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. Hackett and Dilts (2004b), on the other hand, proposed as a starting point, an incubation process model that is based on the theory of real options (For more information on the theory of real options, see Copeland 2002 and McGrath 1999). They state that the initial investment in an approved incubation applicant is a form of option creation while staged investments after each evaluation period is a form of option exercise. They further state that the process of incubation, similar to option creation and exercise, “confer future decision rights, preferential access to opportunities, access to a potentially valuable upside, and the ability to contain downside risk by limiting the cost of failure to the sunk cost of constructing the option, minus any remaining option value” (Hackett and Dilts 2004b). They then expressed their theory as follows:

BIP = f(SP + M&BAI + RM)

Where:

  • BIP = business incubation performance;
  • SP = selection performance;
  • M&BAI = monitoring and business assistance intensity; and
  • RM = resource munificence.

Thus Hackett and Dilts’ (2004b) real-options driven theory of business incubation states that the performance of a business incubator is determined by its ability to create options through the selection of “weak-but-promising” firms, as well as its ability to exercise those same options through monitoring, counselling, and infusion of resources, while controlling the cost of failure via stage-gate investments and forced exits of non-performing firms.

From this point onwards, I will be examining aspects of the incubator-incubation concept in better detail using the incubator-incubation concept map and real-options driven incubation model of Hackett and Dilts (2004a; 2004b). Stay tuned!

References

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Allen Consulting Group, The 2003. Evaluation of the BITS Incubator Program and the Intelligent Island Incubator.

Allen, D. N. 1988. Business Incubator Life Cycles. Economic Development Quarterly. 2(1): 19–29.

Allen, D. N. and R. McCluskey 1990. Structure, Policy, Services, and Performance in the Business Incubator Industry. Entrepreneurship Theory and Practice. 15(2):61–77.

Allen, D. N. and S. Rahman 1985. Small Business Incubators: A Positive Environment for Entrepreneurship. Journal of Small Business Management. 23(3):12–22.

Anthony, R. N., Govindarajan, V. 2000. Management Control Systems (10th Edition). Boston: McRaw-Hill Irwin.

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Campbell, C. 1989. Change Agents in the New Economy: Business Incubators and Economic Development. Economic Development Review. 7(2):56–59.

Campbell, C., R. C. Kendrick, and D. S. Samuelson 1985. Stalking the Latent Entrepreneur: Business Incubators and Economic Development. Economic Development Review 3(2):43–49.

Copeland, T. 2002. The Real-options Approach to Capital Allocation. IEEE Engineering Management Review. 30(1):82–85.
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Hackett, S. M. and D. M. Dilts 2004b. A Real Options-Driven Theory of Business Incubation. Journal of Technology Transfer. 29: 41–54.

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National Business Incubation Association (NBIA) 2006a. Tips for Developers. http://www.nbia.org/resource_center/developers_tips/index.php accessed April 9, 2007.

National Business Incubation Association (NBIA) 2006b. Principles and Best Practices of Successful Business Incubation. http://www.nbia.org/resource_center/best_practices/index.php accessed April 9, 2007.

Peters, L., M. Rice and M. Sundararajan 2004. The Role of Incubators in the Entrepreneurial Process. Journal of Technology Transfer. 29:83–91.

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Scott-Kemmis, D., A. J. Jones, and B. Heslop 2004. ANU Enterpreneurship Development and Enterprise Support Centre: An ACT-ANU Collaboration. Innovation Management and Policy Program, National Graduate School of Management.

Shcerer, A and McDonald D. W. 1988. A Model for the Development of Small High-Technology Businesses Based on Case Studies from an Incubator. Journal of Product Innovation Management. 5:282–295.

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Smilor, R.W. 1987b. Managing the Incubator System: Critical Success Factors to Accelerate New Company Development. IEEE Transactions on Engineering Management. EM-34(4):146–156.

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5 Comments

Filed under Business Incubation, Definitions, Incubator

5 responses to “The Incubation Process

  1. Idetrorce

    very interesting, but I don’t agree with you
    Idetrorce

  2. Good! That people will not necessarily agree to what I’ve written is expected. I’m more interested in the reason behind it though.

  3. ghd

    I wish you have a wonderful day!Thank you.

  4. Arif Darmawan

    Can I have link or website about business incubator? Or maybe link of journal. I met some problem to find this other explanation about my paper which concern about incubator.

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