Participating in innovation awards: The financial barrier to innovation A multiple case study approach

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Participating in innovation awards: The financial barrier to innovation

A multiple case study approach

Milou de Roo S1888781 February, 2014

Key words Abstract

Innovation award Innovation barriers Financial barrier Signaling of quality Learning effects Networking effects

Innovation awards have been used for centuries and have become increasingly popular. However, research on innovation awards and especially on how effective they are is scarce. Therefore, this study proposed that through effects of participating in an innovation award competition, firms learn to recognize the financial barrier to innovation better and find ways to overcome it. To investigate this, eight case studies were conducted amongst the participants of the Accenture Innovation Awards 2013. The results show that participating in innovation awards has learning and networking effects for both winners and non-winners. On top of that, winners of an award see their participation as a signal of quality. In turn, signalling of quality, learning, and networking, lead to overcoming some obstacles of the financial barrier. However, results show that participation does not lead to a significant increase in financial resources.

Faculty of Economics and Business University of Groningen MSc Business Administration

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Executive summary

Innovation prizes have been used for centuries and have become increasingly popular over time. However, in spite of this long history, academic research on innovation awards and especially on how effective they are is scarce (Kay, 2011; Williams, 2012; Murray et. al., 2012; Brunt, Lerner and Nicholas, 2012).

Previous research has found that participating in innovation award competitions leads to three direct effects: signaling of quality, learning, and networking (Lerner, 1999; Löffler, 2001; Gemser et. al., 2008; Kay, 2011; Van der Eijk et. al., 2013; Borgmann, 2013). However, firms face barriers that can withhold them from creating a successful innovation. It has been suggested that through the effects of participating in innovation award competitions, firms learn to recognize these barriers better and find ways to overcome them (D’este et. al., 2012).

To address this gap, this study seeks to investigate these firms that have participated in an innovation award competition and investigate whether participation helps them recognize the financial barrier and find ways to overcome it. In this study, a special emphasis is put on the financial barrier, since this has been noted as the barrier experienced most by firms (Mohnen, 2008; Madrid-Guijarro et. al., 2009; D’este, 2012). The following research question was posed:

How does participating in an innovation award competition affect the financial barrier to innovation?.

To answer this research question, eight sub-questions and eight propositions have been developed. In addition, eight case studies have been conducted by semi-structured interviews to research the phenomena in-depth. In order to see whether there are differences between the effects of participation, four winners and four non-winners of the Accenture Innovation Awards 2013, were interviewed.

This study shows that both winners and non-winners experience the effects of learning and networking, but only winners of an award see participation as a signal of quality. This study proposed an effect on the financial barrier to innovation through these three effects. It was observed that the obstacles that caused the financial barrier, such as information asymmetry, uncertainty, and a lack of an external signal of quality, inexperience and a lack of knowledge about financial resources, were experienced by the participants. These items could be overcome through participation through a signal of quality and learning. A signal of quality leads to validation of the innovation and its quality, whereas learning effects changed the communication of the business model to potential investors. In addition, all participants came into contact with potential investors or clients and expanded their network, and thereby saw the potential for future investments grow.

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1. Introduction

Innovation prizes have been used for centuries and have become increasingly popular over time (McKinsey, 2009; Kay, 2011; Williams, 2012; Brunt, Lerner and Nicholas, 2012). Innovation is the most important driver of competitive success in many industries (Schilling, 2010). It is essential for sustaining growth and economic development (Clancy and Moschini, 2013). As research and development is very costly, incentives, such as awards, play an important role in innovation (Clancy and Moschini, 2013). Previous literature has stated that prize awards can be a powerful mechanism for accelerating technological development (Polanvyi, 1944; Wrigth, 1983; Kremer, 1998; Shavell and Ypersele, 2001; Scotchmer, 2004; Boldrin and Levine, 2008; Kremer and Williams, 2009; Chari et al., 2009 cited in Brunt, Lerner and Nicholas, 2012). Today, only a few industries are left where no awards of excellence are handed out (Anand and Watson, 2004 cited in Gemser, Leenders and Wijnberg, 2008). The aim of awarding firms is to provide developmental support that will help pursue commercialization or to induce technological innovation and attain related goals (Williams, 2012; Kay, 2011). Additionally, an award may function as a signal of quality that helps consumers and other actors in the value system of their production selection process (Gemser, Leenders, and Wijnberg, 2008).

However, in spite of the long history of awards and prizes, academic research on innovation awards and especially on how effective they are, is scarce (Kay, 2011; Williams, 2012; Murray et. al., 2012; Brunt, Lerner and Nicholas, 2012). Furthermore, research that has been conducted on the effects of awards mostly took place in the movie industry. One of the few empirical studies conducted by Brunt, Lerner, and Nicholas (2012) has shown that monetary and medal awards have a positive effect on innovation. A qualitative study investigating the Accenture Innovation Awards has shown that participating in innovation awards has three effects: learning, networking, and signalling of quality (Borgmann, 2013). These effects have also been suggested in other studies on award competitions (Lerner, 1999; Löffler, 2001; Gemser et. al., 2008; Kay, 2011; Van der Eijk et. al., 2013). Firms face barriers that can withhold them from creating a successful innovation. It has been suggested that through the effects of participating in innovation award competitions, firms learn to recognize these barriers better and find ways to overcome these (D’este et. al., 2012).

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6 1.1 Research aim

The aim of this study is to fill the gap in the literature on the effect of innovation award competitions on the financial barrier to innovation. The findings of this research attribute to the current literature on awards and barriers to innovation, as this phenomenon has rarely been looked upon in this combination. The findings help managers identify where and how processes and attributes need to be changed in their organizations so that their innovation process is optimal. In addition, this research shows how firms can overcome some of the items of the financial barrier due to participating in an innovation award competition.

1.2 Research questions

In order to fill the gap mentioned above, the following research question is posed:

“How does participating in an innovation award competition affect the financial barrier to

innovation?”

In order to answer the main question, the following sub-questions are posed: - What is innovation?

- What is an innovation award?

- How is the financial barrier to innovation defined?

- In which ways can the financial barrier be overcome that are known from previous research?

- To which extend do participating firms recognise the financial barrier? - Does the approach towards the financial barrier change over time?

- How do the factors signal of quality, learning effect and networking effects attribute to the approach towards the financial barrier?

- Does participating in an innovation award competition help firms find better ways to overcoming the financial barrier to innovation?

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7 1.3 Research scope and domain

In short, this paper attempts to find out how participating in an innovation award competition affects the financial barrier to innovation and whether participation leads to financial resources. The financial barrier is chosen, as this has been recognized as the barrier experienced by firms most (Mohnen, 2008; Madrid-Guijarro et. al., 2009; D’este, 2012). Especially small- and medium enterprises (SMEs) are affected by the financial barrier, and therefore, the focus is on SMEs (WIFO, 2010; Mina, 2013). In addition, to answer the research questions, multiple case studies are conducted. The cases are selected from the top 35, of which four winner and four non-winners. These participants have been selected since they have come to the final stage of the competition and therefore have gone through the whole process. This suggests that the effects of participation, as mentioned in previous research, are largest. The focus is on three direct effects of participation: signalling of quality, learning, and networking (Lerner, 1999; Löffler, 2001; Gemser et. al., 2008; Kay, 2011; Van der Eijk et. al., 2013; Borgmann, 2013). It is proposed that these effects in turn affect the financial barrier to innovation by affecting the items of the financial barrier (see table 2) and by obtaining financial resources directly through investors and indirectly through an increase in sales. Even though obtaining financial resources indirectly through an increase in sales suggests an increase in firm performance, firm performance is left out of scope.

1.4 Research outline

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2. Literature review

The aim of this study is to fill the gap in the literature on the effect of innovation award competitions on the financial barrier to innovation. In this literature review, literature discussing innovation, awards, innovation barriers, signaling of quality, learning and networking will be touched upon. The chapter concludes with a summary of the literature.

2.1 Innovation

The increasing importance of innovation is due in part to globalization, where foreign competition has put pressure on firms to continuously innovate in order to produce differentiated products and services (Freel, 2000; Schilling, 2010). This increasing competition entails that innovation plays a central role in the long-term competitiveness and survival of a firm (Ancona and Caldwell, 1987; Freel, 2000; Kelly, 2009; Zhang, Yu, and Xia, 2012). However, not everyone defines innovation in the same way. Schumpeter (1934) first defined innovation as a ‘first commercial improved device, product, or product system’. By Conway and Steward (2009), innovation is defined as ‘a novel idea that has been commercialized’. This commercialization distinguishes an invention from an innovation. An invention is a novel idea, whereas an innovation is a novel idea which is actually introduced into the market (Lipczynski and Wilson, 2001 in Wijnberg, 2004). However, innovation can also be defined as a new creation which is presented to selectors in such a way that they can determine its value (Wijnberg, 2004). Another way of defining innovation is stated by Thompson (1965) ‘it is the generation, acceptance and implementation of new ideas, processes products or services’. In answer to sub question 1, ‘What is innovation?’, and for the purposes of this study, innovation is defined as the commercial introduction of ideas (in any domain) which are new and/or original for the industry concerned (Gemser and Wijnberg, 2001).

Innovation is one of the most important ways to create value according to Wijnberg (2004). Especially radical or discontinuous new products or services play an important role in building competitive advantage and can contribute significantly to a firm’s growth and profitability (Veryzer, 1998). It is this type of innovations which innovation awards focus upon. The new product development process is very costly, risky, and timely, and often innovators face an appropriability problem (Blanchard, 2012; Clancy and Moschini, 2013). Therefore, incentives for innovation have been created (Schilling, 2010). Amongst these incentives for innovations are patents, prizes, and research contracts (Clancy and Moschini, 2013). In this study we focus on prizes, also known as awards. This brings us to the next literature section, namely awards.

2.2 Awards

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addition, innovators often face an appropriability problem (Clancy and Moschini, 2013). Appropriability can be defined as a firm’s share of total rents as appropriated by firms from the final customer over a specific point of time (Ellegaard, 2009). Incentives such as patents and procurement can be a solution to this appropriability problem.

Patents are developed to motivate innovation and induce the development and commercialization of inventions (Mazzoleni and Nelson, 1998). However, they do not work in practise as they work in theory, as they often can easily be invented around at modest costs (Teece, 1986; Gallini and Scotchmer, 2002). This is due to the fact that the innovation becomes a public good once it is patented. Next to this, procurement constraints both the set of possible innovators and the range of approaches they consider (Murray et. al., 2012). Due to these weaknesses, literature suggests the use of alternative or complementary mechanisms, such as prizes (Brunt, Nicholas, and Lerner, 2012).

Innovation prizes can overcome the main weakness of the patent system, namely the deadweight welfare loss, by requiring the winning invention to be placed in the public domain and prize rewards to reflect the social value of the prize inventions (Gallini and Scotchmer, 2002; Kay, 2011; Clancy and Moschini, 2013). In answer to sub question 2, ‘What is an

innovation award?’, an innovation prize, also called innovation award interchangeably, is in

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technologies by Brunt, Lerner and Nicholas (2012) suggests that the prizes encouraged innovation beyond the patent system alone. Winning an award has a positive effect on the patenting activity, which shows that awards are not always an alternative to patents, but can also act complementary (Brunt, Lerner, and Nicholas, 2012).

In the next paragraphs the effects of participating in innovation award competitions are discussed: signalling of quality, learning, and networking. Afterwards, innovation barriers are discussed, with a main focus on the financial barrier to innovation.

2.3 Signalling of quality

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11 2.4 Organizational learning

Innovation can serve as an important vehicle for organizational learning and renewal (Zhang, Yu, and Xia, 2012). Organizational learning has been identified by executives and academics as perhaps the key factor in achieving sustainable competitive advantage (Dyer and Nobeoka, 2000). Additionally, research suggests that organizational learning is a central means through which firms generate innovations (Argote, 1999). Participating in an innovation award contest means that a firm comes in contact with other firms that participate, as well as market leaders, experts and incubators. One of the effects of participating in an award contest is indeed learning (Kay, 2011). Awards encourage knowledge sharing, seed networks, develop communities, and build innovation competencies by motivating learning by doing (Lampel, Jha, and Bhalla, 2012). Hence, in addition from learning from participation and other participants, a firm can also obtain knowledge from market leaders, experts and incubators. Literature has shown that a firm’s own failures are valuable to learn from, and in turn, a firm can also learn from the failures of other organizations (D’este et. al., 2008). Outside sources of knowledge are often critical to the innovation process, and most innovations result from borrowing rather than invention (Cohen and Levinthal, 1990). In this case, a firm needs to be able to learn from other organizations or other external sources. This ability to learn is important as it transcends the notion of networking or one-to-one collaboration (Freel, 2000). An important aspect of organizational learning is the absorptive capacity of the firm. As stated by Hall and Adriani (2002), knowledge which is new to an organisation either has to be invented internally or acquired from external resources. This new knowledge may add to, complement, or substitute the existing knowledge base. Most often, new knowledge is acquired from external sources. However, learning from external sources has been mentioned as a difficulty for firms because of an absence of functional specialists and broad levels of internal competence (Freel, 2000). Absorptive capacity is the ability of the firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends (Cohen and Levinthal, 1990). As firms accumulate knowledge, they also increase their future ability to assimilate knowledge (Schilling, 2010). The ability to evaluate and utilize external knowledge is largely dependent on the level of prior related knowledge, as prior knowledge enhances learning because memory is developed by associative learning where events are recorded into memory by establishing linkages with pre-existing concepts (Cohen and Levinthal, 1990). These linkages permit individuals to make sense of and acquire new knowledge (Bower and Hilgard, 1981). As a result, learning becomes more difficult in novel domains. Consequently, absorptive capacity is highly path-dependent.

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2012). The last form of direct learning is improvisational learning, which is a real-time learning process in which firms learn to solve unexpected problems or capture surprising opportunities in the moment. This results in the creation of new generalizable knowledge, and often this knowledge is retained and repeated successfully in different settings. Bingham and Davis (2012) also note that this type of learning may represent the first step in longer-term trial-and-error learning. Lastly, there is vicarious learning, learning from others’ experiences, which is an indirect learning process. When faces with insufficient information for learning from their own experience, organizations can rely on others’ experiences to gain new knowledge (Bingham and Davis, 2012). Learning is a possibility during the participation in an award contest, where firms come into contact with others. This means that there is a possibility to learn. However, research suggests that vicarious learning may not be a good initial learning process as new and/or inexperienced firms lack the absorptive capacity to learn from others, so that even if they are able to gain knowledge, they may not be able to internalize and leverage it fully (Henisz and Delios, 2001; Zahra and George, 2002 in Bingham and Davis, 2012).

TABLE 1 – Learning processes

Type of learning Process How?

Direct Trial-and-error Learning occurs as behaviour is changes in response to prior performance outcomes Direct Experimental Learn through tests and experiments – what

went wrong/right?

Direct Improvisational Learn in real-time where unexpected problems are solved or opportunities are seized.

Indirect Vicarious Learn from others’ experiences through observation

2.5 Networking

A significant portion of innovation arises not from any single individual or organization, but from the collaborative efforts of multiple individuals or organizations (Schilling, 2010). Collaboration can enable firms to achieve more, at a faster rate, and with less cost or risk than they can achieve alone. It can enable a firm to obtain necessary skills or resources more quickly (Chan et. al., 1997 in Schilling, 2010). In this way, a network can help a firm obtain resources.

The benefits of an award competition are multi-faceted, such as media attention, building reputation, education, quality signalling, fun and community building (Murray, 2012). These benefits vary between competitors, but network effects are present, as firms have the opportunity to get into contact with others (Murray, 2012). These people can be expert judges, potential investors and sponsors, potential suppliers, and other firms that are in the competition. This benefit, which refers to the set of relationship between a group of individuals or organizations, is called a network (Conway and Steward, 2009)

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bring together people and ideas, but also to encourage future collaboration and innovation. However, to establish networking, several key features are necessary to create these relationships. For example, reciprocity is important for building linkages, and for facilitating the exchange of information and knowledge (Conway and Steward, 2009). Additionally, trust is an important feature to create the willingness to share and disclose information.

Through establishing a network, opportunities arise. Research finds that often the greatest societal benefit is not derived from winning an award, but from conferences, judging panels, and competitor networks as a part of the process (McKinsey, 2009). The effect of networking during an award competition has been found in several other studies (Lampel, Jha, Bhalla, 2012; Murray, 2012; Borgmann, 2013). For some competitions, the main goal is cooperation, where networks are seeded and communities are developed (Lampel, Jha, Bhalla, 2012). In other cases, prizes are set up as a network, so that a particular community can be strengthened, excellence can be identified and capital can be mobilized (McKinsey, 2009).

2.6 Innovation barriers

Innovation is recognized as a key factor in the competitiveness of nations and firms. Therefore, small- and medium enterprises (SMEs) that do not place innovation within their core businesses run the risk of becoming uncompetitive due to obsolete products and processes (Madrid-Guijarro et. al., 2009). However, successful innovation requires overcoming certain barriers, as innovation can expose the firm to additional risk from both internal factors, related to management, organization and firm competences, and external factors, relating to the institutional and market context (WIFO, 2010).

Previous literature sets out the main barriers to innovation. These are related to financing, human resource management, marketing, competition, and external (market-)information barriers (Van der Eijk et. al., 2013; Freel, 2000; D’este, 2012). Firms face barriers to innovation for several different reasons. Radical innovation is often brought on by SMEs, whereas successful established firms often fail to adapt successfully to these revolutionary changes in technology as they face barriers to innovation due to path dependence, lock-in, inflexibility and inertia (Freel, 2000; Ferriani et. al., 2008). This may limit the ability of incumbent firms to identify new opportunities and adapt to environmental changes. However, the difficulties faced by new firms may be related to a lack of resources and market structure (D’este et. al., 2012). SMEs have a lack of bureaucracy, efficient communication systems and flexibility and adaptability due to market nearness (Freel, 2000; Paap and Katz, 2004). Additionally, as highlighted by Freel (2000), SMEs face different difficulties than established firms such as a lack of qualified labour, poor use of external information and expertise, and difficulty in securing finance. In short, the advantages experienced by SMEs are mainly behavioural, whereas its constraints concern resources.

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der Eijk et. al., 2013). For the purposes of this paper, we focus upon the financial barrier to innovation. In answer to subquestion 3, ‘How is the financial barrier to innovation defined?’, the financial barrier to innovation refers to the difficulties SME’s encounter when trying to access financial resources. Financial problems have been identified as one of the most significant barriers to innovation, as financial obstacles can constrain the investment in innovation (Mohnen, 2008; Madrid-Guijarro et. al., 2009; D’este, 2012). A more extensive explanation of the financial barrier to innovation can be found below.

2.6.1 The financial barrier to innovation

Several theories explain why small innovative firms often experience the financial barrier to innovation (Giudici and Paleari, 1999). These theories are: agency costs theory and pecking-order theory. Both explain that there is be a gap between internal and external cost of capital, due to several factors which are explained below (European Commission, 2010).

The agency theory, as described by Jensen and Meckling (1976), suggests that financial constraints are primarily a consequence of information asymmetries between external investors and entrepreneurs, and the high risk of innovative activities (Giudici and Paleari, 1999; Freel, 2000; Madrid, 2009). Asymmetries arise as the firm has better and more information on the probability of success of the innovation project, and is hesitant to fully disclose this information, as it can endanger the competitive advantages of the firm (Hall, 2002: European Commission, 2010; Giudici and Paleari, 1999). Information asymmetries lead to adverse selection, which arouse agency costs: investors ask for a premium on the rate of return required for the funds. In short, this relative lack of external information about firm quality can lead to financial constraints (Mina, 2013). However, the information asymmetries can be mitigated through a continuous flow of information (Giudici and Paleari, 1999). Literature on agency theory suggests that providers of finance do not offer enough capital to businesses, which in turn leads firms to see external financing as a way of losing voting and control power.

The pecking-order theory emphasizes that firms first choose internal financing, after which they consort to external financing and consider equity financing as their last resort (Myers, 1984; Myers and Majluf, 1984; Mina, 2013). Start-ups often have both an unproven technology and an unproven business concept, so they generally face a much higher cost of capital than larger competitors, and their options for obtaining financial resources can be very limited (Schilling, 2010). Therefore, as firms grow older and larger, access to finance becomes easier (Mina, 2013).

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insufficient capital and under capitalization (Larsen and Lewis, 2007). Another factor that has been mentioned previously, is that innovators are reluctant to share information with outsiders, due to appropriability problems, which in turn hampers financing as there is asymmetric information (Mohnen, 2008).

Research conducted by D’este et. al. (2012) based upon the 4th

Community Innovation Survey (CIS), identify ‘cost factors’ as the barrier that is experienced most by the firms. These factors entail that one of the following items hampers the firm to innovate; excessive perceived economic risks, direct innovation costs are too high, cost of finance, and availability of finance. Additionally, the cost barrier in this research has also been assessed as the most important one. The cost barrier or financial barrier identified by D’este (2012) can be a deterring as well as a revealed barrier. Revealed barriers occur when firms engage in the innovation process. During this process they may experience barriers to innovation, and this in turn leads to an increased awareness of the associated difficulties with the innovation process. However, this type of barrier does not prevent them from engaging in the innovation process or being successful at it (D’este, 2012). Deterring barriers are barriers that are a real impediment to innovation. D’este (2012) found a U-shaped relationship, which showed that cost barriers hinder commitment to innovation activity (deterring effects) for some firms, and reflect learning from direct experience of engagement in innovation (revealed effects) for others.

According to Freel (2000), access to finance is one of the most cited barriers to innovation for SMEs. Innovation requires front-end sunk costs, greater attendant risk, high monitoring costs, and the inability of funding providers to adequately assess either technological validity or project viability, often speak against the case of SMEs to provide them funds. This in turn results in high borrowing costs, a reliance on short-term funding and an equity gap (Freel, 2000). The results of Freel’s (2000) research shows that not many firms apply for external finance in the case of innovation, and those that do apply for external funding often do not get access, especially in the case of bank loans. Additionally, firms in this survey were aware of bank-loans, but not many firms were aware of other possibilities, such as business angel funding, equity funding, and EU national or regional grants. Next to this, the results showed that the most important reasons for not getting access to funding were the following: difficulties in validating techniques, difficulties in assessing risk, pay-back period too long, difficulties in drawing up the business plan, difficulties in assessing the return on a project, lack of experienced managerial personnel and lastly, difficulties in providing adequate collateral or assets.

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TABLE 2 – The items of the financial barrier

Author Item

D'este et. al. (2012) Excessive perceived economic risk Direct innovation costs are too high

Costs of finance

Availability of finance

Freel (2000) Front-end sunk costs required

Attendant risk

Monitoring costs

Inability to assess technological validity or project viability

Not aware of the potential resources of finance

Difficulties in validating technology, assessing risk, assessing return on the project, and in providing adequate collateral or assets

Pay-back period too long

Lack of experienced managerial personnel Bergemann (2005) Uncertainty about time and capital required

Agency conflicts (monitoring costs & assymetric information)

Giudici & Paleari (1999)

High risk of failure High exogenous sunk costs

Entrepreneurs have little capability and experience in complex business administration

Hausman (2005) Limited internal capital Larsen & Lewis (2007) Undercapitalization

Short-term liquidity problems

Insufficient start-up capital

Insufficient working capital

Poor financial management

Innovation projects are seen as high-risk by investors Madrid-Guijarro et. al. (2009) High monitoring costs

Viability project unknown

Uncertainty about the process

Mina et. al. (2013) Lack of external signals towards investors

Size of firm

Investors are not able to assess the firm's quality Mohnen (2008) Innovation projects are seen as high-risk by investors No signal of quality available for investors

Lack of providing adequate collateral or assets

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of the associated items of the financial barrier can be overcome, such as a lack of knowledge about project viability or potential financial resources.

2.7 Summary of the literature review

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3. Conceptual model

The conceptual model summarizes and links the theories mentioned above. While explaining this conceptual model, eight propositions are derived. The main research question is: “How

does participating in an innovation award competition affect the financial barrier to innovation?”

SMEs experience constraints in their resources, amongst these are access to financial resources. Previous literature states that not many SMEs obtain access to financial resources as their business case is not convincing, the projects are too risky and the return on the investment is not certain. Additionally, many firms are not aware of the financing possibilities that are available next to bank loans. Through participating in an award competition, firms obtain a signal of quality, learn, and get into contact with a large variety of people, which lead to networking effects (Borgmann, 2013). To answer the research question as stated above, it is assumed that through these effects, firms recognize the financial barrier better and find ways to overcome these (D’este et. al., 2012).

3.1 Winners & non-winners

Borgmann (2013) has found that the three effects are visible for both winners and non-winners. In addition, previous literature has found that the effects of a nomination do not exceed the award winners (Nelson, 2001; Gemser, Leenders, and Wijnberg, 2008). However, other research has found that winners mostly reap the benefits of participating in innovation award competitions (Kay, 2011; Fu, Lu, Lu, 2012). Therefore, this study makes a distinction between winners and non-winners in order to observe whether or not there are differences in effects on the financial barrier to innovation. It is proposed that the effects are larger for winners than non-winners. A more detailed explanation of this distinction can be found in the methodology, 4.2.1 Winners vs. Non-winners.

3.2 Signalling of quality & financial resources

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19 Proposition 1A: A signal of quality has a direct effect on financial resources, to a larger

extent for winners than non-winners.

Proposition 1B: A signal of quality has an indirect effect on financial resources, to a larger

extent for winners than non-winners.

3.3 Learning effects & financial resources

An effect of participating in an innovation award competition is learning. By participating, companies will learn to recognize barriers and find ways to overcome these (D’este et. al., 2012). Award competitions can facilitate this by posing questions to the firms in judging panels, as well as educating the firms through, for example, workshops or conferences. It is assumed that firms learn new ways to approach the financial barrier. In addition, the direct effect is learning of different possibilities to fund the firm’s project and learning how to sell the business case to investors. The indirect effect is learning from others’ experiences through observation.

Proposition 2: Learning effects lead to a better approach to obtain financial resources, to a

larger extent for winners than non-winners.

Proposition 3A: Learning has a direct effect on financial resources, to a larger extent for

winners than non-winners.

Proposition 3B: Learning has an indirect effect on financial resources, to a larger extent for

3.4 Networking effects & financial resources

Lastly, the networking effects in award competitions have been found in several studies. Firms come into contact with a large variety of people, which enables them to share ideas, knowledge, and build relationships. It is assumed that firms get into contact with potential investors by networking at the different events organized during an innovation award, which can make them improve their approach and strategy towards investors. In addition, networking can have a direct effect on financial resources by meeting investors. By the indirect effect of networking, it is meant that firms meet people that are willing to use and buy the innovation, which in turn leads to an increase in sales and thereby financial resources.

Proposition 4: Networking effects lead to a better approach to obtain financial resources, to a

larger extent for winners than non-winners.

Proposition 5A: Networking has a direct effect on financial resources, to a larger extent for

Proposition 5B: Networking has an indirect effect on financial resources, to a larger extent

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20 3.5 Conceptual model

In short, we assume that participation in an innovation award competition leads to financial resources either directly or indirectly. This relationship is moderated by three effects that occur when firms participate in an award competition, namely a signal of quality, learning, and networking. In addition, we assume that these effects are larger and more visible for winners than non-winners.

FIGURE 1 – Conceptual model

Innovation awards

Networking effects Signal of quality

Learning effects Financial resources

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4. Methodology

4.1 Theory building

As the literature in the field of innovation awards is scarce, this master’s thesis will aim at theory development, where the underlying logic is grounded theory building. This involves gathering data through case studies (Eisenhardt, 1989). This method is chosen as a grounded theory building approach is more likely to generate novel and accurate insights into the phenomena, than relying on past research or office-bound thought experiments (Glaser and Strauss, 1967). Additionally, it can be important and interesting to understand the dynamics present within multiple different settings. Case studies have been said to be a powerful research methodology that combines individual interviews with information extracted from company information, and newspaper or magazine articles (Cooper and Schindler, 2008). Following Eisenhardt’s process of building theory from case studies, multiple case studies have been conducted. In studying multiple cases, a deeper understanding emerges (Cooper and Schindler, 2008). The cases have been investigated upon in-depth by conducting interviews with key people within the organization that are closely linked to the project with which they entered the Accenture Innovation Awards 2013. In addition, observations at both the Innovation Academy and the Innovation Experience have been made. To obtain a view on the similarities and differences between the cases, a cross-case analysis has been performed. The intention of a cross-case analysis is to go beyond the initial impressions and capture novel findings (Eisenhardt, 1989).

4.2 Sample

In total, eight case studies have been conducted. To be able to be selected as a possible case study, a company needs to have entered the Accenture Innovation Awards. Furthermore, the innovations need to be younger than three years old. In addition, the case studies have been selected based on their willingness to participate and whether they experience financial obstacles with their innovation. All companies selected are small firms, as smaller companies mostly experience the financial barrier to innovation. For the purposes of this study, a small firm is defined as having 25 employees or less (Kelly, 2009). The case studies have been selected out of a pool of 35 firms, the top 35 that came until the last round of the competition. An explanation of the different stages of the AIA can be found in table 3. This is for the reason that only those firms that have completed all rounds of the competition, and therefore have experienced the whole contest. We expect the effects of participation to be largest when experiencing all stages of the competition, and therefore only these firms are interviewed. In addition, a distinction is made between winners and non-winners. The importance of this is explained in the next paragraph.

TABLE 3 – Stages of the Accenture Innovation Awards

Registration Firms register for the AIA by completing a questionnaire concerning their innovation.

Pre-selection Based on the questionnaire firms filled in, Accenture selects concepts that go through to the first judging event.

Judging event 1 (approach differs per industry)

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Innovation Academy Accenture offers several workshops by different companies about creating a solid business plan, finances, social media and other topics

Judging event 2 (Not for all industries)

The top 10 innovations get to deliver a pitch after which the industry experts have the possibility to pose questions. Afterwards, a top 2 or 3 is selected out of the top 10.

Innovation Experience The innovation experience is the main event. The firms which are left at this point of the competition pitch their innovation to industry experts and visitors. Questions are asked, after which the winning innovations per industry are announced. These winners gain publicity through various media and obtain a number of consulting hours from various firms.

Innovation Exchange Some of the firms are linked to clients of Accenture, where start-ups can get into contact with large firms to exchange their ideas.

4.2.1 Winners vs. Non-winners

Of the small firms that are selected for case studies, four are winners and four are non-winners. Research has found that some award competitions are designed as ‘winner-take-all’ and that winners mostly reap the benefits of participating in innovation award competitions (Kay, 2011; Fu, Lu, Lu, 2012; Murray, 2012) However, other award competition research has found that the effects of participation are not greater for award winners than award nominees (Nelson, 2011; Gemser, Leenders, and Wijnberg, 2008; Borgmann, 2013). This distinction between winners and non-winners can give insights into whether there are differences with regard to resources, capabilities and in effects on the financial barrier to innovation. As was mentioned before, in studying multiple cases, a deeper understanding emerges (Cooper and Schindler, 2008). This is because they offer similar results for predictable reasons, literal replication, or offer contrary results for predictable reasons, theoretical replication (Cooper and Schindler, 2008). Amongst the winners and non-winners, similar results are expected, whereas between winners and non-winners, contrasting results are expected.

TABLE 4 - Selected case studies

Firm Position

1. African Clean Energy Winner

2. Innovative Gear Designs Winner

3. Social Shop Winner

4. Wingssprayer Winner

5. BannerXpress Finalist

6. Carborex® MS Finalist

7. EcoChain Finalist

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This study used both primary and secondary sources of data in order to create a possibility for triangulation of evidence. Therefore, different data collection methods were used in different steps of the research. As primary sources, a survey and semi-structured interviews have been conducted. Furthermore, as secondary sources, media publications and company websites were used.

The survey has been conducted upon registration for the competition. The questions posed in the survey can be found in appendix 1. After the announcement of the winners, in-depth semi-structured interviews with open-ended questions have been held with key people within the organization. Semi-structured interviews were chosen as it gives the opportunity to develop a dialogue between the interviewer and interviewee. More on the reliability and validity of semi-structured interviews can be found in chapter ‘4.6 Reliability and validity’. Key people within the organization were identified as those persons that were mostly involved in participation. In this way, they could answer all questions posed and give examples of how they experienced participation. Questions regarding financial obstacles, signalling of quality, learning, and networking were asked. In addition, questions regarding the effect of signalling of quality, learning, and networking on the financial barrier were asked. The interview constructs and their explanation can be found in ‘4.5 Constructs’. The interview guide can be found in appendix 2. In total, eight interviews were held, all with a duration of 35 to 70 minutes. We will now continue with how the data gathered was analysed.

4.4 Data analysis

The semi-structured interviews conducted were taped, transcribed and coded, after which they were sent back to the interviewees to see whether everything was interpreted correctly. Since interview transcripts mean there is a lot of data to analyses, interview summaries per construct were created (see appendix 2). Furthermore, a qualitative data matrix and a summary on the interviewee quotes per construct were made to more easily interpret the results (see table 6 and 7). A qualitative data matrix can help facilitate the coding and interpretation process (Miles and Huberman, 1994). It condenses the data into simple categories, reflects further analysis of the data to identify the degree of support, and provides a multidimensional summary that facilitates subsequent, more intensive analysis (Schutt, 2012). In addition, the qualitative data matrix and quotes aided the cross-case analysis (see below).

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case. First, the cases were compared to within their categories (winners and non-winners), after which the two categories were compared to each other by using the case write-ups, qualitative data matrix, interview summaries and interviewee quotes.

4.5 Constructs

This study makes use of different constructs in order to observe whether or not effects of participation are present. The constructs are all dichotomous, they are either present or not (Cooper and Schindler, 2008). The following constructs were used: innovation awards, signal of quality, learning, networking, and financial barrier.

Table 5 gives an overview of the constructs and their operational definitions. These definitions are stated in terms of specific criteria for measurement, and specify the characteristics and how they were observed during the analysis of the interviews. The

constructs were measured by noting the words and observing in which context they were used by the interviewees. Furthermore, questions regarding the constructs were asked to the

interviewees (See appendix 2). In addition, table 5 mentions the type of variable. These are named using Cooper and Schindler’s (2008) typologies for variables. In this way, innovation award is the independent variable, whereas the financial barrier is the dependent variable. Signal of quality, learning, and networking are intervening variables. An intervening variable is a conceptual mechanism through with the independent variable affects the dependent variable (Cooper and Schindler, 2008). In short, the effect of innovation awards on the financial barrier occurs through these variables.

TABLE 5 – Operationalization of constructs

Construct Definition Type Words References

Innovation Awards

Ex-post rewards designed and organized as a competition for innovations meeting certain prerequisites Independent variable

Not applicable Kay, 2011; Murray et. al., 2012; Clancy and Moschini, 2013; Van der Eijk et. al., 2013

Signal of quality

A way to communicate certain information that influence people’s

perception of the quality of the firm or innovation and an award may function as a signal of quality. Intervening variable Acceptance, acknowledgement, appreciation, confirmation, credibility, publicity, quality, recognition, reputation, trust, and validation.

Lerner, 1999; Larsen and Lewis, 2007; Azadegan and Pai, 2008; Gemser, Leenders, and Wijnberg, 2008; Kay, 2011, Zhang, Yu, Xia, 2012; Murray, 2012; Clancy and Moschini, 2013; Mina, 2013

Learning The way in which people obtain new knowledge and recognizing the value of new information,

assimilate it, and apply it.

Intervening variable

Learning from the failures of other

organizations, sharing of knowledge by

participants, industry experts, and market leaders, being able to recognize barriers better and finding ways to overcome these barriers, from participation

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through registration, pitches, feedback, workshops, and conferences.

Networking The set of relationships between a group of individuals or organizations.

Intervening variable

Speaking and getting to know people such as expert judges, potential investors, sponsors, potential suppliers, and other participants.

Conway and Steward, 2009; Schilling, 2010; Murray, 2012.

Financial barrier

Difficulties SME’s encounter when trying to access financial resources

Dependent variable

Difficulties and obstacles through costs of capital or innovation,

availability, information asymmetries,

uncertainty, validity, high risk, and a lack of knowledge on financial resources

Giudici & Paleari, 1999; Freel, 2000; Bergemann, 2005; Hausmann, 2005; Larsen & Lewis, 2007; Mohnen, 2008; Madrid-Guijarro et. al., 2009; D’este et. al., 2012, Mina et. al., 2013.

4.6 Reliability and validity

To answer the posed research question, the method of gathering data through multiple case studies was chosen in order to develop theory. The most important criteria to ensure the quality of these case studies are reliability and validity (Swanborn, 1996; Yin, 1994; Cooper and Schindler, 2008).

According to Yin (2003), the results of a study are reliable when they are independent of the particular characteristics of that study and can therefore be replicated in other studies. In order to guarantee the reliability of this research, in-depth semi-structured interviews were conducted (see Appendix 2). The advantage of in-depth interviews is that they provide much more detailed information than what is available through other data collection methods, such as surveys. Furthermore, in semi-structured interviews most questions are standardised. This increases data reliability and replication of the interviews is possible. By transcribing, coding, and creating summaries of the interviews per topic, a clear routine was provided for the analysis. Furthermore, the interviews were sent back to the interviewees to further ensure reliability.

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analysis and interpretation (Aken, Berends, and Van der Bij, 2012). By using semi-structured interviews and using a routine to analyse the cases, independency was obtained.

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5. Results

From the collected data, eight case studies were written. These case studies describe the participation and the experiences of eight different companies of which four are winners and four are non-winners. Below, there is a description of each case, followed by a table with quotes about the different constructs and a qualitative data matrix which gives a summary on the constructs.

5.1 African Clean Energy – Smokeless Stove

he smokeless stove of African Clean Energy (ACE), founded in 2011, is a cook stove that is fuelled by wood, dung, or other biomass and does not produce any smoke. Since there is a large health problem in third-world countries where smoke is inhaled during cooking, the smokeless stove was developed. In addition, it is environmentally friendlier than the traditional ways of cooking. Currently, the company mainly directs its efforts at South-Africa and has a plant based in Lesotho. The aim is to make the smokeless stove affordable to the extremely poor, whereas it is now only affordable for the middle class.

Mr. Walker mentioned that, since ACE operates in one of the most difficult countries of the world, South-Africa, they experienced many obstacles. “A chronic lack of financial resources is one of our main obstacles” and it is one of the reasons Mr. Walker participated in the Accenture Innovation Awards (AIA). This is also supported by the survey filled in at the registration of the AIA which shows that high innovation costs and obtaining internal as well as external finance has been an obstacle (Appendix 3). In addition, they have had difficulties finding cooperative partners for innovation. Even though finances are a large obstacle for ACE, Mr. Walker would not just let anyone invest in the company. “We are looking for investors, but I must honestly say that we are not looking for just any investor. When the right potential investor presents itself, one that can also really add something to the company, like knowledge, I would definitely consider it.”

Mr. Walker did not really learn anything specific from participation, but thinks it has a positive effect on their image. ACE also received additional publicity by appearing on the radio, TV and in papers. He thinks that companies can use the AIA as a marketing tool and to gain extra media attention. ACE is a winner of the AIA, and Mr. Walker thinks the position will help him obtain financial resources. In addition, he said: ‘that is also something we need to do more, we need to exploit our position more and more’. He experienced the award contest as a fun competition and a great way to enlarge his network. “Overall, the whole journey of participation has been very useful to us. I met a lot of interesting people that can be very important to our company. I came into contact with many other innovations and thereby gained new insights”.

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business model is very interesting”. However, he also mentioned that his approach towards obtaining finances did not really change because of the AIA.

5.2 Green Motion Technologies – Innovative Gear Designs

Green Motion Technologies (GMT) is described by Mr. Khamooshian as “a technical innovation company that develops sustainable innovative techniques”. Innovative Gear Designs is one of the two projects developed by GMT. It is an innovation that creates new gear designs, which increases strength, life cycle and total efficiency of gears. Next to this, it decreases noise, lubrication and heat of gears. GMT has been founded by Mr. Khamooshian in 2010 and has won the New Venture award, and is a winner of the Accenture Innovation Awards 2013. Several subsidies and investments from business angels have been obtained. Currently, Mr. Khamooshian works together with four other partners that do not only contribute finance, but also their expertise. Mr. Khamooshian is still looking to obtain external finance to fund the company’s project and to expand its business.

When speaking about the Accenture Innovation Awards (AIA), Mr. Khamooshian mentions that he picked to participate in the AIA because it seemed fun, but he had not heard of Accenture before. “We joined the competition and got through to the next rounds, that was a total surprise to us”. Mr. Khamooshian met many interesting people; he points out that “the AIA really led us to meet potential investors that really seem to be interested”. Some members of the jury were interested in the innovation and conversations about finances have taken place. However, there is no actual outcome from these conversations yet. “Of course, obtaining funds takes time, because it takes at least 3 to 6 months to close a deal. These are important deals since it is not only about money, but there is also a lot of knowledge and these people have a large network”.

By winning the award, Mr. Khamooshian mentions that “Accenture really contributed to the general recognition and reputation of the company”. He indicates that winning the AIA has helped people see GMT as “a well-established company. People’s opinion and judgement has changed. People that were critical at first are now impressed by our achievements”. Furthermore, Mr. Khamooshian points out that “This award is more prestigious than the New Venture award. The reactions to us winning the Accenture Innovation Awards are way better”.

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finances “Again, the recognition results in people taking you more seriously”. However, his approach towards obtaining finances did not change while participating in the AIA. Again, Mr. Khamooshian highlights the importance of networking during the competition “I really spoke to a lot of people and well, the judges, those are the really big guys in the industry, I now know then and I can just contact them”.

5.3 Favela Fabric B.V. – The Social Shop

The Social Shop has been founded by Sander Dullaart in 2011. The Social Shop is a social shopping platform, where brands give their customers the opportunity to open up their own social shop. In this way, brands activate their customers as a sales channel. Brecht Swanenberg, product manager at Social Shop, describes the concept: “It is a way for companies to deploy their customers as salesmen. These customers are rewarded for their sales and can share the rewards with the person buying it. This means that your customers buy the product with more knowledge, since a friend is selling it to them instead of a salesman in a physical store”. In short, the consumer can get a good deal and is well-informed, the customer selling the product can gain rewards by recommending the product, and the brand increases customer loyalty, exposure in social media, and sales.

As a subsidiary of Favela Fabric B.V., the initial financing of the Social Shop came from within the company. Mr. Swanenberg explains: “The Social Shop was created within an existing company, which means that you have already knowledge available. In addition, you also already have people at your disposal which can help you develop the idea”. To further develop Social Shop, Mr. Swanenberg mentions that the knowledge and competences they did not have yet, they obtained by hiring new people. Even though the Social Shop did not have any problems obtaining initial investments, to expand, they do need investments. “We have now ended up in the second phase of growth. To expand our business, we need financing”. “We were very happy that we were invited to the semi-final. The energy there was gruesomely good. The real inventors and entrepreneurs were there”. Mr. Swanenberg describes the semi-final as a good place to network. He spoke to many new people, including other participants and jury members. He and his colleague, Sander Dullaart, also ran into people they already knew: “It is good that you meet people there you already know. It was a very good thing to see those people there, as they can have an interest in the Social Shop in a different way”. However, he also explained that the final was less qualified as a networking event. Mr. Swanenberg explains that he saw the Accenture Innovation Awards (AIA) as a very useful event to meet potential investors: “It was sort of a Dragon’s Den1”. He explains that they met potential investors and that at this moment they are having conversations with different people.

Mr. Swanenberg said Social Shop participated in the AIA because they thought it would be fun. However, he also mentioned that up until the semi-final, they were not as involved as others. They did not participate in any of the workshops and by this, also did not learn

1

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anything from participation. Furthermore, he explains that they did not get any useful feedback on their pitch.

Winning the blue tulip came at exactly the right moment in time for Social Shop. Not only was winning the award a signal of quality to existing clients, it also triggered potential clients to say yes to Social Shop. Mr. Swanenberg explains “Potential clients we were already talking to said they wanted to participate. It definitely triggered something”. In addition, Mr. Swanenberg mentions that since they are now growing rapidly2, winning the award helps in the plausibility of their business concept, as well as growth and extra clients.

5.4 Wingssprayer B.V. – Crop protection without emission

Mr. Hoeben founded Wingssprayer B.V. in 2010 and developed the Wingssprayer spraying technique for crop protection. Wingssprayer is an innovation that uses the downwards air streams of the driving winds to protect crops, which leads to crop protection without burdening the environment with chemicals. In addition, crops can be sprayed at higher speed. To launch the product, Wingssprayer has received several investments from acquaintances, as well as the municipality of Eindhoven and companies such as Brainport and StartLife that help the development of start-ups. In addition, Mr. Hoeben started a crowd funding campaign to receive finances to fund his company. Up until this moment, finances are still a large obstacle: “My financial situation restricts the growth of the company”. In addition, he points out that “Development takes up a lot of time and money. You keep needing money.”

Mr. Hoeben decided to enter the Accenture Innovation Awards (AIA) to improve the reputation of his company and also to make his innovation known to a larger audience. With the prize he won by winning the award, he would like to gain more fame, but also to let a wide audience know that financial resources are still needed. Mr. Hoeben believes that by winning the AIA, he can gain more funds. He explains “I think winning the award helps to obtain finances. I got a lot of great reactions and I also communicate that I won the award on my website. In addition, I did some interviews with specialist journals”.

Another obstacle mentioned by Mr. Hoeben is the lack of knowledge of his audience. He gained knowledge through experience, but realizes there are not many people that have this knowledge: “They have no knowledge. I realize that this is not possible, but they also do not try to gain this knowledge”. In addition: “Farmers like me know how to use the chemicals on crops, but there are few people who have profound knowledge of crop protection”. The AIA has helped Mr. Hoeben learn how to communicate to his audience: “Through the questions asked by the jury, you are forced to reflect on how to bring your story. Since my audience differs, I need to adjust my presentation accordingly. Sometimes I tell too much technical information. I learned that I need to take into account what the person that is listening to me wants to hear”.

Mr. Hoeben mentions that at the moment, he is in the “Dead Valley”, since his product is finished and now need to be introduced into the world market. About his future approach to

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obtain finances, Mr. Hoeben says “I started another crowd funding campaign to obtain finances and through this manner, I would like to make it known that funds is still very much needed. I would like to find investors through this way and also do more pitches”. In addition, he spoke to one of the jury members for future financing. However, as Mr. Hoeben mentioned “things like these take a while”.

5.5 BannerXpress – Banner-making vending machine

BannerXpress is a company founded by Mr. Bruna and Mr. Janssen. Together, they developed a banner-making vending machine. Each banner can be adjusted customers personal tastes, and is produced by the machine within minutes. Before participating in the Accenture Innovation Awards (AIA), BannerXpress won the Schiphol Innovation Award in 2011. Mr. Bruna mentioned that he thought the AIA was fun, and a fine way to put innovation in the spotlights and give attention to it.

To establish BannerXpress, Mr. Bruna explains that he and his partner, Mr. Janssen, invested into the company to start it up. However, more funds were necessary: “We were saved by someone; I think you would call it an angel investor, an entrepreneur with a lot of money that invested into our company”. However, Mr. Bruna also points out that this investor acts as a bank. The investor did not want any shares of the company in return, but asks for interest on his loan. Therefore, BannerXpress is still owned completely by Mr. Bruna and Mr. Janssen. BannerXpress is quite successful in the Netherlands, but Mr. Bruna explains that there are also international ambitions, and that BannerXpress is already present internationally. “People in America can buy banners in the stores, and they also really use them a lot” explains Mr. Bruna why he thinks BannerXpress will be even more successful in America than in the Netherlands.

Participating in the AIA was very instructive, according to Mr. Bruna: “I think it was very informative and also nice to be in an environment where other people are also active in innovation. You see a lot of things, meet a lot of people and being there inspired me”. In addition, Mr. Bruna came into contact with some of the jury members. He explains “We spoke to Eric van Eijndhoven, the director business and product development of the NS3, and we made an appointment with him to talk about placing our vending machines at the NS stations”. In addition, Mr. Bruna also spoke to a jury member of Ahold at the AIA and is hoping to make an appointment with him as well, since Ahold is present in The Netherlands as well as in America.

Currently, the strategy for BannerXpress is to expand. Mr. Bruna mentioned that if he needs financial resources he would “look in my own network and talk to people. I would be looking for a strategic partner that does not only contribute financial resources, but also knowledge”.

Participating in innovation awards: The financial barrier to innovation A multiple case study approach