Monthly Archives: April 2007

The Incubator as a Strategy Component

Key Point: The incubator must be a component of a local economic development strategy.

A number of researchers have confirmed the positive impact of business incubators in increasing a new enterprise’s chances of survival. Additionally, incubators have been found to be more cost-effective than programs that attempt to attract existing firms to a region (Markley and McNamara 1995). However, a common caveat among these findings is that a business incubator should not be seen as an independent solution. Scott-Kemmis et al. (2004) state that “the level of impact [of an incubator] will be dependent on…its ‘fit’ with the region” while Hackett and Dilts (2004b) state that in order for an incubator to be effective, there has to be something that it can effectively incubate given its capabilities and the needs of the community to which it belongs. As an analogy, the incubator may be viewed as a bridge that connects two geographically separate points. One point represents the inputs to the incubation process (i.e. candidate firm) while the other represents the incubatee’s target market. If any of these points are missing, then the bridge (incubator) will be ineffective.

For a backgrounder on the incubator-incubation concept, see my earlier post.

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Dispelling the ‘Theory vs. Practical Experience’ Debate

It’s unfortunate how the word ‘theory’ has been misused in everyday speech such that it has lost its original meaning. These days ‘theory’ is considered synonymous to ‘impractical’, ‘unrealistic’, and even ‘speculation’. The result of this misunderstanding is significant: Students take important lessons for granted by discounting them as mere theory, preferring, instead, to find part-time work that provides practical experience. Employers tend to favour applicants with substantial practical experience because mere academic background, they reason, does not add much value to the company. Also, businessmen have an affinity towards advice from well known CEOs and high-ranking individuals because these are based on practical experience and thus are more reliable than textbooks.

I believe that such reasoning is largely uninformed, ignoring the true definition of theory as well as the processes involved in formulating theory. The “Theory vs. Practical Experience” debate is a result of this ignorance, and I believe that such a debate is missing the point and should not exist in the first place. Continue reading

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The Incubation Process

This is part three of my studies in business incubation. In case you missed the first two, here are Part 1 and Part 2.

Despite the growing literature on business incubators, very little existing research focus on the incubation process (Hackett and Dilts 2004a) even when the NBIA identified it as a more important factor than the physical facility and the incubator’s configuration in determining success rate (2006b). Campbell et al. (1985) implicitly described the incubation process as being composed of four major activities, namely the diagnosis of needs, selection and monitoring, capital investment, and the provision of access to expert networks. Unfortunately, they did not elaborate further on each of the major activities nor did they propose a set of theories for it. Continue reading

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Classifying Business Incubators

This is the second part of my studies in business incubators. The first part may be found here.

To aid in the analysis of business incubators, particularly in identifying issues related to incubator evaluation and recommended practices, a classification system needs to be adopted (Albert and Gaynor 2001). Various researchers have provided different means for categorizing business incubators. Some researchers propose to classify them according to a) their primary financial sponsors (Kuratko and LaFollette 1987; Smilor 1987b; and Temali and Campbell 1984), b) the business focus of the incubator (i.e. property development or business assistance) (Brooks 1986), c) the business focus of the incubatees (Plosila and Allen 1985; Sherman 1999), or d) whether the incubatee is a spin-off or a start-up (Plosila and Allen 1985). However, because the configuration of an incubator is highly dependent on the social, cultural, and economic environments that they are in (Albert and Gaynor 2001), using existing classification systems as a predictor of a particular incubator’s success is not advisable. Continue reading

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Defining Marketing

The American Marketing Association states that:

“Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.”

However, a common mistake that I observe among marketing practitioners is the failure to realise that it is the market (the aggregation of customers) that has the final say on what is of value. They fail to understand that while businesses are responsible for creating the product, they should not be the ones to dictate how the product is to be designed. The product needs to be created, communicated, and delivered to the market according to that market’s own terms. Otherwise, the product will not sell.

True, the market does not always know what it needs or wants. That does not mean, however, that there’s no way for marketers to find that out. On the contrary, there are a plethora of tools available for obtaining/inferring the needs and wants of the market. Lead-user research, focus groups, surveys, or simply talking to your customer are but some of the tools at a marketer’s disposal. Practitioners will do well to learn about these things.

Just as what Vargo and Lusch in their 2004 paper said, the customer is a co-creator of value. We have to respect that if we want our business to succeed. We must all remember that Marketing is NOT about communicating to the customer, it’s about communicating with him/her.

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What is a Business Incubator?

This is an excerpt from my paper on business incubation. From this point on, I will post the results of my studies in smaller, more manageable parts.

Extant literature is yet to provide a standard definition of business incubators and business incubation. Definitions can be as all-encompassing as that of Kuratko and LaFollete where they state that

“the business incubator seeks to effectively link talent, technology, capital, and know-how in order to leverage entrepreneurial talent and to accelerate the development of new companies” (1987).

This definition, however, classifies organisations such as chambers of commerce as incubators thus widening the field of incubator-incubation research to a nearly unmanageable point. Continue reading

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Innovation does not mean R&D

True, we are now operating in a knowledge economy. That is, an economy where the central source of value is knowledge: a world where the one who has the most knowledge and produces the most number of innovations will be the winner of the day. However, I find it naïve to think that a country such as the Philippines should adopt a strong R&D position as its main strategy. An effective R&D strategy requires a lot of resources to be successful. Aside from that, R&D is but a small part in the whole process of innovation. Does the Philippines have the necessary resources to fund such a costly strategy? I don’t have any data on that, but I would be surprised if it did.

Don’t get me wrong. I’m not saying the Philippines should just give up in the race to get ahead. Certainly not! While I’ve been constantly disappointed by my country, I’ve not yet lost my sense of patriotism. All I am saying is that we should realise that knowledge generation is not monopolised by R&D. Knowledge is richer, more relevant, and perhaps even significantly cheaper when it is obtained from business relationships, be it relationships with suppliers, customers, and even competitors. In the Global CEO study conducted by IBM in 2006, they found that a great majority of the organisations they surveyed considered business relationships as the most important source of innovation than internal R&D.

That probably shouldn’t be taken to mean that R&D is irrelevant nowadays. More likely, it should be interpreted to mean that while R&D is still relevant especially in providing new technological advantages to organisations, business relationships are better at providing incremental innovations that it can profit from at a sooner time and with less resources. In short, before the Philippines thinks about using the big guns (i.e. R&D) of the knowledge economy, we should probably think about increasing our capabilities/capacities first.

Using the basics (i.e. strong, healthy business relationships) can help us do that.

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Filed under Innovation, Knowledge Management