The Upcoming Sensor Information Economy:
A business opportunity for SMEs?
The Upcoming Sensor Information Economy:
A business opportunity for SMEs?
University of Groningen Faculty of Economics and Business Nettelbosje 2 9747 AD Groningen TNO Informatie‐ en Communicatietechnologie Eemsgolaan 3 P.O. Box 1416 9701 BK Groningen Date 19 December 2008 Author Anja Salier Lauwersstraat 48 9725 HG Groningen T: 06 44078528 E: anja_salier@hotmail.com Student number 1657933
Supervisors Dr. C.H.M. (Clemens) Lutz University of Groningen Prof. dr. J (Jacob) Wijngaard University of Groningen
Summary
Introduction
This thesis looks into possible opportunities for SMEs in the sensor information economy, with a special focus on the opportunities for multi domain use of sensor information. Building, using, and maintaining a sensor network is very expensive and this can hold back SMEs to invest in sensor networks. Multi domain use of sensor information means that one sensor network is used for a number of purposes/applications. This will lead to sensor networks that are more profitable and have a more advanced use. This again can stimulate the use of sensor networks among SMEs. The different purposes of the sensor network can exist within the company or outside the company. The internal company purposes relate to using the information in different departments or on different organisational levels. The external company purposes mean that the company sells the sensor information to other companies.
This research has been performed for TNO ICT. TNO is a Dutch research institution with the aim of developing, integrating, and applying scientific knowledge. TNO ICT is a unique innovation centre in the Netherlands that brings together ICT and Telecom disciplines of TNO. TNO ICT wants to stimulate the multi domain use of sensor information among SMEs. This research is focused on the opportunities and challenges for multi domain use of sensor information among SMEs. The research first looks into the sensor information economy. Second, the opportunity identification process is described. Within the opportunity identification process the aspects of personality traits, prior knowledge, and social networks are discussed. Different types of opportunities are described, too. Third, the aspects of collaboration and innovation are mentioned. The concept of open innovation is an important concept that combines the former two. Furthermore, barriers to innovation are discussed. Together with the case research this provides the answer to the following research question:
What are the opportunities and challenges for multi domain use of sensor information?
Methods
This research has an explorative character, because of the new character of multi domain use of sensor information. The research is based on a literature search and a practical search. The sensor information economy is one aspect discussed in the literature search. The literature search looks into the theory of opportunity identification and aspects of collaboration and innovation. Within the practical search three entrepreneurs were interviewed. The entrepreneurs were selected based on their relation to the sensor information economy and on their innovative position in the sensor information economy. The companies of the entrepreneurs, the cases, are DikeSurvey, Dysi, and 101 Solutions. During the interviews, the entrepreneurs were asked about their opportunity to start the business, their experience in the start‐up phase, their relation to other companies/organisations in the market, and their ideas about the future. Furthermore, the main topics of the research were discussed. These topics are entrepreneurial alertness, collaboration and innovation, and multi domain use of sensor information. Moreover, some conversations with professional organisations took place; TNO, NOM, and TCNN.
Results
ideas, and seeing possibilities. Prior knowledge can exists in three forms; prior knowledge of markets, of ways to serve markets, and of customers problems. Prior knowledge of the market was of influence in all three companies. One entrepreneur found his opportunity based on prior knowledge of customer problems. Prior knowledge of ways to serve markets was of influence for one entrepreneur as well. Furthermore, four types of opportunities are distinguished: dreams, problem solving, technology transfer, and business formation. Problem solving, technology transfer, and business formation are important in this research. Finally, all good opportunities should end in a business formation.
• All three companies use collaboration in their business model. The first company collaborates in the IJkdijk project. The second company collaborates with customers and with partner companies. This company is establishing a joint venture with another company as well. The third company collaborates with a customer, supplier, an SME, and with a school. Open innovation is a concept that combines collaboration and innovation. Open innovation helps the cases to meet the needs of customers and keep ahead of competition. It is possible that TNO is a collaboration partner of SMEs in the innovation process. Barriers to innovation are finance, management and marketing, skilled labour, and external information and linkages. The entrepreneurs perceived mainly finance and skilled labour as barriers to innovation.
• Multi domain use of sensor information is the focus of this research. Two of the three entrepreneurs have not thought of multi domain use of sensor information. One company does use the concept but is not gaining from the advantages; the advantages are for the customer. The company is not the owner of the data or the enriched sensor information. All entrepreneurs see opportunities for the concept. One entrepreneur pointed out to the ability of earning back the large investment in the sensor network in a shorter time period. One entrepreneur is the owner of the sensor information and is able to apply multi domain use of sensor information. In the last company, it is not clear who the owner of the sensor information is. This should be made clear first before the concept is applied.
Conclusions and Recommendation
• Multi domain use of sensor information means that the information from one sensor network is used for a number of purposes/applications.
• The personality traits, social network, and prior knowledge can facilitate in the opportunity identification. SMEs should be active in their social network if they want to discover the opportunity.
• First of all, SMEs should write a business plan if they want to make a business out of the opportunity. Second, SMEs need to get sufficient money for the opportunity. Thirdly, sometime SMEs need to find a situation in which they can test the technology. Entrepreneurs can collaborate in this phase, which can increase their chances of success. Fourth, contacts must be made with different parties that are involved and SMEs must work out the multi domain aspects. Furthermore, SMEs must keep focused on their goals and keep looking at the future. Not all elements will be relevant for all opportunities.
• Collaboration is important to discover multi domain use of sensor information. Collaboration is important in order to test the technology, to make custom made products or services, to get custom made products or service delivered, and to receive subsidy.
Preface
The document you are about to read, is written for my study Business Administration at the Rijjksuniversiteit Groningen. The master thesis forms the final step to graduation. I choose to specialise into Small Business and Entrepreneurship within the study Business Administration. During a period of 6 months I performed research at the Netherlands Organisation for Applied Science (TNO). This research was performed for the discipline Information and Communication Technology and looks into the opportunities for SMEs in the sensor information economy.
During my internship at TNO I learned a lot about sensors and the opportunities that sensors can bring for SMEs. I was able to get in touch with some interesting entrepreneurs that were enthusiastic, motivated, and wanted to cooperate in my research. I enjoyed the interviews and conversations and was able to learn a lot from this. I enjoyed to combination of writing my master thesis and doing an internship, too.
1. Introduction
The title, ‘The Upcoming Sensor Information Economy’, is related to the information economy in which we live nowadays. There is an increasing demand for information, especially for real time information. The information makes it possible to explain historical events and to predict future events. The sensor information economy is developing around us. Different research institutions, such as the Netherlands Organisation for Applied Scientific Research (TNO) and the Investment and Development Agency for the Northern of Netherlands (NOM), and companies are highlighting this development. Furthermore, in the Netherlands the province Drenthe wants to be known as the sensor province. Astron has built a large scale sensor network for the LOFAR project. The LOFAR project is the basis for many sensor companies in the region. Moreover, the Sensor Academy has been established in Assen in September 2008, this is a school of the Hanze University Groningen for applied science. Furthermore, there is a platform for sensor technology to bring together the business world, education, research institutions, and the government. This platform is known as Sensor Universe and it wants to support initiatives within the field of sensor technology.
Looking further into the sensor information economy, it is possible to find a real world example that almost everyone in the Netherlands will know. This is the case of buienradar.nl. Buienradar.nl is a website which shows radar images that provide the viewer with up‐to‐date rainfall information. Buienradar.nl has to buy the licence from the KNMI in the Netherlands. The radar network is a sensor network and the network is owned by the KNMI. Buienradar.nl buys the rights to use the images and can give forecasts of rainfall as well. Buienradar.nl is a very popular website in the Netherlands. The company was able to successfully anticipate on market demand and has built a successful business model around the sensor technology. Buienradar.nl is earning their money from advertisements on the website. This is only one application of a sensor that many people use in their daily life.
1.1 Problem
Statement
sensor technology companies exist and multi domain use of sensor information can help them to be more profitable. Furthermore, TNO wants to work and cooperate with SMEs and getting more understanding of the SMEs can support TNO in this. Building, using and maintaining a sensor network can be more profitable and therefore affordable for SMEs, because of the new applications. However, SMEs are not always active in searching for these opportunities or tend to overlook them. Moreover, SMEs can play an important role in the further development of the sensor technology and therefore TNO wants to help SMEs find the opportunities and overcome the challenges.
Multi domain use of sensor information can offer more value of sensor information and more chances of earning back the investment of the sensor network. If these advantages are also applicable for SMEs in practise is not clear yet. Therefore, this research is focused on the opportunities and challenges for SMEs for multi domain use of sensor information. This research looks into the factors that are important in the opportunity identification process of multi domain use of sensor information. Multi domain use of sensor information has a large collaboration component as well. The concept is relatively new and is therefore in the innovation phase of development. This research will therefore look into the aspects of collaboration and innovation. The role that TNO can play in the discovery of multi domain is of sensor information is taken into account as well.
1.2
The Netherlands Organisation for Applied Scientific Research
TNO is a Dutch organisation which employs approximately 4 700 people (TNO Annual Review 2007). TNO, which was founded in 1932, is the biggest Dutch research institute with the aim of developing, integrating, and applying scientific knowledge. TNO is a knowledge institution which makes scientific knowledge applicable to improve the innovative position of the government and private companies. Knowledge development, integration, and application form the combination that distinguishes TNO from other knowledge institutions. TNO is a statutory legal organisation and within TNO, each core area offers its own products and services. TNO operates as an independent organisation under the responsibility of the Minister of Education, Culture, and Science. The organisation chart in Appendix B illustrates the organisation structure of TNO.
TNO is working on different disciplines in different sectors. In the following overview, the five core disciplines of TNO will be given:
1. Quality of Life: TNO investigates here how it is possible to safeguard and improve the health of people and how people perform.
2. Defence, security, and safety: This core area contributes to more efficient and effective armed forces and to a safer society.
3. Science and Industry: This area helps companies and government to innovate with new products, new materials, and design and development methods in order to stay internationally competitive.
4. Built Environment and Geosciences: Innovations for government and business which are aimed at durable establishment, usage, and management of built up area, infrastructure, and underground are the core of this area.
5. Information and Communication Technology: This area is a unique innovation centre in the Netherlands that brings together the ICT and Telecom disciplines of TNO. It helps companies, government bodies, and (semi‐)public organisations to successfully innovate with the help of ICT. The core areas are again divided into several business units, which again are subdivided into subunits. It is not necessary to go through all the business units and subunits, because of the context of this research. Information and Communication Technology
This research is performed under the authority of the core area Information and Communication Technology of TNO, in short TNO ICT. This area employs approximately 400 employees (www.tno.nl). TNO ICT is divided into three business units and twelve subunits. Appendix C illustrates the organisation chart of TNO ICT. This research is performed for the business unit Information Technology, subunit E‐business and Information Technology (E‐ business & IT). The team of E‐business & IT is working in a number of areas: Enterprise Integration Services, Service Development, Information architectures, and IT architecture. With the use of the latest technologies, the team develops well dimensioned and cost‐ effective service‐platforms and designs and standardises the messaging. At the moment, there is a strong focus on the processing of information from sensor networks.
on the field of (wireless) communication, and doing techno‐economic analysis. Furthermore, TNO can bring different parties together. In large scale sensor networks it is possible that TNO develops the role of an independent integrator. Moreover, TNO has the role of creating support by pointing out the advantages and needs of development at the right institutions (Van den Berg, Van Loon, Van Riet, & Van der Waaij, 2005). More information about the sensor information economy will be given in chapter two.
TNO conducted a research that states that the focus of TNO in the working field of sensor network is on the innovation process, including creating support, looking for business cases and the technological development. Opportunities for TNO lay mainly in the starting phases and in the implementation phases. Important challenges for TNO are focused on the role of actively creating support from the public and from the industry. Market contacts will technologically challenge TNO to have or to develop the right expertise to meet market demand. After the innovation and implementation phases TNO can have a role as well. TNO can test and certificate the installations. It is interesting to look at the following phases and possibilities of a project when TNO is getting into the first phases of the project. This can immediately create opportunities for TNO. (Van den Berg et. al., 2005)
1.3 Objective
and
questions
A problem statement for a research consists of three components: the objective, the research questions, and the preconditions (De Leeuw, 2001). Following the above description of the problem statement of this research, it is possible to extract the objective, the research questions, and the preconditions. Objective The objective of this research can be described as: Provide TNO with insight in the opportunities and challenges for SMEs that can be found in the multi domain use of sensor information Research questions
sensor information. Combining these elements will set a research question. The main research question is: What are the opportunities and challenges for SMEs in the multi domain use of sensor information? This research question can be further broken down into the next sub questions: 1. What is multi domain use of sensor information? Multi domain use of sensor information plays an important role within this research, it is therefore necessary to get a clear definition of this concept. With this research question it is possible to make this clear definition. 2. How can SMEs discover opportunities for multi domain use of sensor information? The first question looks at the multi domain use of sensor information, this question looks at the opportunity identification of SMEs within this concept. In order to stimulate the innovation of SMEs with multi domain use of sensor information it is necessary to look at how SMEs can identify the opportunities.
3. What tasks have SMEs when making a business out of the opportunity?
When the opportunity is identified, the SME has to generate business out of the opportunity. To do this, the entrepreneur has different tasks and this research tries to discover these tasks. 4. Which collaboration aspects are important for multi domain use of sensor information? Multi domain use of sensor information contains a large collaboration component. This collaboration exists between different departments or on different organisational levels within a company or between different companies. The concept of multi domain use of sensor information is relatively new and is still in the innovation phase of development. This research will look mainly into the collaboration aspects of the innovation phase. 5. Is there any role for TNO to facilitate the processes of multi domain use of sensor
information by SMEs?
This research is performed for TNO and this question wants to discover if there is a role for TNO within the whole process.
An extensive explanation of the sub questions and the used methods can be found in paragraph 3.2
Preconditions
The preconditions of this research are:
2.
The Sensor Information Economy
This chapter will give an exploration of the sensor technology and sensor information. In the first paragraph, an explanation of sensors and sensor networks will be given. Second, the use of sensor networks will be described. In this paragraph the focus is on North Netherlands. The third paragraph is about the different roles in the sensor technology. Finally, an extensive description of the concept of multi domain use of sensor information will be given.
2.1
What are Sensors and Sensor Networks
A sensor is an observation instrument. The principle is that a part of the instrument carries out the measuring and converts data to a signal. The sensor technology can measure various variables, such as pressure, temperature, sound, radiation, magnetism, etcetera (Van den Berg et. al., 2005). Sensor networks generate a variety of data streams in different temporal and spatial resolutions. The data can come as numbers text, images, and audio and are dynamically produced periodically and sporadically. Wireless sensor networks are set up to take high granularity measurements which allow observers to evaluate surroundings in a different way than they normally do (Chen et. al., 2007). Sensor networks can be divided into three different categories (Van den Berg et. al., 2005):
1. Local sensors within a machine or device. Sensor networks in this category are small scale networks that have been applied for some years now. These sensor networks are successfully applied in machines, cars, airplanes, factories, etcetera. The sensor network is not communicating with other networks.
2. ‘Self organising’ or ‘Ad hoc’ sensor networks. The networks in this category are relatively new and strongly emergent. These networks are often set up in large (geographical) areas. Network elements within this technology can independently find each other and interact to form a network together. Here we can speak of intelligent networks and the sensors have their own amount of energy. An example of an application may be an application that gathers temperature samples in a geographical region monitored by a sensor network. A second example can be large number of sensors that can be scattered in a battlefield for surveillance purposes to detect certain objects of interest, say tanks. 3. Sensor networks concerning the infrastructure. These sensor networks are set up in large
A sensor network will be constructed with a particular purpose. The sensor information that flows from the network will be used for this purpose. Before the sensor information can be used for interpretation, several activities must be performed by human or by machine. These activities can be simplified into three steps. 1. Identification of data. 2. Interpretation of data. 3. Reacting on information. An Intelligent Sensor System can be described within figure 2.1. Source: Dirks (2006) Figure 2.1 Schematic view of an intelligent Sensor System
The sensor measures the condition of the object; the data processing processes the information, and the actuator is being guided by the data processing to influence the environment. This process is being controlled and managed by the operator. The added value comes from the connection between the different components. The process itself can be very divers: monitoring dikes, logistics, medical equipment, monitoring people, etcetera (Dirks, 2006).
2.2
The use of Sensor and Sensor Networks
the North of Netherlands (Dirks et. al., 2005a). The second roadmap has the same topic, but the focus is on sector specific developments (Dirks et. al., 2005b). The third roadmap is about innovative applications of sensor technology and looks at a combination of knowledge, power, and opportunities in the Northern of Netherlands (Dirks, 2006).
The roadmaps do not offer the individual entrepreneur or starter a recipe for successful innovation with sensor networks and/or sensor systems. The competence of the entrepreneur/starter should provide a strategic basis. The competence can lie in the application within the sector or more within the technology. However, opportunism is an important factor within the sensor technology and is attached to the active development of the network (Dirks et. al., 2005a).
2.2.1 Identified Sectors
The ambition of North Netherlands in the field of development of sensor technology is high. The goal of the different parties (NOM, Syntens, and TNO) is to develop a leading economic cluster around sensor systems in North Netherlands the coming ten years. The economic activity of senor technology for each application in North Netherlands can be fo
un
d in figure 2.2.
Economic activity in sensor technology per application area in FTE's 55 185 350 360 220 140 320 0 50 100 150 200 250 300 350 400 Industry Agro Food
Control of water quality Discreet making industry Process industry Health care and wellness Sensor and consumer Sensor and large infrastructure
Source: Dirks (2006)
Figure 2.2 Economic activities in sensor technology in North Netherlands
It is clear that the agro food sector is the smallest sector, but Dirks (2006) states that it is a sector with much potential. There is also some overlap between the sectors. The seven application areas that were seen as potential application areas for sensor systems are (Dirks, 2006): 1. The agro food sector: This sector is focused on producing and processing food. 2. The sector for control of water quality: The water management sector is aimed at taking care of a durable soil hydrology in the society. 3. The discreet making industry: This industry contains the application of sensor technology in discreet manufacturing processes. 4. The process industry: Essential in the process industry is that there is a continuous flow of material that is being transformed.
5. The sector for health care and wellness: Within this sector a distinction can be made between cure, care, and prevention
6. Sensor and consumers: This sector is about applying sensor technology within the direct environment of the consumer. Health care and wellness is an aspect that is already mentioned under point five. On some sides there is overlap between the uses of sensors. It is possible to distinguish two main areas: home electronics and security
7. Sensors and large infrastructures: This sector contains the active control of ground‐, roads‐, and water infrastructure. It is about the control of maintenance and the control of use. Sensor systems in dikes, gas pipes, and roads are examples in this sector.
Appendix D contains two figures. One that shows the growing potential for each application area (figure D.1) and one that the shows the too reach size of the application area (figure D.2). Both figures are related to the sensor technology in North Netherlands. Looking at the two figures, it is possible to distinguish three main application areas. Within these areas there is much potential for the sensor technology and for North Netherlands. These three areas are: large infrastructures, agro food, and the control of water quality. It is also possible that within these areas, there are many opportunities for SMEs.
2.3
Roles in the sensor information economy
It is possible to distinguish three main roles within the sensor information economy. These roles are the producer of sensor networks/sensor information, the buyer/user of sensor information, and the company that translates the sensor data into sensor information. In this paragraph these roles will be discussed.
The producer of sensor networks/sensor information is the company that has a technology or sensor network. It is possible that the producer uses the sensor network for his own purpose/goals, but the company can also share the information with other parties. An example is the Dutch KNMI that has a sensor network to make weather forecasts. The information is used for the company itself but the KNMI is also selling some of the information to other parties. On buyer of the sensor information is buienradar.nl. This example was also mentioned in the beginning of chapter one. Buienradar.nl uses the sensor information to do its own business. In this example there is not an additional partner involved that translates the data from the sensor network into valuable sensor information. However, it is possible that there is an additional partner involved that has to make the translation. It is possible that the additional partner only has a temporary role to answer a question or to solve a problem. However, the role can also be for a longer period of time. Dysi is a good example of such a role, see sub paragraph 6.3.2. In principle, this partner does not have its own sensor network, but it is possible that this role is combined with the producer of the sensor network/sensor information.
2.4
Multi domain use of Sensor Information
The focus of this research is on the opportunities of multi domain use of sensor information for SMEs. The term multi domain use of sensor information has been mentioned several times now. In this paragraph an extensive explanation of the term multi domain use of sensor information will be given. This explanation will be given within the scope of this research. This explanation is formed by conversations with TNO employees, professional organisations, and the view of the researcher
to use the sensor information for can stimulate the use of sensor networks and thereby sensor technology. Taking a closer look at multi domain use, it is important to make a distinction between two types of multi domain use.
1. Multi domain use of the technology. This phenomenon occurs often in practice. A company develops an application with a sensor network or sensor system and can sell the application in different domains. The domains here can illustrate different departments within a company or different industries. This type of multi domain use is not part of the focus of this research.
is. Within a sensor network, different parties can be distinguished and this can lead to conflicts. The business aspects of the sensor network relate to: what do I want, what is possible, and what are the costs and yields? The business aspects needs to be stated in the business model of the company and need to be taken into account in the use of the sensor network. Figure 2.3 gives a schematic view of the above description. Figure 2.3 Multi domain use of sensor information
and Public Works. The company that owns that information can sell the information and thereby making the sensor network (the listening tube) more profitable.
3. Methodology
This chapter will explain the used research methods. First the research design will be discussed and second the sub questions of this research will be further outlined. The relevance of each sub question and the used methods will be described.
3.1 Research
Design
are important. The conversations with experts can provide market information and examples of the actual practice. The experts will have a clear view of the market of sensor technology and sensor information.
The second sub question deals with the opportunity identification process of SMEs. When it is made clear what multi domain use of sensor information is, it is possible to look at the opportunity identification process. Opportunities have to be identified in order to further develop the concept of multi domain use among SMEs. In the field of business administration this theory is familiar. However, for the ICT and related sectors this theory is less general. This is why the theory will be described in the thesis. The answer to this question will come from the theoretical search and from the practical search. The theory about the opportunity identification process is relevant in answering this question. This theory will be verified within the practical search. The practical search consists of interviews with three innovative companies (the cases) within the sensor technology. These companies are all small businesses that innovate in the sensor technology and may be interested in or working with multi domain use of sensor information or are already active with this concept. The theory can be specified to the unique characteristics of the sensor technology and the multi domain use of sensor information. Together the elements must give an answer to the question.
This sub question follows from the previous sub question. When SMEs have identified the opportunity, they can create business around this opportunity. This business can be part of an existing venture or can mean the creation of a new venture. Both ways, the entrepreneur has to decide that the opportunity is worth working for. This sub question tries to identify the tasks that SMEs have when they create the business. The answer to this question will come mainly from the practical search but the basis of the question lie in the theory. The practical search will also consist of the interviews that are used in to answer the previous sub question as well. Previous experiences of entrepreneurs can be of value when answering this question. Also thoughts and feelings of the entrepreneurs about the market are interesting. The interviews with professional organisations can help answering this question as well.
Multi domain use of sensor information contains a large collaboration component. Using multi domain use of sensor information means collaboration between departments, organisational levels, or companies. Furthermore, the concept of multi domain use for sensor information is relatively new and this makes it an innovative concept. Several companies that work with sensor technology are very innovative. Many advantages of sensor technology still need to be discovered or are in the pre phases of development. The main focus of this question in relation to this research therefore is on the collaboration aspects in the innovation phase. In more mature phases, the important aspects of collaboration can change. Collaboration in the innovation process can bring new opportunities for the collaborating partners. Open innovation is a concept that is getting more attention and SMEs can gain from the advantages of open innovation. Within the innovation process, SMEs can be faced with different barriers. These barriers are important to identify, in order to make it possible for SMEs to overcome these barriers. It can be discussed that there is overlap between the subjects, but in order to provide a complete picture all subjects will be described. First, some theory about the subjects was collected. Second, within the practical study the entrepreneurs were asked about their opinion and experience on the subjects.
Because this research is performed for TNO, it is relevant to look at their position in the process of opportunity identification for SMEs in the multi domain use of sensor information. TNO is a unique research institution and can have an important role in the innovation process of SMEs. The answer to this question will come from different sources. First of all interviews with the entrepreneurs can provide information about what they expect from TNO and what the entrepreneurs need in the innovation process. Second of all the vision of employees of TNO are important. The employees can have their own ideas about what they think TNO should do and should not do. Thirdly the overall vision of the author can provide TNO with advice over their position in the innovation process. Furthermore, the role of knowledge institution in the innovation process can provide insight in the role of TNO in the innovation. Some theory about this subject will be discussed.
4. Opportunity
Identification
Identifying and selecting the right opportunities for new businesses are among the most important abilities of a successful entrepreneur. Consequently, explaining the discovery and development of opportunities is a key part of entrepreneurship research (Ardichvili, Cardozo, & Ray, 2003). The first paragraph will explain what an opportunity is. Secondly, the factors that influence the opportunity identification process will be outlined. The relationship and relevance to the research will be highlighted in the last paragraph.
4.1
What is an Opportunity?
What is an opportunity? Timmons (1994), Ardichvili et. al. (2003), and Vaghely & Julien (2008) say that an opportunity has the qualities of being attractive, durable, and timely and is a chance in which new goods, services, raw materials, markets, and organizing methods can be introduced to meet a market need (or interest or want) through a creative combination of resources to deliver superior value. The most successful entrepreneurs, venture capitalists, and private investors need to be opportunity focused. They look at what customers and the marketplace want and do not lose sight of this. Opportunities are created, or build, using ideas and real world entrepreneurial creativity (Timmons, 1994).
The basis for a new opportunity lies in a change to the business environment, which in turn, means one or more changes to the political, economic, social, and technological environment. A new opportunity will occur when a change happens to one (or more) of the following things (Hulbert, Brown, & Adams, 1997): • a need; • the way this need is currently being satisfied; • the cost of supply, and • the economics of supply.
Sources for new opportunities come from analyzing the marketplace itself (customers, competitors, and suppliers), together with the business environment in which that market operates. A limiting factor can be the knowledge that individuals or firms have as to the changes that are happening around them within their immediate business environment or market (Hulbert et. al., 1997).
4.2 Factors
influencing
the Identification Process
Ardichvili et. al. (2003) found five major factors that influence the core process of opportunity recognition and development leading to business formation. These major factors are:
1. entrepreneurial alertness; 2. information asymmetry and prior knowledge; 3. social networks; 4. personal traits, including optimism and self‐efficacy, and creativity, and 5. type of opportunity itself. In the next sub paragraphs each of these factors will be further outlined. 4.2.1 Entrepreneurial Alertness
An opportunity only exists when it is perceived by the entrepreneur (Yu, 2001). Yu (2001) writes that entrepreneurs are not conscious of their alertness. In their examination of opportunity recognition, Ardichvili et. al. (2003), suggest opportunity recognition is preceded by entrepreneurial awareness. Entrepreneurial awareness is a propensity to notice and be sensitive to information about objects, incidents, and patterns of behaviour in the environment, with special sensitivity to maker and user problems, unmet needs and interests, and novel combinations of resources. Therefore, as a pioneer to opportunity recognition, entrepreneurial awareness is necessary to gather information and to make linkages between an individual's interests and expertise and issues within the environment (Mayo, Helms, Becherer, & Finch, 2002). Yu (2001) suggests that the essence of entrepreneurship is to keep alert to opportunities even when the enterprise is in a profitable situation.
4.2.2 Information asymmetry and prior knowledge
4.2.3 Social Networks
can result in new entrepreneurial ventures. Without the optimism many opportunities may be overlooked (Mayo et. al., 2002). It should, however, be emphasized that characteristics or traits by themselves do not explain behaviour. The characteristics contribute to the playing of roles or taking of actions for which the need or opportunity occurs depending in the circumstances (Nooteboom, 1994). 4.2.5 Type of opportunity In addition to the factors influencing the opportunity identification process, Ardichvili et. al. (2003) believe that the process of opportunity development may differ among four types of opportunities (see figure 4.2). Market needs or value sought or the problem may be identified (known) or unidentified (unknown). And value creation capabilities or solutions may be defined or undefined. Dreams I Problem solving II Technology transfer III Business formation IV Defined Undefined Unidentified Identified VALUE SOUGHT VALUE CREATION CAPABILITY Source: Ardichvili et. al. (2003) Figure 4.2 Types of Opportunities
I. This type of opportunity is based on creativity we might associate with ‘dreamers’, artists, some designers, and investors interested in moving proprietary knowledge in a new direction or pushing technology past its current limits. Both the problems and the solution are unknown.
II. This type of opportunity is based on structured problem solving. The goal of opportunity development is usually design of a specific product or service to address an expressed market need. The problem is known but the solutions are not.
IV. With this type of opportunity both the problem and the solution are known. Opportunity development therefore involves matching known resources and needs to form businesses that can create or deliver value.
4.3 Summary
Taking together the discussed literature above, it is possible to see connections and relationships. The chapter shows that the opportunity identification process is influenced by several factors. Entrepreneurial alertness is an essential element in the opportunity identification process and for the entrepreneur. With entrepreneurial alertness the entrepreneur can identify opportunities to establish a business or to keep their business successful. The entrepreneurial alertness is influenced by the social networks of the entrepreneur, by personal traits of the entrepreneur, and by prior knowledge. The social network is also influenced by the personal traits and by prior knowledge. The entrepreneur can have prior knowledge of markets, ways to serve markets, and of customer problems. The social network consists of partners, inner circle, action set, and weak ties. All have their own influence on the entrepreneurial alertness. Entrepreneurs need a social network in order to talk and learn about their idea(s) or opportunity, co‐opting resources, and to gather information. In relation two the personality traits, two major traits can be distinguished: creativity and opportunism. Both are very broad and are important for all entrepreneurs or business owners. Furthermore, the opportunity identification process is different in the case of different type of opportunities. For this research the focus is on two types of opportunities (see figure 4.2); the technology transfer and the business formation. Because the research is focused on situations were the solutions are defined and that the problem can be unidentified or identified. The defined solution is the multi domain use of sensor information. This is the innovation that is taken as a given factor. In the real world cases the problems are identified and the business formation took place. But it is also possible that the case will further innovate and be in the position of technological transfer. TNO can be seen as a ‘dreamer’ that tries to work out its ideas through the problem solving, technology transfer or the business formation.
5.
Collaboration and Innovation
Entrepreneurship has been recognised as a micro‐driver of innovation and economic growth (Audretsch & Thurik, 2001). The previous chapter discussed the opportunity identification process of entrepreneurs. This chapter will look at the relationship between collaboration and innovation. The first paragraph about what innovation is. In the second paragraph the collaboration for innovation is discussed. The third paragraph is about the concept of open innovation. In the fourth paragraph the barriers to innovation will be discussed. The fifth paragraph describes the role of knowledge institutions in the innovation. The final paragraph will summarize the theory and the relationships.
5.1 What
is
Innovation?
Literally, innovation means renewal. However, the term renewal can be applied in many different settings. Innovation is a process and the result of the process as well. Innovation as a result is a new functionality or a new way to fulfil an existing functionality. The process contains the development of a new invention, the successful application of the innovation (innovation as a result), and the diffusion of the development in the society (Wetenschappelijke Raad voor het Regeringsbeleid, 2008).
Innovation can be more or less new. A distinction can be made between: ‘new for a company’, ‘new for the market of a company’, and ‘new for the world’. Furthermore, innovation can be more radical, in applying more fundamental new principles. Innovation can also be more incremental, in adopting existing innovation. Joseph A. Schumpeter, a familiar innovation economist, described innovation as ‘creative destruction’, whereby old products, (production) methods, and means of production will be replaced by ‘new combinations’. There is a relationship of some similarities between radical and destructive innovation, but this relationship is not general. Moreover, innovation can take place in technology, markets, or within companies The results of innovation are not always favourable. Furthermore, innovation has intrinsic value as an expression for creativity. Moreover, innovation is a stimulator of entrepreneurship (Wetenschappelijke Raad voor het Regeringsbeleid, 2008).
5.2 Collaboration
for
Innovation
organisations have the material, economic, or conceptual resources to successfully operate alone. There is a huge pressure to share capabilities, expertise, and information to increase one’s reach to satisfy the twin demands of global markets and local customisation. Managers face the challenge of working effectively with others both to delight their customers and successfully compete in the global marketplace. Failure by a business to find ways to operate effectively with partner organisations may at best result in a waste of resources and at worst may lead to financial collapse (Bryant, 2003). Collaboration provides more variation and flexibility for new combination. Therefore, collaboration can be risky and difficult, and frequently fails (Nooteboom & Stam, 2008). Thomas, Perry, and Miller (2008) use the following definition of collaboration: ‘Collaboration is a process in which autonomous actors interact through formal and informal negotiation, jointly creating rules and structures governing their relationships and ways to act or decide on the issues that brought them together; it is a process involving shared norms and mutually beneficial interactions.’ (Thomson et. al., 2008, p. 98)
5.3 Open
Innovation
A lot of innovation initiatives fail and companies that never innovate may eventually die. Chesbrough (2006) wrote a book about the process of innovation, about how companies utilize and advance technologies to create new products and services. In relation to the collaboration process, the concept of open innovation is gaining widespread interest. This concept suggests that firms should not isolate innovation, but firms should innovate in collaboration with others. The collaboration can yield not only efficiency of scale and scope but also a greater diversity and flexibility.
5.3.1 The Closed and the Open Innovation Paradigm
Chesbrough (2006) suggests that a paradigm shift will occur. The way companies innovate with new ideas and bring them to market is undergoing a fundamental change. The old paradigm is called closed innovation and it means that successful innovation requires control. Companies must generate their own new ideas and then develop them, build them, market them, distribute them, etceteras. Companies are very self‐reliant in this situation (Chesbrough, 2006). The closed innovation is based on screening knowledge and the innovation developments in closed R&D departments.
Figure 5.1 The Closed Innovation Paradigm
In the last years if the twentieth century several factors combined to diminish the underpinnings of closed innovation. One of these factors was the growing mobility of highly experiences and skilled people. People left the company at which they worked for many years and took a good deal with them. The logic of closed innovation was further challenged by the increasingly fast time to market for many products and services, which reduced the life cycle of products and services. Moreover, the customers were increasingly becoming knowledgeable and suppliers further challenged the firm’s ability to profit from knowledge silos. Furthermore, competitors came from all over the world.
Figure 5.2 The Open innovation Paradigm
5.3.2 SMEs and Open Innovation
De Jong (2006) distinguishes three types of innovating companies; opportunity driven, market or customer driven, and strategy driven. The opportunity driven companies makes less use of the aspects of open innovation and have less explicit innovation infrastructures. Innovation is mainly a concern for the entrepreneur. The market or customer driven companies use relatively much initiatives from the customers and employees. The strategy driven companies innovate in the most open manner. Innovative ICT companies are mainly market or customer driven. Product innovations are developed in close cooperation with customers and employees contribute often within the process. The main reason for SMEs to use open innovation is market considerations. SMEs try to meet the needs of the customers and keep ahead of competition. The main bottleneck for using open innovation is the organisational and cultural differences that complicate the collaboration between different parties. Other bottlenecks are the administrative burdens, financing, and knowledge transfers (De Jong, 2006).
5.4
Barriers to Innovation
In all industrial countries the government embraces innovation as a source of future wealth. This is not surprising, because many studies have led to the conclusion that innovation is the main source of productivity rise and wealth creation. However, innovations can be an uphill struggle against uncertainty, disbelief, and risk avoidance, as well as a difficult fight against vested interests, hidden conventions and procedures, and inflexible institutions (Nooteboom & Stam, 2008). SMEs enjoy unique advantages in the innovation process, but can also face a constraint on resources. The constraints that SMEs faced can be associated with: • poor use of technically qualified labour; • difficulty in attracting/securing finance and relating inability to spread risk; • unsuitability of original management beyond initial prescriptions, and • high cost of regulatory compliance.Freel (2000) divides the constraints into four principle components sets. These will be discussed below.
Finance
to introduce innovative SMEs to alternative sources of finance, such as venture capital and Loan Guarantee Scheme. Banks should be encouraged to consider the non‐financial characteristics of the management team, the technology, and the product market as alternatives to collateral or assets as security, too.
Management and Marketing
Innovation is a complex inclusive process and innovation requires an eclectic base of managerial competency. Management deficiencies can include poor planning and financial evaluation. Furthermore, inadequate delegation, lack of functional expertise and support, discontinuity of management staff, and insufficient marketing endeavour coupled with a great reliance on ad‐hoc or word‐of‐mouth sales (Freel, 2000). Technological entrepreneurs can become overly concerned with the technical aspects of their innovation at the expense of the skills necessary for successful commercial exploitation (Freel, 2000)
Skilled Labour
The availability of skilled labour is especially important for companies that either want to enter the market at a large scale, or that want to pursue fast‐growth strategies (Gerlach & Wagner, 1994). Competition restraint and high wages decrease the motivation for people to become an entrepreneur. Competition restraints in labour contracts could form a barrier for employees who want to start their own company in the same industry that they are currently employed in. Employees with high wages face substantial risks with regard to their relatively high and stable income (Arend, 2001) since the expected profits earned must be higher as a result of higher current salary. Providing training to existing and new employees can create supply of skilled labour. It is also possible to recruit skilled employees from existing companies (Blees, 2003). Offering a good salary and working conditions can attract available skilled labour. External Information and Linkages Lybaert (1998) suggests that firms who use more information, achieved better results in the past, and were more optimistic about the future. Due to the absence of functional specialists or high level of internal competence, information search activities are relative costly or misdirected and localised within many SMEs. In this contact prior knowledge plays a part as well. Entrepreneurs use prior knowledge to identify and evaluate new knowledge.
5.5
The Role of Knowledge Institutions in Innovation
The government can guarantee the future prosperity by increasing the innovative capacity of a society. Innovations make the Dutch economy more competitive and the added value will increase. Therefore, an innovation stimulating government is necessary to stimulate a dynamic and competitive knowledge economy. Paragraph 5.3 discussed the new concept of open innovation. The movement from more traditional (closed) innovations to more open innovation means that the government must collaborate as well. The government can collaborate within its own connections, with companies, knowledge institutions, and social organisations. The government must go with the movement to open innovation (Innovatieplatform, 2006).
To strengthen the knowledge exchange between SMEs and (semi)public knowledge institutions, the government introduced the innovation vouchers in 2004. The aim of this policy instrument is to introduce SMEs to knowledge institutions such as universities, colleges of higher education, and institutions such as TNO. The innovation vouchers must stimulate the innovation among SMEs. The innovation voucher is a credit note of 7 500 Euro that an SME can use set out with a research question at a knowledge institution of free choice. Cornet, Van der Steeg, & Vroomen, 2007 state that different observers that the knowledge transfer between companies and (semi)public knowledge institutions is far from optimal. Furthermore, the excellent research results of the knowledge institutions are rarely applied in the business world. From the companies that have drawn a place in the use of the innovation voucher, a quarter turns to TNO. Because of the innovation vouchers, companies do set out more commissions at knowledge institution. However, this effect seems to be a once‐only event. The SMEs do not set out a new commission for one and a half year after the initial commission (Cornet et. al., 2007)
5.6 Summary
6. Conceptual
Model
This chapter deals with the conceptual model and detailed information about the practical research. The first paragraph will explain the conceptual model and will explore the relationships among the elements. The last paragraph contains information about the use of the interviewing method and the information from the interviews. The last paragraph contains the description of the cases that were interviewed in the practical search.
6.1 The
Model
Figure 6.1 illustrates the conceptual model used in this research. The model takes the innovation within the multi domain use of sensor information as a given factor. This means that this research wants to look at the factors influencing the alertness for multi domain use of sensor information. These factors are discussed in chapter four and five. Innovation with multi domain use of sensor information is the outcome of the model and this research looks at the factors influencing the outcome. The innovation as a given factor was given by TNO in the begin period of the research. TNO wants to see what it can do in order to get the innovation of multi domain use of sensor information among SMEs.
Figure 6.1 The Conceptual model
It is possible that SMEs collaborate with others in the innovation process and the concept of open innovation can be important for the innovation process. These two are related to each other because open innovation suggests that companies should collaborate for innovation. These two elements are influenced by barriers to innovation and can influence the barriers themselves. Barriers to innovation are categorised in finance, management and marketing, skilled labour, and external information and linkages. Both factors influence the entrepreneurial alertness to discover multi domain use of sensor information. Furthermore, it is possible that knowledge institutions collaborate with SMEs in order to stimulate multi domain use of sensor information. TNO is such a knowledge institution and can influence multi domain use of sensor information through this way. The innovation vouchers can lower the barrier finance for SMEs. Innovation vouchers can be used at TNO as well.
6.2 Interviewing
companies were interviewed. During all the interviews, semi structured questionnaires were used. The companies were chosen based on their relation to the sensor information economy and on their innovative position in the sensor information economy. Furthermore, interviews were conducted with employees of professional associations to get a clear view of the sensor information economy and the trends within it. One of the professional organisations is the Investment and Development Agency for the Northern of Netherlands (NOM). A second professional organisation is the Technology Centre North‐Netherland (TCNN). Finally, different interviews and conversations were held with employees of TNO. A list of the held interviews and the different conversations can be found in table 6.1.
A description of the case companies can be found in the next paragraph. The entrepreneurs of DikeSurvey and Dysi were interviewed two times. The description of the complete interviews can be found in appendix E and F. 101 Solutions was interviewed one time, see appendix G. It was possible to conduct a complete interview because the interview took place later in the research. The first interviews with the entrepreneurs of DikeSurvey and Dysi were introductory. In these interviews the researcher got the opportunity to get more information about the companies and their position in the sensor market. The entrepreneurs were asked about their business, their experience in the start‐up phase, their relation to other companies and organisations in the market, and their ideas about the future of the company. In the interview with the entrepreneur of 101 Solutions these questions were also asked. In the second interview with DikeSurvey and Dysi the focus was on the topic of this research. All topics were discussed in the interviews. The topics are: entrepreneurial alertness, collaboration and innovation, and multi domain use of sensor information. Within the category entrepreneurial alertness, the entrepreneurs were asked about personality traits, social network, prior knowledge, and their own opinion on the topics. In the category innovation, the entrepreneurs were asked about barriers to innovation, possible collaborations, and their own innovation process. The category multi domain use of sensor information was about the new concept and this concept was first introduced and explained. After this, the entrepreneurs were asked about their experience with and opinion of multi domain use of sensor information. Furthermore, the entrepreneurs were asked about the opportunities for multi domain use of sensor information. The topics of the two interviews with DikeSurvey and Dysi were combined in the interview with 101 Solutions.
