- An incubatee must balance short and long term responses to new technical and market opportunities;
- Incubatees must be encouraged to use control systems within their operations at the early stages; and
- Interaction among incubatees is vital.
Balancing Short and Long-Term Response
The forces that push a business to concentrate and maximise profits from an existing product line are regularly in conflict with the forces that push that same business to explore new and potentially profitable areas. Scherer and McDonald state that a common failure among small businesses is “the underestimation of the time and resources required to successfully commercialize the first product before moving on to the development of second-generation products” (1988). A well-managed incubator should be able to provide assistance in balancing these two forces in a manner that does not strain the incubatee’s resources while regularly upgrading the same incubatee’s competitiveness.
Management control systems are important because they are one of the tools that managers use in implementing desired strategies (Anthony, 2000). They play a significant role in translating a company’s chosen strategy into performance results. Management control systems make use of explicit corporate objectives to gauge and consequently correct discrepancies in the firm’s trajectory and progress and thus optimise its performance. Without it, a firm will be aimless despite the quality of its plans. Thus it is important for an incubator to assist the incubatee in building strong internal control systems if it is to succeed and remain sustainable after it graduates from the incubation process.
While an external network is crucial in the success of the incubatees, an internal network, that is a network among incubatees, is also just as important. Bollingtoft and Ulhoi (2005) state that while weak ties have often been associated with idea generation, strong ties tend to be related to problem solving. Within an incubator, the relationships formed between incubatees have the larger potential to develop into strong ties that can significantly improve their problem-solving skills. Informal interaction of individuals across the tenants contributes to formal cooperation between tenants. Likewise, formal cooperation between tenants contributes to informal interactions among individuals (Bollingtoft and Ulhoi 2005). This cycle is important for building trust among tenants and consequently reducing transaction costs and paving the way for increased absorptive capacity. Bollingtoft and Ulhoi (2005) however, point out that the cycle depends on the potential for synergy among tenants which is often manifested by complementary skills and competencies that can be advantageous to the concerned tenants. It should be able to produce something concrete such as providing additional technical skills or winning larger contracts via joint alliances. Thus, the suggestion of Hansen et al. (2000) to adopt a portfolio strategy in selecting among potential firms for incubation may be sound advice.
This wraps up my initial research on business incubators. For a backgrounder on the incubator-incubation concept and for a complete set of references, see my earlier post.