Challenges and opportunities of innovation and incubators as a tool for knowledge-based economy

Abstract

Objectives

The purpose of this research is to analyze and identify the challenges and opportunities of innovation and incubators programs and their potential use worldwide.

Prior work

Discussed innovation and incubators as a powerful tool for knowledge-based economy from different perspectives using different criteria to measure the key performance indicators of best practices for innovation in the United States (US), United Kingdom (UK), and Gulf Cooperation Council States (GCC). The results are part of the ongoing research project funded by a grant from the Kuwait Foundation for Advancement of Sciences (KFAS-2012-1103-01).

Approach

The methodology is based on quantitative approach (survey questionnaire) and literature review.

Results

This paper provides several recommendations for the international implementation of innovation and incubators outcomes.

Implications

This paper provides value-added knowledge for both academics and practitioners who are interested in the successful adaptation of innovation and incubators.

Value

The authors believe that this paper demonstrates an added value to the current literature on innovation and incubators and fills the gap in the case studies in the literature of developed and developing countries and presents a more comprehensive analysis of progress and challenges to knowledge-based economies.

Background

Most popular international organizations include United States (US) National Business Incubator Association (NBIA, 2007), United Kingdom UK Business Incubation (UKBI, 2007), InfoDev–an arm of the World Bank Group (InfoDev, 2009), Organisation for Economic Cooperation and Development (OECD, 1997), The European Business and Innovation Network, and European Commission (EC 2002) focused on the execution of incubation and innovation programs to strengthen the successful growth of economic and social development.

Several research studies on incubators have been defined. The Business and Innovation Center is a physical place aimed at economic development through supporting start-up companies and their business development as well as existing small and medium companies (InfoDev, 2009). There are other definitions for business incubation as effective talent links, technology transfer organizations, capital movement systems, and technical know-how groups for leveraging entrepreneurial talent and accelerating the development of new companies (Kuratko & LaFollette 1987). Hackett and Dilts (2004a, 2004b) define business incubation as shared services such as office-space facility that seeks to provide its incubatees with a strategic, value-adding intervention system of monitoring and business assistance.

Further, the authors defined several key words such as: innovation is the process of making change, difference, and novelty in the products, services, add value, and business practices to create economic and social benefit (EC, 2010). The OECD (2010) defines innovation as the implementation of a new or significantly improved product, service, process, a new marketing method, or a new organizational method in business practices, workplace organization, or external relations. Technology transfer can be defined as the development of technologies through research programs of universities including research tools and formal licensing of inventions and software (Hardy, 2010). A developed country can be defined as a highly developed economy, high industrial base with advanced technological infrastructure, and a high Human Development Index (O’Sullivan et al., 2003).

The knowledge based on an economy defined by Campbell and Carayannis (2014) is a process of economic learning to catalyze and accelerate the sustainability of economic growth.

The objective of this research is to analyze and identify the challenges and opportunities of innovation and incubator programs and their potential use worldwide. The remainder of the paper is as follows: “Literature review” provides a thorough review of the literature; in “Research methodology,” the authors briefly discuss the research methodology used to facilitate the objectives; “Results” shows the findings of an international survey conducted by the authors; and “Conclusion” is the conclusion of the study.

Literature review

Many scholars discussed the importance of the incubator process (Al-Mubaraki, 2008; Bearse 1998a; Culp, 1996; Kuratko & LaFollette 1987; Lumpkin & Ireland, 1988; Merrifield, 1987). Also, Wagner (2006) confirmed the positive impact of business incubators on job creation. In addition, McAdam and McAdam (2008) indicated the most important element of incubators in the early stages is tangible incubator services and networking. Another study (Mian, 1996b) demonstrates the added value of incubator services including tangible services such as shared offices, assistance grants, marketing, accounting, university labs, and infrastructure.

Further, Smilor (1987), Campbell et al. (1985), and Merrifield (1987) indicated that several success factors from different perspectives such as: Community: entrepreneurial community support, networking, education, and linkage with university; Incubator: success indicators, finance, follow-up for incubatees, managerial support, clear policies of entry/exit; Incubatee: business awareness and success rate. Moreover, according to Cooper and Park (2008), incubators can be provided innovation through: (1) shaping entrepreneurs’ market experience; (2) generating social capital; (3) providing information on the existence; and (4) availability of technological solutions.

Al-Mubaraki et al. (2014) identified the strength of incubators in developed and developing countries: (1) incubator dependence on the government as main sponsors to meet self-sustainability goals; (2) most incubators supporting the entrepreneur successfully through providing a wide range of services, focusing on intangible and intangible services; (3) developed countries indicated a high influence level of cultural indicators such as innovation, creativity, entrepreneurship digital growth, skills, and world-class education. However, in developing countries most cultural indicators were modest to low level. (4) In developing countries, the policy implication act strongly forms different perspectives such as government and university role in incubator management and funding; however, developing countries indicated a medium level of policy implication.

Al-Mubaraki et al. (2015a) concluded their study that successful implementation of the incubators and innovation programs can be expected to result in: (1) enhanced economic development through job creation; (2) a stronger entrepreneurship climate; (3) technology commercialization and transfer for graduated companies; (4) sustainability of graduated companies in the market with high rate of survival; (5) innovation acceleration with smart product and services; and (6) diversification of the economy from companies’ outcomes such as innovation and technology.

Al-Mubaraki and Schrödl (2011) indicated a model for measuring the effectiveness of business incubation. This developed model supports the work of incubator managers, policy makers, researchers, practitioners, stakeholders, and government parties for the effective execution of business incubation enterprises. This model included four dimensions: (1) the number of businesses graduated over a period of time; (2) the number of businesses still in business over a period of time; (3) jobs created by incubator clients; and (4) salaries paid by incubator clients. In another study, Al-Mubaraki et al. (2012) concluded that the financial indicators are highest priority in ranking the incubators worldwide which reflect positive impact on the economic development in job creation.

Al-Mubaraki and Busler (2013) indicated that successful adaptation of innovation programs leads to: (1) a high rate of networking and outcomes; (2) high potential financing and strategic planning; (3) fostering entrepreneurship and innovation, research commercialization, and supporting technological entrepreneurship; (4) high number of jobs created; and (5) successful start-up companies with high survival rates. Al-Mubaraki and Busler (2010a, 2010b, 2010c) presented incubator guidelines such as incubators acting as sustainable dynamic models, fostering, supporting enterprise and innovation, and generating jobs. Al-Mubaraki, Muhammad, and Busler (2015b) recommended that innovation programs strengthen tools for the modern economy based on the knowledge towards smart growth. Al-Mubaraki and Busler (2014) concluded a study that incubators can be contributed to the international economy and could be played a vital role but also in smart and economic growth.

Some researchers have argued that incubator objectives can be summarized as follows: (1) economic growth; (2) commercialize technology and transfer; (3) fostering entrepreneurship climate; and (4) job creation (Abetti, 2004; Adegbite, 2001; Akçomak & Taymaz, 2007; Allen and McCluskey, 1990; Allen & Rahman, 1985; Al-Mubaraki, 2008; Al-Mubaraki and Busler, 2010a, 2010b, 2010c, 2011a, 2011b, 2011c, 2011d; Frenkel, Shefer, & Miller, 2008; Hannon, 2005; Hansen, Chesbrough, Norhoa, & Sull, 2000; Hughes et al. 2007; Lalkaka, 2002; McAdam & McAdam, 2008; McAdam, Galbraith, McAdam, & Humphreys, 2006; Mian, 1994a, 1994b, 1996a, 1996b, 1997; Phillips, 2002; Rothaermel & Thursby, 2005a, 2005b; Smilor & Gill, 1986; Sweeney, 1987; Thierstein & Wilhelm, 2001).

Many international organizations serving business incubators in the United States, such as the National Business Incubation Association (NBIA, 2012), demonstrated the highest percentage of incubator characteristics such as: (1) incubator type indicated (54%) as mixed-use type; (2) incubator goal includes job creation and fostering entrepreneurial climate; and (3) incubator services such as (i) help with business basics, (ii) high-speed Internet access, (iii) marketing assistance, and (iv) networking activities. Hughes et al. (2007) demonstrate that the successful firms’ based on the strategic networking do not depend on the incubator tenancy period.

Lastly, Al-Mubaraki, Ahmed, and Al-Ajmei (2014) summarized the key findings of incubators in developed and developing countries. See Table 1.

Table 1 Incubators: evidence from the literature

Research methodology

The research methodology that has been used in this research study is a quantitative approach, such as international survey. The survey questionnaire is an appropriate tool for collecting quantitative data (Bryman, 2007). The authors in-depth experiences will be added value when selecting appropriate methods for data collection, data gathering, and data analysis. Furthermore, there are several reasons to use the quantitative approach, such as survey method: (1) when the information sought is reasonably specific and familiar to the respondents; and (2) when the researcher has knowledge of particular problems and the range of responses likely to emerge (Bryman, 2007). In addition, the survey consists of ten questions; each question was developed through refining the relevant questions to reach the study objectives. Furthermore, on SurveyMonkey, an online survey website, Internet-based surveys of business incubators and innovation programs were conducted with members of the National Business Incubation Association (NBIA), United Kingdom Business Incubation (UKBI), and United Kingdom Science Park Association (UKSPA). Moreover, the survey questionnaire will provide quantifiable information about three dimensions of incubators including incubators characteristics, incubators outcomes, and finical aspects. Figure 1 presents the research design.

Fig. 1

The process of developing a research methodology

There was a convenient sample of survey invitations: 200 selected programs as successful programs worldwide were emailed to NBIA, UKBI, and UKSPA members through the SurveyMonkey website; 107 were returned as undeliverable, leaving a sample frame of 93. The total number of survey responses was 93, representing a response rate (RR) of approximately 47%. The Statistical Package for the Social Sciences (SPSS) was used for statistical analysis and each question was used descriptive analysis.

Results and discussion

Survey results

First dimension: incubator characteristics

Table 2 shows the highest percentage of incubator characteristic includes: (1) incubator services; (2) goals; and (3) type. The overview of the responses of 93 innovation centers and incubators in the survey sample. In addition, more than half (67.0%) presented incubator goals of fostering an entrepreneurial climate. Furthermore, the highest services offered by incubators focused on strong tangible and specialized services (67.0%). Finally, the majority (60.7%) of incubators type focused on technology incubators.

Table 2 Highest response

Table 3 shows the lowest percentage of incubator characteristics includes: (1) incubator services; (2) goals, and (3) type. First, less than half (40.4%) presented an incubator goal of diversification of local economy. Second, the lowest services offered by incubators focused on intangible services (5.7%). Third, the manufacturing incubators type was the lowest (6.7%).

Table 3 Lowest response

Second dimension: incubators outcomes

Table 4 demonstrates highest incubators outcomes include: (1) number of jobs created; (2) number of graduate companies; (3) number of tenants; and (4) survival rate. First, most incubators created more than 50 jobs per incubator program (63.2%). Second, less than half (36.0%) had graduated in the range of 6–25 companies. Third, the highest of the programs reported that the number of tenants inside the incubation program was in the range of 6–25 (48.3%). Fourth, less than half (47.7%) indicated that the survival rate for the companies was in the range of 81–90%.

Table 4 Highest response

Table 5 shows lowest incubator outcomes include: (1) number of jobs created; (2) number of graduate companies; (3) number of tenants; and (4) survival rate. First, the lowest incubation programs created less than five jobs per year (9%). Second, less than half (30.2%) had graduated in the range of 1–5 companies per year. Third, lowest of the programs reported that the number of tenants inside the incubation program was in the range of 1–5 (16.1%). Fourth, the survival rate for the companies indicated less than 80% per year (26.1%).

Table 5 Lowest response

Third dimension: financial

Table 6 shows the overview of highest incubators financial data includes: (1) annual turnover growth; (2) incubator income; and (3) growth of revenue. First, the majority (54.4%) of annual turnover growth for most programs indicated less than $999,000. Second, more than half (50.6%) of revenue presented less than $999,000. Third most of the program income was indicated as low income (44.2%).

Table 6 Highest response

Table 7 shows the overview of lowest incubators finical data includes: (1) annual turnover growth; (2) incubator income; and (3) growth of revenue. First, the lowest (9.1%) of annual turnover growth for most programs responded in the range of $5–10 million. Second, less than one-quarter (20.9%) of revenue presented as high. Third, lowest response of the program was indicated as high income (5.9%).

Table 7 Lowest response

Table 8 shows the ranking dimensions of incubators include three dimensions, with incubator goals such as entrepreneurial climate indicating the highest ranking followed by second rank of incubator services including strong tangible and specialized services. This was followed by the third rank as number of jobs created was over 50 jobs per year. In addition, the fourth rank was technology incubator types and the fifth rank was annual turnover growth less than $1 million dollars. The sixth rank was growth of revenue less than $1 million dollars and the seventh rank indicated the number of tenants inside the incubator as less than 25 companies per year. Furthermore, the eighth rank was survival rate < 90%, the ninth rank was incubator income, and the last rank was number of graduate companies from incubators at less than 25 companies per year.

Table 8 Ranking dimensions

The evidence from another study (NBIA, 2007) indicated that the vital goals of incubation programs are job creation, engaging the entrepreneurial climate, diversifying local economies, and accelerating growth in a local industry. In their study, Thierstein and Wilhelm (2001) stated that the main goal of incubators is economic development. The National Business Incubation Association (NBIA, 2009) demonstrated that the most popular incubator type was technology incubators, targeted by entrepreneurs, which included several tangible services: (1) physical infrastructure; (2) management support; (3) technical support; (4) access to finance; (5) legal services; and 6) networking. The most important element of incubators in the early stages is tangible incubator services, such as networking and clustering, which are the most important factors behind firm success (McAdam & McAdam, 2008).

Furthermore, the study by Abetti (2004) indicated that survival rates of around 95% inside the incubators reflect the importance of firms in joining the program of incubations. The study shows that the cost per job is €6450, with average sales growth rising by 160% per year during and after incubation. Another study by Wynarczyk and Raine (2005) indicated that incubators play an active role in nurturing businesses, creating jobs, and increasing survival rates during the early stages of the start-up companies. Another study by Peters et al. (2004) showed that the rates of the graduation of companies are higher in incubators through offering coaching, and that the number of graduation companies in the non-profit incubator type will be higher than in for-profit incubators.

Conclusion

Incubators and innovation programs have become an important topic worldwide and have contributed positively to economic growth. This paper is based on quantitative methods such as international survey, which provided a deeper insight and understanding into the phenomenon under investigation. The selection of programs was made from successful incubators and innovation centers worldwide.

In addition, the descriptive analysis of the survey results in a convenient sample of 93 incubators and innovation programs worldwide with a response rate of about 47%, which leads to the adaptation of incubators and innovation programs worldwide.

The study indicated two challenges: (1) incubator models indicated as high technology incubator types contributed positively to the extension of technology sectors in each country with new product and new services; and (2) fostering and supporting enterprise and innovation to create the best environment for growth of businesses to start-up and accelerate smart growth.

However, the two opportunities could indicate that: (1) the sustainability of incubation and innovation programs is based on the high survival rate (81–90%) of small- or medium-sized firm per fiscal year; and (2) the sustainability of incubation and innovation programs is based on the high jobs creation over 50 jobs per year and high number of graduate and client companies of around 25 companies per year.

In conclusion, the successful adaptation of the incubators and innovation programs leads to high outcomes when reaching a higher stage of economic growth based on the development of the number of graduate companies, client companies with high survival rates, and high added value for innovative products and services, as well as fostering an entrepreneurship environment, and commercializing technology transfer. This evidence comes from worldwide successful implementations in developed and developing countries.

Methods

To determine the challenges and opportunities, an international survey was completed. This is an appropriate tool for collecting quantitative data that can be summarized and analyzed to reach valid conclusions. This method is generally utilized to gather specific information is familiar to the respondents. The questions found the survey on were developed through refining the relevant questions.