«Innovation Commercialisation and Anticipated Return: A Typology of Innovative SMEs»

Thuy Hang Do, Tim Mazzarol, Thierry Volery and Sophie Reboud. 57th Annual ICSB World Conference, 10-13 June 2012, Wellington, New Zealand. Available at SSRN: http://ssrn.com/abstract=2123975 and also at the Research Platform Alexandria. See the references in the original publication of the article.

«This paper investigated differentiating characteristics of firm typologies in two dimensions: the systematic nature of the commercialisation processes and the anticipated rent return to the innovation. A typology comprising four types of firm ― mature innovators, large selfcontained incremental innovators, radical innovators and investment ready innovators ― was developed. Findings from the discriminant analysis indicate that these four types could be differentiated from each other in terms of the age, size, R&D as percentage of annual turnover, the novelty of the innovation adopted, the IP protection and the preference type of financing for developing innovations.

»The results indicate that the size and age of firms have an impact on the anticipated innovation rent and the related commercialisation process. The age of firms resulted in the diminishing returns effects, which is consistent with previous studies (e.g. Loderer and Waechli 2010; Dibrell, Craig and Hansen 2011; Warusawitharana 2011). As bigger firms have more capacity and experience in developing innovations, as mentioned in Klepper (1996) and Roger (2004), medium-sized firms in our sample adopted a more formalized commercialisation process. However, the growth rate of SMEs did not have a considerable effect on differentiating firms in terms of their commercialisation behaviour or in anticipating the innovation rent.

»The R&D proxy not only significantly differentiated high and low knowledge intensive firms, but also in terms of the anticipated innovation outcome. SMEs which spent a high proportion of their annual turnover on R&D were more innovative and more likely to anticipate that they could capture high potential rent outcomes. This conclusion is in accordance with previous findings (Romijn and Albaladejo 2001; Baldwin and Hanel 2003; Becheikh et al 2006; De Jong and Vermeulen 2007; Mazzarol and Reboud 2011).

»Regarding the novelty of innovation, our results indicate that investment into radical innovations may lead to higher expectation of profitability, in comparison with those firms focusing on incremental innovations. This finding is in line with the conclusions of Kleinschmidt and Cooper (1991), and Chaney et al (1991). Evidence from our study suggests that potential high rent earners tend to place more importance on the protection of IP rights than the firms that anticipated low rent returns. However, the firm’s attitude towards IP protection also seems to depend on the type of innovation, plus the novelty and nature of its high or low knowledge-intensive sector. For example, high-tech firms were more likely to focus on the protection of IP when developing radical innovations rather than incremental innovations.

»With regards to the preferential financing sources, mature and medium-sized firms tended to use predominantly retained profits to finance their innovations. In addition, firms which were R&D intensive or engaged in radical innovation relied more on equity financing. This conclusion was in accordance with the findings in the report by Baldwin, Gellatly and Gaudreault (2002). Even though the types of innovation were insignificant in differentiating the innovation typology, the results indicated that more product innovations were developed in the clusters “radical innovators” and “investment-ready innovators”, whereas more process innovations were developed by “mature innovators”.

»The results of our study suggest that young radical innovators may be more likely to have greater optimism that they can secure high innovation rent returns. By contrast, the optimism of the innovation return was much lower in mature and large firms which have more experience of commercializing innovations. This finding is in accordance with Fraser and Greene‟s (2010) study which described the negative relationship between optimism and business experience. Similarly, Busenitz and Barney (1997) indicated that a small firm’s owners were found to be more likely to overestimate the successful probability in comparison to experienced executives. This idea supported our findings that young owner-managers seemed to have higher optimism of the anticipated return despite their unsystematic approach to the commercialisation process. As noted above, this is likely to be reflection of inexperience or naivety on the part of these owner-managers.

»Based on the results of our study, some propositions could be suggested as follows:

»_ Proposition 1: There is a negative relationship between the anticipated innovation rent and firm age.

»_ Proposition 2: Young firms rely more on equity financing to develop their innovations in comparison to old firms.

»_ Proposition 3: The more the firm grows in size, the more it is likely to formalize the innovation commercialisation process.

»_ Proposition 4: Firms pursuing radical innovations tend to expect higher anticipated rent than those developed incremental innovations.


»This study contributes to the academic literature by developing a framework that is linked to the concept of the innovation rent (Santi et al 2003) and the formal commercialisation process suggested by Mazzarol and Reboud (2006; 2011). The innovator typology was mapped on the framework with the aim to deepen the understanding of how firms commercialized innovation and what they expected to capture. By plotting the differentiating factors found amongst SMEs in commercializing innovation, the paper investigated firm characteristics and behavior to explain the reasons why some firms which approach the process of commercialisation systematically might have low expectations of potential rent return outcomes and vice versa. The findings suggest that the two measures of how systematic the commercialisation process is, and the anticipated potential rent return of the innovation, may be associated with other factors. These are firm age, size, the R&D intensity, the financing types, the IP protection and the novelty of innovation.

»The study has implications for how SMEs might approach the management of innovation and suggests that approaching commercialisation in a systematic manner may engender more realism amongst entrepreneurs. Besides the age and size of firms, it is significant for innovation decision makers to consider the type of financing, costs and risks in undertaking high or low levels of technical novelty and value of the IP protection in the long term. In addition, this descriptive typology of innovators can be used to explain and distinguish firms‟ management characteristics and behaviour in developing innovations, which is beneficial for owner-managers, investors and policy makers.

»The limitations of the study are that our focus on measuring the innovation outcome was based on the “anticipated rent”. The erosion of the rent due to the competitive market, competitors and the “residual rent” were not yet considered in the analysis. It would be beneficial to extend the research into a longitudinal study to examine entrepreneurial optimism in-depth and compared with their real captured innovation rent. The follow-up investigation would strengthen the reasoning for the high optimism of young firms despite their non-systematic innovation management and the low optimism of the anticipated return from mature and medium-sized firms.»

Innovation Typologies
Thematic Readings

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