SMEs collaborating with external parties in order to innovate.

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SMEs collaborating with external parties in order to

innovate

Author: Martijn Koonen Universiteit van Amsterdam

Student number: 5893534 Supervisor: T. Gruijters Date of submission: 30-01-2014 2nd Reader: W. Van der Aa Msc. Business Studies Track: Entrepreneurship & Innovation

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-Abstract-In this master thesis, SMEs collaborating with external parties in order to innovate have been studied. The research goal was to refine the currently available theory about this

subject. Data was collected during multiple interviews with owners/founders and a project leader of two SMEs. Five collaborative projects were analyzed based on this collected data. After the data was analyzed, some part of the theory could be refined. So

should ‘measures to decrease distrust’ be included in the currently available theory. Furthermore, partner search and selection by SMEs is in practice based upon a

combination of capabilities and –especially- (cognitive) trust based on earlier collaborations. This could therefore be refined in the current theory. Furthermore,

implications are given for further research.

---Acknowledgements

In the process of finishing this master thesis, special thanks go out to three people in

particular. Without them this thesis could probably not be finished. First of all, I want to thank Henk Pannekoek- owner and founder of Aqua Aurora- for the possibility of interviewing him multiple times about the projects he engaged in. The same can be said about Jacques Walhout, the project leader of Traas & Ovaa Sport.

Also, thanks goes out to Ton Gruijters , my supervisor in completing this thesis. He gave useful advice and feedback during the process of writing the thesis. This helped me a lot when I struggled about how to continue, but every time after the many meetings with Ton I had new inspiration how to continue the hard process.

The result of this process can be read on the following pages.

List of abbreviaton’s

SMEs= Small and Medium Enterprises

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1. Introduction

According to Powell et al. (1996), the locus of innovation will be found in networks of learning, rather than in individual firms. They state that this will especially be the case when the knowledge base of an industry is complex, and the sources of expertise are widely dispersed throughout the industry. Intensive collaboration with other organizations will help companies to acquire knowledge, which they can use to develop innovative products. The statement that collaboration is good for the innovative performance of firms was studied by Faems et al. (2005). They studied the relationship between the level of inter-organizational collaboration and the innovative performance of 221 Belgian manufacturing firms. The results showed that there was a positive relationship between these factors. Thus, the higher the level of inter-organizational collaboration, the better the innovative performance of Belgian

manufacturing firms.

So it seems to be that collaboration can be beneficial for companies. However, for what kind of companies will a high level of collaboration have the most positive impact? And does it have a positive impact on every SME, in every sector? It seems to be the case that this cannot be true. Of course, there are also challenges that SMEs face when engaging in inter-organizational collaboration for product/service development. According to Rothwell & Dodgson (1991) for example, small and medium-sized enterprises (SMEs) are less likely to be able to engage in successful collaborative efforts. This, since smaller companies will have a market disadvantage in establishing the appropriate network of contacts with external sources of scientific and technological expertise and advice. This makes it an interesting topic:

However inter-organizational collaboration can lead to significant benefits (Faems et al., 2005), there are also challenges that companies face to successfully engage in it (Rothwell &Dodgson, 1991).

Problem Statement

The thesis will focus on inter-organizational collaboration efforts by SMEs. Smaller firms might need to collaborate intensively with larger firms, since smaller firms might lack the knowledge/resources to innovate successfully. By collaborating with other companies,

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missing knowledge/resources might be accessed and acquired, which in turn can lead to an improvement of the innovative performance of the SME. However, SMEs can face several problems when engaging in collaboration efforts. As mentioned before, smaller companies will have a market disadvantage in establishing the appropriate network of contacts with external sources of scientific and technological expertise and advice.

But what happens when a SME engages in inter-organizational collaboration for product/service development? How do they find collaboration partners? How do they manage their relationships with their collaboration partners? Is it possible to find certain factors that increase the probability that inter-organizational collaboration projects will result in

innovative products/services?

In this master thesis, the goal is to refine the theory available about

inter-organizational collaboration in order to create new products/services by SME’s. For example: Do the currently available theories represent the reality regarding collaborating SME’s in a correct way? If not, how does the reality differ from the available theories? A deeper and more detailed insight into the process of inter-organizational collaboration efforts by SME’s will be given.

By conducting qualitative research, rich data was collected, which gave a detailed insight about the several factors that play a role in the process of inter-organizational

collaboration. After the data collected about the specific collaboration projects was analyzed, there was more insight about the process of inter-organizational collaboration efforts by SME’s. For example, there was more insight about the different stages in a collaborative project, and how complex relationships between the several variables during the process affect the outcome of the collaboration.

The companies from which data was collected were Aqua Aurora and Traas & Ovaa Sport B.V. Aqua Aurora is a small Dutch company (1,5 fte) in the food industry specialized in making water products. This company is suitable for my thesis, since they developed

innovative products in collaboration with other companies. Furthermore, they are currently active in many more collaborative projects to develop products. It can be stated that since Aqua Aurora only has 1,5 fte , they are even dependent from other organizations if they want to innovate. This can be confirmed by the fact that they are active in so many collaborative projects to develop new products. Traas & Ovaa Sport B.V. is a small company, specialized in the construction and renovation of sport fields and sport accommodations.

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managers of SMEs. It can be relevant for the academic world, since there are no or little empirical case studies available that give a detailed insight about complex relationships of variables that influence inter-organizational collaboration in order to develop new

products/services by SMEs. Littler et al. (1995) for example studied collaboration efforts of SMEs in the ICT sector from the United Kingdom. However, in this study only a survey was performed among SMEs about the benefits and challenges of inter-organizational

collaboration, and about the success factors of inter-organizational collaboration. This doesn’t give a detailed insight about the process of the collaboration and the complex relationships between variables during the process. Also, lots of studies investigated the phenomenon collaboration (Gray, 1985; Mattessich & Monsey, 1992; Koza & Lewin , 1998). In these studies however, it was about collaboration in general. This includes for example also collaboration within one department of a company. This is not the same as

inter-organizational collaboration performed by SME’s. Besides that, these studies didn’t focus on collaboration with external parties to innovate.

Furthermore, the outcome can also be relevant for managers of SMEs. This, since they could use the results of the study to gain more understanding about factors that play a role when engaging in inter-organizational collaboration.

In the following section of this thesis a literature analysis will be presented. In this literature analysis, stages of inter-organizational collaboration projects were identified, and factors influencing the process of inter-organizational collaboration. After this literature analysis, the research design will be presented. This part covers what I will research in this, and how I will research this. Afterwards, the results will be presented in the fourth section. In this section, the results for every project are presented, based on the collected data for that specific project. The results will be presented in the form of clusters, which consist of open codes forming a certain theme. In the fifth section, these results will be interpreted, with help of the collected literature. . Finally, these results and analysis will be discussed in the sixth and last section of this thesis. The discussion consists of a conclusion, practical and theoretical implications, implications for further research and the limitations of this thesis.

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2. Literature Analysis

After describing the topic, the problem statement and the research’ goals, it is now time to analyze the literature about inter-organizational collaboration by SMEs. This literature analysis starts with a view into collaboration in general, and with looking into the motivations of firms to engage in inter-organizational collaboration. In addition, the risks of engaging in inter-organizational collaboration will be covered in this part of the literature analysis.

Afterwards, there will be an analysis about inter-organizational collaboration and SMEs. How could inter-organizational collaboration help SMEs to innovate? In section 2.2, the different forms that collaborations can have will be discussed shortly. Afterwards, four process models of inter-organizational collaboration from the literature are identified and described. These process models describe how a process of inter-organizational collaboration can look like. Then, some innovation models are presented, such as the stage-gate model and the innovation value chain. In section 2.5, three ‘rough’ stages of inter-organizational collaboration were identified after analyzing the literature. These stages were formed after analyzing the process models from section 2.3.Also, factors that play a role when collaborating with external parties are identified in section 2.5 The literature analysis finishes with a section summarizing the main findings of the literature analysis..

2.1 Collaboration and collaborating SMEs

To understand inter-organizational collaboration by SMEs, it is helpful to understand the phenomenon ‘collaboration’ in general. According to Mattessich & Monsey (1992), it is important to acknowledge that collaboration is a process. They state that a successful collaborative process requires attention, commitment and work from the involved parties. When collaboration efforts are done in the right way, they can have several benefits. Collaborations between organizations are helpful in reducing the perceived complexity of situations, and collaboration between organizations can improve the efficiency of processes, resulting in lower costs.

This view on collaboration is about ‘collaboration in general’, and not about

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engage in collaboration processes? Several motivations to engage in collaborations were found in the literature. First of all, according to Franco (2003) the innovativeness of a firm is determined by the environment of the firm, the internal factors of the firm and the innovation processes that develops over time. By engaging in inter-organizational collaboration, firms can get access to knowledge or other resources out of their environment. So when firms can get access to these resources out their environment, the innovativeness of the firm could be improved.

Furthermore, according to Lawton Smith et al. (1991), firms are motivated to engage in inter-organizational collaboration for technological gains. This is especially the case when there is a need to work on a next-generation technology, where future success might depend on technological leadership. Kent (1991) describes another motivation for firms to engage in collaborative efforts. He states that due to the increasing complexity of product and

technology development, and due to the need to gain rapid access to new markets, the motivations for firms to engage in collaborative products developments have strengthened. The rationale behind this thought is that collaborations are ways, in which firms can get access to new critical knowledge. With the help of this newly obtained knowledge, new products or technologies might be developed. Another motivation for firms to engage in collaborations is to reduce and share product developments and costs.

So there are several motivations found in the literature why businesses choose to engage in inter-organizational collaboration. However, of course there are also risks involved when collaborating with other organizations. The risks that are concerned with

inter-organizational collaborations are listed below:

 Possible leakage of a firms’ skills, experience and knowledge. It is especially a risk when these form the basis of the competitiveness of that firm (Hamel et al., 1989).

 The risk that a firms’ collaboration partners don’t only acquire the competencies that the firm brings to the product development, but also gain access to the knowledge and skills that the firm uses in other business areas (Hamel et al., 1989).

 The risk that the time required to manage the collaboration may lead to additional time and financial costs (Farr & Fischer, 1992).

 The risk that a firm engaged in inter-organizational collaboration might lose the direct control over the product development process ( Ohmae, 1989).

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So it is clear that inter-organizational collaboration can be beneficial for companies, but that there are also some risks involved. Therefore, it is a challenge for every company that engages in inter-organizational collaboration, to maximize the potential benefits and to minimize the risks involved with inter-organizational collaboration.

After analyzing these motivations and risks, it is now time to have a closer look on inter-organizational collaborations and SME’s. As stated in the introduction, smaller companies will have a market disadvantage in establishing the appropriate network of contacts with external sources of scientific and technological expertise and advice (Rothwell & Dodgson ,1991). This implies that SME’s could be less successful in collaborative efforts, since they might not have the appropriate network available to choose and select the right partners to collaborate with. This could be a motivation for SME’s not to engage in inter-organizational collaboration.

However, SME’s might lack the knowledge/resources to innovate successfully. By collaborating with other companies, missing knowledge/resources can be acquired, which in turn can lead to an improvement of the innovative performance of the SME. This implies that SME’s can benefit from inter-organizational innovation, and thus should be involved in it. Rothwell (1991) and Franco (2003) confirm this viewpoint. They both state that SMEs don’t always have the qualified manpower and required knowledge, manpower, or financial resources to pursue their innovation goals. By collaborating with other organizations, SMEs can get access to these sources of knowledge, which can help them to develop new products or services. Therefore, they could collaborate with other organizations to overcome this lack of resources.

2.2 Collaboration Forms

In the previous sections, attention was paid towards collaboration and inter-organizational collaboration by SME’s. In these sections, the focus was on reasons for businesses to engage or not engage in collaboration with other companies. However, what can be the definition of ‘collaboration’? And what kind of forms of collaboration are there? This section tries to answer those questions. In the literature, several definitions of collaboration exist. In a study performed by Thomson & Perry (2006) it is defined as: “Collaboration is when everybody

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the table, take their hands off, and the team creates from there (p.20)”. But, this thesis

focuses on inter-organizational collaboration by SME’s with the goal of creating new products/ services. Therefore this definition could be used for this thesis: “SME’s

collaborating with one or more external organizations to create new products or services”.

However, collaborations can take several different forms. For example, the number of

organizations you collaborate with. You can collaborate with only 1 organization on a project, but also with several different organizations. The latter may look more like a ‘collaboration network’. Powell et al. (1996) argued in their paper that when the knowledge base of an industry is both complex and expanding and the sources of expertise are widely dispersed, the locus of innovation will be found in networks of learning, rather than in individual firms. In such industries, firms often form ‘collaborating learning networks’ with each other, in order to innovate more successfully. However, also the intensity of collaboration is an important aspect. In which stages did different parties collaborate with each other? Collaboration can take place during the entire innovation process, but also at just a small part of the process.

Finally, distinctions can be made between ‘exploitative collaborations’ and ‘explorative combinations’. According to Koza & Lewin (1998) , the main purpose of exploitative collaborations relates to the enhancement of existing organizational capabilities. Thus, they focus on leveraging existing skills. It is all about the joint maximization of complementary assets. In these kinds of collaborations, there are clear performance objectives, which are translated into measurable output controls and are monitored by formalized coordinating and control mechanisms. These collaborations are especially effective in terms of improving existing products or technologies, and thus are especially suited for incremental innovation ( Faems et al., 2005).

Explorative collaborations on the other hand, are more associated with creating new competencies and discovering new opportunities. Here, the goal is to learn and develop new products/services or technologies. In such collaborations, the partners rely more on personal and informal modes of coordination and control. This often means less explicit job

responsibilities and more flexible working procedures. These kinds of collaborations are more associated with the development of new products, and thus radical innovation ( Koza & Lewin, 1998 ; Faems et al., 2005).

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2.3 Processes inter-organizational collaboration

To be able to have a better look at inter-organizational collaboration by SME’s it is first necessary to understand what the different stages in such a process can be. The literature about this problem has been analyzed, and this resulted in several different models. These will be described below.

According to Gray (1985), the process of inter-organizational collaboration consists of three phases: Problem-Setting, Direction-Setting, and Structuring. As Gray (1985) states: “The problem-setting stage is concerned with the identification of stakeholders within a domain and mutual acknowledgement of the issue which joins them (p.7) “. The problem-setting stage is an important stage. This, since consensus has to be reached about who has a legitimate stake in an issue, and exactly what that joint issue is. By going through the problem-setting stage, the involved parties negotiate issues of legitimacy and come to appreciate the interdependence that exists among the involved parties.

After the problem-setting stage, the direction-setting stage begins. Gray (1985) defines this stage as follows: “In the direction-setting phase, stakeholders articulate the values which guide their individual pursuits and begin to identify and appreciate a sense of common purpose. Direction-setting gives life to the stakeholders’ hopes that their desired ends can, in fact, be achieved (p.8) “.

After the direction-setting stage, the structuring phase begins. In complex processes in which several stakeholders are involved, it is needed to manage stakeholder interactions in a systematic manner. Through structuring, stakeholders generate a system for sustaining coincident values and establishing order within the domain. Specific roles for each stakeholder are set, the tasks are elaborated, and roles are assigned to stakeholders.

Kreiner & Schultz (1993) also distinguish three stages; they developed a model for firms that want to co-innovate with each other. The first stage is called the discovery of

collaborative opportunities. In this stage, representatives from the organizations meet on a

regular basis, where they share research ideas, knowledge and work. In the second stage-

exploration of collaborative opportunities- , the representatives of the organizations consult

literature and they carry out preliminary research. They investigate the possibilities of a collaboration project. Whenever both parties are positive about such a project, it is time for the third stage –crystallization of collaborative relations- . In this stage, the inter-firm

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Bossink (2002) also developed a model with stages useful for organizations that co-innovate with other parties. This model was based upon case studies in the Dutch construction industry. His model consists of four stages. In the first stage - Autonomous strategy making- , autonomous organizations examine the possibilities of innovation together with other

organizations. Afterwards the second stage – Co-operative decision making- takes place. Here, organizations examine the benefits of co-innovation with each other. This includes assessing the costs and benefits about co-innovating with other organizations. Afterwards it is time for the third stage – Founding an organization for co-innovation- . In this stage, the organizations reach agreements with each other about co-innovating. Contracts are signed and the organizations develop innovation plans with each other. Then, the involved organizations found an organization for co-innovating with each other. They also establish governance bodies, in which the involved organizations are represented. After the all these steps, the fourth and final stage – Realization of innovations- takes place. Here, organizations come together to realize the innovations they planned to develop with each other. The involved organizations are aware of the fact that they rely upon each other to realize the innovations, and therefore collaboration ties will grow strong in this phase. It is important that promises are kept, and that the involved organizations can trust each-other.

The phases described above are quite general and basic. For example, nothing is mentioned about how the process of finding collaboration partners/ setting up a network for collaboration can actually look like. Partanen & Möller (2012) takes a deeper look into this: in his article they try to explain the formation of inter-organizational networks. They state that the ability to build and develop strategic networks will be a critical success factor in the future,

especially in the ICT sector. This, since the development of competitive offerings in this sector often requires a coalition of platform and service providers.

In their study they developed a 8-stage model which can be used for selecting the right partners to collaborate with. The first stage is called determine the value-creation activities

for the end-customer. In this stage, it is especially important to understand the needs of the

customers, and the offerings that are required to serve these clients. Afterwards it is time for the second stage, which is called: Determine the Value creating System (VCS). In this stage, the key task is to create a view of the business concept underlying the targeted customer value creation and the envisioned offering. This can be done, by identifying what value activities

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are required in developing the offering and how the activities are connected. Afterwards it is time for the third phase, which is called determine objectives and analyze the target activities. This stage is strategically important. In this stage, a firm should determine which activities it wants to perform internally and which activities to leave for the network partners. In the next stage – compare resources and capabilities with the target capabilities- the firm needs to analyze how well its resource and capability profile matches its offering objectives and the related value activities it wants to control internally. In this stage, it is extremely important that the firm makes a correct analysis of its resources and capabilities; otherwise it could be the case that they fail in delivering their offering objectives. After this analysis has taken place, it is time for the next stage, called analyze the delegated activities. As the name implies, this stage is about analyzing the activities that the firm is about to delegate. This analysis is essential, because it provides the firm a clear understanding of the business environment of its partners. After this analysis, it is time for the next stage - conduct

preliminary partner assessment- .This stage focuses on mapping and assessing potential

partners for the delegated value activities. To do this, first it is needed to list all the activities that the firms plans to delegate. Afterwards, it is time to decide which parties have the right resources and capabilities to successfully perform these activities. Whenever several potential collaboration partners have been listed it is time for the next stage, which is called negotiate

with partner candidates. During the negotiations with partner candidates, more detailed

information about the potential collaboration partners can be collected. The most important issues to negotiate are the scope and structure of the collaboration. This includes negotiating about: the roles, duties and rights of the collaboration partners, investments expected from the partners, the risk-and-revenue sharing principles, the decision making procedures and also a termination mechanism, in the case of possible drawbacks. Whenever the negotiations were successful, it is time for the last stage which is called: launch the inter-firm collaboration. In this stage, the collaboration is officially launched.

2.4 Innovation Processes

In the previous part of this literature analysis, especially process models of collaboration were analyzed. However, since this thesis focuses on collaboration to develop new products, also

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models about innovation processes should be included. These models will be described in this part of the literature analysis.

Hansen & Birkinshaw (2007) developed the innovation value chain. They state that you can see innovation as a sort of ‘value chain’, which consists of three phases: idea

generation, idea conversion and idea diffusion. To improve your innovation performance as a company, Hansen & Birkinshaw (2007) state that you should identify your weakest link in the chain and then improve it. For example, if a company has difficulties with generating ideas, it could be helpful to build external networks. These external networks could help you with generating promising ideas.

However, this model is especially about the generating and diffusion of ideas, and not about the processes that follow up after a company has decided to develop an idea into a new product/service. A model that looks deeper into the process of innovation is the stage-gate model. The stage-gate model can be defined as:” A conceptual and operational map for

moving product projects from idea to launch and beyond- a blueprint for managing the new product development (NPD) process to improve effectiveness and efficiency (Cooper, 2008, p.

3). Traditional Stage-gate models consist of a series of stages and a series of gates. In the stages, the team obtains the needed information, and does the subsequent data integration and analysis to finish the task for that stage. At the gates, go/kill decisions are made to continue to invest in the project. Each stage is designed is to gather information to reduce key

uncertainties and risks. Each stage is more expensive than the previous one, what makes it important that proper decisions are made at the gates. Furthermore, each stage is ‘cross-functional’. There is no ‘R&D’ or ‘marketing’ stage; in every stage people from across the organizations are involved. As already told, at the gates decisions are made about the project. Gates generally consists of deliverables, criteria and outputs. The deliverables are what is brought to the decision point. Often these are bases on a standard ‘menu’ for each gate. The criteria consist of the requirements that a project must need to pass the gate. The outputs of the gates consist of a decision (go/kill/recycle) and an action plan and a list of deliverables for the next gate (Cooper, 2008).

The traditional stage-gate model might be too rigid and bureaucratic for the current business environment. That’s why companies more and more taking measures to improve their stage gate models. Examples are for example ‘open’ stage gate models. In this form, inputs from external sources are brought into the stages. But what companies especially try to do with their stage-gate model is to make them more rapid and efficient. This can be done for

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example by accelerating the gates. Gates are made leaner and simpler by focusing on what is really important for the gatekeepers. This was done to prevent deliverables overkill, a problem which occurred quite frequently. The several improvements made by companies have led to more flexible and efficient stage-gate models (Cooper, 2008). A stage-gate model can take a many forms and can differ for ever company. An example of an open stage-gate model is placed below.

When a company engages in inter-organizational collaboration to develop new

products/services, the stage gate model for that company will always be open, since they made use of external sources to innovate.

2.5 Important factors during stages of the collaboration process

As has been analyzed in the literature, several process models about collaboration and

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during a certain stage in the collaboration process. In this section of the literature analysis, three ‘rough’ stages of inter-organizational collaboration are presented, and factors that could play a role in these stages are presented. After analyzing the process models presented in section 2.3, three rougher stages of inter-organizational collaboration are presented. The first two stages come back in all of the four described process models. However, in these four described process models, none or little is mentioned about the management of the collaboration after partners were found and selected.

Stage 1 : Recognizing the opportunity and decide to engage in inter-organizational

collaboration.

To engage in inter-organizational collaboration, a firm must recognize an opportunity how inter-organization collaboration could help them ( Kreiner & Schulz, 1993). These

opportunities can be identified in several ways. For example, it might me identified externally (tips from customers, suppliers, other companies) but can also be identified internally, by people from within the organization (Afsarmanesh et al. , 2009). After the firm has recognized the opportunity, they need to decide whether or not to engage in inter-organizational

collaboration. In this phase, it is also important that the firm knows what the needs of their customers are, and what sort of product they would like to offer to them. This looks like

determine the value creating activities for the end customer and determine the value creating system, as described by Partanen & Möller (2012).

However, one should notice that in practice a company doesn’t always recognizes an opportunity when prior to engaging in a collaboration project. A company can for example also be asked to engage in a certain project.

Stage 2: Searching for partners and negotiate with them.

Whenever a company recognized an opportunity to collaborate, it is time for the firm to search for partners to collaborate with. This is an important phase, which also returns in all the described models. According to Gray (1985) for example, it is very important to find the right partners to collaborate with. A fundamental question to answer is: who should

participate? For complex problems, multiple sources of information should be analyzed to find the right partners to collaborate with. According to Partanen & Möller (2012), this can be done by listing all the activities needed to engage in the collaboration, analyze those activities

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(what resources and capabilities are needed for that?), and then look for partners who match these capabilities.

Afsarmanesh & Camarinha- Matos (2007) also spoke about partner search and selection. According to them, partner selection has proven to be costly in terms of effort and time. They state that partner selection is not simply an ‘optimization processes. Of course, the partners are often selected based on capabilities and competencies. However, in practice often more factors play a role in selecting partners. These might me very suggestive factors, like personal preferences and trust developed based on previous experiences. Therefore, to use fully automatic processes in order to find partners are often not realistic in practice. Instead, it would be better to conceive a computer-assisted framework to help the human planner to make decisions.

It is expected that these suggestive factors might especially play a role for smaller companies, since their network might not be so extensive, and therefore fall back on partners which the already knew or had positive experiences with.

After the partners have been identified, it is time to negotiate with them. During these negotiations, the scope and structure of the collaboration will be discussed. This often

involves the following aspects: the roles, duties and rights of the collaboration partners, investments expected from the partners, the risk-and-revenue sharing principles, the decision making procedures and also a termination mechanism, in the case of possible drawbacks (Partanen & Möller, 2012). During the negotiations, it is also important to ensure that every involved party in the collaboration perceives that the benefits of the collaboration are equally shared between the partners (Parker, 2000; Littler et al., 1995).

Littler et. al (1995) also mention ‘negotiations’ with possible involved parties . According to them, whenever a suitable partner has been identified, it is important to make some agreements about the collaboration. The goals of the collaborative agreement should be specified and the responsibilities and accountabilities of each partner should be clear.

Furthermore, it is important to establish limits in terms of the information to be shared as part of the collaboration. Mattessich & Monsey (1992) state that it is important that the goals and objectives are clear to all the parties involved in the collaboration projects. Furthermore, it is important that these goals are also realistic. All these factors should lead to a shared vision about the project, which is expected to have a positive impact on the collaboration (Partanen & Möller, 2012; Parker, 2000; Littler et al., 1995 ; Mattessich & Monsey, 1992).

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the conditions before starting the collaboration. However, since this thesis focuses on collaboration by SME’s, it is expected that these arrangements are not as extended as when large firms collaborate. Nonetheless, it is expected that it will be important to have at least an indication about the process of the project, and the roles, duties and tasks every party has.

Stage 3 :Ongoing management of the process

After the parties to collaborate with have been found, it is time for the ongoing management of the collaboration project. Some factors in the literature have been identified that can be important in the management of the process. First of all, when the company wants to obtain new knowledge by collaborating with other parties, firms should know where and how to find new knowledge. This is considered as a learning process. After firms have tried to obtain external knowledge several times, the firms will have more experience. This

experience can help them in knowing where to look for knowledge, and in assessing how the acquired knowledge can help the organization. The ability to interpret and exploit obtained knowledge is a critical factor in accessing new knowledge and lack of it can undermine the innovative capability of companies ( Muscio, 2007).

Cohen & Levinthal (1990) argued that the ability to exploit external knowledge is largely influenced by the level of prior knowledge, which includes basic skills, shared language and/or most recent scientific or technological developments. These factors are labeled by the authors as absorptive capacity. Absorptive capacity can be defined as: A firms’

ability to recognize the value of new information, assimilate it, and apply it to commercial ends’. So, one could conclude that firms with a high absorptive capacity are more likely to

obtain valuable knowledge. This, since these firms are able to recognize which information is valuable for them. However, once a firm obtained knowledge through inter-organizational collaboration, it is not the case that this knowledge will always lead to successful innovations. Bougrain & Haudeville (2002) studied the innovative performance of French SMEs. These SMEs were active in the following sectors: the food processing industry, the software industry, the building industry and the agriculture industry. According to their study, the success rate of SMEs who obtained external knowledge through technological co-operation was higher. But just obtaining this knowledge was not enough to be successful. This, since the firm should also have the right internal capabilities to be able to successfully exploit this knowledge. This makes sense, since obtained knowledge may not be very valuable if you

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don’t know how to exploit it. Therefore, firms should invest in internal resources to assure that they have the capabilities to exploit the knowledge obtained from external sources.

For managing the collaboration, it is important that there is a proper communication between the collaboration partners. This includes: frequent consultation between the involved parties, and establishing informal relationships and communication links (Parker, 2000; Littler et al.,1995; Mattessich & Monsey, 1992). That this factor is mentioned as a success factor in collaboration isn’t surprising. One would assume that when the collaborating partners are often meeting with each other to analyze the collaboration and to search for improvements in the collaboration process will lead to a better collaboration. Besides that the collaboration partners should meet frequently, it is also argued that the collaboration partners should establish informal relationships and communication links (Mattessich & Monsey, 1992).

Another factor mentioned in the literature that influenced the successfulness of collaborations, was that the collaboration was perceived as important by all of the parties involved (Parker, 2000; Littler et al., 1995; Mattessich & Monsey, 1992). This isn’t

surprising; one would assume that collaborations work better if all the parties involved see it as a valuable way to reach a certain goal. In other words, the collaboration must not be ‘useless’, every involved party should feel that the collaboration can benefit themselves. Therefore, it is important to manage the collaboration at such a way, so that every involved partner sees the benefit of engaging in the collaboration. This factor can also be related towards the factor ‘support from top management’. This factor means that the

top-management shows commitment to the collaboration and provides the collaboration with the necessary resources to become successful ( Littler et al : 1995, McCutcheon & Stuart, 2000). It can be expected that the more important the collaboration is for a company, the more support from top management it will have. Since this thesis focuses on SME’s, it can be expected that for important collaborations the support from top management will always be available.

The most frequent mentioned factor in the literature however is ‘trust between the parties’. According to Greenberg et al. (2007), trust between parties and people develops itself over time, based on earlier experiences. They state that trust consists of three elements:

ability, integrity and benevolence. Ability and integrity refer to cognitive trust, whereas benevolence refers to affective trust.

Trust plays a role throughout the entire process of collaboration. As mentioned before for example, the selection of partners to collaborate with might be based upon trust build up

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from previous experiences. But ‘trust’ and ‘communication between the parties’ are also related. According to Greenberg et al. (2007), frequent communication, timely and

substantive responses towards each other, and the medium of communication (face-to-face communication will create more trust than digital communication) can all increase the trust between the parties. But what happens when two companies don’t have any previous experiences? In that case trust between the parties should be developed. According to McCutcheon & Stuart (2000) this can be done by the following way(s):

1. A company’s performance history which indicates reliability and competence. 2. The cumulative interactions between the parties, providing each with the experiences necessary for confident prediction of the other party’s behavior.

3. Demonstrations of good intentions.

4. A “Transference process’’, whereby trust is established or augmented, if one company assumes that the other is trustworthy because the other firms have trusted them.

Greenberg et al. (2007) also developed a system that described the building and creation of trust when people or parties don’t have previous experiences with each other. They stated that swift trust (the trust between parties or people that don’t have previous experiences with each other) is a function of dispositional trust (the extent to which an individual trusts people in general) and messages from external sources. The messages from external sources can be compared with the 1st and 4th point from McCutcheon and Stuart, places above. Swift trust is a good starting point, but can easily disappear due to bad behavior from one of the collaborating parties.

Trust between parties can thus grow over time. This will start on the basis of cognitive trust, described earlier. When both parties see each other as capable (ability) and integer (the antecedents of cognitive trust), affective trust can also develop. When this happens

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2.6 Main findings of the literature analysis

At the end of this literature analysis, the main findings will shortly be presented in this section. After analyzing literature about inter-organizational collaboration, three ‘rough’ stages about this process were identified. In the first stage, an opportunity to collaborate is recognized, and the firm decides to engage in inter-organizational collaboration. An

opportunity can be identified externally or internally. The second stage is about the search and selection of collaboration partners. Several factors can play a role in selecting partners, such as the capabilities and competencies of potential partners, or personal preferences and trust

developed based on previous experiences. The third and final stage is about the ongoing

management of the collaboration process. Important factors in this process are the

communication between the parties, commitment from top management for the collaboration,

the fact that the collaboration was perceived as important by all of the involved parties, and

trust between the parties.

But how might these factors and/or stages be related with each other? Trust between parties might have an influence on partner selection, since personal preferences and trust

developed based on previous experiences can play a role in selecting collaboration partners (

Afsarmanesh & Camarinha – Matos, 2007). Also trust and communication between the

parties are related, since frequent communication, timely and substantive responses towards

each other, and the medium of communication (face-to-face communication will create more trust than digital communication) can all increase the trust between the parties ( Greenberg et al., 2007). Also, it can be stated that commitment from top management and the fact that the

collaboration was perceived as important by all of the involved parties are related, since

commitment from top management indicates that that party perceives the collaboration as important.

The above can be seen as the main findings of the literature analysis. It is useful in a way to reach the research goal, which is to refine the theory available about

inter-organizational collaboration in order to create new products/services by SME’s. For example: Are there other factors that come forward while/after collecting/interpreting the data? Can other relationships between the factors be found while/after collecting/interpreting the data?

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3. Research Design

After analyzing the literature, it is time to state exactly what the goal and end product of this thesis will be, and what it will contribute to the currently available theory. The sections 2.5 and 2.6 can be seen as the most relevant theory available in the literature. It is a combination of the most frequent mentioned factors that return among authors describing this subject. It covers the three stages in inter-organizational collaboration and the most important factors in these stages and relationships between them. The factor trust between the parties can for example have an influence on partner selection, as can be read in section 2.6.

The goal of this thesis is to refine the available theory about inter-organizational collaboration in order to create new products/services by SME’s. To be more specific, it will be researched if the available theory is a proper reflection of the empirical reality, and if not, explanations should be found to explain how and why the reality differs from the theory. In other words: How does the complex reality relate to the available theory? Does it differ? And if it differs, what explanations can be found to explain these differences?

But, the goal was to refine the current theory, and the description above seems more as testing the current theory. However, after these differences between theory and practice have been found and explained, they can be ‘integrated’ into the current theory. In this way, the existing theory will thus be refined.

The empirical reality in this thesis refers to the collaborative projects in which Aqua Aurora and Traas & Ovaa Sport engaged. This, combined with the research goal has led to the following research question:

How do the available theories regarding collaborating SME’s (in order to innovate) and the collaborative projects of Aqua Aurora and Traas & Ovaa Sport relate to each other?

This research question can be divided into the following sub-questions:

 Can the three collaborative stages be identified in the collaborative projects?

 Are there ‘new’ important factors that can be found after analyzing the collaborative projects?

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 Are there additional relationships between factors that can be found after analyzing

the collaborative projects?

 How can the above be used the refine the current theory?

Research Method

In the previous section of this research design, the focus was on what will be researched. In this section of the research design, the focus will be on how this will be researched First of all, it is necessary to define the research strategy. The research strategy used in this thesis is an embedded case study. According to Yin (2009), an embedded case study consists of one or more context(s), in which there are multiple units of analysis. The contexts in this case are Aqua Aurora B.V. and Traas & Ovaa Sport , but the units of analysis are the multiple collaboration projects the companies engaged in. According to Saunders & Lewis (2012), case studies are especially suited for exploratory and explanatory research. This thesis seeks to refine the available theory about the inter-organizational collaboration efforts by SMEs (in order to innovate). This refinement of current theories is done by explaining differences between theory and the empirical reality, and ‘integrating’ the results of these explanations into the currently available theories. This thesis could therefore be seen as an explanatory master thesis. So, according to Saunders & Lewis (2012) a case study will be an appropriate research strategy.

After explaining the research strategy, the population and the sample choice will be explained. The population in this case is SMEs who engaged in several inter-organizational collaboration projects to develop new products/services. In this master thesis, collaboration projects in which Aqua Aurora B.V. and/or Traas & Ovaa Sport B.V. participated were analyzed. The goal of these collaboration projects was the development of a new product or service. This sample has been chosen, since both companies participated in several

collaborative projects in order to innovate, and both companies were available to share information about these projects.

According to Saunders & Lewis (2012), data collection methods used in case studies can vary from interviews, observation, documentation analysis and also questionnaires. The data collection method used in this thesis was interviews. This, since interviews give richer

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and more detailed information than questionnaires for example, and thus are more suitable for the research goal of this thesis. Patton (2002) distinguishes between three basic approaches in open ended interviews used for qualitative studies: ‘The informal conversational interview’, ‘The interview guide’ and the ‘Standardized open-ended interview’. All these approaches require different preparations. In this thesis, data was collected via ‘The interview guide’ approach. In this approach, the interview guide provides topics, where the interviewer is free to explore, probe and ask questions to clarify certain subjects. Interview guides can be developed in more or less detail, dependent upon how the interviewer is able to specify the important issues in advance. This data collection method will be useful for this research, since it allows the researcher with a certain degree of flexibility in collecting data: during an

interview interesting other perspectives may come forward. The interviewer might then ask additional questions, which may result in interesting new insights on the topic. This makes the interview guide approach the most suitable approach. An example of the used interview guides can be found in Appendix A. There are different guides in this appendix, since the guide has been adapted after the first two interviews, based on new insights.

Data collection was thus done via interviews. But how was the data analyzed? After the data collection for a project was completed, the data was analyzed. After this analysis, the data collection for the following project started. When data collection for that project was completed, the data was analyzed, and then data collection and analysis for the following project could start. This resulted in memo’s, of which an example can be found in Appendix C.

Data analysis in this thesis was done manually. After the completion of each separate interview, they were written down and analyzed. Analysis was done via coding, which is described by Corbin & Strauss (2008) as: ‘taking raw data and raising it to a conceptual level (p.66) ‘. Coding can be done in a deductive or inductive way. In this thesis, the inductive approach of coding was used, with some deductive influences. There was no start list of codes, but codes were developed based on the reactions of the respondents. However, the ‘clusters’ formed by these open codes were somehow influenced by the available theory and several clusters came back during multiple interviews, as can be seen in the results section of this thesis.

For the formation of these clusters, large lists of open codes were developed after each interview. These open codes were then placed into certain ‘clusters’. These ‘clusters’ were formed by open codes that referred to the same larger category/pattern, and formed a certain

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theme. Examples of these clusters can be found in the results section of this thesis, and an example of the formation of such a cluster can be found in appendix B. By looking which ‘open codes’ formed a certain cluster, it could be identified what had an influence on a specific theme.

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4. Results

During the data collection, data about five collaborative projects has been collected during interviews. The raw data can be found in the appendices A, B, C, D and E. In this section, the results of these projects are presented.

4.1 Results of project 1

Data about this project has been collected during interviews with Henk Pannekoek, owner and founder of Aqua Aurora. Questions about this project were asked on two occasions, where the questions asked in the second interview were based on the insights of the first interview, and themes that emerged during interviews about project 2, 3 and 4. In this project, Aqua Aurora worked together with several other organizations ( Altena Groep, Tauw Infra, Drain products) to realize the innovation. The innovation was called ‘The Self-Cleaning Roadside’, and won the Milieu innovation award in 2012 in Holland. Before this innovation, the rainwater, oil and other pollutants like salt, ended up in the groundwater via the roadsides. ‘The Self-Cleaning Roadside’, can be used to clean this ‘dirty water’, and has to be replaced after a period of forty years. After this cleaning process, the water will be of drinking water quality. This innovation leads to environmental advantages and can lead to significant cost advantages.

During the data analysis, the following open codes (44) were developed: Approached by the county of Gelderland, Ecologically responsible, Familiar for company, Passion, Subsidy, Costs, Approaching other parties, Large project, On their own, Resources, Allocation of subsidy, Previous collaborations, Delivering quality, Known companies, Honouring

agreements, Agreements made, Patented technique, Shared vision, Communication frequency, Communication partners, Marketing, Concept testing, Open sphere, Communication medium, Input of resources, Fun and Challenging, Allocation of revenues, Trust in capabilities,

Importance of collaboration, Start of project, Completion, Idea, Former owner, Sold the company, Supporting company, Construction, Developing idea, Sharing knowledge, Revenue model, Guaranteed position in market, Secret, Double lock on the door, Content of patent, Shared interests, Abusing knowledge.

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These open codes can be divided into 8 clusters, which consist out of the open codes referring to the same category/subject. They form a general theme, such as ‘trust between the parties’. The clusters are described here, with the open codes that form them in italic. By coding in this way, it can be seen what kind of affairs (the open codes) had an influence on a certain specific theme (the clusters). This resulted in the following clusters:

Motivation to engage in project: The company, Aqua Aurora, was approached by the county of Gelderland to take care of the project. As the interviewee states, they decided to

accept the offer for several reasons. First of all, the project was in an area which was familiar

for the company, since it was a project which was ecologically responsible. Furthermore, the

interviewee stated that it was a project in which he could put his passion, and described the project as fun and challenging. Also, the company received a subsidy from the county, to cover a part of the costs to complete the project. All of these factors can be seen as motivations to accept the offer from the county.

Motivation to approach other parties: However, Aqua Aurora could not perform the task on their own, and therefore approached other parties to engage in the project. As stated in the

interview, the company could not perform the task by itself, since it was a large project, and to complete it Aqua Aurora had not enough resources. These factors resulted in the fact that Aqua Aurora had to approach other parties if they wanted to finish the project successfully.

Motivations for approaching specific partners: So Aqua Aurora had to approach other

companies, but why exactly did they select these partners? As the interviewee states, the partners were known companies for Aqua Aurora, since they worked together in previous

collaborations. This resulted in the fact that Aqua Aurora knew what they could expect, for

example that the agreements would be honoured and the delivered quality of the partners. This resulted in the fact that there was trust in the capabilities of the partners, and that’s why Aqua Aurora selected these specific partners for this project. Also, the interviewee stated that the partners would not be approached for this project if there was no trust beforehand.

Setting up collaboration: Once the partners had been selected, the collaboration had to be

set-up. Agreements were made for example about the allocation of the subsidy, which was an agreement about how the subsidy from the county would be divided between the involved parties. Also agreements were made about the input of resources for each company, and about the allocation of the revenues. Since Aqua Aurora put in most of the resources, it was an

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important collaboration for them. These agreements led to the fact that the involved parties

knew what their role would be in the project, and a shared vision about how to finish the project successfully.

Roles of the partners in the project: So the collaboration could start after agreements were

made, but what were the specific roles of the involved parties? The idea came from Aqua Aurora. The idea had to be developed further, and this was done with help of Tauw Infra. Together with Aqua Aurora, they tested the developed concepts. Based on this concept

testing, improvements for the product were found and implemented, based on the knowledge

that Tauw brought in. Another involved partner was the Altena Group. This is a company which was formerly owned by the interviewee, who sold the company to a new owner. The role of the Altena group in the project was the marketing of the product and the construction of the road. Also, another small supporting company was involved. This company was needed to complete the project, since they had the rights of a certain product, which was necessary for this project.

Communication during the project: Since multiple parties were involved in the project,

there were several communication partners for Aqua Aurora. As the interviewee stated, the

communication frequency was the highest with the Altena Group and Tauw Infra. With the

Altena Group there was frequent communication since they were responsible for the

marketing and had to give several presentations, so they had to be kept up-to-date about the recent developments. With Tauw Infra there was frequent communication, since developed concepts were tested together with them. These tests were discussed and improvements of the product were made if necessary. According to the interviewee there was an open sphere during the contacts. Finally, the communication medium varied, communication was done via e-mail, phone calls and face-to-face conversations.

Role of the patent: The innovation was based on a patented technique, a patent which was

held by Aqua Aurora. The content of the patent were the components needed for a certain mixture (Biogrit), but not the exact composition of these components. However, what was the role of the patent in this project? According to the interviewee, the patent made sure that the

revenue model was secured for the involved parties. Also, it was needed to have a guaranteed position in the market. And finally, the interviewee stated that without the patent, it would be

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Trust between the partners: The involved parties collaborated from the start of the project

until the completion of the project. Therefore, the parties needed to be able to trust each other. But how could Aqua Aurora trust the other parties? As the interviewee stated, the parties already collaborated with each other in the past, before this project started. Therefore, the interviewee trusted that the partners had the right capabilities to finish the project

successfully. The interviewee stated that they could also trust that there would be no abuse of

knowledge, since the innovation was based on a patented technique. Also, they knew the

involved parties from the past and therefore trusted that knowledge would be not abused, even if there was no patent. However, the exact composition of the mixture was held secret

between two parties: Aqua Aurora and the Altena Group. Tauw Infra doesn’t know this exact composition, which implies that trust levels between Aqua Aurora and Altena Group are higher than between Aqua Aurora and Tauw Infra. When asked why this was held secret between two parties, the interviewee responded that a double lock on the door is better than a single one. The interviewee stated that he trusted the Altena Group that they would keep it secret, since ‘he knows them very well’. Furthermore, they have shared interests; if they break the patent the exclusive position in the market will be gone.

Data about this project was collected based on an interview with Henk Pannekoek, owner and founder of Aqua Aurora. In this project, Aqua Aurora worked together with Chiyu to develop special products for koi carps: Pound Wellness and Travel Save XL. These are new products, based on vital water added with natural ingredients, like minerals, vitamins, amino acids and enzymes.

In analyzing the interview, the following (29) open codes have been developed: Approached, Chiyu, Engage in project, Interesting, Fun, Passion, Profit motives, Competencies, Capable of completing, Young company, Agreements, Revenue allocation, Contracts, Idea, Help,

Developing idea, Knowledge, Experience, Informal, Meetings, Marketing, Communication medium, Importance, Honouring agreements, Trust in competencies, Trust in marketing, New collaborative project, Developing Idea, Time span.

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These open codes can be divided into five clusters, which consist out of the open codes referring to the same category/subject, and forming a certain theme. This resulted in the following clusters. The clusters are described here, with the open codes that form them in

italic.

Motivations to engage in project: For this project, Aqua Aurora was approached by Chiyu,

which is a young company. Chiyu came up with an idea, and needed help to turn the idea into an end product. Aqua Aurora decided to engage in the project. According to the interviewee this was decided based on several aspects. First of all, it seemed a fun and interesting project, in which he could put in his passion. Furthermore, the interviewee thought that Aqua Aurora was capable of completing the task. There was no profit motive, and also the competencies of Chiyu didn’t play a role. Neither did personal preferences, since Aqua Aurora did not know the company before the start of the project.

Agreements made between the parties: After Aqua Aurora decided to engage in the project,

the collaboration had to be set up. Agreements were made, such as the allocation of the

revenues. These agreements were made in an informal way; there were no contracts involved

or what so ever. After these agreements were made, the project could start.

Communication between the parties: According to the interviewee, the communication was

quite informal. Communication started when Aqua Aurora was approached to engage in the project. During the project, there were about ten to fifteen meetings. Other communication

mediums were e-mail contact and telephones, where telephones were used when the situation

was more urgent.

Roles of the parties in the project: In the project, which had a time span of two years, there

was collaboration from the start of the project until its completion. The idea came from Chiyu. Aqua Aurora helped to develop the idea, by bringing in certain knowledge. This was the only responsibility that Aqua Aurora had, since the marketing of the product was done completely by Chiyu. The importance of the project was quite low for Aqua Aurora -as the interviewee stated -but bigger for Chiyu. This was also reflected in differences between the roles and number of tasks for both parties.

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Trust between the parties: As the interviewee stated, Aqua Aurora did not know Chiyu

before the start of the project. Also, Chiyu had no or very little experience in collaborating before the start of this project. Therefore, trust levels were not very high for Aqua Aurora when the project started. After the first contacts, the trust grew, since Aqua Aurora trusted that Chiyu had the competencies and knowledge to successfully develop an end product. However, the interviewee did not know whether Chiyu could position the product in the market successfully, since trust in marketing was lower. As the project proceeded, trust grew further, since Chiyu was honouring the made agreements. At the end of the project trust had thus grown, which also resulted in a new collaborative project between the two parties.

After the first interviews were completed, the format of the interviews has been adapted. They were adapted in a way that questions/subjects were less standardized beforehand, and what the interviewee said was leading in terms of the following question. This should result in richer data.

Data about this project has been collected based on an interview with Jacques Walhout, the project leader of the sports department of Traas & Ovaa . The following open codes have been developed for analyzing the interview. In this project, Traas & Ovaa Sport developed a new system, together with one of their suppliers. With this new system (called the no-dig

construction, based on Geosta) , it becomes possible to build artificial turf sport fields on locations where this was not possible before. The first sport fields have already been build based on this new system.

Trend, Opportunity, Environmental consciousness, Supplier, Heavy machinery, Materials, Themselves, Blood group , Capable, Network, Tests, Positive tests, Searching for a partner, Initially needed resources, Known for 15 years, Patented, Exclusivity arrangements, Secret, Idea, Tangible resources, Viable, Continuous brainstorming, Improve the product, Risks, Deep trust, Client, Success in the market, Ad-hoc, Building, Solving problems immediately, Formal meetings, Culture of thinking and doing, Telephone, Small scale, Scale it up,

Continuously improve the process, Points of improvement, No rules, Found out by ourselves, Experience in collaboration and in processes, Potential clients, New ideas, Know what you

SMEs collaborating with external parties in order to innovate.