Absorbing Innovation by Australian Enterprises

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Absorbing Innovation by Australian Enterprises: The
Role of Absorptive Capacity
Report on the Project for the Department of Industry, Tourism
and Resources
Don Scott-Kemmis
Australian Centre for Innovation Ltd
Alan J. Jones
Erik Arnold
Chaiwat Chitravas
Deepak Sardana
Technopolis Ltd
2008
The case studies of firms have been removed from this version.
Absorbing Innovation by Australian Enterprises: The Role of
Absorptive Capacity
Table of Contents
Table of Contents ________________________________________ ii
Executive Summary _______________________________________ v
What is Absorptive Capacity? _______________________________________________ vii
The Components of Absorptive Capacity ___________________________________ viii
Case Studies of Absorptive Capacity in Australia _____________________________ ix
Policies to Strengthen Absorptive Capacity ___________________________________ ix
Recommendations ___________________________________________________________ x
1.
Background to the Report _______________________________ 1
2.
What is Absorptive Capacity and Why is it Important? _________ 2
3.
2.1
Introduction __________________________________________________________ 2
2.2
Two Common Fallacies ________________________________________________ 4
2.3
The Rise of Distributed Innovation ____________________________________ 5
2.4
What is Knowledge? __________________________________________________ 6
2.5
Where do Firms Acquire Knowledge From? ____________________________ 8
Frameworks for Understanding Absorptive Capacity _________ 10
3.1
The Core Absorptive Capacity Literature ______________________________ 10
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.1.7
3.1.8
3.1.9
3.1.10
3.1.11
3.1.12
3.2
Defining Absorptive Capacity _________________________________________________
Sources of Absorptive Capacity _______________________________________________
Types of Knowledge and Absorptive Capacity ___________________________________
Measuring Absorptive Capacity _______________________________________________
How is Absorptive Capacity Developed? ________________________________________
Organisational Structure and Absorptive Capacity _______________________________
Organisational Scope and Absorptive Capacity __________________________________
Change in the Knowledge Environment and Absorptive Capacity ___________________
Organisational Learning and Absorptive Capacity ________________________________
Inter-organisational Learning and Absorptive Capacity _________________________
Innovation, Management and Absorptive Capacity ____________________________
Recent Research on Absorptive Capacity _____________________________________
11
12
13
14
15
15
16
16
17
17
18
18
Other Relevant Perspectives _________________________________________ 22
3.2.1 Identifying the Literature Relevant to Absorptive Capacity __________________________
3.2.2 Spillovers, Diffusion and Knowledge Transfer ___________________________________
3.2.3 Dynamic Capabilities and the Resource-Based View of the Firm ___________________
Dynamic Capabilities _______________________________________________________________
3.2.4 Innovation Management _____________________________________________________
3.2.5 Firm Learning, Organisational Learning and Knowledge Management ______________
Organisational Learning _____________________________________________________________
Knowledge Management ____________________________________________________________
3.2.6
Collaboration and Networking ________________________________________________
3.2.7.
Accessing External Technology _____________________________________________
3.2.8
Learning and Absorptive Capacity in SMEs _____________________________________
3.2.9
Barriers to Change and Learning in SMEs ______________________________________
22
23
24
24
29
30
31
33
33
34
35
40
ii
3.2.10
3.2.11
3.2.12
4.
International and Inter-firm Technology Transfer _____________________________ 41
Technological Capability Development in Industrialising Economies ______________ 42
Conclusions ______________________________________________________________ 43
Frameworks for Assessing Absorptive Capacity _____________ 45
4.1
Absorptive Capacity: Models of the Components ______________________ 45
4.2
Case Study Questions ________________________________________________ 49
4.3
A Proposed Survey Questionnaire ____________________________________ 52
Case Study Survey Instrument _______________________________________________________ 49
Table 4.6
5.
The Draft Questionnaire_________________________________________________ 55
Prior Relevant Research in Australia ______________________ 61
5.1
Introduction _________________________________________________________ 61
5.2
Recent Studies of Innovation in Australian Industry __________________ 62
5.3
Oslo Manual Based Innovation Surveys in Australia ___________________ 64
5.4
Standards Australia and Knowledge Management ____________________ 65
6. Case Studies of Absorptive Capacity _______________________ 67
6.1
Summary of Case Studies Concerning Absorptive Capacity Study______ 67
6.2
Overview of the Case Studies_________________________________________ 67
6.3
Discussion of the Findings from the Case Studies Error! Bookmark not defined.
Human Capital and Other Resources __________________________
Intensity of Learning _______________________________________
Organisational Factors ______________________________________
Codification of Knowledge ___________________________________
Other_____________________________________________________
A Point on Absorptive Capacity _______________________________
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6.4
The Australian Findings - Comparisons with the Literature Error! Bookmark
not defined.
6.4.1
6.5.
Comparisons with the Technopolis Study of Ireland _____ Error! Bookmark not defined.
The Case Studies _______________________________ Error! Bookmark not defined.
CEA Technologies Pty Ltd, ACT ______________________________
Clonakilla Wines Pty Ltd _____________________________________
Institute of Drug Technology Australia Limited _________________
Lochard Pty Ltd ____________________________________________
Ego Pharmaceuticals Pty Ltd _________________________________
Textor Technologies Pty Ltd _________________________________
Malloch Digital Design (MDD) ________________________________
Benthic Geotech Pty Ltd ____________________________________
Clover Corporation Limited __________________________________
Retriever Communications ___________________________________
7.
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Frameworks for Policies to Support Absorptive Capacity ______ 72
7.1
The Challenge for Strengthening Absorptive Capacity _________________ 72
7.2
Promoting Innovation in SMEs: Policy Rationales _____________________ 74
7.3
Frameworks for Policy _______________________________________________ 77
7.4
Absorptive Capacity Development-Related Programs at the State Level 84
7.5
Absorptive Capacity Support Options – Potential Intervention Points _ 87
iii
7.6
8.
Conclusions __________________________________________________________ 90
Policies that Promote Absorptive Capacity _________________ 91
8.1
Introduction _________________________________________________________ 91
8.2
Insights into Relevant Policy Experience in Australia _________________ 93
8.3
Extending the Study to Other Countries ______________________________ 95
8.4
Assessing the Eleven Most Relevant European National Support
Programs for Absorptive Capacity ___________________________________________ 96
8.4.1
8.4.2
8.4.3
8.4.4
8.4.5
8.4.6
8.4.7
8.4.8
8.4.9
8.5
9.
The UK ___________________________________________________________________ 97
Norway __________________________________________________________________ 100
The Netherlands __________________________________________________________ 101
Denmark _________________________________________________________________ 103
Finland __________________________________________________________________ 103
France ___________________________________________________________________ 104
Germany _________________________________________________________________ 105
European Union Initiatives __________________________________________________ 106
Some Relevant Programs from Outside Europe ________________________________ 108
Characteristics of Successful Programs ______________________________ 113
Conclusions ________________________________________ 122
Key Findings_______________________________________________________________ 122
The Case Studies of Absorptive Capacity in Australia _______________________ 129
Policies to Strengthen Absorptive Capacity _________________________________ 131
Characteristics of Successful Programs ____________________________________ 131
Recommendations _________________________________________________________ 133
10. Selected References _________________________________ 136
APPENDICES __________________________________________ 140
Appendix 1 ___________________________________________ 141
Characteristics of Innovation in Australia: 2005 ABS Innovation Survey ____ 141
Appendix 2 ___________________________________________ 148
Instrument Descriptions ___________________________________________________ 148
Appendix 3 Indicative Stocktake of Programs Related to Absorptive
Capacity at the State level in Australia ______________________ 177
Appendix 4
COMPREHENSIVE BIBLIOGRAPHY ______________ 196
iv
Executive Summary
The Department of Industry, Tourism and Resources commissioned Don Scott-Kemmis and
Associates to undertake a study of the role of absorptive capacity in Australian industry, to
prepare ten case studies of Australian firms and to review the approaches of other countries
to supporting the development of absorptive capacity in industry.
Key Findings
Increasing competitive pressure is both raising the importance of innovation and driving
firms to become more specialized, and as a consequence firms must increasingly look
outside for new knowledge.
These same pressures are also driving firms to increase the level of collaboration with other
firms and with research organisations.
Increasingly, the processes of learning and innovation involve a great deal of interaction
with other firms (customers, suppliers) and sometimes, but usually much less often,
research organisations. Hence, knowledge and capability is distributed. It is not possible for
firms to hold in-house all of the knowledge and capability required and hence how they
build the relationships to access this distributed knowledge and capability is a key issue for
management.
A firm’s absorptive capacity (AC) refers to its capacity to recognise, acquire, assimilate,
transform, and exploit knowledge from external sources.
A key aspect of absorptive capacity is the recognition of an opportunity arising from new
knowledge about, eg technology, customer’s needs, and market trends. That recognition
often requires a strong prior basis of knowledge. But this recognition is of little value unless
it is allied with effective strategies and implementation capabilities.
Lane et al (2006) define AC as:
a firm’s ability to utilize externally held knowledge through three sequential
processes:
(1) recognizing and understanding potentially valuable new knowledge outside
the firm through exploratory learning,
(2) assimilating valuable new knowledge through transformative learning, &
(3) using the assimilated knowledge to create new knowledge and commercial
outputs through exploitative learning.
The foundations of AC are a firm’s knowledge resources (prior knowledge), structure and
organisation (including routines, culture, communication patterns) and external linkages.
However, these foundations need to be relevant to a firm’s specific context and directions
and brought into focus by a firm’s strategic intent.
v
Firms develop AC as a result of explicit measures (such as hiring trained staff, establishing
R&D activities/organisations, developing alliances) and as a by-product of their activities
(particularly the more intense learning experiences associated with problem solving,
innovation and collaboration). Consequently, firms develop absorptive capacity in an
evolutionary way over time and within a specific organisational and knowledge context.
For that reason scientific knowledge is not a public good, as only some individuals and
organisations are capable of using it.
Firms can more easily add to knowledge and diversify in areas in which they already have a
knowledge base.
Firms face particular challenges in external knowledge acquisition where:
 they have few linkages with the firms or organisations from which they seek to
acquire knowledge;
 the fields of knowledge and innovation are new to the firm; and
 the pace of change in technology is rapid and unpredictable.
The more that firms face such challenges the more that the strengthening of AC will require
purposeful strategies and sustained investments, and often organisational and managerial
innovations, to raise the capacity to learn and innovate.
Knowledge that is relevant for innovation includes both codified (know what) and tacit
(know how) knowledge, although the former is becoming relatively more important.
Mechanisms that are suitable for acquiring one of these types of knowledge may not be as
effective for the other.
Carrying out R&D, hiring qualified staff, developing links into knowledge networks, and
attending conferences (etc) will facilitate the acquisition of codified knowledge.
Firms learn from other firms most effectively when the partners are similar in terms of
structure, human resource policies and knowledge bases.
In the wider field of innovation, issues concerning the identification and assessment of
relevant new knowledge, managing the collaboration and the acquisition of knowledge (eg
through R&D, licenses, public domain sources) and integrating existing and new knowledge
and developing capabilities for managing these processes, are extensively researched.
Hence, there is a substantial overlap between the literature explicitly concerned with
absorptive capacity and the wider innovation literature.
There is increasing interest in more effectively managing knowledge, learning and
innovation. This is leading to a greater understanding of these issues and also to a widening
range of tools to assist the management of knowledge, learning and innovation. Absorptive
capacity is a part of a firm’s innovation capabilities and hence its development is a
dimension of innovation management.
Only a small proportion of SMEs are dynamic in terms of innovation and growth.
Without the capabilities to absorb and use knowledge, membership of a network is of little
value. Cluster-based inter-firm links may not always play a major role in firm’s knowledge
acquisition.
vi
Firms with more qualified managers tend to invest more in training and establish more
external links.
Absorptive capacity is a functional concept, and in practice it is based on an interdependent
foundation of capabilities, structures, routines and policies, and is largely situation-specific.
For this reason it is not possible to develop a set of reliable standard indicators of absorptive
capacity.
Internationally, there is an extensive and increasing range of programs aimed at reducing
barriers to capability development, innovation and growth in SMEs. These initiatives are
influenced by the perception that SMEs play a vital role in innovation systems but that
significant market failures limit their development.
A diverse range of instruments are used and there is increasing interest in evaluating these
programs and in developing international initiatives to share experience in SME program
design and implementation.
SMEs tend not to see government agencies as credible assistance delivery mechanisms.
Our review of selected successful programs suggests a set of functional criteria for a
program focused on strengthening absorptive capacity in SMEs, which would include:
 be focused on the more innovation-active SMEs commited to growth;
 be located near to firms, be linked into local networks, and be integrated into
national information and support networks;
 have a strong emphasis on developing innovation capabilities, along with
technological and market knowledge, but in association with a specific development
objective, usually linked to an innovation project;
 have a requirement that the SMEs contribute a significant share of overall costs;
 provide access to a broad spectrum of credible experienced professional advisory
services;
 facilitate the development of linkages to local, national, and international information
sources, service providers, potential business partners and research organisations;
 have a broad portfolio of services (eg., advice, finance, networking) but a flexible
delivery customised to the needs of the SME; and
 delivery through capable experts who work with the firm to develop an effective and
sustained combination of objective performance assessment and flexible delivery of
services.
What is Absorptive Capacity?
“Absorptive capacity” is a term introduced by Cohen and Levinthal in 1990 to describe a
company’s “ability to recognise the value of new, external information (knowledge)1,
assimilate it, and apply it to commercial ends”.
1
It is clear from their paper that Cohen and Levinthal used information and knowledge
interchangeably.
vii
Absorptive capacity and innovation capacity are closely intertwined; interdependent rather
than substitutes. Absorptive capacity is essentially a dimension of innovation capacity concerned with identifying, assessing, acquiring and integrating external knowledge - and
only has relevance in the context of a coherent overall innovation strategy and capability.
What is important to note is that the nature of change in the globalised, specialised and
knowledge-based economy, is increasing the importance of this dimension.
The Components of Absorptive Capacity
Absorptive capacity is a functional concept, and may involve quite different capabilities and
processes in different companies and sectors. The main components of what enables a
company to have absorptive capacity are its:
 Knowledge base – which provides the capability to identify, communicate,
understand and assess new knowledge and information;
 Internal organisation and processes – which motivate, direct and organise
people and resources, and share and integrate knowledge;
 External links and mechanisms – which create channels for communication and
relationships for collaboration; and
 Strategies – which provide direction, coherence and drive for knowledge
acquisition and its use.
The core literature (reviewed in Sections 2 and 3.1) underlines the growing role of
knowledge and the learning processes in companies, and recognises the changing patterns
of knowledge generation, distribution and application in industry. More significantly, it
addresses how new knowledge is managed throughout a company’s operations and leads to
commercial gains.
In a review of this literature Lane et al have revised the definition of absorptive capacity as
a company’s ability to use external knowledge through three sequential processes:
(1)
(2)
(3)
Exploratory learning - recognising and understanding potentially
valuable new knowledge outside the firm;
Transformative learning - assimilating valuable new knowledge; and
Exploitative learning - using the assimilated knowledge to create
new knowledge and commercial outputs.
A wide ranging review of the literature provided the basis to develop an overall framework
for surveys of absorptive capacity and using this framework to develop a questionnaire for a
set of case studies (Section 4).
The literature shows that there are many types of external knowledge and many learning
processes that are relevant for strategy and innovation and that all parts of a company can
be involved in recognising, assessing, acquiring and applying external knowledge. In
addition, the literature demonstrates that by and large firms develop their absorptive
capacity in an evolutionary way, through a combination of explicit measures and as a byproduct of problem solving and individual initiatives that become incorporated into
enterprise structures and routines.
For that reason the process of developing absorptive capacity is highly path dependent –
and every firm has a different path. One consequence of that is that major change in the
path of evolution, due, for example, to new technologies, is particularly difficult to manage.
viii
Several strands of this literature have been reviewed to draw out different perspectives and
approaches relevant to the focus of this report in Section 3.2. This includes:
 work on how firms learn from external sources;
 how innovation links to the role of individuals, their personal motivations, and their
role as gatekeepers and mentors; and
 the role of absorptive capacity in overall innovation management and capability
development.
Case Studies of Absorptive Capacity in Australia
10 SMEs representing a range of industry sectors were selected for interview as case studies.
The case studies demonstrate the importance of prior knowledge and active management in
absorbing new knowledge from external sources. They indicate a strong role of suppliers
and customers in knowledge flows – a finding consistent that of the Oslo Manual-Based
Innovation Surveys.
There is also a plethora of mechanisms for disseminating knowledge within the company for
its exploitation – the most common being the multiple (rotating) team approach applied to
specific project modules, with responsibility for overall outcomes being diffused amongst the
staff. Our case studies show that the evolution of business models (organisational
innovation) often requires that firms access external knowledge to build new capabilities,
and this type of innovation can be as important to sustaining competitiveness as
technological innovation.
Overall, the case studies suggest the importance of trained human resources as a major
element in both establishing and building absorptive capacity. The case studies emphasise
the importance of staff retention and reward schemes as mechanisms for retaining tacit
knowledge, but explicit data on how regulatory requirements can drive the codification of
knowledge does not appear to have been previously discussed in the literature. While
knowledge sources and approaches to sourcing knowledge may vary, it is the flexibility and
receptivity of all the people in a company that contributes significantly to a high absorptive
capacity.
Our case studies support the broad findings of international studies on innovation in SMEs.
Effective innovation management, good managerial and technological capabilities, a strong
strategic intent, a commitment to upgrading and extensive external networking are common
characteristics of successful firms. While there are no recipes for effective innovation
management and each firm must develop the approaches and routines that work in their
particular situation, there are many useful guides for managers.
Policies to Strengthen Absorptive Capacity
It is increasingly recognised that the patterns of change in advanced economies are
increasing the role of SMEs, particularly knowledge-intensive SMEs, but also increasing the
importance of their capacities to innovate.
It is widely recognised that these developments strengthen the case for intervention to
support capability development and knowledge acquisition in SMEs. Much innovation in
products, marketing and organisation in fast moving and in service sectors is relatively
quickly copied by other firms. Market failures arise from the diversity of SME needs and their
ix
incapacity to both express clear demands and to assess the benefit of potential suppliers.
Market failure also arises because it requires (technical and managerial) knowledge to
identify, assess, acquire and benefit from new knowledge and hence firms often require
support to move back onto a virtuous cycle of upgrading. As much innovation in SMEs is not
R&D intensive, the provision of support services for knowledge acquisition and
implementation is one of the few practicable means of subsidising innovative effort in such
firms.
These issues are of particular importance in Australia because SMEs account for a relatively
high proportion of R&D. The available evidence from Australia and internationally is that
management capabilities in SMEs are limited and that managing significant changes in
direction into unfamiliar areas is particularly difficult. Australia has not yet responded
adequately to the changing demands on SMEs arising from technological change and
increasingly global markets, and the growing role of knowledge intensive SMEs. There is a
gap in the support services. Unlike many countries Australia does not have an agency
focused on technology transfer to, and capability (including importantly management)
development in, SMEs. There has historically also been a relatively low orientation to export
markets in manufacturing and services.
In response to these changes many other OECD countries have introduced a diverse range
of policies and instruments, and modified existing programs, to strengthen absorptive
capacity and promote knowledge acquisition and application. These policies and programs
include components of mainstream innovation policies and components of broader SME
development policies. Section 7 provides an overview of both the rationale for these policies
and the range and specific objectives of the instruments that are used. Section 8 provides a
comprehensive characterisation of absorptive capacity-related programs in several countries,
and detailed information on several particular programs that appear to have been highly
effective. Very few of these programs are specifically targeted at strengthening absorptive
capacity, although many are focused on relevant aspects, such as linkages with the
knowledge infrastructure, access to expertise, employment of graduates etc.
In comparison with other countries Australian innovation programs have tended to focus on
R&D and commercialisation, resulting in a relative focus on new firms and on specific
projects. Consequently, there is not a coherent set of programs focused on enhancing
absorptive capacity and through this the innovation capabilities of established SMEs.
Recommendations
As emphasised by the Productivity Commission’s recent Report on Public Support for Science
and Innovation:
“High quality human capital is fundamental to the innovation system. A highly skilled
workforce not only provides Australia with the capability to pursue scientific
knowledge and undertake research and development type activities, but also to
utilise and adapt innovation flowing from research and development undertaken in
other countries.”
The available evidence points to the growing importance of innovation capability and
particularly the capacity to identify, assess, acquire, absorb and use external knowledge, but
as this study has shown, our understanding of the role and limitations of absorptive capacity
in Australian firms is limited. It is also evident that human capital and its organisation
dominates any discussion of absorptive capacity.
x
Given this, Recommendations 1 and 2 are aimed at building the ability of firms to grow and
understand absorptive capacity through the people within exisiting firms, and to gain a
broader understanding of absorptive capacity across all firms. This knowledge will then lead
to the broader actions outlined in Recommendations 3 and 4.
Thus, our first recommendation arises from the observation in the 10 Case Studies that it
may prove worthwhile to Benchmark ‘absorptive capacity’ in firms. This would be most
useful where it enabled firms to benchmark themselves against others in their sector. It
would be possible to include some questions from the ABS Innovation Survey in such
benchmarking, which would enable a strong comparative basis, linked to performance.
This could include the development of a web-based systematic on-line diagnostic and
benchmarking framework, which could be used by firms independently or in association with
consultants as the basis for developing an in-house absorptive capacity and innovation
management development program. With appropriate confidentiality guarantees, the use of
the on-line service would also generate information and firms’ assessments of their
strengths and weaknesses and hence provide an ongoing source of information. These
diagnostic and benchmarking tools could be linked to on-line guides to addressing the
specific issues identified as well as guides to relevant service providers in Australia.
Recommendation 1
Develop a Benchmarking and diagnostic program for firms operating in selected
sectors to enable firms to assess themselves against high performers and to
develop capability development strategies.
Our second recommendation is intended to assess absorptive capacity in a broader range of
firms than was possible through the present study using only 10 case studies. That
assessment should extend to addressing the issue of weaknesses in managing major shifts
in orientation, capabilities and strategies in established SMEs. We thus recommend
undertaking a survey, particularly of the more innovative SMEs in Australia employing more
than 10 people, to identify weaknesses in absorptive capacity and other barriers related to
innovation and strategic change involving major redevelopment of capabilities. The design
and the interpretation of such a survey should also be informed by a review of the results of
the ABS Innovation Survey, and prior studies on innovation in Australian industry.
Recommendation 2
Undertake a survey of a representative sample of companies across a range of
sectors, particularly of the more innovative SMEs in Australia to identify any
weaknesses in absorptive capacity and other barriers to innovation and strategic
change.
The SMEs surveyed to employ not less than 10 and up to 200 people.
As this report has shown most other countries operate programs and organisations designed
to combine a range of services, to be local (ie., linked into SME networks) and to focus on
xi
developing the capabilities of firms. They have not sought to have their research
organisations meet this need.
Most SMEs do not have long term capability development strategies and hence capability
development is in large part a by-product of growth (eg., by hiring new staff), interaction
around day to day activities (eg., with customers), problem solving and innovation. For this
reason it is valuable to use programs/centres focused on firm development to deliver
initiatives that stimulate and assist firms to respond to specific challenges, eg regulations
regarding environmental emissions or product and process safety, export development.
Our third recommendation is the suggestion for DITR to undertake, in the light of the results
of the detailed survey (Recommendation 2), an in-depth review of several absorptive
capacity-related programs in other countries that appear to be relevant to Australia. These
include:
 an Innovative SME Centre support program to co-fund regional or sectoral initiatives
to strengthen absorptive capacity, innovation management and networking in the
more innovation-oriented SMEs;
 an SME innovation-focused procurement program modeled on the US SBIR program;
and
 a program to promote greater interaction between SMEs and between SMEs and
research organisations, modeled on such programs as the Swedish VINST or the
British Business Links and Business Fellowships programs.
Recommendation 3
In the light of the results of the detailed survey and related review, and in
consultation with other stakeholders, undertake:
 a focused assessment of a selected range of absorptive capacity-related
programs in other countries that are effective in their context and may be
relevant to the Australian context. This assessment to recognise that very
few of these international programs specifically target absorptive
capacity; and
 an assessment of the scope to improve existing programs to better target
strengthening absorptive capacity and assisting external knowledge
acquisition.
In regard to Recommendation 1, Standards Australia have developed a set of high quality
and working guides to knowledge management in firms. The 2006 – 2008 Strategic
Business Plan of the Coordination Group of Standard Australia’s Knowledge Management
Committee proposes a work program involving similar initiatives leading to guides in
Innovation Management, Sustainability, and Foresight. This work deserves sustained
support and the outcomes warrant extensive promotion. The guides should also be the
basis for on-line interactive support tools for firms. Thus Recommedation 4.
Recommendation 4
Support the work of Standards Australia’s Knowledge Management Committee
and promote and leverage off the outcomes of its work.
xii
xiii
1.
Background to the Report
This Report responds to the Department Industry, Tourism and Resource’s request for a
study of absorptive capacity in Australian industry, including ten case studies of firms. The
overall study was undertaken in December-January 2006 - 2007. The overall approach to the
project has involved five inter-related elements:
1.
A review of literature specifically addressing the concept of absorptive capacity, and
largely building on the pioneering work of Cohen and Levinthal (1990).
2.
A review of literature relevant to understanding the processes of knowledge acquisition
in industrial enterprises. A range of analytical and normative literature addresses the
role of knowledge in innovation and change. This review seeks largely to characterize
these different fields and assess their potential contribution to understanding
absorptive capacity. This review also touches on relevant prior studies in Australia.
3.
The development of a parsimonious framework for analyzing absorptive capacity to be
the basis for the final two components of the project.
4.
The conduct of a preliminary analysis of the nature and role of absorptive capacity in
Australian industry through ten case studies, and the development of an instrument for
further case studies or surveys of absorptive capacity.
5.
A review of policies that countries comparable to Australia have developed to support
the development of absorptive capacity in industry.
1
2.
What is Absorptive Capacity and Why is it
Important?
2.1 Introduction
Recognizing that a great deal of innovation results from using knowledge from elsewhere
rather than from invention, Cohen and Levinthal (1989, 1990) introduced the term
“absorptive capacity” to refer to firms’ capabilities to manage the acquisition of knowledge
“the ability of a firm to recognise the value of new, external information2, assimilate it, and
apply it to commercial ends.”..and hence..” a firm “needs prior related knowledge to
assimilate and use new knowledge”(1990)
Absorptive capacity is a concept that does a great deal of ‘work’ in studies of innovation and
competitiveness. It has been seen as a key contributor to a wide range of organisational
outcomes (Van den Bosch, 2003):
 Competitive advantage, financial performance, transfer of best practice, knowledge
flows within the firm and knowledge transfers;
 Expectation formation, proactive strategy, strategic renewal, diversification and
organisational adaptation;
 Innovative performance and new product development;
 Organisational learning in alliances and international joint venture performance; and
 New wealth creation and entrepreneurial wealth.
The effective use of knowledge is the central driver of the competitiveness of firms – as
implied in the term the ‘knowledge economy’. Hence, innovation in general, and the
generation, acquisition, integration and application of knowledge in particular, are key issues
for managers. While the more prescriptive versions of the ‘learning organisation’ and
‘knowledge management’ have all the attributes of fads, they signal the rising significance of
the challenge of managing knowledge, and, even more significantly, managing learning3. It
is not only the extent to which competitive positions are based on knowledge that is
important, it is also the fact that the knowledge that underpins innovation is changing rapidly
and is increasingly complex. As the competitive pressure on firms also grows in increasingly
global markets, they are driven to greater specialization. The corollary of specialization in
this context is inter-dependence and collaboration. There is no doubt that information
technology is a driver of these changes, an enabler of collaboration and an exemplar of a
highly networked industry.
A firm’s capabilities for innovation are embodied in its people, facilities and organisation, and
its links to the capabilities of organisations outside the firm. In the context of rapid change
what is equally important are the processes through which the capabilities within firms are
upgraded. While this may be through purposive learning (eg through training or R&D) a
great deal of learning is the result day to day production, interaction and problem solving.4
2
It is clear from their paper that Cohen and Levinthal used information and knowledge
interchangeably.
3
For example, K Nonaka, ‘The knowledge creating company,’ Harvard Business Review, Nov-Dec 1991
4
For a recent review see Lazonick, W. (2005) The Innovative Firm. In Fagerberg, J., Mowery, D. and
Nelson, R.l (Eds) The Oxford Handbook of Innovation. OUP.
2
Firms acquire information and knowledge (ie learn) by several pathways, in particular:
experience, experimentation or acquisition. A firm learns as a result of the challenges it
faces, and hence the problems it aims to solve. To a large extent a firm chooses those
challenges. It does so through its efforts to identify opportunities and threats in the external
environment, which form triggers for action, and through its strategies for innovation and
growth. Consequently, a firm chooses its learning path and in most cases that path is
closely linked to its competitive strategy and the specific problems that must be addressed.
The extent of learning will be shaped by the requirements for new knowledge and capability
to address those challenges, the quality of the firm’s internal learning mechanisms and the
opportunities for knowledge acquisition in the external environment. The process of problem
solving and learning also shapes the development of not only the firm’s knowledge but also
its learning mechanisms (organisational arrangements, balance of capabilities in teams,
external links to firms and research organisations, routines).
The development of stronger (ie more effective for those circumstances) learning
mechanisms is not an automatic by-product of problem solving and collaboration. As with
the accumulation of knowledge in general, firms can be more or less aware, purposive and
reflective and so the accumulation of learning about learning is also influenced by explicit
management policies and the extent to which a firm develops an overarching set of shared
values and beliefs. One important aspect of such policies is their role in knowledge diffusion
or distribution within the firm. Those problem solving processes also contribute to the firm’s
awareness of its own resources and those available to it. That knowledge, those learning
mechanisms and that awareness contribute to a firm’s capacity to learn and solve problems,
but particularly those within the field of its experience – ie to a large extent the development
of knowledge and learning capacity are both path dependent.
The capacity for major strategic change, ie to change the path of learning, in the context of
major shifts in technology or markets, or strategic redirection, is a higher order learning
capacity. In this case a firm must build new capabilities and perhaps develop new learning
mechanisms and new external linkages. This is often challenging because the development
of capabilities, routines and effective external relationships is linked to experience and the
evolutionary processes of incremental learning. Hence, what forms a firm’s capacities to
learn is highly situational, not codified and not the result of a systematic plan. So, while
experience is a vital source of know-how, a high level of dependence on experience may lock
a firm into a ‘competency trap’5
The level, nature and effectiveness of learning and innovation in firms is significantly shaped
by the local industrial and social environment. For example, the availability of highly trained
human resources, the existence of world class research providers and the role of leading
edge users have played key role in the development of regions such as Cambridge, UK and
Silicon Valley. Recognising the growing role of innovation, governments have introduced
policies to support innovation and also sought frameworks to guide policy making in this area.
However, the characteristics of firms, industries and economies are not timeless or contextfree. Any innovation-related policy based on a universal abstract model of firms is likely to
inappropriate if not misleading:
“..the social characteristics of the innovative firm have varied markedly over time and across
institutional environments. To study the innovative firm in abstraction from the particular
social conditions that enable it to generate higher quality, lower cost products is to forego an
5
Tidd, J. (2000) The Competence Cycle: Translating Knowledge into New Processes, Products and
Services. In Tidd, J.(Ed.) From Knowledge Management to Strategic Competence. London: Imperial
College Press.
3
understanding of why it became innovative in the first place and how its innovative
capabilities may be rendered obsolete. …The types of organisational integration that result in
innovation vary across industries and institutional environments as well as over time. The
hierarchical and functional divisions of labour that, when integrated into learning
organisations, generated innovation in the past cannot necessarily be expected to do so in
the future when faced with changes in technology, markets and competition…The prevailing
social conditions of innovative enterprise provide the context for [the firm’s] learning
processes, shaping the types of learning that are attempted, the extent to which these
processes are sustained, and the ways in which people interact, both cognitively and
behaviourally. The influence of the social context….can vary dramatically across industries
and institutional environments as well as over time. A theory of innovative enterprise must
be based on an understanding of comparative-historical experience that is broad and deep
enough to evoke confidence that the assumptions …capture the essence of the reality to
which the theory purports to be relevant.’’ (Lazonick (2005) p50-1)
The structure of industry, the organisation of firms and the innovation process itself is
changing. One of the most important aspects of those changes concern the growing level of
interdependence and consequently the extent to which innovation is systemic. Before we
discuss that issue it is worth discussing two common fallacies that arise from over-reliance
on simplistic theoretical models of economic change.
2.2 Two Common Fallacies
Where the frameworks for innovation and industrial policy are derived from economic models
there is a risk that policy is based on unrealistic assumptions regarding the processes of
capability development and innovation. Two such assumptions are particularly misleading.
First, there is a tendency in some abstract models to equate knowledge with information and
to consider that all firms have automatic awareness of and equal access to ‘knowledge’.
However, what firms perceive and understand is related to what they already know6. Firms
develop their knowledge base and capacities for learning in an evolutionary way. However,
where there are major shifts in the knowledge base in a sector, firms (particularly SMEs)
may face difficult adjustments. These difficulties arise due to ‘competence traps’ and
cognitive failures (where firms lack the prior knowledge to adequately assess the significance
of new knowledge7.
Second, the concepts of technology diffusion and knowledge spillovers suggests a process of
absorption of external knowledge analogous with the process of a sponge absorbing water.
The acquisition of external knowledge is often less costly and risky than developing such
knowledge in-house. In that sense ‘follower’ firms and organisations do absorb knowledge.
This theoretical perspective has sometimes been used to support an extreme position
suggesting that a firm or country can free-ride on external knowledge. But history shows
that the process of diffusion/acquisition is not one of passive absorption. A high level of
technological and managerial capability is required to identify, assess, acquire, integrate and
adapt knowledge8.
6
Levitt, B. & March, J.G (1988).Organisational Learning. Annual Review of Sociology 14: 319-338
Tripsas, M. & Gavetti, G. (2000) Capabilities, cognition, and inertia: evidence from digital imaging.
Strategic Management Journal Volume 21, Issue 10-11 , Pages 1147 - 1161
8
Hall, B (2005) Innovation and Diffusion. in Fagerberg, J. et al The Oxford Handbook of Innovation.
OUP. And Fagerberg, J. & Godinho M. (2005) Innovation and Catching-Up in Fagerberg, J. op cit
7
4
2.3 The Rise of Distributed Innovation
As technologies become more complex and individuals and firms become more specialized in
mastering narrow areas of technology, so the capabilities to innovate at the technology
systems level are increasingly embodied in groups, firms and networks of firms – ie are
distributed. Coordination of these dispersed actors is then a key role of markets, supply
chains, standards, and a wide range of networks and associations of different types.
The extent of inter-organisational collaboration, through research consortia, joint ventures,
alliances, or market-based contracts, has increased steadily over the past 30 years. Close
collaboration is not a transitory stage on the path to merger. For example, a US National
Research Council study found that, across a range of sectors, firms had significantly
increased their reliance on external sources of knowledge, particularly research organisations,
and had increased collaboration with competitors and customers9. As a consequence, the
diversity of organisational actors and relationships in innovation processes is increasingparticularly in sectors where technological change is rapid. Extensive collaboration and a
diverse range of networks tend to be characteristics of high research intensity firms and
successful innovators. Whether formal or informal, inter-organisational links enable
knowledge and information flows, resource sharing and access to specialized assets:
“..as the commercialization of knowledge has assumed greater importance in economic
growth, collaboration across organisational boundaries has become more commonplace.” 10 .
Industries continue to evolve away from vertical integration toward production networks11. It
is apparent from the literature that large firms are increasingly outsourcing activities that can
be carried out more efficiently by another firm and hence increasingly purchasing
components and services from other firms. The development of standardization and the
growth of IT and the internet have been powerful enablers of this trend (Horn, 2005) – see
Figure 2.1. In the case of Australia, there has been a trend toward an increased
specialization in the knowledge intensive services components of the value chain. In parallel,
and often closely linked to the production ecosystem, an extended knowledge eco-system
appears to be evolving. Hence, we see a growth in research collaboration, licensing, strategic
alliances, industry funding of public sector research.
Hence, interdependence among firms in production and innovation is increasing.
Consequently, knowledge flows between firms are increasingly important as are the
capabilities to manage collaboration12.
9
Mowery D. (1999). America’s Industrial Resurgence? An Overview. In US Industry in 2000: Studies
in Competitive Performance. Washington, DC: National Academy Press.
10
Powell, W. & Grodal, S. (2005) Networks of Innovators. In Fagerberg, J., Mowery, D. and Nelson,
R.l (Eds) The Oxford Handbook of Innovation. OUP.
11
Langlois, R.N. (2003) The Vanishing Hand: The Changing Dynamics of Industrial Capitalism.
Industrial and Corporate Change, Volume 12, Number 2, pp. 351-385
12
IBM (2006) Expanding the Innovation Horizon Global CEO Study 2006.
http://www.ibm.com/ibm/ideasfromibm/us/enterprise/mar27/global_innovation.html
5
Figure 2.1
The Development of Specialisation in Industry
Horn, (2005).
2.4 What is Knowledge?
Any discussion of knowledge transfer is shaped by the underlying concept of knowledge, and
in particular, whether that conception tends to focus on knowledge as information, which
can be specified, stored and transmitted, or whether it emphasizes knowledge as
competency to act on the world. The former is typically termed codified, formal, explicit or
‘know what’ and ‘know why’ knowledge and is generally acquired through formal education,
reading, conferences etc. The latter is typically termed implicit, tacit or ‘know how’ and
‘know who’ knowledge, and it is generally learnt through experience or close contact with its
application. It also tends to be more localized in its relevance – ie linked to a region,
technology, sector or firm. However, it is widely recognised that in practice these two types
of knowledge are often inter-dependent and much of the knowledge that firms work with
involves combinations of both.
Nevertheless, these two broad types of knowledge do involve different types of learning.
Jensen, et al (2004)13 usefully distinguish between the approaches to acquiring codified and
tacit knowledge. They suggest that the approach to learning codified knowledge depends on
explicit know-why and hence they note:
Absorptive Capacity, Forms of Knowledge and Economic Development / Jensen, Morten Berg ;
Johnson, Bjørn Harold ; Lorenz, Edward ; Lundvall, Bengt-Åke. 2nd Globelics International
Conference: Innovation Systems and Development: Emerging Opportunities and Challenges, October
16-20, 2004, Beijing, Kina. 2004.
http://scholar.google.com/scholar?hl=en&lr=&q=cache:B_9bQCWYC2UJ:www.idefi.cnrs.fr/wpap/WPGREDEG-2004-2.pdf+jensen+lundvall+absorptive+capacity 8 Jan. 2007
13
6
“The R&D-departments in big firms play a key role….Specific R&D- projects will often be
triggered by practice (problems with a product, new user needs, problems with producing)
but almost immediately attempts will be made to restate the problem in an explicit and
codified form. The R&D-department will start going through its earlier work as well as
looking for insights that can be drawn from outside sources. In order to communicate with
scientists and scientific institutions outside it will be necessary to make knowledge explicit
and translate the problem into a formal scientific code. While the process of searching is
going on there will be a need for interaction with and feed-back from the potential users of
the outcome of the process and here intermediate results will need to be presented in a
language that the potential users can understand. But all through the process documenting
results in a codified form remains important. It is not sufficient that the single scientist
keeps results in his own memory as tacit knowledge. Often the project involves teamwork
where single results are needed as building blocks for other members in the team. At the
end of the process – if it is successful - a transfer of the results within the organisation or
across organisational borders will call for documentation as well. “
However, in the case of knowledge closely linked to practice and often localized, the
effective modes of learning (and transfer) involve arrangements and relationships that
enable learning by doing and interacting. Jensen, et al (2004) state that this mode of
learning:
“…is characterised by on-going changes that continuously confront employees with new
problems. Finding solutions to these problems enhances the skills of the employees and
extend their repertoires...When the process is complex…it will involve interaction within and
between teams and it may result in new shared routines for the organisation. As the whole
organisation gets more insight in the actual working of the system it might find more
efficient ways to organize work and solve problems.”
As this tacit, practice-related, knowledge is embodied in people and routines, firms may seek
to codify it in order to retain and diffuse it. However, individuals may be reluctant to fully
participate in such demanding processes and codification is both unlikely to capture the
complexity of reality and likely to be rapidly obsolete in a turbulent environment. Because of
this complexity and uncertainty, and hence the risks of misunderstanding and
misinterpretation in knowledge transfer, firms can be seen as ‘sense making devices’ that
reduce this risk. However, some researchers argue that a strong emphasis on routines for
tacit knowledge transfer tends to reinforce an inward looking and conservative orientation.
They suggest that efforts to develop codification and, related to this, a preference for
market-based arrangements for knowledge acquisition will help ensure greater openness to
new knowledge14.
Vinding’s work on innovation in SMEs in ‘low tech’ sectors in Denmark found that firms that
developed their competencies through hiring academically trained staff and also built
collaboration with research organisations were relatively strong performers in innovation.15
Jensen et al (2004) comment on this finding:
“Our interpretation of this result is that as competition becomes intensified in traditional
sectors, reflecting the entrance of new competitors from all over the globe, it is no longer
sufficient to base competitiveness on know-how and [tacit learning routines]. Firms that
14
See Thorpe et al (2005)
Vinding, L. (2006) Absorptive capacity and innovative performance: A human capital approach.
Economics of Innovation and New Technology. Volume 15, Number 4-5. 507 - 517
15
7
succeed in connecting more systematically to sources of codified knowledge may be able to
find new solutions and develop new products that make them less sensitive to price
competition. This is one reason why a strategy that gives more attention to codification and
documentation of knowledge inside SMEs in traditional sectors may offer substantial pay off.
Another reason is the increasing division of labour at the global level where value chains
often are dominated by big [research focused] firms. Increasingly the survival and growth of
SMEs in manufacturing as in services that are sub-contractors to big international firms will
depend on their capacity to document what they can do and how they do it. Mastering
codified knowledge becomes increasingly important.”
Nevertheless, there is abundant evidence that innovation is characterised by interaction,
uncertainty and a diverse range of approaches to learning and searching. Approaches to
developing better ‘learning organisations’ recognise the role of interaction within and
between firms, and hence the need to combine learning related to codified knowledge and
learning related to tacit knowledge. Drawing on a major survey in Denmark, Jensen et al
(2004) find evidence that firms that combined a strong approach to codified learning (eg by
hiring qualified staff, undertaking R&D and developing links to knowledge organisations) and
also developed strong approaches to tacit/ activity-related learning (eg by reducing
hierachies, promoting multi-functional teams, and other processes to promote continuous
learning) excelled in product innovation.
2.5 Where do Firms Acquire Knowledge From?
Innovation surveys based on the Oslo Manual have been conducted in many countries.
These provide insights into the sources that firms may use to provide inputs to their
innovation. A consistent finding across countries is that firms rely on internal sources and
other firms, notably suppliers and customers, as the main sources for knowledge – see Table
2.1, which summarises information across Europe for the period 1998 to 2000. It shows that
universities were important sources of information for innovation for only about 4% of
manufacturing firms and 6% of service firms. An analysis of the Innovation Survey in
Australia found a strong relationship between firms’ R&D intensity and the level of
importance attached to links with universities16. Similarly, Arundel et al found that large
research intensive firms in Europe tend to have relatively much more extensive and
substantial links with the public sector research base than is the average across industry17.
Laursen and Salter, analyzing UK innovation survey data found a strong relationship between
a firm’s use of universities and its employment of graduates and researchers18
The Innovation Surveys also provide useful information on the characteristics of firms that
are relatively more innovative. For example, a detailed study of the UK Innovation Survey
found that a strong positive relationship between a company’s expenditure on innovation
and the number of its external relationships for accessing information19. One analysis of the
Yencken, J. and Gillin, M.2001) Sources of ideas and knowledge for innovatory small companies:
Australian and Eurostat CIS2 innovation survey data analysed by industry sector and enterprise size.
Innovation: Management, Policy & Practice 4 (1-3): 147-160
16
17
A Arundel, G van de Paal and L Soete, Pace Report: Innovation Strategies of Europe’s Largest Firms: Results of
the PACE Survey for Information Sources, Public Research, Protection of Innovations and Government
Programmes, Final Report, Maastricht: MERIT, University of Limburg, 1995
18 Keld Laursen and Ammon Salter, ‘Searching high and low; What types of firms use universities as a source of
innovation?, DRUID Working Paper No 03-16, Copenhagen Business School, 2003
19 Bruce Tether and Peter Swann, ‘Sourcing Science: The use by industry of the science base for innovation;
evidence from the UK’s innovation survey,’ CRIC, University of Manchester and UMIST, 8 August 2003 (mimeo)
8
recent Community Innovation Survey(CIS3)20 concluded that innovativeness was related to
firms’:




Cooperativeness, both in working with universities and with other companies
Employment of skilled personnel
Spending on R&D
Investment in equipment
Table 2.1.: Main Sources of Information for Innovation in the EU, 1998-2000
Industry
Enterprises
with
innovation
activity
(Absolute
figures)
Within the
enterprise
Other
enterprises
in the group
Suppliers
Customers
Competitors
Universities,
HEIs
Govt./ non
profit
research
institutes
Conferences
, meetings,
journals
Fairs &
exhibitions
Services
Percentage of enterprises with
innovation activity indicating
that selected sources were of
high
importance
All
Small
Med.
Large
47 663
37
32
40
70
8 776
7
3
10
25 336
34 456
13 801
5 122
19
27
11
4
19
22
9
3
3 491
3
11 399
22 697
Enterprises
with
innovation
activity
(Absolute
figures)
Percentage of enterprises
with innovation activity
indicating that selected
sources were of high
importance
All
Small
Med.
Large
28 638
40
37
41
69
28
9 662
13
9
23
38
17
32
13
4
29
51
21
11
14 014
22 079
9 978
4 269
20
31
14
6
19
32
14
6
19
25
13
6
29
37
22
6
2
3
7
2 098
3
3
4
3
9
8
9
15
10 660
15
15
15
18
17
17
18
20
9 956
14
15
9
10
Source: Paul Crowley, Sources and resources for EU innovation, Statistics in Focus: Science and
Technology, Theme 9-5/2004
20
Marion Frenz, Jonathan Michie and Christine Oughton, ‘Co-operation and innovation: evidence from the
Community Innovation Survey,’ paper presented at the Schumpeter Conference, University of Bocconi, 2004. See
also Arnold, et al Making Best Use of Technological Knowledge: A Study of the Absorptive Capacity of Irish SMEs.
Technopolis Nov. 2004.
9
3. Frameworks for Understanding Absorptive
Capacity21
3.1 The Core Absorptive Capacity Literature22
Recognizing that a great deal of innovation results from using knowledge from elsewhere
rather than from invention, Cohen and Levinthal (1989, 1990) introduced the term
“absorptive capacity” (AC) to refer to firms’ capabilities and knowledge to manage the
acquisition of knowledge “the ability of a firm to recognise the value of new, external
information23, assimilate it, and apply it to commercial ends.”..and hence..” a firm “needs
prior related knowledge to assimilate and use new knowledge”(1990)
But their use of the term focused on the role of R&D as a mechanism for knowledge
acquisition, and they saw the process of ‘absorptive capacity’ as a component of a firm’s
learning capabilities- see Figure 3.1. The concept of AC expanded over a sequence of three
papers by Cohen and Levinthal (1989, 1990 and 1994) but in all three the primary
mechanism for generating AC was R&D. However, over time the concept has evolved to
refer to a wider set of processes involved in the acquisition and implementation of
knowledge and information.
Figure 3.1: The Cohen & Levinthal ‘Model’ of Absorptive Capacity
External Knowledge
Internal
Organisation
Absorptive
Capacity
R&D
Knowledge
Acquisition
Knowledge
accumulation
Lane, Koka and Pathak (2006) have reviewed almost 300 papers that have cited Cohen and
Levinthal (1990) in the period up to mid 2002. They find that the majority of these papers
use the term AC in an unexamined way: ‘almost 80% of the literature cites the construct in a
ritual way, with little or no discussion.” (p841)
According to Lane, Koka and Pathak (2006) much of the literature citing the work of Cohen
and Levinthal identifies AC with the base of prior knowledge in the firm. When
operationalising the AC concept many of these studies, perhaps not surprisingly in view of
the origins of the term, take a narrow focus and use R&D expenditure as a proxy for the
The concept of absorptive capacity has been applied at the level of a business unit, firm, region,
and nation, and has been analysed from different perspectives. Hence, the concept of is both multilevel (individual, branch, firm, industry, cluster, nation) and multidisciplinary (Van Den Bosch et al
(2003). Here we focus on the application of the concept at the level of the firm.
22
Major recent reviews are those of Lane Koka and Pathak (2006) Van Den Bosch et al (2003),
23
It is clear from their paper that Cohen and Levinthal used information and knowledge
interchangeably.
21
10
prior knowledge base. However, several papers take a wider approach and this leads to the
use of a variety of indicators depending on whether AC is considered to be:
 a resource – particularly prior knowledge: age of firm, size of firm; or
 a capability – particularly organisational learning capability: knowledge sharing
routines; motivation.
3.1.1 Defining Absorptive Capacity
Lane, Koka and Pathak (2006) found that: “….only four studies have attempted to expand
and elaborate on [the original Cohen and Levinthal] definition [and]...the focus of these
studies has been to move absorptive capacity away from an exclusively R&D focus to a
broader dynamic capability perspective. (p845). For example Dyer and Singh (1998) focus
on the quality of the relationship between firms that enables knowledge exchange and joint
learning. Lane and Lubatkin (1998) also focus on inter-firm knowledge flows and stress the
role of both cognitive and organisational and cultural proximity in enabling effective
interaction. Van den Bosch et al. (1999) take this approach one step further by noting that
the firms may interact with a range of other firms and organisations and the knowledge
environment may be stable or turbulent – and that the effective organisation for absorptive
capacity will vary with the context and hence that a firm needs to co-evolve with its
environment.
Most reseachers, including Lane and Lubatkin (1998) and Van Den Bosch et al (2003) have
retained the focus on the three components of absorptive capacity defined by Cohan and
Levinthal, ie:



Identification;
Assimilation; and
Application.
However, Zahra and George (2002) focus on the internal dynamics of absorptive capacity
and include in the concept organisational routines and processes by which firms operate and
manage knowledge, identifying four components:
(1)
(2)
(3)
(4)
acquisition;
assimilation;
transformation (‘a firms’ capability to develop and refine the routines that facilitate
combining existing knowledge and the newly acquired and assimilated knowledge.”
(p190); and
exploitation.
They also propose that it is useful to characterize two broad components (or states) of
absorptive capacity: potential (the external knowledge that a firm could acquire and utilize)
and realized (the external knowledge that a firm has acquired and utilized).
Table 3.1: Potential and Realized Absorptive Capacity
Potential AC
(1) acquisition;
(2) assimilation;
Zahra and George (2002)
Realized AC
(3) transformation;
(4) exploitation.
Several researchers have emphasized the role of strategic intent, or an orientation to action,
as a key factor in absorptive capacity. Liao et al (2003) found from the survey of firms that
11
in addition to acquisition of new knowledge the more innovative firms also were more
strongly committed to act on opportunities. Similarly, Minbaeva et al (2003), and Zahra and
George (2002), stress the role of motivation, in addition to ability, in absorbing external
knowledge24.
3.1.2 Sources of Absorptive Capacity
The three major, but also necessarily interdependent, determinants of absorptive capacity
are considered to be:
1. R&D activity;
2. Prior knowledge and skill; and
3. Organisational structures and human resource management practices (Schmidt,
2005).
The cumulative and path dependent nature of AC was recognised by Cohen and Levinthal
(1990). While there are many sources of absorptive capacity, there is a strong interaction
between the existing knowledge base of a firm and external knowledge sources. The role of
scientists and engineers in enabling firms to link to external knowledge sources, and of
‘gatekeepers’ who identify and facilitate the absorption of knowledge from outside the firm,
has been identified in a great deal of prior research (see Schmidt, 2005). Firms may
accumulate knowledge as a result of carrying out R&D, by less formal processes of problem
solving, and by hiring trained personnel.
Cohen and Levinthal (1990) recognised that the internal mechanisms of a firm, as well as the
specific prior skill and knowledge of its members, underpinned absorptive capacity. Van den
Bosch et al (2003) has reviewed several empirical studies of absorptive capacity identifying
what the authors see as the ‘antecedents’ of absorptive capacity- Table 3.2.
Table 3.2: Antecedents of Absorptive Capacity
Level of
Analysis
Intrafirm level
Firm level
Interfirm level
Examples of Antecedents
a unit’s R&D intensity
knowledge flow configuration (horizontal versus
vertical)
prior related knowledge and similarity of attributes
prior related knowledge and internal mechanisms
prior related knowledge, organisational form,
combinative capabilities
linkages with external sources, knowledge and
structure complementarity and experience
specific type of new knowledge; similarity of
compensation practices and organisational
structures; familiarity with organisational problems
Illustrative
References
Tsai (2001)
Van Wijk et al. (2001
Gupta and Govindarajan
(2000)
Cohen & Levinthal
(1990)
Van den Bosch et al.
(1999)
Zahra & George (2001)
Lane & Lubatkin (1998)
Source: Van den Bosch, 2003.
24
Minbaeva, D., Pedersen, T., Bjorkman, I., Fey, C. F., and Park, H. J. (2003) MNC knowledge
transfer, subsidiary absorptive capacity, and HRM. Journal of International Business Studies 34(6),
586.
12
Drawing on these and other recent studies that seek to examine more closely the relevant
dimensions of those ‘internal mechanisms’, Van den Bosch et al (2003) distinguish between
‘organisational form’ and ‘combinative capabilities’ – see Figure 3.2. Considering the firm to
be a type of distributed organisational knowledge system, these internal mechanisms
connect and integrate the parts of this ‘system’. They distinguish three types of combinative
capabilities: systems capabilities, coordination capabilities and socialization capabilities:



Systems capabilities refer to the procedures and routines used to integrate explicit
knowledge;
Coordination capabilities are based on relations between teams and team members, eg
communication patterns;
Socialization capabilities refers to shared ideology and paradigms that enable joint
action under tacitly understood rules. (Van den Bosch, et al , 2003).
Figure 3.2: Absorptive Capacity: Antecedents and Outcome
Level of
prior
knowledge
(distributed
internal
knowledge
system)
Organisational
form: matrix,
functional,
network
Combinative
capabilitiessynthesise,
integrate and
apply current
and acquired
knowledge
uierwe
sd
Derived from Van den Bosch, 2003.
Expectation
formation
Absorptive
Capacity
Path of
exploitation or
exploration
Van den Bosch et al (1999) applied this model in a detailed case study of firms changing
from traditional manufacturing to IT based production. They found that organisational form
and combinative capabilities interact, and that socialization capabilities and organisational
form can be difficult to change in ways that enhance the scope and flexibility dimensions of
absorptive capacity. As absorptive capacity is significantly based on prior relevant
knowledge and its development is usually a by-product of firms’ efforts to solve problems in
the normal course of business, its development is hence highly path-dependent. However,
when firms seek to acquire knowledge not closely related to the existing knowledge base, far
more purposeful and managed efforts to build absorptive capacity will be necessary (Cohen
& Levinthal, 1990).
3.1.3 Types of Knowledge and Absorptive Capacity
In their review of studies citing the Cohen and Levinthal papers, Lane, Koka and Pathak
(2006) identify a line of conceptual development concerned with the significance of types of
knowledge. In particular they identify three knowledge characteristics that have been
discussed in the literature:


Knowledge content – in particular the importance of similarities in cognitive structures;
Tacitness – knowledge that consists of implicit and non-codifiable skills and know how
is likely to be embedded in specific people and in routines within a firm and hence is
13

likely to be more difficult to transfer and absorb (Kogut and Zander, 1992; Nonaka,
1994); and
Complexity – as knowledge becomes more complex firms need to absorb a greater
range of ‘component’ and ‘architectural’ knowledge (see Henderson, 1996)
While greater cognitive distance, tacitness and complexity creates challenges for acquisition,
the corollary of this analysis is that firms with knowledge bases similar to the areas of
knowledge they seek to master and with comparable levels of complexity will be better able
to absorb knowledge (van den Bosch et al, 1999). Similarly, firms with established links with
those organisations that seek to learn from (through direct links or networks) will be better
able to manage acquisition (Meyer-Krahmer and Meyer-Krahmer, 1998). Conversely, and as
noted above, firms that change their learning path, as a result of strategic choice or shifts in
the knowledge base of their industry, may face a very challenging process of re-orienting
their learning mechanisms.
A useful example of changing a learning path and hence renovating absorptive capacity is
that of Toyota in addressing the growing role of electronics in the automotive sector. Toyota
came to see that electronics was growing from a component level issue into a pervasive
architectural issue. As a result it decided that it needed to develop a core competence in
electronics and could not afford to continue to rely on the competence of their suppliers25.
"Electronics’ share of the total value added in automobile production is rising rapidly.
Currently, electronic parts make up about 10% of an average vehicle’s total production cost
(more in upscale models); Toyota engineers estimate that this will soon rise to
30%....Toyota had to build absorptive capacity: a base of electronics knowledge from which
rapid learning of leading-edge developments could proceed….The creation of such absorptive
capacity was critical both to Toyota’s ability to design and produce automotive electronics on
its own and to manage its alliances with Denso and other partners effectively…Toyota
needed to create absorptive capacity on its own, both to deal with increased asymmetry of
knowledge and bargaining power in its relationship with Denso and to better use a
technology that was increasingly critical to and increasingly embedded in auto design and
production….Toyota’s purpose was to lay the foundation—create the absorptive capacity—for
a massive program of learning. Modern automotive electronics is an architectural innovation,
one far afield from Toyota’s extant repertoire of competencies." (p687-9)
3.1.4 Measuring Absorptive Capacity
Because ‘absorptive capacity’ is a broad and inclusive concept this creates challenges for
measurement. Typically researchers have used such proxies as R&D expenditure (or
intensity) or other attributes considered to signal capacity such as organisational structure or
human resources (Schmidt, 2005; Vinding, 2000).
The concept of absorptive capacity has not been developed in a way that would enable
benchmarking, either to guide managers’ investment in developing appropriate levels of
absorptive capacity, or to enable international comparison Bessant et al (2005). Indeed, the
appropriateness of a level of nature of absorptive capacity depends to the specific situation
and strategy of the firm. However, it would be possible and useful, to develop a generic
framework from which firms could develop a customised approach for assessing their
absorptive capacity for their circumstances.
Ahmadjian, C. L.; Lincoln, J. R. (2001) Keiretsu, Governance, and Learning: Case Studies in
Change from the Japanese Automotive Industry. Organisation Science 12 (6): : 683-701
25
14
3.1.5 How is Absorptive Capacity Developed?
The inclusiveness of the concept has also created challenges for research on the
development of absorptive capacity (a gap recognised in the literature -eg Schmidt, 2005,
Lane, et al, 2002), and hence also for well grounded normative guides on how firms can
build absorptive capacity. Schmidt (2005) has sought to address this challenge for systematic
empirical research by using the data from the German (Oslo Manual) Innovation Survey and
focusing on those firms that have introduced innovations based on external knowledge,
arguing that such firms have demonstrated that that they have the capacity to exploit
external knowledge and hence have this component of absorptive capacity – and one would
expect to also have other components of absorptive capacity, viz capacities to identify and
assimilate knowledge. His conclusions suggest26 that overall absorptive capacity is enhanced
by firm policies to involve all staff in innovation and by the development of a stock of
knowledge through R&D (but not current R&D expenditure levels), but that the role of
different mechanisms varies with different types of knowledge acquisition:

knowledge acquisition from research organisations is facilitated by the share of highly
qualified staff and by more or less formal internal knowledge sharing mechanisms
(such as seminars and workshops);

intra-industry knowledge flows are not influenced by R&D intensity and are also not
facilitated by formal support among departments, but rather by informal networking;
and

knowledge acquisition from inter-industry sources was not related to the share of
employees with higher education nor R&D intensity or firm size.
These findings suggest that R&D expenditure contributes in the long run to build absorptive
capacity and to capacities to absorb knowledge from ‘scientific’ sources. Schmidt (2005)
suggests that as there are differences in the absorptive capacity for tacit and codified
knowledgem, current R&D is less relevant in the short term for the more ‘exploitative’
absorptive capacity from business (ie intra and inter-industry) sources.
3.1.6 Organisational Structure and Absorptive Capacity
Cohen and Levinthal (1990) discussed the role of a firm’s routines that enable the diffusion
of knowledge (sharing, communication) between individuals within the firm. Daghfous
(2004) stressed the role that organisational culture can play in providing incentives for
knowledge sharing. Schmidt (2005) cites other studies that have identified multi-specialist
work groups, job rotation, and other specific human resource management pratices as
approaches that promote knowledge sharing. According to Lane, Koka & Pathak (2006)
several subsequent papers have focused on specific organisational characteristics that
facilitate such diffusion, for example: cross functional teams and formal integration
mechanisms (like task forces). Van den Bosch, et al (1999) argue that: “the scope, flexibility,
and efficiency of knowledge assimilation vary, depending on whether the organisation has a
functional, divisional, or matrix organisational structure.” (Van den Bosch, 2003; Lane, Koka
& Pathak, 2006, p847). Van den Bosch (2003d) define these dimensions as:
26
More detailed and specifically designed surveys would be required to explore these relationships.
15

Efficiency refers to the ‘activities, procedures and routines’ that firms use to identify,
assimilate and exploit new knowledge. This dimension focuses on cost benefits that
arise from economies of scale and the exploitation of an existing knowledge base.

Scope is associated with the breadth of knowledge a firm draws upon.

Flexibility refers to the extent to which a firm can ‘access additional, and reconfigure
existing knowledge’.
However, as discussed above, because what enables absorptive capacity varies from firm to
firm (and hence is not context free) and multipartite (ie many structural and behavioural
elements constitute the capacity) and not fully specified, few studies have taken a systematic
empirical approach to analyzing the organisational attributes that support absorptive capacity.
3.1.7 Organisational Scope and Absorptive Capacity
Many studies of the evolution of firms and of the success of diversification have concluded
that there is a high degree of path dependency in knowledge acquisition - ie firms can more
easily add to the knowledge and diversify in areas in which they already have a knowledge
base (eg Kim & Kogut, 1996). According to Lane, Koka & Pathak (2006) many authors have
extended this perspective to analyse, for example, the relative performance of firms
following mergers and acquisitions, or the role of joint ventures and strategic alliances when
firms enter unfamiliar markets or sectors. An additional perspective in this area is the
concept of option creation – ie by building a broader knowledge base (through R&D or
acquisitions ) firms maintain a broader absorptive capacity and hence a greater
preparedness to respond to change. However, Vermeulen and Barkema (2002) and Lei and
Hitt (1995) provide a cautionary note, reminding us that knowledge acquisition and
assimilation takes time and substantial effort and rapid diversifications risk undermining the
coherence of those processes.
Cohen and Levinthal recognised the path dependent nature of absorptive capacity, and Van
Wijk et al (2001) have taken this further, usefully distinguishing a depth and breadth
dimension of absorptive capacity:

Depth refers to absorptive capacity that facilitates further knowledge acquisition in the
same domain- a process that is likely to become more efficient with specialization and
hence the exploitation of existing strengths, linkages, routines and communication
patterns; and

Breadth – refers to the absorption of new knowledge in other domains and hence
relates also to the scope dimension of absorptive capacity (Van den Bosch, 1999) and
is an aspect of exploration.
3.1.8 Change in the Knowledge Environment and Absorptive Capacity
In a relatively stable knowledge environment firms focus on the sequential strengthening of
their knowledge resources, the maintenance of external links for knowledge acquisition and
the exploitation of those knowledge resources. However, in more turbulent environments
there is less likely to be a pattern of internal communication and a set of external links that
are appropriate for new avenues of learning. It is also more likely in such a turbulent and
uncertain context that diversity and decentralization will be more effective than centralized
16
management of learning or uniform knowledge structures. In such an environment the
‘flexibility’ dimension defined by Van den Bosch (2003) becomes vital, and the tensions
between ‘depth’ and ‘breadth’, as defined by Van Wijk et al (2001), become challenging.
Table 3.3: Types of Knowledge environments, Focus of Knowledge Absorption,
and Requirements Regarding Three Dimensions of Knowledge Absorption
Types of Knowledge Environment:
Focus of
Knowledge
(1) Stable knowledge environment,
example:
Mature single industry
(2) Turbulent knowledge
Environment. Example:
Emerging industrial complex
Exploitation
Requirements Regarding Absorption on:
Three Dimensions of Knowledge Absorption:
Efficiency
Scope
Flexibility
H
L
L
Exploration
L
H
H
H: high; L: low . Source: Van den Bosch et al (2003)
3.1.9 Organisational Learning and Absorptive Capacity
The very extensive literature that discusses different aspects of organisational learning and
technological capability development has developed in parallel with the line of work that has
followed the Cohen & Levinthal papers. This literature identifies, inter alia, the role of
purposive strategy, focused effort, the intensity of effort, the organisation of learning and
the role of external links in the effectiveness of learning (for example Kim and Lee, 2002).
However, Lane, Koka & Pathak (2006) conclude that there has been little empirical analysis
of the relationship between absorptive capacity and organisational learning.
It follows from the nature of path dependency that absorptive capacity will be higher and
organisational learning more effective where a firm already has a relevant knowledge base
(Autio, Sapienza & Almeida, 2000). For example, several researchers have found that
effective interaction with research organisations generally requires a prior knowledge base of
an appropriately high level and relevant type (eg Schmidt, 2005). Schilling (2002) shows
that a failure to invest in learning can lock a firm out of new technologies, due to a lack of
absorptive capacity.
3.1.10
Inter-organisational Learning and Absorptive Capacity
There is abundant evidence that the role of inter-firm collaboration in innovation is
significant and increasing (see Section 2.3). Not surprisingly the analysis of inter-organisation
knowledge flows has attracted growing attention. For example, Lane and Lubatkin (1998)
have analysed the importance of knowledge similarity for effective learning but sufficient
dissimilarity to provide a potential for learning. Similarly, Dyer and Singh (1998) (among
many others27) have shown the role of complementarity in successful alliance relationships.
Again, apart from similarities in knowledge, similarities in organisation, culture and
compensation have been shown to contribute to inter-firm knowledge flows (Lane, Koka &
Pathak, 2006).
27
A list of some relevant research is in Lane, Koka & Pathak (2006).
17
The increasing complexity and the rate of change, of the knowledge base in many industries
is a critical challenge for many firms. These challenges are leading many firms to become
more specialized and to develop a wider range of external links, both in terms of a specific
division of labour (and hence interdependence) in an value chain and but also more diffuse
links for access to new knowledge and ideas (Powell, Koput & Smith-Doerr, 1996). The
critical point here is that in more turbulent environments many firms must invest in boundary
spanning links and alliances that enable them to strengthen their absorptive capacity (for
example, Steensma & Corley, 2000).
However, according to Lane, Koka & Pathak (2006), few of these studies of learning through
networking have analysed the capabilities that constitute absorptive capacity, but rather
assumed that membership of a network or location in a high tech region implied higher
absorptive capacity. They remind us that, without the capabilities to absorb and use
knowledge, membership of a network is of little value.
According to Bessant et al (2005) a number of studies have sought to characterize the
commonalities (shared language, culture, background knowledge etc) between the people
and organisation of the source and recipient, as these have been shown to influence to
effectiveness of knowledge transfer28. Lane & Lubatkin (1998) found that firms learn from
other firms most effectively when the partners are similar in terms of structure, human
resource policies and knowledge bases.
3.1.11
Innovation, Management and Absorptive Capacity
Many studies have discussed the relationship between innovation and absorptive capacity
and in particular the extent to which absorptive capacity contributes to effective innovation,
and how learning from innovation strengthens absorptive capacity (for example Helfat, 1997).
In turbulent environments, where new types of knowledge may become important and the
value of investment in specific areas of knowledge is uncertain, it is likely that innovation a
greater breadth of knowledge through loosely related knowledge domains will be most
relevant (Van den Bosch et al ,1999).
While the strong feedback loop from prior knowledge, to identifying and assessing the
strategic implications of new knowledge, to proactive strategies, is well recognised, this
interaction has not been extensively studied (see eg Calori, et al, 1994). More surprisingly,
perhaps, nor has the relationship between managerial intentionality (to influence the level of
absorptive capacity) and subsequent levels of absorptive capacity (Sanchez, 2001).
3.1.12
Recent Research on Absorptive Capacity
In perhaps the most comprehensive review to date Lane, Koka & Pathak (2006) conclude
that there has been limited research into the interactions between a firm’s absorptive
capacity and its organisational structure and its internal knowledge types. They argue that
few researchers have either extended the ‘absorptive capacity’ construct or undertaken
sound empirical research to test the relationships. They comment that:
28
Bessant, J. Phelps, B. & Adams, R. (2005) A Review Of The Literature Addressing The Role Of
External Knowledge and Expertise At Key Stages Of Business Growth And Development. Final Report
Cranfield School Of Management.
18
“…most of the empirical studies have identified absorptive capacity with knowledge content. Not
only has the evidence underlying such operationalization been inconsistent but it has drawn the
focus away from the processes underlying the creation, development, management, and
exploitation of new knowledge….few researchers have directly examined the relationship
between absorptive capacity and organisational learning, organisation scope, and knowledge.
Instead, most have used it to support arguments implicitly—in essence treating it as an off-theshelf, general-purpose concept.” (p851)
They identify five assumptions that have contributed to the limited development of this line
of analysis:
“Each of the above assumptions, independently and jointly, has directly contributed to the rapid
growth of a research stream that is largely non-cumulative, despite having a relatively narrow
context. Focusing research on R&D-related contexts has straitjacketed absorptive capacity,
constraining it to technology-intensive firms. This understates the learning that occurs in other
parts of the organisation, as well as the interplay of technology and organisational processes that
are critical for firm performance. Thus, researchers have focused on the knowledge recognition
and acquisition dimension but have ignored the assimilation and exploitation dimensions.
Researchers have insights into the types of knowledge that matter for R&D-related absorptive
capacity but know little about the processes by which absorptive capacity can be developed,
managed, and exploited. ….[an] important consequence of the reification of absorptive capacity
is that it threatens the validity of the existing studies. .. The pervasiveness and importance of
these validity concerns lead us to wonder what we really do know about absorptive capacity.”
(p854-5)
This leads Lane et al to propose a new definition of Absorptive Capacity:
Absorptive capacity is a firm’s ability to utilize externally held knowledge
through three sequential processes:
(1) recognizing and understanding potentially valuable new knowledge
outside the firm through exploratory learning,
(2) assimilating valuable new knowledge through transformative learning,
and
(3) using the assimilated knowledge to create new knowledge and commercial
outputs through exploitative learning. (p856)
Table 3.4: Limiting Assumptions in the Literature on Absorptive Capacity.
Absorptive capacity is
relevant only to R&Drelated contexts.
Firms develop
absorptive capacity in
response to the
existence of valuable
external knowledge.
Relevant prior
knowledge equals
Most empirical research in this literature has operationalized AC as R&D
intensity, as did Cohen and Levinthal (although their discussion of the
concept was much broader) and hence limited the generalizability of
the concept. One consequence of this focus is that few studies have
analysed the role of AC in: ‘the acquisition, assimilation, and
commercial application of other types of business-related knowledge,
including managerial techniques, marketing expertise, and
manufacturing know-how.”( Lane, Koka & Pathak (2006: 852).
For Cohen and Levinthal the existence of external knowledge is not a
sufficient condition for a firm to develop AC, and they noted the role of
a range of industry factors (such as demand, appropriation, spillovers)
in shaping incentives to invest in building absorptive capacity.
Lane, Koka & Pathak (2006) argue that:”the focus on R&D and
knowledge acquisition also has led to an overemphasis on being able to
19
absorptive capacity
understand the technological or scientific knowledge the firm needs to
acquire at the expense of the process knowledge needed to assimilate
and apply it….. the focus on the content of a firm’s prior knowledge has
led to an overemphasis on tangible outcomes of absorptive capacity,
such as inventions and innovations, at the expense of less concrete
outputs, such as process knowledge, which can be of greater
importance to the firm over the long run.” (p852)
It is likely that this focus has led to a lack of interest in research on the
management of absorptive capacity. Lane, Koka & Pathak (2006)
conclude that: “Future research needs to develop actionable
recommendations concerning the process and policies that firms should
use to develop and manage absorptive capacity in R&D and non-R&D
contexts.” (p853)
A firm’s competitive
advantage is based on
Ricardian rents rather
than efficiency rents.
A great deal of research has focused on how firms control access to
knowledge (from which they can then extract rents) rather than how
knowledge and other resources are used in a firm to create unique
capabilities/competencies. A focus on knowledge content has led to
less interest in how capabilities (for learning, assimilating, applying) are
developed.
Absorptive capacity
resides in the firm
alone.
Absorptive capacity depends vitally on the role of individuals, their
personal knowledge, mental models and how they:’ scan the knowledge
environment, bring the knowledge into the firm, and exploit the
knowledge in products, processes, and services… it is the firm’s
individual members who add the creativity needed to help the firm
uniquely create value from new knowledge’ (p854).
Source: Lane, Koka & Pathak (2006)
20
3.3: A Process Model of Absorptive Capacity, Its Antecedents, and Its Outcomes
Characteristics
of internal and
external
knowledge
drive the depth
& breadth of
understanding
Environmental
Conditions: drive
the incentives to
develop AC
Recognise &
understand
new external
knowledge
(exploratory
learning)
Characteristics of Learning
Relationships – drive the
ease of understanding
Learning mechanisms:
licensing, training, alliances
Acquire
new
external
knowled
ge
Assimilate
external
knowledge
(trans formative
Learning)
Firm Strategies
(drive the focus of recognition &
understanding of assimilation and of
application)
Apply
assimilated
external
knowledge
(exploitative
learning)
Firm
Performance
Commercial
Outputs
(products,
services, IP)
Kn Base Networks, clusters, SIS
Adapted from Lane, Koka & Pathak, 2006
21
3.2 Other Relevant Perspectives
3.2.1 Identifying the Literature Relevant to Absorptive Capacity
A very large and diverse range of literature is relevant to the issues associated with absorptive
capacity and firm learning. As absorptive capacity is multi-level there is also a range of literature
at the individual, group, cluster and national level – which we largely ignore for the present study.
The main lines that this wider literature addresses are:













Spillovers, Diffusion and Knowledge Transfer
Dynamic Capabilities and the Resource Based View of the Firm
Innovation Management
Accessing External Technology
Research- Industry Interaction
Innovation and Change in SMEs
Organisational Learning
Firm Learning
Technological Learning in Latecomer Firms
Knowledge Management
Networks and Clusters
Learning through Strategic Alliances.
National Absorptive Capacity
While there are many commonalities across this vast literature there are also important
differences in objective, context and theoretical points of departure, as indicated in Figure
3.4
Through the course of the study we have attempted to ‘map’ the literature in terms of the
following characteristics:
 Central question or problem addressed – what is it trying to understand;
 Key assumptions – what are the assumptions that are made about what is in scope
and what is not tested;
 Key concepts – what is the framework or model of the world that is used and what
are the concepts that do the heavy lifting in those frameworks;
 Central dynamic proposed/explored– What are the relationships among the
important variables in the model; and
 Relevance to Absorptive Capacity management and policy and research.
Our primary purpose in doing so is to provide a more systematic foundation for
understanding the role, and the constituents, of absorptive capacity. This foundation is
necessary for undertaking further empirical research, for interpreting existing empirical
research and for informing the assessment of possible measures to support absorptive
capacity in firms.
22
Figure 3.4.: Characterising the Different Orientation of the Literature
Relevant to Understanding Absorptive Capacity:
Types of
knowledge in
Scope




All types
Technological
Scientific
Non-technological
Objective of
Learning
 Inform Strategy
 Catch up
 Incremental
Innovation
 Radical Innovation
Context for Learning
 SMEs
 SME-SME
interaction
 ICT diffusion
 Supply chain
 MNC- Local firm
 MNC-Subsidiary
 Cluster/Sector
 International
technology transfer
 From Customers
Mechanism of
Learning






All
Industry - Research
Licensing
Alliances
Collaboration
Networks
3.2.2 Spillovers, Diffusion and Knowledge Transfer
In most developed economies the great majority of business sector R&D is carried out by a
relatively small proportion of firms. Similarly, a small proportion of firms (almost entirely also
R&D intensive firms) account for the majority of links with public sector research
organisations. Even in non-R&D intensive sectors typically only a small proportion of the
firms in an industry are innovation leaders pioneering major innovations that are new to the
world or new to the sector. The majority of firms are ‘followers’ and benefit from the
diffusion of knowledge throughout the economy – often termed as spillovers from R&D and
innovation. However, as noted in Section 2, the terms ‘diffusion’ and ‘spillover’ are in
important respects misleading. First, they imply that an innovation diffuses through an
economy much as a molecule diffuses through water. However, we know that diffusion more
often involves the incorporation of knowledge into existing knowledge structures and of
technologies into existing technological systems- and that these processes involve active
learning and problem solving, and often significant innovation. For example, the diffusion of
the integrated circuit has involved the continuous redesign of virtually every electronic device.
Hence, diffusion involves complex processes of interaction involving inter alia, technological
opportunity, firm capabilities, and market conditions. Second, firms are not passive recipients
in these complex processes but active and differentiated agents. Not only are there
capabilities to acquire, absorb and implement new knowledge important, but so also is their
strategic intelligence to recognise the significance of new knowledge, and their strategic
intent – their commitment to coherent growth strategies.
The processes of diffusion and spillovers are hence diverse and complex. In the case of
small firms, knowledge and new technologies typically ‘diffuse’ through:
 Suppliers and customers – eg along supply chains;
 Hiring of experienced and trained staff; and
 New firm generation – most new technology based ventures are intended or
unintended spin-offs from larger firms.
23
There is also a substantial literature concerned with spillovers to local firms from the
activities of MNCs29. Some of this literature is reviewed in Arnold et al (2004) who conclude
that recent research shows that the level of spillover depends on their being a relatively
narrow gap between the complexity of the technology in the MNC and the capabilities of the
domestic firms and on strong linkages among domestic firms such that knowledge diffuses
more widely in an economy.
3.2.3 Dynamic Capabilities and the Resource-Based View of the Firm
The recognition that the competitive performance of firms derives in large part from their
specific physical, human and knowledge resources underpins the resources-based view of
the firm. The approach was developed in response to the mismatch between the reality of
firms as active agents of change in the economy and the concept of the firm in neo-classical
economic frameworks. The resource-based view of the firm (RBV) emphasizes that firms are
heterogeneous in their resources and capabilities. These differences in resources are
important because many key assets cannot be readily purchased and knowledge (in
particular) does not diffuse readily. These resource endowments (or firm specific assets) are
‘sticky’ because such resources are often not readily tradeable (eg due to tacitness) and the
development of new distinctive resources is complex and takes time and investment.
Schulze (1994) characterises two schools of thought in the RBV literature: the
structural/content stream and the process/capability stream. Researchers in the
structural/content stream focus on the possession of unique resources (particularly
knowledge) as the key source of a firm’s competitiveness (Barney, 1986; Peteraf, 1993).
Competition, from this perspective, focuses on controlling access to these resources. Within
the process/capability stream there is a greater emphasis on the use of resources in firms,
and in particular on how resources (including knowledge) are combined to develop new
competencies and knowledge (Lane, Koka & Pathak (2006)
Dynamic Capabilities
Taking the RBV as a starting point, Teece, Pisano and Shuen (1997) focus on how firms
build competitive advantage, through learning and the management of knowledge, in
turbulent sectors with innovation-based competition. They introduce the concept of
‘dynamic capabilities’ where: “The term ‘dynamic’ refers to the capacity to renew
competences so as to achieve congruence with the changing business environment; certain
innovative responses are required when time-to-market and timing are critical, the rate of
technological change is rapid, and the nature of future competition and markets difficult to
determine. The term ‘capabilities’ emphasizes the key role of strategic management in
appropriately adapting, integrating, and reconfiguring internal and external organisational
skills, resources, and functional competences to match the requirements of a changing
environment.” (p515).
Sourafel Girma and Holger Görg, Foreign direct investment, spillovers and absorptive capacity:
Evidence from quantile regressions, IIIS Discussion Paper, No.1 / July 2003; Yuko Kinoshita,
Technology Spillovers through Foreign Direct Investment, CERGE-EI Working Paper No. 39/1998
Holger Görg, and David Greenaway, Much Ado About Nothing? Do Domestic Firms Really Benefit from
Foreign Investment?, CEPR Discussion Papers 3485, C.E.P.R. Discussion Papers, 2002; M. Blomström
and A. Kokko, Multinational Corporations and Spillovers, Journal of Economic Surveys , Vol.12, No. 3,
July, pp. 247-277, 1998
29
24
They recognise the role of path dependence in competence development, such that existing
competences (the result of past choices) shape the options open to the firm and hence firms
make “long term, quasi-irreversible commitments to certain domains of competence.’
They define dynamic capabilities as a firm’s: “ability to integrate, build, and reconfigure
internal and external competences to address rapidly changing environments. Dynamic
capabilities thus reflect an organisation’s ability to achieve innovative forms of competitive
advantage given path dependencies and market positions.” (p516)
Teece, Pisano and Shuen propose that the competitive advantage of a firm depends on its
managerial and organisational processes, shaped by its asset position and the avenues of
development (paths) open to it. Hence, they define the three key building blocks of dynamic
capabilities in terms of:
 Processes - managerial and organisational processes, routines or patterns of
learning – these processes, which are frequently a key source of differential
performance, are often interdependent such that change in one dimension requires
change in others.- this may be why radical technological change, which requires new
approaches to organizing and learning, can often be particularly challenging to
incumbents;
 Positions – ‘the specific endowments of technology, intellectual property,
complementary assets, customer base, and its external relations with suppliers and
complementors’; and
 Paths – the strategic options open to the firm and the role of increasing returns and
dependencies.
A key point to understand in Teece, Pisano and Shuen’s approach to dynamic capabilities is
that, while competences and capabilities (and thus competitive advantage) rest on processes
shaped by positions and paths: “competences can provide competitive advantage and
generate rents only if they are based on a collection of routines, skills and complementary
assets that are difficult to imitate.” (p524).
A further point relevant to the issue of absorptive capacity is the recognition that replication
and transfer of competences becomes more difficult the less codified is the knowledge – ie a
simple transfer of information is only possible where all relevant knowledge is codified. This
means that competences and capabilities, and the routines underlying them, are usually
difficult to replicate – and sometimes difficult to even specify clearly.
These concepts, summarized in Figure 3.5 have been widely influential and in our view they
provide a substantial step toward a conceptually stronger framework for an analysis of
absorptive capacity. This framework has stimulated a good deal of work seeking to more
fully specify the nature of dynamic capabilities. However, the approach has been criticized
for limitations at what could be considered the two ‘ends’ of the framework:
 In the short term there is clearly a good deal of ‘design space’ available to firms
within the scope of the capabilities/ resources they have. Clearly adaptation,
creativity and application are not fully determined by a firm’s resources. Some firms,
and particularly smaller firms, have a good deal of ‘agility’ that enables them to
respond over the short term within the scope of the capabilities.
 In the longer run, and particularly in the context of radical change, firms need to
renovate not only their strategies but the very architecture of their dynamic
25
capabilities – ie they need to re-build their dynamic capabilities. This involves an
explicit strategy for developing dynamic capabilities, which we term Strategic
Dynamic Capabilities, a dimension that is not addressed in the original work of Teece,
Pisano and Shuen (1997). We emphasize this aspect because of the increasing
importance of developing, in a more turbulent knowledge environment, explicit
strategies for developing relevant absorptive capacity/dynamic capabilities.
We have illustrated this broader view in Figure 3.6 This issue of explicit approaches to
building dynamic capabilities appears to be a concern addressed by Daghfous (2004). He
argues that organisational innovation is a continuous process because the areas requiring
knowledge are also ever changing. New technologies, new management approaches and
other causes of continuous change in an organisations internal and external environment are
constantly emerging, and this in turn trigger the need for organisations to manage their
knowledge base. Daghfous argues that a firms’ ability to acquire, assimilate and profitably
use new knowledge intensive practices are of themselves organisational innovations.
“Knowledge is not enough – a firm needs to have the tools to exploit and appropriate this
knowledge embedded in new organisational innovations”. Daghfous recommends
mechanisms by which firms may develop absorptive capacity through organisational
improvements:
 Companies should be committed to the goal of enhancing and leveraging their
knowledge by investing in resources, in learning programs, and by enhancing the
knowledge of their own employees;
 Firms should encourage employees to communicate across functional boundaries – to
brainstorm new product ideas;
 Firms need a true commitment from top management to create a learning
organisation;
 Organisations should promote a culture that is open to change;
 Physical and virtual knowledge market places should be used so that employees can
communicate on these issues;
 Knowledge sharing should be included as a criterion of performance evaluation; and
 Internal seminars and workshops should be used for sharing knowledge throughout
the firm.
Figure 3.5: Dynamic Capabilities
Dimensions
Components of Dynamic Capabilities
Processes
Coordination & integration
 Coordination of internal activities in eg product development,
 Coordination with suppliers and customers
Learning
 Interaction, communication and collaboration among individuals
 Organisational knowledge resides in new patterns of activity – routines or
organisational arrangements
Reconfiguration of a firms asset structure
 Identifying and assessing the triggers for change
 Benchmarking to identify superior practice
 Change management capability
Positions
Tangible and intangible Assets:
26







Paths
Specialized plant and equipment
Specialized and difficult to trade knowledge assets
Reputation
Relational assets
Cash reserves/ access to finance
Internal and external structural assets, governance arrangements
Institutional assets – sectoral, regional and national innovation systems
 Accumulation of specific assets in the context of time-dependent learning
processes and increasing returns
 Technological opportunity arising from advances in knowledge in relation to
firm’s position
Figure 3.6.: Strategic Dynamic Capabilities and Dynamic Capabilities.
Agility
The ability to respond to short
term shifts in the competitive
context by modifying activities
and outputs in the context of
existing capabilities and
resources.
Capabilities
The ability to perform a set of
activities to produce an outcome
Resources
Physical, financial, property,
relational and human resources
Dynamic
Capabilities
The routines,
strategies &
relationships
that enable
firms to
renovate their
resources – ie
to learn.
Strategic Dynamic
Capabilities
Those resources that enable
firms to create new options
for new paths of knowledge
accumulation. For example,
the development of new
relationships (which may
take time and investment)
in order to open new
learning mechanisms; the
formation of corporate
ventures to create learning
platforms. This is
essentially the construction
or new dynamic capabilities
A Useful Example of Building and Applying Dynamic Capabilities
Verona and Ravasi (2003) provide an excellent example of the renovation of capabilities in a
firm – and in so doing show the close links between the concepts of ‘absorptive capacity’ and
‘dynamic capabilities’30. These dynamic capabilities are underpinned by the human resources,
physical resources, structure and systems and by the culture of the firm – but they are the
result of prior experience through the accumulation of decisions and actions taken to solve
problems in complex and uncertain situations. The firm, a producer of advanced hearing aids,
had begun to lose market share due to slow product innovation and a failure to take full
advantage of new digital technology. The firm’s dynamic capabilities were not able to sustain
the rate or the type of innovation necessary for sustained competitiveness in a context of
new technologies and increased competition. As a result of this situation the firm introduced
over a period of years major changes in their approach to managing innovation – ie built
new dynamic capabilities. What is striking is the extent of organisational innovation involved,
as outlined by Verona and Ravasi, who argue that high levels of innovation required the
deep renovation and close integration of three processes (Figure 3.7 and Table 3.5):
Verona, G. and Ravasi, D. (2003) Unbundling dynamic capabilities: an exploratory study of
continuous product innovation. Industrial and Corporate Change 12(3): 577-606.
30
27
 knowledge creation and absorption- commitment to investment in learning from
the frontier of new knowledge, assessing technological and commercial applications
and ensuring effective absorption of new knowledge from external sources;
 knowledge integration- creating and managing a context that stimulates latent
and dispersed knowledge resources; and
 knowledge reconfiguration- structures and routines that enable knowledge
resources (patterns of knowledge integration) to be recombined to address new
opportunities. Hence, this system, which is open to dispersed individual contributions,
enables the continuous reorganisation of resources that may lead to substantial
change in strategies and products.
This organisational innovation resulted in a “…..loosely coupled architecture based on the
absence of permanent formal structures, multiple and evolving relational patterns, and an
open and informal culture…[which ensured]…co-ordination despite ample individual
freedom..”31
Figure 3.7: Dynamic Capabilities: Interaction among the Key Processes
Knowledge
Integration
Knowledge
Reconfiguration:
changing division
of labour and
micro-level
organisation
Continuous
Innovation
Knowledge
Creation
Knowledge
Absorption
This case study illustrates very clearly that knowledge in the firm is not simply an asset that
can be mobilized as needed. We see that in large part knowledge is held by individuals and
that the acquisition and integration of knowledge is not simply the transmission of an asset,
as in a market-based transaction. Acquisition of knowledge from the scientific world involved
the development of personal and organisational relationships shaped by the institution of
science and hence by the culture and values of that institution. Similarly, the continuous
generation and assessment of ideas, and the formation of largely self organizing project
teams, recognised the roles of individuals and of social relations in highly uncertain
processes of innovation. These dimensions of learning and of dynamic capabilities are not
sufficiently recognised in Teece et al (1997).
Verona, G. and Ravasi, D. (2003) Unbundling dynamic capabilities: an exploratory study of
continuous product innovation. Industrial and Corporate Change 12(3): 577-606. p598
31
28
Table 3.5: Building Blocks of Dynamic Capabilities at Opticon
Dimensions of
Actors
Physical
Structures &
Capability
Resources
Systems
Knowledge
 Graduate
 Separate
 Research
Creation and
researchers
research facility
centre has
Absorption
 Long term
 Comprehensive
autonomy over
relationships
library resources
its research
with patients
budget
 Close collab’n
 Scientists at
with intern’l
the research
researchers
centre focus on
basic research
Knowledge
Integration-
Knowledge
Reconfiguration
Culture
Orientation to
scientific rather than
applied research
 Unrestricted
exploration of
research issues
 Open approach
to scientific
community – open
sharing of knowlege
 New workplace  Cross
 Openess to
layout – open
functional teams
creativity
office, meeting
 Competence
 Absence of
points
centres
departmental
 Mobile
 ‘multi-job
identification
workstations;
system
 Interaction and
 Easily accessible  Self
dialogue
electronic
participation in
encouraged.
archive
projects
 Technical
experts loosely
linked with
professional
areas
 Employees
with eclectic
skills able to
work in an
unconventional
environment
 Motivated
 Flexible
employees
workplace
 Experienced
design
senior managers

 Absence of
 Openness to
departments
individual proposals
 Development
& creativity
group
 Broad involvement
 Continuous
the strategic
collection and
process
assessment of
proposals;
 Free allocation
of time & skills;
 Centralized
allocation of
financial
resources
Source: Derived from Verona and Ravasi (2003)
3.2.4 Innovation Management
The extensive literature on innovation at the firm level stresses the role of a firm’s resources
(physical assets, human resources, intellectual property, internal ‘routines’ and external links)
in enabling competitive performance. In the context of relentless competition the role of
learning in continuously upgrading resources is a vital mechanism – and hence a great deal
of attention has been focused on the processes of learning. For many (particularly larger and
‘high tech’) firms a central mechanism of learning is through R&D. But this is only one
mechanism and in smaller firms and less high tech sectors learning through other
mechanisms may be more important (eg learning from customers, suppliers, competitors,
new staff, problem solving etc). The concept of routines (the ways of deciding, organizing
29
and doing that firms develop over time to coordinate the mobilization, integration and
development of resources) plays a central in theories of effective innovation management32.
While firms are the central actors in the innovation process, external interactions (eg
alliances, networks) play a crucial role. The significance of interactions among firms and
between firms and research organisations, and the role of a diverse range of institutions (eg
public policies, social conventions and values) in shaping goals and incentives, has led to the
concept of innovation systems. The initial concept of innovation systems did not emphasize
a spatial dimension to the patterns of interaction and institutional development, but more
recently there has been a strong emphasis on regional innovation systems33.
The RBV has had a strong influence on the frameworks for recent approaches to innovation
management. One important foundation of those frameworks concerns the processes
through which firms search for new knowledge. The processes through which organisations
learn are characterized by cumulativeness. Firms search for new knowledge from the basis
of the knowledge they already have – ie they search ‘locally’ (Nelson & Winter, 1982), Firms
cannot effectively identify and assess all options in their search for new technologies for their
products and processes. Nor can they hope to easily master a new area of technology
unrelated to their existing knowledge base.
Helfat (1997) analysed the sources of oil firms’ capability to enter new technology areas. She
found that firms that had previously undertaken R&D in areas of technology related to the
new technologies had accumulated complementary assets, in the form of knowledge and
physical plant, that enabled them to more rapidly respond to changes in the external
environment (in this case rising oil prices and alternative technologies). These
complementary assets were primarily knowledge and plant that either enabled the firms to
more rapidly undertake effective R&D in the new technologies, or enabled the firm to more
effectively commercialise the outcome of their R&D. Helfat argues that organisational and
technological knowledge acquisition is cumulative.
3.2.5
Firm Learning, Organisational Learning and Knowledge
Management 34
Many authors have characterized different types of knowledge and drawn out the
implications of these differences for the processes of learning. One such characterization, by
Lundvall and Johnson35, identifies four types:
32
Tidd, J., Bessant, J. and Pavitt, K. (2005) Managing Innovation. Integrating Technological, Market
and Organisational Change. Wiley. Fagerberg, J., Mowery, D. and Nelson, R. (2005) The Oxford
Handbook of Innovation. Oxford University Press. Dosi, G. (1988) The Nature of the Innovative
Process. In G. Dosi et al (eds) Technical Change and Economic Theory. Pinter: London:221-238. Dosi,
G., Nelson, Rl and Winter S. (eds) The Nature and Dynamics of Organisational Capabilities. Oxford
University Press. Oxford. Becker, M. (2004) Organisational Routines: a review of the literature.
Industrial and Corporate Change 13(4): 643-677.
33
Asheim, B. and Gertler, M. The Geography of Innovation: Regional Innovation Systems. In
Fagerberg, J., Mowery, D. and Nelson, R.(eds) (2005) The Oxford Handbook of Innovation. Oxford
University Press
34 K Nonaka, ‘The knowledge creating company,’ Harvard Business Review, Nov-Dec 1991.; Easterby-Smith, M.
and M. A. Lyles (editors). (2003). The Blackwell Handbook of Organisational Learning and Knowledge
Management, Oxford, Blackwell Publishing
34
35
Cited in Arnold, et al 2004m p16
Cited in Arnold, et al 2004m p16
30
 Know what - which involves the transfer of codified information as facts
 Know why - which involves understanding basic principles, rules and ideas
 Know how - which involves direct experience
 Know who - which requires direct contact between individuals, the ability to
communicate and form relations of trust.
While ‘know what’ and to some extent ‘know why’ can be readily transferred between
individuals and groups (if the share the same underlying knowledge base) this is not the
case with ‘know how’ and ‘know who’ which generally requires much closer inter-personal
interaction. Arnold et al (2004) make the point that codification of knowledge facilitates
both the management and transfer of knowledge. However, the capacity to absorb codified
knowledge may require the prior development of tacit knowledge, as well as the prior
acquisition of codified knowledge. To that extent, scientific knowledge is not a public good,
as only some individuals and organisations are capable of using it.
There is an extensive literature that addresses the question of how firms develop the
capabilities that underpin all of the functions from routine production to innovation.
Summarising a range of studies Malerba has identified six major mechanisms of learning at
the firm level36:
 Learning by searching, refers to the generation of new knowledge achieved through
formalised search activities such as R&D.
 Learning by doing, refers to the accumulation of knowledge gained through carrying
on repetitively the same kind of activities.
 Learning by using, refers to learning through the utilisation of products.
 Learning from advances in science and technology, refers to the absorption of new
developments in science and technology.
 Learning from inter-industry spillovers, refers to the activities of competitors and
other firms in the same industry.
 Learning by interacting, refers to ‘horizontal’ or ‘vertical’ forms of interaction with
other sources of knowledge such as cooperations with other firms.
All of these mechanism are, or can be, incorporated in the Dynamic Capabilities/ Absorptive
Learning framework.
Organisational Learning
A key issue for organisational theory is how organisations learn and adapt to their
environment and a distinct literature has developed around the concept of organisational
learning37. Organisations (or individuals or groups) learn to modify behaviour where there is
a gap between actual and expected outcomes (single loop learning). In double loop learning
they question their approach to learning (ie their policies, frameworks, organisational
36
F. Malerba, Learning by Firms and Incremental Technical Change, Economic Journal, 102/1992, pp.845-859
Henrich R., Greve,( 2003) Organisational Learning from Performance Feedback Cambridge
University Press; Sutton, R. J. & Pfeffer, Jeffrey Published (2000) The Knowing-Doing Gap: how
smart companies turn knowledge into action. Harvard Business School Press; Choo & Bontis, N (Eds)
(2002)Strategic Management of Intellectual Capital and Organisational Knowledge Oxford University
Press; Argote, Linda (1999) Boston: Kluwer Academic,. Organisational Learning: Creating, Retaining,
and Transferring Knowledge.
37
31
structures) in order to improve the learning process itself38. As discussed above tacit and
codified knowledge have different characteristics and also different learning processes.
Nonaka and Takeuchi (1995) have developed a model of organisational learning which
recognises these differences and identifies processes (‘externalization’) that can transform
the tacit knowledge of experienced personnel into codified knowledge, in principle then more
widely available in the organisation, and ‘internalisation’ through which employees internalize
an organisation’s procedures and formal operational requirements 39. In this model
‘socialization’ processes facilitate the sharing of tacit knowledge and ‘combination’ processes
facilitate the diffusion of codified knowledge.
The term ‘the learning organisation’, a prescriptive framework for management, is perhaps
most strongly associated with the influential work of Peter Senge in the Fifth Discipline.40
The approaches to organisational learning tend to emphasize either the experiential or the
cognitive processes of learning. In the former firms develop their capabilities in response to
feedback from their environment in a process of adaptation (Cyert and March, 1963)41. In
the latter, prior knowledge and mental models of individuals shape the identification and
interpretation of new knowledge (Argyris and Schon, 1978; Senge (1990)42. These
experience-related and cognitive processes are well integrated in the framework of Zollo and
Winter(2002), which emphasizes the role of planned approaches to knowledge articulation
and codification as a deliberate learning mechanism.43
Access to knowledge is vital for organisations to renovate their competencies and remain
competitive. Exposure to other ideas, approaches and ways of thinking often simulates firms
initiate paths of learning and action through which the firm selects, assesses and integrates
new knowledge into their resources.
Focusing on the internal characteristics of firms that contribute to absorptive capacity, Jones
draws attention to the roles of gatekeepers, boundary spanners and change agents. 44 These
roles contribute to both inter-organisational and intra-organisational knowledge flows, and
more broadly to the capacities to acquire, assimilate, transform and exploit knowledge.
It is increasingly recognised that for established firms, including SMEs, breaking the
established path, re-learning how to learn and embarking on a phase of exploration is
necessary for strategic renewal, but managerially challenging45.
Argyris, C. and Schon, D. (1978). Organisational Learning: A theory of action perspective, AddisonWesley, Reading MA, 1978.
39
Nonaka, I. and Takeuchi, H. (1995), The Knowledge Creating Company, Oxford University Press,
New York, 1995
40
Senge P. (1990) The Fifth Discipline: The Art and Practice of the Learning , New York. Currency
Press
41
Cyert, R. and J. March (1963). A Behavioral Theory of the Firm. Englewood Cliffs, NJ., Prentice-Hall.
42
Argyris, C. and D. Schon (1978). Organisational Learning: A Theory of Action Perspective. Reading,
MA., Addison-Wesley; Senge, P. M. (1990). The Fifth Discipline: The Art and Practice of the Learning
Organisation. London.,Century Books.
43
Zollo, M. and Winter, S. (2002) Deliberate Learning and the Evolution of Dynamic Capabilities.
Organisation Science 13(3): 339-351
44
Jones, O. (2006) Developing Absorptive Capacity in Mature Organisations: The Change Agent’s Role.
Management Learning.
45
Jones, O. (2006) Developing Absorptive Capacity in Mature Organisations: The Change Agent’s Role.
Management Learning.
38
32
Knowledge Management46
If knowledge or intellectual capital is a key asset of an organisation then its acquisition,
management and measurement are important issues. Knowledge Management refers to a
range of organisational practices for identifying, storing and disseminating knowledge across
an organisation. Not surprisingly the Knowledge Management field is increasingly linked with
the use of IT for ‘knowledge’ storage, searching and transfer – for example databases,
expert systems, corporate intranents, blogs, and software to facilitate collaboration.
Knowledge management has developed as a functional area of organisations in which
specialists are employed. It is also a new field of research and disciplinary development with
a variety of schools, each with a different emphasis.
3.2.6
Collaboration and Networking
Networks and external links have a key role in alerting firms to change in their external
environment, including the existence, relevance and accessibility of knowledge – and in
providing channels for the acquisition of new information and knowledge. There is a great
deal of evidence that a characteristic of more innovative and dynamic firms is that they have
more external links47. As ICT greatly facilitates communication and hence the breadth,
flexibility and rapidity of networking this has been one of the important dimensions of the
impact of ICT on innovation - for example, Gray, (2006; 2003); Corso, et al (2003).
Arnold et al (2004) draw attention to the concept ‘Knowledge Value Collectives’ (KVCs),
developed by Bozeman and Rogers to describe the set of people and institutions that work
with a related set of knowledge48. They comment that KVCs are situations where knowledge
production is an explicit part of the community’s activity, and that individuals join such
collectives with a variety of motives including factors such as a desire to ‘play’ within groups
of individuals with similar interests as well as the more obvious resource-based motivations,
such as access to infrastructures, building skills and solving technical problems. They suggest
that KVCs are one of the building blocks of innovation systems, and that policy for absorptive
capacity should include measures to foster the growth of such collectives. This is an
important point and reminds us again, as noted in Section 2, that firms are social
organisations and they operate in networks and through relationships that are socially
shaped. If we reduce the concept of a firm, or the analysis of an innovation system, simply
to an economic model we risk losing important dimensions of what shapes their performance.
Based on their review of literature on networking in innovation, which focuses on ‘high tech’
sectors, Powell and Grodal suggest that there is often a virtuous circle with active firms
developing external collaboration (through which they have access to diverse sources of
information and capability), learning from experience to better manage such links,
collaboration improving internal innovation performance, which attracts other firms into
collaborations, and so on49. They note, however, that some forms of knowledge transfer may
require relatively close links. Drawing on a number of empirical studies they argue that
(particularly tacit) knowledge exchange may be difficult where two organisations have
See: Knowledge Management Online Open Source KM http://www.knowledge-managementonline.com/;
47
Freeman, C. and L. Soete (1997) The Economics of Industrial Innovation, Pinter: London
48
Barry Bozeman and Juan Rogers, ‘A churn model of scientific knowledge: Internet researchers as
a knowledge value collective,’ Research Policy, Vol 31, 2002, pp 769 – 794
49
Powell, W. & Grodal, S. (2005) Networks of Innovators. In Fagerberg, J., Mowery, D. and Nelson,
R.l (Eds) The Oxford Handbook of Innovation. OUP.
46
33
different cultures, and that in some cases established alliances develop a common language
and shared mental models (‘wider bandwidth’) that facilitates knowledge transfer.
3.2.7.
Accessing External Technology
Slowinski et al (2000) surveyed 22 firms to assess their approach to identifying, accessing
and evaluating external knowledge. They found that:
“With the exception of pharmaceutical and electronics industries, we found that most
companies did not have a structured/organized external technology acquisition effort.
Companies were mainly in the early stages of creating an organized approach and were
exploring,searching, piloting and reorganizing their efforts to incorporate external technology
into internal technology development activities.” (p29-30)
However they also found that the effective management of technology acquisition, and
developing competencies for that purpose, was generally seen as being increasingly
important. Table 3.6, which summarises Slowinski’s findings regarding the management of
technology acquisition, also identifies management issues and tools that are also relevant to
absorptive capacity.
34
Table 3.6: Managing the Acquisition of External Technology
Understanding
Technology
Needs
Identifying
External
Technology
Evaluation &
Assessment of
Technology
Leads
Valuation of
the technology
Developing a
Technology
Agreement
Metrics for
Measuring
Success
Issues in Managing Technolgy
Acquisition
Needs in relation to strategic plans
Required performance characteristics
IP positions
Complementary internal capabilities
required to translate external
knowledge into commercial outcomes
There are many approaches and
these tend to differ across industry
sectors.
Need for strong internal expertise to
evaluate value and the internal
resources needed to use it.
NIH can be a major barrier in the
assessment
The disclosure process often needs to
be progressed in stages
Valuation is particularly difficult for
early stage technologies.
Valuation should take into account
the costs to modify, improve and
implement the technology.
The structure of agreements varies
widely both due to the nature of the
relationship and the preferences of
the partners
Wide diversity and few satisfactory
systems. Metrics must be credible
within the organisation, tailored to
the audience; include inputs from all
stakeholders
Tools for Managing Technolgy
Acquisition
Technology roadmapping
Gap analysis
Competitive analysis.
Requirement for people from different
functional areas to participate in a
thorough assessment.
Patent and literature searches
Public research sector networks
Technology brokers
Dedicated technology intelligence groups or
individuals with internal dissemination
systems.
Formation of intra-corporate knowledge
groups
Generation of open roadmaps to
communicate needs
Cross functional teams for assessment
Objective criteria for assessment
IP-related valuation tools include:
IP asset valuation
Licensing
Collaboration
Alliance Framework™
Few developed generic tools
Source: Slowinski et al (2000)
3.2.8
Learning and Absorptive Capacity in SMEs
The changing role of SMEs in production, innovation and employment has led to a greater
focus on their role in knowledge generation and transfer. A recent review supported by the
UK Economic and Social Research Council’s Evolution of Business Knowledge Programme
provides a useful assessment of a diverse range of literature on the evolution of knowledge
in SMEs50.
Thorpe et al (2005) note that many authors distinguish between know how (or informal or
tacit knowledge) and know what (or formal or codified knowledge) and observe that the
50
Thorpe,R. Holt, R. Macpherson, A. and Pittaway, L. (2005) Studying the Evolution of Knowledge Within Small
and Medium-Sized Firms: A Systematic Review. Warwick Business School.
35
former is particularly closely associated with people and activities. However, knowledge in
organisations, and in the wider environment accessed by firms, is embedded in institutions
of one form or another: ‘..what is known becomes, in part, a function of institutionalized
practices whose path dependencies and historically conceived world views configure what
counts as a valid knowledge asset..’ (p35). This conceptualization of knowledge in
institutionalized practices is implicit in the concept of routines. It is also fundamental in the
literature on ‘communities of practice’51 which emphasizes the extent to which ‘….people
learn by becoming immersed in the legitimizing discourse and activities of the community…’.
(Thorpe et al, 2005. p37). According to Thorpe et al (2005) the ‘communities of practice’
perspective also suggests that packages of new codified knowledge are unlikely to be
implemented until they are adapted to specific locations and applications through such
communities. They also suggest that forms of lock-in can occur when existing routines are
reinforced when change requires new approaches- and hence that ‘communities’ can be a
force for restriction and control, as well as a source for increasing understanding. These
developments in organisational knowledge research have moved the focus away from
questions of the acquisition and exploitation of knowledge assets by isolated and
hierarchically organized firms to a relational perspective which ”..’situates knowledge and
knowledge management squarely within social and political systems of meanings’ (Swan &
Scarborough, 2001:921)” (Thorpe et al, 2005).
Having and accessing knowledge is often critically important for SMEs, where responsiveness
and flexibility may be a key source of competitiveness. However, all SMEs are not the same.
Thorpe et al (2005s) cite a number of studies that found a significant difference in learning
strategies between entrepreneurs and non-entrepreneurs, where the latter are concerned
with learning activities that assign, divide and adjust (essentially within in the scope of
existing knowledge) whereas entrepreneurs were more concerned with animating, designing
and learning (ie essentially with processes of discovery). The studies suggested that
entrepreneurs were more prepared to adapt both their knowledge and their learning
strategies to the context, to question their practices and to consult wider information sources.
These interactions with wider sources are important for two reasons. First, identifying and
understanding an opportunity requires relevant knowledge, which may be acquired through
interaction – although the entrepreneur will require the cognitive foundations to grasp the
significance of that knowledge. Second, knowledge is increasingly dispersed across people,
and communities, amongst whom there are a plethora of often conflicting expectations
concerning the exploitation of that knowledge, the role of the individual entrepreneur is one
of bringing into focus a specific nexus of relations that can be acknowledged as an
opportunity. It is the way the entrepreneur orchestrates such relations – rather than how
they might rationally analyze likely business costs – that configures how knowledge is acted
upon in terms of founding organisational routines.” (Thorpe et al, 2005, p63).
Several recent studies of learning and innovation in SMEs stress the role of the
entrepreneur/managers in creating the mechanisms (‘spaces’, routines, organisational
arrangements, permission to experiment) that facilitate knowledge sharing and integration.
This is because the knowledge of individuals is of limited value unless its use also mobilizes
the resources of others. This capacity (labeled by Bessant et al, 200152) as agility) also
involves the ability to creatively reconfigure both problems and possible solutions rather than
51
Brown, J. S. and Duguid, P. (1991) 'Organisational Learning and Communities of Practice: Toward a Unified
View of Working, Learning and Innovation', Organisations Science, 2 (1): 40-57.;Wenger, E. (2000) 'Communities
of Practice and Social Learning Systems', Organisation, 7 (2): 225-246.;Wenger, E.C. and Snyder, W.M. (2000)
'Communities of Practice: the Organisational Frontier', Harvard Business Review, 78: 139-145
Bessant, J., Francis, D., Meredith, S., Kaplinsky, R and Brown, S. (2001) 'Developing manufacturing
agility in SMEs' International Journal of Technology Management, 22 (1,2,3): 28-54
52
36
rely on a fixed retinue of responses (Thorpe et al , 2005). However, these and other studies
recognise that a high level of relevant knowledge must exist in the SME to support decision
making and knowledge absorption: “The kind of knowledge that is of most use to SMEs is
the kind of knowledge most firmly embedded within the experience, insight and intuition of
knowledgeable people….The message is that it is the personal forms of knowledge that are
of most use to SMEs, that this form of knowledge is held within the experiential ambit of key
individuals, and that in order to benefit from this knowledge the entrepreneur or manager
needs to maintain intimate links with the knowledge – either through co-ownership
structures of being skilled in themselves.” (Thorpe, et al, 2005).
Some of the studies of SME knowledge resources use the conceptual framework of
‘absorptive capacity’. A particularly useful recent study is that of Liao et al (2003) who
analyzed the absorptive capacity of 107 growth-oriented SMEs in the US 53. According to
Thorpe et al (2005), the study found that:
“SMEs communal interaction was vital in order to better expose the organisational routines
to alternative ways of doing things. This exposure would then better justify investment
decisions in the routines by which accumulated experience is stored, transferred and
transformed as knowledge; the validity and authority of the knowledge informing the
prevailing expectations within the firm would be better assured because of its being seen to
work elsewhere. A concern with absorptive capacity reflects awareness that what is known is
a combination of being exposed to new information and being willing and able to act upon it.
The assumption is that the greater the absorptive capacity of an SME, the more its people
are able to recognise opportunities in pro-active rather than re-active ways. Liao et al (2003)
find that high levels of responsiveness (acting upon knowledge acquired) are associated
with: firstly, a capacity for external knowledge acquisition (active listening) and internal
knowledge dissemination; secondly, a pro-active strategy of new opportunity exploration as
opposed to exploiting existing ones; and, finally, exposure to a turbulent business
environment within which strong internal dissemination routines act as a kind of operational
and strategic tether.” (p67)
On the basis of this and other studies, Thorpe et al (2005) conclude that, rather than
focusing on strong internal knowledge routines, it is the external linkages, and an awareness
of the external institutional environment, that are important for SMEs, particularly for growth
oriented firms and firms in turbulent environments:
“Hence if it exists, an SME’s absorptive capacity is not so much a stable, unit-based
competency as a function of the social network they hold in place, and held in place by. The
knowledge routines are invariably externally influenced and configured both creation and use,
the implication being that to be concerned with knowledge is to be concerned with extent
and quality of the external links (or social capital) within which an SME finds its role.”
(Thorpe, et al, 2005; p68)
Several studies of innovation in SMEs have emphasized both, the role of interactions with
customers and suppliers as sources of knowledge for innovation, and the role of the SMEs
knowledge capabilities for effective interaction with customers and suppliers (for example
Liao, J., Welsch, H. & Stoica, M. (2003) 'Organisational Absorptive Capacity and Responsiveness: an
Empirical Investigation of Growth-Oriented SMEs', Entrepreneurship Theory& Practice, 28(1):63-85
53
37
Hoffman et al, 1998)54 Interaction with customers, and particularly international customers,
appears to be generally a stronger driver than interaction with suppliers. 55
We might expect that membership of tight knit clusters would facilitate knowledge
acquisition by SMEs but Thorpe et al (2005) cite several studies which suggest that clusters
were important for commercial links but were less important for learning than either internal
capacities or extra-cluster linkages.
Many studies discuss the role of organisational systems, processes and routines in
supporting the internal and external interactions that enable the accumulation and
distribution of knowledge. Social capital and network relations facilitate external links and
internal routines enable acquisition, dissemination and sharing. Thorpe et al (2005) argue
that SMEs must strike a balance between becoming competent in a specific area and
continuing to remain competent in a changing market and competitive environment. They
argue that in many cases, particularly for SMEs, the ability to build and reconfigure networks
will be more important than the ability to accumulate knowledge internally, and hence social
capital is particularly important. As indicated in Figure 3.8 , there appears to be trade offs
between an orientation toward the efficient and effective exploitation of knowledge (more
typically associated with larger firms or SMEs in a stable niche) and an orientation toward
exploring for new knowledge and responding to the opportunities that may be identified.
These overall findings are summarized on Figure 3.9, which suggests a virtuous circle
through which an SME can replenish its knowledge assets while also reconfiguring both its
internal routines and external linkages. The figure also suggests that while knowledge can be
acquired through external links, its assimilation involves active processes of innovation and
problem solving and reflection on experience. The figure also indicates several points and
processes through which an SME can temporarily or more permanently move away from this
virtuous circle, for example by avoiding the challenge of growth and innovation, failing to
widen its external links, relying on proven routines or failing to invest in the development of
new knowledge assets.
In the organisational learning literature this balance dilemma, ie of developing organisational
routines that stimulate creativity while supporting knowledge accumulation and application,
is conceptualized in terms of developing generative, integrative and double loop learning. A
key requirement for this balance is the capacity to reflect on (rather than only accumulate)
experience in order to adapt and change routines for new challenges, but without losing the
benefits that come with focus. Based on their review, Thorpe et al (1995) emphasise that
that capacity is not simply located within a firm but is also shaped by networks and the
external business and knowledge environment. They also suggest that the role of firms’
‘external knowledge relations’ is increasing due to both the growth of outsourcing and the
rate of technological change. Consequently, boundary spanning structures of
communication, whether related to formal inter-firm relationships, value chain interactions or
loose networks, have a key role in absorptive capacity.
Hoffman, K., Parejo, M., Bessant, J. and Perren, L. (1998) 'Small Firms, R & D, Technology and
Innovation in the UK: a Literature Review', Technovation, 18 (1): 39-55
55
See for example: Bell, J., Crick, D. and Young, S. (2004) 'Small Firm Internationalization and
Business Strategy: An Exploratory Study of `Knowledge-Intensive' and `Traditional' Manufacturing
Firms in the UK', International Small Business Journal, 22 (1): 23-56; and Burpitt, W.J. and Rondinelli,
D.A. (2000) 'Small Firms' Motivations for Exporting: to Earn and Learn?', Journal of Small Business
Management, 38 (4): 1-14
54
38
Figure 3.8 The Challenge of Balancing the Trade-Offs Between Wide Angle
Exploration and Narrow Focus Exploitation.
WEAK & DIVERSE
EXPLORATION
INTERNAL ROUTINES
CODIFIED
LOOSE
EXTERNAL LINKAGES
STRONG & FOCUSSED
EXPLOITATION
Source: The Authors
Figure 3.9: Knowledge Acquisition in SMEs – a Virtuous Circle
Fixed routines,
excessive
formalization
Orientation to Growth
& Innovation Strategic Intent
Strong capabilities &
active knowledge
orientation & effective &
flexible sharing routines
Underinvestment
in new
knowledge
Reflection
Risk aversion
& orientation
to stability
Active exploration
through interaction
Reflection
Growth & re-investment
in resources
Network building &
extension- deeper
social capital
‘lock-in’ &
focus on
exploitation
Reflection
Rigid routines &
lack of space
for
experimentation
Innovation & Problem
solving – stretching
knowledge & routines
Knowledge
recognition
Source: Authors based on Thorpe et al (1995)
One of the important conclusions of the review is that a perspective focused on knowledge
as an asset and set of routines is too narrow. Such a focus tends to support measures to
consolidate links and routines and to codify knowledge. However, the review concludes that
39
recent research suggests that the more innovative SMEs maintain a high level of flexibility in
their external links and internal routines. This flexibility, however, is enabled by a high level
of individual competences and diverse socially-embedded networks. Entrepreneurs who are
active in seeking out different communities (cf ‘communities of practice’) are more likely to
develop interactions that provide resources for reflecting on and changing current practices.
While the entrepreneurs human capital is a unique resource for many SMEs, the personal
knowledge of entrepreneurs and managers is best developed where situations provide the
opportunity for both extension (eg through new challenges) and reflection (eg through
interaction with others).
3.2.9
Barriers to Change and Learning in SMEs
By drawing on a range of detailed studies, Gray (2006) shows that only a small proportion of
SMEs are particularly dynamic in terms of innovation and growth. It is this ‘active
entrepreneurial minority’ that is the particular focus for policy.
The limited use of training needs assessments in SMEs leads to lack of demand for training,
Gray (2006) found that the SMEs with higher growth and higher levels of innovation tend to
be those with more highly qualified and younger managers. He also found that firms with
more qualified managers tend to invest more in training and establish more external links.
Corso et al., 2003 conclude that ICT can “play a key role in this process. By providing quick
and easy access to external sources of knowledge and new and more intense communication
channels with partner organisations, ICT can erase traditional constraints on SMEs
innovation ability, while leveraging their flexibility and responsiveness”.
The extensive literature on innovation and competitiveness in SMEs also provides useful
frameworks for and insights into absorptive capacity. As summarized in Table 3.7 and Figure
3.10, a wide range of studies show that firm absorptive capacity:
 Is often a by product of prior innovation and problem solving;
 Is built on individuals investment in learning ie prior investment via training etc ;
 Has a high degree of cumulativeness and path dependence; and
 Depends on a firm’s ability to share knowledge and communicate internally.
Table 3.7:
External
Internal
Factors that Promote and Impede Learning in SMEs
Negative
Extreme competition
Lack of risk finance
Limited supply of human resources
Lack of strategic orientation to growth.
Limited knowledge base
Lack of training
Lack of knowledge sharing
Lack of investment in management
development
Size (Gray, 2006) (small firms are
generally more resistant to training)
Source: Authors
Positive
Competition
ICT – for communication
Networks
Kn organisations and
Good research industry interfaces
Links with research and knowledge
organisations
Ability to identify and exploit opportunities
Formal education relevant to the functional
area
Mechanism to provide awareness of what
knowledge an organisation has and where it
is.
40
3.2.10
International and Inter-firm Technology Transfer
There has been substantial interest in knowledge transfer to subsidiaries within multi
national enterprises, eg Gupta and Govindarajan (2000) assessed the MNC subsidiaries’
absorptive capacity by focusing on the prior related knowledge of the subsidiaries.
There have been many studies of knowledge flows in general and of absorptive capacity in
particular, in the context of strategic alliances and joint ventures -see Van den Bosch et al
2003 and Inkpen and Dinur, 1998. A particular aspect of this area of research has been the
role of asymmetries in absorptive capacity in joint venture or strategic alliance partners.
There is an extensive literature on the international transfer of technology, both inter-firm,
for example through licensing arrangements, and intra-firm, for example from parents to
MNC subsidiaries. Many of these studies have identified a lack of absorptive capacity in the
recipient firm as a major barrier to effective knowledge transfer. For example, Szulanski
(1996) studied 122 cases of intra-firm knowledge and found that three particular factors
were the major impediments to effective transfer56:
 The level of tacitness (related to human skill or collective endeavour) or ambiguity of
the knowledge;
 Lack of ability to value, assimilate and apply new knowledge successfully (Szulanski
termed this "absorptive capacity"); and
 The quality of the relationship between the organisations – an arduous relationship,
due to distance or poor relations is a major barrier in comparison with an ‘intimate’
relationship.
Other factors that influenced the level of success in knowledge transfer were:
 The perceived value of the knowledge – ie whether it was considered proven;
 The characteristics of the knowledge source – motivation to transfer
 The recipients perception of the reliability or standing of the source;
 The motivation of the recipient – preparedness to learn;
 The effort of the recipient – preparedness to persist in learning and follow through
(termed by Szulanski ‘retentive capacity’; and
 The organisational context – ie whether structures and routines facilitate
communication and focused effort.
Szulanski, G (1996) "Impediments To The Transfer of Best Practice Within the Firm" Strategic
Management Journal, v. 17, Winter 1996, 27-44)
56
41
Figure 3.10 Learning Drivers and Facilitators in SMEs
Strategy
Stretch goals
Knowledge base
Formal education
Experience
Training
Kn sharing
Focusing
device
In-house R&D
Problems
Customer need
Organisation
Routines
IT systems
Culture
External Linkages
Formal and informal
networks
Collaboration
Source: The Authors
3.2.11
Technological Capability Development in Industrialising
Economies
Unlike Cohen and Levinthal, who based their idea of augmenting firm absorptive capacity by
largely investing in research and development (R&D) per se, an alternative way of increasing
a firms’ absorptive capacity is through a deliberate, strategic learning effort (Kim, 1998;
1999). In explaining the learning processes at Hyundai Motor, Kim (1998) breaks down the
absorptive capacity concept into two major elements: the prior knowledge base and the
intensity of learning effort (considered the more important element57). Likewise, based on
the innovation studies of latecomer firms in Southeast Asian countries, Berger (2005: 20)
proposed two more elements of absorptive capacity: organisational factors (i.e.
organisational structure, internal communication arrangement and managerial human
resource management) and human capital (i.e. a firm’s employees and the quality of their
education).
Other scholars have also (to a varying degree) implicitly addressed the issue of absorptive
capacity and its relationship to firm learning, innovation and the impact of policy (e.g. Dalitz,
2005; Giuliani and Bell, 2004; Kim, 1999; Magotsi-Motanya, 2005; Pavlou and El Sawy, 2005;
Song and Shin, 2002; Wegloop, 1995)).
Kim (1998) added that even if the (latecomer) firm has low prior knowledge base, it could acquire
the absorptive capacity it desired by exerting (and continuously maintain) the high level of learning
effort. This was certainly the case of Hyundai Motor (Korea) during its early stages of development.
Following the same argument, Criscuolo and Narula (2002: 6) stated “Absorptive capacity accumulates
only if an effort [i.e. learning effort] to internalise the external knowledge is exerted and in particular
if the prior knowledge has been applied to the solution of problems” [italics added].
57
42
The antecedents and the outcomes of absorptive capacity (i.e. the firm’s capability to learn)
are fundamentally influenced by a firm’s strategic intent (or their strategic organisational
goals), which also includes the ability of a firm to form strategic alliances and networks with
other firms and non-firm organisations. This strategic intent serves as the cornerstone for
the firms’ learning strategies; it assists firms in trying to plan for consistent, well-aligned
(and continuous) learning activities and to select appropriate learning mechanisms (Chitravas,
2006). Thus, we can see that a firms’ strategy, learning process and absorptive capacity are
intimately linked; but that the potential to disaggregate absorptive capacity is also very
complex, but is likely to be fruitful exercise since it would allow management researchers to
obtain a greater understanding of the dynamics of absorptive capacity; and the ways to
augment such capacity (e.g. through a management of firm’s dynamic capabilities (Teece
and Pisano, 1994; Teece et al., 1997)) and thus enhance the firm’s ability to innovate and
compete.
Furthermore, it is likely that all of the absorptive capacity elements must be taken into
account in a firm’s competitive learning strategy contexts; and that these elements are
dynamic and will have particular significance for the sequencing of a firm’s dynamic learning
capabilities and to simultaneously manage the evolving external linkages and collaboration,
the changes within external industry, the changes within the policy and institutional
environment, a firm’s internal learning activities,a firm’s learning mechanisms, and the
stages in a firm’s capability development.
3.2.12
Conclusions
The literature that is relevant to an understanding of absorptive capacity, and hence that can
contribute to a sound foundation for surveys and policy, is extensive and expanding. This
review has sought to focus on the core literature (which explicity addesses the concept of
absorptive capacity) and to indicate the main concepts and approaches of the major related
areas of recent research. While an extension of this review, to draw on a wider range of
recent work, would ensure a deeper foundation for future policy, we can draw out several
broad conclusions from this review:
 The growth of recent studies underline the increasing interest in more effectively
managing knowledge, learning and innovation, both at the firm level and above. This
interest is leading both to greater understanding of these complex issues and also to
a widening range of tools to assist the management of knowledge, learning and
innovation. Absorptive capacity is a part of a firm’s innovation capabilities and hence
its development is a dimension of innovation management.
 The knowledge acquisition aspects of absorptive capacity have cognitive (prior
knowledge), cultural (shared values) and structural (a division of labour enabling
engagement) dimensions.
 The processes of learning and innovation are systemic in that they involve the whole
firm and are strongly shaped by overall strategic intent, culture and organisation of
the firm. However, in many SMEs a small number of people and their (in large part
personal) networks play a central role in innovation and absorptive capacity.
 Increasingly, the processes of learning and innovation involve a great deal of
interaction with other firms (customers, suppliers) and sometimes, but usually much
less often, research organisations. Hence, knowledge and capability is distributed. It
is not possible for firms to hold in-house all of the knowledge and capability required
43
and hence how they build the relationships access this distributed knowledge and
capability is a key issue.
 Firms learn (acquire information, knowledge and capability) through a wide range of
pathways. Formal R&D and particularly direct transfers of technology from research
organisations, are minor sources for most firms. The increasing pace of change
requires more active and purposive development of learning mechanisms an more
effective management of learning processes.
 A key aspect of absorptive capacity is the recognition of an opportunity arising from
new knowledge about, eg technology, customer’s needs, market trends. That
recognition often requires a strong prior basis of knowledge.
 But this recognition is of little value unless it is allied with strategic intent and
implementation capabilties.
 As learning depends to a large extent on a prior knowledge base (to provide
absorptive capacity), and because a great deal of learning is a by-product of
innovaition and problem solving around a firms existing products, processes and
customers, knowledge and capability development is cumulative, following an
evolutionary path.
 This is also true of the mechanisms (or dynamic capabilities) through which firms
learn – ie the organisation of R&D, the development of collaboration and alliances,
the organisation of product development, the approach to training. These mechanism
that support learning and innovation tend to evolve over time based on experience
and the copying of industry models or recipes. Purposively building a new
architecture of learning and innovation is particularly challenging. We are currently in
a phase of quite active experimentation with new models for learning and innovation,
eg open innovation, corporate ventures, strategic alliances.
 Knowledge is only partly codified and to that extent is inseparable from individuals,
and the role of individuals is often closely related to the networks through which they
learn. Hence, knowledge is not simply an asset that firms store and trade.
 It is particularly challenging for SMEs to maintain a process not only of continuous
improving performance but also of continuously upgrading their knowledge and
learning mechanisms. Scarce resources and managerial attention are constantly
drawn to the problems of the short term and there is rarely the luxury of a division of
labour allowing a group to focus on the longer term. Networks and external support
agencies can help SMEs to re-focus on longer term strategic issues.
44
4.
Frameworks for Assessing Absorptive Capacity
This Section draws on the review in Section 3 in order to develop a robust framework for a
survey of absorptive capacity in Australian industry.
4.1 Absorptive Capacity: Models of the Components
The model of the development of absorptive capacity that can be derived form the original
work of Cohen and Levinthal (1990) focuses on the role of learning in the context of R&D
projects – Figure 4.1.
Figure 4.1: The Development of Absorptive Capacity in the Cohen & Levinthal
Framework
Technological
Opportunity
Available knowledge
Significance
Appropriability
Low IP constraints
Demand for
Learning
Relevance
Complexity
Knowledge proximity
R&D
Investment
Absorptive
Capacity
Commercial
Opportunity
Market growth
Market power
Derived from on Lane, Koka & Pathak (2006)
A study carried out for Forfas by the firm Technopolis (Arnold et al (2004)) stressed the key
role in innovation of the re-use of the existing stock of knowledge, most of which is external
to the firm, as well as new knowledge. The constant cycle of innovation, imitation of
innovations, the diffusion of knowledge and the search for new innovation-based
opportunities is a central dynamic in capitalism. It is often assumed that the capabilities
required to use old knowledge are less demanding than those required for generating new
knowledge – but the key argument of Cohen and Levinthal’s 1989 paper (Innovation and
Learning: the Two Faces of R&D) was that both draw on the same capabilities, and hence
that carrying out R&D also develops capabilities to more effectively absorb knowledge from
elsewhere.
The approach to the study by Technopolis focused on the ingredients of absorptive capacity.
The study proposed that absorptive capacity includes at least the following capacities (Table
4.1):
 Human capital, especially in the form of graduates, and especially scientists and
engineers; but also in the form of middle-level competences in the work force;
 Ability to network with external sources of knowledge and other resources;
 Organisation and routines; and
45
 Learning processes.
Table 4.1: Absorptive Capacity Components- Summary of Findings by Technopolis
Component of Absorptive
Capacity
Human capital
Scientists and engineers,
Managers, Technicians, Skilled
workers
Networking to access
external sources of knowledge
and other resources
Organisation and routines
Learning processes
Arnold et al (2005)
Findings from a survey of Irish Firms
A key foundation in firms
Widely used but a low level input
Limited use for continuous or specialized monitoring
Few firms had well developed routines for planning
technology acquisitions, identifying innovation
opportunities, or realizing the value of external knowledge.
Routines within the firm
Arnold et al (2005) characterize these as the capacities which underpin the knowledge
acquisition process, as shown in Figure 4.2
Figure 4.2:
Absorptive Capacity: The Firm as a Search Engine
Source: Arnold, et al,, 2004
Among the major findings from firm level interviews by Arnold et al (2004) were that:
“Successful (growing) firms were more likely to be in the service sectors than manufacturing,
did more product (but not process) innovation and had better qualified, more dedicated
human resources for innovation. They had higher technological capabilities (in the sense of
ability to adopt, adapt and change technology) than slower-growing firms, and therefore
higher absorptive capacity. They tended to network more and were more likely to have
received financial support for innovation. They used more formal or structured processes to
capture and exploit innovation opportunities. The evidence from the survey, then, provides
a strong endorsement of the central messages of the literature about absorptive capacity. In
46
particular, it underlines the importance of appropriate human resources and the benefits of
deliberate management of innovation… [but] innovation actions appeared often to be taking
place in isolation from important external networks and knowledge, resulting in ‘safe’
incremental innovation, often through related-product diversification. Links with higher
education were poor and relationships often characterised by mistrust. There appears to be
regular contact between many of the businesses and [Enterprise Ireland], and funding is
available for business growth and training, but there appears to be a missing element of
awareness, mentoring and motivation that could be applied to businesses to build on the
absorptive capacity present.” (piii)
This finding resonates with the findings of the literature review in Section 3 in relation to
strategic intent and coherence. The components of capability need to complement each
other to form a coherent capability and such capability only has meaning in the context of
strategic intent – ie that the firm is an active learner motivated by strategic objectives.
Hence in constructing a framework for assessing absorptive capacity the strategic dimension
does need to be integrated, as in Figure 4.2.
Figure 4.2: Four Basic Dimensions of Absorptive Capacity
Knowledge base
Familiarity
Cognitive link
Strategy
Vision
Justification/rationale
Motivation
Coherence
Focusing devices
Internal Organisation
& Communication
Structure
Routines
Roles (gatekeepers,
boundary spanners,
change agents)
External Links
Alignment (structure, culture,
knowledge) (gatekeepers,
boundary spanners,
Source: The Authors
It would useful to integrate the concept of absorptive capacity with the broader framework
of dynamic capabilities. We also propose that, particularly in the case of SMEs, the concept
of a virtuous learning cycle provides an additional dynamic dimension.
There are four particularly important reasons for this integration:
 a firm’s capacities for identifying, assessing, acquiring and applying external
knowledge and information will be inextricably interwoven with their overall
capabilities for learning and innovation;
 the integration of the three frameworks enables us to develop an approach which
more closely links learning with firm level strategies;
47
 the integrated framework has a dimension concerned with the explicit development
and redevelopment of capacities for learning; and
 The virtuous cycle framework emphasizes both the role of increasing returns and the
key role of firms’ social capital.
An initial integration of these frameworks, for the purpose of developing a survey and case
study approach, is set out in Table 4.2.
Table 4.2:
Absorptive Capacity and Dynamic Capabilities
Capabilities
Strategic
Dynamic
Capabilities
Dynamic
Capabilities
Paths
Positions
Processes
Specific Absorptive Capacities or Enablers





















External factors
that influence
the cost &
benefits of Kn
acquisition








The perspectives, strategies and capabilities to develop new Dynamic
Capabilities
Strategic intent – orientation to action
Capacities for strategic assessment
External triggers for change
Knowledge re-use
Cognitive distance
Current knowledge base
Role of key individuals
Physical facilities
Complementary assets – value chain position
Customer relationships
IP & licenses
External links
Alliances
Networks
Management of links and acquisition
R&D, training and hiring approaches
Routines and competencies for awareness, assessment, acquisition,
integration, distribution, application
Codification routines
Managing change to leverage off new knowledge and manage
integration with existing capacities
Firms internal complementary assets – in particular its ability to
capture the benefits of new knowledge through the capability to reconfigure, produce and market.
Cultural and organisations distance from external organisations
Processes for reflecting on experience
Balance of the trade-offs between exploitation and exploration
Industry dynamics – barriers to entry
Spatial distance from external organisations
Market growth
Rate of change in knowledge
Complexity of knowledge
This framework provides the foundation for developing instruments for assessing firm level
absorptive capacity in Australian industry. We have developed these instruments in two
steps: an instrument for broad surveys; and a more detailed instrument (a questionnaire
guide) for detailed firm level studies.
48
Case Study Survey Instrument
The analysis of ‘absorptive capacity’ is complicated by the ambiguity and diversity of its
definitions, antecedants and outcomes.’58 Absorptive capacity is a functional concept, and in
practice it is based on an interdependent foundation of capabilities, structures, routines and
policies, and is largely situation-specific. For this reason it is not possible to develop a set of
reliable standard indicators of absorptive capacity across industry in general. Nevertheless, it
is possible to develop some indicators that provide broad guidance. These are set out in
Table 4.3 and such a list could be further developed as a very basic set of indicators.
Table 4.3:
Survey Instrument: Broad Indicators of Absorptive Capacity
Activities
R&D
Innovation expenditure
Turnover from new
products
Licensing-in
Seminars
Intra-net
Training
Formal scanning
Job rotation
Capabilities
Human resources:
qualifications
Structures/organisation
Gatekeepers
R& D Branch/centre
Cross functional teams
Local/National
Collaboration
Networking
Conferences
Secondments
Ability to network
effectively
Strategic Alliances
Formal collaboration
International
Collaboration
Networking
Conferences
Internal
Strategic Alliances
Formal collaboration
4.2 Case Study Questions
Table 4.4 sets out the questions used for the pilot case studies, based on the approach in
Arnold et al (2004), (which itself drew on previous surveys), and on our preliminary literature
review. From the two Pilot interviews we developed an improved framework which
addressed some broader questions based on Table 4.4. On the basis of a review of the pilot
studies and further work on the conceptual framework we developed a questionnaire as a
guide for a proposed broader survey on absorptive capacity, Table 4.6.
Table 4.4
BASIC QUESTIONS FOR THE PILOT INTERVIEWS CONCERNING
ABSORPTIVE CAPACITY
OPENING STATEMENT:
Our interest is basically in how your firm is able to identify and assess the potential new technological
and/or non-technological opportunities that may be available in order for it to remain competitive; and
how you do this?
58
Zahra & George (2002) p 185
49
In simple terms:
How does your firm learn?
And:
What is the significance of external knowledge to your firm?
Our starting point is to ask you for a background and profile of existing capabilities within your firm,
eg.,
does management have prior experience in this industry?
are you innovative – evidence?
And then to go on to ask:
how do you currently assess what’s going on in your industry?
 can you assess your existing capabilities and judge what else you may need
to enhance those capabilities in the future?
 what types of human resources do you have available to you, including
management?
 what kinds of other resources might be important in your ability to build
capabilities in new areas?
 how does your firm address the issues of further education for staff?
how do you identify new opportunities – the mechanisms and people involved?
 how do you acquire new knowledge (learning)?
 what mechanisms and pathways do you employ?
how do you identify and use external sources of knowledge?
 what linkages exist between your firm and external sources of knowledge?
 how do you evaluate the new knowledge/information?
how does your firm go about assimilating, integrating, and applying new
knowledge into existing operations?
how do you organise taking the new idea/knowledge through the firm’s processes
to a commercial outcome?
 how do you then implement the uptake of the new knowledge?
 how do you develop and capitalise on new capabilities?
what mechanisms, including government programs enable you develop your
capacity as a firm to learn?
what are the main impediments to your firm in taking on and developing new
ideas into products, processes or services?
________________________________________________________________
There are many related issues to these fundamental questions that we also like to
explore:
1. Have you ever found that you are being left behind and what did you do about it?
2. Have there been instances where you decided it wasn’t worth trying to build new capabilities?
3. How do you ensure that the learning becomes embedded in the firm and not only in a few
people?
4. Has your firms increased its degree of specialisation over time and if so why?
50
Table 4.5:
Framework for the Firm Interviews: What do we want to know?
The Firm
 Size
 Growth
 Goals for growth, diversification,
 Management and Governance – how are decisions made
 Export activity
 Level of Tech focus – product range
 Level of Turbulence/ rate of change
 HR structure
 Internal Organisation – R&D division
 R level and organisation
 D level and organisation
 Networking- purposiveness, width, depth
 Innovativeness ?
 Benchmark Innovation Management against industry best practice
 Constraints on the rate of innovation
 Level of return on innovation – what shapes this.
Firm Strategies
 How to undertake strategic assessment of new technologies, relevant knowledge, what is
happening the industry and so identify opportunities /paths for the firm to grow and
compete
 How to decide what capabilities to develop and where to learn from.
 The significance of external knowledge, for: strategy; innovation; other change
Building Capabilities for Learning from Outside the Firm
 What types of knowledge are important for strategy/ for innovation
 What are the challenges faced in effectively learning from other firms or organisations?
 Mechanisms and pathways for learning from outside the firm
 What enables the firm to identify opportunities for innovation arising from new knowledge?
 What are the components of that capability.
 What enables the firm to learn / acquire new knowledge to support innovation?
 What are the components of that capability.
 What enables the firm to incorporate new knowledge into innovation
 What are the components of that capability.
 How do you ensure that the learning becomes embedded in the firm and not only in a few
people?
Limitations/ Discontinuity
 What limits the rate of learning/capability development in your case? [size, marketing
capability, production capability rate of change, research intensity/amount; human
resources, linkages….]
 How it deals with situations where it doesn’t have the capabilities or mechanisms to learn
and acquire new knowledge- but must build them (ie more or less double loop learning).
 What government policies or programs influence your capability development?
51
4.3 A Proposed Survey Questionnaire
There is little doubt that as the pace of change increases and industrial activity becomes
more knowledge intensive, effective innovation management becomes a more critical
capability in firms. Even the largest and most capable firms find innovation management a
challenge. The 2006 IBM Global CEO Innovation Survey stressed the increasing importance
of innovation and of collaboration for corporate growth. The CEOs surveyed identified a
widespread capability-related gap between importance and performance in relation to:

integrating corporate and innovation strategies;

managing collaboration for innovation; and

strengthening and leveraging the innovation capabilities of the overall organisation.
These challenges will be no less important for smaller firms, even if their management may
be less complex. As the capabilities for such aspects of management are becoming more
important it becomes increasingly important to assess whether there are gaps in the level of
such capability in industry.
The information derived from current surveys, such as the Oslo Manual-based Innovation
Survey, provides a very limited insight into innovation management capabilities in Australian
industry. It also provides little information on the relationships between strategy, capability
and performance at the firm level. It would nevertheless be worthwhile to explore a more
detailed analysis of this survey data and perhaps, through ABS databases, link this survey
data with other relevant firm-level data. By way of example, the South Australian
government, in the context of an overall review of their innovation support programs and
recognizing the limitations of the ABS Innovation Survey, have commissioned a detailed
survey of innovation activities in 1000 SA firms.
In order to provide a methodological basis for a possible national survey we have developed
a questionnaire, based on the experience of the current project. Further refinements to the
questions resulted from two sources:

first, the elaboration of the important components contributing to the absorptive
capacity of a company as identified in our expanding view of the literature; and

second, the nature of the discussions held with the case study companies. This
discussion enabled identification of components that are not easily revealed through
simple questionnaire style approaches.
We stress that the initial questions (not a questionnaire) we developed for the pilot study
(Table 4.4) enabled us to explore some of main the components of absorptive capacity
within the selected group of firms, through personal question and answer sessions that were
later supplemented with historical data on the firm. Another critical element was the
introduction of a request for a timeline of company performance and innovative events at
the opening of each interview. This enabled a review of the dynamic processes in the firm in
developing its absorptive capacity. This approach followed the pilot phase of the study, and
proved particularly critical in understanding the absorptive capacity and the processes of its
formation in a firm.
The absorption capacity framework for the study (Table 4.5) also evolved during the
interview phase of the study and each aspect of the study was accordingly modified as the
52
study progressed, including the emphasis of the questions to the firms’ management, which
were evolving to a questionnaire-type format. The discussions with firms provided the
advantage that the complex and easily misunderstood question of “absorptive capacity” was
never directly addressed and some of the data collected comprised objective facts about the
company as well as some discussion on issues, especially on how the company was
organised in its assimilation of new knowledge, and in knowledge implementation into new
products, processes or services. Thus a general anatomy of the individual firm was deduced
from the main components of absorptive capacity, which are shown as the section headings
of each of the case studies, and from this a subjective assessment of the firm’s absorptive
capacity followed. The section headings (and general coverage) are:






prior knowledge (prior experience and learning from external sources, effective
leadership);
human resource capabilities (derived from training, hiring, R&D, problem solving,
appropriate structures and incentives, etc);
knowledge acquisition channels (reading relevant journals, attending conferences,
trade shows, linking with sources of knowledge, including networks and alliances, etc);
organisational factors (internal mechanisms for knowledge dissemination, capture
and application, ‘routines’ for knowledge sharing, cross-functional teams, effective
communication (shared goals, values, culture, knowledge, structures), job rotation,
mentoring, quality assurance, functional alliances, and approaches to IP);
codification of knowledge (how knowledge is embedded in the company, revisited
and re-used, staff retention rates (for tacit knowledge), record keeping to comply with
external regulation, mode of retaining documented information); and
external assistance provided for capability building (eg., government support)
The questionnaire we developed is based on the literature and the experiences of answers
provided to the questions addressed in the current project. The questionnaire also has some
inevitable overlap with Oslo-Manual based Innovation Survey questionnaires, but it is
substantially expanded to probe the critical components of absorptive capacity. Many of
these components are human resource based – but counting the numbers and distribution of
human resource does not adequately cover the issues that impinge on absorptive capacity.
These issues are much more associated with organisational aspects within the firm.
Unfortunately, the nature of any questionnaire prevents adequate exploration of the
dynamics of a process like absorptive capacity, and this will in our view, need to be explored
by other mechanisms such as historical records, and/or in selected discussions with the firm.
In any event, the absorptive capacity of any chosen firm must be assessed from the
components probed in the questionnaire. We note that absorptive capacity is a functional
concept, and in the final analysis it may prove necessary to supplement the questionnaire
with face-to-face interviews with the founder, CEO or senior management representative of
a firm, who also has experience cocerning the evolution of the firm. Ideally, the latter needs
to be a person who is fully engaged with the history of the firm and the hallmarks of the
firm‘s innovation, growth, developments and strategies over the course of its entire history.
In addition, several of the current questions on the form presented in this report (Table 4.6)
are designed to elicit responses through discussion since the complexity of the topic cannot
be addressed with simple yes/no or weighted answers arising in an average postal-type
survey.
Further, the Australian case studies suggest that micro-businesses provide atypical outcomes
in this context, since many of these are overwhelmed by the dominant influences of the
53
owner-managers across all aspects of the business. Therefore, we suggest that any planned
survey only consider SMEs employing 10 or more persons.
If the questionnaire we have designed is considered as a draft, then a number of these
elements could be the subject of further testing and adaptation to better suit the specific
objectives of a survey.
The appropriate sample size will depend on the purpose of the survey. If the objective is
systematic assessment of absorptive capacity (and hence also necessarily innovation
management) capabilities in Australian industry with an allied objective of relating capability
levels to performance, a large and carefully structured sample will be required. We also
suggest that at least 20% of the sample is “interviewed” face-to-face using the detailed
questionnaire, with the remainder approached by telephone interview. We stress that a
useful starting point is a timeline of significant developments in the firm, since this provides
some elements to probe the dynamics of absorptive capacity formation.
54
Table 4.6
The Draft Questionnaire
1.
About the Firm
1a
1b
1j
1k
1l
name of firm?
how many years has this firm operated
under this name?
is the firm owner-managed, or a
subsidiary
head office location
total number of employees
location of employees
main products and/or services of the
firm
are any future new products or services
on-line?
estimated turnover per annum
(optional)
average growth rate per annum
exports as a % sales
name and position of respondent
2.
About Products, Processes and Services
1c
1d
1e
1f
1g
1h
1i
Yes
2a
No
has the firm introduced any new or significantly improved
products, processes or services in the last 3 -5 years?
Products/services
Processes
2b what triggered this introduction?
A problem? or
An opportunity?
2c
how were the new products, processes or services developed?
Mainly internally (within your firm or group)?
By your firm in cooperation with research institutions?
By your firm in cooperation with other firms?
Mainly externally (by other firms or research institutions)?
2d has the firm had a history of introducing new products, processes
and services, at what frequency and why?
Discussion
2e
2f
3.
roughly what proportion of current sales comes from products
introduced in the last 3- 5 years? (%)
are the firm’s competitors largely local, or international?
The Firm’s Human Resources
Please estimate the number of people (percentage) in the company that have:
no formal qualifications
55
a Trade certificate qualification, but not a degree.
qualifications as technicians, but not a degree (a Diploma or
Certificate)
a non-scientific or technical BSc or BA degree, but not a higher
degree
a BSc or BA in science or engineering, but not a higher degree
a higher degree (masters or doctorate)
how many of the above are dedicated in-house R&D personnel?
how many others might participate in R&D, especially development?
does the entrepreneur/management in charge of operations have
prior experience in this industry? (elaborate)
4.
Ongoing Staff Training
4a. Does your company provide any training courses, either in-house (on-thejob) or formal (off-the-job)?
Yes
No
in-house
formal
4b. Approximately how many days per person per year does your company
devote to formal (off-the-job) training for the following employee levels? (If
nil – blank)
# of person
days
shop floor
middle management – including marketing
technical staff/graduates
top management
other (please specify)
5.
Identifying Technological and Non-technological Opportunities
5a.
What mechanisms does your firm use to identify technological and nontechnological opportunities (to keep up-to-date)?
Yes
No
the Internet
information from suppliers
customer advice
attendance at exhibitions/trade fairs
trade magazines
professional bodies
industry/trade associations
consultants
technology network(s)
formal links with specific universities
formal links with specific research organisations
56
subscribe to a monitoring service
employ new graduate staff with special skills
other (Please specify)
6.
Cooperating with Others
6a. Does the firm cooperate with other organisations
Yes
No
other firms
CSIRO
ANSTO
AIMS
DSTO o rDMO
universities or other higher education institutes
intermediate suppliers of knowledge (please identify)
eg., technical/scientific consultant, business/management
consultants, etc
dedicated test facilities/laboratory (not covered by above
agencies)
suppliers
customers and clients
in joint marketing and distribution arrangements
in joint manufacturing arrangements
in licensing your IP to other firms
6b
Has your firm purchased or used any of those services in the last 3 - 5 years?
(If the answer is yes, inside (In) or outside (Out) Australia ?
Yes
No
university or other higher education institutes
research organisations
dedicated test facility/laboratories (not covered by above)
technical/scientific consultant
business/management consultant
6c
Is your firm a member of an industry association or an industry network?
Yes
No
a trade or industry association (eg., AIG, AIIA, AEEMA, etc)
a formal business network with other firms
a technology network with other firms
an organised cluster of firms with like interests (possibly
regional).
if you are a member of a technology network, or cluster, is a
university or other research institution involved?
6d
Has your firm hosted students or new graduates from colleges to do
placements or projects in the past 3 - 5 years (eg., TCS)?
57
Yes
No
if yes, how were the students supported financially?
government grant?
from the research institution?
by the firm?
7.
7a.
Organisational Issues
How is the flow of new ideas organised within the firm?
Yes
No
serendipity?
specific person(s) (gatekeeper(s)) in the firm responsible for
monitoring technological and/or non-technological opportunities
(eg., via the trade press, competitors new products; patents;
licences, trade shows, etc)?
formal mechanisms to accumulate new knowledge through inhouse R&D - utilising R&D personnel
formal mechanisms involving outsourced R&D - coordinated by
internal R&D personnel
formal mechanisms to accumulate knowledge from external
sources utilising R&D trained people or others (please specify)
informal mechanisms whereby any staff member can “pick up”
new knowledge from a variety of sources, and disseminate it in the
firm with a view to affirmative action.
how is incoming “new knowledge” disseminated within the firm
(regardless of source) for affirmative action?
Discussion:
how involved/committed is Top Management in decisions to take
new directions
are marketing department personnel involved in these decisions?
has the firm taken any new radical changes in direction in the last
3 – 5 years that were not driven by technology (eg., moving from
manufacturing to service provision)?
8.
Has your firm adopted a new business model during the years of its
operation. If so when and why
YES
NO
New Business Model
If Yes - When? (year only)
If Yes - Why?
58
9.
Success Factors for the Business
9a. How important is each of the following factors to the success of your
business? (Rating scale high, reasonably high, moderate, reasonably low,
low).
9b. (As an aside: how do think your firm rates compared to your international
competitors? – “h” for high, “l” for low).
9a
9b
high
r/high
mod
r/low
low
h/l
meeting customer needs by introducing
new or improved products/services
attracting new customers with new or
improved products/services
expanding the customer base for existing
products/services
introducing new and improved processes
introducing new organisational and
management approaches to the business
sourcing new technologies
applying new technologies, eg., ICT/Other
complying with new regulation or
legislative obligations, eg., environmental,
therapeutic, etc.
improving the productivity of the business
at existing staffing levels
improving the efficiency of (or replacing)
the machinery and equipment
protecting your knowledge/IP
acquiring the IP of others
co-operating with others (customers,
suppliers, research institutions, etc)
accessing sources of finance
improving your technological
understanding of your products, processes
and services
achieving quality certification (eg ISO
9000, supplier approval, ISO 14000)
10.
Transmitting Ideas within the Firm
10a.
Which of the following statements appears most applicable to your firm?
(those that are not relevant leave blank)
high
r/high mod
r/low low
formal mechanisms, such as quality systems,
are used to help the workforce to improve
processes or products
have a suggestions box scheme for product
and process improvements
suggestions are regularly considered by
management for implementation
those whose suggestions are taken up
59
receive a financial reward
management meets regularly to discuss our
company strategy
future innovation strategies are kept in
secret and not publicly disclosed
the firm documents its strategy in a business
plan each year
new products or processes form part of the
firm’s business plan.
the plan includes detailed specifications for
employing qualified people (eg x graduates,
y technicians, z craftsmen, etc.
we have adopted an open book approach to
management
11.
Impediments
11a.
What are the main factors that hamper your firm in attempting to develop
new products, processes and services?
high
r/high
mod
r/low
low
direct costs too high
lack of finance (investment capital)
excessive economic risk
shortage of skilled personnel to implement
government regulation
inability to secure strategic partnership(s)
other (please specify)
12. Public Support
12a. Has your company received any public financial support for product or
process development activities in the past 3 - 5 years from the
Commonwealth or State Governments?
Yes
No
if yes (Please specify – scheme and approx $ value of support):
has the public support resulted in your building new capabilities
within the firm?
Do you have any other comments concerning your firm’s ability to seek and
manage knowledge for innovation activities; and/or the kind of support you think
the Government could provide to assist in these processes?
Thank you for your participation.
60
5.
Prior Relevant Research in Australia
5.1 Introduction
This section aims to show that the issues discussed in the above review of research are
closely related to the issues raised both in research on innovation and in policy discussions in
Australia. The discussion of research and reports is brief indicative and selective.
The issues raised in this study have been long standing themes of policy debates, although
the particular focus of concern or terminology has been, for example, research industry links,
technology transfer, export capability, technology diffusion, effective uptake of new
technology, R&D investment levels, innovation or change management, and SME survival
and growth.
In relation to SMEs, a recent Senate Employment , Workplace Relations and Education
References Committee report on “Small business employment” noted that:
“Small business owners and service providers also told the committee that, despite being
highly skilled and capable in many areas, many proprietors lack the business management
skills they need to compete effectively in today's more competitive, deregulated environment.
The lack of these skills is a major cause of under-performance, business failure and
untapped potential in the small business sector. This is not a new finding, or one confined to
Australia: the need to improve the business management skills of small business owners has
been identified by almost all small business reports and studies over the past twenty-five
years in Australia and other OECD countries. Governments at all levels and from both major
parties have acknowledged this need to varying degrees and there have been many
worthwhile developments and initiatives. But it is clear that current initiatives fall short of
providing the level, quality and type of business development support that would allow small
business to reach its full potential and the committee has made a number of associated
recommendations. There is also need for a greater focus on developing a more skilled small
business workforce.” 59
The Senate Committee went on to emphasise the problem of inadequate management skills
in smaller firms and how these weaknesses lead on to a range of other constraints on
development. Drawing on earlier work by Kearns, and by the Bureau of Industry Economics,
the report finds that the preference of small firms for highly relevant, low cost, ‘just in time’
training makes the provision of services difficult for the formal training providers. The
Kearns report concludes:
“This focus on short-term tactical learning, while necessary, is an impediment to the
development of a culture in Australian small business that encourages learning, skill,
enterprise and innovation. It reflects vestiges of a low skill/low learning culture perhaps
relevant to an industrial society, but not appropriate to the high skill/strategic learning
requirements of the knowledge society” 60
Employment , Workplace Relations and Education References Committee, Australian Senate “Small
business employment” Commonwealth of Australia, 2003, pp. xix-xx
59
60
Kearns, A. 2002, Are two worlds colliding? The provision of training and learning resources for small
business, NCVER, Leabrook, SA. p52 http://www.ncver.edu.au/research/proj/nr1003.pdf
61
5.2 Recent Studies of Innovation in Australian Industry
The Prime Minister’s Science Engineering and Innovation Council undertook, through an
independent working group, a study of Australian Technology-Based SME’s resulting in a
final report in March 200561. The report emphasized the importance of SMEs for economic
development. The report acknowledged that a small proportion of SMEs account for the
majority of export activity. In fact, using data from three years of the ABS’s Business
Longitudinal Survey McMahon (2000) had found that only a small proportion of Australian
manufacturing SMEs (5%) grew at over 10% per annum and the great majority
(approximately 70%) grew their sales at less than 5% per annum and did not aspire to
faster growth. Using this data he found that there was a strong and persistent relationship
between growth, exporting and innovation62. While the earlier report of the Working Group
had emphasized the role of innovation, business and export capability in firms the final
report emphasized the role of government export support programs and their improved
integration and orientation to technology-based SMEs.
The Karpin Report of 1995 had stressed the increasing challenges of international
competition and the importance of raising the strength of management in Australian firms63.
Rogers (2004) using ABS data for 1994-1997, found a relationship between the level of
innovative activity and the level of management training. He also found a relationship
(particularly for smaller firms, but not always for larger firms) between innovation activity
and the extent of networking64.
In discussing the findings from a set of case studies of 30 innovative (if not R&D–intensive)
firms Thorburn and Langdale (2003) comment that many were aware of the challenges of
knowledge management and innovation in increasingly competitive markets, and were
concerned with how best to organise for effective learning and innovation. While few had
links with public sector research organisations, interaction with customers and business
networking were key mechanisms for both stimulating change and accessing information.
The study also found that:
“The main difficulties that constituted barriers to innovation were those of growing a small
business, obtaining finance, finding staff, marketing overseas and relying too much on the
founder. Knowledge management also proved to be an increasing challenge for firms. In
particular, firms’ abilities to turn what is in employees’ heads (tacit knowledge) into formal
knowledge (e.g., written production manuals) that could be accessed by others in the firm,
proved to be a major issues.”65
61
Working Group Report (2005s) Growing Technology Based SMEs. Prime Ministers Science,
Engineering and Innovation Council. . See also Department of Industry, Tourism and Resources
(2004) Technology-Based SMEs. Special Report. Sensis Business Index.
62
McMahon, R. (2000) Growth, Exporting and Innovation in Manufacturing SMEs: Evidence from
Australia’s Business Longitudinal Survey. Research Paper Series: 00-10. School of Commerce.
Flinders University of South Australia.
63
Karpin, D. (1995) Enterprising Nation.: reviewing Australia’s managers to meet the challenges of the
Asia Pacific Century. AGPS.
64
Rogers M. (2004) Networks, Firm Size and Innovation Small Business Economics. 22(2): 141-153.
The role of networking of various types has been a theme of many studies of innovation in Australia,
for example: Australia Manufacturing Council, 1994, The Wealth of Ideas:How Linkages Help Sustain
Innovation and Growth, Australian Manufacturing Council.
65
Thorburn, L & Langdale, J. (2003) Embracing Change. Case Studies On How Australian Firms Use
Incremental Innovation To Support Growth. Prepared for Science and Innovation Mapping Study.
Department of Industry, Tourism and Resources. p.6
62
Many studies have found that firms usually have to strengthen their knowledge,
management and organisation before they can realize the potential of their investments in
ICT to drive improvements in productivity, flexibility and innovation. In the Australian context
several studies have demonstrated the role of internal firm capabilities (ie absorptive
capacities) in the application of ICT. For example Howard (2005) found that:
“…ICT is a significant enabler of product, process and business model innovation
within the manufacturing sector [and] also enables innovation in contractual
relationships, alliances and partnerships between manufacturing companies and
specialist ICT providers, and with customers and suppliers. [The] clever use and
incorporation of ICT becomes a differentiator. [But] Effective executive managers in
manufacturing businesses require an appreciation of the process improvement,
product enhancement and market development possibilities enabled by ICT. NonICT manufacturing firms can gain competitive advantage from ICT..[but the key
factors for gaining those benefits] ..relate to the way ICT is used in combination
with other technologies and in the way in which it is applied and managed.
Overseas supplied enterprise software often requires further investments in, and
developments of, specialised plant based intelligence systems and process
execution systems in order for it to achieve its full potential in industry and
business specific operating environments.
Industry–university cooperative and collaborative research centres and institutes in
the manufacturing arena play a significant role in supporting this hidden ICT use.
The research outputs of many centres are ICT software, hardware, tools and
products designed for adoption in manufacturing processes.
SMEs, which constitute a significant proportion of Australian manufacturing, face
additional challenges in sourcing specialised ICT capability. These include framing
appropriate ICT project specifications and finding trusted suppliers and service
providers in a highly competitive market that has few barriers to entry.” 66
A recent report by the Australian Business Foundation echoes the themes of the
studies discussed above. The report discusses the many pathways through which firms
acquire the knowledge and capability that support innovation:
“Innovation comes from learning, experimentation and recombination or re-use of
knowledge such as in design, prototyping and trial production, rather than from the
discovery of new technical or scientific principles. The installation and operation of new
machinery and equipment is knowledge-creating, because it results in new capabilities.
Similarly, firms can purchase licences to use protected knowledge created or discovered by
others, or can explore and learn about markets and consumer preferences by investing in
market research and other intelligence-gathering exercises. Furthermore, firms can gain the
benefit of new knowledge through their association with others, eg. personnel movements,
66
Howard, J. (2005f) Digital Factories: the Hidden Revolution in Australian Manufacturing. A Study
Commissioned by the Department of Communications, Information Technology and the Arts.
http://www.dcita.gov.au/communications_for_business/industry_development/ict_in_australian_manu
facturing/digital_factories_the_hidden_revolution_in_australian_manufacturing. P1-4.
63
inter-firm cooperation, strategic alliances, links to professional and regulatory bodies and so
on. In reality, the knowledge underpinning innovation capabilities in firms is rarely based on
direct research and development, but comes from learning by doing, learning by using
technology and equipment and learning by interacting with others.”67
And hence that:
“The learning capabilities, which underpin innovation performance, depend primarily on the
creation and maintenance of intangible assets: human capital, skills, new organisational
forms, improved monitoring and understanding of markets, and so on. These in turn require
the commitment of resources - to training, research and development, product design,
organisation skills and specific production capabilities. This kind of resource commitment is
investment in the strict sense - that is, it involves the use of finance in the present period or
periods to create assets which will deliver benefits over future time periods.”68
The ABF report emphasises two conclusions. First, that innovative capability in a firm
must be coupled with strong overall business competence to that a firm can follow
through to effective production, marketing and customer support. Second, that the
knowledge infrastructure and innovation support policy in Australia focuses on R&D,
frontier technologies and the commercialization of new knowledge, which is of quite
limited relevance to the majority of innovation in the majority of Australian firms. The
report proposes a major reform of the knowledge infrastructure.
5.3 Oslo Manual Based Innovation Surveys in Australia
The 2005 Innovation Survey provides much useful information on innovation in Australian
industry and while careful disaggregated analysis would be valuable, the available aggregate
data does provide some general insights. We summarise these below, indicating the
supporting tables:
 Expenditure on R&D accounts for, on average, only 20% of Australian firms’ expenditure
on innovation69. As we would expect this proportion to vary significantly, the level of
R&D expenditure in a firm or sector is not a reliable indicator or innovation effort.
 Almost 30% of small firms (5-19 employees) and over 50% of the larger firms, innovated
over the 2004-5 period- Table App.1.1.
 More firms have introduced organisational and managerial innovations than innovation in
products or processes -Table App.1.2.
 Innovation activity appears to have increased markedly over the 2002-2005 period,
particularly in smaller firms and in mining, wholesale trade and ‘accommodation, cafes
and restaurants’ –Table App.1.3.
 The overwhelming majority of innovations are new to the business only and have already
been introduced elsewhere. Only about 15% of goods and services innovations were
new to Australia and about 8% were new to the world – Table App.1.4. This underlines
the extent to which firms can learn from the experience of other firms.
67
The Australian Business Foundation. (2006) Innovation and the Knowledge Economy in Australia.
ABF p iv.
68
Op cit p24
69
ABS (2005) Innovation in Australian Businesses. 8158.0 2
64
 About one in five businesses developed their new product or service with another
business or organisation and in a further 10% of cases the development was largely
carried out in another firm or organisation. In the case of process innovations the level of
dependence or interdependence on other organisations was even higher (about one in
three firms) – Table App.1.5.
 Innovating firms see the direct costs of innovation (cited by about one in three firms) as
the major barrier to innovation, followed by the lack of skilled staff (about one in four)
and thirdly government regulations and standards, and better placed competitors (about
1 in 5). About 27% of innovating firms saw no barriers to innovation -Table App.1.6.
 There were many drivers or innovation. The primary drivers of innovation were clearly
commercial – improving productivity, reducing costs, increasing revenue, but one of the
most important drivers for firms of all sizes was increasing responsiveness to customer
needs – Table App.1.7.
 About a third of the larger firms and one in four of the smallest firms engaged in some
form of collaboration or which the most frequent was for marketing and distribution.
Conversely, over 70% of firms did not engage in collaboration – Table 8. However, the
majority of collaboration (about 70%) was for innovation-related purposes. Most
innovation-related collaboration was with firms in the same group or with customers,
suppliers and competitors- Table App.1.9.
 Market sources (customers, suppliers, competitors, consultants) were also the major
external source of ideas for innovation (Table App.1.10). Larger firms made relatively
greater use of institutions (eg CSIRO, universities). More detailed information on
sourcing is available from the 2003 Innovation Survey - Table App.1.11.
 Table App.1.12 (A & B) shows that the relative importance of sources varies significantly
across industries, eg 24% of mining firms identify Government agencies as an important
source of ideas or information for innovation, whereas only 8.2% of manufacturing firms
consider that this is an important source. Almost 18% of Communication Services firms
consider ‘universities and other higher education’ organisations as important sources, but
only 6.4% of manufacturing firms do.
 Small firms (5-19 employees) much more limited use of institutional sources and of
consultants than larger firms. Overall the use of institutional sources, consultants and
conferences increases with size- Table App.1.13.
 Firms acquire knowledge or ability primarily through employing new staff (45% of firms),
the acquisition of new equipment or technology (47%) and the use of consultants (41%)
– Table App.1.14.
 In acquiring knowledge or abilities from universities and research organisations the
employment of graduates and of consultancy services were the primary mechanisms –
Table App.1.15.
5.4 Standards Australia and Knowledge Management
Standards Australia have developed a guide to Knowledge Management in firms, with a
shorter version available for SMEs70. These guides are particularly valuable initiatives and are
based on extensive consultation with industry associations, experts and potential users. They
have resulted in practical and high quality guides for firms. The frameworks used in these
70
Standards Australia. (2005) Knowledge Management: A guide. AS 5037-2005. Success through
Knowledge. A Guide for Small Business. HB 190-2006. Standards Australia. (2006) Success through
Knowledge. A Guide for Small Business. HB 190-2006.
65
publications are consistent with the frameworks discussed in this report. For example, Table
5.1 shows a basic set of ‘knowledge ecosystem’ elements that the guides use as the
organizing framework for approaches to mapping, building and operationalising flexible
approaches to knowledge management. The approach aims to assist firms to identify gaps in
their management of knowledge and to assess possible enablers that they could use to
improve their approach. These publications contain an extensive set of questions designed to
assess strengths and weaknesses in firms’ knowledge management. Similar questions may
also be useful in a survey of absorptive capacity.
Table 5.1: The Knowledge Ecosystem: Mapping, Identifying Knowledge Gaps and
Relevant Enablers
Knowledge ecosystem
elements
Questions to assess
strengths and gaps
Knowledge gaps
Possible Enablers
[see Table]
Organisational outcomes
Strategic intent
Context
Culture
People
Process
Technology
Content
Table 5.2: Enablers for Knowledge Management











After action reviews
Business process mapping & redesign
Champions and advocates
Communities of interest
Communities of practice
Critical incident technique
Document management
Environmental scanning
Information auditing
Knowledge auditing
Leadership
 Learning and development
 Leveraging information repositories
 Meetings and ‘share fairs’
Narrative management
Networks and communities
Physical environment
Play theory
Reflection
Rewards and recognition
Social network analysis
Storytelling
Strategic conversations
Taxonomy and thesauri
Technologies for communication & knowledge
sharing
 Technologies for discovery and creation
 Technologies for managing repositories
 Mentoring and coaching











Source: Standards Australia. (2006) Success through Knowledge. A Guide for Small Business.
HB 190-2006.
66
6. Case Studies of Absorptive Capacity
6.1 Summary of Case Studies Concerning Absorptive Capacity
Study
The sample of firms selected for the case studies is shown in Table 6.1.
Table 6.1 Case Study Firms
Firm
Sector
Start
Date
#
Employees
Turnover
$ millions
Relative
AC
Page
#
CEA Technologies,
ACT
Clonakilla Wines,
NSW
Defence
Electronics
Food &
Beverage
1983
225
50 - 70
H
80
1971
4-5
-
M
88
IDT,
VIC
Lochard Pty Ltd,
VIC
Ego Pharmaceuticals,
VIC
Textor Technologies,
VIC
Malloch Digital Design,
ACT
Benthic Geotech,
NSW
Clover Corporation,
NSW
Retriever
Communications, NSW
Pharmaceuticals
1975
140
25
H
92
Airport
Services
Health
Skin Care
Textiles
(non-woven)
Electronics
Security
Mining Services
1990
90
20
H
99
1953
150
50
H
106
2000
36
13.7
M
112
1985
4.5
0.8
L
119
1997
15 - 18
9
H
123
Food Ingredients
Nutrition
Communications
1988
< 100
23
H
129
1995
25
-
M
136
6.2 Overview of the Case Studies
The ten companies interviewed for the case studies were selected to cover a broad range of
industry sectors as shown in the Summary Table in Section 6.1. The demographics of these
companies are summarised in Figure 6.1. Half of the companies are privately owned (CEA,
Clonakilla, Ego, MDD and Retriever) and thus not listed on the Australian Stock Exchange,
and 2 of the companies effectively remain micro businesses (Clonakilla and MDD) from the
perspective of the number of employees (red columns). The remainder are small to medium
sized enterprises, and as Figure 6.1 shows there is a good correlation between the number
of employees and the reported turnover (blue diamonds) for all but 2 of the businesses who
preferred not to disclose the latter information.
67
Figure 6.1: Demographics of Companies Concerning Absorptive Capacity
250
70
60
200
150
40
30
100
Turnover $ millios
# Employees
50
20
50
10
0
0
Ego
Clonakilla
1953
1971
IDT
1975
CEA
1983
MDD
Clover
1985
1988
Lochard
1990
Retriever
1995
BGT
Textor
1997
2000
Company/Foundation Year
Blue diamonds - turnover (RHS axis) not supplied by two private companies. Red bars - the number of
employees (LHS axis)
In terms of years of operation, 1 company (Ego) has been in operation for over 50 years; 2
over 30 years (Clonakilla and IDT) – although for the wine company Clonakilla production did
not occur for 5 years because of the maturity of the grapes; 2 over 20 years (CEA and MDD)
both operating in Canberra; 3 over 10 years (Clover, Lochard and Retriever) one of these
being a subsidiary of a large diverse Australian company; and one less than 10 years
(Textor), although the latter resulted from a management buyout of a local subsidiary of its
UK owner that had operated in Australia for 40 years.
Table 6.2 provides a summary of the findings arising under the components of absorptive
capacity identified by the headings employed in the Case Studies.
Table 6.2: Summary of Findings Regarding the Components of Absorptive
Capacity from the Case Studies used in this Study
Component of Absorptive
Capacity
Findings from the 10 Case Studies
Prior Experience
All the companies had benefited from employing people with
prior relevant experience as senior executives and/or on the
Board of the companies.
(Often this experience came from working in large
multinationals often in totally different but complementary
fields).
All the companies provided evidence of innovative activities at
some time in their history and in most cases exhibited the
continuous introduction of new products, processes and
services. Innovation in 3 companies (IDT, Lochard, and Textor)
Evidence of Innovation
68
was dominated by changes in their adopted business models
(organisational innovation), and another (Retriever) had
recently moved in this direction.
Resources
Human Capital
Training
Other Resources
Intensity of Learning
Knowledge Acquisition –
Internal activities
Knowledge Acquisition –
External
Networking
Organisational Factors
Integration/transfer
Seven of the ten companies employ professionals in their
required areas of activity, and even where this involves
research professionals emphasis is placed on commercial
development as opposed to research. Only 3 companies used
specialist consultants.
Limited attention to training is paid by 50% of the companies
interviewed. Reward and incentive schemes are more evident
in those companies that provide training.
All of the companies appear well equipped for their respective
specialist activities, and growth is evident in facilities and
technology acquisitions. In some cases new resource
requirements have been induced by changes in the business
model adopted.
There is a general strong emphasis on senior management
keeping up to date through reading the latest specialist area
trade journals and other relevant literature; attendance at
trade shows; and participation in relevant conferences. In
several cases this intelligence gathering primarily resides in one
or two people (eg., CEA, Ego and Clover), but in others a
somewhat broader staff base is employed (eg., IDT and
Retriever). The solely “one-man” approach is largely the
province of the micro-enterprises (eg., Clonakilla and MDD),
though in the latter case “brainstorming” with all staff is
commonly used. Brainstorming is used in the Team situations
in CEA, IDT, Lochard, but more particularly in the open book
operations of Textor.
There are a number of firms who suggest “informal
associations” with a number of research institutions. Only 4
companies (Lochard, Textor, Benthic and Clover) identified
formal linkages both past and present with research
institutions, including formal contracts. Customers and
suppliers of new technology (often components) were
identified by 7 of the companies (CEA, IDT, Lochard, Ego,
Textor, Benthic, Retriever) as one of their main sources of
external knowledge.
A prime example of Networking is found in the Joint Industry
Project (JIP) identified by Benthic, which had enabled that
fledgling company to effectively set an Industry Standard
based on one of their components. In addition, the Networking
with the large pharmaceutical companies provided to IDT
through Medicines Australia is clearly significant. Otherwise the
term “networking” invoked views about personal networks with
other companies within the industry sector in which the
interviewed company was working. In general, little credence
was given to Industry Associations as a source of new
knowledge.
Three dominant views stand out. First, building the capabilities
to create technology independency (eg., CEA and Retriever).
Second, building development team structures that shield
69
Evaluation
Exploitation
Quality and Configuration
Alliances
Intellectual property
Codification of Knowledge
Impediments to Building
Capabilities
individuals from the total project but involve expert teams
in new development work, sometimes with rotating
membership (eg., notably CEA and IDT, Benthic, and the “One
Team” approaches in MDD and Textor). Third, absorbing
external experts, sometimes initially through consultancy (eg.,
Lochard, CEA), and acquisition (Lochard). All the companies
fostered embedding new knowledge into their companies
through maintaining high levels of accessible documentation
within the company (especially noted in CEA and IDT).
New projects have short life cycles, about 3 months before
moving on. Testing procedures vary with sector, eg., USFDA
for IDT, the Australia TGA for health products. The final
judgements are made by the customers.
Several of the companies interviewed have developed strong
market positions in their field of endeavour (notably: Lochard,
Ego, CEA, Clonakilla, MDD, Benthic, Textor), and continue to
develop this by product changes or changes in their business
models to build new capabilities and exploit new areas (eg.,
IDT, Lochard, Retriever).
Response to international standards is commonplace, including
ISO 9000, TGA and USFDA Good Manufactring Practice (GMP)
approvals, USFDA GRAS approval, setting world standard with
their products (Lochard, Benthic, Clonakilla) and internal
testing as a matter of routine prior to product release.
Only one of the companies interviewed had never formed any
form of alliance (Clonakilla). The majority of companies had
multiple alliances and considered this as an important
mechanism not only for enhancing the order book, but also for
knowledge and personnel exchanges.
Only two of the companies (Benthic and Clover) employed
formal patents to protect their IP, several used Trade Marks
(Ego and Clonakilla). The majority operated on ‘secrecy’ as
their main form of protection. As IDT pointed out their whole
operation is highly dependent on non-disclosure and patents
held by clients are the subtle element that drives this.
There is a strong adherence to maintaining detailed records of
all knowledge intensive activities in 9 of the companies
interviewed in the form of project note books, on-line records
and data logs. Accessibility of these records to ‘third’ parties to
trigger reinvestigation or absorb into new projects is also
commonplace. The Team approach used by many is the
mechanism of embedding the knowledge in the firm, and
minimising losses when individuals move on. The discipline is
strongest in IDT where USFDA approvals require certification of
all records and at Ego where internal auditing minimises any
problems which might arise in a new product launch. The
“open book” approach by Textor demands access to records by
everyone in the company. The exception, Clonakilla operates
on the basis of learning by demonstration.
Only the two micro-businesses (Clonakilla and MDD) identified
access to capital as a major impediment to their growth,
although Clover suggested that matching funds for 50:50 grant
applications might be subsidised through repayable loans.
Other impediments identified tended to be company specific,
70
although at least two suggestions arising may be generic,
namely the availability to find suitable mentors to assist firms
in growth, the availability of skilled personnel and enhancing
the global flow of such people, especially in software and
electronics, and the control of the bureaucracies in regulatory
authorities that sometimes appear as having power unto
themselves. Only one company was unable to identify any
impediments.
NB. CASE STUDIES EXTRACTED FROM THIS VERSION
71
7.
Frameworks for Policies to Support Absorptive
Capacity
A diverse range of policy measures relevant to the development of absorptive capacity have
been introduced by various countries. As many of these focus on SMEs, there is a strong
SME orientation to the following discussion. Our purpose in this section is to identify the
objectives of these policy measures and the underlying rationale for government action - we
do so because these issues provide the background to many of the specific policies discussed
in Section 8. We then discuss the various instruments that are used to promote innovation
and strengthen absorptive capacity. We also discuss in some further detail some particular
widely used instruments.
7.1 The Challenge for Strengthening Absorptive Capacity
There has been an increased focus of attention on the promotion of innovation in SMEs.
According to the OECD SMEs account for over 95% of enterprises and 60-70% of
employment in OECD countries and a healthy SME sector is essential for job creation, social
cohesion, innovation and growth in advanced industrialised countries.71The OECD convened
the first OECD Ministerial conference on SME in 2000. This led to the Bologna Charter on
SME Policies. In order to enhance SMEs’ innovation abilities, the OECD framework
emphasizes:
 facilitating the hiring and training of qualified personnel and disseminating
technological and market information;
 reducing financial barriers by developing equity financial market, by promoting risksharing program (e.g. financial support and tax incentive to R&D), and by promoting
partnerships between entrepreneurs, public agencies and financiers; and
 facilitating SME access to national and global innovation networks through
participation in public R&D programs and procurement contracts.72
Following the Bologna Charter the OECD has compiled useful international comparisons of
national SME policies, that are published in OECD Small and Medium Enterprise Outlook
reports of 2000, 2002, and 2005. In 2004 the OECD held the SME Ministerial Conference on
the theme: Promoting Innovative SMEs in the Global Economy. In addition, the OECD has
prepared a Compendium of SME and Entrepreneurship Related Activities carried out by
International and Regional Bodies.73 Further, the OECD is pursuing work on SME
development in four key areas:
 Improving SME access to financing, so that SMEs can have access to appropriate risk
capital at all stages of their development. Conference in 2006.
 Identifying ways to remove barriers to SME access to global markets- collaborative
study with APEC.and conference in 2006.
 Increasing understanding of global value chains and the way in which SMEs can
benefit from them- joint study with UNCTAD and others.
71
OECD, 2004, Promoting entrepreneurship and innovative SMEs in a global economy: Towards a
more responsible and inclusive globalization, 2nd OECD conference of Ministers responsible for SMEs,
Istanbul, Turkey, 3-5 June 2004.
72
OECD, 2005, “OECD SME and Entrepreneurship Outlook, 2005”
73
See www.oecd.org/cfe/sme
72
 Disseminating work carried out on best practices for the evaluation of SME policies
and programmes by working with member and interested non-member economies
and international organisations – The OECD will develop and test a handbook of best
practices for the evaluation of SME policies and programmes.
A wide range of studies in many countries have concluded that most SMEs have weak
absorptive capacities, that these weaknesses limit their capacity to acquire and implement
knowledge and as a result the competitive performance of these firms is also limited. Many
of these studies have also found that relatively modest interventions, such as the provision
of networking services or the short term placement of experts (human capital placement),
usually has positive outcomes for the firms. It is reasonable to then ask, why do most SMEs
not organise these services for themselves? At least partial answers to that question are:
 Many SMEs have trouble identifying and articulating their specific needs in a way that
can easily form a clear demand for service providers and, as service providers seek to
provide generic services with a high level of replicability/knowledge re-use, the scene
is set for an unsuccessful market-based interaction;
 Most SMEs do not know how to identify and evaluate experts and also how to assess
the costs and benefits of interaction with an expert;
 Cognitive failure, due to a lack of relevant knowledge, may lead the firm’s senior
managers to simply not grasp the relevance of particular areas of new knowledge
and hence to be ‘boundedly rational’; and
 Firms may lack the complementary assets that will have a major role in shaping the
level of return to investment in knowledge acquisition, for example, a firm may have
difficulty raising capital on reasonable terms, accessing skilled labour,or entering new
markets.
The review by Thorpe et al (2005) concludes that policy interventions to support knowledge
development in SMEs face particular design challenges:
1.
First, entrepreneurs and SME managers tend not to see government agencies as
credible or relevant sources of advice; and
2.
Second, a good deal of evidence suggests that generic programs are far less successful
than programs that are locally focused and sensitive to the context.
The review suggests that programs are most successful where they facilitate SMEs to build
social capital, develop networking and team building capacities: ‘the role of government
intervention would be to support networking activity and the general architecture of
knowledge use but not to be involved directly in its creation and delivery...” (p82)
Bessant et al (2005) also review literature related to public policy interventions that are
targeted at the three levels of capability: raising awareness; strengthening knowledge and
understanding; and stimulating implementation – summarized in Table 7.1.
73
Table 7.1: Approaches to Supporting Knowledge Acquisition and Application in
SMEs
Focus of
Problem/
Intervention
Challenge
Raising
awareness
Strengthening
knowledge and
understanding
Most SMEs: do not
have effective
mechanisms for
gathering diffuse
knowledge have
poor external links
Stimulating
implementation
Mechanism
Key Sources
 Inter-firm networks to assist
firms to identify and respond to
new & emerging opportunities.
 External consultants to facilitate
collective assessment/planning
 Diagnostic capability
 Networking and improved
access to information and
knowledge
 External agents to catalyse the
formation of networks and
knowledge sharing
Provision of experts (typically
academics) to work within firms.
Pittaway et al ,200474
Bessant et al (2005)75
Arnold et al (2004)76
Arnold et al (2004)
Humphrey & Schmitz
(1995)77, Bessant et al
(2005)
Arnold & Teather
(2001)78 Arnold et al
(2004)
Source: Bessant et al 2005.
7.2 Promoting Innovation in SMEs: Policy Rationales
It is generally accepted, although not well researched, that SMEs face particular difficulties in
innovation,for example, see Table 7.2. SME managers tend to be more sales oriented, and in
high tech SMEs often more technology oriented, and do not plan well. Their approach to
management and planning tends to rely more on tacit knowledge than on systematic
approaches79. It is clear however that firms which lack the capacity to act on new
knowledge, because, for example, they have no access to finance to invest in upgrading or
no time/division of labour to enable a focus on change and experiment, are unlikely to be
strongly oriented to acquiring new knowledge.
Table 7.2: SME Disadvantages in Innovation
SMEs Disadvantages
Marketing
Management
Market start-up abroad can be prohibitively costly
Often lack of management specialists, e.g.business strategists, marketing
managers, financial managers
Qualified technical
manpower
Often lack suitable qualified technical specialists. Often unable to support a
formal R&D effort on an appreciable scale
74
Pittaway, L., Robertson, M., Munir, K., Denyer, D., and Neely, A. (2004), Networking and innovation
in the UK: a systematic review of the literature, Advanced Institute of Management Research, London.
75
Bessant, et al op cit
76
Arnold, E., Allinson, R., Muscio, A., and Sowden, P. (2004) Making best use of technological
knowledge: a study of absorptive capacity of Irish SMEs. Brighton, Technopolis Group
77
Humphrey, J. and Schmitz, H. (1995), Principles for promoting clusters and networks of SMEs,
UNIDO Discussion Papers no. 1, Vienna.
78
Arnold, E. and Teather, S. (2001) People as vectors of technological capability in technology,
knowledge and skills transfer schemes. Brighton,Technopolis Group.
Bretherton, P. Becket, R. Soosay, C.l and Hyland, P. (2006) Building Innovative Capabilities in SMEs
through Virtual and Knowledge Networks. CINet 2006: 181-191
79
74
External
Communications
Often lack the time or resources to identify and use important external
sources of scientific and technological expertise
Finance
Can experience great difficulty in attracting capital, especially risk capital.
Innovation can represent a disproportionately large financial risk. Inability to
spread risk over a portfolio of projects.
Economies of scale
and scope.
In some areas economies of scale form substantial entry barriers to small
firms. Inability to offer integrated product lines or systems
Growth
Can experience difficulty in acquiring external capital necessary for rapid
growth. Entrepreneurial managers sometimes unable to cope with increasingly
complex organisations
Legal
Lack of ability in coping with the patent system. Can not afford time or costs
involved in patent litigation
Government
Regulation
Often cannot cope with complex regulations. Unit cost of compliance for small
firms often high
Source: Dodgson, M. & Rothwell, R. (1992) European technology policy evolution: convergence
towards SMEs and regional technology transfer. Technovation
Within the context of the recent OECD studies on policies to strengthen innovation in SMEs,
and drawing on a wide range of prior studies, Potter (2005) has identified the market failures
and system failures that provide a starting point for an assessment of the case for policy
measures. These various types of ‘failure’, their characteristics and some of the possible
policy responses are set out in Table 7.3.
Many assessments of innovation policies have concluded that, in promoting innovation in
SMEs, there is a key role for government in supporting the availability of knowledge and
information:
“..the costs of searching for and translating even freely available information into terms
useful to local firms are not trivial. And there are great economies in centralizing these
activities in organisations with special capabilities to carry them out. Efficiency requires that
these costs, separate from the vastly lesser variable costs of dissemination, be borne but
once. Otherwise each potential beneficiary of the same information would have to replicate
the search and translation costs that would far better be shared, as fixed costs, in some way
among all the potential beneficiaries.”.80
Table 7.3
Type of
failure
Market and System Failures and SME innovation
Nature of failure
Potential local policy actions
Types of Potential Market Failures
Information
failures
Public goods
Externalities
80
Barriers to the flow of information on
innovation opportunities lead to missing
markets and constraints for SMEs in obtaining
finance, strategic partners, etc.
Undersupply of non rival and non excludable
goods that contribute to SME innovation,
e.g.university research.
Undersupply of activities that benefit others in
addition to the producer, e.g.training of highly
skilled labour.
Reduced incentives to SME innovation.
Promotion of networks and partnerships. Public
support to SME research projects. Encouraging
specialist finance providers.
Public supply of basic innovation infrastructure
locally.
Direct public support for SME research projects.
Public support for training of highly skilled
labour in local specialisms.
UNIDO Industrial Development Report 2002/3 Competing Through Innovation and Learning. P117.
75
Monopolies
Incumbent firms restrict entry through
branding and other behaviour, constraining
the ability of innovative new and small firms to
enter the market and compete.
“Second best” policies supporting SMEs in order
to “level the playing field”. Support of new firm
entry in local sector specialisms.
Indivisibilities
There is an indivisible cost involved in creating
knowledge and if marginal cost pricing is used
the fixed cost is irrecoverable, constraining the
production of knowledge by SMEs and others.
Public funding of public and private research
projects with potential spin offs for SMEs.
Types of Potential System Failures
Underinvestment in the local infrastructure
Infrastructure
with which firms interact, e.g. communications
provision
infrastructure and tech. transfer organisations.
Firms and localities are highly capable in their
Transition and own technological area but not in related
lock in failures areas. They are therefore unable to switch
away from their existing technologies.
Incentives for private or public provision of
communications and knowledge transfer
infrastructure.
Incentives for technological activities that
broaden firm and organisational capabilities
and nurturing of emerging technological
systems.
Institutional
failures
The institutional and regulatory context has an
unexpected negative impact.
Monitoring and adjusting local institutions and
regulations.
Learning
failures
Firms may not be able to learn rapidly and
effectively.
Developing firm capabilities through human
capital programmes, support for R&D and
technology dissemination. Opening channels to
kn. sources, e.g.universities and other firms.
Suboptimal
balance
between
exploitation
and
exploration
Local innovation concentrations may work too
much on exploitation and not enough on
exploration (or vice versa)
Using public procurement and funding to
support exploration, introducing diversity in the
industry by supporting new and small firms,
supporting variety through dissemination of
codified information. (Or encouraging
commercialisation of basic research.)
Suboptimal
balance
between
selection and
variety
Local innovation concentrations may have too
rapid selection, whereby underperforming
firms or activities close, and too little variety,
in terms of firms and activities carrying
potentially promising new technologies (or
viceversa).
Strengthening competition policies and use
industrial and technological policies to support
new firms carrying potentially promising
technologies (or weaken competition policies
and limit the use of industrial and technological
policies supporting firms that are likely to fail).
Too stringent appropriability may limit the
spread of knowledge within the innovation
system.
Encouraging local knowledge transfers.
The appropriate complementarities may not be
present in a local innovation system.
Formation of R&D networks, industry university
interfaces and bridging institutions.
Appropriability
traps
Complementarity
failures
Source: Potter, J. (2005) Local Innovation Systems and SME Innovation Policy OECD SME and
Entrepreneurship Outlook. p135
This report goes on to argue that there are three reasons why the SME beneficiaries might
not the required to meet a share of the fixed costs in developing and maintaining technology
support organisations:
1.
Services will often have to be developed well in advance of a market large enough
to sustain the delivery of the service to private entities;
76
2.
Firms that invest in efforts to acquire and use new knowledge generate
externalities so that many other firms capture benefits from their innovation
leadership81;
3.
Innovation in SMEs is often not characterized by high or sustained levels of R&D,
and hence the provision of technology services is often one of the only practicable
means of effectively subsidizing technological effort in such firms.
7.3 Frameworks for Policy
Policies for Capability Development in SMEs
Programs to promote the diffusion of new technologies, both hard (eg ICT-related) and soft
(eg TQM) have been a component of industry policies in most countries. As markets become
increasingly global and competitive, governments have become concerned to ensure that
firms have the capacities to integrate technologies from any sources. The focus of diffusion
policies has changed with changing priorities, for example in the 1980s the focus was on
‘catching-up’ with Japanese manufacturing management technologies, and in the 1990s it
was the application of ICT. Over time there has also been a greater awareness that, to a
greater or lesser degree, the process of diffusion is also a process of innovation. Firms
usually must adapt, eg their organisation, processes, or approach to training, to effectively
implement the new technologies. Hence, where firms that lacked the capacity for innovation
the process of diffusion was less effective. Potential users of new technology may face costs
associated with learning and substantial uncertainty about costs, risks and benefits, which
may lead to an underinvestment in technology. Where firms lack access to capital or trained
human resources, or where there are regulatory barriers, diffusion will be limited.
Hassink (1996) has usefully distinguished three groups of SMEs (Table 7.4) and argues that
these characteristics need to be taken into account in the design of policy:
 technology-driven SMEs which need to keep abreast of leading technologies;
 technology-following SMEs where technology does not have to be advanced; and
 technology-indifferent SMEs, which are essentially craft firms and which rarely invest
in new technological equipment.82
Table 7.4: Characteristics of Innovative Activity in Types of SME
Technology
level
Type 1
Technologyindifferent
Type 2
Technology-following
Type 3
Technology-driven
81
By working with research and technology support organisations, innovation leaders among the
SMEs help to develop capacities, approaches and knowledge (ie learning) in these organisations which
will also be a source of externalities
82
Hassink, R., 1996, Technology transfer agencies and regional economic development, European
Planning Studies, 42(2), pp. 167-184.
77
Innovation
source
- Customers
- Local competence
and
actors
Characteristics
Dependent
subcontracting
Geography-indifferent
Suppliers of machinery
and
equipment for less
technologically
advanced
SMEs
Catch-up
R&D sectors for
research-intensive
SMEs
R&D-intensive
Geographical
National / regional
International/
dimension
national/ regional
Source: APEC SME Innovation Centre (2006) A Research on the Innovation Promoting Policy for SMEs
in APEC : Survey and Case Studies. Korea Technology and Information. Promotion Agency for SMEs.
The observation that many innovative SMEs have strong regional links can provide a nexus
for policy initiatives that can be focused on local organisations and networks and on the flow
of knowledge and ideas through spillovers83.
UNIDO have analysed the role of various types of institutional support for technological
upgrading efforts by firms, whether provided by government or jointly with the private sector.
This is useful for an overall perspective and Table.7.5 lists the major institutional
mechanisms . The specific form and focus of these organisations vary and most
organisations also evolve over time in response to new needs.
In 2006 the APEC SME Innovation Centre carried out a major survey of policies among APEC
countries to promote innovation in SMEs. The report provides a detailed profile of policies
organised in relation to the policy framework shown in Table 7.6, which is also useful for
developing an overall perspective on policy measures.
Shapira and Rosenfeld in work for the OECD on technology diffusion developed a framework
for characterizing the objectives and instruments for promoting technology diffusion. This
useful list, which complements that of the UNIDO work, is set out in Table 7.7
Table 7.5: Institutional Support for Firm’s Technological Efforts.

1.
Basic Industrial Services
 Promote inward investment
 Provide export services
 Provide management services
 Collect marketing information
 Collect data on exports and imports
 Provide managerial consulting
 Provide financial services (accounting, tax assistance, investment advice)
2. Technology Information Centres
 Provide information technology to firms, including networks, software, Internet
capabilities, intranet, and databases
 Perform troubleshooting, assistance, and repair to firms
 Provide training in informational technology applications
83
Asheim, B. and Isaksen, A., 2003, SMEs and the regional dimension of innovation, in B. Asheim, A.
Isaksen, C. Nauwelaers and F. Tödtling(eds.), Regional Innovation Policy for Small Medium Enterprises,
Edward Elgar, pp. 21~46.
78
3. Metrology, Standards, Testing, and Quality Control Centres
 Define domestic standards
 Assist firms in meeting International Organisation for Standardization (ISO)
compliance standards Train firms in ISO standards and regulatory requirements
 Test products to ensure compliance with standards
 Provide technical assistance to firms
 Help firms with calibration of instruments
 Maintain calibrated standards and calibration equipment
 Calibrate firms’ machinery
4.



Productivity Centres
Improve quality
Improve productivity, efficiency
Provide training
5.






Technological Extension Agencies
Extend available technology to businesses lacking technical capabilities
Help firms use cleaner production technologies
Provide information on available technology
Identify problems and use access to technology sources to solve problems
Serve as external consultants and assist firms with trouble-shooting
Promote cooperation of small and medium-size enterprises with larger research and
cluster initiatives
6.



Research and Development Laboratories
Design new processes and products.
Train businesses through demonstration, participation and extension
Implement new technologies
 Import and learn foreign technology
 Adapt foreign technologies to local requirements
 Integrate these technologies into economy in collaboration with firms
-------------------------------------------------------------------------------------------
Source: UNIDO Industrial Development Report 2002/3 Competing Through Innovation and Learning.
P118.
Table 7.6: Policies for Promoting SME Innovation – Framework for an APEC Study
Policy
Focus
Elements
Procurement of
government
Marketing
Human
Resource
Development
Building up
capacity of
overseas
marketing
Recruiting
Training
Sub-elements
Procurement
programs
Contents
Export promotion
policies
Programs for
enhancing
integration of SMEs
into global supply
chain
R&D manpower
Accessibility of
local skilled labour
- Facilitating procurement of new technology products
by suggesting guideline and establishing e-marketplace
- Technology development support program on
condition of government procurement in certain periods
- SME export-supportive institutional infrastructure
- Export development & promotion agencies
- Incentives to inward FDI MNCs involved in production
networks with local SMEs
- Linkage promotion program
- Capacity building program for technical and
management upgrading
- Promoting SMEs’ recruitment of graduates from
tertiary education courses.
- Subsidy to recruit R&D manpower
SME specific
training programs
Diversity of training
-ICT skill program for SMEs
-Subsidy to training SME personnel
-Training at different levels: researchers/ technicians etc
79
Technology
Generation of kn.
in SMEs
Diffusion and
system
Efficiency of R&D
R&D grant, tax
Globalisation
Technological
collaboration
Financing
Equity Financing
Government equity
programs
Networks of
venture capitalists:
Business Angel
Networks (BANs)
Debt Financing
Direct loan
programs
Loan guarantee
programs
Certification of
SMEs
Management
of Innovation
Clustering &
Networking
Provision of
Information
Management
Counseling
Local Assets
Level-up
Program
Promoting
Networking
Capabilities
Development
Program
Management
counseling
Support system for
counselors
Knowledge-based
organisations
Network agencies
Collaborations
Consultancy,
education & train’g
- Inclusion of SMEs to national R&D programs
- Stimulating generation of knowledge in SMEs
- License and other office for SMEs
- Promoting collaboration between firms: vertical &
horizontal collaborations
- Promoting technological collaboration between SMEs
and universities/public institutions
- Establishing governmental sponsored special-purpose
funds, which provide direct equity financing to
innovative SMEs or venture firms - Participating in
private hybrid funds specialized for investment in
innovative SMEs or venture firms
- Providing communication channels to business
angels, venture capitalists, investors and entrepreneurs
looking for financial sources with high potential
innovative technology
- Providing direct loans to innovative SMEs or venture
firms with favourable interest rates or often with longterm fixed rates
- Providing official guarantee about SMEs to financial
institutions with which loan guarantee institutions
compensate the losses in the case of the SMEs’ default
- Providing adequate information and credibility about
SMEs and venture firms’ technology and business
growth potential - Solving the problems of information
asymmetry to outside investors or financial institutions
Establish a site or system for information dissemination
-Public investment in technology development
organisations, including universities and public research
laboratories
Encourage local collaboration by strengthening
networks among SMEs, large firm & RTOs
-Increasing SMEs’ capabilities to absorb innovation
-Enhancing ability of SMEs to engage in collaborative
research with research organisations
Derived from APEC SME Innovation Center (2006) A Research on the Innovation Promoting Policy for
SMEs in APEC: Survey and Case Studies. Korea Technology and Information Promotion Agency for
SMEs. http://www.apecsec.org.sg/apec/publications/all_publications/small_medium_enterprises.html
Table 7.7: Technology Diffusion Programs: A Characterization of Objectives and
Instruments
Focus of
Program
Awareness
building and
technology
demonstration
Information
search and
referral services
Technical
assistance and
consultancy
Instruments
Awareness of potential uses of new technology
through demonstration projects, training, pilot
plants, performance benchmarking, web pages or
electronic information.
Provide technical information to lower the search
costs for potential users, via regional centres or the
internet
Provision of experts to assess problems and identify
technological options for upgrading
Examples
Regional Technology
Centres (Japan)
Technical Information
Centres (Denmark; many
US States)
Usually located in regional
technology centres
Manufacturing Extension
Partnerships (Kansas,
Ohio, Oklahoma).
80
Training
Collaborative
research &
technology
projects
Personnel
exchange and
the support of
R&D personnel
Standardization
Financial support
Procurement
Inter-firm
cooperation
Facilities for
technology
transfer
Regional or
sectoral cluster
measures
Macro policy
measures
Promote investment in human capital, by
identifying training needs, improving the supply of
appropriate training, providing training services
Increase industry involvement in applied research
UK Learning & Skills
Council
http://www.lsc.gov.uk/
Applied Research Centres –
Steinbeis and Fraunhofer
Centres (Germany)
Secondment of staff to technology centres or other
firms, subsidy for the employment of qualified staff
in SMEs.
Regional Technology
Centres (Japan)
Facilitate the development of standards to promote
application, eg in e-commerce, ISO 9000 series.
Subsidies, low cost loans, grants for the use of
consultants, the purchase of new equipments
Policies that require offsets to (and support for)
SMEs can promote technology support
Sponsorship of collaborative industry groups
(vertical, horizontal, sectoral) for information
sharing, joint production, joint problem solving.
Often linked to research centres and combine
demonstration, information provision and other
local support.
Development of ‘social capital’ through inter-firm
and inter-organisational links
US SBIR Program
Regional Technology
Centres (eg Minnesota)
US SBIR Program
EU Sprint Program.
Advanced Technology
Development Centre, Univ.
Georgia. Centres in many
science parks.
Many regional and national
cluster development
programs
Overall framework conditions that influence eg cost
of capital, IP protection, labour market policy, tax
policy (eg depreciation for investment in new
technology)
Based on Shapira and Rosenfeld (1996) An Overview of Technology Diffusion Policies and Programs to
Enhance the Technological Absorptive Capabilities of Small and Medium Enterprises. Background
Paper for OECD Directorate for Science.
Strengthening Absorptive Capacity in SMEs
Over the past decade or more technology diffusion programs have become increasingly
focussed on SMEs. These programs recognise that while only a small proportion of SMEs
have the capabilities and commitment for advanced innovation and rapid growth, a larger
proportion are active technology users, with the potential to sustain ongoing productivity
improvement through investment and incremental innovation. It is well recognised that even
in these categories of SME the absorption and application of new knowledge is constrained
or slowed by intra-firm issues that limit access to adequate information (search and
assessment costs and absorption capacities). In relation to the business infrastructure, mall
firms often face greater difficulties than large firms in obtaining support from vendors, and
appropriate and affordable consulting services. Small firms are often reluctant to share
information (about business resources and technologies) with other small firms. The ‘social
infrastructure’ is often better suited to larger firms, such that training and research
organisations are often less responsive to the needs of small firms.
There is considerable debate about the appropriate targeting and mix of policies at the
micro (intra-firm), meso (inter-firm, clusters, regional and sectoral programs) and macro
81
(framework conditions) levels. It is important to also consider whether these programs are
focused on start-up SMEs or on established firms. The work of Shapira and Rosenfeld
provides a very useful overview of such policy measures – Table 7.8
Table 7.8: Measures to Strengthen Absorptive Capacity in SMEs
Micro: Firm-level
Benchmarking
Increase awareness of best technology use through benchmarking services,
facility visits, or technology demonstrations.
Assessment
Assist firms in diagnosing technology needs and identifying tech. opportunities.
Strategy
Aiding firms to develop longer-term technology upgrade paths, in the context of
Development
broader business plans.
Information
Enriching the information resources available to firms, including information
Provision
about tech. trends and opportunities and responses to specific information needs.
Brokering
Helping firms identify other resources that can help them in deploying
technologies, such as private consultants, public service providers, and other
firms.
Implementation
Assisting SMEs to implement new technologies, through in-plant technical
assistance and problem solving.
Cost-sharing and Reducing financial barriers to the technology implementation, through cost
justification
sharing, grants, loans, and other financial mechanisms. Also includes helping
SMEs cost-justify investments in new technologies.
Training
Increasing human capital and expertise to understand, absorb, operate, and
improve technology within SMEs.
Teaming
Assisting the managers and workers of SMEs to work together, to find joint
solutions to operational, business, and technological problems.
Marketing
Aiding SMEs to commercialize new technologies, particularly new product
technologies, through assistance with pilot production, marketing, and
procurement. Initiatives in this area also include export promotion and programs
that focus on national and international supply chain links.
Learning and
Providing opportunities for SMEs to continuously learn about new technology
exchange
developmentsand opportunities. May include promoting membership in learning
groups and associations, as well as traditional exhibitions or seminars. Can also
include personnel exchanges.
Meso: Business-infrastructure
Qualification
Upgrading the capabilities of complementary private service providers to assist
SMEs.
Best practices
Identifying, promoting and disseminating best practices among customers,
vendors, private support services to support SME technology diffusion.
Association
Collaboration with/strengthening trade and industry associations and increasing
their involvement in technology diffusion
Dialogue and
Promotion of forums and mechanisms to strengthen relationships and
information flow
information flows within industries and regions, such as customer-supplier forums
or industry consortia.
Networking and
Seeding industrial networks and other collaborative projects, to encourage SMEs
collaboration
to be involved in shared efforts to understand, apply, and commercializenew
technologies.
Meso: Social infrastructure
Facilities
Cost sharing
Technical
assistance
Improving facilities, physical infrastructure, and the available of new technology
equipment, software, and other technical resources.
Financial support or match to support program development.
Technical assistance for program development and operations.
82
Training
Linkages and
industry feedback
Partnership
Training of service personnel to work effectively with SMEs.
Promotion of closer linkages between technology developers and SME users, and
incorporation of SME feedback into the process of new technology development.
Promotion of partnership among different service providers to coordinate
assistance to SMEs. Also promoting inter-regional and inter-national partnerships
and information flows beneficial to SMEs.
Innovation
Seeding innovative new approaches, pilot projects, model programs.
Best practices
Development and sharing of program best practices to increase the technological
absorptive capabilities of SMEs.
Tools
Development and sharing of analytical tools, such as performance benchmarking
instruments and methods, which can help diagnose SME needs and be shared
among service providers.
Information
Availability of timely technical information sources for service providers and
creation of opportunities for information development, exchange, and
dissemination.
Participation and
SME representation and involvement in program design and operations, through
governance
advisory mechanisms, program governance, focus groups, etc. Also, SME
membership and financial commitment, including cost-sharing of services.
Evaluation and
Ongoing evaluation and review of program performance, using internal and
review
external evaluation methods, aimed at program improvement.
Macro: Policy and attitude
Leadership
Policy dialogue
Analysis and
monitoring
Coordination
Complementary
macro measures
Policy leadership in raising attention to SMEs and their technology needs and in
focusing public and private resources.
Promoting forums and other exchange opportunities where SME needs and
opportunities can be represented.
Problem research and analysis about the technological needs and opportunities
facing SMEs.
Developing coordinated policy frameworks to guide program measures and
service delivery.
Ensuring that other policies, such as tax, regulatory, trade, or labor market
policies, support SME technology diffusion and their own self-investment in their
capabilities.
Based on Shapira and Rosenfeld (1996) An Overview of Technology Diffusion Policies and Programs to
Enhance the Technological Absorptive Capabilities of Small and Medium Enterprises. Background
Paper for OECD Directorate for Science.
These various frameworks show the diverse range of specific intervention targets,
instruments and delivery mechanisms that are used for policy measures related to absorptive
capacity. In Figure 7.1 we summarise these various lists and frameworks and characterise
the targets and measures used.
83
Figure 7.1: Targetting Measures for Developing Absorptive Capacity and
Innovation in SMEs
Innovation
implementation
Framework
Conditions
Depreciation
Training
subsidy
Overall
policy
coordination
Capability
development
Awareness of
opportunities
Procurement
Strengthen
Business & Social
Infrastructure
Tech support
centres
Training
programs
Regional
centres
Support
Collab’n
Info
resources
Roadmaps
foresight
Seeding
networks
Seminars,
forums
Mentoring
Incentive to innovate
Info
Needs
resources
identification
Develop
consultants
Develop &
dissem’t
business
mngmt tools
Strengthening
the Supply Side
Subsidise
consultants
Stimulate demand
Develop Benchmarking
Guides to
business
Diagnostics
Info
tech &
tools
provision
mngmt
Networks
among
Brokering
consultants
Training
Outplacement
of researchers
Financial
support
Export
dev’t
services
Staff
placement
Marketing
support
Tech.
support
Direct
Services
Source: Authors
7.4 Absorptive Capacity Development-Related Programs at the
State Level
Overview84
A wide range of programs have been developed by the Australian States to promote
innovation. Several new initiatives have been introduced and further initiatives are under
The information in this section is largely drawn from the websites of State Government agencies or
national agencies and is not based on an independent assessment of the programs.
84
84
development. While the majority of these initiatives operate at the State level, others link to
national programs such as those of the Australian Institute for Commercialisation.
The wide range of programs can be classified into seven groups as shown in Figure 7.2 and
the specific programs are listed in Table 7.9. Each is briefly described in the Section 8, which
deals with specific programs from each State. This information was largely drawn from
websites and is not intended as a comprehensive review. However, the overview provided
suggests a structure of interventions broadly similar to those at the national level:

The development of absorptive capacities and innovation management capabilities is
usually not a major focus of programs, but is an important secondary objective of
programs focused on other main objectives, in particular the commercialization of
technologies;

Regional Centres, Innovation Centres and private sector organisations are often used
to deliver programs – but, as at the national level, these do not appear to have the
breadth of roles nor the depth of capability of similar centres in many other countries.
An indicative stocktake of State level programs is at Appendix 3.
Figure 7.2:
Business Innovation Programs in the Australian States
Business
Development
Support: Business
Advisory
Export Development
Technology awareness,
diffusion,
demonstration or
evaluation
Sectoral Development
Programs
Programs to Build
Absorptive Capacity &
Strengthen Innovation
Management
Cluster Development
Programs
Commercialisation
Support
Research – Industry
Links
85
Table 7.9
Programs at the State Level Related to Building Absorptive Capacity & Strengthening Innovation
Commercialisation Support
New South Wales
Innovation Advisory
Centres
Research –
Industry Links
Cluster Dev’t
Pgms
Sectoral
Development
Pgms
Innovation Clusters
Business Clusters
Tech.
awareness,
diffusion, dem’n
or evaluation
Business Dev’t
Support:
Business
Advisory
Technology Diffusion
Pgm;
Technology
Demonstration Pgm
High Growth Business
Pgm;
Small Business Advisor
Services;
Hunter Industry Dev’t
Centre*
Victoria
VicStart – Tech. Comm’n Pgm;
Innovic;
Innovation Partnering;
Mentre Comm’n & Growth Pgm;
Regional Tech. Comm’n;
Management Excellence for
Tech. Start-Ups
Research-Industry Partnerships
Pgm;
National & International
Research Alliances Pgm
Partnerships Alliances
Facilitation Pgm
TCF Technology Network;
Food Manufacturing High
Performance Consortium;
Aerospace & Defence
Innovations
Tech. Evaluation Pgm;
Technology Demonstration
Pgm;
Innovation Insights
Grow Your Business Pgm;
Industry TechLink
Queensland
Innovation Start-Up
Ideas 2 Market;
Technology Innovators
Forums;
Financing Growth Pgm
South Australia
Centre for Innovation
Western Australia
Innovation Centre
Innovation to Market
Pgm
Constellation SA
Centre for Innovation
Centre for Innovation
Small Business Centres
Export Dev’t
* The Hunter IDC is a regional centre which delivers a range of State Government programs to firms in the region, including innovation advice and cluster
development.
7.5 Absorptive Capacity Support Options – Potential
Intervention Points
It is useful to link a discussion of policy targets to our earlier assessment of firm-level
models of absorptive capacity in Section 3. This complements the broader system level
perspective on set out in Figure 7.1. This provides a framework, linked to the survey
instrument for identifying possible intervention points. The main intervention points used to
deliver firm level initiatives with a view to strengthening absorptive capacity, and as set out
in Figure 7.2, are:






Improving access to finance, markets;
Improving the knowledge infrastructure, access to institutions, networks, collaboration
capability;
Improving management, business planning;
Human resource development – training;
Technology and market intelligence; and
Improving the capacity to benefit from innovation- complementary assets
This framework might be useful in assisting the assessment of a large sample of firms as
proposed in the suggested survey, with a view to better defining policy targets; whereas the
framework in Figure 7.1 is more useful for identifying possible policy instruments.
Drawing on a similar perspective Daghfous (2004) suggests that firm level actions should
focus on:





ensuring a management commitment to effective learning;
developing an internal culture that supports change;
improving communication across functional boundaries;
organising mechanisms to facilitate exchange through seminars, chatrooms and
intranets; and
rewarding those who share knowledge.
In the following we discuss briefly the experience with two important types of SME –related
support measures below. One purpose in doing so is to show that many of the possible
policy instruments have been the subject of considerable research that should be drawn on
in the further assessment of policy options.

Networking85
Networks, which can take many forms, can assist SMEs to access relevant knowledge but
the effectiveness of networks requires high levels of trust and accountability86. Bessant et al
(2005) report many studies of the formation of strong networks which have had a significant
impact on the performance (eg export competitiveness) of SMEs. They comment that
experience in the design and provision of network development services points to the
Hanna, V. and Walsh, K. 2002 “Small firm networks: a successful approach to innovation?”,
R&D Management, Vol. 32, No. 3, pp. 201-207. Lee, D.J. and Jang, J.I. 1998 “The role of relational
exchange between exporters and importers: evidence from small and medium-sized Australian
exporters, Journal of Small Business Management, Vol. 36, No. 4, pp. 12-23.
86
Tsai, W. (2001) Knowledge Transfer in intraorganisational networks: effects of network position
and absorptive Capacity on business unit innovation and performance; Academy of Management
Journal 44(5):996-1004
85
importance of maintaining a strong demand orientation ie the networks must be focused on
addressing the issues of which firms are aware and see as vital. They also note that, at least
initially, the key role of consultants is less one of knowledge transfer and more one of
working with the firms to identify and prioritise issues in order to clarify what are the key
issues for the network. Given this ‘insider’ role of consultants, it is not surprising that what
Bessant calls ‘homophily” (or similarity between groups) is important in underpinning trust
and communication and hence effective networking:
“.. people prefer to learn from homophilitic networks (‘people like us’), The importance of
homophily (birds of a feather flock together) is thought to increase as firms move from
solution to legitimisation because the more removed from a simple solution something is,
the more trust, experience and/or closeness is needed to utilise the benefit. Trust and
experience can be expected to be greater within groups than between.” (Bessant et al, 2005,
P46).
Figure 7.1: A Process Model of Absorptive Capacity, Its Antecedents, and Its
Outcomes
Characteristics of the Firm
member’s mental models – drive
the creativity of recognition,
assimilation and application
Characteristics
of internal and
external
knowledge
drive the depth
& breadth of
understanding
4
Environmental
Conditions: drive
the incentives to
develop AC
Recognise &
understand
new external
knowledge
(exploratory
learning)
1
Acquire
new
external
knowledge
1
5
Characteristics
of Learning
Relationships –
drive the ease of
understanding)
Learning
mechanisms:
licensing,
training,
alliances
3
Networks,
clusters,
SIS
Characteristics of the Firm’s
structures and processesdrive the efficiency &
effectiveness of assimilation
& application
6
Assimilate
external
knowledge
(trans formative
Learning)
Firm Strategies
(drive the focus of recognition &
understanding of assimilation and of
application)
Apply
assimilated
external
knowledge
(exploitative
learning)
Knowledge
Outputsscientific,
technical,
organisational
Firm
Performance
Commercial
Outputs
(products,
services, IP)
2
Adapted and Developed from Lane, Koka & Pathak, 2006
88
While networks clearly can be a valuable mechanism to promote upgrading in SMEs they
may have a limited impact on actually improving absorptive capacity so that the firms
continue to be more effective users of external knowledge (Arnold, et al, 2004).
Cluster promotion has also developed into an important policy instrument for SME support,
where firms are encouraged to link, leverage and learn. The increasingly global supply
chains present challenges (and opportunities) for SMEs, but they must often strengthen
their capabilities both for production (efficiency, quality, reliability) and innovation (change
to meet new requirements or use new technology). Over the past decade there has been a
strong interest in the role of clusters as a mechanism to achieve ‘collective efficiency’87.
Collective efficiency is seen to arise from the benefits of agglomeration (eg a labour market)
and from more active processes of cooperation. A good deal of emphasis is placed on the
extent to which social capital built up in a region (trust, shared institutions and values)
facilitates the diffusion of tacit knowledge and the development of cooperation. Regional
organisations, particularly if cluster-related, can play a valuable role in the provision of
services for, eg market and technology information, and training.
However, ultimately individual firms must strengthen their own capabilities but the cluster
approach is not built on a strong foundation of understanding of how that happens88. This
has led some to policy analysts to suggest that cluster-oriented policies may not adequately
focus on stimulating technological learning efforts at the firm level, focusing instead on
developing local organisations, institutions and collective activities. They suggest for
example that programs that selectively target progressive companies may generate faster
and more effective results and the knowledge and skills developed will then diffuse to other
regional firms through demonstration effects89.
Provision of Expert Services
The challenge for effective programs of this type is to ensure that the recipient firm is
almost ‘ripe’ – ie has both strong strategic intent of pursue a goal based on upgrading and
change in structures etc (eg innovation, growth, exports) and the foundation capabilities to
enable effective knowledge absorption, but need the additional input to precipitate effective
action (Arnold & Teather, 2001).
Bessant et al (2005) suggest that those mechanisms that are likely to be most effective for
firms with reasonably well develop absorptive capacity would not be appropriate for firms
with limited capabilities. They provide the example of the Ireland’s TechStart program
which focuses on the later and the UK’s Knowledge Transfer Partnerships (KTP) which focus
on the former.
A number of recent studies have questioned the assumption that the resistance of
individuals to change is the major barrier to the implementation of new knowledge (Bessant
et al, 2005) For example, Jansen (2004)90 stresses the inability of managers to develop
87
Schmitz, H. & Nadvi, K., (1999) Clustering and Industrialization: Introduction World Development.
27(9): 1503-1514.
88
Caniels, M. and Romijn, H. (2003) SME Clusters, Acquisition of Technological Capabilities and
Development: Concepts, Practice and Policy Lessons. Journal of Industry, Competition and Trade.
3(3): 187-210.
89
Caniels & Romijn (2003)
90
Jansen, K. J. (2000) The emerging dynamics of change: resistance, readiness, and momentum.
Human Resource Planning 23(2), pp 53-55. Jansen, K. J. (2004) From persistence to pursuit: a
89
systems (structures, incentives, performance assessment) that facilitate changes and
suggests that coaches can play a positive role in developing ‘readiness to change’ through
developing proactive beliefs, attitudes and behaviours (Bessant et al, 2005).
7.6 Conclusions
The review in this Section is intended to provide a background the survey of specific
programs that follow in Section 8; and is designed to link the discussion of innovation
support initiatives to the earlier discussion of absorptive capacity. While a comprehensive
review is beyond the scope of the present study, this overview points to several points
relevant to the current study:
 There are an extensive and increasing range of programs aimed at reducing barriers
to capability development, innovation and growth in SMEs;
 These initiatives are influenced by the perception that SMEs play a vital role in
innovation systems but that significant market failures limit their development;
 A diverse range of instruments are used and there is increasing interest in evaluating
these programs and in developing international initiatives to share experience in SME
program design and implementation;
 SMEs tend not to see government agencies as credible assistance delivery
mechanisms;
 Many SME assistance programs use regional centres, networks and private firms (eg
consultants) to deliver programs; and
 Experience suggests that it is vital to recognise the different needs and capabilities,
and potential to benefit from assistance, of different types of SME.
longitudinal examination of momentum during the early stages of strategic change. Organisation
Science 15(3), 276.
90
8.
Policies that Promote Absorptive Capacity
8.1 Introduction
Arnold et al (2005) surveyed the main policy instruments to promote absorptive capacity in
several European countries- summarised in Table 8.1. On the basis of this survey they
concluded that:

The range of policy instruments has tended to be reduced and streamlined over the
past decade;

There is a trend to delivering company support through ‘one stop’ shops such as
Enterprise Ireland;

There has been an increase in the focus on support for university-industry links in
particular and networking in general;

Many countries have developed technology oriented diagnostic services at the
forefront of their interface with firms;

Human capital development through explicit training and placement schemes, and as a
by-product of R&D support programs is a major feature of the instruments.
Diagnosis
Capacity
Expansion
X
X
Codification
Organisation
, Routines
X
Learning
Other
Networks
Ireland
RTI Programme
Innovative Management Initiative
R&D Support
Innovation Partnerships
R&D Awareness
Programmes in Advanced Technology
Fusion Scheme
Expertise Ireland
Country Enterprise Boards
UK
Business Links
Technology Prog. - Collaborative R&D
-Knowledge Transfer Networks
Grants to Investigate Innovative Ideas
Grant for R&D
Knowledge Transfer Partnerships
Access to Best Practice Business
Management and Leadership Programme
LINK _ OST
Faraday Partnerships
Regional Skills Partnerships
Phoenix Fund
Netherlands
Training Facility
Training Impulse
Academic
Networks
Human
Capital
Table 8.1: International Overview of Schemes to Promote Absorptive
Capacity
X
X
X
X
X
(X)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
91
Knowledge Transfer Branch Orgs/SMEs
Knowledge Transfer Entrepreneurs/SMEs
Dreamstart – NTBFs
WBSO R&D allowance
O&O Fonds
Sweden
VINNVÄXT
VINST
Innovation Systems and Clusters
TUFF Technology Transfer/Brokerage
Regions – IT
IT.SME.se
Finland
Entrepreneurship Policy Programme
TE-Centres
Centres of Expertise
Technology Programmes
R&D Funding for Companies
Feasibility Studies
Business from Research (TULI)
Technology clinics
Source: Arnold, et al 2005. p27
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
The Technopolis study identified several possible initiatives for strengthening absorptive
capacity in Irish firms:
“Our study….suggests a number of directions in which absorptive capacity needs
improvement, especially in
 Recognising the relevance of external knowledge
 Increasing the employment of qualified scientists and engineers by indigenous





companies
Modernising and professionalising management
Reducing firms’ comparative isolation and by improving external linkages
Accelerating the rate at which firms develop technology-networks.
Helping firms to search more widely for knowledge
Reducing their levels of perceived risk associated with innovation, through better
information and access to knowledge
Where they exist, R&D and innovation functions appear to be organisationally isolated and
often sub-critical. Half the firms said that they need external help to undertake almost any
kind of technological innovation, including the adoption of externally produced turnkey
technologies, confirming the perception that Ireland requires ‘catching up’ policies for
absorptive capacity development in many if not all branches of industry. Existing policy
measures are limited in this area. Little help is available for firms, which need to become
more adventurous in their innovative activities, without at the same time going so far as to
become involved with ‘science push’ activities. Here, Ireland is deficient not only in schemes
but also in the knowledge infrastructure. This kind of intermediate knowledge development
is not interesting for most HEIs: it is not their mission. Internationally, it is satisfied by
specialised Research Institutes, such as the Danish GTS Institutes, whose mission involved
delivering ‘technological service’ to industry, especially SMEs.
Improving the capabilities of smaller firms with low technological capability can not be
achieved simply by hanging up a sign advertising support, and waiting for companies to
apply. A proactive approach is needed to:
92





Broaden awareness of innovation and recognising the value of external knowledge
Develop human resources
Increase networking
Improve management organisation and routines
Develop learning processes within companies.”
8.2 Insights into Relevant Policy Experience in Australia
Bretherton, et al (2006) review the experience of two programs that developed networks to
promote knowledge transfer and uptake in SMEs. One of these was set up by the
Department of State Development in Queensland and aimed to assist SMEs in nonmetropolitan regions to access capital, and the other was set up by the Tooling Industry
Federation of Australia and aimed to promote upgrading in SMEs and greater collaboration
for commercial objectives. Bretherton, et al (2006) conclude from an initial assessment of
the program that: ‘The central strength of the process is the group mentoring sessions…
[which provide] a focus that addresses how SMEs can access expertise in a short time frame
from multiple sources. [and that] the mentoring process is a successful approach to growing
businesses and is a low risk strategy for government.”91 However, they emphasized that
each network must develop its own specific approach at its own time and that a flexible
framework for such a program is essential.
Beckett (2006) provides a useful assessment of the experience of an Australian project
developed to facilitate greater cooperation among SMEs. The project, supported by
AusIndustry’s Innovation Access Program and two industry associations, focused on two
sectors (automotive components and aerospace) where globalization, and moves by large
customers to reduce the number of suppliers, threatened the supply chain links of small
firms. Individually the smaller firms tended to move into a negative cycle focused on
declining opportunities in domestic markets. Beckett describes a situation where the work
of a number of actors, including facilitators and industry associations, developed a ‘breeding
environment’ where opportunities were firms began to become familiar with each others
interests and capabilities and discussed possible foci for collaboration. Even at this stage the
development of ‘social capital’ through the work of the industry association and an earlier
industry networking program played an important role in creating the ‘space’ to explore
opportunities. However, the formation of specific collaborations required a focusing device
and a subset of actors prepared to pursue an identified opportunity. Over time, with a
greater development of shared understanding about complementary capabilities and shared
interest, other, possibly longer term spin-off networks evolved. For example, one of these
brought together a number of firms and some research providers in a formal relationship
mediated by the industry association. This pattern of tiered network evolution is illustrated
in Figure 8.1 and discussed in the following statement:
91 91
Bretherton, P. Becket, R. Soosay, C.l and Hyland, P. (2006) Building Innovative Capabilities in
SMEs through Virtual and Knowledge Networks. CINet 2006: 181-191
; p.187
93
Figure 8.1: Evolution of Relationships in an Industry Network Program
Breeder ‘Network’ Initiatives add to
‘social capital’, increase understanding
of complementarities, help to identify
opportunities
Short term
specific
opportunity
collaboration
Project specific
network mediated
by focal firms
Longer term
strategic
collaboration
Collaborative
research
program
Project specific
network mediated
by focal firms
Joint marketing
and production
entity
Source: Based on Beckett (2006)
“…an initial focus on receptive clients rather than on internal collaboration practices should
be given priority in project development. The identification of receptive focal firms was seen
to be very important in engaging with global markets. Building capability and capacity via
the cooperation of a few focal firms that could in turn engage with smaller firms in a hub
and spoke style emerged as the dominant arrangement. This was partly because most of
the smaller firms did not have the absorptive capacity for direct engagement with global
markets, and partly because client purchasing departments did not seem comfortable about
dealing with a virtual enterprise or some kind of cartel. The whole evolutionary process
seemed to involve ongoing interplay between the operations of a long term breeding
network ..that explores possibilities and the short term operation of a virtual enterprise or
agile shop floor arrangement that exploits any opportunities identified. It was observed that
the industry associations could play an important role in sustaining a breeding network, but
had very little participation in the exploitation stage. Understanding the quite different
dynamics and the interdependencies of these two forms of collaboration was seen as a
success factor. The firms involved in the RELINK demonstration projects would generally
regard each other as competitors, and it was essential that some way in which the firms
complemented each other was identified to form sustainable working arrangements. Some
firms with an attitude of conditional cooperation may have been involved to provide capacity,
but they were not seen as long term participants…..It seemed easier to get things started
with complementary firms….. but harder to sustain the collaboration if they did not find a
common theme. It seemed hard to get competitors working together, but once some form
of complementarity was found, the collaboration seemed self-sustaining. “ (Beckett, 2006,
p13-14.
94
Experience of SME networks in Europe and elsewhere show a similar pattern of exploratory
processes that build on existing relationships but go further to identify complementarities
and develop shared purposes, and then often the emergence of more formal but self
organizing new sub-networks with joint responsibility an decision making.(Camarinha-Matos
and Afsarmanesh, 2004; Chapple, 2005)92.
Camarinha-Matos and Afsarmanesh (2004) identify several generic types of actors who play
key roles in networks, but have different objectives for collaborating and different objectives.
In the Australian case Beckett (2006) found that these categories of actor were identifiable
in the development of the networks:
 Focal firms – larger and more capable hub firms that take on the lead role in
project management;
 Technology providers – equipment and service providers, potentially including
research organisations;
 Regional networks – that may choose to extend their role beyond the initial
region;
 Communities of practice – patterns of linkage across firms at the individual level;
and
 Supporting firms – smaller firms that collaborate on a specific base.
8.3 Extending the Study to Other Countries
In the present work we have attempted to provide an overview of the instruments that
appear relevant to developing absorptive capacity among SMEs in fourteen countries
(Australia – AU), UK, Sweden, Norway, Netherlands, Ireland, Japan, Hong Kong, Korea,
Denmark, Finland, France, Germany and the USA). Our coverage is generated from
secondary sources. It is not intended to be exhaustive, but to provide a sense of the
repertoire of instruments in international use. Instrument designs are increasingly
transported among countries, so copies of the US SBIR programme, the former UK Teaching
Company Scheme (now re-branded as Knowledge Transfer Partnerships), voucher,
networking and R&D subsidy schemes are found everywhere.
We concentrated on the 11 types of instruments, listed in Table 8.2.
Table 8.2: Types of instrument covered in this survey
Number
1
2
3
4
5
Mechanism Category
Procurement
Intellectual Property Support
Investment Funds, Venture Capital, Seed Capital, Guarantees
R&D or Innovation Subsidy
Grants for Bilateral Cooperation between Companies and
92
Camarinha-Matos, L.M, and Afsarmanesh, H (2004) “The Emerging Discipline of Collaborative
Networks” in “Virtual Enterprises and Collaborative Networks”(Ed L.M. Camarinha-Matos) Kwuhler
Academic Publishers, the Netherlands. ISBN 1-4020-8138-3, pp 3-16. Chapple, K. 2005, Building
Institutions from the Region Up: Regional Workforce Development Collaboratives , Working Paper
2005-01, Institute for Urban and Regional Development, University of California, Berkeley, CA.
95
6
7
8
9
10
11
Universities/Research Institutes
Public-Private Partnerships involving multiple companies plus institutes from
the Knowledge Infrastructure
Other R&D or Innovation Networks
Tax Incentives or Relief’s
Advisory or Brokerage Services
Training Schemes & Recruitment
Science Parks, Incubators
The numbers on the left hand side of Table 8.2 are used as a ‘key’ to the different
instrument types in the following more comprehensive table of instruments (Table 8.4),
which also summarises the and relevance of these instruments to various types of
absorptive capacity:




Direct development of human capital, for example through training, recruitment and
mobility schemes;
Various kinds of networking, involving innovation-related links with the knowledge
infrastructure or with other companies;
Changes in organisation and internal processes; and
Learning and generation of strategic intelligence, such as information about
technological and market opportunities.
As a fifth category of absorptive capacity, we have included the generation or transfer of
technology, because this can provoke increases in absorptive capacity. It is clear that
policymakers in the countries studied take care to ensure that instruments collectively tackle
the full range of possible categories of absorptive capacity.
A more detailed description of the different instruments is provided in the Appendix with the
exception of details on the Australian programs. A few of the lesser known programs from,
for example the USA, are described in Section 8.4.9.
8.4 Assessing the Eleven Most Relevant European National
Support Programs for Absorptive Capacity
In this section we focus on 11 particularly relevant European national programs, which have
been evaluated and have been found to be effective. The specific programs we discuss are
summarised in Table 8.3.
Table 8.3: The Eleven Most Relevant European National Support Programs
for Absorptive Capacity
AC Components 
Instruments
Cont.
Cat
.
Business Link
Ufi/Learndirect
UK
UK
9
10
Knowledge
UK
6
Hum
an
capit
al
Networking
Knowledge Compan
infrastructu
ies
re
XXXX
XXXX
Organisati
on etc
Learnin
g,
strategic
intellige
nce
XXXX
XXXX
XXXX
XXXX
Technol
ogy
generati
on or
transfer
XXX
X
XXXX
96
Transfer
Partnerships
NT Programme
FRAM
WBSO Research and
Development
(Promotion)
Act
Syntens Innovation
network for
entrepreneurs
Innovation
Consortiums
Centre of
Expertise
Programme
Technological
Development
Network
PRO INNO II
8.4.1
NO
NO
NL
5,9
7,
10
8
XXXX
NL
9
DA
6
XXXX
XXXX
FI
6
XXXX
XXXX
FR
7
XXXX
DE
4
XXXX
XXX
X
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
The UK
Business Link – UK
The central objective of Business Link is to improve the competitiveness of small firms
through more comprehensive provision of business support. In pursuit of this objective their
aims are to:



Increase the use of business support by small firms;
Rationalise the provision of support to reduce duplication and to make it more
coherent; and
Improve the quality of support services.
Business Link came into being as a result of the "one stop shop" for business support
initiative announced by the then President of the Board of Trade in July 1992. Nine pilot
Business Links were approved for start up in April 1993. The network was gradually
extended thereafter, so that by January 1997 a total of 89 Business Link partnerships, with
241 outlets covering the whole of England, had come into operation.
At present, there are now 45 county-based Business Link Operators. Each Business Link is
based on a partnership between local agencies involved in support for businesses. Business
Links entail a significant degree of partnership working, especially at the strategic level. As
well as promoting collaboration, Business Links have encouraged the sharing of resources
between partners.
97
In addition to the network of services, there is a central website
(http://www.businesslink.gov.uk) with information on how to start and sustain a new
enterprise including:





Start-up and finance;
Tax and employment;
e-commerce and marketing;
International trade; and
Business growth, acquisition and sale.
Business Link is funded by the Department of Trade and Industry through the Small
Business Service for SMEs, Consultancies and Private institutions for Education.
An evaluation concluded that although Business Link tries to serve all SMEs, they especially
target growing firms and those identified as having growth potential. Firms in the
manufacturing, high tech. and business services sectors are also targeted more frequently
than those in other sectors. The evaluation also concluded that businesses do, indeed,
benefit from support, and that they assess Business Link support more highly than other
support or support they have used in the past.
However, there is still evidence of market failure. This is largely due to the facts that firms
are not sufficiently aware of the support available and/or do not understand the need
for/value of support. Business Links and partners have improved the coherence, co
ordination and quality of services, but they acknowledge the scope for further improvement
in these respects.
University for Industry/Learndirect – UK
University for Industry (Ufi) aims to work with partners to boost people's employability, and
organisations productivity and effectiveness, by:



Inspiring existing learners to develop their skills further;
Winning over new and excluded learners; and
Transforming the accessibility of learning in everyday life and work.
Secondary objectives of Ufi are to increase the number of companies (particularly SMEs)
that provide learning opportunities for employees, and improve the quantity and quality of
learning provision.
Fronted by the website http://www.learndirect.co.uk, learndirect has been developed by Ufi
with a remit from government to provide high quality post-16 learning which:



Reaches those with few or no skills and qualifications who are unlikely to participate in
traditional forms of learning;
Equips people with the skills they need for employability, thereby strengthening the
skills of the workforce and increasing productivity; and
Is delivered innovatively through the use of new technologies.
Learndirect operates a network of more than 2,000 online learning centres in England,
Wales and Northern Ireland providing access to a range of e-learning opportunities. Its
flexible learning is available to individual adults wanting to improve existing skills or to learn
new ones, and to employers looking for an innovative way to develop the skills of their
98
workforce. Since its launch in 2000, 1.3 million learners have enrolled on almost three
million learndirect courses. More than 550 different courses (most of which can be
purchased online) are on offer covering a range of subjects, including management, IT,
Skills for Life and languages, at all levels. More than three quarters of the courses are
available online allowing people to learn wherever they have access to the Internet - at
home, at work or at a learndirect centre. The Ufi works with employers through Learndirect
Business to help develop employee’s skills whilst in the work place (on-line) removing
barriers such as travel time and costs, and course intake dates.93
The Ufi/Learndirect is provided by the Department of Education and Employment for SMEs
and Individuals looking to boost their skills within their existing employment or to help them
gain new employment.
An external assessment of the progress that Ufi has made was reported in 200394. This
evaluation benchmarked Ufi’s performance against other domestic and international
organisations engaged in similar activities, as well as highlighting lessons that will inform
future Ufi activity. The evaluation reported that the very nature of learndirect learning
results in improved ICT skills, which is equipping a growing population of learners who can
access new learning provision that is increasingly ICT based. There was also evidence to
show that e learning is breaking down the psychological and physical barriers that prevent
many adults from returning to learning.
The five main messages to emerge from the study are that Learndirect:





has so far had more of an impact on individuals than on organisations;
contributes to lifelong learning by engaging new learners, and by widening
participation by reaching out to traditionally disadvantaged groups;
leads to further learning progression;
is helping some learners enhance their employability; and
is contributing to the expansion and diversification of the learning market.
There are also some major challenges:

Lifelong learning versus productivity; succeeding on one does not automatically
mean success on the other;

Stepping in versus stepping on; the emphasis on learning progression might pose
some problems of reconciliation between the unique learning offer and a push to
progress;

Virtual versus supported learning; there are unresolved issues regarding support for
virtual learning; and

The benefits and risks of specialisation; the pressure is on for greater specialisation
of both delivery and content especially in the employer market.
Knowledge Transfer Partnerships - UK
Formally known as the Teaching Company Scheme from the DTi, this initiative aims to
increase interactions between Universities and companies. Graduates are recruited to work
in a company (SME) for two years in close cooperation with a University, on a strategically
93
94
Information taken from Learndirect website, available at; http://www.learndirect.co.uk/aboutus/
New learners, new learning; a strategic evaluation of Ufi available at http://www.dfes.gov.uk/research/
99
important project, where they will gain enhanced career development benefits. It is also the
aim of the policy to help the company and university learn how to collaborate across sectors.
This measure provides a grant to cover part of the cost of using a person to transfer and
embed knowledge into a business from the UK knowledge base (including universities,
colleges and research organisations) via a strategic project. Each Partnership employs one
or more high calibre Associates (recently qualified people) for a project lasting one to three
years, transferring the knowledge the company is seeking into the business. Each Associate
works in the company on a project, which is core to the strategic development of the
business. Associates are jointly supervised by a senior member of the business and an
academic or technical specialist from the partnering knowledge base organisation. Through
contact with businesses, the knowledge base partner is also provided with a relevant and
improved understanding of the challenges companies encounter, and their business
requirements and operations.
It is estimated that on average, every £1 million invested in Knowledge Transfer Partnership
(KTP) results in 77 new jobs created, and training for 263 members of staff, as well as
giving academics experience of working in a business environment (Figures based on final
reports by company participants whose completed TCS programmes were assessed in 199798). The DTI Innovation Report (2003) showed that successive reviews of the KTP
confirmed the value to business of the technology transferred. 80% of companies involved
believe that knowledge transferred during the placement was either new to the firm or
represented a considerable advance of their knowledge base. In a DTI review carried out in
2004, KTPs emerged as one of the most successful knowledge transfer mechanisms that the
Government offers to UK businesses. Each Partnership brings business benefits, skills and
knowledge to industry, graduates and academics across the UK. (Source:
http://www.ktponline.org.uk/)
8.4.2
Norway
NT Programme – Norway
The NT programme’s main aim is to contribute to increased innovation in existing and new
technology firms in Northern Norway by providing capital and advice and by developing
networks of companies and knowledge institutions. The programme was established as a
follow-up to the R&D plan for Northern Norway. According to this plan, which was drawn up
by a government-appointed committee in 1987, the competence base of companies in
Northern Norway needed to be strengthened in order for these companies to be able to take
part in public R&D projects and for other R&D initiatives to have any effect. The programme
is provided by Innovation Norway to both SMEs and larger companies through the provision
of grants.
An evaluation of the programme published in 1992 concluded that the measure had played
a central and positive role in Northern Norway. Main findings were that the NT programme
had:


Contributed to the allocation of resources to R&D initiatives, both directly and
indirectly;
Given results at the company level in the form of competence, new products, new
technology and increased turn-over; and
100

Reached and activated a group of innovation oriented companies, which in turn
could function as key actors in broadening the use and development of technology in
Northern Norway.
A more recent evaluation was published in 2000. The report demonstrated that there was a
continued need for this kind of program. It showed that the R&D activity in companies in
Northern Norway had not changed significantly since the programme was started up 12
years earlier. However, the firms' situation seemed to have improved as regards
competences, experience from project work, networking and the ability to make use of
relevant regional assistance. The evaluation stated that the main contribution of the
programme was of a financial nature, and concluded that the programme could be regarded
as profitable from a national viewpoint and that the additionality of the project was high.
(Source: http://www.nt.norut.no/)
FRAM - Norway
Given the growing importance of employee competence to the ability of enterprises to
innovate and adapt to changes, the development of skills is one of the strategic priority
areas for the Norwegian Industrial and Regional Development Fund (SND). SND has, a
number of years, developed and implemented national programmes aimed at improving the
competence and ability to innovate of small and medium-sized enterprises (SME). One
example is the FRAM programme. FRAM emphases systematic management and strategy
development in SMEs with less than 100 employees, with the main focus on companies with
less than 30 employees. For 2001, €5.1 million was allocated to this programme.
The FRAM process lasts for 15 months, during which 10-12 companies work together in six
two days workshops. In these workshops, the top manager and other key employees
acquire theoretical knowledge, exchange experience and network with other FRAM
companies. Between the workshops, the companies and their dedicated FRAM advisors work
jointly to respond to relevant opportunities and challenges.
Since 1992, close to 3,000 small enterprises have completed this programme. In addition to
a number of qualitative targets, more than 80 % of the participating companies meet
FRAM's profitability improvement target.
(Taken from; European Charter for Small Enterprises The Norwegian response, NHD - The
Royal Ministry of Trade and Industry) (Source: http://www.innovasjonnorge.no/)
8.4.3
The Netherlands
WBSO – Research and Development Act – Netherlands
The objective of the WBSO Act is to stimulate R&D by alleviating the wage burden for
companies through tax reduction. This Act provides a fiscal facility for companies,
knowledge centres, and self-employed persons who perform R&D. In this context, R&D
means technical/scientific research, the development of technologically new physical
products or physical production processes (or parts thereof) and the development of
technologically new software (or parts thereof). Non-companies qualify only if they perform
R&D on the instructions and at the expense of a Dutch company. Under the Act, a
contribution is paid towards the wage costs of employees directly involved in R&D. The
contribution is in the form of a reduction of payroll tax and social security contributions and
an increase in the tax deductions available to self-employed persons.
101
In 2005, WBSO was broadened. Since then, R&D includes:



The analysis of the technical feasibility of an R&D-project;
Development of technically new physical products, physical production processes,
software programmes or parts thereof; and
Technical scientific research, which can provide explanations for phenomena in areas
like physics, chemistry, biotechnology, production technology and ICT.
Since 2006, also R&D performed in the EU can be eligible for tax reduction. The scheme is
managed by SenterNovem – (Agency of the Dutch Ministry of Economic Affairs).
The 2002 evaluation found the following primary effects of the WBSO:


Every €1 spent on WBSO gives €1.02 in R&D effort, and
Total R&D spending rises with the total of the WBSO tax credit.
According to the evaluation survey - size does matter (larger companies can take more risks,
have a lower threshold, faster time to market, side effects: better planning and
administration). Secondary findings identified significant effect for firms with < 50
employees. If tax credit rises 1%, the effect on sales of new products (as % of total sales
for an average firm) is 0.19 percent points. WBSO was found to be important for reaching
goals of innovation like the introduction of new products, lowering the cost of innovation,
acquisition and implementation of technological knowledge, higher quality products and
innovation process, raising the speed of innovation processes. The evaluation also found
that the WBSO is considered to be easy to access for companies (low administrative
burdens) and therefore attractive for SMEs.(Source: http://www.senternovem.nl/wbso/)
Syntens – Innovation Network for Entrepreneurs - Netherlands
Syntens is an "innovation network for entrepreneurs", a network of 15 centres (circa. 450
full-time advisors), with the objective to increase innovativeness of SMEs. Syntens centres
provide support and advice to SMEs on technology and innovation. In practice, Syntens'
advisors help SMEs with drawing up an Innovation Action Plan. Within this framework,
tailor-made technological and non-technological innovation oriented knowledge is made
accessible and applicable for firms. Furthermore, Syntens implements the policies of the
Ministry of Economic Affairs, for example, in the area of new business ventures and
innovation vouchers for SMEs. Collaboration with SenterNovem, Chambers of Commerce,
Regional Development Agencies and the Netherlands Patent Centre will be increased in the
near future to enhance the efficiency. Syntens receives approximately €34 million base
funding and €19 million targeted funding.
In 2002 an evaluation was performed with the following results:



Syntens reaches 18,500 SMEs per year, 40% of which are new clients. This change in
clients is important, because the effect on companies of Syntens' services is the
greatest in the first year.
Collaboration of Syntens with knowledge institutes and branch organisations is limited.
Contact with Syntens has resulted in 30% of the companies gaining (increased)
cooperation with other companies or knowledge institutes, in 40% to participation to
regional projects and in 30% to more awareness of innovation measures.
102


Half of the companies have started a "renewal project" as a result of a Syntens-advice.
Half of these companies have the opinion that the strategic meaning of these projects
is large to very large.
Surveys show that for 60% of the companies contact with Syntens has resulted in an
increase in labour productivity. (Source: http://www.syntens.nl/Syntens)
8.4.4
Denmark
Innovation Consortiums (formerly Centre Contracts) – Denmark
The aim of Innovation Consortiums is to strengthen co-operation between companies, public
research institutions and technological service providers, to develop new generic product
and service technology platforms for the coming 5-10 years development in Denmark. The
company participation ensures that the research and development of the project originates
from specific needs in Danish companies. Enterprises must contribute 50% of the funding.
Some €13 million has been appropriated for the years 2003-2005.Typically a consortium has
a total budget of €2.5 million - €5.5 million and lasts 3-4 years. The projects and
consortiums that receive support (Grants) from the Ministry of Science, Technology and
Innovation must live up to three criteria:



Noticeable commercial potential;
Technology transfer; and
As a minimum, at least two companies, one public research institution and one
technological service institution should participate in an innovation consortium. Smaller
companies - with less than 100 employees - can participate in parts of the project.
Then, the co-operation should show its added value by:




Gearing public research towards the specific needs of the trade and service sectors;
Building up competencies and services in a particular technological service that can be
broadly diffused to other Danish companies, especially SMEs;
Creating a highly qualified innovation and research environment; and
Developing projects with a generic content that can be used by, and diffused to, a
broad range of companies.
The first 30 innovation consortiums were evaluated in 2005. The conclusion was that the
consortium measure has a good national economy effect and that the basic principles of the
measure are good. However, the evaluation also concluded that the measure could be
improved in certain aspects. (Source: http://fist.dk/site/english)
8.4.5
Finland
Centres of Expertise - Finland
The Centre of Expertise Programme was launched in 1994 in eight different Centres of
Expertise. Due to its subsequent success the Government decided to extend the programme
in 1998 and 2002 by appointing new centres and by increasing the number of fields of
expertise in the existing centres. There are currently 22 centres of expertise covering 45
fields of expertise, which have been appointed for the period of 2003–2006.
103
The task of the centres of expertise is to use internationally competitive knowledge and
skills as a resource for business activities, the creation of new jobs and regional
development. In order to reach their objective, the centres of expertise:








Establish the prerequisites for the creation and commercialisation of innovation;
Launch cooperative projects between the research sectors and industries;
Continuously strengthen and modernise top-level expertise in the region;
Promote the development of creative and innovative environments;
Makes latest knowledge and expertise easily available for companies;
Increase cooperation between different bodies in the development of research and
knowledge-intensive business;
Use human resources and intensify the use of training and education; and
Activate the research and development operations of small and medium-sized
companies in their fields of expertise.
This programme is administered by the Ministry of the Interior and offers grants through the
service, which is available to all companies, research institutes and Higher Education
Institutions.
According to the official, externally commissioned evaluation of the first programme fdor the
period (1994-1998), the main result has been the increase of co-operation, both at regional
and national level. The State Audit Office (October 2001), in its own evaluation, considers
the Centre of Expertise Programme as a key part of the Finnish Regional Policy. Mid term
evaluation of the second programming period (1999-2002) indicated that programme has
created altogether: 7100 new knowledge-intensive jobs, 9000 preserved jobs, 500 new high
technology companies, 1800 new innovations, 40,000 people educated. (Source:
http://www.oske.net/in_english/)
8.4.6
France
Technological Development Network – France
Known in France as the Reseau de Development Technologique, RTD, the Technological
Development Network (TDN) allows SMEs with little knowledge about the process of
innovation to identify their technological needs, to build a project, and to find necessary
competences to carry out the project. It also informs and guides SMEs through the various
public support services and policies. The TDN has more than 1700 technological advisers in
21 regional Networks to form the overall network. They facilitate access to multiple
resources and supply the companies a coherent, diversified and reactive service.
In each French region, a TDN gathers regional institutional actors in the field of innovation
(National Agency for Innovation, DRIRE, DRRT, Chambers of commerce) in an informal
network. The network co-ordinates actions to promote innovation within SMEs. It pursues a
series of targeted missions:





Financial support adapted to very small enterprises with the PTR (Technological
Services networks);
Coordination;
Knowledge of enterprise and of their technological needs;
Training; and
Diffusion of information.
104
Members of the network (prospectors) have planned visits to regional SMEs in order to
detect innovation needs; they are in charge of presenting the large number of available
public measures in favour of innovation. A specific effort is made for SMEs that have never
been in contact with public authorities or research organisations. Prospectors have the
ability to propose the Network Technology Subsidy, which allows SMEs to finance the first
step of an innovation project (covering up to 75% of the project cost but not exceeding
€5000).
In 2004, 1395 prospectors visited 29 570 SMEs. 1458 grants (PTR) were allocated for a total
amount of EUR 6,77. 91,02 % of the beneficiaries where SMEs with less than 50 employees,
62% less than 10 employees.(Source: http://www.rdt-france.org/)
8.4.7
Germany
PRO INNO II – Germany
PRO INNO II, the successor of PRO INNO, aims at increasing innovation competence,
innovation activities and competitiveness of SMEs. The programme supports SMEs in the
field of R&D co-operation. Financial incentives aim to stimulate those SMEs that have no
R&D activities to engage in R&D. The programme addresses the barriers in SMEs without
regular R&D activities and are outside of networks, but which have at least some
innovation orientation. The programme also supports international co-operation. It focuses
on supporting SMEs on a sustainable basis in order to foster innovation, competitiveness,
and development of future-oriented technologies to create and sustain jobs. SMEs should
be encouraged to invest in market-oriented R&D as a result of the programme’s reduction
of technical and commercial risk. The programmes intend to promote high-value-R&D and
(cross-border) co-operation between SMEs and research centres.
In July 2002, an evaluation of the PRO INNO II programme was presented by the BMWi
(Federal Ministry of Economics and Technology). It stated that research co-operation
exerts positive effects on the involved enterprises, including growth in sales, exports and
employment. The authors calculated that each publicly funded R&D project under the PRO
INNO/FoKo programmes produced additional or at least "secured" employment of 7.9 jobs
two years after finishing of the project. This is equal to a funding volume of approximately
€13,000 per job. The evaluation recommended to continue the PRO INNO programme as it
has a high positive effect upon the participating companies, and is also positively assessed
by these companies in terms of programme administration. Further recommendations refer
to:



Investigating whether funding should be extended to later stages in the innovation
process, i.e. market introduction;
Increasing the promotion of trans-national projects that include SMEs from other EU
and Candidate countries; and
Continuing regular programme evaluations, especially panel analyses.
(Source: http://www.bmwi.de/English/Navigation/root.html)
105
8.4.8
European Union Initiatives95
HiGroSME project
The HiGroSME project targets innovative European SMEs with high growth potential and
helps them to achieve success on European and world markets. The Project is to extend
from January 2005 to March 2007. Toward this goal, the project consortium - consisting of 8
European national technology and innovation programme agencies - has:



created a European support network to promote the technological and business
development and internationalisation of high-growth-potential SMEs (HiGro’s) in
Europe
tried to optimise existing national and European support programmes for HiGro's
prepared the creation of a new European support programme and structure for HiGro's
to close critical gaps in existing programs.
The HiGroSME consortium is made up of the following organisations:








VDI/VDE-IT, an organisation set up by two of the largest European professional
associations for engineers: VDI - Association of German Engineers and VDE Association for Electrical, Electronic and Information Technologies;
FFG (Austrian Research Promotion Agency ), the main Austrian organisation for
promotion of research and innovation;
TEKES, the National Technology Agency of Finland;
ANVAR, the French Agency for Innovation;
EI - Enterprise Ireland, the agency of the Irish Ministry of Enterprise, Trade and
Employment in charge of implementing government policy in the areas of technology,
trade and enterprise development;
ENEA - Italian National Agency for New Technology, Energy and the Environment;
SenterNovem, an agency of the Dutch Ministry of Economic Affairs in charge of
implementing government policy in the areas of technology, energy, environment,
exports and international co-operation; and
CDTI - Centre for the Development of Industrial Technology, an organisation for the
promotion of innovation and technology development in Spain.
HiGroSME is funded within the specific research and technological development programme
"Integrating and strengthening the European Research Area" of the 6th European
Framework Programme. (Source: http://www.higrosme.org/)
95
There is an increasing amount of joint policy research and program development in the area of
SME innovation support among regional and international organisations. For example the
International Network for Small and Medium Sized Enterprises-INSME is a non profit
Association open to international membership. Its mission is to stimulate transnational cooperation
and public and private partnership in the field of innovation and technology transfer to SMEs.
http://www.insme.info/page.asp?IDArea=1&page=about_insme
106
CORDIS Marketplace96
Seeking technological information can be expensive and difficult. Recent research among
SMEs in Sweden shows that only around ten percent among them, can find, in a period of
up to three years, a solution to their technological problem. To address such needs of SMEs,
the European Commission provides online research and innovation information service
CORDIS. The service takes people to the heart of innovative activity in Europe by offering
information on the funding opportunities and emerging technologies from the European
Union’s research programmes.
Under the slogan of “Connecting people to technology” a virtual Technology Marketplace
Service offers clearly written digests of new technological advances from all over Europe –
easy to search and easy to act upon. In each case the researchers are offering their
technology for sale; licence, joint-venture or other type of exploitation agreement. Contact
persons are given for each technology so that interest can be followed up directly by the
users of the service.
The opportunities on offer range from industrial products and processes, information
technologies, to environmental and energy solutions. Many have come from major research
projects that have been financially supported by the European Commission; but others are
from private in-company or nationally sponsored research.
There are currently over 1000 technology offers on the virtual Marketplace. The service is
updated every week with a new selection of opportunities in all areas and in the five
languages of CORDIS – English, Spanish, German, French and Italian. Written up in plain
language for non-scientific user, each technology offer carries out links to the more detailed
technical specifications.
This virtual Technology Marketplace uses as a central resource more than 60 000 research
projects co-financed by the European Commission and over 13 000 research results. These
are recorded on its CORDIS research and development information service, making it the
most comprehensive resources for exploitable technologies in Europe. Established twelve
years ago and being one of the first services of the European Commission on the Web;
CORDIS today represents over 350 000 database records and 40 000 web pages, including
both EU-funded research projects and research results. It is the only public source where
such data can be searched by sector, country, region and even by organisation.
Many of the technology offers come also through technology transfer organisations, which
are part of the European network of 68 Innovation Relay Centres, funded by the European
Commission in Brussels and representing the largest network of technology transfer
organisations world-wide. CORDIS provides online access to the brokerage activities
managed by this network to help local companies with meeting their technology needs and
succeed with international transfer of their technological achievements.
The Technology Marketplace offers business tips, acting as a central point of access to all
EU assistance networks, including a single entry point to European business incubators, and
an online Gate2Growth.com for linking entrepreneurs with investors.
The Technology Marketplace is one of the most important services on CORDIS and central
to its mission to foster innovation in Europe. It attracts now over 200 000 visits every month
96
Sourced from http://www.cordis.lu/marketplace/)
107
from people searching for new technologies which could help their business develop new
products or processes, and improve productivity.
8.4.9
Some Relevant Programs from Outside Europe
United States
Despite a large investment in a diverse S&T base there are strong concerns about the
capabilities of US SMEs to adapt to technological and market change. Federal and State
agencies have increased their role in extension programs, both direct and through nongovernmental service providers. There have been two major approaches to promoting
technology diffusion:
First, a range of measures have sought to improve research-industry collaboration. “The
mechanisms to do this are numerous and include the promotion of public-private consortia,
the development of industry-focused technology centers (such as the National Science
Foundation's Engineering Research Centers), and the establishment of technology transfer
offices and cooperative research and development agreements. State and local governments
are also active in the promotion of technology development and the diffusion of its results
into their local economies and businesses. These measures include university-industry
technology centers, university-industry research partnerships, equipment and facility access
and demonstration programs, technology financing to projects and companies, start-up
assistance for technology-based spin-off firms, information services and interactive
databases, network promotion, and help in forming strategic technology alliances. The
number and scope of these measures has increased significantly over the past decade, and
there is a considerable degree of experimentation and mutual learning among these
initiatives.””97
Second, centres and programs focused on manufacturing technology have grown. The
National Institute of Standards and Technology (NIST) operates an Advanced Manufacturing
Research Facility to develop and demonstrate new manufacturing technology. Many two
year technical and vocational colleges have established demonstration centres and ‘teaching
factories’ Manufacturing technology and extension centres have been established with
regional support and matching federal funding through NIST’s Manufacturing Extension
Partnership (MEP) program98. There are now centres in 350 locations:
“Each center works directly with area manufacturers to provide expertise and services
tailored to their most critical needs, which range from process improvements and worker
training to business practices and applications of information technology. Solutions are
offered through a combination of direct assistance from center staff and outside consultants.
Centers often help small firms overcome barriers in locating and obtaining private-sector
resources. “99
97
Shapira, P. and Rosenfeld, S. (1996) An Overview of Technology Diffusion Policies and Programs to
Enhance the Technological Absorptive Capabilities of Small and Medium Enterprises. Background
Paper for OECD Directorate for Science http://www.prism.gatech.edu/~jy5/pubs/oecdtech.htm.
98
NIST. Manufacturing Extension Partnership. Making A Difference For America’s Manufacturers.
http://www.mep.nist.gov/making-difference-Jan2006.pdf. NIST . Manufacturing Extension
Partnership Delivering Measurable Results to Its Clients. Fiscal Year 2005 Results JANUARY 2007.
http://www.mep.nist.gov/FY2005_MEP_Delivering_Measurable_Results-final_2_.pdf
99
http://www.mep.nist.gov/about-mep/overview.html
108
The activities of MEP centers typically include information provision, assessments,
demonstrations, brokering, field agent services, qualified referrals, group projects, and
training.
“Improvements are often also sought in inter-firm and industry relationships and in public
technology, training, and business assistance infrastructures. Most MEP services are focused
towards SMEs. Non-profit organisations, colleges and universities, state agencies, industrial
associations, and private consultants are most frequently engaged in providing industrial
modernization services. In a number of centers, core staff conduct initials assessments and
then involve outside experts or consultants to provide follow-up assistance. Companies
frequently pay at least some of the costs involved. …The typical MEP center has about 35
professional and technical staff and, each quarter, uses an additional ten consultants. The
average number of targeted manufacturers in an MEP's service area is around 6,200. More
than two-thirds of the firms served have fewer than 100 employees . Most frequently,
assistance is provided in areas of business systems and management, quality, market
development, process improvement, and human resources through a combination of initial
visits, engagements, assessments, and technical assistance projects. The leading categories
of MEP service thus mostly emphasize "soft" technologies and techniques, followed by
assistance with process, environmental and product technology. There is a lower level of
service in "hard" areas of factory automation. ““100
According to a recent UINIDO report:
“Funding for this partnership is provided by state, federal and private funds; firms receiving
assistance also pay a portion of the cost. Their fees at most seem to cover 40 percent of
MEP operating costs; thus federal and state funding seems necessary to continue providing
this consulting service. Many manufacturers who have benefited from MEP programs report
increased profits; surveys also suggest that extension services increase employment and
generate business growth. Comparative studies have shown that receiving extension
services from MEP offices increases the rate of growth and adoption of technology over that
of firms not receiving assistance.”101
The National Technology Transfer Centre (NTTC) was established in 1989 and offers
technology assessment services and develops lasting partnerships among industry,
academia and government agencies. It has operations in Wheeling, W.Va., and Alexandria,
Va.. It has professional staff including intellectual-property management experts, scientists
and engineers, computer information specialists and programmers, market analysts, Web
designers, security experts, outreach specialists and technology transfer negotiators. The
NTTC also houses a demonstration and training laboratory in which software and other
technologies are tested and demonstrated. Funding for the NTTC is largely from contracts
and cooperative agreements with federal agencies including NASA, the National Institute for
Occupational Safety and Health, and the Missile Defense Agency, and select commercial
clients. The NTTC's core capabilities are Technology Evaluation and Market Assessment,
Partnership Development, Computer Information Services, and Strategic Technical Services.
100
Shapira, P. and Rosenfeld, S. (1996) An Overview of Technology Diffusion Policies and Programs
to Enhance the Technological Absorptive Capabilities of Small and Medium Enterprises. Background
Paper for OECD Directorate for Science http://www.prism.gatech.edu/~jy5/pubs/oecdtech.htm.
101
UNIDO Industrial Development Report 2002/3 Competing Through Innovation and Learning. p127
109
Japan
Long term relationships with large customers have provided many Japanese SMEs with both
sources of knowledge, and stable commercial and technological relationships, which
encourage investment in upgrading. Internationalization has weakened these vertical links
and in response new regional SME support programs have been developed. These add to
the public technology and testing centres (Kohsetsushi) which provide demonstration
facilities, technical assistance and R&D for SMEs. There were almost 200 such centres in the
late 1990s. These are coordinated by MITI, but most of the budget is met by regional
government. These centres also organise collaboration among SMEs to exchange
information and collaborate in product development. 102 There are national financial
institutions that provide subsidized loans for upgrading by SMEs and regional programs also
offer loans and matching grants for SME technology projects.
According to a recent UNIDO report:
“Unlike extension services in the United States, they provide only technological services—
management and financial services are left to other agencies. Charging only nominal fees to
their clients, the centres were created and sponsored by the central government,
butmaintain relationships with local and prefectural governments. They conduct research,
have open laboratories for training, test and examine products for compliance, provide
advice and guidance and promote technology diffusion and information dissemination.
Because of the long-term relationships between large manufacturers and the smaller
manufacturers of their inputs, the centres meet the demands of both-sized firms by focusing
on the testing and analysis of materials and products—promoting quality, performance and
precision while ensuring standards among the input suppliers. Managers of small firms
appreciate and depend on the personalized services that the centres provide and prefer
dealing with them than with universities. Traditionally, these small firms simply produced
intermediate inputs with new product design and engineering coming down from the larger
firms. These same small firms, guided by the Kohsetsushi centres, are now designing new
products and spurring technological growth among themselves—innovating themselves
rather than simply following larger firms’ leads. Without the government-funded, highly
localized centres, most of these small firms would not have access to technological advice or
capability, to their detriment and that of the larger companies that use their products. “103
More recently new public/private centres have been established in advanced technology
areas to supplement the kohsetsushi. Overseen by MITI, but supported largely at the local
level, there are programs to develop ‘business exchange’ groups among SMEs that enourage
sharing of information and facilities.
OECD(1997) Diffusing Technology To Industry: Government Policies And Programmes.
OCDE/GD(97)60; Shapira,P. and Rosenfeld, S. (1996) An Overview of Technology Diffusion Policies
and Programs to Enhance the Technological Absorptive Capabilities of Small and Medium Enterprises.
Background Paper for OECD Directorate for Science
http://www.prism.gatech.edu/~jy5/pubs/oecdtech.htm.; OECD Territorial Review of Japan OECD
Policy Brief. http://www.oecd.org/dataoecd/20/9/35386262.pdf
103
UNIDO Industrial Development Report 2002/3 Competing Through Innovation & Learning. p127-8
102
110
Canada
Industrial Research Assistance Program (IRAP)104
The National Research Council’s primary vehicle for stimulating the innovation capabilities of
SMEs is its Industrial Research Assistance Program (NRC-IRAP). The NRC-IRAP is widely
regarded as one of the best programs of its kind. Funding to IRAP in 2005-6 was C$86m.
The IRAP portfolio of services has four main components:
 Technology Expertise and Advisory Services;
 Financial Assistance for R&D activities;
 Networking; and
 Partnerships.
The NRC Industrial Research Assistance Program (NRC-IRAP) provides a range of technical
and business advisory services along with potential financial support to growth-oriented
Canadian SMEs. The program is delivered by an extensive network of professionals in 100
regional centres and supports innovative R&D and commercialization of new products and
services. One of NRC's primary is to link its diverse networks, programs and infrastructure to
SMEs to help them access, develop and exploit new technologies and knowledge essential
for their growth and prosperity.
Figure 8.2 Canada’s NRC-IRAP Program
http://www.neia.org/FF07/Bob_Robinson.pdf
104
This outline is largely sourced from http://www.nrccnrc.gc.ca/aboutUs/corporatereports/annual_report2002/innovation_SMEs_e.html;
http://irap-pari.nrc-cnrc.gc.ca/main_e.html; and APEC SME Innovation Centre. Dec. 2006, No. 2
111
The program's success is ascribed to its customized services and the role of the 260
Industry Technology Advisors (ITAs) who are a focal point of one-on-one relationships with
companies that extend for years. Approximately 70% of ITAs are employed in over 100
public and private sector organisations known as IRAP Network Members. IRAP is also
supported by operational staff--approximately 141 FTEs located at IRAP's national and
regional offices.
NRC-IRAP builds on this foundation of ITAs with other strengths. It plugs clients into NRC's
extensive networks of knowledge, experience and international contacts. It partners with
over 100 Network Member (NM) organisations at the regional level and has more than 1,000
public and private sector innovation service providers within its Canadian Technology
Network (CTN) - all providing advice and assistance to SMEs. The program also played a
proactive role in identifying and facilitating potential SME partnerships, networks and multistakeholder interactions at the local, regional, national and international levels.
NRC-IRAP maintains a vital and growing network that includes more than 100 of Canada's
leading public and private research and technology-based organisations. Organisations
collaborate with NRC-IRAP to increase the innovative capability of SMEs through Technology
Advisory Services, as well as other agreements for specific collaboration initiatives. These
collaborations enhance client value-added services, strengthen national/ local infrastructure,
extend the program's reach, and bridge gaps in the program's capabilities by creating more
innovation services for SMEs.
The IRAP was evaluated in 2001-2 (http://www.nrc-cnrc.gc.ca/aboutUs/audit_irap_e.html)
The evaluation's overall conclusion is that IRAP continues to be relevant to Canadian SMEs
and to the federal government's innovation priorities, and has been successful in meeting its
mandate and mission.
IRAP has helped to increase the innovation and financial performance of Canadian SMEs:




Approximately 12,364 IRAP funded projects culminated in 39,186 new/ significantly
improved products/ services or processes over 1996-2001—approximately 3.2
innovations per IRAP funded project;
Approximately $11.3B actual sales revenues are linked to IRAP-assisted innovations-$4.2B attributable to IRAP over 1996-2001 and equivalent to 11 times IRAP's total
contributions to client projects during this period;
Approximately $37.6B forecasted future sales revenues are linked to IRAP-assisted
innovations—$14B attributable to IRAP during the remainder of clients' innovation
life cycles; and
Approximately 32,600 actual additional jobs are linked to IRAP-assisted innovations—
12,025 jobs attributable to IRAP over 1996-2001 and equivalent to $32,000 of IRAP
contributions per job created during this period.
112
Hong Kong
The Productivity Council, Hong Kong - An Effective Technology Support
Organisation105
The Hong Kong Productivity Council (HKPC) was started in 1967 to help the myriad small
firms that constitute the bulk of the industrial sector. Its focus has been helping firms
upgrade from declining labour-intensive manufacturing to more advanced, high value-added
activities. It provides information on international standards and quality and provides
training, consultancy and demonstration services on productivity and quality to small firms
at subsidized rates, serving over 4,000 firms each year. Its on-line information retrieval
system has access to over 600 international databases on a comprehensive range of
disciplines. Its technical library subscribes to more than 700 journals and has more than
16,000 reference books. The HKPC acts as a major technology import, diffusion and
development agent for all the main industrial sectors. It identifies relevant new technologies
in the international market, builds up its own expertise in those technologies and introduces
them to local firms.
Successful examples of this approach include surface-mount technology and threedimensional laser stereo-lithography. HKPC has also developed a number of computerassisted design, manufacturing and engineering systems for the plastics and moulds
industry, of which over 300 have been installed. HKPC provides a range of management and
technology courses, reaching some 15,000 participants a year. It also organizes in-house
training programmes tailored to individual needs. To disseminate information technology,
HKPC has formed strategic alliances with major computer vendors and provides specially
designed software for local industry, consultancy and project management in
computerization. HKPC provides consultancy services in ISO 9000 systems and has helped
several firms in Hong Kong obtain certification. It assists local firms in automation by
designing and developing special-purpose equipment and advanced machines to improve
process efficiency. Because small firms have difficulty getting information on and adopting
new technologies the HKPC has always had to subsidize the cost of its services. Despite the
growth in the share of revenue-earning work, the government still contributes about half its
budget. Market failures affecting access to technical information occur even in a highly
sophisticated export-oriented economy with highly developed financial services like Hong
Kong SAR.
8.5 Characteristics of Successful Programs
Most OECD countries have a range of programs that target innovation-related capability
development in SMEs. Many countries have been concerned to ensure that the suite of
programs does address the needs of SMEs with the potential for growth, and toward that
end there is growing interest in international experience in SME support instruments.
The following generalisations may be drawn, based on this brief review of several successful
programs and also a wider review of experience of initiatives to promote capability
development and innovation in SMEs.
105
This outline is sourced from Source: UNIDO Industrial Development Report 2002/3 Competing
Through Innovation and Learning. P126
113
The review suggests a set of functional criteria for a program focused on strengthening
absorptive capacity in SMEs:
 a focus on the more innovation-active SMEs commited to growth;
 be located near to firm, be linked into local networks, but be integrated into national
information and support networks;
 a strong emphasis on developing innovation capabilities, along with technological
and market knowledge, but in association with a specific development objective,
usually linked to an innovation project;
 a requirement that SMEs contribute a significant share of overall costs;
 access to a broad spectrum of credible experienced professional advisory services;
 facilitate the development of linkages to local, national, and international information
sources, service providers, potential business partners and research organisations;
 a broad portfolio of services (eg advice, finance, networking) but a flexible delivery
customised to the needs of the SME;
 The delivery of services is through capable experts who work with a firm to develop
an effective and sustained combination of objective performance assessment and
flexible delivery of services.
Figure 8.3: Functional Characteristics of Effective SME Innovation Capability
Support Programs
Focus:
Commercial & Competence
Services:
Flexible &
Competent
SMEs:
Growth Oriented
Innovation objective
Linkage:
Sustained, local
& links to wider
networks
Funding:
Suport & co-funding
Source: The Authors
114
Table 8.4:
How different instruments address support for absorptive capacity
[See Table 8.2 for Categories of Program]
Instruments
Biotechnology
Innovation Fund
Building
Entrepreneurship in
Small Business
Certain imports to
manufacturing
Commercial Ready
COMET
Early Stage Venture
Capital Limited
Partnership
Industry
Cooperative
Program
Innovation
Investment Fund
Pharmaceutical
Partnerships
Program
Pooled
Development Funds
Pre-Seed Fund
R&D Tax
Concession
Renewable Energy
Development
Initiative
Renewable Energy
Equity Fund
Small Business
Officers program
Small Business
Incubators
Succession Planning
Textile Clothing and
Footwear Strategic
Investment Program
Textile Clothing and
Footwear Small
Business Program
Tradex
Training and
mentoring Projects
Venture Capital
Limited
Partnerships
Program
ARC Linkage
Grants
Cooperative
Research Centres
Food Innovation
Grants, National
Food Industry
Strategy
Technology Parks
AC Components 
Country Categories
*
AU
4
Human
capital
Networking
Knowledge
infrastructure
Companies
XXXX
Organisation
etc
Learning,
strategic
intelligence
XXXX
XXXX
XXXX
XXXX
Technology
generation
or transfer
XXXX
AU
10
AU
1
AU
AU
AU
4
10
3
AU
7
AU
3
AU
4
AU
3
AU
AU
3
8
AU
4
XXXX
AU
3
XXXX
AU
9
XXXX
XXXX
AU
11
XXXX
XXXX
AU
AU
10
4
XXXX
XXXX
AU
4
XXXX
XXXX
AU
AU
1
10
XXXX
XXXX
AU
3
AU
7
XXXX
XXXX
XXXX
XXXX
AU
7
XXXX
XXXX
XXXX
XXXX
AU
4
XXXX
XXXX
XXXX
State
AU
11
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
115
Instruments
Small Business
Research Initiative
(SBRI)
Web-Based Toolkit
Enterprise Capital
Funds
Grants for R&D
R&D Tax Incentives
for SMEs
Biotech Financial
Advisory Services
CASE –
Cooperative Awards
in Science & Eng.
Collaborative R&D
Faraday
Partnerships
Knowledge Transfer
Networks
Business Link
Corporate Venturing
and Matchmaking
Manufacturing
Advisory Service
Micro and
Nanotechnology
Manufacturing
Initiative
Knowledge Transfer
Partnerships
Ufi/Learndirect
Technology
Purchase
Industrial
Development
Centres
Forska & Vax Research &
Innovation in SMEs
Competence
Development in
Industry
Product
Development in
Small Enterprises
VINNKUBATOR
University & SME
Cooperation
ProViking
Programme
Key Actors
Programme
VINN Excellence
Programme
Active Industrial
Collaboration
Swedish Norwegian
Business
Cooperation
Grants to county
authorities for
regional
development
AC Components 
Country Categories
*
UK
1
Human
capital
Networking
Knowledge
infrastructure
Companies
Organisation
etc
Learning,
strategic
intelligence
XXXX
UK
UK
2
3
XXXX
UK
UK
4
8
UK
9
UK
6
XXXX
XXXX
UK
UK
5
6
?XXXX?
XXXX
XXXX
XXXX
XXXX
UK
7
XXXX
XXXX
UK
UK
9
7
XXXX
XXXX
XXXX
XXXX
XXXX
UK
9
XXXX
XXXX
XXXX
UK
1
XXXX
UK
6
XXXX
UK
SE
10
1
SE
5
SE
4
SE
6
SE
3
SE
SE
11
5
SE
6
XXXX
SE
7
XXXX
SE
5
XXXX
SE
6
XXXX
SE
7
NO
3
Technology
generation
or transfer
?XXXX?
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
?XXXX?
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
?XXXX?
XXXX
XXXX
?XXXX?
XXXX
XXXX
XXXX
XXXX
?XXXX?
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
116
Instruments
SkatteFunn
The BIT Programme
Measures for
regional R&D and
Innovation
Industrial Gardens
Arena – Innovation
in Networks
NT Programme
Centres for
Research-Based
Innovation
Centres of Expertise
User Initiated
Research
Competence
Development
Programme
Programme for
Innovation and
Entrepreneurship in
Norway
FORNY –
Commercialisation
of R&D Results
SBIR Pilot
Challengers Module
Innovation Subsidy
for Collaborative
Projects
WBSO - Research
and Development
(Promotion) Act
Innovation
Performance
Contracts
Casimir
Innovation
Vouchers
Syntens - Innovation
network for
entrepreneurs
RAAK – Regional
Attention and
Action for
Knowledge
circulation
Investment Grants
for Knowledge
Infrastructure
IOP-TTI module
Smart Mix
IOP Innovation
oriented Research
Programmes
INNOVA
Collaborative R&D
Programme
Industry Lead
Research Networks
R&D Capability
Initiative
FUSION -
AC Components 
Country Categories
*
NO
8
NO
1
NO
5,6
Human
capital
Networking
Knowledge
infrastructure
Companies
XXXX
XXXX
XXXX
XXXX
XXXX
Organisation
etc
Learning,
strategic
intelligence
Technology
generation
or transfer
XXXX
XXXX
NO
NO
11
7
NO
NO
5,9
9
NO
NO
11
4
NO
10
XXXX
XXXX
NO
6
XXXX
XXXX
NO
5,6,7,4
NL
NL
NL
1
3
4,5
NL
8
NL
4
NL
NL
6
1,2
NL
9
NL
5,6
NL
5,6
XXXX
NL
NL
NL
6
6
6
XXXX
XXXX
XXXX
XXXX
XXXX
IE
7
XXXX
?XXXX?
XXXX
IE
7
XXXX
XXXX
IE
1
IE
6
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
?XXXX?
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
?XXXX?
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
117
Instruments
Knowledge transfer
across the Island of
Ireland
Additional R&D
Tax Credits
Tax deduction for
companies investing
in R&D
Science and
Technology
Personnel
Placement
Training Standards
Excellence through
People
Innovation Partner
Initiative
Technology
Transfer & Business
Partnership
Programme
Technology Service
Centres
Technology and
R&D Management
– Short Courses
National Institute of
Technology
Management NITM
Stimulating
Innovation
Management and
Strategies at
Enterprise level
Facilitation of Fund
Supply
Building of
Business Support
Systems
Promotion of
Business Start-ups
and Venture
Business
Support of
Technical
Development –
Including SBIR
Support of Business
Innovation
Support for the
international
development of
SMEs
IT Productivity
Improvement
Campaign
HR Development in
partnership with the
real world and the
regions
SME Funding
Schemes
AC Components 
Country Categories
*
Human
capital
Networking
Knowledge
infrastructure
Companies
Organisation
etc
Learning,
strategic
intelligence
Technology
generation
or transfer
IE
8
XXXX
IE
8
XXXX
IE
10
XXXX
IE
10
XXXX
IE
5
IE
2
IE
9
IE
10
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
?XXXX?
XXXX
XXXX
XXXX
5
XXXX
XXXX
IE
4
XXXX
JP
3
JP
9
JP
2,3,4,9
XXXX
JP
1,5,10
XXXX
JP
3,4,8
XXXX
JP
3
XXXX
JP
1
JP
5
HK
3
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
118
Instruments
- Loan Guarantee
Scheme
- Export Marketing
Fund
- Training Fund
- Development Fund
SUCCESS –
Support and
Consultation Centre
for SMEs
Hong Kong Trade
Development
Council
Innovation and
Technology Fund
New Technology
Training Scheme
Design Smart
Initiative
Hong Kong R&D
Centres
Business Incubator
Finance Service
Capacity Building
of Human
Resources
Strengthening
Knowledge
Procurement from
Overseas
Inno-Biz
KOSBIR
SMEs' Technology
Innovation Program
New Technology
Purchasing
Assurance
Industry-UniversityResearch
Consortium
Program
Transferred
Technology
Development
Project
SME Production
Digitalization
Project/ Total
Information
Management
Providers
Biz-Match
Industrial PHD
initiative
Innovation
accelerating research
platforms
Innovation
Consortiums
High-tech Networks
Approved
Technological Service
Institutes (GTS-
AC Components 
Country Categories
*
Human
capital
Networking
Knowledge
infrastructure
Companies
Organisation
etc
Learning,
strategic
intelligence
-
-
-
Technology
generation
or transfer
XXXX
-
XXXX
-
XXXX
XXXX
-
XXXX
XXXX
-
-
-
XXXX
HK
9
XXXX
HK
9
HK
3,5,9
HK
10
XXXX
HK
7,9,10,11
XXXX
?XXXX?
XXXX
HK
7,11
XXXX
XXXX
XXXX
KO
KO
KO
11
3
8,10
XXXX
KO
9, 10
XXXX
KO
KO
KO
3
3
4
KO
1,3
KO
5
XXXX
KO
5
XXXX
KO
9,10
KO
7
DA
10
DA
6
XXXX
XXXX
XXXX
DA
6
XXXX
XXXX
XXXX
DA
DA
6
9
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
119
Instruments
Institutes)
Pre-project grant for
the sixth EU
framework programme
Regional technology
centres
Tekes Funding for
Feasibility Studies
(VARA)
TRIO Programme
TUPAS Funding
Service
YRKE - national
development project
for business incubators
Centre of Expertise
Programme
Technology strategy
design
Tekes technology
programmes
Improving the use of
research results at
universities
SME Pact
Technological
Development Network
Corporate Tax Credit
for Research Expenses
(CIR)
Technological
Research and
Innovation networks
(RRIT)
Support for Innovation
Support to the
recruitment of PhD
candidates on an
applied research
project within an
enterprise - CIFRE
convention
Support for the
recruitment of
technicians on
innovative projects
(CORTECHS)
Technology Diffusion
within SMEs
(Procedure ATOUT)
Support to
Recruitment for
Innovation (ARI)
Competitiveness
clusters
Support for the
recruitment of postdoctorate in SMEs
Industrial and
Commercial Business
Services (SAIC)
National Centres for
Technological
Research (CNRT)
Youth and Innovation
Innovative Regional
Growth Poles
InnoNet
PRO INNO II
Thematic R&D
AC Components 
Country Categories
*
Human
capital
Networking
Knowledge
infrastructure
Companies
XXXX
Organisation
etc
Learning,
strategic
intelligence
Technology
generation
or transfer
DA
6
XXXX
XXXX
DA
9
XXXX
FI
4
XXXX
XXXX
FI
FI
6
5
XXXX
XXXX
XXXX
FI
11
XXXX
FI
6
XXXX
FI
4
FI
6
XXXX
FI
5
XXXX
FR
FR
6
7
XXXX
XXXX
FR
8
FR
6
FR
FR
4
10
XXXX
XXXX
XXXX
XXXX
FR
10
XXXX
XXXX
XXXX
FR
4
FR
10
XXXX
FR
6
XXXX
FR
10
XXXX
FR
5
XXXX
FR
6
XXXX
XXXX
FR
DE
10
6
XXXX
XXXX
XXXX
XXXX
DE
DE
DE
5
4
4
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
120
Instruments
programs
Promotion of Joint
Industrial Research
(IGF)
Innovation Programme
(ERP)
Technology Venture
Capital Programmes
InnoMan
Networks of
Competence
Information Centres
Management of
Innovation Networks
for East German SMEs
(NEMO)
INSTI - IPR promotion
Promotion of Inventors
at the Fraunhofer
Patent Bureau for
German Research
Small Business
Innovation Research
(SBIR)
Small Business
Technology Transfer
(STTR)
Small Business
Innovative Partnership
(SBIP)
AC Components 
Country Categories
*
Human
capital
Networking
Knowledge
infrastructure
Companies
XXXX
XXXX
Organisation
etc
Learning,
strategic
intelligence
Technology
generation
or transfer
DE
4
XXXX
DE
3
XXXX
DE
3
XXXX
DE
DE
9
6
XXXX
XXXX
DE
DE
9
6
XXXX
XXXX
DE
DE
2
2
US
4
US
4
XXXX
US
9
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
121
9.
Conclusions
Key Findings
Increasing competitive pressure is both raising the importance of innovation and driving
firms to become more specialised, and as a consequence firms must increasingly look
outside for new knowledge.
These same pressures are also driving firms to increase the level of collaboration with other
firms and with research organisations.
Increasingly, the processes of learning and innovation involve a great deal of interaction
with other firms (customers, suppliers) and sometimes, but usually much less often,
research organisations. Hence, knowledge and capability is distributed. It is not possible for
firms to hold in-house all of the knowledge and capability required and hence how they
build the relationships access this distributed knowledge and capability is a key issue.
A firm’s absorptive capacity (AC) refers to its capacity to recognise, acquire, assimilate,
transform, and exploit knowledge from external sources.
A key aspect of absorptive capacity is the recognition of an opportunity arising from new
knowledge about, eg technology, customer’s needs, market trends. That recognition often
requires a strong prior basis of knowledge. But this recognition is of little value unless it is
allied with strategic intent and implementation capabilties.
Lane et al (2006) define AC as:
a firm’s ability to utilize externally held knowledge through three sequential
processes:
(1) recognizing and understanding potentially valuable new knowledge outside
the firm through exploratory learning,
(2) assimilating valuable new knowledge through transformative learning, &
(3) using the assimilated knowledge to create new knowledge and commercial
outputs through exploitative learning.
The foundations of AC are a firm’s knowledge resources (prior knowledge), structure and
organisation (including routines, culture, communication patterns) and external linkages.
However, these foundations need to be relevant to a firm’s specific context and directions
and brought into focus by a firm’s strategic intent.
Effective absorptive capacity requires the capabilities for all of these activities.
Firms develop AC as a result of explicit measures (such as hiring trained staff, establishing
R&D activities/organisations, developing alliances) and as a by-product of their activities
(particularly the more intense learning experiences associated with problem solving,
- 122 -
innovation and collaboration). Consequently, firms develop absorptive capacity in an
evolutionary way over time and within a specific organisational and knowledge context.
For that reason scientific knowledge is not a public good, as only some individuals and
organisations are capable of using it.
Firms can more easily add to knowledge and diversify in areas in which they already have a
knowledge base.
Firms face particular challenges in external knowledge acquisition where
 they have few linkages with the firms or organisations from which they seek to
acquire knowledge;
 The fields of knowledge and innovation are new to the firm
 The pace of change in technology is rapid and unpredictable.
The more that firms face such challenges that more that the strengthening of AC will require
purposeful strategies and sustained investments, and often organisational and managerial
innovations to raise the capacity to learn and innovate.
Knowledge that is relevant for innovation includes both codified (know what) and tacit
(know how) knowledge, although the former is becoming relatively more important.
Mechanisms that are suitable for acquiring one of these types of knowledge may not be as
effective for the other.
Carrying out R&D, hiring qualified staff, developing links into knowledge networks, and
attending conferences (etc) will facilitate the acquisition of codified knowledge.
Firms learn from other firms most effectively when the partners are similar in terms of
structure, human resource policies and knowledge bases.
In the wider field of innovation, issues concerning the identification and assessment of
relevant new knowledge, managing the collaboration and the acquisition of knowledge (eg
through R&D, licenses, public domain sources) and integrating existing and new knowledge
and developing capabilities for managing these processes, are extensively researched.
Hence, there is a substantial overlap between the literature explicitly concerned with
absorptive capacity and the wider innovation literature.
There is increasing interest in more effectively managing knowledge, learning and
innovation. This is leading to a greater understanding of these issues and also to a widening
range of tools to assist the management of knowledge, learning and innovation. Absorptive
capacity is a part of a firm’s innovation capabilities and hence its development is a
dimension of innovation management.
Absorptive capacity is a functional concept, and in practice it is based on an interdependent
foundation of capabilities, structures, routines and policies, and is largely situation-specific.
For this reason it is not possible to develop a set of reliable standard indicators of absorptive
capacity.
Only a small proportion of SMEs are dynamic in terms of innovation and growth.
Similarly, without the capabilities to absorb and use knowledge, membership of a network is
of little value. Cluster-based inter-firm links may not always play a major role in firm’s
- 123 -
knowledge acquistion
Firms with more qualified managers tend to invest more in training and establish more
external links.
Internationally, there is an extensive and increasing range of programs aimed at reducing
barriers to capability development, innovation and growth in SMEs. These initiatives are
influenced by the perception that SMEs play a vital role in innovation systems but that
significant market failures limit their development.
A diverse range of instruments are used and there is increasing interest in evaluating these
programs and in developing international initiatives to share experience in SME program
design and implementation.
SMEs tend not to see government agencies as credible assistance delivery mechanisms.
Our review of selected successful programs suggests a set of functional criteria for a
program focused on strengthening absorptive capacity in SMEs:
 a focus on the more innovation-active SMEs commited to growth;
 be located near to firm, be linked into local networks, but be integrated into national
information and support networks;
 a strong emphasis on developing innovation capabilities, along with technological
and market knowledge, but in association with a specific development objective,
usually linked to an innovation project;
 a requirement that SMEs contribute a significant share of overall costs;
 access to a broad spectrum of credible experienced professional advisory services;
 facilitate the development of linkages to local, national, and international information
sources, service providers, potential business partners and research organisations;
 a broad portfolio of services (eg advice, finance, networking) but a flexible delivery
customised to the needs of the SME;
 The delivery of services is through capable experts who work with a firm to develop
an effective and sustained combination of objective performance assessment and
flexible delivery of services.
Cohen and Levinthal introduced the term “absorptive capacity” to refer to firms’ capabilities
to manage the acquisition of knowledge, defining it as “the ability of a firm to recognise the
value of new, external information106, assimilate it, and apply it to commercial ends” (1990).
They focused in particular on the role of R&D in knowledge acquisition and their 1989 paper
referred to the ‘two faces of R&D’ emphasizing the extent to which R&D not only generates
new knowledge internally but also operates as an antennae for a firm, picking up, tuning in
and receiving relevant signals regarding new knowledge. Indeed a key message of their
paper, and the substantial literature that followed their seminal work, was that without the
kind of knowledge assets and specialist organisation in in-house R&D firms may be in a rich
knowledge milieu but fail to decipher, receive or read the signal.
106
It is clear from their paper that Cohen and Levinthal used information and knowledge
interchangeably.
- 124 -
Since the time of these contributions there have been two major developments, both with
origins well before 1990 but both of which now related closely to the evolving concept of
absorptive capacity.
The first of these developments concerns the growing role of knowledge and the changing
patterns of knowledge generation, distribution and application in industry. Every indicator
(R&D, patents, publications, employment of qualified human resources, product cycles)
points to rapid growth in the generation of knowledge and the rising significance of
knowledge for competition. Perhaps more importantly, there has not simply been a
quantitative change. The processes of knowledge generation and use have become far
more interactive. Firms have become more specialized and they collaborate much more
with other firms and with research organisations. That collaboration is growing not only in
frequency and in geographic scope (as we might expect in an increasingly global economy)
but also in its strategic significance. Firms’ linkages, both for production and distribution
and for innovation, are increasingly central to their competitive strategy.
The second development is the corollary of the first. In an increasingly competitive economy,
where knowledge is central to performance, firms are focusing on how they manage
knowledge. That challenge of managing knowledge is more complex because knowledge is
more complex and turbulent , because the knowledge base for most areas of industry is
widening and because there are many more sources of knowledge. It is not surprising that
firms are concerned with whether they are learning organisations and whether they have
effective approaches for knowledge management.
As a consequence of these two developments the capabilities of firms to recognise, assess,
acquire and apply external knowledge is a vital issue for enterprise management - and for
public policy. However, with that growing interest the concept of absorptive capacity has
been more closely linked to the wider concept of learning. One useful result of that linkage
is the recognition that the acquisition of external knowledge is not only through the
‘antennae’ of R&D. Many types of external knowledge are relevant for strategy and
innovation and all parts of a firm can be involved in recognizing, assessing, acquiring and
applying external knowledge.
Literature that specifically addresses the issue of ‘absorptive capacity’ has largely used the
concept rather than explored it. This is a problem because the concept is essentially a
functional one, with quite limited specification of its contents. What constitutes an
absorptive capacity, in any kind of meaningful management or policy sense, varies across
sectors and time and depends on a firms’ specific strategic objectives.
While recognising that what enables firms to have absorptive capacity is quite diverse and
open ended, it is nevertheless possible to identify the main components of such a capacity.
However, these components really only have meaning in the context of strategic intent – ie
that the firm is an active learner motivated by strategic objectives (however broadly
defined) – and are largely only of significant value when they complement each other to
form a coherent capability. With those caveats in mind, the general components of
absorptive capacity are:
 prior knowledge (derived from training, hiring, R&D, problem solving, prior learning
from external sources etc);
 channels for linking with sources of knowledge (networks, alliances, conferences);
- 125 -
 alignment between organisations that enables effective communication (shared goals,
values, culture, knowledge, structures);
 mechanisms for knowledge dissemination, capture and application within the firm
(‘routines’ for knowledge sharing, cross functional teams, job rotation, mentoring,
appropriate structures and incentives).
In a review of this literature Lane et al (2006) revised the definition of absorptive capacity
as a company’s ability to use external knowledge through three sequential processes:
(1)
Exploratory learning - recognising and understanding potentially
valuable new knowledge outside the firm;
(2)
Transformative learning - assimilating valuable new knowledge; and
(3)
Exploitative learning - using the assimilated knowledge to create
new knowledge and commercial outputs.
Recent analysis of the development and role of absorptive capacity has brought out three
significant issues for management, policy and further research:

Firms acquire, store and distribute tacit (activity-related know-how) differently from
how they acquire, store and distribute codified (know what, know why) knowledge.
The two types of knowledge are complementary and an approach to absorptive
capacity in one is often not relevant to the other type of knowledge.

There are trade offs between the breadth and depth of absorptive capacity or learning.
This is not related to the capacity to manage a large flow of knowledge and
information, but to the overall orientation of the learning activity. This trade-off is
often discussed in terms of the conflict between exploration (a diverse range of links
and activities to identify and assess relevant new knowledge) and exploitation (a
focused and deep engagement with a limited number of sources to build the
relationships that enable effective knowledge transfer).

By and large firms develop their absorptive capacity in an evolutionary way, through a
combination of explicit measures and as a by-product of problem solving and individual
initiatives that become incorporated into enterprise structures and routines. For that
reason the process of developing absorptive capacity is highly path dependent – and
every firm has a different path. A significant challenge arises when firms have to
change their ‘path’, either because of a change in strategy or because the knowledge
base of their industry changes, and hence they need to develop a different absorptive
capacity. As the existing absorptive capacity was not the result of explicit policy and
indeed is likely to be rooted in a diverse range of only partially recognised capabilities,
routines, structures and external interactions, how does management go about
purposefully renovating and redirecting it? This is a key issue for management and
policy.
The recent comprehensive review of this literature by Lane et al (2006) concludes that the
research has three weaknesses:

it focuses too much on R&D and high-tech firms and as a result understates both the
role of learning in other parts of the firm and the significance of non-technological
knowledge;
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
it focuses on the knowledge recognition and acquisition aspects and too little on the
assimilation and application aspects; and

it has relatively little to say about how firms can develop absorptive capacity in R&D
and non-R&D contexts.
While recognising the limitations of current approaches to absorptive capacity it is possible
to draw from the recent research the foundations of a useful dynamic model of absorptive
capacity (Figure 3.3). Nevertheless, it is clearly necessary to go further than this ‘absorptive
capacity’ literature can take us. For this reason we also selectively reviewed the diverse and
rapidly expanding range of research that, in one way or another, is concerned with how
firms learn from external sources.
This extensive and diverse range of literature, often from different fields and with
foundations in different theoretical frameworks is relevant to the issues involved in
management, policy and research related to absorptive capacity. Several strands of this
literature were reviewed to draw out perspectives and approaches relevant to the focus of
this report.
The dynamic capabilities (DC) framework was developed within the context of the resource–
based theory of the firm and emphasises, and characterises, the capabilities required to
renew a firms capabilities to compete and innovate. This framework can help to integrate
the absorptive capacity (AC) approach into the resource-based perspective and in so doing
provide an essential link with the wider concept of learning within the context of corporate
strategy. Nevertheless, we propose that this AC/DC framework can usefully be developed to
incorporate a dimension for the explicit development and re-orientation of AC/DC – ie in
response to new strategic directions to build new capabilities to learn in new paths.
Research in several of the fields surveyed points to a growing interest in how to effectively
identify, assess and acquire knowledge and a growing concern about how best to do that
when the scope of relevant knowledge is widening, the range of potential sources is
diversifying and the risk of being a slow learner is increasing. In the case of SMEs,
interaction with other firms through networks and mentors helps the owners/managers to
better reflect on their learning orientation and routines. But, whether in SMEs or larger firms,
active learning needs to be linked to a strategy of acting on new opportunities.
The growing understanding of innovative firms and innovation systems has led to greater
recognition of the role of formal and informal networks and interactions. The story of
innovation, and the innovation capacities of firms, cannot be abstracted from the role of
individuals, their personal motivations, networks and their role as gatekeepers and mentors.
This is particularly the case with SMEs (these issues resonate in our case studies of
Australian firms). These links play a vital role in innovation and all the available evidence
points to their increasing importance. While many of these links are closely tied to a firm’s
commercial relationships, many are non-market and not motivated by commercial objectives.
Not only are they based to an important extent on inter-personal links, but effective
collaboration usually takes time and effort (and joint learning) to develop.
Hence, for SMEs, their absorptive capacity is as much about their external relationships
(their networks and social capital) as about their internal routines - which are themselves
strongly influenced by their external interactions. For many SMEs, their current capabilities,
their absorptive capabilities and their strategic vigour (responsiveness to customers,
preparedness to act on opportunities and develop new capabilities) influence the extent to
which customers, suppliers, and other firms and organisations, are prepared to collaborate
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with them. This suggests a virtuous cycle of capability – learning - confidence – opportunity
– network building - learning – capability – growth, and so on. However, beneath this
virtuous cycle of increasing returns are some challenging trade offs, principally around
exploration versus exploitation and formalisation (of learning and innovating routines)
versus flexibility. It is inevitable that firms will move off the virtuous cycle from time to time
to focus on shorter term issues and one of the roles of networks (and policy programs) is to
help them get back on it.
Approaches to Assessing Absorptive Capacity
We have identified three conceptual frameworks that can contribute to a useful approach for
management, policy and research in relation to absorptive capacity, although only one of
these was developed to specifically address the issue of absorptive capacity. In Section 4 we
drew on all three of these complementary approaches to develop an integrated framework
for the case studies.
There is little doubt that as the pace of change is increases and industrial activity becomes
more knowledge intensive, effective innovation management becomes a more critical
capability. Even the largest and most capable firms find innovation management a challenge.
The 2006 IBM Global CEO Innovation Survey stressed the increasing importance of
innovation and of collaboration for corporate growth. The CEOs surveyed identified a
widespread capability-related gap between importance and performance in relation to:

integrating corporate and innovation strategies;

managing collaboration for innovation; and

strengthening and leveraging the innovation capabilities of the overall organisation.
These challenges will be no less important for smaller firms, even if their management may
be less complex. As the capabilities for such aspects of management are becoming more
important it becomes increasingly important to assess whether there are gaps in the level of
such capability in industry.
The complex conceptual frameworks that have been developed to understand the
development of innovation capabilities in firms are not readily transformed into operational
indicators. This is even more the case when we aim to develop generic analytical tools
suitable for assessment in different types of firm in different sectors. For example, the types
of innovation culture in a design studio are likely to be quite different from those in a heavy
engineering plant, and the linkages that are vital for a biotechnology company are different
from those likely to be relevant to a software developer. The concepts of routines, learning
and alignment play key explanatory roles in these frameworks but are in themselves
complex and situation specific.
Based on the literature and prior surveys the following four dimensions are fundamental to
any assessment of Absorptive Capacity:
1.
Strategy

Vision

Justification/rationale

Motivation

Coherence
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
2.
3.
4.
Focusing devices
Knowledge base

Familiarity

Cognitive link
Internal Organisation & Communication

Structure

Routines

Roles (gatekeepers, boundary spanners, change agents)
External Links

Alignment (structure, culture, knowledge), (gatekeepers, boundary spanners)
The Case Studies of Absorptive Capacity in Australia
Ten SMEs representing a range of industry sectors were selected for interview as case
studies. The sample included a high proportion of knowledge-intensive firms – in order to
ensure a focus on firms involved in active knowledge acquisition and application. For that
reason the sample cannot be considered as totally representative of Australian industry.
The case studies demonstrate the importance to the firm of prior knowledge and active
management in absorbing new knowledge from external sources. Prior knowledge comes
from prior experience in the specific firm or a similar firm; and is usually built on a base of
scientific and engineering knowledge. Leading research-intensive firms often play a key role
in developing high level human resources, who through mobility diffuse knowledge and
experience throughout the industry. The Australian case studies suggest that a good deal of
the knowledge flow occurs to a large extent through a firms’ direct business contacts.
Suppliers and customers prove particularly important, as in some cases are consultants. This
emphasises the significance of the knowledge ecology and the extent to which innovation
performance is stimulated and supported by the endeavours and capabilities of other firms.
In general, industry associations were not seen as important sources of new innovationrelated knowledge. These patterns of interaction are consistent with the findings of Oslo
Manual-Based Innovation Surveys. The relatively high role of links with public sector
research organisations among these case study firms – 40% had such linkages - arises from
the characteristics of the sample, although relatively few of the companies expressed the
importance of such linkages.
In the context of continually evolving structural change, the key role of knowledge flows
from linkages with suppliers and customers in stimulating and enabling innovation points to
an issue that may warrant further study. As industries globalise, a higher proportion of
suppliers and customers will be offshore; and some areas of industrial activity are bound to
decline in Australia. The level and quality of innovation in Australia will thus be related not
only to the quality of the interactions but also to the capacity to interact with world leading
suppliers and users. Some of the case study firms had difficulties in building or retaining
collaborative links with partners. These trends will reinforce the drivers toward specialisation
in particular regions but also are also likely to increase the importance of interaction with
suppliers and customers outside Australia. They may also create a greater need for
innovation support services as knowledge and capability gaps open in the local knowledge
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ecosystem. This structural change is related to the growing importance of business model
innovation, which is drawn out in at least three of the current case studies. Such
restructuring required the firms studied to build new capacities for knowledge acquisition;
and this is not always readily achieved. A more rapid pace of change will also place greater
stress on human resources and particularly on management in firms. Some of the case
study firms faced growth constraints due to shortages of skilled personnel and others
sought mentors to support management.
The case studies also emphasised the key role of teams and of well developed project
management routines within firms. These played a central role in the dissemination and
exploitation of knowledge within the firm. The case studies illustrate the importance of
trained human resources as a major element in both establishing and building absorptive
capacity; and emphasise the importance of staff retention and reward schemes as
mechanisms for retaining tacit knowledge. While knowledge sources and approaches to
sourcing knowledge may vary, it is the flexibility and receptivity of all the people in a
company that contributes significantly to a high absorptive capacity.
The Australian case studies thus support the broad findings of international studies on
innovation in SMEs. Effective innovation management, good managerial and technological
capabilities, a strong strategic intent, a commitment to upgrading and extensive external
networking are common characteristics of successful firms. Since there are no recipes for
effective innovation management, each firm had to develop the approaches and routines
that worked in their particular situation, but these experiences may serve as useful guides
for other firms and managers.
Our sample of 10 diverse Australian firms may not be conducive to drawing out too amny
reliable generalisations about absorptive capacity in Australian SMEs. However, several of
the ten case studies provide examples of ideal functioning systems, though it is stressed
that each firm used different approaches in developing their absorptive capacity. As
indicated in Section 4, analysing the anatomy of the firm takes into account the dependency
of the firm’s functions and the interactions of all of the critical components of absorptive
capacity. Thus we suggest that it may be worth exploring how firms might benchmark their
own capabilities with those of other high-performing firms within their sector.
As also noted in Section 4, in meeting the requirement to devevelop a methodological basis
for a possible national survey of absorptive capacity we have developed a questionnaire
(Table 4.6), based on the experience of the current project. However, the Australian case
studies suggest that micro-businesses provide atypical outcomes in assessing absorptive
capacity, since the firms of this type that we studied appeared overwhelmed by the
dominant influences of the owner-managers across all aspects of the business. Therefore,
we suggest that any planned survey only consider SMEs employing 10 or more persons.
The appropriate sample size of any survey will depend on the purpose of the survey. If the
objective is systematic assessment of absorptive capacity (and hence also necessarily
innovation management) capabilities in Australian industry with an allied objective of
relating capability levels to performance, a large a carefully structured sample will be
required.
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Policies to Strengthen Absorptive Capacity
It is increasingly recognised that the patterns of change in advanced economies are
increasing the role of SMEs, particularly knowledge-intensive SMEs, but also increasing the
importance of their capacities to innovate.
It is widely recognised that these developments strengthen the case for intervention to
support capability development and knowledge acquisition in SMEs. Much innovation in
products, marketing and organisation in fast moving and in service sectors is relatively
quickly copied by other firms. Market failures arise from the diversity of SME needs and their
incapacity to both express clear demands and to assess the benefit of potential suppliers.
Market failure also arises because it requires (technical and managerial) knowledge to
identify, assess, acquire and benefit from new knowledge and hence firms often require
support to move back onto a virtuous cycle of upgrading. Further, much innovation in SMEs
is not R&D intensive, and the provision of support services for knowledge acquisition and
implementation is one of the few practicable means of subsidising innovative effort in such
firms.
These issues are of particular importance in Australia because SMEs account for a relatively
high proportion of R&D. The available evidence from Australia and internationally is that
management capabilities in SMEs are limited and that managing significant changes in
direction into unfamiliar areas is particularly difficult. Australia has not yet responded
adequately to the changing demands on SMEs arising from technological change and
increasingly global markets, and the growing role of knowledge intensive SMEs. There is a
gap in the support services. Unlike many countries Australia does not have an agency
focused on technology transfer to, and capability (including importantly management)
development in, SMEs. There has historically also been a relatively low orientation to export
markets in manufacturing and services.
In response to these changes many other OECD countries have introduced a diverse range
of policies and instruments, and modified existing programs, to strengthen absorptive
capacity and promote knowledge acquisition and application. These policies and programs
include components of mainstream innovation policies and components of broader SME
development policies. Section 7 provided an overview of both the rationale for these policies
and the range and specific objectives of the instruments that are used. Section 8 provided a
comprehensive characterisation of absorptive capacity-related programs in several countries,
and detailed information on several particular programs that appear to have been highly
effective. Very few of these programs specifically target the strengthening of absorptive
capacity, although many are focused on relevant aspects, such as linkages with the
knowledge infrastructure, access to expertise, employment of graduates, etc.
In comparison with other countries Australian innovation programs have tended to focus on
R&D and commercialisation, resulting in a relative focus on new firms and on specific
projects. Consequently, there is not a coherent set of programs focused on enhancing
absorptive capacity and through this the innovation capabilities of established SMEs.
Characteristics of Successful Programs
Most OECD countries have a range of programs that target innovation-related capability
development in SMEs. Many countries have been concerned to ensure that the suite of
programs does address the needs of SMEs with the potential for growth, and toward that
end there is growing interest in international experience in SME support instruments.
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The following generalisations may be drawn, based on this brief review of several successful
programs and also a wider review of experience of initiatives to promote capability
development and innovation in SMEs. The review suggests a set of functional criteria
(summarised in Figure 9.1) for a program focused on strengthening absorptive capacity in
SMEs:
 a focus on the more innovation-active SMEs commited to growth;
 location of service providers near to a firm, be linked into local networks, and be
integrated into national information and support networks;
 a strong emphasis on developing innovation capabilities, along with technological
and market knowledge, but in association with a specific development objective,
usually linked to an innovation project;
 a requirement that SMEs contribute a significant share of overall costs;
 access to a broad spectrum of credible experienced professional advisory services;
 facilitate the development of linkages to local, national, and international information
sources, service providers, potential business partners and research organisations;
 a broad portfolio of services (eg., advice, finance, networking) but a flexible delivery
customised to the needs of the SME; and
 the delivery of the program through capable experts who work with the firm to
develop an effective and sustained combination of objective performance
assessment and flexible delivery of services.
Figure 9.1: Functional Characteristics of Effective SME Innovation Capability
Support Programs
Focus:
Commercial & Competence
Services:
Flexible &
Competent
SMEs:
Growth Oriented
Innovation objective
Linkage:
Sustained, local
& links to wider
networks
Funding:
Suport & co-funding
Source: The Authors
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Recommendations
As emphasised by the Productivity Commission’s recent Report on Public Support for Science
and Innovation:
“High quality human capital is fundamental to the innovation system. A highly skilled
workforce not only provides Australia with the capability to pursue scientific
knowledge and undertake research and development type activities, but also to
utilise and adapt innovation flowing from research and development undertaken in
other countries.”
The available evidence points to the growing importance of innovation capability and
particularly the capacity to identify, assess, acquire, absorb and use external knowledge, but
as this study as shown, our understanding of the role and limitations of absorptive capacity
in Australian companies is limited. It is also evident that human capital and its organisation
dominates any discussion of absorptive capacity.
Given this, Recommendations 1 and 2 are aimed at building the ability of firms to grow and
understand absorptive capacity through the people within exisiting firms, and to gain a
broader understanding of absorptive capacity across all firms. This knowledge will then lead
to the broader actions outlined in Recommendations 3 and 4.
Thus, our first recommendation arises from the observation in the 10 Case Studies that it
may prove worthwhile to Benchmark ‘absorptive capacity’ in firms. This would be most
useful where it enabled firms to benchmark themselves against others in their sector. It
would be possible to include some questions from the ABS Innovation Survey in such
benchmarking, which would enable a strong comparative basis, linked to performance.
This could include the development of a web-based systematic on-line diagnostic and
benchmarking framework, which could be used by firms independently or in association with
consultants as the basis for developing an in-house absorptive capacity and innovation
management development program. With appropriate confidentiality guarantees, the use of
the on-line service would also generate information and firms’ assessments of their
strengths and weaknesses and hence provide an ongoing source of information. These
diagnostic and benchmarking tools could be linked to on-line guides to addressing the
specific issues identified as well as guides to relevant service providers in Australia.
Recommendation 1
Develop a Benchmarking and diagnostic program for firms operating in selected
sectors to enable firms to assess themselves against high performers and to
develop capability development strategies.
Our second recommendation is intended to assess absorptive capacity in a broder range of
firms than was possible through the present study using only 10 case studies. That
assessment should extend to addressing the issue of weaknesses in managing major shifts
in orientation, capabilities and strategies in established firms. We thus recommend
undertaking a survey, particularly of the more innovative SMEs in Australia employing more
than 10 people, to identify weaknesses in absorptive capacity and other barriers related to
innovation and strategic change involving major redevelopment of capabilities. The design
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and the interpretation of such a survey should also be informed by a review of the results of
the ABS Innovation Survey and prior studies on innovation in Australian industry.
Recommendation 2
Undertake a survey of a representative sample of companies across a range of
sectors, particularly of the more innovative SMEs in Australia to identify any
weaknesses in absorptive capacity and other barriers to innovation and strategic
change.
The SMEs surveyed to employ not less than 10 and up to 200 people.
As this report has shown most other countries operate programs and organisations designed
to combine a range of services, to be local (ie., linked into SME networks) and to focus on
developing the capabilities of firms. They have not sought to have their research
organisations meet this need.
Most SMEs do not have long term capability development strategies and hence capability
development is in large part a by-product of growth (eg., by hiring new staff), interaction
around day to day activities (eg., with customers), problem solving and innovation. For this
reason it is valuable to use programs/centres focused on firm development to deliver
initiatives that stimulate and assist firms to respond to specific challenges, eg regulations
regarding environmental emissions or product and process safety, export development.
Our third recommendation is the suggestion for DITR to undertake, in the light of the results
of the detailed survey (Recommendation 2), an in-depth review of several absorptive
capacity-related programs in other countries that appear to be relevant to Australia. These
include:
 an Innovative SME Centre support program to co-fund regional or sectoral initiatives
to strengthen absorptive capacity, innovation management and networking in the
more innovation-oriented SMEs;
 an SME innovation-focused procurement program modeled on the US SBIR program;
and
 a program to promote greater interaction between SMEs and between SMEs and
research organisations, modeled on such programs as the Swedish VINST or the
British Business Links and Business Fellowships programs.
Recommendation 3
In the light of the results of the detailed survey and related review, and in
consultation with other stakeholders, undertake:
 a focused assessment of a selected range of absorptive capacity-related
programs in other countries that are effective in their context and may be
relevant to the Australian context. This assessment to recognise that very
few of these international programs specifically target absorptive
capacity; and
 an assessment of the scope to improve existing programs to better target
strengthening absorptive capacity and assisting external knowledge
acquisition.
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In regard to Recommendation 1, Standards Australia have developed a set of high quality
and working guides to knowledge management in firms. The 2006 – 2008 Strategic
Business Plan of the Coordination Group of Standard Australia’s Knowledge Management
Committee proposes a work program involving similar initiatives leading to guides in
Innovation Management, Sustainability, and Foresight. This work deserves sustained
support and the outcomes warrant extensive promotion. The guides should also be the basis
for on-line interactive support tools for firms. Thus Recommedation 4.
Recommendation 4
Support the work of Standards Australia’s Knowledge Management Committee
and promote and leverage off the outcomes of its work.
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10. Selected References
Fields Included

Spillovers, Diffusion and Knowledge Transfer

Dynamic Capabilities and the Resource Based View of the Firm

Innovation Management

Accessing External Technology

Research- Industry Interaction

Innovation and Change in SMEs

Organisational Learning

Firm Learning

Innovation Capability Audits

Technological Learning in Latecomer Firms

Knowledge Management

Networks and Clusters

ICT Diffusion and Capabilities

Learning through Strategic Alliances.
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- 139 -
APPENDICES
- 140 -
Appendix 1
Characteristics of Innovation in Australia: 2005 ABS Innovation
Survey
Table App.1.1: Innovation Activity by Size of Firm, 2004 and 2005
Businesses innovating
%
Employment size
5–19 persons
20–99 persons
100 or more persons
Total income
Less than $1m
$1m-Less than $5m
$5m or more
Businesses which
started but did not yet
complete or abandoned
any innovative activity
%
Businesses which were
innovation-active
%
28.4
46.6
51.5
10.1
17.2
21.4
29.8
47.9
54.8
25.4
34.7
48.3
10.6
11.5
16.8
27.1
35.9
49.6
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.2: Type of Innovation Introduced in 2004 and 2005 by Size of Firm
PROPORTION OF BUSINESSES WHICH INTRODUCED OR IMPLEMENTED
Any new or significantly
improved goods or
services %
Any new or significantly
improved operational
processes %
Any new or significantly
improved organisational/
managerial processes %
15.8
29.2
28.9
16.9
34.4
34.7
20.7
35.6
40.0
15.2
18.9
29.5
15.4
22.8
32.3
18.9
24.7
38.1
Employment size
5–19 persons
20–99 persons
100 or more persons
Total income
Less than $1m
$1m-Less than $5m
$5m or more
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.3 Types of Innovation and Type of Firm: Comparisons between
2002-03 and 2004-05
Total Proportion Of
Businesses
Innovating
Businesses Which
Introduced Or
Implemented Any
New Or Significantly
Improved Goods Or
Services
Businesses Which
Introduced Or
Implemented Any
New Or Significantly
Improved
Operational
Processes
2002
& 2003
%
2004
& 2005
%
2002
& 2003
%
2004
& 2005
%
2002
& 2003
%
Employment
size (persons)
5–19
20–99
>100
25.0
41.0
55.6
28.4
46.6
51.5
11.2
17.8
33.7
15.8
29.2
28.9
15.7
26.2
40.1
16.9
34.4
34.7
14.9
28.1
35.6
20.7
35.6
40.0
Industry
Mining
Manufacturing
24.2
39.5
31.4
41.7
7.4
23.0
10.6
26.9
14.8
24.5
17.6
27.3
15.5
21.8
22.2
27.9
2004
& 2005
%
Businesses Which
Introduced Or
Implemented Any New
Or Significantly
Improved
Organisational/
Managerial Processes
2002
& 2003
%
2004
& 2005
%
- 141 -
Construction
Wholesale trade
Retail trade
Accommodation
, cafes &
restaurants
Transport and
storage
Communication
services
Finance and
insurance
Property &
business serv.
Total
27.2
36.1
24.7
30.8
43.4
27.5
7.8
21.8
7.4
16.5
25.5
15.8
17.3
19.6
17.0
22.0
26.4
15.4
19.3
24.1
13.2
26.2
33.2
18.8
22.9
35.6
9.2
23.6
14.8
25.0
14.2
27.8
30.7
34.0
12.4
18.1
20.4
25.1
20.0
26.9
43.8
35.5
25.8
28.5
32.2
25.3
27.6
27.1
38.7
37.9
18.2
18.9
24.6
25.7
28.3
30.7
27.3
30.3
13.0
16.4
18.5
20.1
18.3
22.6
29.6
33.5
13.4
19.4
18.9
21.6
18.4
24.9
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.4. Characteristics Of Innovation In 2004 And 2005: Novelty
PROPORTION OF BUSINESSES THAT INTRODUCED OR
IMPLEMENTED
New goods or
New operational
New organisational/
services
processes
managerial processes
%
%
%
Degree of novelty of the new goods or
services or processes developed
New to the business only
New to the industry
New to Australia
New to the world
74.0
20.0
15.2
7.7
87.4
10.8
3.6
0.8
93.9
5.5
0.8
0.3
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.5: Characteristics of Innovation In 2004 And 2005: Locus Of
Development.
PROPORTION OF BUSINESSES THAT INTRODUCED OR
IMPLEMENTED
New goods or
services
%
New operational
processes
%
New organisational/
managerial processes
%
74.7
21.8
65.8
25.6
75.9
18.7
10.4
12.9
8.8
Where the new goods or services or
processes were developed
Within the business or related company
In co-operation with other businesses or
institutions
By other businesses or institutions
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.6: Barriers To Innovation, 2004 and 2005
Innovating
businesses %
Cost related barriers
Excessive economic risk perceived by the business
Excessive economic risk perceived by financiers
Direct costs too high
Cost or availability of finance
Government regulations or standards
Any cost related barriers
Market related barriers
19.0
5.0
31.6
15.8
22.5
58.4
- 142 -
Potential market already dominated by established business
Lack of customer demand for new goods or services
Unable to appropriate benefits from intellectual property
Inability to secure strategic partnerships
Market too small or unknown
Lack of information on technologies
Any market related barriers
Lack of skilled staff
20.0
10.0
3.6
4.8
11.6
2.5
36.7
Other barriers
No barriers to innovation
4.6
26.7
27.2
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.7: Drivers of Innovation in Innovating Businesses in 2004 and
2005
EMPLOYMENT SIZE
5-19
persons %
20-99
persons
%
100 or more
persons
%
70.7
71.6
51.7
95.6
72.6
70.3
58.4
91.3
^64.7
77.0
^57.2
94.8
70.9
71.5
54.2
94.2
32.8
62.7
40.7
25.8
41.4
69.0
57.4
32.5
46.4
73.0
^51.6
33.1
36.4
65.3
46.6
28.4
17.7
23.7
^34.0
20.6
8.1
26.5
9.6
31.5
10.7
27.6
8.7
28.1
86.8
92.8
91.1
88.9
17.6
33.0
34.7
51.5
6.1
19.6
44.8
34.8
55.8
5.1
26.6
37.3
29.8
56.0
7.1
18.8
37.0
34.4
53.1
5.8
Profit related drivers
Improve productivity
Increase revenue
Reduce costs
Any profit related drivers
Market related drivers
Be at the cutting edge of the industry
Increase responsiveness to customer needs
Increase market share
Establish a new market
Exploit new ways to manage this business's supply
chain
Increase export opportunities
High degree of price competition in this business's
product markets
Any market related drivers
Legal related drivers
Be environmentally responsible
Improve safety or working conditions
Meet government regulations or standards
Any legal related drivers
Other drivers
Total
%
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.8. Overall Collaboration by Businesses: 2004-5
EMPLOYMENT SIZE
5-19
persons
%
20-99
persons
13.1
3.7
6.4
17.7
5.4
8.0
12.8
4.4
14.5
14.5
4.2
7.4
6.6
5.7
1.5
3.2
2.7
1.4
8.0
4.7
4.5
5.7
4.7
1.7
24.9
26.8
33.0
26.0
%
100 or more
persons
%
Total
%
Type of collaboration for any
purpose
Joint marketing or distribution
Joint manufacturing
Joint research and
development
Other joint venture
Licensing agreement
Other form of
collaboration/alliance
Any collaboration
- 143 -
No collaboration for any
purposes
75.1
73.2
67.0
74.0
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.9: Collaboration by Innovating Businesses in 2004 and 2005
LOCATION OF ORGANISATION
From within
same state
or territory
%
From
elsewhere in
Australia
%
From
overseas
%
8.2
6.4
2.6
12.6
10.4
5.0
2.1
12.0
8.8
5.0
3.0
11.3
5.6
3.2
1.3
7.5
7.7
2.9
1.3
9.2
18.3
8.9
5.3
21.4
2.0
0.7
0.1
2.3
3.2
0.5
1.4
0.6
0.3
0.4
0.2
0.1
0.3
3.3
0.6
1.6
4.5
1.2
1.5
0.1
0.4
0.1
4.9
1.4
Type of organisation collaborated with
Other parts of a wide enterprise group to which
the business belongs
Market organisations
Clients or customers
Suppliers of equipment, materials,
components or software
Consultants
Competitors and other businesses from the
same industry
Any market organisations
Institutional organisations
Universities or other higher education
institutions
Government agencies
Private non-profit research institutions
Commercial laboratories/research and
development enterprises
Any institutional organisations
Other types of organisations
Any
location
%
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.10: Sources Of Ideas And Information Used By Innovating
Businesses, 2004 And 2005
Sources of ideas or information for
innovative activity
Internal sources
Market sources
Institutional sources
Other sources
5-19
persons %
20-99
Persons %
100 or more
Persons %
Total
%
72.2
67.3
7.6
43.6
80.8
74.4
6.2
44.0
87.3
67.6
16.2
42.4
75.8
69.6
7.7
43.6
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.11: SOURCES OF IDEAS OR INFORMATION, 2001– 2003
Innovating businesses
[Proportion of Firms indicating this as a Key Source.]
SOURCES(c)
Internal
Within this business
Other parts of a wider enterprise group to which this business belongs
Market
Clients or customers
Suppliers of equipment, materials, components or software
Consultants (including paid professional advice of all kinds)
All
Sectors
%
80.0
32.7
64.5
47.0
32.1
- 144 -
Competitors and other businesses from the same industry
Institutional
Universities or other higher education institutes
Government agencies
Private non-profit research institutions
Commercial laboratories/ research and development enterprises
Other
Professional conferences, meetings, fairs and exhibitions
Web sites, journals
Other sources of ideas or information
44.4
7.6
11.2
2.5
5.6
50.5
42.5
3.6
Source: ABS INNOVATION IN AUSTRALIAN BUSINESS 8158.0 2003
See source for detailed qualifications
Table App.1.12A: SOURCES OF IDEAS OR INFORMATION, 2001– 2003
Innovating businesses, by industry
[Proportion of Firms indicating this as a Key Source.]
Mining
SOURCES(c)
Internal
Within this business
Wider enterprise group
Market
Clients or customers
Suppliers of equipment,
materials, components, sw
Consultants
Competitors & businesses
from the same industry
Institutional
Universities or other higher
education institutes
Government agencies(d)
PNP
Commercial laboratories/
R&D enterprises
Other
Professional conf’s,
meetings, fairs & exhib’s
Web sites, journals
Other sources
Manufact’g
Electricity
gas & water
supply
Construct’n
Wholesale
trade
Retail Trade
%
%
%
%
%
%
86.1
43.7
80.2
28.0
85.5
56.9
79.1
12.3
82.8
31.2
76.5
42.2
51.3
32.6
71.1
51.5
47.7
50.4
54.6
46.8
71.6
58.2
47.1
49.0
39.5
32.7
25.5
37.8
59.2
47.3
23.5
38.7
27.3
47.7
32.9
44.8
8.8
6.4
20.4
5.1
6.2
3.5
24.1
3.5
9.3
8.2
1.7
7.0
28.2
6.4
15.6
13.6
np
1.0
6.4
1.2
*3.3
*8.0
5.8
*4.4
45.1
40.9
57.4
36.5
49.4
52.9
39.5
3.8
37.2
3.0
47.9
8.0
32.5
5.1
41.8
0.3
33.6
1.6
Source: ABS INNOVATION IN AUSTRALIAN BUSINESS 8158.0 2003
See source for detailed qualifications
Table App.1.12.B.
2003
SOURCES OF IDEAS OR INFORMATION 2001–
Innovating businesses, by industry
Proportion of Firms indicating this as a Key Source.
SOURCES
Internal
Within this business
Wider enterprise group
Market
Accom’n,
cafes and
rest’s
%
80.9
43.2
Transport
and
storage
Comm’ns
services
Finance and
insurance
Property &
business
services
Cultural and
Rec’l
services
%
%
%
%
%
88.0
37.9
83.6
41.4
83.2
42.1
79.7
*29.8
78.9
35.7
- 145 -
Clients or customers
Suppliers of equipment,
materials, components, sw
Consultants (including paid
professional advice of all
kinds)
Competitors & businesses
from the same industry
Institutional
Universities or other higher
education institutes
Government agencies(d)
PNP
Commercial laboratories/
R&D enterprises
Other
Professional conf’s,
meetings, fairs and exhib’s
Web sites, journals
Other sources
78.7
37.6
62.2
54.3
75.4
44.6
68.9
35.4
69.6
41.7
66.9
33.8
39.6
*22.5
41.3
33.5
40.3
34.4
62.9
38.6
56.4
38.8
44.0
56.4
12.9
4.3
17.9
7.8
*11.3
14.5
18.6
2.6
0.3
9.0
np
2.3
8.2
3.5
2.4
16.2
1.3
5.6
12.7
2.1
11.2
25.6
*3.3
1.2
56.3
35.3
49.6
51.5
62.2
51.2
55.5
9.2
36.3
2.2
52.1
2.7
41.4
1.2
55.2
5.4
45.3
5.9
Source: ABS INNOVATION IN AUSTRALIAN BUSINESS 8158.0 2003
See source for detailed qualifications
Table App.1.13
SOURCES OF IDEAS OR INFORMATION, 2001– 2003
Innovating businesses, by employment size
Proportion of Firms indicating this as a Key Source.
SOURCES
Internal
Within this business
Other parts of a wider enterprise group to which this
business belongs
Market
Clients or customers
Suppliers of equipment, materials, components or
software
Consultants (including paid professional advice of
all kinds)
Competitors and other businesses from the same
industry
Institutional
Universities or other higher education institutes
Government agencies(d)
Private non-profit research institutions
Commercial laboratories/research and development
enterprises
Other
Professional conferences, meetings, fairs and
exhibitions
Web sites, journals
Other sources of ideas or information
5–19
persons
%
20–99
persons
%
100 or
more
persons
%
Total
%
78.5
29.3
83.2
36.1
82.3
52.3
80.0
32.7
62.5
67.7
70.6
64.5
46.5
47.7
49.5
47.0
26.9
40.5
47.9
32.1
41.9
50.4
43.7
44.4
5.6
8.7
2.2
4.9
11.4
15.0
2.4
5.0
11.0
19.4
6.0
15.5
7.6
11.2
2.5
5.6
46.7
57.0
61.2
50.5
41.7
3.9
42.9
3.2
49.3
2.1
42.5
3.6
Source: ABS INNOVATION IN AUSTRALIAN BUSINESS 8158.0 2003
See source for detailed qualifications
- 146 -
Table App.1.14: Methods Used To Acquire Knowledge or Ability By Innovating
Businesses In 2004 And 2005
LOCATION OF SOURCE
From
elsewhere
in Australia
%
From
overseas
%
Any
location
%
39.0
5.2
35.7
33.9
7.3
2.1
7.2
10.3
7.1
1.2
2.0
8.7
45.2
7.4
40.6
46.5
3.9
0.9
0.2
4.7
6.0
1.1
0.7
7.2
From within
same state
or territory
%
Method used to acquire knowledge or abilities
Employed new skilled staff
Interchanged staff with another business
Used consultants (or other paid advisors)
Acquired new equipment or technology for
producing this business's goods or services
Merger/takeover with/of another business (in whole
or part)
Other methods to acquire knowledge and abilities
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
Table App.1.15: Methods Used By Innovating Businesses In 2004 And 2005 To
Acquire Knowledge Or Abilities From Institutions By Location Of Institution
From
Australian
higher
education or
research
institutions
%
Method used to acquire knowledge or abilities from higher
education or research institutions
Employed new graduate(s)
Employed academic or research staff
Used research results published by these institutions
Used research facilities of these institutions
Used patents, designs, or other intellectual property rights from
these institutions
Used consultants from these institutions
Contracted out research and development to these institutions
Other methods to acquire knowledge or abilities from
institutions
From
overseas
higher
education
or research
institutions
%
Any higher
education
or research
institutions
%
10.0
2.7
2.9
1.6
0.6
0.7
1.4
0.2
10.4
3.1
3.8
1.6
1.7
0.3
2.0
5.7
1.6
0.7
0.2
5.9
1.6
2.3
0.3
2.4
Source: ABS (2005) Innovation in Australian Businesses. 8158.0 2
- 147 -
Appendix 2
Instrument Descriptions
Country – UK
Name: Small Business Research Initiative
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Allows small businesses access to R&D procurement from Government Departments and Research
Councils, worth up to 1.56billion Euro. Starting April 2001 (launch of SBRI website). Target is to
procure 78mEuro of research from small businesses. SBRI is not a grant scheme, but a procurement
measure which aims to: - strengthen those existing small firms whose businesses are based upon
providing R&D - by increasing the size of the market, - encourage other smaller businesses to
increase their R&D capabilities and capacity - to exploit the new market opportunities, and - create
opportunities for starting new technology-based or knowledge-based businesses.
Small Business Service – UK Govt.
SMEs
No grants on offer
Similar to the US Small Business Innovation Research – no current evaluations for this
Name: Web-Based Toolkit
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Government unveiled a set of model agreements to help business-university collaborative
working and speed up negotiations for Intellectual Property (IP). The model agreements are part of a
"web-based toolkit". The toolkit will help take the hassle out of negotiating collaborative research
agreements. It particularly focuses on financial contribution, the use and exploitation of IP,
academic publication and confidentiality.
Government – as a result of a working group (CBI, AURIL, SBS, RDA…)
All companies, HE research units
No direct funding provided
No evaluations at present time
Name: Enterprise Capital Funds
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Enterprise Capital Funds (ECFs) are designed to be commercial funds, investing a combination of
private and public money in small high-growth businesses that are seeking up to £2 million of equity
finance. Each ECF will be able to make equity investments of up to £2 million into eligible SMEs
that have genuine growth potential but whose funding needs are currently not met. ECFs will fulfil a
genuine need by addressing a market gap in the availability of equity finance.
DTI/SBS
SMEs
Venture capital (including subordinated loans)
No evaluations at present time
Name: Grant for R&D
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Previously run nationally, but now run by local DTI Small Business Service offices, the Grants for
Research & Development will be administered by Regional Development Agencies. For small
businesses wishing to exploit an innovative idea, this grant provides reimbursed consultancy to help
businesses get advice on the steps needed to implement their ideas.
Administered by Regional Development Agencies
SMEs/Consultancies and other private service providers
Grants for labour costs
2001 Evaluation report available at: http://www.dti.gov.uk/about/evaluation/exec_sum.pdf Some
brief highlights from the 2001 Evaluation include following main findings: - Seven in ten projects
have outputs which reach the market; - Data supplied by award winners pointed to substantial and
positive effects overall on their turnover, exports and employment; - there is evidently scope to
increase the aggregate benefits that the scheme delivers.
Name: Research & development: new tax incentives for small and medium-sized companies
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The provision of tax relief for SMEs conducting R&D to help improve the quantity and quality of
R&D undertaken by British firms
DTI/Inland Revenue
SMEs
Tax Incentives
No evaluations at present time
Name: Biotech Financial Advisory Services
Description
To improve awareness and accessibility of private sector funds or appropriate Government grants
- 148 -
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
for biotech SMEs. The DTI sponsors independent financial consultants to provide the Service, free
of charge, to: pre-start-up companies in the biotechnology/life sciences fields; early stage companies
seeking seed funding; established firms seeking development funding.
DTI
Biotech and Healthcare SMEs and Pre-Start-ups
Venture Capital
This scheme forms part of a wider evaluation of DTI support for biotechnology (due to have been
completed in 2004)
Name: CASE – Cooperative Awards in Science and Engineering
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
A scheme for funding the training of postgraduate students to PhD level in projects of joint interest
to industry and higher education institutions. Also "Industrial CASE" is a variation of CASE where
studentships are allocated direct to an industrial partner with the company devising its own projects.
Companies who have previously participated in the scheme have noted a number of benefits that
include: the opportunity to access key expertise that may not exist within the company or which may
not be cost effective to develop in-house; an opportunity to test the value of collaborative research
for a relatively modest outlay; providing future researchers/potential employees with “real life”
experience of industrial and business situations whereby academics have a better understanding of
the business.
OST
Scientists/Researchers, Other public non-profit research organisations, HEI
Grants
No evaluations at present time.
Name: Collaborative R&D
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Collaborative Research and Development (CRD) support is available to meet some of the costs and
risks associated with research and technology development, by facilitating collaboration between
different businesses and the Science, Engineering & Technology base across the UK. CRD provides
funding for collaborative R&D projects between businesses, universities and other potential
collaborators. Collaborative Research & Development projects must involve two or more
collaborators, at least one of which is from industry.
DTI
All companies, HEI
Grants
No evaluations at present time.
Name: Faraday Partnerships
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
To link businesses, scientists and engineers in universities, research organisations, and capital
providers on collaborative research projects and commercialization processes. Faraday Partnerships
or centres are technology specific. Also some education and training programmes. Effective
interaction requires the identification of industry needs and the subsequent synthesis of the
knowledge and experience of those who can satisfy these needs. Crucially, each Faraday Partnership
employs a number of technology translators - people with broad experience of knowledge transfer who can facilitate projects between Partnership members.
DTI, SBS
All Companies, Scientists/Researchers/HEI
Grants
No evaluations at present time.
Name: Knowledge Transfer Networks
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
A Knowledge Transfer Network is a single national over-arching Network in a specific field of
technology or business application. It brings together a variety of organisations, such as businesses
(suppliers and customers), universities, research and technology organisations, the finance
community and other intermediaries who will provide a range of activities and initiatives to enable
the exchange of knowledge and stimulation of innovation amongst this community. The objective of
a Knowledge Transfer Network is to improve the UK’s innovation performance by increasing the
breadth and depth of the knowledge transfer of technology into UK-based businesses and by
accelerating the rate at which this process occurs. The Network must, throughout its lifetime,
actively contribute and remain aligned to the development of a national Technology Strategy.
DTI
Everybody
Grants
No evaluations at present time.
Name: Business Link
Description
The central objective of Business Links is to improve the competitiveness of small firms through
more comprehensive provision of business support. In pursuit of this objective their aims are to:
- Increase the use of business support by small firms;
- Rationalise the provision of support to reduce duplication and to make it more coherent;
- Improve the quality of support services.
Business Links came into being as a result of the "one stop shop" for business support initiative
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Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
announced by the then President of the Board of Trade in July 1992. Nine pilot Business Links were
approved for start up in April 1993. The network was gradually extended thereafter, so that by
January 1997 a total of 89 Business Link partnerships, with 241 outlets covering the whole of
England, had come into operation. Each Business Link is based on a partnership between local
agencies involved in support for businesses. Business Links entail a significant degree of partnership
working, especially at the strategic level. As well as promoting collaboration, Business Links have
encouraged the sharing of resources between partners.
SBS (Small Business Service)
SMEs, Consultancies, Private institutions for education.
No direct funding provided
Evaluation concluded that although Business Links try to serve all SMEs, they especially target
growing firms and those identified as having growth potential. Firms in the manufacturing, high
tech. and business services sectors are also targeted more frequently than those in other sectors. The
evaluation also concluded that businesses do, indeed, benefit from support, and that they assess
Business Links support more highly than other support or support they have used in the past.
However, there is still evidence of market failure. This is largely due to the facts that firms are not
sufficiently aware of the support available and / or do not understand the need for / value of support.
Business Links and partners have improved the coherence, co ordination and quality of services, but
they acknowledge the scope for further improvement in these respects.
Name: Corporate Venturing and Matchmaking
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Entrepreneurs and small companies with good ideas can be introduced to their perfect investor
partner thanks to a Small Business initiative. Corporate venturing enables small companies to enter
into a relationship with a larger investor that will bring finance, contacts and facilities whilst
allowing them to retain their own identity. This initiative is being taken forward by Small Business
Service (SBS), with external partners, aimed at stimulating awareness and understanding of
corporate venturing and offering practical support to potential partners.
SBS
SMEs
Other
No evaluations at present time.
Name: Manufacturing Advisory Service
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Manufacturing Advisory Service (MAS) offers assistance from experts to enable SME
manufacturers to improve productivity, through a network of regional centres for manufacturing.
The MAS will deliver the following to companies: practical help; assistance for technology transfer;
development of manufacturing skills; dissemination of best practice; development of Networks of
Expertise.
OST
Manufacturing SMEs
No direct funding
No evaluations at present time.
Name: Micro and Nanotechnology Manufacturing Initiative
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
In July 2003, Science and Innovation Minister Lord Sainsbury announced a cash injection for the
Micro and Nanotechnology Manufacturing Initiative over the next six years to help industry harness
the commercial opportunities offered by nanotechnology. The initial investment for this initiative
formed the first step of developing and implementing the DTI's Technology Strategy.
DTI
HEI, SMEs, Technology and Innovation Centres
Grants
No evaluations at present time.
Name: Knowledge Transfer Partnerships
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Increases interactions between Universities and companies. Graduates (TCS Associates) are
recruited to work in a company for two years in close cooperation with a University, on a
strategically important project; they have enhanced career development benefits. The company and
university learn to collaborate. This measure provides a grant to cover part of the cost of using a
person to transfer and embed knowledge into a business from the UK knowledge base (including
universities, colleges and research organisations) via a strategic project. Each Partnership employs
one or more high calibre Associates (recently qualified people) for a project lasting one to three
years, transferring the knowledge the company is seeking into the business. Each Associate works in
the company on a project, which is core to the strategic development of the business. Associates are
jointly supervised by a senior member of the business and an academic or technical specialist from
the partnering knowledge base organisation. Through contact with businesses, the knowledge base
partner is also provided with a relevant and improved understanding of the challenges companies
encounter, and their business requirements and operations.
DTI
SMEs, HEI, Scientists/Researchers, other public education institutions
Grants
Estimated that on average, every £1 million invested in KTP results in 77 new jobs created, and
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training for 263 members of staff, as well as giving academics experience of working in a business
environment. (Figures based on final reports by company participants whose completed TCS
programmes were assessed in 1997-98)
Name: Ufi/Learndirect
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Ufi aims to work with partners to boost people's employability, and organisations productivity and
effectiveness, by inspiring existing learners to develop their skills further; winning over new and
excluded learners; and transforming the accessibility of learning in everyday life and work.
Secondary objectives of Ufi are to increase the number of companies (particularly SMEs) that
provide learning opportunities for employees, and improve the quantity and quality of learning
provision.
Department of Education and Employment
SMEs and Individuals
Grants
An external assessment of the progress that Ufi has made was reported in 2003. This evaluation
benchmarked Ufis performance against other domestic and international organisations engaged in
similar activities, as well as highlighting lessons that will inform future Ufi activity. The evaluation
reported that the very nature of learndirect learning results in improved ICT skills, which is
equipping a growing population of learners who can access new learning provision that is
increasingly ICT based. There was also evidence to show that e-learning is breaking down the
psychological and physical barriers that prevent many adults from returning to learning.
Country - Sweden
Name: Technology Purchase
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The technology purchase approach is a call for tender procedure, meant to stimulate and hasten the
spread and development of new, efficient techniques. The Swedish Energy Agency is a significant
and competent customer, with good market knowledge and contacts. The idea behind the approach
is to create a win-win situation, with producers gaining access to new markets, while the agency is
able to use its critical mass to influence product design and functionalities.
Swedish Energy Agency
All companies
Purchase of technology
In a consultant report, commissioned by STEM, describing how technology purchasing is used as a
steering mean the following success factors are identified: * The system in general must be
reasonably mature for uptake of the technology in question * Thorough preparations are vital * The
purchasing organisation must have a high credibility and put much effort into building confidence
Name: Industrial Development Centres
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The aim of Industrial Development Centres IDCs is to be the "missing link" which will enable cooperation between enterprises and other important actors by providing access to all the resources
necessary to run strategic development work (knowledge, competence, money or time). All IDCs are
connected in a network and cooperate with public authorities and departments whose purpose it is to
facilitate the development of a globally competitive Swedish industry. This creates important value
added. The networks become the natural meeting point for industrial and regional development in
the respective regions. Through IDC, small and large enterprises meet, business leaders meet
researchers and private enterprises meet the public sector in order to create the best possibilities for
development
Separate company owned by the Organisations/Institutions within the network.
All
Grants, Venture Capital, Guarantees
The number of IDC-companies has doubled since the start of the network in 1997. (2002) Some 32
percent (2000) of the total turnover of the companies in the network was generated within the so
called UPA-commission (Finding, Product Development and Product Pre-study Spin-offs). The
remaining 68 percent was generated from such things as: * Educational efforts on different levels *
Commissions in large companies * Direct consultancy commissions * Business development
commissions * Research and development projects together with universities and colleges *
Carrying out or participating in EU-projects Business has expanded with more and more IDCcompanies, partners, amount of projects carried out and job opportunities created. The project
managers of the IDC-companies have systematically followed up on the employment effects in the
companies. A total of 4011 new jobs have been created (2002).
Name: Forska & Vax - Research & Innovation in SMEs
Description
A majority of company based R&D is carried out in large companies. SMEs, as an important part of
the economy, are contributing to innovation on somewhat different conditions. An intention with
this program is to promote innovation and growth by offering R&D resources adapted to the needs
of SMEs. A number of issues related to R&D in SMEs are identified. There are none or small R&D
resources in SMEs. R&D is associated with high cost and there are often no personal resources
available. Its also a high risk project and it takes a lot to be in the forefront of technology. Further
on, many companies suffers from a lack of networks or at least time for networking activities.
Traditionally a typical program addresses university researchers and involves industry partners as a
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Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
mean to reassure that research results are taken care of and to increase research project relevance.
Few or none programs have addressed R&D within SMEs.
Vinnova
SMEs
Grants
No evaluations at present time
Name: Competence Development in Industry
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Knowledge Foundation is made up of a number of educational consortia with the cooperation of
universities, university colleges and industrial research institutes. Each consortium works within a
defined growth area and on the basis of the needs of companies. Postgraduate programmes consist of
various courses at the Master’s degree level and are offered to a large extent as distance-learning
courses. The Knowledge Foundation supports the development of new Master’s degree programmes
with a clear focus on the needs of trade and industry. The programmes are designed with the
collaboration of companies, universities and university colleges. The Knowledge Foundation gives
priority to education that reflects new ways of thinking and combines several disciplines or areas.
Knowledge Foundation
All
Grants
No evaluations at present time
Name: Product Development in Small Enterprises
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The aim of this program is to strengthen small enterprises by providing financing for product
development. A regional infrastructure with "partners" has been formed to assist the program to
spread information about the program, to assist companies in the product development process and
to administrate the program. These partners are either regional or sector specific.
NUTEK
SMEs
Grants
No evaluations at present time
Name: VINNKUBATOR
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective is to increase the number of R&D-intensive firms with a high growth potential. An
incubator is a legal person with a high degree of confidence from the business sector as well as
among policy-makers. The incubators engage in development of business ideas and support to
companies in the pre-seed phase, i.e. the phase where the risk is too high o from the perspective of
the venture capitalists.
Vinnova
SMEs, Researchers/Scientists
Grants, Subsidised loans, Venture capital, Guarantees
The evaluation of the pilot project has, in quantitative terms shown that:
The rate of return on the public investments is about 4-6 times the money invested.
The flow of new ideas, has increased with 69 percent totalling 934.
The rate of new companies has been offered to join one of the 14 incubator has
increased with 43 percent totalling 137.
The number of companies within the 14 incubators has increased with 43 percent
totalling 255.
The number of employees within the incubator has increased with 18 percent, totalling
786
The number of new companies within the incubator (measured over a 6 month period),
has decreased with 1 percent, totalling 72.
The number of companies exiting the incubator (measured over a 6 month period), has
increased with 2 percent, totalling 46.
Name: University & SME Cooperation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
This programme focuses on new forms on cooperation between small enterprises and university and
university colleges. In the first step seven universities are elected for participation. They are to
implement and try out a new form of cooperation that can generate knowledge about the importance
of entrepreneurship to universities and how it could be stimulated. In the next step six other
universities are to implement results from these first experiences made by the seven other
universities.
NUTEK
SMEs, HEI
Grants
No evaluations at present time
Name: ProViking Program
Description
The Swedish Foundation for Strategic Research has decided to support product realisation research
(product development, manufacturing, product support and maintenance in a life-cycle perspective),
through the ProViking programme. The main focus is on industry with manufacturing and/or
development, operating in Sweden. The foundation has also decided to fund a National Graduate
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Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Research School during the five- year period 2003-2008. The goal is to develop better production
systems and new product development methods through project cooperation between industry and
universities. The research results will be used within Swedish industry to create better cost
efficiency and new or improved products that are internationally competitive.
SSE – Foundation for Strategic Research
All companies, HEI
Grants
No evaluations at present time
Name: Key Actors Program
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Name: VINN
Description
The long-term goal of the Key Actors Programme is to develop competence, methods, processes and
structures to enhance the professionalism of key actors in the Swedish innovation system. It will
focus on increasing the amount and efficiency of co-operation between research performers,
industry and other actors in the surrounding society, as well as activation of knowledge (i.e.
knowledge transfer and commercialisation of research results).
Vinnova
HEI, Research Organisations
Grants
No evaluations at present time
Excellence Program
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
VINN Excellence (VINN Centres of Excellence) is a development of The Swedish Competence
Centres Programme. VINN Excellence provides a brand new generation of Competence Centres
(Centres of excellence in Research and Innovation). The effort is to build bridges between science
and industry in Sweden by creating excellent academic research environments in which industrial
companies participate actively and persistently in order to derive long-term benefits. The mission is
to strengthen the crucial link in the Swedish National Innovation System between academic research
groups and industrial R&D. A Centre of Excellence has two main goals:
• To become a productive, academic Centre of Excellence by actively involving a number of
companies and research groups in joint research
• To promote the introduction and implementation of new technology and to strengthen the technical
competence in Swedish industry.
Vinnova
All Companies, HEI
Grants
The latest third evaluation was performed by the Technopolis Group in 2003. The evaluation
concludes once again that the centres have created both practical and empirical knowledge, which
has been directly useful in modernisation, design and development. The centres have furthermore
created research-trained people, particularly adapted for working with high-skilled tasks in the
Swedish industry, and there are also signs of extended networks of people and organisations that
work with a common set of knowledge. The evaluation concludes in addition that that the centres
have increased attractiveness of the Swedish innovation infrastructure, which might have an impact
on the location of R&D and production for firms From the very beginning Swedish industry has
shown a great interest in the Competence Centres and played an active role in their build-up.
Name: Active Industrial Collaboration
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
A typical AIS-project involves one or two research institutes, one or two university or university
college research departments, and 15 companies. These actors are to collaborate actively during a
period of three years with an overall budget of EUR 650 000 - 900 000 of which Vinnova financing
constitutes EUR 320 000 only to research institutes and universities. The contributions of the
companies are only in the form of cost for own labour. Technology/knowledge transfer is an
integrated part of the project. The four focus areas of AIS are IT, life sciences, manufacturing and
processing and sustainable development.
Vinnova
Companies, HEI, Research organisation
Grants
Currently being evaluated
Name: Swedish Norwegian Business Cooperation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
This is a program run in cooperation between NUTEK and Innovation Norway. The aim is to
strengthen companies' innovation capacity and stimulate commercialisation and development of new
products. Financing offered is to be used for competence development and should involve a
Norwegian as well as a Swedish company.
NUTEK
SMEs
Grants
No evaluations at present
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Country – Norway
Name: Grants to county authorities for regional development
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
In 2003, grants to county authorities (fylkeskommunen) was introduced as a separate post in the
budget of the Ministry of Local Government and Regional Development. The grants are to
contribute to and facilitate regional development adjusted to specific regional conditions, and in
particular to competence development, readjustment, entrepreneurship and start-ups, and industrial
innovation. In accordance with these guidelines, the respective county authorities determine the
goals and strategies for the use of the grants.
Royal Ministry for Local Government and Regional Affairs
All
Grants
No evaluations at present
Name: SkatteFunn
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
SkatteFunn is a measure that gives tax allowances for investments in R&D. 20% of expenses for
R&D projects in SMEs, and 18% in large companies, may be deducted. The basis for deduction is
R&D expenses of up to NOK 4 mill (approximately EUR 530 000) for internal projects, and another
NOK 4 mill for co-operative projects (or NOK 8 mill for co-operative projects alone). The R&D
projects should aim at generating new knowledge, information or experience, which is of value to
the development of new products, services or production processes.
The Research Council of Norway
All Companies
Tax Incentives
No evaluations at present
Name: The BIT Programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective of the BIT programme is to improve the profitability and competitive ability of SMEs
through efficient use of ICT and e-business. The programme is to contribute to the development,
diffusion and efficient utilisation of ICT solutions within e-business in industrial sectors. This is to
be achieved through cooperative arrangements within and between sectors, which receive public
support in the form of methodology, quality assurance and co-funding. Emphasis is placed on ICT
implementation, organisational and managerial change and competence.
Innovation Norway
SMEs
Grants
An analysis of the effects of BIT presented in 2005 shows that companies who have taken part in the
programme as a general rule achieve better results than the average firm in the respective industrial
sector.
Name: Measures for Regional R&D and Innovation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The main goal of VRI is to promote knowledge development, innovation and value creation through
regional cooperation and increased R&D efforts in and for the regions. Regional needs and strengths
are to be exploited in a way that secures both regional priorities and national strategies for R&D and
innovation. VRI consists of regional programmes, which involve several types of actors.
Cooperation within a regional VRI programme should be dynamic, and it is expected that the
cooperation between the actors become increasingly binding.
Research Council of Norway
Companies, Research Organisations, HEI
Grants
No evaluations at present
Name: Industrial Gardens
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
An industrial garden is a group of knowledge intensive firms gathered under one roof. The objective
of the industrial garden programme is to stimulate value creation creating regional clusters of SMEs
which offer attractive work opportunities for highly educated persons and can draw on each the
competencies of each other. In addition, the arrangement gives the participating firms the
opportunity of establishing a cost saving common technical infrastructure. Each industrial garden is
connected to the other industrial gardens - through a common web-site and seminars - and should
also be linked to wider industrial and competence networks. As of 2004, the measure covers 1600
employees in 606 companies
SIVA - The Industrial development Corporation of Norway
SMEs
Grants
A mid-term evaluation by Hartmark Consulting concluded that firms located in industrial gardens
show above-average employment development, and that industrial gardens contribute to increasing
local/regional commitment to industrial development. The overall conclusion is that the measure is
contributing positively to regional development.
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Name: Arena – Innovation in Networks
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Arena - Innovation in networks is a programme that aims to generate increased innovation through
co-operation and networking among business players, R&D institutions and the public sector. The
programme is intended for regional business communities where concentration of companies within
a value chain along with relevant competence communities may be found, and where there is a
potential for increasing the interaction and co-operation between these parties. A particular emphasis
is thus put on supporting the development of regional innovation systems.
Innovation Norway
SMEs, Research Orgs, HEI
Grants
No evaluations at present
Name: NT Programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The NT programme is to contribute to increased innovation in existing and new technology firms in
Northern Norway by providing capital and advice and by developing networks of companies and
knowledge institutions.
Innovation Norway
SMEs and Large Companies
Grants
A third evaluation was published in 2000. The report demonstrated that there was a continued need
for this kind of program. It showed that the R&D activity in companies in Northern Norway had not
changed significantly since the programme was started up 12 years earlier. However, the firms'
situation seemed to have improved as regards competences, experience from project work,
networking and the ability to make use of relevant regional assistance. The evaluation stated that the
main contribution of the programme was of a financial nature, and concluded that the programme
could be regarded as profitable from a national viewpoint and that the additionality of the project
was high.
Name: Centres for Research-Based Innovation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The CRI scheme is intended to promote innovation by supporting long-term research by forging
close alliances between research-intensive enterprises and prominent research groups. CRIs are to
develop competence that maintains high international standard in fields of importance for innovation
and value creation. The scheme is designed to enhance technology transfer, internationalisation and
researcher training. The scheme will be based on co-financing provided by enterprises, host
institutions and the Research Council of Norway.
Research Council of Norway
All
Grants
No
Name: Centres of Expertise
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The CoE-programme was established in 2005 to enhance innovation activities within industrial
clusters seen to have the largest growth potential and be the most internationally oriented. It is
intended to focus, enhance and accelerate processes of development within these clusters. Based on
collaboration with relevant industrial and knowledge partners, companies should have the
opportunity to enhance their capacity to initiate and implement targeted, long-term development
processes. Long-term financial support (10 years) will be provided to the clusters selected. The
primary target group of the programme are companies, including core and adjunct companies, while
research, education and financial institutions are among the secondary group targeted.
Innovation Norway, Research Council of Norway, SIVA
All
Grants
No evaluations at present
Name: User Initiated Research
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The main objective of the programmes for user initiated research is to increase industrial R&D. The
underlying idea is that activities and projects carried out within the framework of publicly funded
R&D programmes should be initiated, controlled and co-funded by companies in order to ensure
industrial relevance. The programmes are moreover to contribute to closer cooperation between
companies as well as between companies and research institutions.
Research Council of Norway
Companies, HEI, Research Organisation
Grants
In a report published in 2004, Møre Research presented an evaluation of 240 projects that have
received support under the user initiated research programmes. The main conclusions were that: *
each Norwegian krone invested in the projects has yielded a double return for the participating
firms; * the socio economic benefits probably are even greater, but that they are more difficult to
quantify; and * that the firms have been dependent on public support for achieving these returns.
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Name: Competence Development Programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The main objective of the Competence Development Programme is to contribute to development
and innovation in the market for post-qualifying education. More specifically, the programme aims
to improve the ability of public and private enterprises to identify and meet their competence needs;
to develop arenas for cooperation between the enterprise sector and the educational system; and to
develop post-qualifying education schemes adjusted to the needs of the enterprise sector.
VOX – Ministry of Education and Research
All
Grants
The Institute for Research in Economics and Business Administration, SNF and the Fafo Institute
for Applied Social Science are responsible for carrying out a running evaluating the programme, and
will also conduct a final evaluation. Hitherto, main conclusions have been that the programme is
generally being carried out according to its intentions, but that there may be a need for strengthening
the "ordering competence" on the demand side and to improve firms'' ability to identify and express
long term competence needs.
Name: Programme for Innovation and Entrepreneurship in Norway
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Programme for Entrepreneurship and Innovation in Norway (Program for entreprenorskap og
nyskaping i Norge) is to develop methods, material and networks for the establishment of closer
links between educational institutions and industry and the promotion of entrepreneurship in
education on all levels. The programme will anchor a nation wide permanent institution, which is to
develop and implement models and methods for entrepreneurship in education and training in
schools, colleges and universities.
Young Entrepreneurship – Ministry of Trade and Industry, Ministry of Education and Research,
Innovation Norway
All
Grants
Eastern Norway Research Institute (Østlandsforskning) is carrying out a running evaluation of the
activities of Young Entrepreneurship. At this point, their conclusions include that increased focus on
entrepreneurship in education is viewed as positive and necessary, but that there is a lack of specific
guidelines as to how entrepreneurship in education is to implement on the regional and local level.
Name: FORNY – Commercialisation of R&D Results
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective of the FORNY programme is to increase wealth creation by facilitating
commercialisation of research-based business concepts or ideas conceived at research institutions,
private companies or public enterprises. The programme encourages cooperation between research
communities, entrepreneurs, investors, industry, commerce and public authorities; provides public
support (up to 50 per cent of the expenses) for infrastructure activities, commercialisation projects
and verification activities; and offers a bonus for the completed establishment of companies.
Research Council of Norway
All
Grants
An evaluation of FORNY carried out in 2003/2004, concluded that the programme to a large extent
has been successful in obtaining its overall objectives. The evaluation focused on the six
commercialising units (CUs) that were established when FORNY was launched in 1995. The
conclusion was that the activities of the CUs have had high additionality with regards to the
completed commercialisations and have contributed to a compensation for market failure of
different kinds. It was furthermore stated, “The value added is greater than the public means that are
put into the program.” (Bolkesjø, Møller and Vareide, 2004)
Country - Netherlands
Name: SBIR Pilot
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
In November 2004, the ministry of Economic Affairs launched a pilot with contracting out of
innovative R&D to SMEs, following the American Small Business Innovation Research Programme
(SBIR). The objective of the Dutch SBIR pilot is to assess how the American SBIR programme can
be implemented in the Netherlands in an effective way. The technology field of Electromagnetic
Power Technology was selected as a testing ground for the first SBIR pilot. In this field the
government had already funded strategic basic research at universities via the Innovation-Oriented
Research Programme (IOP) (NL_18) instrument. After the first tender 17 proposals were received
from which four were selected to do feasibility studies in December 2004. Subsequently, after half a
year, two of the four SMEs will receive a contract for the second phase (development/prototyping).
The pilot is managed by SenterNovem. It is open to all SMEs in the EU. The ministry of Economic
Affairs expects to launch new pilots mid-2005 in collaboration with other ministries.
Ministry of Economic Affairs
SMEs
Grants
No evaluation at present time
Name: Challengers Module
Description
The Challengers Credit supports excellent innovation projects, in which new products, processes or
- 156 -
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
services are developed. The project should have a high-risk profile with substantial technical
problems that need to be solved. The Challengers Credit is a credit without interest for SMEs. The
credit can amount to 35% of the development cost, with a maximum of 1 million euro. The minimal
project size is 300,000 euro (estimated development costs). The project may run for a maximum of
three years. The credit should be repaid in max. 6 years after successful completion of the
development project.
SenterNovem – agency of the Dutch Ministry of Economic Affairs
SMEs
Subsidised Loans
No evaluation at present time
Name: Innovation Subsidy for Collaborative Projects
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Innovation Subsidy for Collaborative Projects (IS) subsidises technological collaboration aimed at
the research and development (R&D) of innovative and sustainable products, processes or services.
The scheme supports companies to pursue innovation with partners. The scheme involves a subsidy
for an R&D project that a company executes together with one or more knowledge centres and/or
companies. National and international collaborative alliances are eligible for subsidy. SMEs can also
apply for a subsidy on a feasibility study to allow them to first establish the feasibility of an R&D
project.
SenterNovem – agency of the Dutch Ministry of Economic Affairs
All
Grants
No evaluation at present time
Name: WBSO - Research and Development (Promotion) Act
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective of the WBSO Act is to stimulate R&D by alleviating the wage burden for companies
through tax reduction. This Act provides a fiscal facility for companies, knowledge centres and selfemployed persons who perform R&D work. In this context, R&D means technical/scientific
research, the development of technologically new physical products or physical production
processes (or parts thereof) and the development of technologically new software (or parts thereof).
Non-companies qualify only if they perform R&D on the instructions and at the expense of a Dutch
company. Under the Act, a contribution is paid towards the wage costs of employees directly
involved in R&D.
SenterNovem – agency of the Dutch Ministry of Economic Affairs
Companies, HEI
Tax Incentives
The 2002 evaluation found the following effects of the WBSO. First order effects: 1 euro spent on
WBSO gives 1.02 euro in R&D effort. Total R&D spending rises with total of the WBSO tax credit.
Outcome of survey: size does matter (larger companies can take more risks, have a lower threshold,
faster time to market, side effects: better planning and administration) Second order effects: found
significant effect for firms with < 50 employees. If tax credit rises with 1%, effect on sales of new
products as % of total sales for an average firm is 0.19 percent points. WBSO is important for
reaching goals of innovation, like introduction of new products, lowering cost of innovation,
acquisition of fundamental & implementation of technological knowledge, higher quality products
and innovation process, raising speed of innovation process. The use and scope of the measure: the
WBSO is considered to be easy accessible for companies (low administrative burdens) and therefore
attractive for SMEs.
Name: Innovation Performance Contracts
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Innovation Performance Contracts scheme is in a pilot stage. The core of the pilot scheme is an
agreement (contract) between the Ministry of Economic Affairs (EZ) and individual companies
about an extra effort in innovation. Each company makes a multi-annual innovation plan with
concrete targets for three years, a financial plan and an action plan for the first term. The companies
can do the effort partly collectively. In return, EZ provides a 50% contribution in the extra costs
with a maximum of 49,500 euro per company in three years.
Ministry of Economic Affairs
SMEs
Grants
No evaluations at present time
Name: Casimir
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The main objective of the Casimir scheme is to increase public-private mobility of researchers and
to enhance exchanges of researchers between companies and knowledge institutes and vice versa.
Such mobility of researchers can help to reduce the gap between knowledge production and
knowledge application. Mobility is also perceived as a means to improve the attractiveness of the
job of researcher.
Netherlands Organisation for Scientific Research
Scientists/Researchers
Grants
No evaluations at present time
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Name: Innovation Vouchers
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The main objective of the (Pilot) Innovation vouchers scheme is to enable small and medium-sized
companies (SMEs) to buy knowledge from knowledge institutes with innovation vouchers and thus
to stimulate interaction and exchange between the knowledge suppliers and SMEs. With an
innovation voucher SMEs can buy knowledge from (semi-) public knowledge institutes, from large
companies with R&D expenditures that exceed 60 million euro per annum, and from foreign public
knowledge institutes. The knowledge supplier can hand in the voucher with the innovation agency
SenterNovem and receive payment.
SenterNovem – agency of the Dutch Ministry of Economic Affairs
SMEs
Grants
The scheme is a pilot. The first round in 2004 proved to be a success as all available innovation
vouchers were sold out within a few days. The second round (2005) of the pilot scheme was (like
the first round) sold out within a few days, which shows the popularity of the innovation vouchers.
In the first round, 92% of the vouchers was used. 50% of the applicants had not used the generic
(labour tax reduction) WBSO scheme (NL_5) and 83% had not used a specific innovation scheme
before. 40% of the applicants was new for SenterNovem, the innovation agency. In other words, the
Innovation vouchers appear to have reached a new target group. Additionality was 80% (8 out of 10
R&D jobs would not have been done without a voucher). Longer-term effects can not be measured
yet.
Name: Syntens - Innovation network for entrepreneurs
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Syntens is an "innovation network for entrepreneurs", i.e. a network of 15 centres (ca. 275 full-time
advisors), that have the objective to increase innovativeness of SMEs. Syntens centres provide
support and advice to SMEs on technology and innovation. In practice, Syntens' advisors help SMEs
with drawing up an Innovation Action Plan. Within this framework, tailor-made technological and
non-technological innovation oriented knowledge is made accessible and applicable for firms.
Furthermore, Syntens implements policy of the Ministry of Economic Affairs, e.g. in the area of
new business ventures, innovation vouchers (NL_47) for SMEs.
Syntens – Ministry of Economic Affairs
SMEs
No direct-funding
In 2002 an evaluation was performed with the following results: (a) Syntens reaches 18,500 SMEs
per year, 40% of which is a new client. This change in clients is important, because the effect on
companies of Syntens'' services is the greatest in the first year. (b) Collaboration of Syntens with
knowledge institutes and branch organisations is limited. (c) The contact with Syntens has resulted
for 30% of the companies to (increased) cooperation with other companies or knowledge institutes,
for 40% to participation to regional projects and for 30% to more awareness of innovation measures.
(d) Half of the companies have started a "renewal project" as a result of a Syntens-advice. Half of
these companies has the opinion that the strategic meaning of these projects is large to very large. (e)
Surveys show that for 60% of the companies contact with Syntens has resulted in an increase in
labour productivity.
Name: RAAK – Regional Attention and Action for Knowledge circulation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
RAAK (Regional Attention and Action for Knowledge circulation) aims to improve knowledge
exchange between SMEs and vocational education institutes. These education institutes include both
Higher Professional Education (HBO) as well as Vocational Training and Education and Adult
Education (BVE). In addition to the aim of strengthening the bridging function of education
institutes and innovativeness of SMEs, the RAAK scheme also aims to generate and distribute
policy relevant information and best practices regarding new and existing forms of collaboration and
activities in the field of knowledge exchange between education institutes and SMEs.
Foundation Innovation Alliance
SMEs, HEI, Other Education Institutions
Grants
A study by EIM (Economic Institute for SMEs) concluded that each euro innovation (collaboration)
subsidy resulted in 5-euro additional investment of participating firms. It is expected that the
economic effect of the investments will further increase. Since the start in 2004, 600 firms have been
involved in one of the 40 RAAK programmes. In 2008, this number should be 10,000.
Name: investment Grants for Knowledge Infrastructure
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The scheme BSIK aims to stimulate the creation of high-quality (public-private) networks within the
Dutch knowledge infrastructure that can address long-term knowledge demands in a flexible way.
Collaborative networks of knowledge users (e.g. businesses) and knowledge suppliers (e.g.
universities) can get funding if they perform innovative industrial or fundamental research.
SenterNovem – agency of the Dutch Ministry of Economic Affairs
Companies, HEI
Grants
Evaluation outlined on Trend chart – No conclusive remarks on effectiveness.
Name: IOP-TTI module
Description
The "IOP-TTI module" replaces the former two instruments "Innovation Oriented Research
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Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Programmes" (IOP) and "Leading Technological Institutes" (TTI). The main objective is to establish
long-term strategic R&D collaboration between companies and publicly funded knowledge institutes
in those areas that are of strategic importance for the Dutch economy.
SenterNovem – agency of the Dutch Ministry of Economic Affairs
Companies, HEI, Research Organisations
Grants
Ex-ante evaluation of the ''old'' instruments IOP and TTI in 2004 and 2005.
Name: Smart Mix
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The aim of the "Smart Mix" is to promote focus and mass in excellent scientific research and to?
enhance the valorisation of results from research. The Smart Mix is used to address the "knowledge
paradox" by vitalising collaboration between the business sector and the knowledge infrastructure in
specific areas that are (will be) strategically important for the Netherlands. The Smart Mix is
characterised by the combination of focus and (critical) massa in excellent research and the
interaction and collaboration in a large part of the knowledge chain.
SenterNovem – agency of the Dutch Ministry of Economic Affairs, NOW – Netherlands
Organisation for Scientific Research
All
Grants
No evaluations at present time
Name: IOP Innovation oriented Research Programmes
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
IOP is an umbrella programme, which consists of sub-programmes (themes). The main goal of the
Innovation oriented Research Programmes (IOPs) is to increase the accessibility of the public
knowledge infrastructure for industry and to increase and intensify interactions between industry and
public knowledge institutes. The IOP instrument aims to strengthen basic-strategic research
performed in the public knowledge infrastructure in directions that fit with innovation needs of the
Dutch business sector.
SenterNovem – agency of the Dutch Ministry of Economic Affairs
All companies, HEI, Research Organisations
Grants
The programme outputs are summarised as follows: - IOP projects: most IOP projects are
dissertation projects. These projects produce a large number of reports and articles. The quality is
generally regarded as good, although there are examples of failed projects. A substantial number of
projects produces concrete results, including patent applications - Careers of IOP researchers: the
IOP has produced a large number of highly skilled researchers and a large number of PhDs, working
in industry and research institutes (with a clear focus on industry). For companies, the IOP offers the
possibility of getting acquainted with young researchers. The other around, researchers come in
contact with industrial themes. Most researchers continue to work in the same field, partly in
industry, partly in research institutes - Concrete utilisation of IOP knowledge by industry: the
concrete use by industry is substantial. There may in general not be an immediate link to
commercial success, but relevant has been produced, that leads to economic returns: improved
insights, training modules, better test phases, simulation tools, cheaper processes, new companies,
new products, new knowledge, new projects, patent revenues, etc
Country - Ireland
Name: INNOVA Collaborative R& D Programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objectives of the Innova programme are:
To encourage and promote firm to firm research collaboration on a cross-border basis
supported by research institutions when appropriate;
To foster commercial links and to create a more sophisticated critical mass of the
resources needed for such activities;
To increase technology diffusion across the island by increasing access to
complementary technical expertise and technologies;
To contribute to the development of new products/processes that will have market
demand;
To encourage the attainment of new competencies for participants;
To encourage mutual learning (North & South) and the sharing of best practice;
- To contribute to the development of the island economy.
Inter-trade Ireland
SMEs, HEI research units
Grants
No evaluations at present time
Name: Industry Lead Research Networks
Description
Name of Provider
Intended Beneficiaries
The Industry Led Research Programmes are designed to bring together small groups of private
companies with similar research needs and assist their evolution as a network, forge a common
purpose by identifying common research needs, and support specific research to meet these needs.
Enterprise Ireland
SMEs, HEI research units
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Financial Conditions Involved
Observations from Evaluations
Grants
No evaluations at present time
Name: R&D Capability Initiative
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The R&D Capability Initiative is part of the National Development Plan 2000 - 2006. The Initiative
supports the building up of a company’s R&D infrastructure in the context of a development plan
for growing the business. Proposals for investment must therefore represent a clear "step-up" in the
development of the R&D function, compared to the company’s current situation
Enterprise Ireland
All companies
Grants
The findings have not been published, but all indications are that the measure is successful. It is well
thought of in official and business circles.
Name: FUSION - Knowledge transfer across the Island of Ireland
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
FUSION is the first all-island network between industry and academia. The network enables
knowledge and technology transfer across the island, supporting business innovation and increased
capability. FUSION develops and facilities 3-way partnerships and projects between: · Companies private sector businesses (with technology-based development needs). Third Level Institutes universities, colleges, institutes of technology or research centres. Graduates - high-calibre
degree/diploma holders (graduated within the last 5 years). Partnerships are driven by a company
need. Within each 3-way partnership, partners work collectively to develop and implement a
solution to a technology need within the company. Each company is partnered with a university or
college with specialist expertise in the subject area required. The university or college provides oneto-one tailored assistance to solve the company’s technology project. A high-calibre graduate is
recruited and based in the company to champion the project. This graduate operates as the link and
agent for technology transfer between the university or college and the company.
Inter-Trade Ireland
SMEs, HEI, Researchers/Scientists
Grants
Pilot programme (2002-2004) was recently evaluated. All parties in the partnerships expressed
satisfaction with the programme. The continuing level of application is high. To date 55 companies
have innovated and improved their competitiveness. Assessment criteria included: 1) Successful
implementation of the project 2) Economic impacts of the project such as increased turnover 3) All
partners expressing satisfaction with the project and its outcomes 4) Subsequent career development
of the graduate/diploma holder 5) Level of new applications by SMEs.
Name: Additional R&D Tax Credits
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Irish Council for Science, Technology and Innovation (which acts as an advisory board to
Government on science and technology) recommended in a recent policy statement the introduction
of tax credits for research and development. The Council noted that R&D tax credits were to be
found in 17 OECD countries including the UK, Netherlands, France and Spain against which Ireland
was competing for mobile foreign investment. The Councils statement indicated that the
introduction of the tax credit of 20 percent on qualifying expenditure for incremental R&D
expenditure would have a particular benefit in stimulating R&D activity by multinational companies
located in Ireland and also by indigenous enterprises.
Department of Finance
All Companies
Tax Incentives
No evaluation at present time
Name: Tax deduction for companies investing in R&D
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Subject to certain conditions, an enhanced tax deduction of 4 times the amount of incremental
expenditure is made available. The deduction applies to R&D expenditures of manufacturing
companies that are eligible for a reduced corporate tax of 10%. For individual companies,
incremental expenditure in excess of £ 25,000 (£32,000) and up to a limit of £170,000 (£216,000)
per annum is eligible for the new incentive with pro rata allowances for groups of firms
Department of Finance
All Companies
Tax Incentives
No evaluation at present time
Name: Science and Technology Personnel Placement
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Enterprise Ireland supported Science & Technology placements aimed at companies that have
outdated or limited technological expertise. These allowed them to up-date their skills through
technology graduates and managers under what was known as the TechStart and TechManager
programmes, respectively. Both schemes have since concluded, but the same skills are now
available to assist in increasing company innovation and R&D.
Enterprise Ireland
SMEs
Grants
- 160 -
Observations from Evaluations
A number of evaluations (the major one carried out by Circa Group Europe) indicated a high level
of success in terms of type and numbers of graduates/managers and the level of satisfaction was
represented by an up to 80% retention of graduates/managers by the sponsoring companies. The
scheme was retained in the National Development Plan 1994-99 after 5 years in operation
Name: Training Standards Excellence through People
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Elimination of levy to fund training. The Excellence though People was found to be very successful
in stimulating people development. Excellence through people is Ireland's national standard for
human resource management. It has been welcomed and supported by employers, their staff, trade
unions and government. All types of organisations are eligible for Excellence Through People
including manufacturing and service companies, the Voluntary Sector and the Public Sector.
FAS – National Training and Employment Authority
SMEs
No direct funding
No evaluations at present time
Name: Innovation Partner Initiative
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The purpose of the Innovation Partnership scheme (formerly known as the Applied Research Grants
Scheme for Universities and the Institutes of Technology) is to support the undertaking of
collaborative applied research with direct industrial and commercial application, between industry
and Third Level colleges. The Innovation Partnership scheme is open to academic staff of Third
Level colleges in collaboration with an Irish-based company, including commercial state bodies or a
consortium of both.
Enterprise Ireland
All Companies, HEI
Grants
No evaluations at present time
Name: Technology Transfer & Business Partnership Programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
International search programme aimed at identifying Technology Transfer/Licensing opportunities.
The principal aim is to assist Irish industry, particularly indigenous companies, in the identification
and introduction of new products or processes through technology acquisition (licensing, joint
ventures, etc.). It was aimed at boosting the very modest level of assistance for technology transfer
activities provided at the time of its initiation. This initiative provides suitable technology transfer,
partnership, and joint venture opportunities for Irish firms.
Enterprise Ireland
All Companies
Grants
No evaluations at present time
Name: Technology Service Centres
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
This suite of technology centres/PATs has been designed to assist in the commercialisation of R &
D and to provide technical services to companies. The Technology Centres are mainly based in the
Regional Colleges/Institutes of Technology while the PATs are based in the universities.
Enterprise Ireland
SMEs, HEI research units
Grants
No evaluations at present time
Name: Technology and R&D Management – Short Courses
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The courses are organised and managed by Enterprise Ireland, the agency for the development of
indigenous industry but are given by independent consultants/specialists. Starting Date: 1997
Enterprise Ireland
All companies
No direct funding
No evaluations at present time
Name: National Institute of Technology Management - NITM
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Enterprise Ireland supports an R&D Management Programme that seeks to improve the ability of
industry to manage the process of R&D, technology development & innovation and to enhance the
interaction between the Irish third-level sector and industry and to support high-level research.
NITM was set up in 1997. Located in University College Dublin, the Institute is a joint venture
between the Faculties of Commerce and Engineering & Architecture.
Enterprise Ireland
All companies, HEI, HEI research units
Grants
No evaluations at present time
Name: Stimulating Innovation Management and Strategies at Enterprise level
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Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The key goals for each participating company are : - Achieve best international practice in
Innovation Management - Implement the process through employees involvement - Generate a flow
of new product/service/process ideas - Implement a process for planning and management of
R&D/innovation - Achieve improved ROI for R&D/Innovation spending - Develop an innovation
strategy.
Enterprise Ireland
SMEs
Grants
No evaluations at present time
Country – Japan (Taken from http://www.chusho.meti.go.jp/sme_english/outline/04/01.html)
Name: Facilitation of Fund Supply
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
1. Monetary Policies
Difficulty in procuring funds is one of the greatest managerial issues for SMEs, which are in most
cases unattractive loan recipients for private financial institutions. Therefore, there were not enough
suppliers that could provide funds to SMEs. Thus, financial institutions that can provide a stable
supply of fixed long-term and low-interest funds to SMEs regardless of fluctuations in the economy,
in the form of governmental SME financial institutions, were needed. Three institutions listed below
were created and have been meeting these needs. Offers;
Long term funds
Credit guarantees
2. Business Upgrading loans
Loans for upgrading infrastructure four up to 20 years with a 3 year deferral program
1. Japan Finance Corporation for Small Business, the National Life Finance Corporation, the Shoko
Chukin Bank
2, SMRJ - Organisation for Small & Medium Enterprises and Regional Innovation, JAPAN
SMEs
Long-Term Loans, Credit Guarantees
Name: Building of Business Support Systems
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
1. SME Support Centres
It is a critical issue to improve the support system for SMEs so as to provide them with appropriate
advice on solutions to their managerial issues and the smooth acquisition of management resources,
by attentively responding to their widely diverse needs.
SME/Venture Business Support Centres (strategy, management, finance advice from
experienced professionals)
Prefectural SME Support Centres (advice on HR, technology, and information from
consultants)
Regional Support Centres (for local SME entrepreneurs who plan to start up a business
or implement business innovation. In each Centre there is a specialized coordinator on
hand, who has adequate knowledge about business management, so that clients can
easily discuss their various concerns, and receive over-the-counter consultations,
diverse information, etc.
Co-ordination and collaboration between the centres organised by SMRJ
2. Support by Commerce and Industry Associations and Chambers of Commerce and Industry
In order to support the overall management of small-scale enterprises in accordance with the actual
conditions of their management infrastructures and styles, Commerce and Industry Associations and
Chambers of Commerce and Industry implement management reform dissemination projects
(consultation, advice, etc. concerning general aspects of management, such as book-keeping
methods, finance, labour administration, and technology).
1. SMRJ - Organisation for Small & Medium Enterprises and Regional Innovation, JAPAN
2. Commerce and Industry Associations and Chambers of Commerce and Industry
SMEs
No grants on offer.
Name: Promotion of Business Start-ups and Venture Business
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
To realize a smooth start-up or business activity for those who are going to start up businesses, for
SMEs that are at an initial stage of business, and for SMEs that have entrepreneurship and an active
approach to creative business activities such as the development of new products or services (socalled venture businesses), the State shall support them comprehensively in funds, human resources,
management know-how, information, technology, etc.
1. Ability Development and Management Support (Education, Training, Support)
2. Financial Support (Loans, Credit Guarantee, Investment, Subsidies, Tax Credits)
3. Support of Technical Aspects (
4. Support under the Laws (as outlined in the previous three measures)
SMRJ
SMEs
Tax Incentives, Grants, Loans
- 162 -
Name: Support of Technical Development
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
In spite of their wishes and ideas, SMEs often have difficulty obtaining by themselves all of the
necessary management resources such as technology, funds, and information, and are limited in their
approach to human resource development. In order to overcome such difficulties and limits and to
aim for the development of independent and creative SMEs, the State has been providing various
types of support, as follows:
Support (commercialisation of R&D results)
Access to infrastructure (IT) and resources (human)
Collaboration within academia
Training and seminars
Specifically, as seen before in UK, Netherlands and USA – SBIR The Small Business Innovation
Research [SBIR] system has been established to activate SMEs with technology development
capability and support their creative business activities. Specifically, relevant ministries and
agencies and special corporations, grant subsidies, entrustment expense fees, etc. (specific subsidies)
for technical development by SMEs, and for consistent support of commercialization, expand debt
guarantee lines and establish special cases that need neither collateral nor a third party's guarantee.
SME support Centres, SMRJ, Chamber of Commerce and Industry
SMEs
Grants, Tax incentives, Loans, Subsidies
Name: Support of Business Innovation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
In Japan, it is expected that SMEs lead Japan’s economic development through their own business
innovation, as a new approach to improve business. Business innovation such as development of
new products fitting consumer’s needs and providing new services, becomes important as a response
to the diversification of consumer needs, intensification of price competition, advance of IT, and
economic globalization. In addition, business innovation related to the development of methods for
production and providing services, is becoming increasingly important. In these circumstances,
under “the Law on Supporting Business Innovation of Small and Medium Enterprises”, SMEs
business innovation is broadly supported in order to develop Japan’s economy, these include;
Subsidies, Credit Guarantees, Loans, Tax Incentives, Finance for enhancement, Grants for
Employment, reduction in patent fees.
SMRJ, Chamber of Commerce
SMEs
Grants, loans, credit guarantee, tax incentives
Name: Support for the international development of SMEs
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
METI, to promote the construction of an Asia wide production network, will take measures for the
information provision and funding and HR support for SMEs.
(METI) Ministry of Economy, Trade and Industry
Manufacturing SMEs
JPY 4 Billion
Name: IT Productivity Improvement Campaign
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
In order to realize world-class IT management within five years, METI will make efforts to promote
the IT Productivity Improvement Campaign by industry, academia, and government, and will
support managerial innovations by small and medium enterprises utilizing IT.
METI
SMEs
No financial support available
Name: HR Development in partnership with the real world and the regions
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
METI will promote business-academia collaboration for the enhancement of practical education in
the regional technical high schools and the development of technicians, finance related HR, and
manufacturing skills.
METI
Individuals and Companies
Grants
Country/Special Administrative Region – Hong Kong
Name: SME Funding Schemes
Description
- Loan Guarantee Scheme - to help SMEs secure loans from participating lending institutions for
acquiring business installations and equipment and meeting working capital needs.
- Export Marketing Fund - To provide grant to SMEs to encourage them to actively participate in
- 163 -
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
export promotion activities to expand access to markets outside Hong Kong.
- Training Fund - To provide training grant to SMEs to encourage them to provide training relevant
to their business operations to their employers and employees, and to assist the SMEs to enhance
their human resources, with a view to improving the SMEs' capabilities and competitiveness.
- Development Fund - To provide financial support to non-profit-distributing support organisations,
trade and industrial organisations, professional bodies and research institutes, to carry out projects
which will enhance the competitiveness of Hong Kong's SMEs in general or SMEs in specific
sectors.
Trade and Industry Department – SMEO (Small and Medium Enterprise Office)
SMEs
Grants, Loans, Guarantees
Name: SUCCESS – Support and Consultation Centre for SMEs
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The SUpport and Consultation CEntre for SMEs (SUCCESS) is the front line service point of the
HKSAR Government dedicated to the continuous development of local SMEs and the enhancement
of their competitiveness by assisting them in achieving long-term success. Operated by the Trade
and Industry Department, SUCCESS provides one-stop comprehensive information service on
public sector SME support services, business start-up, government business licences and tariff rates
of export markets, plus free consultation service on a wide spectrum of business areas through the
"Meet-the-Advisors" Business Advisory Service.
Trade and Industry Department, SMEO
SMEs
No funding available
Name: Hong Kong Trade Development Council
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
TDC is the global marketing arm and public service hub for Hong Kong-based manufacturers,
traders and service exporters. Its activities are especially geared to small and medium-sized
enterprises (SMEs). Acts as a one-stop-shop for SMEs
Government
SMEs, All companies
No funding available
Name: Innovation and Technology Fund
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The ITF, administered by the Innovation and Technology Commission of the Hong Kong SAR
Government, aims to increase the added value, productivity and competitiveness of Hong Kong's
economic activities. The Hong Kong SAR Government hopes that, through the ITF, Hong Kong
companies could be encouraged and assisted to upgrade their technological level and introduce
innovative ideas to their businesses. Programs include;
Innovation and Technology Support Program (ITSP)
HK Technology Cooperation Funding Scheme (TCFS)
General Support Programme (GSP)
University-Industry Collaboration Programme (UICP)
Small Entrepreneur Research Assistance Programme (SERAP)
HK SAR Government
All companies
Grants
Name: New Technology Training Scheme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
It aims to provide assistance to companies that wish to have their staff trained in a new technology
that would be useful to their business. New technologies include those which are not widely applied
in Hong Kong and the absorption and application of which will significantly benefit Hong Kong.
Vocational Training Council, Innovation and Technology Commission
All Companies
Grants
Name: Design Smart Initiative
Description
Name of Provider
Funding
Design Business Collaboration Scheme (DBCS) – aims at promoting collaborations between design
and Small and Medium Sized Enterprises
Professional Continuing Education Scheme (PCES) – aims at developing professional continuing
education courses in design and its application
One-Stop-Shop
InnoCentre – “Grade A” office space, incubator for start-ups, education and training, networking
programme, resource centre
Innovation and Technology Commission
- 164 -
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
All Companies
Grants
Name: HK R&D Centres
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
A Number of centres aimed at establishing a physical base for R&D in HK. There are six Centres in
total
- Automotive Parts & Accessory Systems
- Information & Communications Technologies
- Logistics & Supply Chain Management Enabling Technologies
- Nanotechnology & Advanced Materials
- Textiles & Clothing
- Chinese Medicine
Innovation and Technology Commission
All companies
No financing available
Country – Korea (summarised from http://www.smba.go.kr/main/english/sub5/sub05_1.jsp#99)
Name: Business Incubator
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The SMBA supports Business Incubators (BI) operated by universities and research institutes
equipped with facilities and equipment that can support would-be entrepreneurs or new SME
founders. This program is designed to promote the survival and growth of newly established venture
companies. Currently, about 270 business incubators across the nation host about 4,304 SMEs.
SMEs are provided with land, an expert consulting service, marketing education and other supports.
SMBA – Small and Medium Business Administration
SMEs
Name: Finance Service
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Those intending to start up an enterprise, or expand/restructure an existing business will encounter
the most common difficulties with financing. This is mainly due to banks requiring collateral prior
to agreeing to extend a loan, since their technology and corporate value cannot be correctly assessed
when evaluating creditworthiness. Therefore, the SMBA provides direct and indirect financing
support for SMEs to ensure that creative and innovative SMEs will not fail as a result of difficulties
with financing.
SMBA
SMEs
VC, Grants, Guarantees, insurance
Name: Capacity Building of Human Resources
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The SMBA is making policy efforts to raise the capabilities of both SME employees and managers,
whilst additionally creating a social and business environment whereby SMEs can employ
competent human resources. To lure an increasing number of the workforce into SMEs, the SMBA
implements the 'On-site Work Conditions Improvement Program' and provides tax benefits and
preferential treatment to workers with lengthy employment. In order to change the way that young
people perceive SMEs, and maintain friendly ties between the jobless and SMEs, the SMBA
initiated a 'SMEs Experiencing Program for College Students' and a 'Youth Employment Package
Program'. The 'SME Training Centre' implements various programs to educate the SME managers
and employees in respect of a new management method, and on-site work skills. The foreign
workforce's industrial training system and the industrial technician certified system have been put in
place to ensure stable availability of manpower at production sites and intermediate-level
technicians, respectively.
SMBA
SMEs
Tax Incentives
Name: Strengthening Knowledge Procurement from Overseas
Description
Providing Information on International Procurement Market: International procurement market
amounts to $2 trillion per year. However, Korean SMEs take up only 0.2% or $4 billion of the huge
procurement market. In an effort to expand the Korean SMEs' share of the international procurement
market, the SMBA provides information on international bidding, award and main contractors in
real time (1,000 pieces of bidding information per day) through the construction and operation of the
Integrated System on International Procurement(www.b2g.go.kr). The SMBA also offers training
programs and seminars on international procurement, and supports SMEs with participation in
exhibitions.
- 165 -
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
SMBA
SMEs
No finance available
Name: Inno-Biz
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Fostering Innovative SMEs (Inno-Biz) : The SMBA intends to identify innovative SMEs equipped
with superior technologies that can enhance their technological level through their own
technological innovation system. The purpose is to ensure that they will develop into global bluechip firms by providing comprehensive support such as technology assurance and preferential
treatment on credit loan.
SMBA
SMEs
Credit Loans
Name:
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
To accelerate the technological development of SMEs, public institutions are encouraged to use over
5% of their technological development budget for SMEs. Under the KOSBIR system, the SMBA
spent approximately $920 million in 2005.
SMBA
SMEs
Name: SMEs' Technology Innovation Program
Description
SMEs capable of developing technologies without support can recover up to 75% of the expenses
spent to develop new products and enhance product quality. The ceiling of the financing amounts to
$300,000 for two years in the case of strategic tasks or $100,000 for one year in case of general
tasks. Under this program, the SMBA supported 1,912 SMEs in 2005 alone.
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Name: New Technology Purchasing Assurance
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
In an effort to further commercialize new technologies, government agencies, public institutions
including Defence Ministry, KEPCO (Korea Electric Power Corporation), KOGAS (Korea Gas
Corporation), and Korea Railroad Corporation, and private businesses commission SMEs to develop
a new technology with the assurance that they will purchase the technological products. Under this
program, the SMBA finances the technological development of SMEs, while public institutions
purchase the products for a certain period of time. As of 2005, the SMBA has supported 80
technology development projects and plans to expand the participation of government agencies,
public institutions and private businesses in this program.
SMBA
SMEs
Grants
Name: Industry-University-Research Consortium Program
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
To boost the technological capabilities of SMEs, universities or research institutes develop
technology needed in the manufacturing field in collaboration with SMEs. About 220 consortia were
formed across the nation in 2005, to support 2,700 SMEs in developing new technologies.
SMBA
SMEs
Grants
Name: Transferred Technology Development Project
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
This project aims to prevent superior technologies from being discarded and enhance technological
innovation capabilities of SMEs. To this end, the SMBA covers additional development costs
required to commercialize transferred technologies owned by universities, research institutes and
businesses. In 2005, the SMBA supported about 90 tasks.
SMBA
SMEs
Name: SME Production Digitalization Project/ Total Information Management Providers
- 166 -
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
This project helps business managers and employees make good decisions by collecting and
analyzing the information produced at the production site with the use of information technology
and by checking and supervising production processes. The SMBA supports a program designed to
assist the e-manufacturing project aimed at boosting productivity through Computer Integrated
Manufacturing (CIM), the Manufacturing Execution Program (MES), and Point of Production
(POP)
SMBA/SBC
SMEs
Name: Biz-Match
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Service offered but the SBC looking to match Korean manufacturers to international businesses.
- Identification and introduction of appropriate qualified Korean manufacturers.
- Fair and balanced mediation between you and your Korean partner(s) throughout the negotiation
process
- Financial support for the selected projects
SBC – Small Business Corporation
SMEs
Grants
Country – Denmark
Name: Industrial PHD initiative
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Industrial PhD initiative is aimed at enhancing research and development in the Danish business
sector by: - Training researchers to gain insight into the business related aspects of research and
development - Building personal networks of knowledge between companies and Danish or foreign
universities / research institutions. The objective of the scheme is to permit post-graduate students to
obtain a PhD-degree through employment as researcher in a private company. The research/studyprogramme is formulated in co-operation with a Danish university. The university provides
academic advice, courses and evaluation of the PhD-thesis.
The Academy of Technical Sciences
All companies
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Technology and innovation centres (non-profit)
Wage subsidies
The latest evaluation (from 1995) of the scheme was very positive. Companies employing an
industrial researcher establish links with the university involved and increase their research and
innovation effort.
Name: Innovation accelerating research platforms
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
This measure is aimed at improving the contribution from research to innovation. A precondition for
this to happen is firstly a strengthening of the relations between the public research system and the
innovative environments and secondly an identification and investment in selected research areas,
that have the potential to drive innovation forward.
Danish Research Agency
All companies
Scientists / researchers (as individuals)
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Technology and innovation centres (non-profit)
Grants
No evaluation yet
Name: Innovation Consortiums
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The aim of Innovation Consortiums is to strengthen co-operation between companies, public
research institutions and technological service to develop new generic technology platforms for the
coming 5-10 years product and service development in Denmark. Enterprises must contribute with
50% of the funding. Typically a consortium has a total budget of 2.500.000 - 5.500.000 EURO and
lasts 3-4 years.
Ministry of Science, Technology and Innovation
All companies
Higher education institutions research units/centres
Technology and innovation centres (non-profit)
Grants
The first 30 innovation consortiums were evaluated in 2005. The conclusion was that the consortium
measure has a good national economy effect and that the basic principles of the measure are good.
- 167 -
However, the evaluation also concluded that the measure could be improved in certain aspects.
Name: High-tech Networks
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Strategy focuses on how to improve co-operation between education, research and trade and
business. The goal is that more enterprises, especially SMEs, shall have faster and easier access to
knowledge.
Ministry of Science, Technology and Innovation
All companies
Consultancies and other private service providers (for-profit)
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Technology and innovation centres (non-profit)
Grants
No evaluation yet
Name: Approved Technological Service Institutes (GTS-Institutes)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The main objective of the approved technological service institutes is to support and promote
innovation within business and industry located in Denmark. This is done by collecting, developing
and creating new advanced knowledge and by ensuring that companies have access to advice and
knowledge transfer.
Ministry of Science, Technology and Innovation
All companies
Grants
In January 1998 the Agency undertook a poll among companies in Denmark with less than 50
employees. This showed that the approved technological service institutes play an important role for
many of the SME. In fact 26% of the small companies had used the services of one or more
institutes. And among these three out of four were positive toward using the technological institutes
again. However, the poll also showed big variations among the degree to which the institutes are
known among the small companies in Denmark.
Name: Pre-project grant for the sixth EU framework programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Strategy focuses on how to improve co-operation between education, research and trade and
business. The goal is that more enterprises, especially SMEs, shall have faster and easier access to
knowledge. The primary purpose of the initiative is to increase the international cooperation
between business and knowledge institutions. In addition to that the initiative is to be instrumental in
bringing Denmark to reach the objective that at least 15 per cent of the funds available under the
framework programme are granted to SMEs.
Ministry of Science, Technology and Innovation
SMEs only
Grants
In both 2004 and 2005 the funds have ran out before the end of the year, which indicate a strong
interest from the SMEs. The Danish Council of Technology and Innovation will evaluate the
measure in 2006.
Name: Regional technology centres
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The main objective of the measure is to strengthen knowledge-based growth and development in the
regions outside of the larger citys. Regional Technology Centres focus on regional competencies and
act as intermediaries between regional research and SMEs. Experiences from the former Regional
Growth Centres (DK 13) initiative guide the establishment of these centres. The regional
Technology Centres aim at strengthening the collaboration between the regional businessenvironment and relevant knowledge-institutions in relation to research, innovation and technology
development. The collaboration is based on business strength positions within a limited geographic
area outside the capitol area. The Government has earmarked 8.5 million Euro for 13 Regional
Technology Centres during the coming 4 years. 7 of the Centres are new, while the remaining seven
Centres build on existing Regional Growth Centres
Ministry of Science, Technology and Innovation
All companies
Higher education institutions research units/centres
Grants
No evaluation yet
Country – Finland
Name: Tekes Funding for Feasibility Studies (VARA)
Description
Funding for Feasibility Studies is targeted to small and medium sized companies, universities and
research institutes. The instrument aims to improve chances to launch and carry out successfully
R&D-projects and new technology-based business.
Funding for Feasibility studies can be used also for preparation of firm's technology strategy,
improving in-house conditions for utilisation of information technology or for transfer of research
- 168 -
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
know-how to SME. Maximum amount is € 15,000/70 per cent.
Tekes – Finnish Funding Agency for Technology and Innovation
SMEs only
Higher education institutions (education function)
Technology and innovation centres (non-profit)
Grants
No information available
Name: TRIO Programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The programme aims at enhancing the competitiveness of firms by promoting the
internationalisation and improving the business environment of enterprises so that they would be
able to continue economically viable activities in Finland. The TRIO Programme focuses
particularly on technology industries and within it on system integrators and component
manufacturers.
The objectives of the programme are:
- profitable growth, competitiveness and internationalization of the production of the technology
industry
- at least 8% annual growth in sales
- profitability and solvency at least at our competitors’ level (i.e. significant growth of return on
investment and an equity ratio of at least 50%)
- strengthening of internationalization
- developing, as a major element in business, new services which support cooperation between
companies and the end users of products
- constant renewal: productive and growing R&D investments
Technologies Industries in Finland
All companies
Grants
No evaluation yet
Name: TUPAS Funding Service
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Research services for SME's. Tekes' TUPAS concept is tailored for helping SME's to solve small,
technologically challenging problems by bringing the best knowledge available for companies. In
addition, the measure aims to encourage SMEs to exploit more research services and bring SMEs
and research organisations to a closer and more active cooperation. SMEs can get grants from Tekes
to cover the expenses up to € 15,000 or 70 per cent of the total costs. The research services are
provided by research organisations marketing and carrying out technology projects in cooperation
with the SMEs.
Tekes – Finnish Funding Agency for Technology and Innovation
SMEs only
Grants
No evaluation yet
Name: YRKE - national development project for business incubators
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The YRKE project, national development project for business incubators, has three main foci of
interest: new services, long-term funding and promoting know-how. The parks, which are situated
all over Finland, offer development services to new innovative enterprises.
Finnish National Fund for Research and Development (SITRA)
All companies
Technology and innovation centres (non-profit)
No direct funding
No evaluation yet
Name: Centre of Expertise Programme
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The aim is to enhance regional competitiveness and to increase the number of high-tech products,
companies and jobs. To achieve this goal, the programme will be used to implement projects
reflecting the needs of industry, to encourage industry, research and training sectors to co-operate, to
ensure rapid transfer of the latest knowledge and know-how to companies and to exploit local
creativity and innovation.
Ministry of the Interior
All companies
Consultancies and other private service providers (for-profit)
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Technology and innovation centres (non-profit)
Grants
According to the official, externally commissioned evaluation of the first programme period (19941998), the main result has been the increase of co-operation, both at regional and national level. The
State Audit Office (October 2001), in its own evaluation, considers the Centre of Expertise
Programme as a top act of the Finnish Regional Policy. Mid term evaluation of the second
- 169 -
programming period (1999-2002) indicates that programme has created alltogether: 7100 new
knowledge-intensive jobs, 9000 preserved jobs, 500 new high technology companies, 1800 new
innovations, 40000 persons educated.
Name: Technology strategy design
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
This measure is intended for helping companies and research units to develop their own technology
strategy. Tekes provides funding and expertise in designing it. There is also a guidebook available as
a tool for technology strategy design.
Tekes – Finnish Funding Agency for Technology and Innovation
All companies
Higher education institutions research units/centres
Grants
No evaluation yet
Name: Tekes technology programmes
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Technology programmes are targeted entities of activation, funding and expert services that are
directed on the basis of customers' needs and focus areas in the Tekes' strategy at areas that are
strategically important to Finland. The programmes strengthen cooperation between companies,
universities, research institutes and the public sector. The programmes emphasise the diverse
development and exploitation of international and regional technology cooperation.
Tekes – Finnish Funding Agency for Technology and Innovation
All companies
Higher education institutions research units/centres
Higher education institutions (education function)
Technology and innovation centres (non-profit)
Grants
Study on research and technology programme activities in Finland states that the technology
programmes for developing innovative products and processes are an essential part of the Finnish
innovation system. These programmes have proved to be an effective form of cooperation and
networking for companies and the research sector.
Name: Improving the use of research results at universities
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The goal of all the recommended measures is to promote effective commercialisation of university
research results. The efforts have focused on promoting professional innovation services at
universities to exploit research results in various ways.
Helsinki University of Technology
All companies
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Technology and innovation centres (non-profit)
No direct funding provided
No evaluation yet
Country – France
Name: SME Pact
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective of the SME Pact is to reinforce relations between innovative SMEs and large
companies and organisations, through commercial contracts or R&D collaboration especially.
The Pact has four programmes:
- SMEsearch: support to prospecting and contact activities. In practice, this means the organisation
of thematic individual or collective meetings
- SMEadvocate: individual support to SMEs in their contractual relations with large companies and
organisations. Information of large companies on difficulties met on the field by SMEs
- SMEtool: mixed think tanks for designing recommendations and setting up support tools.
Reflections turn on acquisition processes, diminution of risk for large companies, lightening of
procedures
- SMEwatch: follow-up, by conferences and annual reports. An annual award will reward large
companies signatories of the Pact according to the quality of their relations with SMEs
Comité Richelieu – National Agency for Innovation (OSEO-ANVAR)
All companies
SMEs only
Other public and non-profit research organisations (not HEI)
Trade unions
No direct funding available
No evaluation yet
Name: Technological Development Network
Description
In each French region, a Technological Development Network (RDT) gathers regional institutional
actors in the field of innovation (OSEO-ANVAR, DRIRE, DRRT, Chambers of commerce, prefects)
in an informal network. The RDT co-ordinate actions to promote innovation within SMEs. RDT
- 170 -
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
pursue a series of targeted missions:
- Financial support adapted to very small enterprises with the PTR (Technological Services
networks)
- Coordination
- Knowledge of enterprise and of their technological needs
- Training
- Diffusion of information
National Agency for Innovation (OSEO-ANVAR)
SMEs only
Grants
In 2004, 1395 prospectors visited 29 570 SMEs. 1458 grants (PTR) were allocated for a total
amount of EUR 6,77. 91,02 % of the beneficiaries where SMEs with less than 50 employees, 62%
less than 10 employees.
Name: Corporate Tax Credit for Research Expenses (CIR)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Corporate Tax Credit for Research Expenses (CIR) is a key measure to support R&D
investments within companies. The research Tax Credit is a horizontal measure, non-discriminatory
across sectors of activity, and aimed at supporting corporate R&D investments by means of tax
incentives.
Ministry in charge of Research
All companies
Tax incentives (including reduction of social charges)
Only impact assessments are carried out. It is extremely difficult to establish econometric evidence
on the link CIR / R&D expenses.
Name: Technological Research and Innovation networks (RRIT)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective is to develop public and private partnerships with the creation of national thematic
networks linking public laboratories and enterprises, including SMEs in well-defined fields. The
Network will receive a share of public research funding. The research should be on short-term
demand and contribute to the creation of innovative firms.
National Agency for Research (ANR)
All companies
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Technology and innovation centres (non-profit)
Grants
No evaluation yet
Name: Support for Innovation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The scheme assists technology-based start-ups, newly created firms (less than three years) or firms
willing to develop an innovative project. The measure allows companies to develop new products
and processes, to have access to external competencies for innovation projects, to find investors
and/or partners in France or abroad, to have access to financial markets, etc.
National Agency for Innovation (OSEO-ANVAR)
SMEs only
Scientists / researchers (as individuals)
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Technology and innovation centres (non-profit)
- Grants
- Subsidized loans (including interest allowances)
- A right to purchase a company's equity shares in a limited time period at a price fixed in advance.
An evaluation by an independent evaluator (Technopolis France) was carried out in 2001. The
evaluation found that the scheme has a good additionality effect for small and very young
companies, in particular in more traditional sectors. The non-financial dimension of the support is
well appreciated in particular at early stages of companies’ development. The report concludes that
the impact of the scheme is high. The main recommendations are to 1) improve the targeting of the
companies, 2) reinforce impact monitoring 3) improve considerations for commercial and marketing
aspects of the projects 4) establish more formalised procedures at ANVAR concerning search for
and follow up of companies.
Name: Support to the recruitment of PhD candidates on an applied research project within an enterprise CIFRE convention
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
This scheme supports the recruitment of a student by a private enterprise. The recruited student does
his PhD research on an applied topic in the enterprise, under the supervision of a university or public
laboratory. The scheme aims to increase the number of executives in key positions within
companies, who understand research issues and who have the capacity to liaise with specialised
research bodies (academics, institutes, universities or other public research performers).
National Association for Technical Research (ANRT)
All companies
Grants
- 171 -
Observations from Evaluations
No evaluation yet
Name: Support for the recruitment of technicians on innovative projects (CORTECHS)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
CORTECHS is a research convention whose aim is to support young technicians recruitment in
SMEs for research projects purposes. This convention gathers a technician, an SME, a ‘centre de
compétence’ that can be a polytechnics, a high school, a research laboratory etc. The Convention is
signed for duration of one year between the SME and OSEO-ANVAR in charge of managing the
scheme. The aim is also to support co-operation between research bodies - in charge of the
monitoring of the research project and the training of the engineer - and the SME.
National Agency for Innovation (OSEO-ANVAR)
SMEs only
Grants
No evaluation yet
Name: Technology Diffusion within SMEs (Procedure ATOUT)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective of this measure is to improve the technological level of SMEs. The ATOUT scheme
enable SMEs to access technologies that are new to them but already applied in other segments of
the economy. The ATOUT scheme aims at fostering a technological lap forward by SMEs in order
to improve products or processes performances.
National Agency for Innovation (OSEO-ANVAR)
SMEs only
- Grants
- Reimbursable loans
Evaluations of the ATOUT programme in its different components (support to use of
microelectronic components, of material etc ..) have been carried out. Also evaluations at regional
level have been realised (f.i. in Picardie). The main result of the latter, for example, is that despite a
high degree of satisfaction among beneficiary enterprises, there seems to be little impact on their
internal organisation. One recommendation is to bring further the degree of formalisation of the
procedures.
Name: Support to Recruitment for Innovation (ARI)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The scheme aims to support SMEs that wish to reinforce their R&D personnel and resources. It
gives support to the recruitment by a SME of a researcher to conduct R&D activity.
National Agency for Innovation (OSEO-ANVAR)
SMEs only
Scientists / researchers (as individuals)
Grants
ARI are often evaluated at regional level.
Name: Competitiveness clusters
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Inspired by numerous foreign examples, the French authorities launched a call for projects in
December 2004 aiming at funding competitiveness clusters with an international visibility. Clusters
gather companies, training centres and public and private research organisations around innovative
joint projects. Clusters are specialised in scientific and technological fields.
DATAR
All companies
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Other public education institutions (secondary,etc.)
Private institutions for education / lifelong learning
Technology and innovation centres (non-profit)
Business organisations (Chambres of Commerce...)
- Grants
- Subsidized loans (including interest allowances
- Guarantees
- Tax incentives (including reduction of social charges)
No evaluation yet
Name: Support for the recruitment of post-doctorate in SMEs
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The measure aims to support SMEs that wish to reinforce their R&D personnel and resources. Its
main goals are to help industrial SMEs to structure their R&D and to enhance their technological
level, in order to conduct significant projects, and to gain market shares.
Ministry of Research
SMEs only
Grants
No evaluation yet
Name: Industrial and Commercial Business Services (SAIC)
Description
The role of SAIC is to gather in a single structure the promotion and valorisation of Universities and
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Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
HEI industrial and commercial activities. The main objective is to allow Universities and HEI to
monitor their development policy in terms of research valorisation and technology transfer for
instance, or other lucrative activities and enhance their visibility. The SAIC can manage research
contracts (with companies or other public entities), patents policy, etc. The budget is separated from
the University budget and has a particular and more flexible accounting regulation.
Ministry of Research
All companies
Higher education institutions research units/centres
No direct funding provided
The Report on Research management in Universities of the Court of auditors (October 2005)
explains that despite efforts for promoting SAIC, only 20% of universities created such a structure.
The Court insists upon the necessary transition period between former structures and SAIC.
Name: National Centres for Technological Research (CNRT)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The objective is to bring together public research laboratories and private research centres (generally
of large companies but also sometimes of high tech SMEs) to develop collaborative technological
research activities. The Centres are geographically identified and focus on one specific field of
competence. Their vocation is to become established poles of competence and excellence at national
level.
Ministry of Research
All companies
Consultancies and other private service providers (for-profit)
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Technology and innovation centres (non-profit)
Business organisations (Chambres of Commerce...)
No direct funding provided. Funding is decided on a contractual basis through Contrat de Plan Etat
Region concluded between the government and regional authorities.
No information available
Name: Youth and Innovation
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The measure aims to support young people (15 - 25 years) who want to develop an innovative
project. The scheme contributes to a better professional integration for the young people and
promotes links between education and enterprises.
National Agency for Innovation (OSEO-ANVAR)
All companies
Grants
No evaluation yet
Country – Germany
Name: Innovative Regional Growth Poles
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The programme supports the establishment of regionally and thematically focussed innovation
initiatives in the New Laender. Initiatives will consist of enterprises, public research
organisations/universities and other actors. Co-operative R&D/education projects should rest on
regional strength and act as future growth poles. They should be oriented on market
commercialisation from the beginning on, including an effective management of the initiative.
Federal Ministry of Education and Research (BMBF), Ministerium für Wirtschaft, Technologie und
Verkehr des Landes Schleswig-Holstein, Projektträger Biologie, Energie, Umwelt (BEO)
SMEs only
Other public and non-profit research organisations (not HEI)
Grants
No information available
Name: InnoNet
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
InnoNet attempts to improve R&D networks between SMEs and research institutions. InnoNet
applies new ways of promotion (competition approach, support for collaborative research between
SMEs and science, network building, subsidies provided only for research organisations).
Federal Ministry of Economics and Technology (BMWi), Technologiezentrum Informationstechnik
GmbH
SMEs only
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Grants (for research institutions only)
The most recent evaluation (July 2004) concluded that the programme is successful at encouraging
innovative activity.
Name: PRO INNO II
Description
The programme supports SMEs in the field of R&D co-operation. Financial incentives should
stimulate SMEs with no R&D activities yet to engage in R&D.
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Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Federal Ministry of Economics and Technology (BMWi), Arbeitsgemeinschaft Industrieller
Forschungsvereinigungen (AIF)
SMEs only
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Grants
In July 2002, an evaluation of the ProInno programme was presented by the BMWi. It says that
research co-operation exerts positive effects on the involved enterprises, including growth in sales,
exports and employment. The authors calculated that each publicly funded R&D project under the
ProInno/FoKo programmes produced additional or at least "secured" employment of 7.9 jobs two
years after finishing of the project.
Name: Thematic R&D programs
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Grants-in-aid for R&D projects are provided for the following thematic fields: - production
technologies - nanotechnology - new materials for key technologies - micro systems technique laser technology and optical technologies - microelectronics based on silicon technology. The
programmes aim to provide support for research on and the development of these technologies.
Deutsches Zentrum für Luft und Raumfahrt
All companies
Scientists / researchers (as individuals)
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Grants
There are several evaluations existing concerning certain thematic programmes (see Research
Report 2000 - Facts and Data, BMBF).
Name: Promotion of Joint Industrial Research (IGF)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The IGF (“Industrielle Gemeinschaftsforschung”) programme offers direct grants for R&D projects
which are carried out by sectoral research institutions or - on behalf of these institutions - by
consortia of companies and/or research organisations. Objective of the programme is the mitigation
of structure-related disadvantages of SMEs in R&D activities.
Federal Ministry of Economics and Technology (BMWi), Arbeitsgemeinschaft Industrieller
Forschungsvereinigungen (AIF)
All companies
Other public and non-profit research organisations (not HEI)
Grants
No information available
Name: Innovation Programme (ERP)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The programme provides financing of market-oriented R&D and expenditures for market
introduction of innovations including investment for innovation activities, in SMEs.
Kreditanstalt für Wiederaufbau (KfW)
SMEs only
- Subsidized loans (including interest allowances)
- Guarantees
No evaluation yet
Name: Technology Venture Capital Programmes
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Federal Government redesigned its VC programmes (BTU, FUTOUR) in 2004 in order to meet
the new challenges and stimulate the VC market again,
Kreditanstalt für Wiederaufbau (KfW)
SMEs only
- Subsidized loans (including interest allowances
- Venture capital (including subordinated loans)
- Guarantees
No information available
Name: InnoMan
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The programme offers external consulting services to improve innovation management techniques
in SMEs in Eastern Germany. Public funding is provided for consulting services offered by certain
consulting agencies, the former agencies for technology and innovation (ATI).
Federal Ministry of Economics and Technology (BMWi), Verband der Innovations und
Technologieberatungs-Organisationen (VITO)
SMEs only
Grants
No information available
Name: Networks of Competence
Description
This initiative seeks to promote networking among science, education and enterprises in order to
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Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
bundle competence and to present internationally attractive networks to the world. The initiative
supports the establishment of such networks and the presentation of the network on the Internet.
Federal Ministry of Education and Research (BMBF)
Main target groups are foreign firms looking for investment in Germany, start-ups, researchers,
students and academics, private and public managers, key persons in economy, politics,
administration, media.
Financial support is provided by BMBF to run the network.
No evaluation yet
Name: Information Centres
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
Information Centres comprises Patent Information Centres, Thematic Information Centres and
Private Information Agencies. The Patent Information Centres provides access to scientific and
technological information that is contained within patents, registered designs and trade marks for
firms and private inventors. The Thematic Information Centres "Fachinformationszentren" aims at
improving the access to various databases relevant for innovation activities by firms and research
organisations. The Private Information Agencies allow SMEs who cannnot afford to have, or choose
not to develop, their own databases to call on professional information brokers to do their
information inquiries.
Deutsche Gesellschaft für Informationswissenschaft und Informationspraxis (DGI),
Arbeitsgemeinschaft Deutscher Patentinformationszentren
SMEs only
Grants
No evaluation yet
Name: Management of Innovation Networks for East German SMEs (NEMO)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The measure supports the establishment and management of innovative regional networks among
SMEs and between SMEs and R&D organisations in eastern Germany. These networks should
support SMEs in creating and commercialising the results of their R&D by reducing costs and
improving their position on the market. The measure provides financial support for the management
of the network, but not for the SMEs.
Federal Ministry of Economics and Technology (BMWi), Arbeitsgemeinschaft Industrieller
Forschungsvereinigungen (AiF)
SMEs only
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Grants
The measure was successfully evaluated in 2005. They conclude that the programme is highly
efficient and reached all expectations to a very good extend.
Name: INSTI - IPR promotion
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The INSTI IPR promotion comprises three measures within the INSTI Network: SME Patent
Initiative, Innovation Market and Innovation Action. The SME Patent Initiative provides subsidies
for SMEs in six areas in order to increase the use of intellectual property rights and stimulate
inventions by SMEs. The Innovation Market provides a marketplace for inventors and innovators to
find companies that assist them in financing and bringing their products onto the market. The INSTI
Innovation Action aims at enabling enterprises and start-ups to establish internal innovation
processes on a permanent base.
Federal Ministry of Education and Research (BMBF), Institut der deutschen Wirtschaft Köln,
Arbeitsgemeinschaft Deutscher Patentinformationszentren
SMEs only
Scientists / researchers (as individuals)
Higher education institutions research units/centres
Other public and non-profit research organisations (not HEI)
Higher education institutions (education function)
Grants
No information available
Name: Promotion of Inventors at the Fraunhofer Patent Bureau for German Research
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Patent Bureau for German Research (part of the Fraunhofer-Society) offers interest-free loans
for inventors (individuals, researchers from universities and public research labs, inventors from
small firms) in order to support them in receiving a patent for an invention and to commercialise
inventions. The Patent Bureau also informs, advices and supports inventors in the following areas:
technology transfer, intermediation in co-operation, innovation consulting, patent strategies,
evaluation on inventions, licensing of patents, licensing contracts.
Fraunhofer-Patentstelle für die Deutsche Forschung)
Inventors at very small firms, researchers at universities and public research labs, private individuals
- Grants
- Subsidized loans (including interest allowances)
No evaluation yet
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Country – USA
Name: Small Business Innovation Research (SBIR)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Small Business Innovation Research (SBIR) Program was established by Congress in 1982 to
provide increased opportunities for small businesses to participate in R&D, to increase employment,
and to improve U.S. competitiveness. The program's specific objectives are to stimulate U.S.
technological innovation, use small businesses to meet federal research and development needs,
increase private-sector commercialization of innovations derived from federal R&D, and foster and
encourage participation by socially disadvantaged businesses
11 Federal Departments and Agencies – The US Small Business Administration plays an important
role as the coordinating agency for the SBIR program.
SMEs which meet the following criteria:
- American-owned and independently operated
- For-profit
- Principal researcher employed by business
- Company size limited to 500 employees
Grants
No information available
Name: Small Business Technology Transfer (STTR)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The Small Business Technology Transfer (STTR) Program awards contracts to small business
concerns for cooperative research and development with a non-profit research institution (RI), such
as a university. The goal of the Congress in establishing the STTR program is to facilitate the
transfer of technology developed by an RI through the entrepreneurship of a small business. The
small business and its partnering institution are required to sign an agreement on how intellectual
property will be shared between them.
5 Federal Agencies – The US Small Business Administration plays an important role as the
coordinating agency for the SBIR program.
SMEs
Non-profit research institutions
Grants
No information available
Name: Small Business Innovation Partnership (SBIP)
Description
Name of Provider
Intended Beneficiaries
Financial Conditions Involved
Observations from Evaluations
The goals of the NTTC’s SBIP Program are to:
- Provide Phase II SBIR companies with the support needed to move to Phase III (i.e. when
innovation moves from the laboratory to the market place)
- Make it easy for NASA to make full use of its SBIR Program
- Guide NASA technology users to the SBIR innovations they need.
National Technology Transfer Center (NTTC)
SBIR companies
No direct funding
No information available
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Appendix 3 Indicative Stocktake of Programs Related
to Absorptive Capacity at the State level in Australia
New South Wales
The NSW Government’s Statement on Innovation outlines how the Government plans to
enhance industry innovation as a means of improving productivity and increasing business
investment. The statement presents five goals for innovation policy in NSW:
improve human capital
upgrade knowledge and information infrastructure
reduce the cost to business os using science and technology
encourage capital allocation to encourage investment
reduce regulatory barriers to innovative NSW companies.
Current Programs
Innovation Clusters
Innovation Clusters-related initiatives include:
Building and Construction Innovation Cluster: www.idc-hunter.org.au
Innovative Technology Network Innovation Cluster: www.uws.edu.au/itn
Women in Manufacturing Network: www.smallbiz.nsw.gov.au/wib
Each meeting or site visit deals with a theme selected by the members. Management issues
covered include strategic planning, best practice, continuous improvement and enterprise
resource planning. Some sessions deal with "soft" technologies, such as e-commerce and
lean manufacturing. "Hard" technologies, such as automation, robotics, manufacturing cells,
computer-aided design and computer-integrated manufacturing, are also covered.
It is expected that participants learn from each other and tap into the expertise of leading
consultants and academics. They can see technologies and innovations at work during site
visits. These activities are designed to increase the confidence of members to adopt new
technologies and innovations to grow their businesses.
Business Clusters
The NSW Department of State and Regional Development recognises the enormous
potential in working together and through its Business Cluster program can provide tailored
non-financial and financial support to established small and medium enterprises to maximise
this potential. Business Cluster funding supports the facilitation and growth of substantive
and critical geographical and/or industry sector collaborative efforts. With a large range of
benefits, Business Cluster funding encourages feasibility and formation through to
operational and strategic ongoing sustainability. These cluster structures typically include
many organisations such as private companies, Government and other public institutions
and not-for-profit organisations which share a mutual goal to address a significant economic
issue. Business Network funding seeks to support smaller groups of companies which
strategically choose to work together to develop a specific domestic or export opportunity.
Business Cluster funding. A business cluster may require specialised assistance,
outside the scope of the support available from its members, for specific projects
which would enhance the cluster's growth during its formation and development
stages. Such projects may address issues that will facilitate a cluster's growth or
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performance. Projects could include feasibility and formation planning, industry skills
enhancement, overcoming structural economic issues, market research, marketing
and promotional activities or support for a facilitator to organise and manage the
cluster.This project support may attract a one-off 75% subsidy of up to $10,000
during early stage development and matched (50%) financial support up to $10,000
for any one project. Funding is limited to a maximum of $20,000 per individual
business cluster over any two-year period.
Business Network funding. A network of companies which has chosen to work
together in order to develop a specific commercial opportunity may attract a
matching (50%) subsidy up to $10,000 for any one project. Funding is limited to a
maximum of $20,000 per individual business network over.
NSW High Growth Business Program
The NSW High Growth Business Program is a New South Wales Government initiative which
helps high growth businesses achieve their potential.
SERVICES
Experienced Business Development Managers from the Department work closely with clients
to identify areas of their business that could be strengthened or modified to achieve desired
outcomes.
More than 4,000 companies have reaped substantial benefits from our assistance programs,
with increases in turnover, profitability, efficiency, employment and exports. Our clients
have confirmed their satisfaction with the Program in published success stories.
To be eligible for assistance under this Program, your company should have:
at least a two-year record of viable trading;
a sales turnover of between $1 million and $30 million per annum;
a commitment to export or import replacement activity;
demonstrable growth or significant potential; and
a commitment to strategic planning.
-
Not all eligible businesses may be accepted into the High Growth Business Program.
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NSW Technology Diffusion Program
The program assists small and medium firms to accelerate their adoption of appropriate new
technologies and management practices. The program includes:
-
organising and supporting technology seminars;
supporting 'Technology Awareness Groups' (TAGs);
helping to create case studies and on-site demonstrations of best-practice
technologies;
supporting participation in technology implementation networks, including
Accelerated Product Development programs;
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-
subsidising Systems and Technologies Diagnostics; - subsidising benchmarking
evaluations and projects;
supporting assessments of the innovation environment within firms;
providing information on self-help tools and helping to create new tools; and
assistance for cleaner production assessments and group implementations.
CONDITIONS/ELIGIBILITY
NSW-based businesses wishing to participate in the Technology Diffusion Program should
demonstrate:
-
a clearly defined, well developed and effective business strategy;
the ability to innovate and effectively apply technology; and
an interest in improving the performance of their businesses, but lacking enough
organisational and/or financial resources to do it
DSRD's Business Development Manager makes the initial assessment of eligibility.
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NSW Innovation Advisory Centres (IACs)
IACs provide a range of services to help inventors and small enterprises transform ideas into
marketable products and processes.
SERVICES
They also help small businesses to access a range of leading edge practices in product,
service and process innovation. Each IAC offers:
-
free access to specially designed software to evaluate the innovation;
free commercialisation advice, and referrals to appropriate organisations and
experts; and
a subsidised technical assessment, including a written report.
Some IACs conduct Outreach Visits to assist regional inventors and business innovators.
Innovation plays an important role in small business success. Generating ideas for new
products, services and processes contributes to business growth and more efficient ways to
do business.
Research has shown that innovation, when properly managed, produces a higher rate of
return than many other forms of investment. The NSW Government is committed to
advancing innovation and provides assistance and services to promote the adoption of
innovation in business.
NSW - Small Business Advisor Services
The NSW Government provides small business advisory services across NSW to people
wishing to start a business or those who have recently started a business.
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SERVICES
Services and products offered by the Centres include:
-
practical business counselling and support
help with preparing business plans including marketing, budgeting and cash flow
promotion of small businesses
information on Government services and programs
mentor support for business clients
referral to specialist professional advisers (eg accountants, lawyers and financial
planners); and
training in skills needed to succeed in business
The Centres deliver information, advice and training to start-up and micro businesses and
are valuable sources of information on establishing and operating a profitable enterprise.
The Centres are focused on creating local small business opportunities. These include
developing exports, replacing imports and promoting local employment initiatives.
NSW ATS Technology Demonstration Program
The Program is designed to encourage collaboration between NSW-based small to medium
size technology companies (SMEs) and purchasing organisations in Government and the
corporate sector, for the purpose of trialling or demonstrating proven technologies within
the ATS program. The objectives of the Program are to:
-
-
demonstrate the ability for the technology to meet a need and deliver cost,
performance, functionality or operational benefits to the agency and/or corporate
partner;
provide the SME with a reference site from which domestic and/or international sales
can be generated or lead to other business opportunities;
contribute to the development and future growth of the SME in NSW by leveraging
off the outcomes of the activity funded under this Program; and
forge linkages or alliances for SMEs with the NSW based Government sector and/or
the corporate sector to assist longer term growth prospects.
Program features are:
-
Funding of up to $35,000 will only be provided to ATS companies or to Government
agencies.
Only ATS companies with a commercial product and an annual turnover of less than
$15 million will be considered.
A Government agency partner may be drawn from the NSW Government, NSW Local
Government bodies or the Commonwealth Government.
The private sector partner would be a major corporation operating in Australia.
A Project Agreement will be put into place that will formalise arrangements between
DSRD and ATS companies and their partners.
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The Industry Development Centre (Hunter) Ltd (IDC)
The Industry Development Centre (Hunter) Ltd (IDC) is a not for profit, business service
organisation established to assist industry development in the Hunter Region and thereby
creating employment opportunities. Established in 1992 as a result of a Federal Government
initiative, the IDC helps Industry in the region develop by providing Connection, Facilitation,
Advice and Meeting Places:
-
Expert advice on government and industry sources
Linkages between regional businesses and research institutions
Promote the development and use of new technologies in existing and new
businesses
Expand regional focus to national and international markets
A package of business advisory services
Attract new business to the region
Encourage product innovation
The Meeting Place for Business
Clusters and Networks
The IDC has been involved in the facilitation and development of strategic alliances assisting organisations in the Hunter to work together to take advantage of opportunities
that would have been difficult, if not impossible, to tackle on their own.
The "Hunter Advantage", the regional economic strategy prepared by the Hunter Regional
Development Organisation (HURDO) is based on the cluster model.
The IDC is committed to supporting the following:
Information Technology Cluster (HunterTech)
Defence Cluster
IDC Innovation
Recognised as an Innovation Centre of Excellence the Industry Development Centre
(Hunter) Ltd (IDC) delivers the NSW Department of State and Regional Development's
Innovation Advisory Service, assisting over 1000 individuals and businesses annually
evaluate and commercialise new products and technologies. By encouraging increased
innovation, investment and trade through the effective use of intellectual property, we make
it possible for Australian business to establish and maintain international markets for new
technologies.
Through the work of the IDC, the support of the NSW Department of State and Regional
Development and IP Australia, they assist small to medium business value their intellectual
property thereby ensuring sustainable business growth.
Hunter Innovation Advisory Service
The Hunter Innovation Advisory Service is an initiative of the Department of State and
Regional Development, and is proudly delivered by the Industry Development Centre
(Hunter) Ltd (IDC). The service provides a range of free and subsidised services to help
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innovation individuals and small-to-medium enterprises to develop their bright ideas. Each
year Hunter Innovation Advisory Service provides assistance to more than 1000
innovators/inventors.
People in business often have bright ideas about new or improved products, services or
processes. Generating ideas and being innovative are important contributors to business
success.
Innovation Advisory Service
There are a range of services to help you make your idea more marketable and profitable.
Services include:
-
access to self-assessment software;
business advice and referral;
low-cost technical and/or commercial assessment; and
innovation market review.
The IAS is the first step along the path to successful commercialisation. It will help clients
begin planning with advice and self-assessment.
The Assessment/Evaluation Process
The IAS will assist you with an objective assessment/evaluation of your innovation to
determine its chances of success. IAS services available include:
1. Self-assessment analysis (free service) Access to a specially-designed computer
program which asks you 32 pertinent questions regarding your innovation. A confidential
print-out of the questionnaire will assist you with further research required.
2. Business advice and referral (free service) Practical advice and referral on how to
proceed with further development of your innovation. You may be referred to a technical
assessor (see below), or a Department of State and Regional Development Business
Development Manager, or to other organisations or individuals that can help you to
commercialise your innovation.
3. Technical and/or commercial assessment (subsidised service) A technical and/or
commercial assessment can be conducted to answer the question, "Does the innovation
work?" The assessment is offered at a subsidised cost to NSW innovators and consists of an
initial consultation, analysis and written report. These assessments include:
» Security status of intellectual property;
» Technical aspects and manufacturing processes;
» Potential applications and markets;
» Competing products and technologies;
» Business arrangements;
» Other relevant issues.
4. Innovation market review (subsidised service) An innovation market review takes
analysis one step further from the technical/commercial assessment. The review provides a
preliminary evaluation of the market with quantitative information regarding potential
competitors, demand, licensees and market size.
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Victoria
Department of Innovation, Industry and Regional Development (DIIRD)
The DIIRD offices and Divisions most involved in fostering innovation are:
Business Development Division
Office of Science and Technology (
Office of Manufacturing and Service Industries
Office of Business Innovation and Strategy
Innovation Economy Advisory Board (Economic Policy and Planning Division)
Invest Victoria
Programs
Technology Evaluation Program
The Technology Evaluation program assists business and business collaborations to identify
and fast track the evaluation of technology. It aims to accelerate the identification,
development and application of new technologies that will fundamentally change the
products or operations within the business, group or industry sector involved in the project.
Generic outcomes will provide a guide for others to follow, stimulating the adoption of
technology in industry, particularly amongst small and medium-sized firms.
CONDITIONS/ELIGIBILITY
Financial support in the form of a 50% subsidy of up to $20,000 is provided to successful
applicants against approved expenditures. Indicative costs include third-party research,
training, plant preparation and trials and implementation reports.
Technology Demonstration Program – Victoria
The Victorian Government's 'Technology Demonstration Program' is a program whereby
businesses that have successfully adopted and implemented new technologies within a
business, group or industry sector can showcase this achievement.
The Technology Demonstration Program aims to raise industry awareness of a new
technology application and provide a new benchmark for the manufactured products and
processes involved.
Direct financial support is available to companies, or groups of companies, to highlight how
new technologies have been successfully implemented.
CONDITIONS/ELIGIBILITY
Financial support in the form of a 50% subsidy of up to $20,000 is provided to successful
applicants against expenditures associated with demonstrating the process and benefits of
implementing a new technology.
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Indicative costs could include installation, training, technical assistance, marketing or
publicity costs associated with the uptake or demonstration of the technology
VicStart - Technology Commercialisation Program
The VicStart initiative aims to improve the skills, linkages and processes needed to
successfully bring Victoria’s innovative science and technology to the market. VicStart
concentrates on the market-end of the innovation pipeline, addressing three areas for
priority action by:
-
-
building commercial skills, expertise and connectivity to enhance the capabilities of
technology entrepreneurs to grow global technology businesses;
boosting the expertise, experience and development of the technology finance sector
so the availability of specialist financial services and investment opportunities is
improved; and
improving linkages between and within industry sectors and research establishments
to increase the transfer of technology that has clear commercial outcomes.
VicStart programs and projects actively assist companies to utilise and exploit science and
technology for export, growth and profit.
IXC Australia Limited is one of several VicStart Program Partners that provide a range of
services that assist established and emerging companies with technology commercialisation.
VicStart programs directly help two kinds of company:
-
-
emerging innovators: high growth potential, early stage companies with international
markets that are built around the commercialisation of specific technological
innovation/s; and
established innovators: companies that are interested in developing or buying R&D
innovation for improved competitiveness, growth and sustainability
Grow Your Business
The Victorian Department of Innovation, Industry and Regional Development offers a range
of planning and management services and advice and support to assist Victorian firms to
develop and implement strategies to become internationally competitive. Eligible business
can apply for a grant to engage the services of an independent specialist to undertake:
-
the Business Strategic Review, an analysis of where the company has come from,
and/or
the Business Development Plan, which assists organisations to pinpoint where they
want to go and how they are going to get there.
Other services facilitated through the Grow Your Business program include:
-
Supply Chain Management
Group Programs
Networks Program
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CONDITIONS/ELIGIBILITY
The principle criteria for assistance are:
-
a company is financially viable with a manufacturing or services base in Victoria
it has export and/or import replacement potential
To be eligible for individual funding under the Grow Your Business program, businesses
should:
-
be based in Victoria, or intend to locate in Victoria
have management strengths
be financially viable
be committed to strategic planning and growth
should have commitment to innovation and/or potential for export/import
replacement
have been trading at least 12 months, or
be an exceptional new business that has been trading at least six months, and has
either a professional business plan or has attended a Pre-business workshops.
Grow Your Business - Business Strategic Review
The Grow Your Business Program is designed to be flexible to meet the needs of individual
businesses and thus requires a degree of "strategic thought" aimed at identifying the
program goals.
The Business Strategic Review is a chance to gain a valuable insight into areas of operation
and is designed to:
-
identify a company's immediate past and present position
illustrate strengths, weaknesses, opportunities and threats
identify and prioritise areas that require attention or change
This "situational analysis" can also be directed to specific issues such as Production/Process,
Finance, Export and Marketing, e-Business, Human Resources, Training, Environment.
Outcomes can form the basis of a comprehensive action plan. Eligible individual businesses
can apply for a grant of 75% of total project cost up to a maximum of $4,000.
CONDITIONS/ELIGIBILITY
The principle criteria for assistance are:
-
a company is financially viable with a manufacturing or services base in Victoria
it has export and/or import replacement potential
To be eligible for individual funding under the Grow Your Business program, businesses
should:
-
be based in Victoria, or intend to locate in Victoria
have management strengths
be financially viable
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-
be committed to strategic planning and growth
should have commitment to innovation and/or potential for export/import
replacement
have been trading at least 12 months, or
be an exceptional new business that has been trading at least six months, and
has either a professional business plan or has attended a Pre-business workshop.
Innovation Insights into business best practice in Victoria
Innovation Insights is a program that aims to provide small to medium enterprises with
cost-effective access to a broad cross section of Victorian industry to view best practices in
action.
SERVICES
The Innovation Insights initiative is managed by Invetech on behalf of the Victorian
Government. It promotes and delivers a series of half-day visits where small groups of 15 to
30
Typical Innovation Insights visits would include a presentation, a discussion about the host
company's path towards its current position, an extensive tour of the facility and a
networking session to end the event.
The program provides insights into culture change, safety, training, quality and continuous
improvement including modern management tools and practices such as Lean, Agile, TPM,
TQM, 5s, and 6 Sigma.
The Innovation Insights program is open to any Victorian manufacturing related company
and its employees wishing to participate. A charge of $50 plus GST applies. Host companies
retain the right to decline entry to competitors. Similarly, when numbers are limited,
manufacturers will be given preference to participate in the program.
INNOVIC
INNOVIC is the brand name of the Victorian Innovation Centre Limited. It is a not for profit
organisation limited by guarantee. INNOVIC was established in 1986 by the former
Swinburne and Chisholm Institutes of Technology as part of a joint State and Federal
Government initiative. It is Victoria’s leading provider of services to innovators, inventors,
entrepreneurs and small to medium enterprises who are seeking to turn new ideas into
viable businesses. INNOVIC assists over 1,600 innovators with new ideas each year, and its
seminars are attended by over 1,100 people annually. Although independent, INNOVIC’s
services for early stage innovators –under its VicStart program.
INNOVIC provides two distinct services for early and later stage innovators.
[email protected] is specifically designed to assist Victorian innovators, inventors,
entrepreneurs and small businesses with new ideas in the early development stages, and
are delivered at minimum cost to users.
INNOVIC provides a range of professional services for innovators who are ready to take
their ideas to the next stage. These activities are undertaken on a fee for service basis.
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INNOVIC provides a range of professional and confidential services to:
-
Ensure that your idea is viable before you start spending money
Support you as you progress through the commercialisation process
Link you with patent attorneys, designers, prototypers, manufacturers and many
other specialists
Industry TechLink
Industry TechLink is a government funded, privately run service offering free advice for
small businesses. The advisory service targets small-to-medium businesses (SMEs) in the
manufacturing, mining and resources sectors.
The service helps to identify opportunities for business growth and then assists with finding
the appropriate technology information, people or products to bring these growth
opportunities to fruition.
Innovation Partnering (REDcentre)
Pre-start-up, start-up and early growth hi-tech companies with technology applications that
may use technologies such as microelectronics, photonics, nanotechnology, biotechnology
and advanced manufacturing.
Key services:
International business assessment, intensive business improvement, capability building,
subsidised technical and professional services. The core of the Innovation Partnering
program is an extensive network of experts who contribute time and expertise. Clients are
initially given a free formal assessment of their potential, followed by three stages of
assistance.
-
Stage 1 - Diagnostic: involves initial assessment of the opportunity, referrals and
advice.
Stage 2 - Capability Building: scorecard assessment and expert panel assistance
with the technology and business prospects internationally.
Stage 3 - Linkages to Partners: Strategic Enterprise Springboard exposure with
intensive professional, technical and capital needs assessment of the business and
linkages to strategic partners.
Mentre® Commercialisation and Growth Program- Mentre (an Information City
Company)
Pre-start-up, start-up and growth stage companies with technology in areas such as ICT and
biotechnology. Key services include intensive and personalised mentoring around the
strategic, operational and marketing issues that affect companies at these stages. Clients
are matched to a mentor with relevant background and expertise who then assists them
through a six-week development program.
The Mentre program combines hands-on practical advice from experienced mentors and
formal learning through workshops.
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Regional Technology Commercialisation( Pyksis)
This program helps companies develop their business cases and increase their chances of
success in getting their commercialisation opportunities to market. Regional companies who
are developing products and processes based on their innovations. Candidate companies
may range from start-ups to long established regional businesses. Participants undertake
one-day diagnostic workshops to establish where they are in commercialising their
products. A number of these progress to an 11-week business case building program. Key
commercialisation tools and concepts are delivered through workshops; business case
development is undertaken by 1:1 mentoring; business cases are then presented and tested
at a Graduation Showcase.
Australian TCF Technology Network –CTFIA
Growth stage textile, clothing and footwear companies and research organisations seeking
to buy, sell or develop technology focused on innovative products and processes.
Key services: Information, contacts and technology brokering.
Membership to the Network is free and provides access to the latest information on
technological developments and opportunities. The Network aims to help companies find
technologies that can potentially create new product lines or develop better processes.
It brings together companies, researchers and financiers in TCF and non-TCF sectors.
Services include matching members according to needs and interests, identification of
technologies and the brokering of resources. Facilitation of workshops and training from
international experts.
Food Manufacturing High Performance Consortium- Invetech
Growth stage food, drink and packaging companies, both big and small, seeking to lift
efficiency and identify how technology innovation can benefit their business.
Key services: Information, site visits, subsidised consulting expertise.
Members are taken through a learning and implementation process looking at best practice
use of technology in manufacturing and product development. Membership includes access
to Invetech's extensive experience in manufacturing innovation, as well as international
experts in key areas. Activities include workshops, an international study tour and access to
best practice factories.
Management Excellence for Technology Start-ups- Melbourne Ventures
Start-up stage companies developed out of research institutions that need experienced
management and international representation.
Key services: Management and business development.
The program matches companies with appropriate CEOs that have ability to take them
through the difficult phases of market research, product development, identification of
partners and securing investment. A second component is the leveraging of an international
network to secure funding and initiate deals.
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Australian Aerospace and Defence Innovations - AADI
Growth stage defence and aerospace companies seeking to develop new products or find
new market opportunities.
Key Services: Deal facilitation, consortia building, R&D brokering.
AADI facilitates commercial exploitation of technologies relevant to the defence and
aerospace sectors.
AADI acts as an intermediary facilitating the transfer and amalgamation of innovative
intellectual property into industry.
It achieves this through establishing and growing networks at all levels of industry and
government in the defence and aerospace sector. AADI is ideally placed to bring together a
number of multi-tier companies to bid for a large US defence contract, or to find the R&D
capability needed by a small company seeking to develop a new product.
TechFast Program (AIC)
Funded by the Commonwealth and State Governments, the Australian Institute for
Commercialisation’s (AIC’s) TechFast program works with companies to identify, assess and
deliver collaborative innovation projects.
Specifically, TechFast helps companies identify new partners that can provide access to
useful technologies, processes and knowledge to improve business performance and
productivity:
- assess the potential value of projects, develop project plans, formalise partnerships,
access direct funding support and project manage collaborative endeavours.
- through the provision of funding support of up to $50,000 per company.
- provides you with opportunities to solve existing problems and potentially grow your
business through the adoption of new technologies or creation of new partnerships.
- matches your internal capability with technologies and skills from other organisations
from Australia and overseas.
------------------------------------------------------------------------Queensland
Innovation Start-Up Scheme
The Innovation Start-Up Scheme (ISUS) is a Queensland Government initiative to help
promote innovation and commercialisation. ISUS is a competitive grant that helps
companies take the ‘early struggle’ out of commercialisation. The objectives of ISUS are:
-
To assist in the formation, development and growth of highly innovative young
companies with technology products and services.
To assist in the advancement of new technologies towards commercialisation
To enhance the economic growth of the Smart State.
The eighth round of projects to be funded through the Department of State Development
were jointly announced by the Premier and the Minister John Mickel on 22 February 2007.
Details are as follows:
-
Grants are between $50,000 - $85,000 over a 12-month period
Funding is to be matched on an 80:20 basis (government 80%: applicant 20%)
- 189 -
- Applicant must be a Queensland based organisation
Funding assists in prototype and product development, testing and more. A competitive
rounds-based funding program released annually Funding is progressively provided as
applicants achieve milestones set out in an agreed project schedule.
Research-Industry Partnerships Program
The Research-Industry Partnerships Program provides funding to facilitate
collaborative 'near to market' research projects between industry and research organisations.
-
grants are between $200,000 and $1 million over one to three years
funding rounds will be open, competitive and merit based
funding is to be matched by a cash contribution 1:1
project must involve at least one research and one industry organisation
partners should have a genuine capacity to utilise the outcomes of the project
project must be capable of generating economic, social and/or environmental
benefits to Queensland
grant funding may be used for project consumables, salary costs for key project staff
and operational overheads
http://www.sd.qld.gov.au/dsdweb/v3/guis/templates/content/gui_cue_cntnht
ml.cfm?id=41166
National and International Research Alliances Program
The National and International Research Alliances Program provides funding for
collaborative projects that build on Queensland's national and international alliances.
grants are between $200,000 and $2 million over one to three years
rounds will be open, competitive and merit based
funding is to be matched by a cash contribution of 1:1
project must be collaborative involving a Queensland-based entity and a national or
international partner
- partners should have a genuine capacity to utilise the outcomes of the project
- project must be capable of generating economic, social and/or environmental
benefits to Queensland
- grant funding may be used for project consumables, salary costs for key project staff
and operational overheads
http://www.sd.qld.gov.au/dsdweb/v3/guis/templates/content/gui_cue_cntnht
ml.cfm?id=41165
-
Ideas2Market
Ideas2Market is a program for Queensland innovators and entrepreneurs, offering advice
and strategies to assist them in commercialising their ideas. It helps develop the skills to
navigate through the pre start-up, start-up and growth stages of taking an idea to market—
covering feasibility, intellectual property, commercialisation options and business and
marketing planning.
The program includes workshop training, a guidebook and an extensive online resource.
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http://www.sd.qld.gov.au/dsdweb/v3/guis/templates/content/gui_cue_cntnhtml.cfm?id=222
72
Partnerships Alliances Facilitation Program
The Partnerships-Alliances Faciliation Program is a continuous funding program which
provides funding to support Queensland-based applicants to formulate and facilitate
collaborative funding proposals for submission to relevant Queensland, national or
international funding schemes.
-
grants are up to $100,000
the program is not rounds based and applications will be accepted on an on-going
basis throughout the year
funding is to be matched by a cash contribution of 1:1
payment will be made following evidence of submission of the funding proposal to a
nominated funding agency
the proposed project must be collaborative
project must be capable of generating economic, social and/or environmental
benefits to Queensland
grant funding may be used for temporary expert advice, international and/or national
travel and accommodation expenses incurred to develop the proposed project
Financing Innovation Growth (FIG) program
The final Financing Innovation Growth (FIG) Program for 2006 was delivered to a total of 16
Queensland-based companies. The FIG Program, consisting of a series of eight workshops,
was delivered over four months to December 2006 by Brisbane-based organisation, Achaeus
Group Pty Ltd. Achaeus' expertise is in addressing commercial issues of companies,
developing their strategic management and marketing skills in order to increase profitability
and performance. The Department of State Development assisted 12 ICT companies and 2
biotechnology companies to undertake the program by subsidising their participation costs.
The FIG program helps ICT and Biotechnology companies to develop their strategies and
business models to increase profits and multiply the value of their business. It teaches the
hands-on skills needed to attract capital and fast track business growth. The FIG program
seeks to transform innovative early stage companies into market leaders. It helps companies
that are targeting global markets to transform their business models and enjoy rapid growth,
increased profits and attract investment capital. By participating in FIG companies will learn
how to:
- Evaluate new opportunities for growth and profit
- Become dynamic business leaders
- Undertake strategic marketing
- Protect intellectual property
- Improve financial management
http://www.iib.qld.gov.au/markets/FIG/
-----------------------------------------------------------------------
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South Australia
The State government is currently carrying out a stocktake of their programs related to
business innovation and, recognizing the limitations of the ABS Innovation Survey, have also
commissioned a detailed survey of innovation activities in 1000 SA firms.
The Centre for Innovation established in Adelaide
The Centre for Innovation has been established to provide specialist services and act as a
catalyst for high-growth South Australian companies to innovate through the development
of new products and services, improved processes and business practices and the
application of advanced technology. It includes innovation nodes to the north and south of
Adelaide to ensure access for local industry. The Centre for Innovation operates under a
Board with representatives of the universities, industry, unions and government. It is
chaired by Mr. David Simmons, Managing Director of Hills Industries.
Services available to enterprises through the Centre for Innovation will include:




Innovation support – promoting advanced tools and techniques, innovation and
opportunity audits, access to specialist services (lean techniques, supply chain
management, product development and process improvement).
Commercialisation support – supporting businesses through the Techfast Program of
the Australian Institute of Commercialisation and through advice on product
commercialisation.
Collaboration – linking industry needs with service providers (including universities)
and providing access to State, national and international expertise.
Cultural change – helping with the process of education, awareness raising and
information brokering through a series of tailored programs and events for industry.
The Centre for Innovation will also provide advice on specialist areas, including:



Lean techniques
Process engineering
Supply chain and logistics
Constellation SA?
Constellation SA is a pivotal initiative of the South Australian Government’s 10- year vision
for science, technology and innovation in the State. It is based on the creation of five
“innovation alliances” of research, educational, and industrial/commercial organisations in
specific themes of technology and/or industry activity. Alliance participants may be located
anywhere in the State. Each alliance will have a central office or coordination centre based
in an “innovation precinct” in Adelaide, where a concentration of research facilities and R&D
activity related to the alliance exists.
Aims
Collaboration between the State’s industries and researchers will focus R&D activity and
promote R&D excellence to drive and support key areas of economic significance to the
State. Constellation SA will reduce fragmentation of effort within the State’s R&D sector and
build on existing critical mass in specific research areas.
- 192 -
A clearly articulated strategic direction for the State’s research sector, accompanied by
focussed investment in R&D and closer links with industry will encourage improved
performance in winning national and international R&D grants and income. Partnerships
between industry and our educational institutions will ensure that we establish the State as
a life long learning community, with a skilled workforce to take advantage of future
opportunities. Constellation SA will establish clear links and support for regional economic
development and encourage community understanding and appreciation and of the
importance of science, technology and innovation to South Australia’s future.
Constellation SA will achieve its objectives by:







establishing recognised centres of coordination between our industry, education and
research sectors
proactively encouraging and supporting public/private partnerships to focus the
State’s research and education capability on industry needs
promoting innovation and the adoption of new technologies in both emerging and
established industries
providing recognised points of contact to access domestic and international
information about R&D activity and trends
focussing Government and industry investment on strategic innovation and R&D
activities
identifying strategic opportunities for co-operative research centres, ARC linkage
projects and other collaborative arrangements
effectively promoting the State’s distinctive commercial, research and education
capabilities nationally and internationally.
-------------------------------------------------------Western Australia
Innovation Centre WA
The Innovation Centre WA provides a focal point for innovators and encourages the
development and provision of a holistic innovation service to Western Australia. The Centre
is managed by Event Matrix for the Department of Industry and Resources and provides a
focal point and meeting place for entrepreneurs, innovators and service providers.
Initiatives being implemented include: a 12-month education and training programme;
quarterly networking sessions; an innovation services directory; Inventor of the Year award
and incubator programme.
Innovation Services Directory 2007
A key aspect of the Government’s innovation election commitment, the Innovation Services
Directory 2007 has been developed as a joint initiative of the Department of Industry and
Resources, the Small Business Development Corporation and AusIndustry.
The inaugural Directory offers a compilation of public and private organisations that provide
support services to start-up and existing businesses for the commercialisation of new
products, processes and systems. The Directory is intended to assist innovative
organisations and start-up companies in accessing professional services such as intellectual
property specialists, capital providers, consultants and commercialisation strategists.
- 193 -
Small Business Development
The Department of Industry and Resources is responsible for supporting small to medium
business enterprises through strategy development and the delivery of programmes attuned
to these emerging companies and industry sectors. The Department offers business
mentoring, financial assistance and support in export development among other services.
The Department supports the following industries, mining and energy services,
manufacturing technologies, biotechnology, ICT, marine and defence and professional
services.
Financial assistance:The Department offers a number of financial assistance schemes to
support small to medium companies
Innovation. The Innovation team is responsible for supporting innovative companies
through mentoring, seminars and financial assistance.
The Path to Commercialisation. A guide to planning an early stage innovation project
The Small Business Development Corporation. State Government agency supporting
the development and growth of small business in Western Australia.
Regional Business Development: The Department supports regional business
community through their 12 regional offices based around Western Australia.
Small Business Development Corporation
SBDC is a Western Australian State Government agency focused on the development of the
small business sector and is committed to:
-
championing the cause of small business;
developing programs and services to meet the needs of small business development;
establishing and strengthening relationships between SBDC and key agencies (public
and private sector); and
maintaining and enhancing the independence, innovation and responsiveness of
SBDC.
Small Business Centres
The Small Business Centres offer free assistance and support to new and existing
businesses through the following services:
-
Free practical business assistance;
Referral to specialist advisers (accountants, lawyers, etc.);
Assistance through the maze of government departments and regulations;
Business workshops;
Business information; and
Problem solving.
Small Business Centres are located in city and country areas to assist you to expand your
existing business or explore new business ideas. A management committee with
representatives from business, private sector organisations and local government, support a
manager who will work with you to achieve your goals.
- 194 -
Small Business Centres have networks of contacts that they can access to find answers to
your inquiries about:
- finance;
- marketing;
- business planning;
- market research;
- trade information;
- exporting;
- regulations and licencing.
INNOVATION TO MARKET
The Small Business Development Corporation (SBDC) Innovation to Market (ITM) program
has been created to assist Western Australian small businesses and individuals to
commercialise an innovation.
The ITM program has been designed to assist in the planning of the tasks and activities
required to commercialise an innovation. The ITM program also addresses the challenges
that may need to be overcome throughout the commercialisation process. To increase the
chance of success, the ITM program advocates a structured approach to commercialising an
innovation. Some of the areas addressed through ITM include:
-
identifying the need in the market;
setting goals, assessing risks and developing a plan for achieving your goals;
costing the development and commercialisation process;
protecting the intellectual property developed and maintaining a competitive
advantage; and
having a commercialisation strategy.
The Three Stages of the program
The ITM program is structured in three stages. Each stage has a questionnaire style
checklist which requires the participant to think about their innovation and answer the
questions. At stages two and three, the participant may be eligible for funding to further
assist them in commercialising their innovation.
Stage 1 - Where are you at?
This first stage of the program will assist the participant to take stock of where they are at
in the commercialisation process. This stage offers eligible participants the opportunity for
an SBDC officer to conduct a general evaluation of the potential of the idea.
Stage 2 - Where do you want to be?
This stage helps the participant work out where they want to be and the outcome they are
aiming to achieve. Eligible participants are offered the opportunity for the SBDC to engage a
specialised consultant to undertake a complete evaluation of the commercial viability of the
idea.
Stage 3 - How will you get there?
This final stage is about the participant identifying any barriers to commercialisation, for
example, technical problems, funding and selling. This final stage offers eligible participants
the opportunity to engage a specialised consultant to assist with key areas of
commercialisation eg IP, marketing; and upon completion of the assistance, to receive a
contribution towards the cost from SBDC.
- 195 -
Appendix 4
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