strategy on the management literature. Strategy only emerged as field of study during the 1960s (Pettigrew, Thomas , & Whittington, 2002), with the pioneering works of Chandler (1962), Ansoff (1965), Learned, Christensen, Andrews, & Guth (1965/1969) and Andrews (1971). Chandler (1962) connected business growth in some US large companies and the organizational innovation (Multidivisional Organizational Form) needed to support that growth, establishing a clear distinction between Strategy and Structure (Rumelt et al., 1994). To Chandler (1962:13-14) “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” while Structure was defined as “the design of the organization through which the enterprise is administered”. Changes in the external environment leads to a change in strategy which conducts to a change on the structure to make strategy work (Hoskissom, Hitt, Wan, & Yiu, 1999). Only in the 1980s, this aproach - known as Chandler´s dictum or Maxim: “structure follows strategy” – was challenged by authors like Hall & Saias (1980) and Mintzberg (1990). Hall & Saias (1980) inverted this thesis arguing that “strategy follows structure”, because organizational judgement regarding firms’ environment and capabilities is influenced by structural features, like bureaucracy (Johnson, Scholes, & Whittington, 2008). Mintzberg (1990) suggests a different point a view “…structure follows strategy as the left foot follows the right in walking”. He argues that strategy and structure have reciprocal interactions (Johnson et al., 2008), none of them precedes each other, and both boost the organization since structure also inhibits, affects and leads strategy. Andrews and his partners agreed with the idea of strategy developed by Chandler. Strategy is “ the pattern of objectives, purposes,or goals and major policies and plans for achieving these goals, stated in such a way as to define what business the company is in, or is to be in, and the kind of company it is or is to be” (Learned at al.,1969:15).This idea of strategy was complemented with the “distinctive competence” concept developed by Selznic (1957), and a certain suggestion of the environment uncertainity that managers and companies have to deal with (Rumelt et al,1991). The term “distinctive competence” alludes to “the things that an organization does especially well in comparison with its competitors” (Snow & Hrebiniak, 1980). The evaluation of the external environment allows to identify potential factors of success based on threats and opportunities while an internal evaluation allows to identify the distinctive competencies based on the strenghs and weaknesses of the companies, being these two perspectives the basis of the strategy formulation process (Rumelt et al, 1994). Strategy Formulation and Implementation are two distinct interconnected processes of Corporate Strategy (Hoskissom et al, 1999), being strategy formulation an “analytical objective” and strategy implementation is a "a comprised set of primarily administrative activities” (Rumelt et al, 1994).
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Fernando Barbosa and Fernando Romero Ansoff (1965) is seen as the founder of the strategic planning school (Mintzberg, 1990). He is also appointed as the father of the strategic management concept and the vision statement creator, along many other importants concepts and tools on strategic planning and corporate strategy (Martinet, 2010). To Ansoff (1965), strategy is the “common thread” among the activities of the organization and its products and markets, and it has four components: scope of products and markets; growth vector; competitive advantage and synergy, being the main focus of his work the strategic decisions (Hoskisson et al, 1999). The work of Thompson (1967) played additionally an important role on this matter, with the introduction of the concepts of “cooperative and competitive strategies and coalition formation, a forerunner of network and strategic alliance strategies. His work also contributed to the understanding of implementation of corporate strategy through his notion of interdependence between business units. Pooled, reciprocal, and serial interdependence are associated with corporate strategies of unrelated diversification,related diversification and vertical integration, respectively. Together, Chandler, Andrews and Ansoff established strategic management as a field of study (Rumelt et al, 1994). The main focus of the research was with the internal competitive resources, through the identification of firm´s best pratices, a concern that can also be see on the work of early classic writters like Chester Barnard´s (1938), Philip Selznick (1957) and Edith Penrose (1959) acording to Hoskisson et al. (1999). On the senventies, strategy moved from the basic concepts to their application in business pratice, giving ground and body to research on the field as we know it nowadays, where consulting firms like The Boston Consulting Group or Bain and Mckinsey played a major role, along the professional societies and the appearance of the first journals on strategy. Particularly, with the creation of the important conceptual tools of the “experience curve” and the “growth-share matrix” (Rumelt et al, 1991), the Boston Consulting Goup established a “sharp, clear line line between operational decision making and corporate strategy” (Rumelt et al 1994). Also in the seventies, three streams of work, in Harvard and Purdue University, can be identified in order to try to experiment and know the relationship between strategy and performance. At Harvard, two opposite trends of research begin taking form, one following the work of Chandler whose main objective was testing the relationship between firm performance and diversification strategies, while the other stream, based on the industrial organization economics (I/O) view, was focused on industry structure and competitive position. At Purdue, the main research objetive was to explore the relationship between the organizational resources decisions and the companies’ performance, whose results showed for the first time the differences in performance and strategy that exists whitin industry (Rumelt 1991;1994). According to Hoskisson et al. (1999), evolution of research on the seventies shifted the emphasis from the internal characteristics of the firm to an external perspective where the main focus of study was the industry structure and the firm´s competitive position on industry. This perspective came out essentially from the industrial organization economics filed. The roots of the theoretical approach can be traced on the works of Bain (1956,1968) and Mason (1939) with the “S-C-P paradigm” (Structure Conduct Performance), which analyses and evaluates the relationships between three market elements: structure, conduct and performance. It is widely accepted that Porter (1980,1985) was the main influence on the field during the eighties, employing the IO economics concepts. Porter developed an analytical tool, the Porter´s Five Forces Model, which allows to evaluate the industry attractiveness making the task of competitor analysis easier. Porter also suggested that firms can use competitive strategies (generic strategies: low cost leadership, differentiation and focus) in order to obtain competitive advantages in their cruzade for survival and profit (Rumelt et al 1991;1994). Additionally, two intermediate theories from subfields of organizational economics, the transaction costs economics and the agency theory received much interest on research, expanding the use of economic theory. The main contribution of these theories was changing the focus from the industry level to the firm level. TCE was applied to analyse the M-form (M-form was associated to a better firm performance), hybrid forms of organizations (like joint venture, licensing and franchising) and international strategy, which helped to explain the international modes of entry choice. Topics addressed by researchers applying the agency theory were mainly related with innovation, corporate governance and diversification. Some results of this line of research were interesting and shed different light on the theme. For instance, managers probably use unrelated diversification as a strategy to growth in order to reduce their employment risk, or, in order to achieve more personal profits managers may feel tempted to increase the firm size through diversification, or innovation activities could be influenced by the manager’s risk- averse caused by the high levels of uncertainty of the R&D investments resulting in competitive and performance losses (Hoskisson et al., 1999).
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Fernando Barbosa and Fernando Romero Also during the 1980s, the focus of the research on the field backed again, gradually, to its roots, with a renewed emphasis on internal resources, although in the 1980s Porter´s theory of competitive strategy was dominant. Wernerfelt (1984) labelled this new approach the “resource based view of the firm” where he suggested a link between competitive advantage and company’s resources. He proposed a competitive advantage theory supported by the resources that an enterprise controls instead of stipulating their product markets. The capacity of a firm in obtaining advantages on the implementation of their product market strategies could be influenced by the contention among firms for resources regarding their resources profile (Barney & Arikan, 2005). Resources were defined as “anything could be thought of as strength or weakness of a given firm”, more specifically “tangible and intangible assets which are tied semi permanently to the firm” (Wernerfelt, 1984). Hoskisson et al (1999) argued that “the central premise of RBV addresses the fundamental question of why firms are different and how firms achieve and sustain competitive advantage”. They distinguished two groups of researchers’ work in order to provide the answer: one, following Wernerfelt´s work, focused more specifically on the explanation of “how differences in firm´s resources realized superior firm performance” and another concentrate “on examining specific resources which gave rise to sustainable competitive advantages”. Important members of the first group of authors include Rumelt (1984), Barney (1986) and Dierickx & Cool (1989), who established some essential foundations of the resource-based logic (Barney & Arakin, 2005). Rumelt (1984) explored the economic rent generation and the firm´s proper characteristics. Barney (1986) introduced the concept of “strategic market factors” which defines the “tradability” of the resource factors, while Dierickx & Cool (1989) suggested a differentiation in terms of assets (flows or stocks). According to Barney & Arakin (2005) the most important works on the other parallel stream of research were the theory of the invisible assets developed by Itami (1987) and the work on the “competence-based theories of corporate diversification” developed by Prahalad & Bettis (1986) and Prahalad & Hamel (1990). To Itami (1987) the invisible assets – information-based resources such as technology, customer trust, brand image, and control of distribution, corporate culture and management skills - are an essential condition to achieve competitive success, although the tangible (visible) assets are necessary to operations, since they are “hard and time consuming to accumulate, can be used in multiple ways simultaneously, and are both inputs and outputs of business activity” (Barney & Arakin, 2005). Prahalad and Bettis (1986) introduced the concept of dominant logic to describe the relationship between performance and diversification. They defined dominant logic as “the way in which managers conceptualize the business and make critical resources allocation decisions”. This dominant logic is determined by the “beliefs, theories and propositions that have developed over time based on manager’s personal experiences” and it is related with the “cognitive orientation and the knowledge structures used by top managers in making their strategic decisions”. To the authors, while unrelated businesses requires multiple dominant logics, a single dominant logic can be used to strategically manage related business (Knecht, 2013). Prahalad and Hamel (1990) enlarged the dominant logic concept in a most important paper that introduce the term of corporation´s “core competence” which was defined as “the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies”. They stated that a firm should focus on a set of distinctive competences. Barney (1991) argued that not all of the resources have the potential to establish a competitive advantage and he identifies four needed characteristics so that a resource can be a source of competitive advantage: Value, Rarity, Inimitability and Organization (the VRIO Framework). Through this framework it is possible to evaluate the level of importance of the firm´s resources. The research on the RBV moved forward to be more specialized. Some research sub-streams looking at some internal resources, like the knowledge based view of the firm, or the strategic leadership, recently emerged on the field (Hoskinsson et al., 1999). As mentioned above, knowledge assets are increasingly important in an interconnected and open world and we will explore below its relationship with strategy and innovation.
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2.2 Knowledge and Innovation Many writers elected knowledge as the principal resource that can be under control by a firm and established a “knowledge based theory” to explain a persistent corporate superior performance (Barney & Arakin, 2005). Hoskisson et al (1999) argued that the “knowledge-based view (KBV)” or “knowledge based theory” is built upon the resource based theory (RBV) and extends this concept considering companies as knowledge heterogeneous entities. To Nonaka (1994) knowledge is a many-sided concept with many interpretations. He defines it as a “justified true belief”, and considers knowledge, in a view of the knowledge theory creation, as “a dynamic human process of justifying personal beliefs as part of an aspiration for the truth”, distinguishing it in this way from the “traditional epistemology”. In this way, knowledge is the asset that drives strategy and it is the main feature that distinguish KBV from other schools of thought in strategy (Takeushi, 2013). Polany (1966) divided knowledge into two groups: “explicit/codified” knowledge (transferable in an easy way) and “tacit knowledge “(one that is not amenable to transfer). However, tacit knowledge has been pointed as an important source of competitiveness between organizations and can only be evaluated by action (Ferreira, 2011). Takeushi (2013) argue that strategy formulation and execution is the outcome of “a subjective, interactive process driven by human beings based on their beliefs and here-and-now judgments and actions taken within particular contexts”. These statement adds three new perspectives to the traditional schools of strategy: (1) people are on the heart of strategy; (2) “strategy as a dynamic process” and (3) a “social agenda of strategy”. Tacit knowledge is grounded on person´s instinct, emotions, intuitions, ideals, experience and actions and it originates strategies that really works. But the traditional management theories neglect human subjectivity, since knowledge is viewed as one more resource like land and capital. Manager´s usually focus on explicit knowledge, as this kind of knowledge is classified, quantified and widespread. The interaction between tacit and explicit knowledge (which Takeushi defined as the “epistemological level“) is the drive force on knowledge creation in firms and they are complementary (Nonaka, 1994). With emphasis on the knowledge creation process through the conversion between tacit and explicit knowledge, Nonaka (1994) established four different types of knowledge conversion (The SECI Model): (1) Tacit to Tacit (Socialization); (2) Tacit to Explicit (Externalization); (3) Explicit to Explicit (Combination) and (4) Explicit to Tacit (Internalization). He argues that organizational knowledge creation is an “upward spiral process, starting at the individual level moving up to the collective (group) level, and then to the organizational level, sometimes reaching out to the inter organizational level” (which Takeushi defined as the “ontological level”). This sentence highlights not only the active role of top management in the knowledge process creation, but also the middle and lower levels that are, on other schools of thought, ignored or are a “necessary evil”. He also highlights the role of the context where the people interactions occur - the “ba”- to create new knowledge. Ba, can be “physical” or “virtual” providing a platform for individual progress and /or organizational knowledge (Ferreira, 2011). On a fast changing environment, disruption is perpetual and it requires to all types of managers the ability to decide “just in time” and just “now” the utility of their decisions. Moreover, the fourth industrial revolution demands that strategy focus also on creating social value in order to improve the quality of life for all people around the world (Takeushi, 2013). That is what he calls “Phronesis” or “Practical wisdom” which he defines as “the high-order tacit knowledge acquired from practical experience that enables humans to make prudent judgments and take timely action appropriate to a particular context and situation, guided by values, aesthetics and ethics”. Including phronesis within strategy “allows the firms to create another spiral at the teleological (purpose) level”, since “phronesis is know-whatsould-be-done for the common good”. According to the author, this is an opposite view regarding the two types of knowledge postulated by Aristotle, the episteme (scientific knowledge or know-why) and the techne (skilledbased technical know-how). Strategy and innovation are distinct concepts both in terms of definition and function and the capacity to make changes in the competitive position of firms justifies the continued growth of the importance of innovation. Thus, strategy and innovation are complementary and feed on each other being innovation a source of competitive advantage (Dobni, 2010; Barbosa & Romero, 2013). Dobni (2010), also argued that is necessary to integrate innovation and strategy practices, in order to achieve a better performance.
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Fernando Barbosa and Fernando Romero Innovation is also viewed as a main type of organizational knowledge creation (Nonaka, 1994; Nonaka & Toyama,2005;) although this term is defined differently by different researchers (Seidler-de Alwis & Hartmann, 2008). It also has been interpreted as a knowledge process in which new products and services are the outcome (Kör & Maden, 2013). The relationship between knowledge and innovation, and the knowledge management worth to improve innovation generates little controversy on literature (Swan, 2007). According to Kör & Maden (2013) innovation is also positively connected with knowledge acquisition. They examined the links between knowledge management processes and innovation types in organizations and they found a positive impact of knowledge management processes on innovation types (i.e., administrative and technical). They also found that knowledge management processes are also positively connected to innovativeness. Revisiting the work of Darroch (2005), Allameh and Abbas (2010) one can find a positively and strong connection between knowledge management practices (knowledge acquisition, dissemination and responsiveness) and innovation levels (new to the world, new to the firm, new products to existing ranges, improve existing products, change products to reduce costs and reposition existing products). Regarding the connection between radical innovation and knowledge management practices they found that they were stronger than the relationship between such practices and other types of innovation which points to an inconsistency with the results obtained by Darrow, which argues “that a firm with a capability in knowledge management is less likely to develop new to the world innovations” and is “also consistent with a view presented earlier by Tushman and Anderson (1986) who attest that incremental innovations are competence enhancing, while radical (i.e. new to the world innovations) are competence destroying”. Regarding family firms, Price, Stoica & Boncella (2013) founded that knowledge resources and innovation have a major influence on family firm performance. To Nonaka & Takeushi (1995) “knowledge creation fuels innovation” and the SECI Model provides an understanding on how the required continuous innovation in firms can be stimulated. However, many knowledge management actions are principally seen, and addressed in the literature, as components of information systems, and not as components of a wider and more personal communication system, although managers understand the importance, in terms of business strategy, of having some knowledge advantage relative to their competitors (Zack, 1999). The organizational capacity to innovate that depends on this communicational environment, is defined by the continuous interaction between technical and market knowledge, and it seems to be an essential factor in order to flourish in a hypercompetitive environment (Popadiuk & Choo, 2006).
2.3 Internationalization As mentioned above, increased globalization goes hand in hand with rapid technological change, and companies have a new challenge in terms of competition and access to competitive resources on the global market. They can be obtained through strategic alliances, foreign subsidiaries or other cooperative strategies, and the immersion in networks on an international scale seems to be very important to create competitive advantages. Thus, identification of organizational characteristics and the strategy that enable companies to improve their innovative approach are nowadays, with the challenge to internationalize their activities, essential to increase their competitiveness. The entry mode choice in a foreign market is a challenge and a critical decision, and will have a great impact in the company’s performance. Researchers have identified a large number of practices and models concerning the entry choices modes that a firm could adopt, but there is not an agreement on which is the best entry strategy in foreign markets (Nakos, 2011). A widely known model on internationalization processes is the Uppsala process model developed by Johanson and Vahlne (1977). This model reveals two patterns of the internationalization process: 1) the establishment of a chain, which represents the gradual order that firms follow in their international operations - regular export; independent representative; sales subsidiary and manufacturing; 2) companies make their investments in the markets that they can better understand in order to reduce the uncertainty in new markets (the notion of psychic distance). This concept is related to factors that hamper information flows between firms and the market, such as differences in language, level of education, business habits, cultural environment, legal environment and political systems. The Uppsala model was updated by the authors (Johanson and Vahlne, 2009)
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Fernando Barbosa and Fernando Romero to incorporate the effect of networks on the internationalization process, acknowledging that learning processes of companies, and their commitments, are as much linked to the network of relationships as to national institutional aspects. Another behaviourist model is suggested in the literature, the IModel (Innovation – Related Internationalization model), originally developed by Bilkey and Tesar (1977). This model points to various stages of the export process, in which each one is an innovation for the company by anticipating the trends, whether in the foreign markets, or in the domestic markets (Alem & Cavalcanti, 2005). Another important model that explains the shape of internationalization is the Eclectic Paradigm of Dunning (1980), or the OLI model (Ownership, Localization and Internalization) which is based on a rational approach in which companies, on their approaches to foreign markets, are looking particularly at three types of competitive advantages, associated according to the highest probability of economic profit (Barcellos, 2010): (1) Companies (Ownership) Advantages, including the access and /or ownership of resources that create value, (2) Advantages of Location, including those provided by the places where they settle and finally, (3) Internalization Advantages, which are those related to intramural production advantages, instead, for example, of advantages related to association agreements with local companies ( Barbosa and Romero, 2013).
3. Conclusion Through this work we intended to study the interaction between the processes of strategy, knowledge, innovation and internationalization, since there are few studies that integrate these issues and analyse the interdependence between these areas, and the relationships between them are somehow diffuse and scattered, despite the explicit recognition that these areas are closely related and that it is difficult to understand one of the processes without understanding the interrelationships with the other processes. One can say that there seems to be, at least, four intersection points between the themes that were addressed above: 1) an intersection between strategy and knowledge, whereby the latter was incorporated in the latest versions of the resource based theories of the firm as a fundamental and dynamic resource that requires strategic decisions to enable it as factor of competitive advantage; 2) an intersection between knowledge and innovation, and the possible ways by which the management of the former can be translated into the latter; 3) an intersection between strategy and innovation, perceived by the resource based perspective and also by the contingency approach, as a consequence of the relationships that exist between knowledge management practices and the impact of those practices in the provision of product or service innovation; 4) an intersection between innovation and internationalization, and concomitantly between knowledge and internationalization, explicitly incorporated by the IModel and implicit in the network relations of the Uppsala model. There is clearly a connection between the themes, and the recognition of that connection raises several questions, that can be formulated as possible research avenues, yet to be explored in many cases. Some of them can be enumerated. What types of knowledge may be positively related to internationalization processes? Which types of information and knowledge flows are important in international networks? What actors in those networks are most important to enable and facilitate internationalization processes? How is strategic management affected? What are the implications for organizational structure? What are the tools and processes, useful and effective, that a company can use to mobilize and coordinate their resources to achieve higher business performance? What is the relationship/role of the context as it regards constraints in the production of knowledge? These and other questions arise out of the links that were identified between the concepts and processes addressed in the above review.
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User Communities and the "Dark Energy" of Open Innovation Christian DeFeo, Jennifer Harding and Robert Wood Loughborough University, UK
[email protected] [email protected] [email protected]
Abstract: Spending on R&D in the United Kingdom is in decline. A report by the University of Sheffield stated that research and development investment in the UK is now less than 2% of GDP, mainly explained by cost reductions by firms (Jones, 2013). Yet, innovation is needed more than ever for firms to remain competitive. What can be done to redress the balance? The idea of tapping into the "dark energy" (Anderson, 2012, p. 128) (also known as "the cognitive surplus" (Shirky, 2011, pp. 9-10)) of a "community of users" to enhance a product is as old as the Whole Earth Catalog, which was first published in 1968. This method can also be used to invent new products. This paper will discuss this form of "open innovation" in three distinct contexts: first, in the creation and enhancement of Stewart Brand's "Whole Earth Catalog" between 1968 and 1971, second, by the Chinese mobile phone manufacturer Xiaomi in the development of its MIUI software, and third, in an Internet of Things design competition hosted by the electronics engineering community, element14.com, in collaboration with Texas Instruments, Cisco, and the Eclipse Foundation. Using these examples, the paper argues that the "dark energy" proffered by user communities is a key resource which can be effectively deployed as part of firms' innovation models. The paper also argues that the arrival of low cost tools such as the Raspberry Pi and the 3D printer, as well as access to so-called “hackerspaces”, means that online communities can do more than just generate software, ideas and designs, they can now produce working prototypes of physical products. The paper finally argues that using the context of design challenges can provide intensive focus and direction for innovative activity. Keywords: open innovation, online communities, user-led innovation, user communities, maker movement
1. Introduction In 2013, Nathan Broadbent, a New Zealand-based inventor, decided that he was not satisfied with the functionality of his microwave oven and set about to reinvent it. He took his existing oven apart and replaced its on-board circuitry with a Raspberry Pi computer. He also replaced its keypad. He also added new functionality, including: !
Voice commands: Mr. Broadbent can speak to his microwave and tell it to cook his food at a particular setting and time.
!
A barcode scanner: Mr. Broadbent attached a barcode scanner to the oven, which he then linked to an online database. In future, he only needs to scan the packaging and the appropriate cooking times will be picked up automatically.
!
Twitter notifications: when the food has finished cooking, the microwave sends a message via Twitter indicating that the meal is ready.
At the time of writing, Mr. Broadbent's project summary video has accrued more than 717,000 hits. Despite queries about patenting the new appliance, he stated that he will not be turning it into a manufactured product. Nevertheless, he has imbued his invention with innovations which to the author's knowledge do not exist in any mass produced product, despite the fact that many of these features have been patented by microwave oven manufacturers. This example highlights a problem and an opportunity. The problem is that product innovation may have stalled in certain instances. The economist Robert Gordon stated in his recent tome "The Rise and Fall of American Growth" that a "golden period" of innovation ended approximately in 1970. His stated rationale is: compared to inventions such as the washing machine, the internal combustion engine, indoor toilets, and electric lights, all other innovations pale in comparison and will not create the same amount of economic growth nor improvements in living standards as experienced by Western societies after 1945. However, this “plateau of innovation” may not be due to an organic limit to human ingenuity: rather, decisions to invest or not to invest may bear at least part of the blame. For example, spending on research and development in the United Kingdom has declined. According to Professor Richard Jones of the University of Sheffield, investment in Research and Development in the UK has decreased from approximately 2.5% of GDP in 1980 to about 1.7% in 2011 (Jones,
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Christian DeFeo, Jennifer Harding and Robert Wood 2013, p. 4). The 2012 Kay review of equity markets suggests that this decline is due to, in Professor Jones' phrase, "irrational short-termism". (Jones, 2013, p. 5) The opportunity, as exemplified by Mr. Broadbent’s microwave, is that the tools of innovation are more accessible than ever: Mr. Broadbent utilised the Raspberry Pi microcomputer to control his microwave. The price point for a Raspberry Pi is approximately $30: it has remained so since it was first launched in 2012, despite the fact that each subsequent model has had greater processing power and more features than its predecessor. A new variant of Moore's Law may be in effect: increasing processing power now sticks at a low price point. As this phenomena unfolds, there is a subsequent increase in complexity of applications that an individual inventor may create. However, Mr. Broadbent could not have created the invention solely with cheap hardware and an open source operating system (the Raspberry Pi runs a variant of Debian Linux). Open source tools, which are community developed by nature, are increasing in number, variety and complexity: for example, Mr. Broadbent made use of the open source voice recognition software, PocketSphinx. His innovation also would not have been possible without an online knowledge base, whose ultimate expression may be in the form of a community of experts assembled from across the globe within the context of an online forum. The stalled paths in the current innovation paradigm may unblock if firms can access this amalgam of the "dark energy" of user creativity and expertise, combine it with inexpensive tools, and utilise open innovation principles.
2. Example one: Stewart Brand and “The Whole Earth Catalogue” Utilising the "bricolage" provided by a community of experts pre-dates the mass availability of the internet. In 1968, the writer, entrepreneur and counterculture thinker Stewart Brand created the first edition of the "Whole Earth Catalog". The catalogue intended to provide "tools for living", so that individuals choosing to “live off the land” could have access to necessary items. The catalogue contained seven sections, categorising the items for sale – !
Understanding Whole Systems
!
Shelter and Land Use
!
Industry and Craft
!
Communications
!
Community
!
Nomadics
!
Learning (Turner, 2006, p. 80)
The first edition was written mainly by Brand himself; its selection was relatively limited and was 61 pages long. By 1971, this had expanded to 448 pages; most of the items were selected by catalogue users. Brand had opened his catalogue up to user feedback, and provided that it met his basic criteria, an item was included. These criteria were: !
Useful as a tool,
!
Relevant to independent education,
!
High quality or low cost,
!
Not already common knowledge,
!
Easily available by mail. (Turner, 2006, p. 91)
Brand was well placed to access a potent user base. As Fred Turner noted in his 2006 book, "From Counterculture to Cyberculture": “Brand became a key link between very different countercultural, academic and technological communities. When he founded the Whole Earth Catalog in 1968, he gathered those communities into a single textual space. That space in turn became a network forum - a place where members of these communities came together, exchanged ideas and legitimacy, and in the process synthesised new intellectual frameworks and new social networks.” (Turner, 2006, p. 72)
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Christian DeFeo, Jennifer Harding and Robert Wood Brand also set up an innovative mechanism to gather user ideas: "he called for readers to suggest and review items for the Catalog, offering them ten dollars for an accepted evaluation" (Turner, 2006, pp. 89-90). And: "Those who first suggested or reviewed an item would have their name listed in the Catalog." (Turner, 2006, p. 90). But why? "In this way, Brand accomplished several entrepreneurial purposes: he enlarged the range of the Catalog’s contents by appealing to “experts” outside his organisation: he increased his readers’ sense of commitment and involvement. He also increased the Catalog’s own value to the community it served. In the process, he invited the reader to become a producer of economic value, a contributor to a textual community and still a buyer of the Catalog." (Turner, 2006, p. 90) Later, Brand was one of the first to spot the collaborative potential of the internet; he founded the WELL (Whole Earth 'Lectronic Link), an early online community; other spinoffs of his movement included the Homebrew Computer Club, which subsequently led to the founding of Apple Computer.
3. Example two: Xiaomi The coalescing of user expertise has not remained solely within a western context. It is a key part of the Chinese mobile phone manufacturer Xiaomi's development model. Xiaomi is one of many emerging manufacturers to come out of the People's Republic of China, along with Huawei (a manufacturer of phones and networking equipment) and Haier (domestic appliances). Xiaomi differs from its peers in its use of user engagement as part of its innovation model. According to a 2015 report published by Deloitte, "Product managers spend approximately half their time in user forums, and the company can incorporate user suggestions in a matter of weeks." (Hagel, et al., 2015, p. 32) Xiaomi is particularly reliant on user innovations for its MIUI user interface software: Lei Jun, Xiaomi's founder, estimated that one third of improvements extended from user feedback (Shirky, 2015, p. 34). Releases are scheduled weekly on what Xiaomi calls "Orange Fridays"; each release is followed by a user questionnaire. This focus on user feedback has been successful: approximately five out of every eight mobile phones activated in China are made by Xiaomi (Shirky, 2015, p. 15). Engaging with users also aids sales; the "company spends almost nothing on traditional advertising, preferring to stage launch events that the press will cover, and helping their users proselytise on behalf of the company." (Shirky, 2015, p. 32)
4. Example three: Element14.com The Whole Earth Catalog was a mosaic of individual written contributions. Xiaomi fosters a community and gathers user feedback to progress its products. But what of user-driven product development which includes both hardware and software? Thanks to the aforementioned price reductions in microcontrollers, this form of inventive activity is now more accessible in the online community context. The electronics engineering forum element14.com was initially set up to provide additional marketing and product information for the electronics distributor Premier Farnell. The online forum developed aspects of a "community of practice" or "collaborative circle" (Farrell, 2001, p. 2) whereby engineers discussed projects and turned to each other for assistance when they encountered difficulties. Premier Farnell purposefully layered programmes on top of this culture in order to stretch the innovative capacity of the participants. Element14's Design Challenge programme is a leading example. Premier Farnell set challenges in collaboration with leading suppliers such as Texas Instruments and partners like the Eclipse Foundation (a creator of open source software), in order to solve a problem. Tasks that were set for engineers included the efficient deployment of Energy Harvesting technologies and alternative uses for Wireless Power (Charging) besides recharging mobile phones. In the case of Energy Harvesting, an engineer named Wojciech Gelmuda created a carbon monoxide alarm that does not require batteries (Gelmuda, 2013). Similarly, Wireless Power was used in a rechargeable waterproof transponder for embedding in life jackets (Rüland, 2014). In 2014, in collaboration with Cisco, Texas Instruments, the Eclipse Foundation and Sierra Wireless, element14 set the following challenge: engineers were asked to develop an internet-connected pollution sensor which would provide meaningful data for citizens, businesses and governments. The title of the challenge was “In the Air”. As in previous design challenges, a kit was provided to those who put in the most detailed applications. A grand prize was set as a reward. Applications came from engineers as geographically dispersed as Latvia, New Zealand and Singapore. The proposals represented a variance in the type of pollution which was most important
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Christian DeFeo, Jennifer Harding and Robert Wood to the inventor: a Singaporean engineer named Gan Eng Swee proposed a dust sensor, as he and his neighbours find this form of pollution particularly troublesome (Swee, 2014). A Latvian inventor named Janis Alnis detailed a carbon dioxide monitor for schoolrooms to help enhance the student environment (Alnis, 2014). A Filipino engineer named Ryan Labutap decided to assess a different form of pollution: potentially poisonous algal blooms in water supplies (Labutap, 2014). The winner was an engineer from New Zealand named Christever del Rosario. He created a "Total Carbon Footprint Monitor": his invention used networked sensors that fed back information to an application on his mobile phone (del Rosario, 2015). This allowed the user to assess how much carbon had been released in the course of a day. At the time of writing, this invention is being perfected for mass market production. All these prototypes were created in the inventors' spare time, thus utilising what Clay Shirky has referred to as the “cognitive surplus” (Shirky, 2011, p. 9). The tools involved were low cost: so inexpensive that the participants were given to them for free by the manufacturers (additional budgets were provided by Premier Farnell in some cases). Yet, the innovative ideas which arose within the four months of the challenge were potentially groundbreaking. The individuals had access to the knowledge base and advice on element14, instructional videos in the form of manufacturer webinars, and aid from individual community members: this created an environment for accelerated innovation.
5. A felicitous, if flawed, convergence There are a number of key factors that underpin the innovation model in the three aforementioned examples. The positioning of these elements can be best visualised utilising a Venn diagram:
Not all the examples sit at the convergence point of all three circles, and definitions require a degree of flexibility. Stewart Brand's "Whole Earth Catalog" can be said to be adhering to Open Innovation principles, though the concept did not fully enter the consciousness of the wider public until the publication of Henry Chesbrough's 2006 book, "Open Innovation: The New Imperative for Creating and Profiting from Technology". Furthermore, Chesbrough spoke of accessing knowledge from start up firms and universities rather than end users via the context of an online community. Nor can Brand's "community" be accurately described as "online": its connections were maintained via the traditional methods of post, telephone and face-to-face contacts. Nevertheless, it could also be described as "online" in a broader sense, as Brand had created a "virtual network" with himself and his operation acting as a hub. Xiaomi uses (albeit not overtly stated) Open Innovation principles and the input of its "fans" from its online communities, but nevertheless doesn't utilise the third element, the arrival of inexpensive tools that change the potential manufacturing context. While Xiaomi invites active user engagement in the development of its MIUI software, Xiaomi still retains a closed model for developing its handsets. Nevertheless, this element is becoming more accessible; in 2015, a kit that allowed inventors and hobbyists to build their own cellphone was launched (Allan, 2015).
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Christian DeFeo, Jennifer Harding and Robert Wood Element14's example is positioned at the centre of this felicitous, if flawed, convergence: inexpensive tools combined with an online community and a development model that emphasized knowledge sharing; however, this example also contains quirks. At present, neither element14 nor its partners have a formal, established process to appropriate inventions and turn them into mass-produced products. Design Challenges are highly dependent upon capturing the interest of the community's user base. Timescales for rapid innovation also need to be appropriately calibrated: what was apropos for the development of an internet connected pollution sensor is not necessarily correct for creating a wearable sensor to measure impact events in sports (DeFeo, 2014).
6. Clarifications In order to add depth to a potential innovation model as described by the “felicitous convergence”, it is necessary to clarify the definitions and potential scope of each of the elements.
6.1 Online communities An "online community" is not necessarily an "online forum". An online forum is a software tool, a context in which an online community can be formed. An online community is a community in a broader, sociological sense, namely, "a social, religious, occupational, or other group sharing common characteristics or interests and perceived or perceiving itself as distinct in some respect from the larger society within which it exists" (community, 2016). This definition has become somewhat obscured by the tendency of firms to label their online forums as "communities". Element14.com, Xiaomi and the Whole Earth Catalog all qualify as "communities", given that the participants share common interests and are “distinct”: element14.com caters to electronics engineers, Xiaomi has set up its online forum for its community of product enthusiasts, the Whole Earth Catalog provided an aggregate for those who sought alternative, sustainable lifestyles. Additionally, within the "online community", there should be perceived potential for what Eric von Hippel has described as "user-led innovation" (von Hippel, 2006, p. 53). This form of innovation, whereby the users of a product lead efforts to improve it, is nothing new: it was common in the English iron industry in the 19th century (von Hippel, 2006, p. 78). Chris Anderson, in his 2012 book, "Makers: the New Industrial Revolution", further described this potential: "When you share, community forms, and what community does best is remixing, exploring variation in what a product can be and in the process improving it and propagating it far faster than any individual or single company could." (Anderson, 2012, p. 74) Furthermore, it is beneficial if the community offers the potential for "collaborative circles" to form (Farrell, 2006). As described by sociology professor Michael P. Farrell, these circles form contexts for bursts of creativity. Farrell has described the example of the French Impressionist circle, among others. He stated that such circles could potentially form in an online milieu: "As internet communication becomes more common, it may be that circles will form among widely scattered, like-minded people who discover one another through electronic communication. In addition, Internet communication may make it easier for marginalised people in a discipline to discover one another." (Farrell, 2006, p. 293) However, he also expressed doubts about online circles' efficacy: "Future collaborators may discover that Internet communication provides the right mix of intimacy and distance to nurture collaborative pairing, egalitarian openness, and instrumental intimacy… I do not think it allows for…in-depth dialogue that leads to meaningful personal development and creative work." (Farrell, 2006, p. 293) It may be that Farrell was unduly pessimistic; in Anderson's view, distance "matters less and less in manufacturing these days - ideas trump geography" (Anderson, 2012, p. 47). What could be described as a "collaborative circle" formed on element14.com; there is evidence that it played a role in stimulating creativity. In 2014, element14, in collaboration with the Raspberry Pi Foundation, EnOcean, Tektronix, the Eclipse Foundation and OpenHAB, created a design challenge entitled "Forget Me Not" to build internet of things
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Christian DeFeo, Jennifer Harding and Robert Wood applications (DeFeo, 2014). Community participants expressed a common fondness for the "Minions" from the Pixar film "Despicable Me"; they referred to themselves as "Minions" and used images of the characters as avatars. The "Minions" as a collaborative circle found expression within the "Forget Me Not" challenge as a series of "challenges within the challenge", namely the most creatively productive competitor over a weekly period would receive a "Minion" related prize. (DeFeo, 2014). Finally, online communities should be meritocratic from within rather than necessarily reference outside credentials. As Chris Anderson stated in his 2012 book, "Makers: the New Industrial Revolution", had he not operated his 3D Robotics company and community in this way, he would have "missed the cake maker, the graphics artist working for the Brazilian ad agency, the guy who runs the Italian ambulance radio company, the retired car-dealership owner, the Spaniard working for an energy company in the Canary Islands" (Anderson, 2012, p. 149).
6.2 Open innovation The concept of Open Innovation is based on a premise which was expressed by Bill Joy of Sun Microsystems: "No matter who you are, most of the smartest people work for someone else" (Anderson, 2012, p. 144). As articulated by Chesbrough, given that knowledge generation activities within a traditional R&D setting are unlikely to be broad enough in order to sustain a modern firm, organisations need to be sufficiently flexible to identify, appropriate and encourage generation of knowledge outside of their traditional boundaries. Eric von Hippel's concept (labelled “Democratising Innovation”) extends to utilising end users in the generation of new products; he also suggests the development of "toolkits" to enable user-led product development to take place (von Hippel, 2006, p. 147). Open Innovation is not necessarily "Open Source", i.e., the free sharing of patentable information, designs or code. However, the aforementioned “felicitous convergence” is dependent on open innovation combining with open source. For example, Anderson describes how his grandfather created an automated sprinkler system in the 1940's: this was a highly individual endeavour, incurring expense and without the benefit of knowledge sharing via an online context. The innovation process was more time consuming and expensive than it would be using present day tools (Anderson, 2012). Sharing is essential; it is also nothing new. The design of the Jacquard loom in the 19th century was not patented, but rather shared by manufacturers within the city of Lyons; this was essential for the city's emergence as a centre of silk weaving (Foray, 2006, pp. 174-178). Knowledge creates what von Hippel describes as "spillovers", rather than is hermetically contained (von Hippel, 2006). What of patents and their value? Anderson states that value is created within retaining users in an ecosystem (Anderson, 2012, p. 113).
6.3 Maker spaces / open and inexpensive tools In addition to the Raspberry Pi, the availability of open source software is critical for the convergence to be effective. According to the co-owner of Adafruit, Phillip Torrone, in 2011 there were approximately "over 300 open source products available representing $50 million in revenues" (Anderson, 2012, p. 107). Just as important are the tools now available for small-scale manufacture; Anderson lists the "3D printer, CNC machine (mill), Laser Cutter, 3D scanner" (Anderson, 2012, pp. 82-84) . Even if an individual user could not afford to purchase these tools, access to these "desktop factories" has improved thanks to the emergence of Maker Spaces in which these tools, and instruction, are often available. Tools are not solely geared for the small-scale production of electronics products prototypes; von Hippel identified the use of toolkits by Nestle to encourage the development of new cooking sauces (von Hippel, 2006, pp. 160-161). Maker facilities now provide the means to create new biological innovations (Biohackers of the World, Unite. 2014). Levi's, the clothing manufacturer,, is also utilising the creativity of Makers via its "Levi's Makers" programme (Voight, 2014).
7. Discussion The previous paradigm of product innovation may have plateaued or stalled: in order to maintain shareholder value, firms are obliged to be focused on the short term rather than make long term investments. This shift in priorities has led to a decline in Research and Development spending in the United Kingdom. A lack of
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Christian DeFeo, Jennifer Harding and Robert Wood substantive innovation has also led to the perception, as stated by economic historians like Robert Gordon, that the era of high GDP growth in the United States (an example of an advanced economy) is over. However, knowledge is also much more diffuse than it was previously: research and development has moved from solely within the context of being within a large laboratory or a university and into the home of an individual with (for example) a computer, a Raspberry Pi, and a 3D printer. The individual may not be inventing as part of any paid work, rather, tapping into the "dark energy" of spare time which otherwise remains un-utilised. This research and development is globally networked via online communities and knowledge bases, and dependent upon a culture and a context for sharing. Innovative firms will find a means by which to create a "felicitous convergence", whereby it can adopt open innovation principles, create or ally itself with online communities, and utilise the availability of inexpensive tools to inspire and develop new ideas. Design Challenges are a potent means by which this convergence may be stimulated. Challenges to stimulate innovation are as old as Napoleon III's competition to create a butter substitute: this yielded margarine (Adamczyk, et al., 2012). Personal incentives, such as having one's suggestions incorporated (as in the case of Xiaomi), or receiving a credit (in the case of the Whole Earth Catalog) or potentially a grand prize (as with element14.com) have a part. “Toolkits”, as described by von Hippel, also may serve as a point of focus. In the case of element14, all design challenges began with a basic toolkit, such as a Texas Instruments Launchpad with software and sensors. The “felicitous convergence” presents a set of research challenges: it is by no means a static model. Rather, it continues to evolve alongside the technologies that make the convergence possible. Furthermore, its application is uneven across industry and technology areas. Further research will be required to look into these variances. Further study will be necessary in order to add rigour to the model; additional research will explore a network map of key stakeholders and discover what types of links exist between them; this entails a systems analysis view of these networks and will enable precise questions as well as a quantitative view. There will also be exploration of a potential "checklist" of necessary features, inputs and outputs of an innovation generating community. Additionally, the examples provided by General Electric's work with its "FirstBuild" community and the invention forum "Quirky" and Local Motors' community provide additional avenues for study. Furthermore, the following aspects of the new paradigm merit additional investigation: !
The creation and management of online communities by firms: what is the model or set of models by which a firm can create an online community through which innovation can be inspired?
!
The sociological aspects of online communities: what social factors enable a community in which practical innovation work can take place? What are the individual motivations of community members? What levels of trust and interaction are required? How does such a community move from "forming" to "performing"?
!
The challenges of appropriation: as identified by Burcharth, Knudsen, and Søndergaard in a 2014 paper, firms can find it difficult to appropriate the products of open innovation if a "Not invented here" culture prevails. Additionally, the possibility of a consistent process whereby community generated prototypes can be turned into manufactured products should also be researched.
References Adamczyk, S., Bullinger, A. and Möslein, K. (2012). Innovation Contests: A Review, Classification and Outlook. Creativity and Innovation Management, 21(4), pp.335-360. Allan, A. (2015). A First Look at the RePhone, a Modular Cellphone You Build Yourself. Make Magazine. [online] Available at: http://makezine.com/2015/09/22/seeed-studio-rephone-modular-cell-phone/ [Accessed 25 Mar. 2016]. Alnis, J. (2014). In-the-Air Challenge: Texas Instruments MSP 430 FR5969 Launchpad. [Blog] element14.com. Available at: https://www.element14.com/community/community/design-challenges/in-the-air-designchallenge/blog/2014/11/23/part-1-in-the-air-challenge-msp-430-fr5969-launchpad [Accessed 25 Mar. 2016]. Anderson, C. (2012). Makers. London: Random House Business Books.
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Christian DeFeo, Jennifer Harding and Robert Wood Anderson, C. (2010). Free: How Today's Smartest Businesses Profit By Giving Something For Nothing. London: Random House Business. Biohackers of the World, Unite. (2014). The Economist. [online] Available at: http://www.economist.com/news/technology-quarterly/21615064-following-example-maker-communitiesworldwide-hobbyists-keen-biology-have [Accessed 23 Nov. 2015]. Broadbent, N. (2013). Raspberry Pi Microwave. [Blog] Made by Nathan. Available at: http://madebynathan.com/2013/07/10/raspberry-pi-powered-microwave/ [Accessed 21 Mar. 2016]. Burcharth, A., Knudsen, M. and Søndergaard, H. (2014). Neither invented nor shared here: The impact and management of attitudes for the adoption of open innovation practices. Technovation, 34(3), pp.149-161. Chesbrough, H. (2006). Open Innovation: The New Imperative for Creating And Profiting from Technology. Boston: Harvard Business School. community. (2016). In: Dictionary.com Unabridged, 1st ed. [online] Random House Inc. Available at: http://www.dictionary.com/browse/community [Accessed 25 Mar. 2016]. DeFeo, C. (2014). Detailed Information – Sudden Impact Design Challenge. [Blog] element14.com. Available at: https://www.element14.com/community/docs/DOC-70501/l/detailed-information-sudden-impact-designchallenge?ICID=SImp-menu-item [Accessed 25 Mar. 2016]. DeFeo, C. (2014). Introducing the "Forget Me Not" Challenge. ECN. [online] Available at: http://www.ecnmag.com/blog/2014/07/introducing-forget-me-not-challenge [Accessed 25 Mar. 2016]. DeFeo, C. (2014). Forget Me Not Challenge: Minion of the Week #1. [Blog] element14.com. Available at: https://www.element14.com/community/community/design-challenges/forget-me-not/blog/2014/08/18/forgetme-not-challenge-minion-of-the-week-1 [Accessed 25 Mar. 2016]. Del Rosario, C. (2015). Carbon Footprint Monitoring - Summary. [Blog] element14.com. Available at: https://www.element14.com/community/community/design-challenges/in-the-air-designchallenge/blog/2015/02/27/carbon-footprint-monitoring--summary [Accessed 21 Mar. 2016]. Farrell, M. (2003). Collaborative Circles: Friendship Dynamics and Creative Work. Chicago, Ill.: University of Chicago Press. Foray, D. (2006). The Economics of Knowledge. Cambridge, Mass.: MIT. Gelmuda, W. (2013). Carbon Monoxide Detector: The Road So Far. [Blog] element14.com. Available at: https://www.element14.com/community/community/design-challenges/energyharvesting/blog/2013/07/17/carbon-monoxide-detector-the-road-so-far [Accessed 21 Mar. 2016]. Gordon, R. (2016). The Rise and Fall of American Growth. Princeton: Princeton University Press. Hagel III, J., Brown, J. and Kulasooriya, D. (2015). A Movement in the Making.. Future of the Business Landscape. [online] Westlake: Deloitte University Press. Available at: http://dupress.com/articles/a-movement-in-the-making/ [Accessed 26 Oct. 2015]. Hagel III, J., Brown, J., Kulasooriya, D., Giffi, C. and Chen, M. (2015). The Future of Manufacturing: Making Things in a Changing World. Future of the Business Landscape. [online] Westlake: Deloitte University Press. Available at: http://dupress.com/articles/future-of-manufacturing-industry/ [Accessed 26 Oct. 2015]. Hatch, M. (2013). The Maker Movement Manifesto: Rules for Innovation in the New World of Crafters, Hackers, and Tinkerers. New York: McGraw Hill. Jones, R. (2013). The UK’s Innovation Deficit & How to Repair it. SPERI Papers. [online] Sheffield. Available at: http://speri.dept.shef.ac.uk/wp-content/uploads/2013/10/SPERI-Paper-No.6-The-UKs-Innovation-Deficit-and-Howto-Repair-it-PDF-1131KB.pdf [Accessed 10 Jan. 2016]. Labutap, R. (2014). Low Cost Harmful Algal Bloom Monitoring. [Blog] element14.com. Available at: https://www.element14.com/community/community/design-challenges/in-the-air-designchallenge/blog/2014/10/26/low-cost-harmful-algal-bloom-monitoring [Accessed 25 Mar. 2016]. Rüland, E. (2014). Waterproofing Marine Equipment - 14 - Final Review. [Blog] element14.com. Available at: https://www.element14.com/community/community/design-challenges/wireless-powerii/blog/2014/06/27/waterproofing-marine-equipment--14--final-review [Accessed 21 Mar. 2016]. Shirky, C. (2011). Cognitive Surplus: Creativity and Generosity in a Connected Age. London: Penguin. Shirky, C. (2015). Little Rice: Smartphones, Xiaomi and the Chinese Dream. New York: Colombia Global Reports. Swee, G. (2014). Dust, Temperature and Humidity Monitor. [Blog] element14.com. Available at: https://www.element14.com/community/community/design-challenges/in-the-air-designchallenge/blog/2014/10/26/air-challenge-intheair-and-hazemonitor [Accessed 25 Mar. 2016]. Turner, F. (2006). From Counterculture to Cyberculture: Stewart Brand, the Whole Earth Network, and the Rise of Digital Utopianism. Chicago: University of Chicago Press. Voight, J. (2014). Which Big Brands Are Courting the Maker Movement, and Why. Ad Week. [online] Available at: http://www.adweek.com/news/advertising-branding/which-big-brands-are-courting-maker-movement-and-why156315 [Accessed 1 Dec. 2015]. Von Hippel, Eric (2006) Democratizing Innovation. Boston: MIT Press.
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SWOT Analysis and Evaluation of a Driverless Carsharing Model Wiebke Geldmacher and Doru Alexandru Pleșea The Bucharest University of Economic Studies, Romania
[email protected] [email protected]
Abstract: Due to social changes, such as urbanization and an increased desire for door-to-door-mobility, combined with economic factors, such as rising gas prices and a lower investment in infrastructure, mobility is subject to change in the future. This change requires an adaptation of existing transport modes and force established companies within the mobility and transport sector, as well as start-ups to respond to these trends with an innovative concept. With technological improvements on autonomous cars, a future driverless carsharing model could respond to the above described trends. The topic is embedded in the discussion for a sustainable and customer-oriented mobility system. Based on existing mobility studies and future mega trends, it is estimated that a driverless carsharing model as an on-demand system becomes of great interest in urban areas in Germany, given the premises that the model can be realized in an ecological and economic balance. While carsharing can generally be done in three different models (free-floating model, permanent station model, private-toprivate model) the question shall be answered if a prospective model with driverless cars can meet the market needs. Such a model could be operated through a public or private transport company that is strongly interconnected with existing transport modes and provide customers with a thorough mobility chain. Autonomous cars have a significant advantage in comparison to existing transport modes. The high level of comfort in comparison to existing public transport systems and motorized individual traffic, the high flexibility in comparison to bus or train timetables, the avoidance of the search for a parking lot when using the private car and many other factors emphasize the need for this new mobility system. The article seeks to further outline the requirements from a customer perspective towards an innovative, value-adding or even substitute transportation mode. The intention of this article is to discuss strengths, opportunities, threats and weaknesses of such a carsharing model in the context of a SWOT analysis and on the basis of secondary sources on both driverless cars and carsharing. The aim is to compile this information, enrich it with further statistics and draw conclusions. Keywords: self-driving cars, carsharing, innovation, future mobility, transport mode
1. Introduction The classic concept of cars has developed throughout the last century, making it to one of the most preferred transport modes in Germany and around the globe. With new and innovative technical approaches, the car is facing a revolution: self-driving cars. Responding to social, economic, ecologic and technological changes, this development opens new business opportunities, based on the idea of carsharing. While automotive manufacturers (e.g. Mercedes) increase the automation level on cars with features such as self-parking, other players in this field, like Google, focus on the realization of a fully automated vehicles. Depending on the provider, existing carsharing models restrict the user’s flexibility in terms of flexible ad-hoc booking and especially in regard to the pickup and drop-of location of the car. Going beyond this current concept and keeping the future technological advancements in mind, the classical carsharing model as well as the use of private cars is subject to change in the future. The hypothesis is proposed that self-driving cars in a carsharing or even carpooling model will prospectively replace the private car and change the current set-up of existing public transportation services. The below outlined topic is embedded in the discussion for the acceptance of such a self-driving carsharing model. The following SWOT analysis shall identify the strengths (S), weaknesses (W), opportunities (O) and threats (T) for a possible strategic positioning of self-driving cars in a carsharing model or a potential company. As such a company on a large scale does not exist as of today, the perspective of a virtual company is taken. The analysis is based on the German market. The analysis method of “SWOT” is chosen as it describes a practical framework to analyze both the internal (strengths and weaknesses) and external perspective (opportunities and threats) as well as gathering data and identifying a possible competitive advantage in contrast to other transport modes (Ferrell and Hartline, 2012). While the conducted SWOT analysis in this paper is a widely used analysis tool to describe the situation, it does not reflect or quantify the different influencing factors. The below outlined strengths, weaknesses, opportunities and threats from a customer perspective shall therefor only be a first indication, while further quantitative research is required and conducted in the PhD thesis. The qualitative research is applied to align the customer
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Wiebke Geldmacher and Doru Alexandru Pleșea perspective with the possible provider perspective. The quantitative and qualitative research will be combined through the method of triangulation. All findings shall be concluded through a first rough draft of a self-driving carsharing model.
2. Framework of mobility In order to understand the concept and purpose of mobility, it is crucial to examine influencing factors. These factors can be considered as the “framework of mobility” and allow a deeper analysis of the motives for taking one or the other transport mode. The mobility behavior is influenced by the following factors (amongst others) (Bundesministerium für Verkehr und digitale Infrastruktur, 2015a): !
Place of residence
!
Social environment
!
Financial resources
!
Activities
Depending on the person’s way of living, on different socio-economic and regional influences, different mobility patterns establish (Bundesministerium für Verkehr und digitale Infrastruktur, 2015a) that maximize each individual’s objective in regard to mobility as rationally explained by the homo oeconomicus principle (Henkel et al., 2015). It is important to analyze this framework of mobility in regard to the German market, in order to identify the specific motives and triggers that raise the demand for mobility.
3. Strengths of a self-driving carsharing model In comparison to other transport modes, self-driving cars have a significant advantage that shall be highlighted. As analyzed by Bitkom Research (n.d.), the strengths of self-driving cars comprise the following aspects that are further outlined below: !
Higher efficiency (36% of the responses)
!
Reduced fuel consumption (30% of the responses)
!
Increased safety (28% of the responses)
!
More time for other things (22% of the responses)
!
Higher level of driving comfort (14% of the responses)
Looking at the user statistics of private cars, every second person uses a car on a daily basis, while one fourth of the population requires a car several days per week only (VuMA, n.d.). The total travel time of an average person in a car adds up to one hour per day, or 15 full days per year (Verkehrsclub Deutschland, n.d. a)). Solely based on the car usage, these numbers show a potential for establishing a carsharing model in Germany on a larger scale. Google, as one of the great pioneers in the field of self-driving cars, aims at an increase of car utilization of up to 75% (Investopedia, n.d.). This increase in car utilization clearly demonstrates the potential efficiency of self-driving cars in a carsharing model on an economic and ecologic level. In other words, an average car driver will reduce his costs by up to 90%1 if a self-driving car in a carsharing model is used, not taking the possible benefit of transporting multiple and independent users at the same time on a similar route into account (carpooling). In addition, the demographic changes in Germany that forecast a stagnation or even reduction of the population as well as the related aging and the urbanization make the private car a less attractive transportation mode in the future (Berlin-Institut für Bevölkerung und Entwicklung, 2009). Further on, the on-demand provision of cars at the customer’s location reveal a potential for carpooling: people tend to go to the same places, requiring a mobility service from the same places to their home. Taking New York City as an example, the analysis of the taxi pickup and drop-off locations between 2009 and 2015 clearly show the similarities of people’s demand in regard to transportation routes (Schneider, 2015). This demonstrates the need of transportation modes that offer back and forth transportation. As of now, with existing carsharing models, an imbalance of cars can be detected across the city. With cars being able to move through the city to the customer without requiring a driver, self-driving cars in a carsharing model demonstrate a big strength in contrast to existing transportation modes and carsharing models. 1 Assumption: costs of self-driving car (including maintenance, insurance and all other directly related costs) = costs of normal car (including maintenance, insurance and all other directly related costs); utilization of the self-driving car: 75%
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Wiebke Geldmacher and Doru Alexandru Pleșea Analyses of the current weaknesses of carsharing models simultaneously reveal the potential of self-driving cars in a carsharing model: According to Berylls Strategy Advisors (n.d. a)), the top three weaknesses of existing carsharing models include uncertainty about the car availability (28%), the refusal of driving other cars (26%) and the complexity and effort of carsharing systems (25%). The first obstacle reveals the potential of carsharing models and the general attractiveness of this topic if implemented correctly and in adequate quantity. Other stated obstacles will no longer be an issue with self-driving cars if implemented according to the user requirements. The average fuel consumption per car has decreased from 7,1l per 100km to 6,8l (for diesel) according to the German Census Bureau, resulting in a decrease of fuel consumption for private cars of 20% between 2000 and 2008 (Statistisches Bundesamt, 2010). The reason for this significant reduction lies primarily in the technological development of the cars in Germany. With self-driving cars, further technological developments are anticipated in regard to fuel consumption. The most important factor concerning the influence on fuel consumption is the driver operation characteristics. With self-driving cars, the traffic flow can be significantly enhanced, as necessary stops are foreseen better than by human beings. In addition to the reduced consumption of resources, self-driving cars will also influence the daily life by a significant reduction in car accidents. While Germany registered 2.4 million car accidents caused by human failure in 2011, it is believed that with the sensors of self-driving cars this number will decrease(Statistisches Bundesamt, 2013). The most obvious strength of self-driving cars from a user perspective in a carsharing model is the comfort level. With the future automation of cars, it will no longer be necessary for the passenger to interfere in the operation of the car, enabling him to do other things during his travel time. According to the HYVE Science Labs (2015), the highest proportion of users will use the travel time on their smartphones or tablets . This allows the passenger to use his travel time for different purposes than operating a vehicle, be it for work or private purposes (HYVE Science Labs, 2015). As the modal split in Germany is dominated by individual motorized traffic (52%), the demand for flexible and situational mobility becomes obvious (Karlsruher Institut für Technologie, 2015). Self-driving vehicles offer the same flexibility as normal cars. However, using self-driving cars in a carsharing model would reduce the flexibility to a certain extent and therefor require a thorough network of cars to ensure the highest possible flexibility in regard to booking a ride and waiting time within the designated urban area.
4. Weaknesses While self-driving cars are considered as the number one innovation at this point of time, their technology and their characteristics in a carsharing model bear some weaknesses that are outlined below and are not limited to: !
Social acceptance of giving up private cars and using self-driving cars in a carsharing model
!
Technology
!
Complexity
The social acceptance of such a model must be divided into two essential issues: carsharing and self-driving cars. Both paradigms imply independent obstacles from a current user perspective, but are yet compatible and developable as described above. The social acceptance of self-driving cars cannot be easily stated, but approached through the number of users of carsharing, the interest of users in carsharing as well as the interest in self-driving cars. The number of carsharing users has increased in Germany by approximately 50% from 2006 to 2015, while the interest in carsharing has increased by 27% (IfD Allensbach, n.d.). Combining these statistics with the fact that one third of all Germans would consider using self-driving cars, these numbers allow the conclusion that the approach of a self-driving carsharing model would generally describe a feasible business case in Germany in the future (Grieß, 2015). For further scientific background, the Theory of Planned Behavior by Fishbein and Ajzen as well as the Technology Acceptance Model by Davis are analyzed and combined to a modified acceptance model that fits with specific influencing factors to the on-hand research topic. To prove the stated hypothesis, a questionnaire
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Wiebke Geldmacher and Doru Alexandru Pleșea will be developed as part of the PhD research and based on the modified acceptance model, to further identify the level of acceptance and the necessary requirements of such a model from the customer point of view. In terms of technology, there are two general approaches to self-driving cars. One approach focuses on the enhancement of the car sensors themselves to detect the environment and drive accordingly. Another approach focuses on the adaptation of infrastructure as to allow the car to communicate with the surrounding, called vehicle-to-X communication (International Transport Forum, 2015). Both approaches require further technological research, but it can be generally stated that the latter approach to self-driving cars would imply higher long-term investments in the infrastructure with an undefined extent. Further on, self-driving cars rely on high technology. If cars in a carsharing model are programmed wrongly, either on purpose or by accident, the whole city mobility could collapse within seconds and the safety of all passengers as well as people in the near surrounding would be at risk. One of the biggest weaknesses of a future self-driving carsharing model is the complexity. As stated before and as analyzed by Berylls Strategy Advisors (n.d. a)), one of the main obstacles for people to avoid carsharing is the high complexity. In order to reduce this complexity, a thorough and uniform system across a country if not even across the world could be implemented to reduce the entry barrier of testing a new system as much as possible. From the provider perspective however, the uniformity implies a big market share in this segment, and an enormous effort to meet local standards, while offering the same or a similar service level in every city. As the legal framework of most countries does not allow self-driving cars at this stage (e.g. lack of liability regulation, road traffic acts etc.), a cross-nation system seems unfeasible at the present moment. In the particular case of Germany both international and national laws and regulations would require adaptions: !
The Vienna Convention for road traffic that was signed in 1968 would require adaptions in terms of definitions to allow vehicles on the road without an actual human driver (Vienna Convention Article 1v) (Der Bundesrat, 2013).
!
The European-wide regulation on the allowance of self-driving cars would need to increase the currently allowed maximum speed (United Nations, 2008).
!
General adaptions of the national road traffic act in Germany in regard to road users would be necessary (Straßenverkehrsordnung).
!
The system for motor vehicle licenses would require adaptions (Bundesministerium für Verkehr und digitale Infrastruktur, 2015a).
!
Adaptions in regard to insurance issues woud be required (Bundesministerium für Verkehr und digitale Infrastruktur, 2015a).
The point of “complexity” as a weakness also includes the problem of determining the accurate amount of cars for a city to make the model attractive but also economic feasible. In order to compete with the private car and with public transport, the self-driving car sharing model needs to compile a big enough amount of cars to ensure the highest possible flexibility for its users.
5. Opportunities With autonomous cars not being able to fully operate on streets at this current stage, many opportunities are foreseen for future development as a carsharing model in regard to social, political, economic and ecologic trends as well as on a technologic level. Self-driving cars in a carsharing model could prospectively completely replace private cars for urban travels, allowing a connection to other mobility systems, especially long-distance travel (feeder system to train stations or airports). A fully integrated mobility app could facilitate the travel to allow for a full mobility chain, while the calculation for the customer can be done automatically and in one step. An app like this would attract more users, as existing carsharing models are claimed to be too complicated for some people. Comparing this selfdriving carsharing model with the concept of Uber, it reveals the advantages of having standardized and uniform procedures across the globe, facilitating the booking process from a customer perspective immensely. With the full automation of cars, the access group to mobility services can be increased, as both elderly people and children could travel by themselves. This clearly demonstrates a big advantage in comparison to other
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Wiebke Geldmacher and Doru Alexandru Pleșea transport modes and responds to the demographic changes in Germany, where the life expectancy has increased in the past to 81 years (The World Bank, 2015). An economic opportunity of the set-up of self-driving cars in a carsharing model is foreseen by the author by the extension of the service to courier service during off-peak hours. This allows the model to become more costefficient and might reduce the traffic during the day. In addition, the carsharing model could transport passengers at the same time by identifying passengers on a similar route through a smart application. The user can then decide on the extent of the detour that will have an impact on the final price (carpooling), making the ride economically feasible for both passenger and provider. Analyzing the current rise in the demand for carsharing, it can be noted that the number of registered people is exponentially increasing (Bundesverband CarSharing e.V., 2015). This rise in numbers can be traced back to the motives for carsharing (Berylls Strategy Advisors, n.d. b)): !
High availability of cars in the near surrounding (47%)
!
Lower costs (36%)
!
High availability of dedicated parking spaces in the inner city (21%)
Motive 1 and 3 will no longer be relevant with self-driving cars, but the future carsharing model would need to compete in regard to costs. A thorough carsharing model with self-driving cars could prospectively compete with both public transport and private cars: costs would decrease, but the comfort and flexibility are enhanced through the technological possibility of providing the car at the desired location and the desired time, upon demand. From a provider point of view, setting up a self-driving carsharing model demonstrates the opportunity for governmental support, as it can extend the services of existing public transport or even replace them in urban areas. This financial governmental support is an opportunity for new start-ups to begin in this field and reduces the entry barriers in this high volatile market.
6. Threats Setting up a self-driving carsharing model can imply threats that require special attention: !
Question of liability hinders the process of implementation as well as general regulations that require adoption to allow for self-driving cars on the road (cf. weaknesses)
!
Political defence
!
Congestion gets worse if this model fully replaces public urban transport
!
Unwillingness of people to give up their private cars (question of acceptance)
!
Operational harmonization of normal cars with self-driving vehicles
!
Unauthorised external control over the cars (Software hacking)
At this current stage, the question of liability is not solved, but requirements for set-up are made. Political reasons can be a threat to the establishment of a self-driving carsharing model. It is expected that there will be a lobby from the automotive sectors to further promote private cars as this would highly influence their sales. In addition, many other related services would presumably suffer from the implementation of such a model, e.g. car parks and taxis. Another threat of a self-driving carsharing model is possible congestion within the cities and the resulting malfunction of this new transport mode. This threat becomes of high importance if the self-driving carsharing provider aims at replacing urban public transport. Even with the opportunity of carpooling (e.g. max. 4 people/car), the concept is subject to further analysis in terms of replacement of public transport. However, the concept can certainly close the currently existing mobility gap for public transport to offer a thorough door-todoor mobility.
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Wiebke Geldmacher and Doru Alexandru Pleșea If the complexity of the user-interface cannot be reduced to a minimum in order to attract a wide customer base, the concept is not economically feasible due to the lack of users. It is therefore crucial to identify the exact requirements from a customer perspective for the correct design of the app and the service offering as a whole. The rollout of self-driving cars will imply that both manual as well as the automated vehicles will operate simultaneously at least for a certain time frame on the streets. This pluralism bears many operational risks. In addition to the self-driving carsharing model, private people will have the opportunity to buy self-driving cars which will in return reduce the user group of the carsharing model. Nevertheless, the question arises to what extent self-driving cars will be bought for private purposes as the price for such cars with the respective technology is currently uncertain. The possibility of hacking implies a high risk with unknown effects. This threat is not directly related to selfdriving cars in a carsharing model, but rather the technology of self-driving cars themselves. Hacking such systems can not only harm the lives of the passengers, but also cause major interferences in the urban mobility system and even up to the extent where the city’s mobility system collapses, causing major follow-up effects. At the same time, hacking can also be conducted on an individual level with self-driving cars, generating new sorts of crime.
7. Requirements Having analyzed the strengths, weaknesses, opportunities and threats, several requirements can be identified that give the framework of a self-driving carsharing model. The authors suggest certain minimum requirements or a range of aspects that require further consideration. The following set of requirements will be verified at a later stage of the thesis by a public questionnaire that sharpens the individual’s acceptance. The selection of the criteria is based on a study by the German Transport Club that analyzed major motives of existing as well as of potential railway customers (Verkehrsclub Deutschland, n.d. b)): !
Availability
!
Simpleness
!
Price
!
Comfort
!
Travel time
The availability of self-driving cars in a carsharing model requires further specification. The availability shall be measured in waiting minutes from the time of booking until the arrival of the car to the place of order. Simpleness describes the desire of low complexity which is a major obstacle for the current usage of carsharing in Germany. It can be measured by several factors and includes the number of providers in the city or across the nation: the fewer providers the better, as people want to understand one system only. In addition, the simpleness can be measured in terms of steps and minutes from the point of registration as a user of the selfdriving carsharing model until the drop-off at the desired location (including invoice). The price, as one of the dimensions in regard to acceptance, describes the pricing scheme that is applied to the self-driving cars in a carsharing or carpooling model. Through different pricing schemes, many target groups can be flexibly reached by alternating the vehicle types with different comfort levels and set-ups, different allowances in terms of maximum number of people travelling: e.g. allow smart and automatic carpooling for cheaper prices. The level of comfort for such a model can be measured by quantitative and qualitative research with the customers. Comfort in regard to the self-driving carsharing model can be analyzed in terms of available seating, space per passenger, availability of on-board entertainment or availability of working spaces and different car layouts, depending on the travel purpose. Last but not least, the total travel time is one of the crucial factors for the acceptance of transport modes.
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8. Conclusions The SWOT analysis of a self-driving carsharing model has outlined the basic framework for a possible future selfdriving carsharing model in terms of customer requirements. This topic shall be embedded in the discussion for acceptance, as this point is considered to be the most critical one for a successful and nation-wide implementation. It is expected that all legal and political issues will be solved, but the full user acceptance, based on social changes, is the requirement for the future implementation. While the conducted SWOT analysis has given a brief overview of internal and external factors for this visionary model, the different impacts were not further quantified. However, this quantification can reveal the weakest points that require clarification and simultaneously outline unique selling propositions of such a model that is needed for promotion. The analysed strengths, weaknesses, opportunities and threats for a self-driving carsharing model allow the conclusion that this innovative model is generally operable from a customer point of view, however the provider’s side would need to be analysed more closely to conclude an economic feasible business case.
References Berlin-Institut für Bevölkerung und Entwicklung (Ed.) (2009) Demografischer Wandel Ein Politikvorschlag unter besonderer Berücksichtigung der Neuen Länder, Berlin. Berylls Strategy Advisors (n.d. a)) Gründe gegen die Nutzung von Carsharing in Deutschland im Jahr 2014, [online], Statista, http://de.statista.com/statistik/daten/studie/169936/umfrage/gruende-gegen-die-nutzung-von-carsharing-indeutschland/. Berylls Strategy Advisors (n.d. b)) Aus welchen Gründen haben Sie sich bei Carsharing-Anbietern registriert?, [online], Statista, http://de.statista.com/statistik/daten/studie/386774/umfrage/gruende-fuer-registrierung-fuer-carsharing/. Bitkom. n.d. Was spricht aus Ihrer Sicht für selbstfahrende bzw. hochautomatisierte Autos?, [online], Statista, Available at: http://de.statista.com/statistik/daten/studie/270606/umfrage/vorteile-von-autonomen-fahrzeugen/. Bundesministerium für Verkehr und digitale Infrastruktur (Ed.) (2015a) Strategie automatisiertes und vernetztes Fahren, [online], https://www.bmvi.de/SharedDocs/DE/Publikationen/StB/broschuere-strategie-automatisiertes-vernetztesfahren.pdf?__blob=publicationFile Bundesverband CarSharing e.V. (2015) Datenblatt CarSharing in Deutschland, [online], http://carsharing.de/sites/default/files/uploads/presse/pdf/datenblatt_carsharing_in_deutschland_stand_01.01.201 5.pdf. Der Bundesrat (Ed.) (2013) Übereinkommen über den Straßenverkehr 0.741.10, [online], https://www.admin.ch/opc/de/classified-compilation/19680244/index.html#fn-#a1-2. Ferrell, M. and M.D. Hartline (2012) Marketing Strategy, 6th edition, Mason. Grieß, A. (2015) Ein Drittel der Deutschen offen für selbstfahrende Autos, [online], https://de.statista.com/infografik/3682/anteil-der-deutschen-die-sich-vorstellen-koennen-autonome-fahrzeuge-zunutzen/. Henkel et. Al. (2015) Mobilität aus Kundensicht, Wiesbaden. HYVE Science Labs (Ed.) (2015) Autonomous Driving – The User Perspective, Munich. IfD Allensbach (Ed.) (n.d.) Anzahl der Personen in Deutschland, die Carsharing nutzen oder sich dafür interessieren, in den Jahren 2012 und 2015 (in Millionen, [online], Statista,http://de.statista.com/statistik/daten/studie/257867/umfrage/carsharing--interesse-und-nutzung-indeutschland/. International Transport Forum (Ed.) (2015) Automated and Autonomous Driving – Regulation under uncertainty, Paris. Investopedia ( n.d.) How Google's Self-Driving Car Will Change Everything,[online], http://www.investopedia.com/articles/investing/052014/how-googles-selfdriving-car-will-change-everything.asp. Karlsruher Institut für Technologie (Ed.) (2015) Deutsches Mobilitätspanel (MOP) – Wissenschaftliche Begleitung und Auswertungen, [online], http://mobilitaetspanel.ifv.kit.edu/downloads/Bericht_MOP_13_14.pdf. Schneider, T.W. (2015) Analyzing 1.1 Billion NYC Taxi and Uber Trips, with a Vengeance, [online], http://genius.it/toddwschneider.com/posts/analyzing-1-1-billion-nyc-taxi-and-uber-trips-with-a-vengeance. Statistisches Bundesamt (Ed.) (2010) Trend zum spritsparenden Auto bremst Kraftstoffverbrauch, [online], https://www.destatis.de/DE/Publikationen/STATmagazin/Umwelt/2010_01/2010_01Kraftstoffverbrauch.html. Statistisches Bundesamt (Ed.) (2013) Verkehr auf einen Blick, Wiesbaden. The World Bank (Ed.) (2015) Life expectancy at birth, total (years), [online], http://data.worldbank.org/indicator/SP.DYN.LE00.IN. United Nations (2008) Regelung Nr. 79 der Wirtschaftskommission der Vereinten Nationen für Europa (UN/ECE) Einheitliche Bedingungen für die Genehmigung der Fahrzeuge hinsichtlich der Lenkanlage, [online], http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:137:0025:0051:DE:PDF.
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Wiebke Geldmacher and Doru Alexandru Pleșea Verkehrsclub Deutschland ( n.d. b) Kriterien der Bahn-Fahrgäste und potentiellen Bahn-Fahrgäste für die Verkehrsmittelwahl im Jahr 2010, [online], Statista, http://de.statista.com/statistik/daten/studie/158638/umfrage/kriterien-der-bahn-fahrgaeste-fuer-die-wahl-derverkehrsmittel-im-jahr-2010/. Verkehrsclub Deutschland (n.d. a)) Auto nutzen statt besitzen, [online], https://www.vcd.org/themen/autoumwelt/carsharing/. VuMA (Arbeitsgemeinschaft Verbrauchs- und Medienanalyse)( n.d.) Bevölkerung in Deutschland nach der Nutzungshäufigkeit eines Autos (auch als Mitfahrer) in den Jahren von 2010 bis 2015, [online], Statista,Available at: http://de.statista.com/statistik/daten/studie/182654/umfrage/nutzungshaeufigkeit-eines-autos/.
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Conflict, Coincidence and Emerging Interactions as Logics of Innovation Frederik Gottlieb University of Southern Denmark, Denmark
[email protected]
Abstract: This paper seeks out to construct a model of innovation based on research conducted in 3 different entrepreneurial contexts. The model attempts to describe how innovation is emerging in the everyday interactions of people involved in the projects, through conversations in meetings, on social media and in workshops. Based on the presented model, the author will discuss how logics of innovation can be seen in a new perspective in the light of Sarasvathys theory of Effectuation. The research methodology is based on Participatory Innovation (Buur & Matthews 2008) with a strong emphasis on involving many stakeholders in the process of innovation, a high level of “doing” through Action Research based activities. And on reflection in situ with the involved stakeholders. The author takes on an Autoethnographical approach (Anderson 2006) to investigate from the perspective of his own involvement in the 3 different projects, how the process of innovation emerge in the interactions of the people involved, including the researcher himself. Keywords: participatory innovation, complexity, entrepreneurship, auto ethnography
1. Theoretical background Participatory Innovation (Buur & Matthews 2008) Complex Responsive Processes (Stacey 2011) Effectuation logics of Entrepreneurs (Sarasvathy 2001) Autoethnography (Anderson 2006) The research in this paper has its roots in Participatory Innovation (Buur & Matthews 2008). Drawing on Participatory Design (Greenbaum & Loi 2012) which traditionally has focused on democratic involvement of those under research. Namely the “user” of products or services. Design Anthropology (Suchman 1987), Empathic design (Leonard & Rayport 1997), Co-Creation and Co-Design (Sanders & Stappers 2008; Binder et al. 2011) coupled with a particular focus on business development with lead users (von Hippel 2005) sets the stage for moving from a user centred approach towards Participatory Innovation. The aim is to recognize both the “user” as well as the other stakeholders such as suppliers, consultants, service providers and researchers (Buur & Larsen 2010) as key in the process of innovation. It is in the interactions of these diverse stakeholders, collaborating towards common goals, in which we see innovation taking place. From (Buur & Larsen 2010) we learn that it is the interaction of crossing intentions which drives innovation between multiple stakeholders. (Gottlieb et al. 2013) use the term “Multi Stakeholder Innovation” in their approach to recognize how innovation emerge in the interplay of the different stakeholders involved in a product development process. They argue that the conflicts and interdependencies emerging in the different stakeholders’ interactions becomes key drivers in the process of innovation. The authors draw on the theory of Complex Responsive Processes (Stacey 2011) where the role of human interactions constitutes organization, contesting a traditionally systemic view on the concept of organization. (Fonseca 2002) takes a complexity perspective on innovation in organizations and critiques the traditional view on innovation such as a Stage-Gate approach (Cooper 1990). Following Fonseca’s perspective enable us to investigate innovation as new meaning, emerging in the interactions of different people. Not as a continuous process of planning and evaluation but as a network of conversations between people from different backgrounds and with different agendas. In 2001, Sarasvathy defines “effectuation” as a theoretical approach to distinguish between the logics by how entrepreneurs innovate, by working towards a defined goal or through emerging opportunities. In contrast to causational logics, effectuation is grounded in the entrepreneur’s own means in terms of personal characteristics, skills and social network (Kirketerp & Korsgaard 2007). This paper draws on Autoethnography (Anderson 2006) to investigate the research context and those being researched. With its roots in Autobiography and Ethnography, Autoethnography has traditionally focused on investigating own experiences of existential crisis and moments of epiphany signifying transformative changes within the researcher (Ellis et al. 2014). A process of Autoethnography involves drawing in memories, feelings, images; often long after an incident is supposedly finished. The Autoethnographical approach as such does not
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Frederik Gottlieb set the frame for a specific research agenda in the context of fieldwork. But it is enabling as a means to reflect on and investigate themes which might go by unnoticed from an objective point of view. This is in line with Dews theory about serendipity in entrepreneurship (Dew 2009) stating that crucial events leading to change often go by unrecognized even for long periods of time.
2. Cases and method This paper explores 3 different cases in which the author has been involved. As research assistant, as company partner and as phd student. Through long term involvement in the different projects, the author presents 3 narratives from his own experience of new initiatives or new insight which is negotiated in project participants’ interaction and eventually become recognized as a product feature or a new research tool. In the last case, a new initiative which is rejected by the majority of stakeholders. The approach in this research agenda is not linear and does not take its starting point in a particular research question. The findings are based on reflection of past events and stumble data (Brinkmann 2014) and the researchers own intuitive sense of particular moments in which innovation occur (Buur & Larsen 2010). Similar to previous work in van Oorschot & Gottlieb (2015), the author builds a narrative from the perceived starting point of these moments, towards each their contribution to the ongoing conversations and new meaning created, which we in the context of participatory research, identify as innovation.
2.1 Case A: It should be easy “not to use” Running from 2011-2013 this project aimed at developing an assistive device for patients with the decease “Rheumatoid Arthritis”, with a particular focus on supporting users’ motoric skills in their hands. The device was from the beginning defined as an “Orthose”, a device to assist or improve a particular set of motor skills for the user. Our task as researchers was to to identify test paradigms within the current practice of the different stakeholders in the project. Interviews with the stakeholders had shown that there was a lack of common understanding across their agendas to test the early prototypes. The occupational therapist, dealing with the end users on a daily basis, was interested in investigating the device in relation to users’ needs and how such a device would complement or influence a user’s daily practice. The engineering consultancy building the prototypes focused on measuring forces needed to grab and hold specific objects in defined use contexts. The initiating partner company was interested in meeting goals in terms of the device functions. Particularly “opening the lid of a jam jar” was a critical task to perform for releasing the next round of funding for the project. In conducting the first interviews, the researchers discovered a latent need for sharing experience and agenda, between the different project partners, towards enabling a common understanding and alignment of each partners’ project approach. Finding latent needs in this context refers to empathic insight gained through deep involvement with users and stakeholders (Brown 2008; Buur & Matthews 2008; Koers 2011).
Figure 1: Collaborative workshop, owner testing the first prototype In my early interview with an occupational therapist, I learned that a key requirement to the developed prototype should be that it “would be easy not to use”. This assumption was grounded in the therapist’s professional experience with the particular patients and her knowledge of how they deal with problems in their everyday life. It would later show that this particular assumption would become a recurring theme in developing the final product. Following the first round of interviews, the researchers enacted a collaborative workshop (Buur & Bødker 2000) aimed at exposing the prototypes’ functionality through different activities. One particular activity was focused on using the device in the actions of “making a jam sandwich”. Due to insurance issues, only the owners were allowed to use the device.
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Frederik Gottlieb Imagine this: You have a glass of jam, a cutting board, a loaf, a breadknife and a butter knife. Now you have to make a jam sandwich. Where do you start? How do you use each of your hands? How do you transition between the different actions, picking up the knife, cutting the bread, holding the jar, spreading the jam, organizing the plate? There are a multitude of actions in even the simplest task. Actions which we both take for granted and which are immediately disturbed when introducing an external device in performing these actions. In this activity it became clear that the device was sometimes in the way, when performing combined actions, consisting of small and larger movements and different grips. In the conversation emerging around this activity, the realization that the device should be “easy not to use” once again emerged. Later in the project, this particular workshop was recognized as where the particular theme of “easy not to use” occurred. Towards the final prototype, this functionality was built in, allowing the user to easily detach the gripper, converting the device into a simple wristband, often worn by the targeted users. In the final product, two main functionalities in the company’s marketing material is showcasing the devices ability to be parked, when not in use as well as the possibility to detach the gripper. 2.1.1 Finding Key user needs from expert stakeholders is kept alive during the project, recognized and implemented as a key product feature in the final product.
2.2 Case B: Visualizing research Starting in 2012, the Fydico project is aimed at developing and selling a device to secure and prevent theft of small motor boats and motors. The author is initiating partner in this project and involved as interaction designer. In early 2015, the partners in Fydico were struggling to find new ways to interact with potential customers, striving to become better at approaching and communicating with the communities identified as “market”. Research had shown that Facebook groups were popular meeting rooms for many of the targeted owners of boats, the potential customers of the company. Several of the Facebook groups, focused on boat maintenance, fishing equipment and procurement of used boats, showed to have a high density of users within the defined customer segment (Aulet 2013). In these groups, there were often users seeking advice to protect their new equipment as well as seeking help to retrieve stolen equipment. As several of the groups stated in their guidelines that product advertisement or posts with commercial intent was not allowed and thus would be removed without consent, engaging with the forum users about topics regarding theft and security of boats, presented a challenge. In our internal discussions I brought in the idea of creating awareness by visually mapping out the number of thefts in Denmark. The idea had been going on in my mind for some time and suddenly this was an opportunity to try it out, not really knowing what it would bring. It seemed that this approach of creating awareness about an issue was something that made people talk and express their opinion. This is known from entrepreneurship literature (Aulet 2013) and the partners learned it hands on when inquiring into the different forums about the issue of boat thefts. In these realizations combined with something already going on in my head, a practical attempt emerged. With a media indexing tool I started building a map of theft incidents. The map was constructed using google maps which had the opportunity of online sharing. It showed that the number of reported incidents in the eastern part of Denmark, namely on the island of Zealand, was low compared to the rest of Denmark. This became the first theme to investigate. I created a post in one of the groups, where I asked if anyone might have an idea why there were so few reports about theft incidents in the Zealand part of Denmark, with a link to the map (fig 2). This generated immediate interest within the forum. Most of them responded to the data shown on the map, compared to their own experience. Ex: Last summer, 12 boats were stolen in a week in the Kolding area”. (Kolding is a city in the other side of the country).
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Figure 2: Facebook post with map of stolen boats As one user asked why I was making this map, I replied that I was making boat alarms and thus interested in getting an idea about the market and the magnitude of “the problem” in Denmark. This led to 7 different persons requesting more information about these boat alarms. This was the interest we were looking for. In the nature of social media, all these interactions happened in the period of a few days. Investigating the Facebook groups, debating how to make use of the groups towards actively constructing a tool to use when engaging and then inquiring into the groups, happened rapidly and without much documentation or planning. Reflected in effectuation theory (Sarasvathy 2001), this approach emerged from responding to findings using the tools and knowledge at hand, without actually planning or negotiating the future perspectives and goals. The proactive approach taken in the first inquiry as described, has not been continued with the same intensity. We experienced that the novelty of the approach quickly dropped after the active users in the groups had already seen the map and its origin once or twice. The development of the map has however taken a different turn. As the map has been continuously updated on a monthly basis and is available online, it has proven itself a useful tool in the “real world”. The sales responsible partner in the company has started to use the map as a guide when approaching new customers; to directly identify geographical areas with a particularly high density of boat theft incidents and when planning info meetings about the services offered by the company. As such, the tool has gained recognition as a useful mechanism beyond the expected use. 2.2.1 Finding As a tool to interact with customers on social media is implemented and recognized as valuable, a wider and unexpected use of the particular tool emerge.
2.3 Case C: Conflicting interests lead to new insight The multi stakeholder project “Microbiological Safe Reduction Of Water Temperature” (Gottlieb & Larsen 2015), was aimed at investigating if large multi-occupancy buildings could sustain a minimum level of microbiology in their systems at lower temperatures than standard; hereby saving energy. The 6 participating buildings were equipped with a system which injects a small amount of an on-site produced oxidant into the hot water circulation. The author was involved as a phd researcher to investigate how water consumers would respond to this system, prior to- as well as after -having it installed in the buildings. Research was conducted through interviews and conversations with users (Schensul et al. 1999; Buur & Larsen 2010) and video field-studies and workshops with service technicians (Buur & Bødker 2000; Gottlieb et al. 2013). The following is a narrative account of an emerging new theme in a period of the project.
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Frederik Gottlieb Based on our knowledge about users in the different buildings, we began planning a piece of information material which could be used to create awareness and investigate different peoples’ assumptions and their concerns about hot utility water. The idea originated from a status meeting with the main company, where we had discussed how we could investigate the term “common sense” in the desired contexts. Initially, the material was suggested to focus on the boundary between peoples’ practice, (e.g. how they might be using hot utility water in their daily routines), and the potential risks in consuming this hot water. After the meeting we developed a draft of the material towards a milestone meeting involving the different partners in the project. In the meeting the different partners gave report on their findings in the project. The meeting was attended by the different research institutions participating in the project as well as technicians from the different test sites. As project partners from the university, we gave report of our work in the project. Namely in regards of our new plans to create a piece of info material and a small campaign at the different sites to inquire into users’ perception of the treated hot utility water. Our presentation included a draft for a poster (fig. 3) with 3 main headings to inquire into the readers’ daily practice with hot water: !
The Warm Tap Water Is Not For Drinking
!
Do you Use Warm Tap Water For Cooking?
!
Do You Brush your Teeth In The Shower?
Figure 3: Final draft of info poster The feedback on this approach was not positive. The head of the initiating company could not see the point of investigating in this way and focused on providing end users with information about the factual benefits of the system and the actual risk of using the warm tap water. Several of the service technicians agreed that such a campaign could easily trigger negative reactions among the users, set off a rumour that could feed on itself, possibly resulting in even more resistance towards the solution already implemented. Some were also concerned that there was no clear documentation yet which could actually show the positive benefits of the tested solutions. So how could users be anything but scared by a campaign like this?
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Frederik Gottlieb The feedback was contesting our approach, which we eventually decided to cancel in its current model. In this instant, it seemed paradoxical that our role was to investigate users and their common sense in relation to warm water. But at the same time, it was not generally accepted to actually create awareness about this specific topic and the system in test, within the different contexts. In our following reflections about how to move forward in the project and investigate more with the users and gain report about their “common sense” we were puzzled by the response to our proposal towards inquiring into these contexts. Initially it felt like a block towards moving further and a resistance from the initiating partner to actually learn from the project. As we moved on, a notion about the role of the service technicians started to emerge in our internal conversations as researchers. We had recognized that the service technicians appeared to have a lot of knowledge about and trust from the users in the different contexts. The technicians were perceived as representatives of safe operation in their buildings. This insight was both gained from our own interactions with users in the contexts, but also from the technicians in the conversations we had had with them. As well as in their response to our attempt at creating awareness in “their” context. This made it clear how close a relationship they had with the people using the buildings. In this sense the new insight with the involved service technicians represented a new theme to investigate, originating from the conflicting interests discovered when negotiating the initial approach. In line with Gottlieb et al. (2013), the conflicting interests came to act as a creator of new directions. In the later process, we have made further efforts to pursue this particular theme, where the Service Technicians in particular are considered as important representatives of end users based on the trust-relation between the end user and the Service Technician. They make it work, consequently the user does not need to worry. 2.3.1 Finding When an attempt by the researchers to inquire into the research context is opposed by a majority of stakeholders, the attempt is cancelled. But the stakeholder’s interactions in response to the attempt becomes enabling for the researchers as they discover an unrecognized role of a key stakeholder.
3. A comparison of the 3 narratives Based on the 3 narratives and our experiences through the different projects, the following chapter propose a table which can set the stage for new perspectives on innovation and how we can identify and recognize the impact of interaction in the processes in innovation projects. The model is focused on A. Incentives and starting point signifying a trigger, particular interactions or new insight which in the narratives appears as agents of novelty, change or new opportunities to pursue. B. Actions and interactions identified as particular situations in which an exchange of knowledge occur, decisions are made or conflicts breaks down barriers towards new meaning. C. Recognized impact, how did this/these action(s) and interaction(s) contribute? In what sense has it been recognized by the participants? What makes this particular approach “innovative”? The comparison of narratives in table 1 enables us to investigate how each of the cases can cast light on stakeholder interactions leading to innovation. In Case A, the starting point is clearly articulated as a need among users. Through workshops and ongoing conversations, a particular user need is kept alive as a prevalent theme. The ongoing involvement of users and the exposure of the project towards the other stakeholders supports the need for this particular functionality and keeps it alive through the project. In spite of technical complications. This is quite contrary to the last project, Case C, where the agenda is in itself regarding conflicting intentions (Buur & Larsen 2010) towards engaging with the final users in the project. As an attempt to find common ground, the researchers makes a designerly attempt to engage with the communities of users. However, as this attempt is exposed in plenary of stakeholders with a stronger connection to the targeted users, the attempt is rejected. From the involved perspective of the researcher, this exposes a theme of innovation among stakeholders with different interests, engaged on different terms, compared to innovation emerging between partners in a small enterprise. As external consultants in both the case A and the case C projects, the researchers need recognition from the different stakeholders through several stages in the projects towards knowing whether their research agenda should be initiated. In Case B, the researcher, as a business partner in a small enterprise with a flat structure, does not need to gain approval through series of meetings and stages, but can immediately test an emerging idea and evaluate the findings based on interactions with the community. In line with effectuation theory (Sarasvathy 2001) this signifies how the conditions in an entrepreneurial context becomes enabling for
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Frederik Gottlieb the researcher as entrepreneur to experiment with the tools at hand. Which eventually leads to implementation of a new sales mechanism. In case C, the researchers are not able to execute and evaluate their ideas, before their approach has been recognized by the other stakeholders. In this case the agenda is understood by the main stakeholder as causational logic in line with Sarasvathy’s one perspective (2001). However, as we turn to complexity theory (Stacey 2011) this can also be understood in the light of power as interdependency, those who recognized the potential for innovation were in a weaker position, and the key stakeholder were not as dependent of us as in case A. In case A, the starting point for the innovation was articulated by an expert stakeholder in the early stages of the project, which fed into later discussions and thus became a prevalent theme in the process. The theme was kept alive through ongoing involvement of some particular stakeholders and a focus on end users. Table 1: Narrative comparison chart Incentive, starting point
Actions and Interactions
Case A: It should be easy “not to use”
An articulated need from an expert: “it should be easy not to use”
Case B: Visualizing research
Creating a tool interact with community on social media
- Workshops exposing the functionality of the concept - User tests - Ongoing conversations - Immediate engagement online - recognizing interest from the targeted community
Case C: Conflicting interests lead to new insight
A decision to create a piece of info material to inquire into the research context
- Resistance from key stakeholders - Conflicting agendas
Recognized impact, innovation Recognized as a key finding by main stakeholders, resulting in a particular function in final concept A new use of the designed tool, recognized as creating value in sales
- Not recognized as bringing value by main stakeholders. - Supporting a new theory about particular stakeholders
Although the projects A and C are comparable in approach related to stakeholder involvement during a series of project stages and required milestones, the level of involvement is different. In case A, the researchers had a clear focus and access to the targeted users of the final concept. In case C, the researchers’ involvement with the end users had to be negotiated in the frame of interest by other stakeholders.
4. Concluding remarks By identifying key triggers to look for when taking a narrative account of experiences in different entrepreneurial contexts, this paper attempt to create an overview of multiple narratives, thereby identifying and discussing themes of innovation. This approach opens up an opportunity to identify themes which might otherwise go by unnoticed. The comparison of the different narratives enables us to identify how innovation is at play in the interactions of different stakeholders, in relation to different interests, crossing intentions and key findings. Looking at the different cases from a complex responsive process perspective (Stacey 2011), enables us to understand how the role of power as interdependencies is at play in different innovation contexts. It is by being a part of these interdependencies that we then as researchers become enabled to make the findings we make. As such this paper does not claim that the different themes represents innovation in themselves, but that they serve as an inquiry to further investigate, from an involved perspective, innovation between multiple stakeholders in an entrepreneurial context. And to further discuss how the notion of power is at play in the emergence of innovation.
Acknowledgements I would like to thank the stakeholders involved in the different projects; The two business partners Jepser and Hans Jørgen for involving us as researchers in “The Strong Hand” Project. My business partners Kristian, Jakob and Bjarne with whom I have started the company Fydico. A context which enables me to conduct truly involved research as an entrepreneur. And the leader of the company Danish Cleanwater, Hardy, for involving us in the
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Frederik Gottlieb project. And especially the users, therapists, boat owners, technicians and other stakeholders from the different projects, who has set the stage for the analysis presented in this paper. Lastly I would like to thank my supervisor Henry Larsen for feedback and critique towards developing the final version of this paper.
References Anderson, L., 2006. Analytic Autoethnography. Journal of Contemporary Ethnography, 35(4), pp.373–395. Aulet, B., 2013. Disciplined Entrepreneurship: 24 Steps to a Successful Startup, Available at: http://sloanreview.mit.edu/article/disciplined-entrepreneurship/. Binder, T. et al., 2011. LIVING THE (CODESIGN) LAB. In Nordic Design Research Conference. pp. 1–10. Brinkmann, S., 2014. Doing Without Data. Qualitative Inquiry, 20(6), pp.720–725. Brown, T., 2008. Design thinking. Harvard Business Review, 86(6). Buur, J. & Bødker, S., 2000. From Usability Lab to “Design Collaboratorium”: Reframing Usability Practice. Proceedings of DIS 2000 Designing Interactive Systems Processes Practices Methods and Techniques, pp.297–307. Available at: http://portal.acm.org/citation.cfm?id=347642.347768. Buur, J. & Larsen, H., 2010. The quality of conversations in participatory innovation. CoDesign, 6(3), pp.121–138. Buur, J. & Matthews, B.E.N., 2008. Participatory Innovation. International Journal of Innovation Management, 12(3), pp.255–273. Cooper, R.G., 1990. Stage-Gate Systems: A New Tool for Managing New Products. Business Horizons, 33(3), pp.44–54. Dew, N., 2009. Serendipity in Entrepreneurship. Organization Studies, 30(7), pp.735–753. Available at: http://oss.sagepub.com/cgi/doi/10.1177/0170840609104815. Ellis, C., Adams, T.E. & Bochner, A.P., 2014. Autoethnography: An Overview. Historical Social Research / Historische Sozialforschung, 36(4), pp.273–290. Fonseca, J., 2002. Complexity and innovation in organizations, Gottlieb, F. & Larsen, H., 2015. Delrapport fra Syddansk Universitet Energistyrelsen – EUDP 2013-I Mikrobiologisk sikker sænkning af, Gottlieb, F., Larsen, H. & Sørensen, V., 2013. Multi stakeholder Innovation. In Proceedings of PINC 2013. pp. 1–9. Greenbaum, J. & Loi, D., 2012. Participation, the camel and the elephant of design: an introduction. CoDesign, 8(2–3), pp.81–85. von Hippel, E., 2005. Democratizing innovation: The evolving phenomenon of user innovation. Journal fur Betriebswirtschaft, 55(1), pp.63–78. Kirketerp, A. & Korsgaard, S., 2007. Hvordan man skaber foretagsomme entreprenører : SKUB metoden og effectuation logik. Ledelse & Erhvervsøkonomi, (2), pp.93–102. Available at: http://rauli.cbs.dk/index.php/loge/article/viewArticle/911. Koers, W.A., 2011. The Art of Designing a New Technology Venture. , (March). Leonard, D. & Rayport, J.F., 1997. Spark Innovation through Empathic Design. Harvard Business Review, (NovemberDecember). van Oorschot, R. & Gottlieb, F., 2015. New Venture Creation As Emerging Interdependencies. In Proceedings of PINC 2015. pp. 228–233. Sanders, E.B.-N. & Stappers, P.J., 2008. Co-creation and the new landscapes of design. CoDesign, 4(1), pp.5–18. Sarasvathy, S.D., 2001. Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of Management Review, 26(2), pp.243–263. Schensul, S.L., Schensul, J.J. & LeCompte, M.D., 1999. In-Depth, Open-Ended Interviewing. In Essential Ethnographic Methods: Observations, Interviews, and Questionnaires. pp. 121–148. Stacey, R.D., 2011. Strategic Management and Organisational Dynamics: The Challenge of Complexity to Ways of Thinking About Organisations, Suchman, L.A., 1987. Plans and situated actions: the problem of human-machine communication, Cambridge university press.
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Trust Formation and Cross-Cultural Challenges in Developing Innovation Related Multi-Partnership Project: Preliminary Findings of the Initial Stage of Project Designing Saara Hiltunen and Taina Savolainen Business School, University of Eastern Finland, Finland
[email protected] [email protected]
Abstract: This paper discusses and examines initial trust formation and cross-cultural challenges when building collaboration towards and between partners in innovation-related multi-partner project design and planning between oriental and Finnish cultures. The paper focuses on the role of trust and challenges in the initiating stage presented by geographical distance and cultural differences. E-communication in interaction and negotiations are dealt with. Trust is seen as a potential unifying resource in relationships and looked from the view of intangible assets, as intellectual capital. The aim of the paper is to provide and increase understanding of both initial trust formation and cultural perspectives in the early stage of building relationships and network for innovation-related project involving knowledge holder institutions and other entrepreneurs. While a few studies of partnership trust development have been published lately in inter-organizational context (Cook & Schilke, 2013; Sloan & Oliver, 2013), this paper concentrates on the early stage (initial) trust formation and cross-cultural issues (Fulmer & Gelfand, 2012) and challenges that have been scarcely examined empirically so far. The paper presents some preliminary empirical findings based on data from different actors involved in the project. Auto ethnography method is used as well as written material. The question is how initial trust develops towards and between multiple partners involving education institutions and aiming to collaborate with entrepreneurs, such as care business and digital solutions providers. Awareness of process development and relational management skills are essential for advancement of innovative initiatives and formation in new international partnerships. Service providers and educational institutions need to develop trust with and for cross-cultural competences and understanding of customer value in order to strengthen preparedness for new advancements within international innovation project concept. New opportunities for entrepreneurship development internationally may arise unexpectedly when reciprocal trust and trustworthiness have been recognized and pursued. Keywords: trust, cross-cultural partnerships, process development, relational leadership, interorganizational relationships, reciprocal trust, qualitative study, auto ethnography, innovation
1. Introduction The purpose of this study is to describe trust formation in cross-cultural multi-partner innovation-related project design in early stage of project development. This study is based on author’s own experiences in cross-cultural partnership development with a South-Korean knowledge based institution. Auto ethnography is used as method in describing selected incidents in relationship development processes. Author’s long experience in working among oriental cultures gives perspective into oriental thinking and value creation. Population aging has created new needs for developing care and for training of care personnel such as nurses especially in tensely populated areas in Asia. Finland has long history of public services for aging and care models could become exemplary for countries with little experience on this field. Rabidly developed countries like South-Korea need to find culturally suitable solutions for the field of elderly care. Such development would flourish in collaboration based partnerships based on mutual trust and innovation.
2. Background of the research Economical growth has been fastest in Asian countries during past decades. At the same time with economical growth South-Korea and China are going through rabid demographic changes with growing numbers of aging population. Rabid increases in life expectancy and decreases in the fertility rate are responsible for the population aging around the world. South-Korea is one of the most rapidly aging countries in the world. (Kye et al, 2014.) In Finland population aging has been the concern of government which has been supportive for research and development for technical and social innovation activities in past years. However, recently Finland has faced economical downfall due to lack of international trade, which reflects to numbers of unemployment and has counter effect into availability of taxation money. Growing number of individuals needing social benefits has
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Saara Hiltunen and Taina Savolainen stretched standards and availability of public services (MF, 2015.) As contrast to Finnish experience South-Korea has not yet developed old age pension programs to cope with rabidly aging population. The percentage of gross domestic product (GDP) spent on publicly funded old-age survivor benefits in South-Korea is the lowest among the OECD countries. Traditionally children have taken care of their parents during old age. The concern about the deterioration of quality of life in old age is caused by the lack of public support together with increasing number of nuclear families. (Kye et al, 2014.) South-Korea is known about exceptionally rabid socio-economic and demographic transformation which has been characterized as “compressed modernization”. Industrialization and demographic transition took more than a century in Western countries, but South-Korea reached same development in less than a half century. In spied of positive impact this development has produced undesirable consequences such as overly rabid population aging. (Kye et al, 2014.) Education is highly valued in South-Korea. Most professors have doctoral degree from abroad, mainly from universities in USA. In this article partnership development between South-Korean university and Finnish university is discussed. Examples about partnership development concerns South-Korean and Finnish universities. The Korean university has had exchange activities with one University of Applied Sciences in Finland for several years prior to this occasion. In that connection I attended lectures held by the Korean professor in August 2013 I was asked to be the guide during he visited the Finnish private hospital. Later on the Korean professor initiated discussion about possibility of visiting the University in Eastern Finland. The professor expressed interest to meet experts working with mobile health issues. Discussions continued by Skype and email after professors returned to South-Korea. In the beginning of planning I had suggested “aging” as the topic for mutual collaboration partly because my background is in the healthcare field. After short consideration period the Korean party established connections to nursing department within their university in Korea. Later on the Korean professor from health informatics department suggested the topic to be “Healthy Aging at Home”. The idea of multidisciplinary collaboration across various fields of sciences appeared to be new and therefore it can be considered as innovative initial administrators were supportive for the initiative and mutual proposals were developed for applying EU project funds distributed by the regional agency. However, application received negative response, which has delayed the process.
3. Research question Trust is important aspect while developing partnerships between organizations. It is compared to clue that keeps parts together. As it is known that trust does not appear automatically between individuals or institutions, it would be useful to understand how to develop trust between institutions cross-culturally. Therefore, the research question for this paper is: How is the trust formation developing in multi-partnership and multicultural project?
4. Research methods This study relays on inductive study set up using real-life situation from past and follows longitudinal study setup while currently being part of partnership building process. Trust is seen as multifaceted phenomenon and variety of methods may be used to clarify. One broad definition of trust by Rousseau et al (1998) describes trust as “the psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another”. (Lyon et al.2012.) The data for this writing work is collected from e-mail correspondence, meeting memos, notes and calendars and reports written along the planning process. Also personal experiences relaying on memory in addition to written materials are used similarly as described by Erikson, 2013. In this Ph.D study narrative auto ethnography and ethnographical methods are integrated by emphasizing their similarities. Reflecting pre-assumptions based on own experiences as well as research results from literature is used as information source. The aim of the current paper is to reflect on some findings that my experiences in developing partnerships cross culturally has taught so far. New perspectives for understanding behavior of each partner have been pointed out by theoretical discussion and illustrative case examples. Organizational research is considered to be complex and not straight forward duty. Conceptualizing national culture and organizations is often seen as a challenging task for theorist. (Soin & Scheytt,2006.) Ethnography is
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Saara Hiltunen and Taina Savolainen recommended in literature as one suitable research method for organizational and cross-cultural phenomenon. Ethnographic information is collected in real life situation by observer. (Ryen, 2013.) Auto ethnography can be used as method when describing cultural encounters in trust development with hierarchical organizations. Auto ethnography differs from ethnography basically in author being actor also. The researcher is participant and describes phenomenon through own experiences. My experience includes partner development both with Chinese and South-Korean knowledge organizations and Finnish knowledge organizations at various levels. Listening to stories about people’s lives is one of the most fundamental approaches to data gathering in organizational research (Blake and Smith, 2016). Qualitative research using narrative methods enables researchers to place the person in emotional and organizational context. Narrative method can connect feelings, events and emotions of members to more rational aspect of organizations. (Soin & Scheytt, 2006.) Narrative methods started to be more common first in USA already over two decades ago. Narratives are seen as necessary asset in out bringing more understanding towards organizational cultures, partnership formation and especially cross-cultural set-ups. (Sandelowski, 1990) Empirical studies on the development of trust are rare (Mayer et al. 1995). Atkinson (2004, p. 573) highlights the dynamic and process-like perspective of trust in leadership. Although it is known and written in several forums that it would be better to collect information through narrative methodology, still the most information is collected by questioners or half structured interviews. In spied of recommendations, stories have seldom been used in business management research and even less so in cross-cultural studies of organizational life. (Bryman, 2004)
5. Theoretical background Cross-cultural differences in trust leadership process are still under researched and unfamiliar by large. (Dinh et al.2014) Culture is important feature of organizational life and is therefore central issue for all management and organizational research. Confucianism is giving basis of moral and religious system in throughout the South East Asia. It forms structure of ethical precepts for the management of society. (Dong & Liu,2010; Pan, 2013.) According Confucian values negotiations should be performed in spirit of mutual respect. (Dong &Liu, 2010) However, western businessmen seem to think often that business making and negotiation practices have global rules, which are same everywhere. When culture is not respected even in some minor form it can be source of offence and distrust. In China and South-Korea management style is normally highly hierarchical. People’s behavior is influenced by Confucian culture which emphasizes hierarchical interpersonal relationships. Importance of respecting teachers, leaders and elderly people in general is displayed in many forms during daily life. (Dong & Liu, 2010.) According hierarchical management style it is common to give top-down orders to employees. Employees are expected to follow leader’s orders without questioning. It is important to maintain harmony during negotiations and decision making processes. Any source of disharmony should be kept aside and should not be expressed openly. Maintaining harmony requires many polite meetings and in several occasions entertaining the visitor or important client. The more desirable the partnership development is the more attention to quality of negotiation surroundings is given. (Dong & Liu,2010; Pan 2013) The traditional paternalistic leadership style requires obedience and respect towards leadership. Individual thinking is not valued, but rather ability to follow is essential. For employees this does not provide base for innovative thinking. In the other hand in oriental cultures relationships are highly valued and decision making is often based in intuition that comes from respected relationships. (Morden, 1999). Another important value is to avoid causing embarrassment which would mean losing face. Therefore, leader’s actions or teacher’s knowledge should not be questioned or brought into uncertain light in any situation. (Morden, 1999; Dong & Liu, 2010). In one case in Finland the newly recruited Chinese expert did not point out mistake which company was making although he saw the mistake in the beginning. Later on when the mistake was found the manager was wondering why Chinese employee did not share his knowledge in the beginning. The answer was that according Confucian values the Chinese man should not embarrass his supervisor by introducing the better way. That would make the supervisor loose his face. (Cardiff et al. 2014.) Relational leadership style is common in oriental contact and partnership development. “A relational ontology causes us to radically rethink our notions of reality and who I am in the world, because it suggests the origin of our experience is intersubjective rather than individual and cognitive. Thus organizations are not understood as
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Saara Hiltunen and Taina Savolainen structures and systems but communities of people and conversations. In contrast to the focus on process and mechanisms found in other relational perspectives, a relational leader sees people not as objects to be manipulated but as human beings-in-relation with themselves.” (Cunlife & Eriksen, 2011.) Several theorists have recently taken interest in development of inter-organizational trust. It is commonly recognized fact that interpersonal relationships are important while developing institutional trust (Ull-Bien 2006, Vanneste 2016, Vlaar et al 2007., Ryen, 2007,Schilke & Cook,2013, Sloan & Oliver, 2013.) Trust can be defined between two parties as dyadic trust (Ikonen, 2013.) like for example between a leaders and a follower or between two organizations (Shilke & Cook, 2014,). Trust can be understood as formal relationships requiring contracts and agreements. The multistakeholder partnerships can be defined as “formalized arrangements in which organizations from diverse sectors commit to work together in mutually beneficial ways to accomplish goals that they could otherwise not achieve alone “ (Sloan & Oliver, 2013). Multistakeholder partnerships are usually developed for purpose of mutual benefits. The partnership may bring synergistic outcomes that give a collaborative advantage to their partners. These benefits may be economical or intellectual, drawing together diverse and complementary competencies. Trust involves often both cognitive and affective dimensions. Cognitive trust develops often with calculated judgments that people make on the bases of experience and repeated interactions. In this form we can talk about rational choice. Affective trust is based in the emotions and feelings that people have for one another (Sloan & Oliver, 2013). Vanneste (2016) describes inter-organizational trust still being trust between individuals from each organization. Organizations are defined as groups of individuals. According Vanneste (2016) it is people, whom we trust, not organizations. Vanneste has developed a bottom-up theory in which interorganizational trust arises from individuals and their dispositions. The theory is based on indirect reciprocity, where members are helping each other. (Vanneste, 2016.) According Fulmer & Gelfand (2012) trust has implications across multiple levels in organizations, from employee performance, teamwork, and leadership success to organizational and inter-organizational performance. Yet another new development in theories is a cross-level process theory of trust development in interorganizational relationships by Schilke & Cook (2013). The theory is based on well-known definition of trust: “Trust is willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the party”. (Mayer et al.,1995). According to Savolainen and Lopez-Fresno (2012) leader’s competence (ability) is one of the key dimensions in showing trustworthiness. Leaders should increase their awareness and knowledge about building trust, and they should develop skills for demonstrating trust. As a consequence, new ideas are produced and innovativeness is nurtured through open communication and supportive workplace climate. (Savolainen & Lopez-Fresno, 2012.) The global economy and environments are often unstable and value systems are new and unknown by large. When working in foreign countries actors in the community are usually unknown and the legal regime and authorities in many countries are unpredictable. (Aarseth et al., 2015.) According my experience in oriental working cultures it is clear that cultural differences in management practices can cause misunderstanding and delays or even denial due to lack of understanding meaning of opposite parties. One can offend the counterpart unintentionally. As Finnish person, it is often hard to accept that “yes” does not mean necessarily agreeing or even considering to take the offer. Harmony is the important values in Confucian culture. Avoiding direct confrontation is meant to help the opposite party to “save the face”. For Finnish person same situation would appear as misleading or dishonest. Trust development is seen as process and it is based on relational conceptualization. (Savolainen & Ikonen, 2015). The word party refers not only to persons but also to collective actors or corporations. The process theory is based on narrative method explaining the temporal sequence in which change occurs. A process theory consist of explanations of how, why, and in what sequence a process unfolds over time. (Schilke & Cook, 2013.) Bachman (2012) critiques trust research about focusing too much on micro level in dyadic relationships. For future directions trust between institutions should be focused also more. According Schilke & Cook (2013) trusting relationship between institutions are gradually developed starting from individual –individual level. The second step is that the individual starts to influence within one’s own organization. Later on counterparts have their organizations to meet and start developing partnership. In the
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Saara Hiltunen and Taina Savolainen last part of this model organizations are acquainted and the boundary spanners may be integrated into the organization structure.
6. Case: Boundary spanner the “person in between” As early part of the partnership development I suggested “aging” as the topic for mutual collaboration partly because my background is in the healthcare field. After short consideration period the Korean party established connections to nursing department within the Korean university. There was sense of uncertainty at first, whether it will be possible to work with nursing department as multidisciplinary projects were not the common way of working in the South-Korean University. Later on it has appeared that multidisciplinary projects and research work is not very common in the Finnish University either. In this project initiative the school of business was the first contact point in Finland to start this new innovative project. Later on I contacted the information technology department, nursing science, social sciences and finally also the public health departments discussing about collaborative program for aging. In the following January two Korean professors came to visit the university in eastern Finland. The visit was planned together with a lecture from the business school and the professor from information technology department. In the beginning of two-day visit there was meeting with the department leader and the director of the business school. We visited also the science park and innovation center in the neighboring town and also nursing science unit in the university. Korean professors expressed desire to build collaborative program between universities. They also proposed, could I be the coordinator. I was pleased that they trusted me as person. However, I was not officially employed by the university and I had not yet applied for PhD program either, which meant that in the Finnish administration structure I was outsider. The Finnish lecture responded that I should become PhD student first, but the South-Korean professors responded that no need. To do PhD degree would require much time and effort for writing. This discussion built mutual individual trust between South-Korean representative and my role as the “person in between”. Also, the example shows that in oriental leadership style working relationships are not built only into official positions. An interesting question is what are guiding values which are applied in partnership development and in decision making processes. Following the visit in January discussions by Skype and e-mail correspondence continued actively about next steps. The professor visited our university the second time in August, one year after the first meeting as he was teaching again in the summer-school of the university of applied sciences in southern Finland. Together with the Business School lecture I organized the multi-partner work-shop of half a day in order to discuss the project designing further. At this time we received invitation to go to the conference in South-Korea in November. I was able to find five researches from Finland, who were interested in joining to the conference. The delegation from Finland included the university professor and university lectures from four universities. When the Korean professor received the list of attendees, he responded very positively about the number of participants. However, he also expressed that he was not happy, because my name was not in the list. He decided to offer for me the cost of the airfare from the university in South-Korea. He had correctly assumed that I did not have sponsor or resources to travel to South-Korea. In the end it appeared that the department of nursing in the South-Korean University paid the airfare for me to attend to the conference. This experience showed me that strong trusting relationship had been developed at individual level although there was not yet official partnership between institutions. According the process described above the idea of multidisciplinary collaboration across various fields of sciences appeared to be new and therefore innovative way of working in Finnish and in South-Korean universities. The new strategy in the Finnish university gave us courage to start building further collaboration and networks around theme of aging (UEF Strategy, 2020). Following the process in Finland the university administrators were supportive for the initiative and the proposal was developed for applying EU project funds distributed by the regional agency. However, application received negative response, which has delayed the process. Being the “person in between” is my natural role as I have been working internationally previously. I have many connections internationally and I have introduced new partners in various contexts. Living in Asia for number of years have developed inborn sensitivity towards Asian cultures. In the other hand, I attend to look situations from outsider’s perspective and I don’t see usually many barriers for communication and co-creation. When
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Saara Hiltunen and Taina Savolainen Korean or Chinese colleagues have visited the University of Eastern Finland I attend to think what I would like to see and experience if I was here new or foreign. Even more specifically, I try to understand where they come from and what their interest is. Often I share information about people whom they are going to meet and how to approach them or what might be interesting topic to explore. Relationship changes to more familiar and relaxed through several encounters and meetings. This experience has taught that the trust does not concern only exchanging organizational information at professional level. It includes also individual, person to person levels. Trust is relational and requires reciprocal actions helping each other to fulfill goals. I feel good if someone trusts me enough to expose personal feelings or wishes. I would call that affective trust. Secondly, there is another reason, called “guanxi” for seeking to do favors for oriental counterparts. The “guanxi” is concept which need to be followed if seeking co-operation in future. “Guanxi” means cultivating, developing, and maintaining personal relationships on the basis of the continuing exchange of favors (Morden, 1999). If you have received special hospitality or other personal contributions you should do the same or more to your partner. In Japan, China and South-Korea it is very important to bring gifts to all whom you are going to visit, especially for those who are hosting. Giving and receiving personal gifts can be integrated as corruption in Finland. This area of relational leadership skills or skills to develop partnerships is often misunderstood. The borderlines between having cultural awareness and being skilled in relationships can be wrongly interpreted as seeking favor for own benefit. The trust in this case can be identified by partner’s comments, questions and wishes. The comments might be positive applauses like, “in Korea we do not yet have so advanced IT projects as here…” Comments are also personal at times, like “we are not happy if you are not coming to our Innovation conference in South-Korea.”. In the other hand, Korean partners are strict about their borders and independence. “Let us choose our own partners” was the answer when we proposed to have some other South-Korean universities participating. Later on I was delighted to find my role being described in scientific connections as the “boundary spanner.” Boundary spanners are individuals who are most relevant to the implementation and management of interorganizational relationships. Schilke & Cook (2013) pinpoints that it is valuable asset to have so called boundary banner, who is familiar with the partner organization. The boundary spanner can also be bridging cultural differences (Williams, 2009).
7. Discussion of results and further studies This paper provides preliminary findings and some new perspectives about partnership formation and trust development between Finnish and oriental organizations. The paper provides evidence to the process theory about partnership development by giving examples about individual’s contributions in strengthening institutional trust. Recently two theorist ( Schilke & Cook, 2013; Vanneste,2016) have written about importance and actions of a boundary spanner, the person between organizations. Qualitative research methods are seen as useful asset in organizational studies and also in cultural studies. Ethnography and in this case more specifically auto-ethnography is used as research method as I have stayed and worked in oriental countries more than 15 years. Lack of trust can be seen as reason for undeveloped partnerships and dysfunctional relationships. Oriental and Finnish cultures are opposite in many ways. It would be important to have more knowledge about oriental cultures for Finnish counterparts. Confucians harmony is highly valued and relational leadership style is practiced. In forming partnerships between organizations personal relationships are important. This study includes examples of partnership development and has similarities with regent findings of trust research (Shilke & Cook, Vanneste). The boundary spanners can bring organizations together and help partnerships to develop to deeper level. In oriental partnership building it is common to use the “third party”. At the same time, reciprocity is important quality while practicing relational leadership style. The Finnish culture is individualistic and everyone is supposed to be self-relying. Also, if we receive benefits or promotions we are not expected to do favors to others. In my doctoral theses I am aiming to describe more specifically cultural features and experiences that have undercurrent effect into partnership development. The concept includes cultural values and leadership practices in oriental and multicultural hierarchical organizations. Reasons for the preliminary findings can be developed further in the next stage of doctoral research. There are several success stories as well as disappointing experiences both on my personal way and also in other people’s experiences, which could be used for increasing understanding of relational leadership in partnership development and usage of boundary spanners in building trust in partnerships. My assumption is that lack of cultural understanding plays major role in dysfunctional partnerships.
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References Atkinson, S.(2004) "Senior management relationships and trust: an exploratory study", Journal of Managerial Psych, vol. 19, no. 6, pp. 571-587. Aarseth W., Rostados A. & Andersen B., (2014) Managing organizational challenges in global projects. International Journal of Managing Projects in Business, Vol: 7. No:1.pp.103-132 Bachman Reinhard, (2011) Special Forum Essay: At the crossroads: Future directions in trust research. University of Surrey, UK. Journal of Trust Research 1 (2), 2011: 203-213 Blake M.D. & Smith, A.D (2016)Autobiographies in organizational Research: Using Leaders’ life Stories in a Triangulated Research Design. Organizational research Methods. Vol.19(2) 204-230. Blake,,Mathias D. & Smith, AnneD (2016)Autobiographies in organizational Research: Using Leaders’ life Stories in a Triangulated Research Design. Organizational research Methods. Vol.19(2) 204-230. Bryman, Alan, (2004) Qualitative research on leadership: A critical but apprecitative review, The Leadfersjhip Quarterly 15, 729 – 769. Cardiff. Xiao-Ping Chen, Marion B.Eberly, Ting-Ju Chiang, Jiing-Lih Farh, Bor-Shiuan Cheng, (2014) “Affective Trust in Chinese Leaders: Linking Paternalistic Leadership to Employee Performance.” Journal of Management Vol. 40, No.3. pp. 796-819. Cunliffe, A. L., Eriksen, M.. (2011). Relational leradership. Human Relations, 64: 1425 Dinh J. LR, Gardner W, Meuser J,Liden J. Jinyu Hu,(2014). Leadership theory and research in the new millennium: Current theoretical trends and changing perspectives, The Leadership Quarterly 25 (2014) 36–62 Dong, Keyong,; Liu, Ying(.2010)Cross-cultural management in China. , Cross-cuiltuiral Management:An International Journal.Vol.17 Iss3 pp.223-243. Doney, Patricisa M.: Cannon, JosephP.; Mullen, Michael R.;(1998)Understanding the influence of National culture on the development of trust, Academy of Management Review; Jul 1998; 23,3 ABI/inform Global Eriksson, P. (2013), Longitudinal auto ethnography. In Paavilainen & Raukko (eds.) Handbook of longitudinal research methods in studies of organizations. Edvard Elgar. Fairholm, M.R. (2002) Defining Leadership a review of past, present, and future ideas, monograph series, ms02-02,The George Washington University Center for Excellence in Municipal Management France ST-HILAIRE,(2008).Leadership Theories: Toward a Relational Model, Retrospective Exam, EXD-66909 for the Ad Hoc doctoral programme of administrative sciences, Université Laval, Québec Fulmer, C. Ashley; Gelfand,Michele J. (2012). At What Level (and in Whom)We trust: TRUst Across Multiple Organizational Levels. Journal of Management. Vol. 38 Ni 4. pp. 1167 – 1230. Ikonen, M. (2013,) Trust development and dynamics at dyadic level: a narrative approach to studying processes of interpersonal trust in leader-follower relationships, University of Eastern Finland, Joensuu. Kye, Bongoh, Arenas, Erika, Teruel, Graciela, Rubalcava, Luis, (2014) Education, elderly health, and differential population aging in South Korea: A demographic approach. Demographic Research, Volume 30, article 26, p.753-794 Jonsen, K., Butler, C., Mäkelä, K., Piekkari, R., Drogendijk, R., Lauring, J., Lervik, J., Pahlberg, C., Vodoisek, M. & Zander, L.(2013) Process of International Collaboration in Management Research: A reflective, autoethnographic approach. Journal of Management Inquiry 22, 394. Lyin, Fergus,; Möllering, Guido,; Saunders, Mark,; (2012). Handbook of Research Methods on Trust Magee, Joe C, Galinsky, Adam, D.( 2008) Social Hierarchy: The Self-Reinforcing Nature of Power and Status. Anademy of Management Annals, Vol 2, 2008 Mayer, R.C., Davis, J.H. & David Schoorman, F.(1995) "An Integrative Model of Organizational Trust", The Academy of Management Review, vol. 20, no. 3, pp. 709-734. MF, 2015. Finland´s National Programme, Europe (2020) –Strategy. Ministry of Finance publications – 12c/2015http://ec.europa.eu/europe2020/europe-2020-in-your-country/finland/index_en.htm Morden, Tony, 1999.Models of national culture – management review. Cross Cultural Management: An International Journal Vol.6. Iss 19-44. Pan, Su-Yan.(2013) Conficius Institute project: CVhina’s cultural dfiplomacy and soft power projection.Asisan Education and Development Studies. Pisani Niccolo, (2009)International Management Research: Investigating Its Recent Diffusion in Top Management Journals, Journal of Management. Vol.35 No.2, SApril 2009, p.199-218. Ryen, Anne.(2008).Trust in Cross-Cultural Research, The Puzzle of Epistemology, esearch, ERthics and Context.Qualitative Social Work.Vol. 7, (4)448 -465. Savolainen, T. and Ikonen, M. (2016) Process dynamics of trust development: Exploring and illustrating emergence in the team context. In: Trust, Organizations and Social Interaction. Studying Trust as Process within and between Organizations, Ch 12. Jagd, S. and Fuglsang, L. (Eds.) forthcoming Savolainen, T. and Lopez-Fresno, P.2012. Trust in Leadership for Sustaining Innovations: How Leaders Enact on Showing Teustworthiness. Nang Yan Business Journalb, 1.1-2012. Schilke, O. & Cook, K.S.(2013). "A cross-level process theory of trust development interorganizational relationships", Strategic Organization, vol. 11, no. 3, pp. 281-303. Sloan, P. & Oliver, D. (2013). Building Trust in Multi-stakeholder Partnerships: Critical Emotional Incidence and Practices of Engagement. Organization Studies
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Saara Hiltunen and Taina Savolainen Soin, Kim; Scheytt, Tobias;(2006) Making the case for Narrative Metyhodfs in Cross-cultyural Organizational Research, Organizational Research Methods January 2006 vol.9 no.1 55-77. UEF Strategy, 2020, (2014). http://www.uef.fi/fi/uef/strategia Williams P. (2009)Special Agents: The Nature and Role of Boundary Spanners, Reader in Public Management and Collaboration, Cardiff School of Management, University of Wales Institute, Vanneste, Bart S. 2016.From interpersonal to interorganisational trust: The role of indirect reciprocity. Journal of Trust Research Vlaar Paul, W.L, Van den Bosch, Frans A.J. and Volberda Henrik W (2007).On the Evolution of Trust,Distrust, and Formal Coordination and Control in Interorganizational Relationships Toward an Integrative Framework, Group & Organization Management. Volume 32 Number 4, August 2007, 407-429.
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Election of Board Members in Cooperatives: A Review on Cooperative Governance vis-à-vis Corporate Governance Kari Huhtala and Pasi Tuominen Lappeenranta University of Technology, School of Business and Management, Finland
[email protected] [email protected]
Abstract: A number of academic studies have been done on the governing mechanisms of firms. They address the significance of the board of directors. The extant literature has focused on structural factors and performance of the board. Outside directors, board members’ education and female representation have been considered essential board characteristics. Consequently the election of board members has become an object of interest. A successful election process is assumed to generate a competent board. Many of the studies discuss the topic in the context of public limited companies. However, cooperative seldom emerge in these studies. This has both academic and practical consequences: the understanding on the cooperative governance does not accumulate and practitioners do not have in-depth knowledge available in order to develop their cooperatives. What make cooperatives different from other firms are a broad member base, customer, worker, and entrepreneur relationships to the cooperative and differences in the governing bodies. These features have special implications on the governances of cooperatives. The purpose of this paper is to gather existing academic knowledge on cooperative governance and to produce an overall review on the governance mechanisms in cooperatives with an emphasis on the election of board members. The goal is to figure out what we know about the governance and the election of board members in cooperatives. The review sheds new light on the academic discussion on cooperative boards, their composition and processes as well as their election. The novelty of the work lies in the diverse approach of cooperative governance. The study shows knowledge gaps in the extant literature of cooperatives and makes suggestions on future research. It builds a framework for future studies in the field of the governance of producer, consumer and worker cooperatives as well as credit unions. The method of the study is the integrative literature review. Keywords: board, member, governance, cooperative, director, election
1. Introduction The modern corporate governance saw its dawn in the late 1990’s after the frauds that were detected in a few major western companies, due to insufficient monitoring of the management (Bosner 2007). A number of academic studies have been done on the governing mechanisms of firms since then. Recent development in corporate governance addresses the significance of Board of Directors (BOD) (Durisin, Puzone 2009; Payne, Benson, Finegold 2009). Consequently, the election of board members has become a significant topic of academic research (e.g. Maharaj 2009; Ruigrok, Peck, Tacheva, et al. 2006; Van Ees, Postma 2004). The studies suggest that board characteristics may affect the performance of the firm but the causality cannot be explicitly proved (Bosner 2007). A successful election process is assumed to generate a competent board (Finkelstein, Mooney 2003). The election of board directors has an impact on how the board is able to deal with conflict, how it works together as a team, how it knows the appropriate level of strategic involvement and how it addresses decisions comprehensively. The extant literature on the BOD has focused on three themes: structural factors of the board like outside directors and female representation (e.g. Burke 1997; Menozzi, Urtiaga, Vannoni 2012; Brunzell, Liljeblom 2014), board processes (e.g. Pye, Pettigrew 2005; Finkelstein, Mooney 2003) and the performance of the board (e.g. Chamberlain 2010; Lappalainen, Niskanen 2012). Corporate director election including nomination committees has become an object of interest in some studies (Schmeiser 2012; Agyemang-Mintah 2015). Many of the studies discuss the topic in the context of public limited companies. However, cooperative seldom emerge in these studies. What make cooperatives different from other firms are a broad member base, customer, worker, and entrepreneur (owner-patron) relationships to the cooperative and differences in the governing bodies (Hansmann 1999; Cornforth 2002). For entrepreneurs like farmers the cooperative is an extension of the farming business while for consumers it is one way among others to satisfy consumption needs (Ollila, Nilsson 1997; Spear 2004). For workers in turn, the cooperative represents a major interest as employer (Hansmann 1990). These features have special implications on the governances of cooperatives. Nevertheless, the academic research on cooperatives and especially on their governance is scarce. In the mainstream literature a vast minority of the research deals with cooperatives. This has both academic and practical consequences: the
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Kari Huhtala and Pasi Tuominen understanding on the cooperative governance does not accumulate and practitioners do not have in-depth knowledge available in order to develop their cooperatives. Given that cooperatives play a big role in most countries (i.e. they employ approximately 250 million people and generate 2.2 trillion USD in turnover worldwide and over one billion people are members in cooperatives around the world; ICA Coop, 2016), this is a major shortcoming. The goal of this paper is to figure out what we know about the governance and the election of board members in cooperatives. The purpose is to gather existing academic knowledge on cooperative governance and to produce an overall review on the governance mechanisms in cooperatives with an emphasis on the election of board members. The method is the integrative literature review. In our search for the scientific articles we use the databases SCOPUS, EBSCO and ABI. In addition, we use Google Scholar. Only academic articles are accepted in the search. Our purpose is also to pursue some new theorizing on the governance mechanisms of cooperatives. The review sheds new light on the academic discussion on cooperative boards, their processes and composition as well as their election. We make several important contributions to the scholarship on cooperative management and governance. Additionally, the study builds a framework for future studies in the field of the governance of producer, consumer and worker cooperatives as well as credit unions. The novelty of our work lies in the diverse approach of cooperative governance. We show knowledge gaps in the extant literature of cooperatives and make suggestions on future research. This paper is organized as follows. First we examine the theoretical analysis on the determinants of board roles and characteristics as presented in the mainstream literature. After describing our working methods in detail, we present the findings from our literature review. In chapter 4 we discuss the implications of the findings on the research of cooperative governance and especially on board election. Finally, in chapter 5 we make conclusions including a framing for future research and practice on the topic.
2. Determinants of governing mechanisms in enterprise 2.1 Roles of board of directors In the management literature on corporate governance, the effective functioning of the BOD (board performance) is associated with several board roles (Zahra and Pearce 1990; Goodstein, Gautam, Boeker 1994; Dalton et al. 1999;). The monitoring role rests in agency theory (Fama, Jensen 1983). The board’s service role rests in resource dependency theory and the resource-based view. The former theory refers to research findings by Pfeffer (1972) and Pfeffer and Salancik (1977), indicating that board size and board composition are related to resource dependencies and regulatory pressures. The service role of the board seems to dominate the monitoring role in corporate governance regimes that are characterized by committed stakeholders. In corporate governance regimes characterized by concentrated ownership or debt-holdership, the service role dominates, and board members are selected rather than elected. In regimes with dispersed ownership or debtholdership, the monitoring role dominates, and board members are primarily elected (van Ees, Postma, 2004).
2.2 Board characteristics Outside directors (Menozzi, Urtiaga, Vannoni 2012), board members’ education (Darmadi 2013) and female representation (Burke 1997; Martín-Ugedo, Minguez-Vera2014) have been considered essential board characteristics in literature. Presence of independent directors has received much attention especially after the Enron scandal (Chouchene 2010). Nevertheless, obeying the recommendations and having independent board members does not ensure a competent board that works efficiently on strategic issues (Maharaj 2009). Board processes Processes on the board seem to make a difference (Finkelstein & Mooney 2003). Board process is likely has a very real and important impact on overall board effectiveness and even firm performance. The authors maintain that board independence and structure are less important than board process. The ability of the board to manage all essential tasks on the board depends on the individuals who become directors and their ability to get the work of the board done as a group.
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2.3 Election of board In scholarly literature there is a variety of studies concerning the election of boards and its implications in corporations. In the Swiss context (Ruigrok, Peck, Tacheva et al. 2006) the authors found firms with nomination committees are more likely to have higher number of independent and foreign directors, but not more likely to have higher number of female board members. Nomination committees are believed to improve the board’s effectiveness through managing its composition, e.g. by raising directors' qualifications and board independence. They may help identify all of the three roles of the board: the control role, the service role and the strategic role.
2.4 Context of board Research has shown that a corporate governance design that works in a specific firm is highly contingent on the context. A generalized solution to a best corporate governance design is not likely to be found (Huse, Gabrielsson 2004; Davis, Useem 2002). All definitions of corporate governance identify actors as shareholders, board members, and the management, but there are also other actors playing roles in corporate governance. They might be internal or external to the corporation (Huse, Gabrielsson 2004). The relationships and interactions among the actors may be based on various levels and on a combination of trust, power, and influence.
2.5 Determinants in cooperative governance Compared to investor-oriented firms, cooperatives are not profit-driven but user-driven (Bijman, Hanisch, van der Sangen 2014). Although several similarities exist, the debate on internal governance in cooperatives differs from the debate on corporate governance with regard to profit-driven companies. It is similar to the extent that the classical agency relationship between owners and managers (Fama, Jensen 1983) also holds for cooperatives, particularly if they are large and diversified. What differs, however, is that in cooperatives both the composition and the function of the BOD deviates from the composition and function of boards in IOFs. One essential determinant that emerges in the cooperative literature but not in the mainstream literature is member participation. Especially farmer-owned cooperatives cannot be successful without the participation of the members (Xiang, Sumelius 2010).
3. Working methods The method that we use is the integrative literature review. The data of this study comprises articles on cooperative governance and was gathered with the following protocol: First, we used the scientific databases SCOPUS, EBSCO and ABI and Google scholar. The search formula we used was: ( TITLE ( cooperative* ) OR TITLE ( credit union* ) ) AND TITLE-ABS-KEY ( board* AND governance* ) AND ( LIMIT-TO ( LANGUAGE , "English" ) ). From the found articles, we checked the key words and read the abstracts and if they matched our keywords and our topic, we took the article to a closer examination. After that we excluded all the articles, which did not fulfil our purposes. To make sure that no essential literature is omitted we made also an enlarged search with a formula TITLE (cooperative* governance*). On the basis of the abstract an article is included in a closer examination. Otherwise it is omitted. The second search was made manually by examining the reference lists of all the articles found in the first search. The third search was made manually by reading through all the volumes of the following cooperative journals: Annals of Public and Cooperative Economics, Journal of Cooperative Studies, years 2004-2014, The International Journal of Co-operative Management, years 2004-2014 and Journal of Co-operative Organization and Management, years 2013-2015. The motivation for this three-step search was to make sure that no essential articles considering cooperative governance were omitted. In Table 1 there is a description of this filtering process. In the analysis of the articles we have obeyed Torraco’s (2005) guide on writing integrative literature reviews. The concepts according to which the basic analysis of the articles is carried out are: !
publishing year
!
publication
!
country
!
research orientation
!
research method
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Kari Huhtala and Pasi Tuominen In-depth content analysis of the articles is carried out by opening up the main findings of all the articles. First, we use concepts which emerge from the governance scholarship on board determinants. The two concepts are ‘board characteristics’ and ‘board processes’ which both are key indicators for board performance. Second, we use the concept ‘member participation’ which is centrally used in the cooperative governance literature to indicate the interaction between the members and the governance in cooperatives. To sum up we carry out our content analysis through these three concepts. Finally we make a synthesis of the analyses with critique on their strengths and weaknesses.
4. Findings In our literature review on cooperative governance some general observations were made. First the number of found academic studies was scarce, we found 24 articles. In total, we included 17 articles in the data (Table 1). Seven articles were omitted for the reasons that are described in Table 1. The articles were published between the years 2004 and 2015 (Table 2). Table 1: Data of the review by source SOURCE OF DATA Step 1: Database search
NUMBER OF ARTICLES INCLUDED 11
Step 2: From reference lists:
1
Step 3a: From Annals of Public and Cooperative Economics Step 3b: Journal of Cooperative Studies Step 3c: International Journal of Co-operative Management Step 3d: Journal of Cooperative Organization and Management TOTAL
1
COMMENTS, REMARKS 5 potential articles were omitted. Reasons: Irrelevant field: 3 Did not deal with cooperatives: 1 Dealt with research design 1 2 potential articles were omitted. Reasons: Did not deal with cooperatives: 2
1 3 0 17
Table 2: Included articles by publishing year
Eleven of them were based on the database searches, one on the reference list examination and five on the analysis of the cooperative journals. Second, the research is geographically concentrated on a few countries. The studies that were published in 10 different journals had been carried out in Western Europe (nine pieces), in North America (two), in South America (one) and in Africa (one). The division is presented in Table 3 in Appendix. Third, agricultural cooperatives are most represented in the studies while credit unions and worker cooperatives rarely emerged in the found articles. Fourth, the most common methodology used in the studies was the quantitative approach. In eight of the studies the quantitative approach was the only methodology. Respectively in five of the articles the qualitative methodology was used. In one of the articles both the quantitative and the qualitative approach were used. Three of the articles had a theoretical approach. The most
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Kari Huhtala and Pasi Tuominen used theory in the empirical studies was the agency theory which was used in seven studies (Table 4). The stewardship theory was found in three studies and the stakeholder theory in two studies. Twelve other theories were also used. Table 4: Theoretical approaches in the studies Target theory
Number of articles
Agency Theory (Fama, Jensen 1983) Stewardship Theory (Muth and Donaldson 1998) Stakeholder Theory (Hung 1998) Other Theories: Political Theory (Whiteley, Seyd (1996) Theory of vertical and lateral integration (Grossman, Hart 1986) Entrenchment Theory (Paquerot 1996) Theories of Managerial Latitude (Charreaux 1996) Democratic Perspective (ICA) Resource dependency theory (Pfeffer and Salancik 1978) Managerial hegemony (Berle, Means 1932) Congruity theory (Eagly, Karau 2002) Property rights Theory (Demsetz 1974) The theory of social exchange (Gouldner 1960) Degeneration theory (Cornforth et al. (1988) Institutional theory (e.g., DiMaggio & Powell 1983)
7 3 2
Next we present the central findings from the review. The findings are organized according to three concepts: board characteristics and board process which are both central factors in the corporate governance mainstream literature and member participation which is a central factor in the governance literature of cooperatives. In terms of board characteristics cooperatives have strived to respond to the demands of the environment. Agricultural cooperatives adjust the size, composition and the representation of members-owners of their boards under the market pressure (Bijman, Hanisch, van der Sangen 2014). Female representation on the board has become a central issue (Périlleux, Szafarz 2015) as well as worker participation in worker cooperatives (Leviten-Reid, Hoyt 2009). In credit cooperatives some deficiencies were detected in the low renewal of board members and board members’ technical skills (Chaves, Soler, Sajardo 2008). Some critique towards the sole board composition approach is presented. Too little account is taken on contextual factors how they influence board composition (Cornforth 2004). The traditional cooperative board model may become a hindrance when market oriented downstream projects are implemented and for this reason cooperatives should include outside directors in the board (Deng, Hendrikse 2015). In consumer cooperatives one should not rely on categorization of board candidates based on their convictions and reference groups in communal politics (Tuominen, Jussila, Kojonen 2009). Board processes in cooperatives are essentially linked with board’s relationship and role to the Chie Executive Officer (CEO). The BOD is seen to take responsibility for decision control while the CEO is responsible for decision making. The allocation of the decision rights varies in different governance models of cooperative (Bijman, Hendrikse, van Oijen 2013). Boards of long-tenured CEOs tend to meet less often, have less board training and fewer executive sessions and CEOs experience less board monitoring (Cook, Burress 2013). Female-dominated boards seem to favor social orientation (Périlleux, Szafarz 2015). Large European producer cooperatives are shifting decision-making power from members to managers. The cooperatives feel the need to strengthen the autonomy of the management, reduce member influence on operational decisions, find new sources of equity capital, and professionalize the supervisory bodies (Bijman, Hanisch, van der Sangen 2014). This development has a linkage to the growth strategies of cooperatives (Power, Salin, Park 2012). Board processes towards the members are emphasized. Directors on the board should pay attention to their members on a daily basis, by encouraging and maintaining good relationships with them (Barraud-Didier, Henninger, Akremic 2012). Member participation in cooperatives has several dimensions. One typology suggests that there are four kinds of members in terms of member-activity: passive, occasional supporter, involved and pro-active (Cechin, Bijman, Pascucci et al. 2013). Proactive members, who are most often willing to participate in boards and committees, are motivated by cooperative ideology more than by economic reasons. Members’ perception of their
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Kari Huhtala and Pasi Tuominen participation in the governance of the cooperatives is considered a socio psychological factor that explains an essential part of members’ commitment and trust towards directors (Österberg, Nilsson 2009). Affective commitment is seen to have a mediating role in the relationship between trust and participation in the governance of cooperatives (Barraud-Didier, Henninger, Akremic 2012). Low member participation may be a source of risk in cooperatives. It may bring membership apathy that strengthens the autonomous power of the managers (Chaves, Soler, Sajardo 2008). Member influence can be a potential resource. In consumer cooperatives buying behavior and direct use of voice should be considered a central feature to governance (Tuominen, Jussila, Kojonen 2009).
5. Discussion The basic question of this paper has been what we know about the governance and the election of board members of cooperatives in the light of present literature. The first finding has been that the governance literature on cooperatives is scarce and it culminates in the research of board election; in our data on cooperatives we did not find a single study that addressed the election of board members. According to the extant literature the election of board directors has an impact on how the board performs (Finkelstein, Mooney 2003). It can be assumed that in cooperatives competent directors contribute to a well performing firm as well as in other corporations. The mainstream literature discusses the role and significance of nomination committees in the election of board. Their role is seen as positive (Ruigrok, Peck, Tacheva et al. 2006) In the cooperative literature nomination committees do not emerge. Gabrielsson and Huse (2004) made a review on theories used in corporate governance research. The researchers found 69 empirical studies (about 54 percent) where agency theory was employed as the main theoretical perspective, either alone or in combination with other theories. In our review on cooperatives 50 % of the empirical studies had agency theory as the main perspective. The second and the third used theories were stewardship theory and stakeholder theory. The results are presented in Table 4. Cornforth (2004) suggests that an important priority for future research is more studies that examine how contextual factors influence what boards do. The dominating role of agency theory is too simplistic to portray the essence of the cooperative governance. Based on the mainstream literature vis-á-vis the literature on cooperatives we have made some novel observations. The governance scholarship of corporations rests strongly on board performance and its implications on the performance of the enterprise. The board performance seems for one to be dependent on structural factors of board, i.e. board characteristics. In later studies board processes i.e. how the board de facto works has been seen as another important factor in terms of enterprise performance. In the cooperative scholarship the financial performance is not necessarily seen as the only important indicator. By and large the performance of cooperative means the member benefits that the cooperative can produce. The relationship between member-owner and cooperative differs from that of corporations. Overall in cooperatives member commitment, trust and member activity are seen as essential parts of the success of cooperative (e.g. Cechin, Bijman, Pascucci et al. 2013). The cooperative literature recognizes a special concept, member participation that does not exist in corporate literature but has a central role in the governance. Next we construct a theoretical approach, the chain of influence of cooperative governance (Figure 1), which illuminates our observations:
Figure 1: Chain of influence of cooperative governance
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Kari Huhtala and Pasi Tuominen The member participation is an essential factor in the cooperative governance. If it is omitted a significant part of the essence of cooperative, its governance and management, are ignored. Now we follow our theorizing by adding up one more concepts in the picture, board election (Figure 2). Board election has links to all three factors that affect board performance. Board composition is the direct result of the election process of the BOD. Board processes have several antecedents but it is safe to assume that board election implicitly affects board processes. Member participation in turn has two kinds of links to board election. First, active participation in the functions of cooperative contributes to the member’s interest in consenting to the nomination of board membership. Second, active participation promotes member participation in attending annual meetings and voting in elections.
Figure 2: Role of board election in cooperative governance From the mainstream literature we have adopted the concepts board characteristics and board processes as well as context-orientation which we have been utilizing in our theory earlier and from the cooperative literature the concept member participation. The presented mainstream literature, despite its explicit strengths, leaves several gaps in terms of cooperatives. Cooperatives differ from limited companies in terms of ownership, objectives and the structure of the governance. In addition cooperatives are mutually different and their challenges in governance vary. Consumer, agricultural and worker cooperatives have their specific needs. Growing cooperatives have presented several new governance models that diverge from the traditional model. A clear shortage also is that nomination committees have not been examined in the context of cooperatives. Methodologically the theme of this paper has mainly been studied with quantitative methods (8 studies out of 14 empirical studies). Qualitative methods have been used in 5 studies. Member-participation which is a cooperative-specific concept has also been studied mainly by quantitative methods (3/5). The other two studies had a qualitative approach (Chaves, Soler, Sajardo 2008; Tuominen, Jussila, Kojonen 2009). Newer studies on the issue were not found. To get a more in-depth understanding on the role of member-participation more qualitative studies are needed. By doing so the knowledge on the associations, mechanisms and processes between the participation and the governing bodies of cooperative would grow. The novelty of this research rests on the detection of essential knowledge gaps in the scholarship of cooperative governance. The extant literature does not recognize the role of board nomination being a central determinant of board performance. There is too little empirical understanding what the chain of influence in cooperative governance is like. More diverse theoretical and methodological approaches are needed. Our research is incremental as it builds its findings and theorizing on the extant scholarship. This review reveals distinct knowledge gaps that call for novel research. Our study benefits first the academics as it demonstrates both theoretical and empirical deficiencies and second, it benefits practitioners as it reveals potential development targets in the governance of cooperatives.
6. Conclusions Our findings show that novel empirical research is needed within the governance of cooperatives and especially on the election of board members. Regarding the diversity across consumer, producer and worker cooperatives and credit unions they all should be examined distinctively in order to attain sufficiently robust ground for the cooperative governance scholarship. Geographically the recent studies have mainly been carried out in Europe. More studies would be welcome from other continents and cultures. There is especially need for studies in the third world countries. Thus there can be detected an empirical gap on cross-national studies in literature.
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Kari Huhtala and Pasi Tuominen We suggest that the variety of the theoretical and methodological approaches on cooperatives should be widened in order to attain a better understanding of what the cooperative governance is all about: what factors influence board composition, roles and processes. The agency theory approach gives too simplistic a picture of the corporate governance. As an example there can be seen great synergies between the stakeholder model of management and the seven principles of co-operative Management (Bleger 2005). Qualitative approaches would be welcome to increase the understanding of the mechanisms, associations and processes in the cooperative governance. This review calls for novel research that should especially illuminate the mechanisms and governance cultures of board election in cooperatives. Especially the concept of member participation should be included into the discussion; according to the reviewed literature, it has a role in the governance and in the board election of cooperatives. However, the literature does not sufficiently recognize these mechanisms. This is the reason to continue to study the issue.
Appendix Table 3: Included articles by journals and countries Journal
Name and year of the article
Country of research
Annals of Public and Cooperative Economics
The governance of cooperatives and mutual associations: A paradox perspective. Cornforth, C. 75(1), 11-32. 2004. THEORETICAL APPROACH.
-
Faces of governance of production cooperatives: An exploratory study of ten French cooperatives. BatailleChedotel, F., & Huntzinger, F. 75(1), 89-111. 2004. QUALITATIVE.
France
Governance of the Mondragon Corporacio’n Cooperativa. Bakaikoa, B., Errasti, A., Begiristain, A. 5:1 2004. QUALITATIVE.
Spain
Shifting control? the changes of internal governance in agricultural cooperatives in the EU. Bijman, J., Hanisch, M., & van der Sangen, G. 85 (4), 641-661. 2014. QUANTITATIVE.
Western Europe
Drivers of pro-active member participation in agricultural cooperatives: Evidence from Brazil. Cechin, A., Bijman, J., Pascucci, S., Zylbersztajn, D., Omta, O. 84(4), 443-468. 2013. QUANTITATIVE.
Brazil
Accommodating two worlds in one organisation: Changing board models in agricultural cooperatives. Bijman, J., Hendrikse, G., & van Oijen, A. 34(3-5), 204-217. 2013. QUALITATIVE + QUANTITATIVE.
Netherlands
The Impact of CEO Tenure on Cooperative Governance. Cook, M. L., Burress, M. J. 34: 218-229. 2013. QUANTITATIVE. Managerial vision bias and cooperative governance. Deng, W., & Hendrikse, G. W. J. THEORETICAL APPROACH.
United States
Community-based home support agencies: Comparing the quality of care of cooperative and non-profit organizations. Leviten-Reid, C., & Hoyt, A. QUANTITATIVE. .
Canada
Managerial and Decision Economics
European Review of Agricultural Economics 42(5), 797-828. 2015. Canadian Journal on Aging. 28(2), 107-120. 2009
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-
Kari Huhtala and Pasi Tuominen Journal
Name and year of the article
Country of research
Agribusiness. Volume 25, Issue 2. 2009.
Members’ Perception of Their Participation in the Governance of Cooperatives: The Key to Trust and Commitment in Agricultural Cooperatives. Österberg, P., Nilsson, J. QUANTITATIVE. Women leaders and social performance: Evidence from financial cooperatives in Senegal. Périlleux, A., & Szafarz, A. QUANTITATIVE. Name and year of the article
Sweden
World Development. 74, 437-452. 2015. Journal Journal of Cooperative Studies. 41.2, August 2008: 30-37 International Journal of Cooperative Management
Senegal Country of research
Co-operative Governance: the case of Spanish Credit Co-operatives. Chaves, R., Soler, F, Sajardo, A. QUALITATIVE
Spain
Dynamics and Tensions in Governance: evidence from Finnish co-operatives. Jussila, I., Saksa, J.M., Tienari, J. Volume 3, Number 2, November 2007. QUALITATIVE
Finland
Overcoming Challenges to Governance in Consumer Co-operatives: analysing reports of key representatives. Tuominen, P., Jussila, I., Kojonen, S. Volume 4, Number September. 2009. QUALITATIVE
Finland
The stakeholder model as a leading model for excellence in governance. A comparative perspective on a co-operative opportunity. Bleger, I. Volume 2, Number 1, August 2005. THEORETICAL APPROACH.
-
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Kari Huhtala and Pasi Tuominen Cornforth, C. (2004). The Governance of cooperatives and mutual associations: a paradox perspective. Annals of Public and Cooperative Economics, 75(1), p.11-32. Dalton, D.R., Daily, C.M., Johnson, J.L., Ellstrand, A.E. (1999). Number of directors and financial performance: A metaanalysis. Academy of Management Journal. 42 (6), pp. 674-686. Darmadi, S. (2013). Board members’ education and firm performance: Evidence from a developing economy. International Journal of Commerce and Management, 23(2), 113-135. Deng, W., Hendrikse, G. W. J. (2015). Managerial vision bias and cooperative governance. European Review of Agricultural Economics 42(5), 797-828. Durisin, B., Puzone, F.(2009). "Maturation of corporate governance research, 1993-2007: An assessment", Corporate Governance, vol. 17, no. 3, pp. 266-291. Fama, E. F. , Jensen, M. C. (1983). Separation of Ownership and Control. The Journal of Law & Economics Vol. 26, No. 2. Finkelstein, S., Mooney, A.C. (2003). “Not the Usual Suspects: How to Use Board Process to Make Boards Better.” Academy of Management Executive 17: 101–13. Goodstein, J., Gautam, K., Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic Management Journal. Volume 15, Issue 3, pages 241–250. Hansmann, H., (1999). Cooperative Firms in Theory and Practice. Liiketaloudellinen Aikakausikirja, (4), p.387-403. Hansmann, H. (1990). When Does Worker Ownership Work? ESOPs, Law Firms, Codetermination, and Economic Democracy. The Yale Law Journal, 99(8), p.1749. Huse, M., Gabrielsson, J. (2004). Context, Behavior, and Evolution: Challenges in Research on Boards and Governance. International Studies of Management & Organization. Volume 34, Issue 2. ICA Coop (2016). Available at: http://ica.coop/en/facts-and-figuresw.ica. Lappalainen, J. & Niskanen, M. (2012). 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ISS.), pp. S27-S38. Ruigrok, W. Peck, S. Tacheva, S. Greve, P. HuThe, Y. (2006). Determinants and Effects of Board Nomination Committees. Journal of Management & Governance, Volume 10, Issue 2, pp 119-148. Salancik, G. R., Pfeffer, J. (1977). Who gets power — and how they hold on to it: A strategic-contingency model of power. Organizational Dynamics Volume 5, Issue 3, Pages 3-21. Schmeiser, S. (2012). Corporate board dynamics: Directors voting for directors. Journal of Economic Behavior and Organization, 82(2-3), 505-524. Spear, R. (2004). Governance in Democratic Member-Based Organisations. Annals of Public and Cooperative Economics, 75(1), p.33-59. Torraco, R.J. (2005). Writing Integrative Literature Reviews: Guidelines and Examples. Human Resource Development Review Vol. 4, No. 3 September 356-367. Tuominen, P., Jussila, I., Kojonen, S. (2009). Overcoming Challenges to Governance in Consumer Co-operatives: analysing reports of key representatives. 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Teachers’ Experiences on Student Enterprises Pekka Hytinkoski University of Helsinki Ruralia Institute, Finland
[email protected]
Abstract: Student enterprises could be seen as a possibility to settle and break free from the disagreement between practical attitude and a more academic approach to entrepreneurship education (Jones 2006; Neck & Greene 2011; Hägg & Peltonen 2014). At best student enterprises could be learning environments incorporating working-life and entrepreneurial activities inside or near school organizations (Hietanen & Kesälahti 2015). Student co-operatives (also called school co-operatives) offer one functional student enterprise -model and communal learning environment where abilities that support entrepreneurship can be developed (Eronen 2012). Also for example JA startup companies (Junior Achievement network) have now been successfully developed from young kids to the higher level teaching in Finland and elsewhere in Europe. Studying and being an entrepreneur together in a student co-operative give support and encouragement but bring also challenges related to common decision-making and organization (Troberg 2015; Troberg & Hytinkoski 2015). But the students are not the only ones challenged when these student enterprises are used as a method of teaching. Teachers and principals of Finnish upper secondary schools, vocational schools and universities of applied sciences were interviewed for this study that concentrates on the teachers’ experiences on student enterprises at different Finnish school levels. The results of the study showed that co-operative entrepreneurship education is a suitable model when new active, entrepreneurial, cooperative initiative learning and also task-based experiences are produced for the students of upper secondary schools, universities of applied sciences and possibly also in vocational schools. But these activities have to be integrated as a part of the everyday teaching and the other possible school goals. The method needs a combination of courage to develop new teaching models but also patience to use traditional tasks and models that are already working. The early results of the study were surprisingly positive, also with JA startup companies, but at the same time there are many challenges to overcome. At best student enterprises could be used as a vehicle to produce new curriculum-based – community-based and more active learning at different school levels but this scenario requires a planning period, common goals, at least a group of interested teachers and a principal, student (family) interests and enough education and know-how for all the stakeholders. Keywords: student enterprises, student co-operatives, JA -student companies, teachers
1. What are student enterprises? Globally there are one billion people as members in different co-operatives – so we should know quite a lot about co-operatives. These people are members of co-operatives of different sizes, types, sectors and almost in all countries (Henrÿ 2012). But what do we know? Academic research of co-operatives has produced growing numbers of articles, publications and dissertations especially in the field of business discipline (Troberg 2000; Jussila 2007; Tuominen 2012; Tuominen 2013; Forsström-Tuominen 2015) but also in the other disciplines, like in sociology (Pättiniemi 2006). Literature on co-operative economics is predominantly focused on researching on co-operative performance (Vicari & De Muro 2012, 2) but also views of co-operative networking, CSR behavior and social capital are noticed as interesting research topics (see. Tuominen 2013, 26-28). Lately student co-operatives have been noted also in the field of education (Eronen 2012). Gartner (1990) believes that entrepreneurship education is about two different ideas: About risk taking and innovative people or about how to start a company. After that Kyrö (1997) has argued that there are three types of entrepreneurship; spontaneous, internal or external. According to Kyrö (1997), spontaneous entrepreneurship means a person´s overall active lifestyle and internal entrepreneurship more individuals’ common interaction and goals within the group. External entrepreneurship means real knowledge and interest to start a company. After the time of the millennium entrepreneurship education seems to adopt especially the first two types from these categories even though long time entrepreneurship education issues have been addressed mainly from economics and business studies (Kyrö 2001; Kyrö 2005). Nowadays entrepreneurship education mostly emphasizes team work and student enterprises are constantly a more used method at different Finnish school levels, even though there is still not enough research about this phenomenon. In student enterprises students (at best) get information on entrepreneurship, entrepreneurial experiences and also other abilities needed in working life. In Finland student enterprises are often team enterprises – usually student cooperatives or JA-companies.
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Pekka Hytinkoski Student enterprises are mostly team enterprises because teachers could produce learning and entrepreneurial opportunities through teams that tie individual students working jointly in entrepreneurial teams (see. Kamm et al. 1990; Kamm & Nurick 1993). Forsström-Tuominen (2015) has noticed that even though traditional entrepreneurship literature is mainly focused on a solo entrepreneur, actually many of the new ventures are planned and executed by entrepreneurial teams with collective efforts. Because of this researchers are suggesting that team ventures could last, survive longer and succeed better than solo ventures. And from the perspective of learning and education a lot of research emphasized learning by acquiring knowledge and doing together (Jones & Iredale 2010; Higgins & Elliot 2001). If this is true then maybe teams could be used more strategically also inside organizational contexts because at best teams could create new products with service innovations that could pursue the whole organization´s success. Student enterprises are quite new but visible phenomena inside and near school organizations. In Finland student team enterprises are seen as learning environments which combine being both an entrepreneur and a student.
2. About research Six Finnish upper secondary school teachers/principals, three teachers from vocational schools and six teachers of Universities of Applied Sciences were interviewed for this study. My goal is to complete 6-7 interviews at all three school levels mentioned in fall 2016. This is a qualitative case-study and content analysis is used as a research method. Qualitative case-study is a justifiable research method because of the nature of the yet unresearched phenomenon and the aim of the study is to open the research phenomena deeply and from many different points of view.
3. (Early) results I: Upper secondary school Teachers and principals working with student enterprises in their upper secondary schools felt that students learn (cooperation and working life skills) and finish courses, get to try different jobs and also earn money. Teachers felt that by learning through student enterprises (both co-operatives and JA-companies) schools can make the separation between school life and working life smaller. Learning by doing also developed the students’ creativity and was important counterbalance to theoretical studies. Teachers and principals of upper secondary schools noticed that the new curriculum of upper secondary school in the fall 2016 will demand schools to produce new learning experiences that will encourage students to initiative and entrepreneurial action, to cooperation and responsibility and constructive and information-based criticality. It seems that student co-operatives and JA-companies can help to reach these goals if there has been enough courage to supplement and modify existing operation models of upper secondary school. Still at the same time it is important to hold on to the general education mission and already workable solutions of upper secondary school (more in Hytinkoski & Troberg 2016.) Teachers of upper secondary school believe that guiding a student enterprise requires good planning and especially integration into the local curriculum. There have to be also enough active and interested teachers – a group of 2-3 teachers with a supportive principal and the students´ families could be the optimum based on reviews. Without active teachers there couldn´t be active “best” students. The big question seems to be if we really want to change the everyday culture of upper secondary schools from studying alone to working together. And is there a chance that the learned skills from student co-operatives can also deepen the learning of more theoretical contents?
4. (Early) results II: Universities of applied sciences In the Universities of Applied Sciences teachers interviewed for this study were responsible for business studies, the health sector or entrepreneurial studies in their work organizations.
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Pekka Hytinkoski Studies of entrepreneurship education through student enterprises were realized and carried out mostly as project studies that will compensate for some of the curriculum´s obligatory courses, or as entrepreneurship education entity inside the curriculum or as a separate line of study (1-2 years). Students are encouraged to the direction of independent initiative but at the same time the guidance of the teacher is needed possibly more than normally ever in classrooms. All the solutions mentioned before required clear resources for teachers (time, colleagues, work hours) and special know-how. Many of the people interviewed have studied or worked in Team Academy (Jyväskylä), Proakatemia (Tampere) or had a (continuing education) team master -qualification. The interviewed staff of Universities of Applied Sciences thought that guiding student co-operatives is demanding and time consuming but very rewarding at the same time. Teachers worked in teams or with their own work partner. They also felt that they had the administration´s support. Still the amount of work puzzled them and many of the teachers mentioned that the guidance of students working in student cooperatives needed investment also outside official working hours. Teachers also said that they have a possibility (because of the trust of the administration) to make their own guidelines and solutions with teaching – they have freedom and responsibility. The downside is that some of them felt that when they got tired with student co-operatives they didn´t get enough support even though they were modern and their teaching was in line with the school strategies. The interviewed teachers from Universities of Applied Sciences said that they have also expanded “the limits of their organizations” with their work. Later some of the special projects with entrepreneurship education have become assimilated as a part of the school´s everyday practices.
5. Collected (early) results and conclusion Research is still in progress in vocational schools but early results have already been, as also at other school levels, surprisingly positive – especially now that the Finnish national curricula for different school levels are changing and/or local curricula are enhanced. The study will be developed with more interviews especially in vocational schools. Collected early results so far have shown that the use of team student enterprises, in this study especially student co-operatives, is a suitable model when new active, entrepreneurial, cooperative initiative learning and also task-based experiences are produced for the students of upper secondary schools, universities of applied sciences and also in vocational schools. Still the pedagogic use of student enterprises should have been integrated both in everyday teaching and local curriculums and both supported pedagogically and resourced adequately (see also upcoming Hytinkoski & Troberg 2016). In this study teachers strongly underlined the importance of a student being an active individual and at the same time his/her equal participation in the team work inside the commonly owned enterprise. Teachers and principals already interviewed in this study recognized that active students in student co-operatives can at best learn both working life and entrepreneurial skills and contents that are part of the inclusive education. These early results of this study are in line with Forsström-Tuominen´s study (2015) because it seems that collectivity is important for new and future entrepreneurs and working as a team affects how new business is initiated and managed. Also school organizations seem to have goals that require team work to really create and realize new opportunities. It seems that at best we could overcome many learning and teaching barriers in collectively oriented student enterprises. This is also in line with MacPherson´s (2015) views who argued that co-operatives could have a natural advantage in the creation of a new market by utilizing different values than other actors (disruptive innovations). And if so, why isn’t teaching about co-operatives better established at suitable school levels? Is the problem in a lack of information, in different academic disciplines or in the attitudes of people who have consciously or unconsciously tended to marginalize the possibilities of co-operatives? (MacPherson 2015, 23-24.)
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Pekka Hytinkoski If all co-operatives are autonomous associations of people united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled business (ILO 2002), what are student co-operatives doing? The planning and execution of student enterprises differ significantly from regular class room teaching and place both students and teachers in a new situation (upcoming Hytinkoski & Troberg 2016). With younger students – especially in upper secondary schools and vocational schools – students’ entrepreneurial choices and solutions are solved mostly with teachers but the rate of “autonomy” will raise within the age of the students. Student co-operatives are seen as learning-by-doing vehicles with authentic learning tasks and situations. Students have also reported to learn democratic decision making and friend leadership. But also other views are possible and even needed. Students could have also economic needs and at best student co-operatives could, when there are enough clients and orders, produce extra income for the students (after the co-operative has taken its own share, 5-25%). Still, a student co-operative’s most important service to its owner members, students, is learning.
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Pekka Hytinkoski university world. In Memorian Professor Ian MacPherson. University of Helsinki Ruralia Institute publications 32. Also available (30.6.2016): http://www.helsinki.fi/ruralia/julkaisut/pdf/Publications34.pdf Neck, H.M. & Greene, P.G. (2011). Entrepreneurship Education: Known Worlds and New Frontiers. Journal of Small Business Management, 49 (1), 55-70. Pättiniemi, P. (2006). Social Enterprises as Labour Market Measure. Doctoral Thesis. Kuopion yliopiston julkaisuja E. Yhteiskuntatieteet 130. University of Kuopio. Troberg, E. (2000). The Relevance of Transaction Cost and Agency Theoretical Concepts to the Management of Knowledge Intensive Co-operatives. Publications of the Turku School of Economics and Business Administration. Series A-2:2000. Troberg, E. (2015). Co-operatives – An innovative tool of entrepreneurship education in Finnish Universities of Applied Sciences. In H. Henrÿ, P. Hytinkoski & T. Klén (Eds.) Customizing a patchwork quilt: Consolidating co-operative studies within the university world. In Memorian of Professor Ian MacPherson. University of Helsinki Ruralia Institute Publications 34, 73–77. Also available (30.6.2016): http://www.helsinki.fi/ruralia/julkaisut/pdf/Publications34.pdf Troberg, E. & Hytinkoski, P. (2015). Lukio-osuuskunnat – tie yrittäjämäiseen lukioon (Student co-operatives in Finnish upper secondary schools – way to more entrepreneurial upper secondary schools). Pellervo Society and University of Helsinki. Available in internet (30.6.2016): http://pellervo.fi/wp-content/uploads/2015/12/lukio-osuuskuntaraportti.pdf Tuominen, P. (2012). The purpose of consumer co-operation: implications for the management and governance of cooperatives. Doctoral thesis. Acta Universitatis Lappeenrantaensis 487. Lappeenranta University of Technology, School of Business. Tuominen, T. (2013). The accumulation of financial and social capital as a means to achieve a sustained competitive advantage for consumer co-operatives. Acta Universitatis Lappeenrantaensis 548. Lappeenranta University of Technology, School of Business. Vicari, S. & De Muro, P. 2012. The Co-operative as institution for human development. Working Paper n. 156, 2012. Universitá dgeli Studi Roma Tre, Diparmento di Economia.
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Towards Entrepreneurial Motivation: The Self-Determination Theory Approach David Iremadze Faculty of Management, Vancouver Island University, Canada
[email protected]
Abstract: Entrepreneurship as primarily driven by human agency. Hence, human motivation plays an important role in who becomes an entrepreneur even at the early stage of business gestation. The paper proposes a process theory grounded in theoretical frameworks of the human Self-Determination Theory (SDT) and the Ajzen theory of planned behaviour – a model of how an individual’s entrepreneurial intent is shaped by their exposure to parental entrepreneurial activity fully mediated through development of the internally regulated types of motivations as indicative of their autonomous causality orientation. The model is then validated through multiple regression correlational analysis as well as individual path analysis via a series of hierarchical multiple regressions. Keywords: entrepreneurial motivation, aspiring entrepreneur, family socialization, self-determination theory, intrinsic motivation
1. Introduction Entrepreneurs are often seen as instrumental to economic progress because they create jobs, value, innovation and healthy competition. Therefore, a better understanding of entrepreneurs and entrepreneurship has become of utmost importance. Knowledge creation in the field of entrepreneurship has developed in several important directions. Three of the most prominent research streams are: (a) studies focusing on the process of new venture creation; (b) studies focusing on the nature of valuable entrepreneurial opportunities, and (c) studies focusing on an individual entrepreneur. Much of the entrepreneurship literature from across all three streams easily lends itself to the prism of the basic “person-situation” debate prevalent in the field of social psychology. In essence, as Gartner (1989) pointed out some 25 years ago, the core questions asked by researchers attempting to understand the nature of entrepreneurial behavior are (a) why are some individuals entrepreneurial while others are not? And, (b) do characteristics of the person or characteristics of the situation determine that person’s entrepreneurial behavior? In this paper I focus on the individual active agent as a potential entrepreneur. Because I conceptualize entrepreneurship as primarily driven by human agency, I argue that human motivation plays an important role in who becomes an entrepreneur (Shane, Locke, & Collins, 2003) even at the early stage of business gestation. While there has been significant research on entrepreneurial motivation, only a small number of published works have focused on pre-entrepreneurial behavioral intention to become an entrepreneur (i.e. entrepreneurial intent). Even fewer studies examine entrepreneurial intent while grounded in a major theory from the field of psychology. This paper is in line with the repeated calls to develop process-oriented models of entrepreneurial motivation grounded in well-established theories of organizational psychology (Bird & Jelinek, 1988; Jelinek & Litterer, 1994; MacMillan & Kart, 1992; Segal, Borgia, & Schoenfeld, 2005). Process theories explain how behavior is initiated, directed, sustained and/or stopped. I put forward an explanation of the process as to how an individual becomes an aspiring entrepreneur, that is to say, how they acquire entrepreneurial intent. The work is grounded in the well-established theoretical frameworks of the human Self-determination theory (SDT) (Deci & Ryan, 1985) and the Ajzen theory of planned behavior (Ajzen, 1991). While grounded in these theories, it contributes to filling the research gap by examining a process of acquiring entrepreneurial intent via development of the internally regulated types of domain-level motivation. I propose a process theory - model of how an individual’s entrepreneurial intent is shaped by their exposure to parental entrepreneurial activity fully mediated through development of the internally regulated types of motivations as indicative of their autonomous causality orientation. The model is then validated through multiple regression correlational analysis as well as individual path analysis via a series of hierarchical multiple regressions.
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2. The concept of entrepreneurial intent and the business gestation process There is no common agreement who an entrepreneur is and how an entrepreneur ought to be defined. For instance, some definitions do not include a self-employment component, focusing rather on the type of activities (i.e. innovation, risk-taking, opportunity-recognition, etc) that may define such a person. Generally speaking, not all entrepreneurs need to be self-employed. However, many scholars regard self-employed entrepreneurs as the driving forces of innovation and economic progress, superior to different types of entrepreneurs. As Berthold and Neumann (2008, p.238) note, “Self-employed entrepreneurs have a better ability and more incentives [than manager ‘intrapreneurs.’ DI] to use knowledge and transform it into products desired by consumers. Thus, …selfemployment is crucial for more innovation and higher growth rates.” Therefore, for the purposes of this study, I focus on a self-employed entrepreneur, someone who establishes, owns and operates a new venture. The business gestation, or pre-start-up process that such entrepreneurs pass through is conceptualized by the researchers to consist of three distinct milestones: (a) aspiring milestone; (2) preparing milestone; and (3) the entering milestone (Katz, 1990; Learned, 1992; Rotefoss & Kolvereid, 2005). An individual that reaches these milestones is respectively labeled first an aspiring entrepreneur, then a nascent entrepreneur and finally, a fledgling entrepreneur (Rotefoss & Kolvereid, 2005). An “aspiring entrepreneur” is someone who has an intention to pursue an entrepreneurial career (Rotefoss & Kolvereid, 2005). Understanding what goes into the making of aspiring entrepreneurs is important. While many such entrepreneurs never follow through on their plans and drop out at this very first stage of business gestation, becoming an “aspiring entrepreneur” is still an important phenomenon within the entrepreneurship field. As Shane and colleagues (2003, p.257) put it, “success [in new venture creation. DI] depends on people’s willingness to become entrepreneurs.” It is selfevident that when fewer people enter into the pool of aspiring entrepreneurs, there is a lower probability and/or frequency of new start-ups being created. While Ajzen’s theory of planned behaviour has long recognized that behavioral intentions are not completely unproblematic, in general, such intentions have been proven to be fairly good predictors of action. Specifically, entrepreneurial intentions have been proven to be critical precursors to, and highly dependable predictors of, new venture creation (Ajzen, 1991; Bird, 1988; Kolvereid, 1996). Hence, my interest in the phenomenon of – “Entrepreneurial Intent” (EI), and the general domain of research that this research interest of mine belongs to - under what conditions and how does one become motivated to be an “aspiring entrepreneur.” Studies on the nature of entrepreneurial behavioral intentions are rare. Most researchers interested in the motives for entrepreneurial actions focus almost exclusively on what Deci and Ryan (2000, p.228) describe as “the process of goal selection and pursuit rather than the content of the goals being selected and pursued.” These studies generally consider the attractiveness of psychological value or the valence of entrepreneurial outcomes - wealth, security, independence, flexible lifestyle, status, work-life balance, reputation and recognition, creating something of value, etc. (Vijaya & Kamalanabhan, 1998, Robichaud, McGraw, & Roger, 2001, or Khanka, 2009). Such studies approach entrepreneurial motivation in a fundamentally wrong way. Then, other studies occasionally end up miss-conceptualizing “the attractiveness of the possible [extrinsic and intrinsic] rewards of entrepreneurship” (Brice & Nelson, 2008) as a proxy measurement of “entrepreneurial intent.” When doing so, I believe, they only identify the content (or so called “what”) of motivation and not entrepreneurial behavioral intentions. Yet, motivation and intent are not the same and cannot be measured by the same instruments. Specifically, for the purposes of this paper, entrepreneurial intent shall refer to an individual’s conscious decision/conviction that someday, in the foreseeable future, they will become a self-employed entrepreneur. Such an individual identifies themselves with “aspirational self-image” (Farmer, Yao, & KungMcintyre, 2011) as a future self-employed entrepreneur and has reached the milestone of being an “aspiring entrepreneur”.
3. Human self-determination theory, the “why of behaviour,” and entrepreneurial motivation SDT posits that the desire to actualize one’s potential is embedded in every individual at birth. So long as individuals are able to build sufficient inner resources and become autonomously regulated, they will function optimally, always optimally stimulated/motivated to act as active agents rather than passive entities (Van den Broeck, Vansteenkiste, & De Witte, 2008). The theory posits that what underlies the motivation to be an active agent are the so-called “Why’s of Behavior” (Deci & Ryan, 2000), which consists of the following: (a) the degree to which individuals are able to satisfy the three innate psychological needs (for autonomy, competence and
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David Iremadze relatedness) as they engage in a behavior, and (b) the type of self-regulation that underlie their motivation to engage in such a behavior (either autonomous or control self-regulation). Pursuant to SDT, entrepreneurial motivation can be conceptualized as either autonomously (internally) or control (externally) regulated. As well, control (externally) regulated entrepreneurial motivation will produce different psychological effects depending on the degree of internalization of the external regulatory elements. “Internalization” refers to the process by which individuals accept and endorse some external regulation of behavior and is linked to mental wellbeing, including feelings of satisfaction and levels of engagement (Deci & Ryan, 1990). Deci and Ryan (1990) explain: “…A person who is fully socialized with respect to a behaviour would perform it voluntarily, independent of the original prompt. This requires internalizations:, …as one more fully internalizes and accepts the regulation of behaviour, one will experience a greater sense of willingness and selfinitiation.” For instance, Block and Koellinger (2009) find that nascent entrepreneurs in their study associated their selfemployment satisfaction simultaneously with both sorts of motivation: financial success, as well as the procedural utility they realized through the achievement of independence, creativity, etc. However, they report that “…the circumstances leading to a decision [to become an entrepreneur – DI] influence the utility that an individual extracts from the results of that decision. …necessity entrepreneurs and individuals starting a business out of long-term unemployment are significantly less satisfied with their start-up” (Block & Koellinger, 2009, p.205). In this case SDT would suggest that one moderating factor was likely the degree to which entrepreneurs internalized external regulatory elements that prompted them to become self-employed entrepreneurs. In the study, those who were fully socialized with respect to pursuing self-employed entrepreneur careers would have reported higher levels of satisfaction. In contrast, because necessity entrepreneurs by definition see themselves as self-employed entrepreneurs only because of external factor such as lack of gainful employment opportunities, they would have reported lower levels of start-up satisfaction. It is no surprise, then, that in the above example of the study of entrepreneurs, the “what of behavior”, i.e. the valence of outcomes of entrepreneurial goal pursuits (such as financial wellbeing/money, or even level of creativity achieved) were, on average, equally valued by the necessity and opportunity entrepreneurs, whereas reported levels of satisfaction from their start-ups were significantly different between the two types of entrepreneurs. The necessity entrepreneurs simply had not internalized external regulation – i.e. the reasons starting their business, acting exclusively with extrinsic motivation and consequently suffering from a lack of mental wellbeing and, thus reporting lower levels of satisfaction. This assertion is supported by SDT that states that, if internalized, extrinsic motivation becomes an autonomous types of motivation or “self-determined extrinsic motivation” (Deci & Ryan, 1990). Self-determined extrinsic motivation, much like “ideal” intrinsic motivation, produces an action that “…is ‘authentic’ in the full sense of emanating from the ‘author’ [of the action, i.e.] of displaying full self-endorsement” (Deci & Ryan, 1990). Motivation to become an entrepreneur has not sufficiently been examined in terms of the “why” of entrepreneurial behavior or individuals’ innate reasons (i.e. in terms of “causality orientation” as per SDT) for pursuing these entrepreneurial goals. Therefore, taking the “why of behavior” perspective, the research question for this inquiry is as follows: why (and how) does an individual develop their autonomous causality orientation and how, then, does such a causality orientation affect their motivation to become an entrepreneur in the foreseeable future (that is, their identification with self-conception as an aspiring entrepreneur)?
4. Family background and exposure to parental entrepreneurial experience. The starting point for my theorizing was the central meta-theoretical assumption of SDT, which states that in order for an individual’s growth-oriented nature to develop, two things must take place: (a)an individual must build sufficient inner resources, and (b) the social context must not deny or frustrate such inherent growth tendencies (Van den Broeck et al., 2008). Essentially, the three central assumptions of the SDT are that humans are active organisms; that their social context influences them; and that the self has from birth innate needs for autonomy, competence, and relatedness (Deci & Ryan, 1990). As my goal was to come up with a process theory that would explain the formation of autonomously regulated motivation to become an entrepreneur, I focus on the social context, specifically, family background. This is, arguably, the most important element of a formative social context for an individual which either supports and nurtures, or denies and frustrates, his or her autonomous causality orientation.
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David Iremadze The primary importance I place on the family background as a formative social context is supported by family socialization literature. For instance, one line of research has long established that the likelihood of becoming a union leader is much higher among those who come from union families (Barling, 1990; Barling, Kelloway, & Bremermann, 1991; Kelloway & Watts, 1994). Elsewhere, in the developmental psychology literature, parents are presented as “identity agents” who actively interact with their offspring and “…reflectively mediate larger social influences on [children’s] identity formation” (Schachter & Ventura, 2008, p.449). Entrepreneurship literature has also long linked the entrepreneurial family background to the higher likelihood of becoming an entrepreneur. Almost half of all entrepreneurs (45.5%) that start up a venture are exposed to parental entrepreneurial activities while growing up (Wadhwa, Aggarwal, Holly, & Salkever, 2009). Another example is the research where Hundley (2006) studied specifically self-employed entrepreneurs and found that the “…greater self-employment propensity of those with self-employed father is due to characteristics developed through exposure to the father’s self-employment. [However] The nature of these characteristics remain in question” (Hundley, 2006, p. 389). As seen from the latter study cited above, researchers struggle to understand the profound effects that family entrepreneurial background has on the likelihood of people becoming self-employed entrepreneurs. The answer to this riddle, I posit, is the autonomous causality orientation that parent-entrepreneurs nurture by example in their offspring who fully internalize self-employment entrepreneurship as their authentic and internally regulated choice of occupation. This effect, then, is expressed in children forming intrinsic and self-regulated extrinsic types of motivations to become entrepreneurs in the foreseeable future. This in turn translates into more concrete, immediate, and resolute entrepreneurial intentions. Hence, our proposed model of the process by which people develop into aspiring entrepreneurs is presented below in Figure 1.
Figure 1: Process model how people develop into aspiring entrepreneurs As seen in the Figure 1, the process can be expressed in the following hypothesis: H1: There is a direct positive association between the Exposure to Parental Entrepreneurial Activity (X1), and the Perceived Parental Autonomously Regulated Motivation (X2); H2: There is a direct positive association between the Exposure to Parental Entrepreneurial Activity (X1), and the Perceived Parental Autonomously Regulated Motivation (X2), on one hand, and the Perceived Parental Beliefs about Entrepreneurship (X3), on the other; H3: There is a direct positive association between the Perceived Parental Autonomously Regulated Motivation (X2); and the Perceived Parental Beliefs about Entrepreneurship (X3), on one hand, and the Students’ Beliefs About Entrepreneurship (X4), on the other; H4: There is a direct positive association between the Perceived Parental Autonomously Regulated Motivation (X2); and the Perceived Parental Beliefs about Entrepreneurship (X3), on one hand, and Perceived Parental Desire for Child to Become an Entrepreneur (X5), on the other; H5: There is a direct positive association between the Perceived Parental Autonomously Regulated Motivation (X2); and Perceived Parental Desire for Child to Become Entrepreneur (X5), on one hand, and the Students’ Autonomously Regulated Motivation to Become Entrepreneurs (X6), on the other;
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David Iremadze H6: There is a direct positive association between the Students’ Beliefs About Entrepreneurship (X4); Perceived Parental Desire for Child to Become Entrepreneur (X5); and the Students’ Autonomously Regulated Motivation to Become Entrepreneurs (X6), on one hand, and Students’ Entrepreneurial Intent (Y), on the other.
5. Method Subjects. University undergraduate students were invited to complete an online questionnaire that was made available through the SONA research portal at St. Mary’s University (Halifax, NS). A sample of 186 students was generated by this invitation. However, only 171 valid questionnaires were usable. Out of 171 remaining subjects in the study, 124 were females (73%) and 43 (25%) were males. Four (2%) did not report their gender. Half of the participants – 85 (50%) out of 171 – were 19 to 21 year olds, 45 (26%) were 22 to 25 year olds, 30 (18%) were 16 to 18 year olds and 10 (6%) were 26 to 28 year olds. Only 32 (19%) of those in the sample reported business as their declared major, 100 (59%) reported that they were pursuing non-business majors, while 39 (23%) had not yet declared their major. Over two-thirds of the valid sample (71%) had never taken any course related to entrepreneurship and/or small business management and only seven (4%) reported being member of SIFE/Enactus club (local chapter of a worldwide entrepreneurship student organization). Measures. I used seven observed variables in our model: the first one was exogenous and the rest, endogenous: (1)“Exposure to Parental Entrepreneurial Activity(X1)”(EPEA); (2)“Perceived Parental Autonomously Regulated Motivation(X2)” (PPARM);(3) “Perceived Parental Beliefs about Entrepreneurship(X3)” (PPB); (4)“Students’ Beliefs about Entrepreneurship(X4)” (SBE); (5)“Perceived Parental Desire for Student to Become an Entrepreneur(X5)” (PPD); (6)“Students’ Autonomously Regulated Motivation to Become an Entrepreneur(X6)” (SARM); (7)“Students’ Entrepreneurial Intent(Y)” (SEI). All constructs were measured using scales consistent with the 7-point Likert system. Multi-item scales (all, except the construct numbers 1 and 5, which were single item scales) were transformed into summated scale variables. The single-item, as well as summated scales were then standardized into Z-scores with the mean of zero and a standard deviation of one. This remedied the issue of scale differences across constructs. Each of the variables is discussed below. “Student Entrepreneurial Intent(Y)” (SEI). To measure SEI I chose to use a slightly modified version of the previously validated “entrepreneurial decision/intention scale” (Chen, Greene, & Crick, 1998; Segal et al., 2005) that had a higher reported Cronbach’s alpha (0.90) than the only other validated “entrepreneurial intent” (Luthje & Franke, 2003) scale (0.86) that I was able to research. In its original form, Chen et al (1998) developed a scale with the following 5 items measured on a 5-point Likert scale: (1) How interested are you in becoming an entrepreneur? (2) How much have you considered becoming an entrepreneur? (3) How much have you already prepared to become an entrepreneur? (4) How likely are you to work very hard at becoming an entrepreneur? (5) How soon are you going to become an entrepreneur? When designing my questionnaire I used a sixth item – “How likely are you to become an entrepreneur?” suggested in Segal (2005). The Cronbach’s alpha for the scale did improve, albeit marginally, when this additional six item was included in the scale. Also, I added the phrase “self-employed” in front of “entrepreneur” in line with our definition of entrepreneurship, and labeled the variable as “Y.” “Exposure to Parental Entrepreneurial Activity(X1)”(EPEA). EPEA was measured with a single item scale question – “Since you turned five years old, how many years has your father and/or mother been a self-employed entrepreneur?” and labeled the variable as ZX1. “Perceived Parental Beliefs about Entrepreneurship(X3)” (PPB) and “Students’ Beliefs about Entrepreneurship(X4)” (SBE). In order to measure PPB/SBE, I adapted and combined the previously validated scales of the union attitudes (Barling et al., 1991; Brett, 1980) and the entrepreneurial value perceptions (Linan, 2008) into the 8-item scale. Four of the items probed positive beliefs and four of them, negative beliefs. The scales for the negative items were reversed to make them consistent with the positive items.
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David Iremadze Table 1 below shows inter-item correlations for all eight items in the scale. It is easy to assess that only the first three items are highly inter-correlated with each other and that the last five items seem not to be consistent with them. This was confirmed by the Cronbach’s alpha that went up from .684 to .790 for the Perceived Beliefs and from .651 to .741 for the Students’ Beliefs when these five items were deleted from the scales. Consequently, only the first three items were retained in the scale, summated and standardized into ZX3 and ZX4 variables for PPB and SBE, respectively. Table 1: Correlation matrix
“Perceived Parental Autonomously Regulated Motivation(X2)” (PPARM) and “Students’ Autonomously Regulated Motivation to Become an Entrepreneur(X6)” (SARM). In order to measure PPARM and SARM, I turned to the previously validated “Motivation at Work Scale (MAWS)” (Gagne et al, 2010). In a complete form, MAWS consists of four subscales with a total of 12 items that measure four different types of motivation – intrinsic, identified, introjected and external. Integrated is omitted as it is difficult to psychometrically distinguish it from the intrinsic kind (Gagne et al, 2010). This instrument is very flexible, and, as its authors suggest, can be used in its entirety, on a subscale-by-subscale basis, or by aggregating together just autonomous (intrinsic and identified) motivation subscales or just controlled (introjected and external) motivation subscales (Gagne et al, 2010). Since I am interested to examine autonomous motivation, I used just the two autonomous motivation subscales with slight changing in wording using “self-employment” instead of “job”. When tested for reliability, both scales had very high Cronbach’s alpha, 0.956 and 0.953 for PPARM and SARM, respectively. The scales were then summated and standardized to yield ZX2 and ZX5 variables that respectively measure perceived magnitude of parental autonomously regulated motivation to be self-employed entrepreneur (PPARM) and of students’ autonomously regulated motivation to become self-employed entrepreneur (SARM). “Perceived Parental Desire for Student to Become an Entrepreneur(X5)” (PPD). A single item scale was used to measure PPD. The item was formulated as follows: “I believe, my parents would like me to be self-employed entrepreneur” and resulting variable labeled as ZX5. Control variables. The following control variables were also used in the analysis: Gender (labled as “Cx1d”); Age (Cx2d); Year in university (Cx3d); Major (Cx4d); Membership in Enactus (Cx5d); and, Number of entrepreneurship and small business management courses (Cx6d).
6. Data analysis First, I also looked at bivariate intercorrelations between the variables. Table 2 below presents intercorrelations between the variables. All variable were found to be significantly (all at the level of p
