The commercialization process of Eco-innovation Small businesses crossing the valley of death by

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The commercialization process of Eco-innovation

Small businesses crossing the valley of death

by

J.N. Becker

University of Groningen Faculty Economics and Business

Master Business Administration Small Business & Entrepreneurship

December 2013

Student nr: 1631047

E-mail: j.n.becker@student.rug.nl Address: Molenstraat 1

7622 NG Borne Supervisors: Dr. ir. H. Zhou

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Abstract

The debate and interest in understanding the business side of eco-innovation from the perspective of small businesses is not regarded sufficiently in previous literature. The objective of this paper is to highlight this perspective in the transition between the demonstration and diffusion phases of eco-innovation in order to analyse the enabling and obstructing factors that have to be considered in this process. A discussion which combines theory and case-findings of five SMEs shed light on the different challenges that are faced in the commercialization process of eco-innovation. The main SME characteristic of small scale forces the firms to extensively use exploration to acquire the necessary resources and capabilities to meet a wide range of economical, performance and market requirements in order to progress through the innovation “valley of death”. Misjudging or neglecting aspects did have a great influence on the process especially concerning the challenges faced by the duality of newness of the application and governmental policies which can create barriers and / or stimulus. Both industry and policy makers can act on the presented scope of factors enabling or obstructing eco-innovation in order to capture future opportunities, make them into a commercial success and disseminate good practices.

Key words: eco-innovation, commercialization, small and medium-sized enterprises, case studies

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Abstract ____________________________________________________________________ 2 Introduction _________________________________________________________________ 5 Literature gap and research objectives _________________________________________________ 7 Research question and research set-up ________________________________________________ 8 Intended contribution _____________________________________________________________ 10 Structure of the thesis _____________________________________________________________ 10 Theoretical framework ________________________________________________________ 11

The Commercialization Process of Innovation __________________________________________ 11 Theoretical Development __________________________________________________________ 13

The innovating firm _______________________________________________________________________ 15 The application in the market _______________________________________________________________ 17 The firm’s environment ____________________________________________________________________ 19

The Commercialization of Eco-Innovation _____________________________________________ 20 The Commercialization process of Eco-Innovation in Small Business ________________________ 22 Conceptual Framework ____________________________________________________________ 23

The innovating firm _______________________________________________________________________ 24 The application in the market _______________________________________________________________ 25 The firm’s environment ____________________________________________________________________ 26 Methodology _______________________________________________________________ 27 Research setting __________________________________________________________________ 27 Research design __________________________________________________________________ 28 Research method _________________________________________________________________ 28 Data collection ___________________________________________________________________ 30 Findings ____________________________________________________________________ 31 Ekonek _________________________________________________________________________ 31 ADASA SISTEMAS _________________________________________________________________ 33 Müller Abfallprojekte GmbH ________________________________________________________ 35 Textiles for Textiles _______________________________________________________________ 36 Bluedec B.V. _____________________________________________________________________ 38 Discussion __________________________________________________________________ 40

The innovating firm _______________________________________________________________ 40

Synergy ________________________________________________________________________________ 40 Exploration ______________________________________________________________________________ 42

The application in the market _______________________________________________________ 46

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Adoption criteria _________________________________________________________________________ 46

The firm’s environment ____________________________________________________________ 49

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Introduction

Ever since the first oil crisis in the 1970s, there is an increasing notion in this world to aspirate the goal of a sustainable society (Norberg-Bohm, 2000). This is a society in which the future consumption of energy and raw materials should not exceed that of the earth’s capacity to recover to its ecological balance (Dieperink, Brand and Vermeulen, 2004). Jacobsson and Johnson (2000) and Brown and Hendry (2009) describe how little commercially interesting environmental sustainability projects has come out of the efforts to pursue a sustainable society. The pre-Kyoto policies were mainly aimed at realising an affordable and secure energy system in order to maximally facilitate energy intensive industrial processes (Negro, Alkemade and Hekkert, 2012) and businesses viewed environmental sustainability as involving compliance, expense and trade-off with other corporate goals (Porter and van der Linde, 1995). Those views are now less common because environmental innovation is increasingly recognised as a driver of economic and social progress as well as a driver of business success and competitive advantage (OECD working paper, 2012; Rave, Goetzke and Larch, 2011; Painuly, 2001). Firms are responding by altering their business activities to pursue environmental sustainability projects and embracing the logic of being “green and competitive” (Pujari, 2006). The term eco-innovation has been increasingly used in environmental management and policy to describe environmental (sustainability) innovation (Carrillo-Hermosilla, del Río and Könnöla, 2010). This paper will use the term eco-innovation define by Kemp and Pearson (2008):

“Eco-innovation is the production, application or exploitation of a good, service, production process, organizational structure, or management or business method that is novel to the firm or user and which results, throughout its life cycle, in a reduction of environmental risk, pollution and the negative impacts of resource use (including energy use) compared to relevant alternatives”.

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important to achieve the goal of taking away market share from conventional products to increase environmental value for society (Pujari, 2006). Assessing the environmental value for society is done by studying the diffusion of a particular eco-innovation (Balachandra, Nathan and Reddy, 2010). The literature on innovation is mainly aimed to investigate a eco-technology’s feasibility and diffusion success. They have a more general focus on renewable energy solutions (Negro, S. O., Alkemade, F. and Hekkert, M.P., 2012; Pujari, 2006; Reddy and Painuly, 2004) or a specific technology that is under study like biomass energy (Negro, Hekkert, and Smits, 2007), fuel cells (Brown, Hendry and Harborne, 2007) or wind power (Leary, While and Howell, 2012). These studies are done from a macro level (country) perspective in order to address the diffusion progress of an eco-technology. The existing theoretical and methodological frameworks do however lack the detail to improve our understanding of innovation processes toward sustainability because they do not address the different dimensions, complex feedback mechanisms and interrelations which are inherent to the innovation process (Rennings, 2000). The debate and interest in understanding the business side of eco-innovation would greatly benefit from a more detailed perspective (OECD working paper, 2012; Rennings, 2000). This perspective still leaves many areas open for analysis, one of those areas is the part played by Small and Medium-sized Enterprise (SME) in the use of eco-innovation to increase environmental value in society.

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arguments are rather limited to the fact that entrepreneurs are more concerned about the environment and that small business can easily introduce “green” marketing to differentiate their product and services. However these arguments can also apply to larger firms (Brown, Hendry and Harborne, 2007) and are also sector specific (De Jong and Vermeulen, 2006). These findings are in some way consistent with the contradictory results in the literature concerning the differences in the level of innovative performance between small businesses. Kaufmann and Tödtling (2002) argue that these different findings occur because of the heterogeneity of SMEs. SMEs also innovate in a specific way compared to large firms and are believed to be able to succeed as “idea factories” feeding new technologies into the manufacturing and marketing engines of large firms, or they are found to be spin outs from large firms capitalizing flexibility to pursue new markets (Libaers, Hicks and Porter, 2010).

Literature gap and research objectives

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innovation. Various studies have listed the enabling or obstructing factors of eco-technologies (Negro, S. O., Alkemade, F. and Hekkert, M.P., 2012; Kimura, 2010; Brown and Hendry, 2009; Reddy and Painuly, 2004), which also shows that eco-innovation need considerable time, 5-10 years, from becoming known to the point of wide spread use (Dieperink, Brand and Vermeulen, 2004). Taken together, this notion and the two literature gaps reveal the relevance of the objective to combine the small business perspective with the commercialization process of eco-innovation. The objective of this study is therefore to highlight the small business perspective of eco-innovation in the transition between the demonstration and diffusion phases in order to analyse the enabling and obstructing factors that have to be considered in this process. Both industry and policy makers need to better understand the social, technical and political factors enabling or obstructing eco-innovation in order to capture future opportunities, make them into a commercial success and disseminate good practices (OECD working paper, 2012). Such a study should be able to give some guidelines about how to analyse the driving forces of these processes in their different characteristics and phases, to identify promising examples as well as bad ones, and to give some idea about their transferability to other contexts (Rennings, 2000).

Research question and research set-up

The following research question is proposed to uncover the complex relations within the commercialization process of eco-innovation by SMEs and to show managers and policymakers the scope of enabling and obstructing factors that have to be considered in this process.

Which factors influence the commercialization process of eco-innovation by SMEs?

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Intended contribution

Exposing the business case of eco-innovation and uncovering relations in the complex process of commercialization may provide firms with a knowledge to better allocate their time and resources. Policy makers and other external parties can also gain from this knowledge by adjusting their policies and support to where (and when) it is most needed. It will further shed light on multiple concepts in the existing literature regarding innovation and the paper may provide some clues for the contradicting results of previous studies regarding this topic. This paper will however not provide best practice or produce corresponding theoretical models to support it. It will rather explore the business case of small business which are commercializing eco-innovation to an extent of delivering a conceptual framework which include factors influencing that process.

Structure of the thesis

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Theoretical framework

This part begins with explaining the commercialization process of innovation and presenting the research focus. The theoretical development will then introduce the article of Kock et al. (2011), which the paper uses as a structure for the innovation literature review. The following sections are concerned with the eco-innovation and small business innovation literature. The literature reviews will serve to identify obstructing and enabling factors in the commercialization process and will also be used to supplement and adjust the model of Kock et al. (2011) which will lead to the presentation of the conceptual framework of this research. The design of this model is then used in the methodology to acquire empirical data.

The Commercialization Process of Innovation

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commercialization phase also implies that the innovating firm is ready for the introduction of the application and in possession of the required resources and capabilities (Rainey, 2005). After introduction, the diffusion process shows how the application spreads among customers in the market. Moore (2002) describes the chasm between the early market and mainstream acceptance of the innovation, which emphasizes an important stage in the diffusion theory. In his study, Kimura (2010) shows a similar division and separates the concept into limited, not yet widely and widely adopted innovations. This distinction is important as it marks the point in which the market penetration is sufficient enough to cover the development and production costs. It will enable the innovation to cross the “valley of death” and become increasingly profitable (Balachandra, Nathan and Reddy, 2010).

This thesis focuses on those phases that are part of crossing the innovation “valley of death” (see Figure 1). The overlapping nature of the innovation process makes it hard to exactly identify the begin and end point. This study will therefore label the “valley of death” as the commercialization process of innovation which commences with a commercially viable application and ends with limited adoption of the application (before widespread diffusion). This choice is also based on the distinguish made between invention (R&D) and innovation. The latter also involves commercialization, making the invention ready for market introduction (Galanakis, 2006; Gans and Stern, 2002, Garcia and Calantone, 2002).

Figure 1: The innovation process and the research focus “Valley of death”

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Theoretical Development

Innovation literature has several studies which try to describe and measure the relationship between the innovation process and product performance. Garcia and Calantone (2002) literature review clearly shows a lack of conformance in operationalizing constructs and the interchangeable use of innovation types which lead to contradicting results in articles studying this topic. Especially innovativeness, a measure of the degree of “newness” of an innovation, has a large track of different definitions and perspectives. Other studies confirm that innovativeness is a multi-dimensional concept with distinguished performance impacts (McNanny, Cavusgil and Calantone, 2010; Gatignon, Tushman, Smith and Anderson, 2002; Avlonitis, Papastathopoulou and Gounaris, 2001).

Figure 2: Innovativeness and commercial success (Kock et al., 2011)

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innovativeness is a continuous construct that relates to the degree of newness of technologies embodied in the new application. Market innovativeness relates to the increase in customer value compared to prior products. In the innovation process firms need to change their competences, resources and knowledge to develop the new application. Organizational innovativeness therefore covers the degree to which existing resources are appropriate for the new innovation. The degree to which external resources are appropriate for the development of the new application is called the environmental innovativeness. This also includes the readiness of stakeholders and society for the innovation.

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These dimensions or subsystems show many similarities with the creative factory innovation process of Galanakis (2006). Galanakis (2006) study on the innovation process resulted in a new model which represents five subsystems that operate in parallel and influence each other (Figure 3). The core innovation process represents a linear sequence of three overlapping phases leading to product success in the market. This process is influenced by firm’s internal factors and the national innovation environment. Both correspond with the organizational and environmental aspects introduced in the article of Kock et al. (2011). The articles mentioned above all concluded that innovation is a complex and multi-dimensional concept. To overcome the problem of overlooking factors regarding the commercialization process of eco-innovation the remainder of the innovation literature review will be structured to represent the different dimensions of innovation. The firm’s internal organizational factors will be presented by looking at the innovating firm. The product and market related factors are reviewed in the section of the application in the market. The firm’s environment will cover the (national) external factors which influence the commercialization process.

The innovating firm

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interaction between a firm and elements of the environment, represents all elements which are “familiar” to the company such as existing supplier relations. A new application may enlarge the domain of an organization which changes the relationship with the environment to an unfamiliar domain (Normann, 1971). The “fit” between a new application and the firm’s resources and capabilities enables the company to use existing competence for the new product (Danneels and Kleinschmidt, 2001). Zirger and Maidique (1990) found that firms who build on existing technical, marketing and organizational competences were more successful in the commercialization process. It allows the firm to take advantages of its own expertise and networks. Most authors label this “fit” as synergy and take a technical versus marketing perspective (Danneels and Kleinschmidt, 2001; Song and Parry, 1997; Cooper and Kleinschimdt, 1986; Cooper, 1979). The technical aspect will enable the firm to make the product, while the marketing aspect enables the firm to serve certain customers (Danneels, 1998). Keller (2004) emphasizes the importance of the interaction between the two different aspects of synergy. The fit between the product design and customer needs will be increased if there is clear communication within the company between engineers and marketers. A good responds to customer preferences will therefore increase customer value and lead to greater commercial success (Keller, 2004). Although there is no positive link found between familiarity of the new application domain and commercial success (Danneels and Kleinschmidt, 2001), all authors agree on the importance of technical and marketing synergy. Many studies have found a positive link between the presence of synergy and product performance (Keller, 2004; Song and Parry, 1997; Zirger and Maidique, 1990; Cooper and Kleinschimdt, 1986; Cooper, 1979). The existence of limit synergy forces the firm to internally develop the missing resources and competences or cooperate with external partners to facilitate learning and acquire external resources (Kock et al., 2011).

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otherwise lean too much on their existing capabilities (first-order competences) which may become obsolescence. A related concept is absorptive capacity which represents the firm’s ability to recognize, assimilate and exploit external knowledge (Cohen and Levinthal, 1990). This knowledge can be used to improve an application and hereby increasing its customer value. Absorptive capacity can also be used to improve organizational or production process within the firm (Fernhaber and Patel, 2012). The absorptive capacity of the firm can been seen as a second-order competences because it represent the company’s ability to internally assimilate and exploit (exploration) knowledge to improve both the firm and its products.

Exploration may involve contact with external parties which are in possession of resources, competences and knowledge needed by the firm. The network of external entities will consist of more and different parties depending on the discontinuity of the innovation (Birkinshaw, Bessant, and Delbridge, 2007). Birkinshaw et al. (2007) study identified barriers in managing these networks which forces the company to alter its processes and competence. Overcoming those barriers and attracting new resources is costly and time-consuming which may hamper the commercialization process. A similar drawback is involved with internal development or relying only on existing capabilities, which may also proof inadequate for the job. Therefore the innovating firm is compelled to adequately judge their existing resources and determine the way in which it will expand and reconfigure its knowledge base and capabilities (Kock et al., 2011).

The application in the market

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Calantone, 2002). A more unanimous verdict is been given to the innovation attribute “relative advantage” which proved to be the most influencing factor in commercial success (Cooper, 1979) and the adoption decision of customers (Rogers, 1995). The source of a products advantage can come from a wide range of economic and technical aspects (Figure 4, Appendix A) of the application (Dieperink, Brand and Vermeulen, 2004). In other literature this attribute is also called product uniqueness or superior product advantages (Danneels and Kleinschmidt, 2001). Product uniqueness derived from the newness of the application can however also cause barriers in the commercialization process. Overcoming these barriers may require extra money and time to educated and convince customers of the product’s additional value (Song and Montoya-Weiss, 1998). This is because customers face different kinds of adoption risks which influence the decision and timing to buy a product (Gatignon and Robertson, 1989). This implies that the superior product advantages do not only determine adoption.

There are also elements that affect the adoption which are not influenced by the product’s customer value. Rogers (1995) identified four other perceived attributes of the innovation which shape the rate of likelihood of adaption:

- Compatibility; of the application with the user’s life and practices. This represents the degree to which the application can be integrated into the client’s business.

- Complexity; refers to the sense of difficulty that the user has in using and understanding the application. The potential user must also understand why the innovation is appropriate or beneficial and be convinced of the innovation’s value.

- Trailability; is the user able to test the application. This is the opportunity for a potential user to experience and test the application including test drives, demonstration units and simulations. Trials can also be a way for providing the market with information on the new application and its features and at the same time limit inaccurate assumptions about the innovation.

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Dieperink et al. (2004) build an analytical framework integrating the innovation’s attributes of Rogers (1995) and further explained the adoption decision process. In this framework (Figure 4, Appendix A) “company’s characteristics” of the potential customer will stimulate or impede the adoption by evaluating all perceived innovation attributes. Company’s characteristics are derived from their financial, production, organizational and cultural characteristics. The level of know-how regarding an innovation will affect the familiarity with it and the willingness to adapt. The innovation also has to fit within a company’s production process. Olsthoorn (1993) saw reluctance by customers to purchase a fully integrated application because this would mean that they had to adapt the entire production process. Instead the client went for a competing option that had less energy saving effects but did required less maintenance and was easier to operate. Features of the current capacity and anticipated growth are also important criteria on which a firm will base their decision to adopt. The adoption criteria named above may partly explain why some potential users see reasons to adopt an innovation, while others ignore the innovation (Dieperink et al., 2004).

The firm’s environment

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access to the supply side can also be stopped by other actors (Porter, 1980). The limited control on those factors implies that the innovating firm cannot always avoid those negative influences. Collaboration with other actors still remains the most effective measure to counter raised barriers and to further progress with the development and marketing of the application (Afuaj and Bahram, 1995).

Carlsson and Stanckiewicz (1991) describe the exogenous aspects as a network of agents interacting in a specific economical / industrial area under a particular institutional infrastructure and involved in the generation, diffusion and utilization of technology. Infrastructure is the basic physical and organizational structure needed for the operation of a society or enterprise (Negro et al., 2012). A new innovation needs its specific knowledge and physical infrastructure to function in an economy (Talke and Salomo, 2009). The availability of a nation’s infrastructure is largely determined by government policies which will also determine laws and regulations.

The Commercialization of Eco-Innovation

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customers offers multiple benefits. It increases the fit between client’s preferences and the customer value that the application offers and also creates an information exchange between the firm and the market which broadens the knowledge of the latter. This exchange provides the company with more information concerning market structure, competing products and their advantages which may prove useful (Kimura, 2010). This information is important because it reveals the firm’s (eco-innovation’s) environment which is seen to be unique in its ability to allow development and diffusion of the application (Jacobsson and Johnson, 2000). Negro et al. (2012) highlight the difficulties that arise once an environment system is locked-in. This established system can then lock-out eco-innovation even when they show additional benefits and great potential.

A returning factor in many eco-innovation articles that leads to failure is the inadequacy of the innovating firm to meet performance, reliability and economic requirements for that particular product market (Brown and Hendry, 2009; Negro et al., 2007; Reddy and Painuly, 2004; Painuly, 2001). This results in functionality problems, too long payback time and loss of confidence in the technology (Kimura, 2010; Painuly, 2001). Brown and Hendry (2009) concluded that the underlying reasons for those failures lay in the demonstration phase. Their study classified the demonstration objective of eco-innovation in economical, technical and commercial focus. They concluded that there was never an adequate balance to promote and test all aspects of the application, which resulted in limited or no commercial success. These findings are supported by different authors who highlight technical failure of economical promising eco-projects (Negro et al., 2007) and the focus on one time demonstration which prevents continuous education of stakeholders (Balachandra et al., 2010).

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the eco-innovation process by offering subsidies, promoting specific products or service and increasing knowledge transaction (Pujari, 2006).

The Commercialization process of Eco-Innovation in Small Business

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reason which enabled SMEs to increase its capability to acquire complementary assets. Research found that small firm were more active in building and trading complementary assets, such as manufacturing capabilities (Novelli, Padula and Rao, 2008; Giuri and Luzzi, 2005). The availability of all kinds of capabilities in the market leads to an increase of options open for SMEs. Cherbough and Rosenbloom (2002) state that there is now more need of entrepreneurial acts of identifying and executing new and different business models in the face of high levels of both technical and market uncertainty.

Jagoda et al. (2011) and Balachandra et al. (2010) describe the similar need form entrepreneurial acts in pursuing “green” business opportunities. They argue that small businesses are concerned with the environment and possess the willingness and capacity to develop and commercialize eco-innovation. The distinct feature of the inability to internalize all elements of the innovation process is also heavily present in literature concerning SMEs which commercialize eco-innovation (Bos-Brouwer, 2010). This fact increases the need of support in the commercialization process (Hyvättinen, 2006), which gives a clear incentive for cooperation (Freel, 2005). The niche-strategy that is often used by SMEs is also frequently mentioned in the eco-innovation literature (Jagoda et al., 2011; Kimura, 2010). This strategy concerns the launching of the application in a market segment in which their product has a strong advantage over competitors. Other characteristics of small business also shape the commercialization process. An overview of this is given based on Nooteboom (1994) in Figure 5, Appendix A which represents the small business perspective in the commercialization process of eco-innovation.

Conceptual Framework

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The study of Kock et al. (2011) deals with innovativeness and its inherent complexity that leads to internal and external changes. Their study’s analysis of the literature regarding the relationship of product innovativeness and commercial success uncovered many factors of interest. In this paper these factors were supplemented with addition literature to gain a general overview of factors influencing the commercialization process of innovation. To deal with the abundance of factors a classification is used to shape both the conceptual framework and the empirical research. The aspects regarding the innovating firm, the application in the market and the firm’s environment have all distinct performance impacts and are still broad enough to include all the wide sources of internal and external influences. The classifications are derived from the article of Kock et al. (2011) and the innovation framework of Galanakis (2006). There are however some adjustment made to secure all relevant factors are included and the framework is in line with the research question. The degree of innovativeness is left out because this study does not measure the effects of newness of the different constructs on commercial success. The innovation framework of Galanakis (2006) is also used in a way that it only covers the innovation phases that are involved in this papers research focus concerning the “valley of death”.

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include costs of search, contact, contract and control of performance). This distinct feature of the inability to internalize all elements of the innovation process is also heavily present in literature concerning SMEs which commercialize eco-innovation. This fact increases the need of support in the commercialization process, which gives a clear incentive for cooperation.

The innovating firm Synergy Exploration The application in the market Customer value Adoption criteria The firm’s environment Extern stakeholders Infrastructure Regulations Commercialization process of eco-innovation Small business

Figure 6: Conceptual framework

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reliability and economic requirements for their product market. The adoption criteria are composed out of those other aspects besides relative advantage of the application. These are derived from the market’s perspective and include client’s characteristics, market context, macro developments (Dieperink et al., 2004) and the perceived attributes of innovation (Rogers, 1995). Although the article of Dieperink et al. (2004) is introduced throughout the review regarding innovation it is in fact a study focussed on the diffusion and adoption of energy-saving innovations (eco-innovation). The choice to introducing this article early in the theoretical development is made because of its extensive contributed on the whole innovation process. The focus of the article on eco-innovation makes it quite relevant for this paper.

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Methodology

This section will begin with the research setting which explains the choice for the qualitative case study. The constructs of interest and associated measurements derived from the literature review are then used in the research design and questionnaire (Appendix C). The research method presents the participating case firms and the method of judging the quality of the research design. This part will end with describing the way in which data is being gathered and the data analysis itself will be introduced in the beginning of the Findings part of this thesis.

Research setting

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Research design

The interview will follow the same lay out as the conceptual framework which is structured around the innovating firm, the application in the market and the firm’s environment. The original situation of the innovating firm will be established with seven questions that are scaled similar to that of Danneels and Kleinschmidt (2001) measurements. Their research is concerned with the firm’s synergy with the new application and its influence on the commercialization process. The questions that relate to changes in the organization’s strategy, structure and other internal aspects were derived from the articles of Kock et al. (2011) and Baldwin and Lin (2002). The questions concerning exploration were stated as open questions and would be specified during the interview depending on the previous answers about the firm’s original situation and its choices in the absence of a specific resource, people, knowledge or skill.

The economic and technical aspects of the application in the market are composed out of the perceived attributes of innovation (Rogers, 1995), the integrated framework of innovation diffusion (Dieperink et al., 2004) and the characteristics of the commercial entity (Cooper, 1979). Dieperink et al. (2004) framework combines all aspects (features) of the application with the client’s characteristics, client’s context and sector developments to present the assessment and decision making process of customers regarding the adoption of an innovation. Their study therefore introduces many suitable concepts which relate to the adoption criteria from the customers perspective and also to the macro-context.

Questions regarding the firm’s environment are derived from a wide variety of literature (Negro et al., 2012; Balachandra et al., 2010; Talke and Salomo, 2009; Dieperink et al., 2004; Rennings, 2000) and are stated as open questions with a list of relevant topics to stimulate concrete answers. Special attention has been given to the questions concerning regulations and subsidy as both concepts are emphasises in eco-innovation literature. The literature used in the research design is summarized in Table 1, Appendix A.

Research method

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(2008) and the small business perspective. The diversity of small business leads to different “ideal” definitions depending on one’s perspective and should be simple to give a theoretical range (Nooteboom, 1994). This paper holds more value to the small business perspective than a strict classification. It will therefore use the acquired data from the case firm ADASA SISTEMAS, which project characteristics resembles that of the other small business projects, even though the company is a large firm belonging to commercial group. The case-firms and their eco-projects are listed in Table 2 which offers an overview of the participants and their eco-project’s status.

Table 2: Participants and their eco-project’s status

Firm Industry Established

in Employ ees (FTE) Eco-project name Uses ..% of personnel Use ..% of investments Status

Ekonek Agrifood 2009 2 (2) WAVALUE 80-90% 70% Demonstration ADASA SISTEMAS Environmental technology 1988 254 OptimEDAR 2% 4% Demonstration Müller Abfallprojekte Agriculture (services) 1987 20 (16) DE-HUMUS 15% 10-15% Commercialization Bluedec B.V. Construction, Industrial

2009 7 (1) Bluedec 100% 100% Limited diffusion KICI Clothing and

textiles

1975 18 (16) T4T 10-15% 1% Market ready

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a detailed documentation of the validation of the research model, verifying the internal validity of the three constructs regarding the commercial success (commercialization process). To demonstrate reliability, the procedures that were being followed in this study are documented in the research design to allow for replication and minimize errors and biases. Although certain topics are attached to some questions, those only serve to allow the interviewee to specify his or her answers more clearly. The data collection also follows a precise linear process which is used for each case-firm.

Data collection

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Findings

This section presents the findings for each case-firm which begin with a short overview of the project’s development status. The key findings are then summarized in a table and briefly analysed. An elaborate description of the eco-project’s commercialization process can be found in Appendix D. The conceptual framework is used to display the key findings which will be further analysed with regard to the literature review in the Discussion.

Ekonek

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Synergy - lack production and operational resources which obstructs the acquirement of a large pilot plant.

- being seen as less credible and professional by potential partners and clients alike because of the business small scale.

Exploration - the limited marketing, distribution and sales resources are enlarged by the cooperation with a SME that sells fertilizers.

- partnerships with a local agriculture institution and an international company specialist in environmental projects improved the fertilizer’s evaluation and design.

- feedbacks gave the firm information about potential markets and their preferences.

Customer value - the application can obtain high value products from agrifood sub-products, which are now treated as waste and disposed of.

Adoption criteria - the lack of the appropriate knowledge of buyers who then overlook important benefits of the project.

- limited awareness of the application.

- the process plant is an add-on but does require training in order to be correctly operated. - trailability is too low because clients desire large samples, which can only be provide by a

larger pilot plant.

External stakeholders - exchanging experience with other eco-entrepreneurs and the owner of the U.S.A. process plant did contribute to the firm’s knowledge.

- EU support helped finance the project and considerably increased its credibility which stimulates others to support the project also.

Infrastructure - agrifood sub-products (input) are available in large quantities.

- large mineral fertilizers companies have easier access to cheap chemical reagents (input).

Regulations - regulations concerning the composition of the fertilizer favour competitive products and presents the company with difficulties in composing their products.

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made). The company faces other barriers in introducing their project into the market. Their diffusion options are quite limited by large mineral fertilizers companies who control chemical reagents (input) and are able to offer low prices for their fertilizers. Regulation also favour those cheaper mineral fertilizers and restricts Ekonek in the composition of their products. “Our products cannot math those prices and those regulations complicate the our opportunities which forces us to focus more locally”. EU support does not solve those market factors but complements the financial means and considerably increases the credibility of the firm and its project. The latter is an important factor in convincing clients and partners (investors). In the case of Ekonek the commercialization phase cannot commence until a partner is found that can deliver the means to build the pilot plant needed to demonstrate the project. This will allow clients to see the results of “their own tests which are very important in the buying decision”.

ADASA SISTEMAS

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34 Table 4: Key findings, ADASA SISTEMAS

Synergy - used previous acquired knowledge and technology for the project - is not in the possession of a WWTP to test the application

- used existing partnerships engage in cooperation regarding the project

Exploration - the participation of clients enabled the application to be tested and improved.

- benefited from a clear and open communication with all partners, they did have to endure the rather slow decision making “machine” of public administration.

Customer value - it enables the WWTP owner to manage the energy consumption, sludge and other output levels effectively resulting in reduce energy cost and higher water quality.

Adoption criteria - the system can be easily installed as an add-on to all WWTPs

- the proto-type has to be fully tested to serve as a reference to inform and convince clients. - WWTPs controlled by a few large enterprises are not interested in other systems.

- reaching and convincing small and medium WWTP owners is costly and time consuming. - the majority of plant owners are only concerned with applying with current regulations and

feel no stimulus to optimize their WWTPs.

External stakeholders - EU support enabled the participation of other companies in the project.

Infrastructure - none

Regulations - current regulations do not stimulate optimizing WWTP in order to reduce energy consumption and improve water quality.

ADASA SISTEMAS could rely heavily on their existing capabilities in the development of the commercially viable application and in the establishment of partnerships. Synergy only lacks regarding the ownership of a WWTP to further test the application. Cooperation provided the project with the opportunity to test and assess the application in a customer’s installation which also enabled the client to give feedback (demonstration phase). This partnership “is very important as it delivers a reference to inform and convince clients”.

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Müller Abfallprojekte GmbH

Since 1987 the engineering company Müller Abfallprojekte GmbH (Müller) has been engage in establishing future-based services and solutions in the business fields of consulting, project planning, technical planning and biogas technology. The DE-HUMUS project is based on the 3A-biogas technology which was developed in the 2002 EU-CRAFT research project. 3A-3A-biogas is a three step fermentation of solid state biomass for biogas production and sanitation. In December 2011 the DE-HUMUS project supported by the EU CIP Eco-innovation, started with the object to commercial the application by building four bio-treatment plants in four different European countries. The containerized process plant is able to produce humus out of different organic wastes with advantages of emission reduction and renewable energy generation. In October and November of 2012 two of the four plants were completed. Table 5 summarizes the key findings of the interview with Müller which is further described in Appendix D.

Table 5: Key findings, Müller Abfallprojekte GmbH

Synergy - does not possess the production and marketing resources needed to manufacture and distribute the treatment plants.

- R&D and further improvements were entirely done in-house.

Exploration - hired one person with specific knowledge about the technology to further develop the application.

- A partnership with an agricultural machines and services company delivered the project with all the manufacture, marketing resources and an extensive client base.

Customer value - is able to deliver small, compact and modular plants for the treatment of all kinds of organic waste to convert into energy and heat, allowing for decentralised waste treatment.

Adoption criteria - especially the Western EU sector have already invested in bio-waste treatment technologies. - Eastern EU countries that have recently joint the EU are required to restructure their waste

sector and find new efficient solutions.

- treatment of a wide variety of bio-waste materials cannot be done by a universal plant which whereby different pilot locations are needed.

The firm’s environment External stakeholders - EU support

Infrastructure - the existing electric grid can be used to sell “green” energy - bio-waste treatment is an well-known concept

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Müller hired a person with specific knowledge in order to develop the commercially viable application which was done entirely with internal know-how. The company did not own any of the other capabilities and made use of a partnership with a large agricultural machines and services company who delivered the project with all the manufacture, distribution, marketing capabilities and an extensive client base. This cooperation enables the project to test the application further (demonstration phase) and begin building the plant at the site of four clients / partners (commercialization phase). The market requirements are different throughout Europe regarding the treatment of a wide variety of bio-waste materials and the mentality towards investing in bio-treatment (Table 5, Adoption criteria). Bio-waste differs from country till country, “building the pilot plants on four different sites allows the testing of different materials specific to that country and will also show the application to more potential customers”.

The project made significant steps towards meeting the internal (organizational) requirements to produce and sell the application in the market by the cooperation with the agricultural machines and services company. This partner build the four pilot plants which will enable Müller to gain access to important knowledge regarding client’s preferences (market conditions) and is also generating income from licences.

Textiles for Textiles

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37 Table 6: Key findings, Textiles for Textiles

Synergy - the basic knowledge for the application was developed by members of the consortium.

- the consortium had a wide diversity of knowledge which on the one hand helped fine-tune the project but also increased it complexity.

Exploration - setback due to the bankruptcy of one of the partners.

- the public tender and the associated negotiations took extra time - a large engineering company was found with the manufacture

capabilities to build the sorting machine. They also were in possession of marketing capabilities and an extensive customer-base.

- long periods of testing with several feedback rounds were necessary to discover all the right compositions of textiles to be used.

- involve partners throughout the value chain in order to show the full extent of the application’s potential.

Customer value - is able to sort textile materials on fibre composition and on colour to increase the quality of recyclable clothes, replace a labour intensive process and stop the destruction of large quantities of “unusable” textiles (clothes).

Adoption criteria - it was based on the technology of an another sorting machine which proven performance gave great credibility to the project and the new application.

- pilot sorting machine enabled potential clients to bring their own textiles to try and see the machine.

- the machine is designed as a standalone and is therefore suitable to be added to almost every other sorting process.

- increasing amount of available not-reusable clothing in the textile market.

- the pilot sorting machine enables potential clients to bring their own textiles to try and see the machine and its additional value.

External stakeholders - EU support helped finance the project and considerably increased its credibility which stimulate others to support the project also.

- awareness increases because of new priorities in EU policies. - the brand name (reputation) and support of one large clothing

manufacture helped to get access to and attention of varies other stakeholders and clients alike.

- some clothing manufactures have specific wishes regarding the source of fabrics and discard the input of certain suppliers.

Infrastructure - the sorting technique is known in the plastic industry, but not in the clothing sector.

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T4T established a consortium which is capable of developing the commercial viably application. The consortium lacked however the other capabilities to build and sell the application. The cooperation with large manufacture of sorting machines delivered the project with all the manufacture, distribution, marketing capabilities and an extensive client base. This company provide the project with a sorting machine which could be integrated with the application and be further tested (demonstration phase). “Longer periods of tests were necessary to discover all the right compositions of textiles”. Input of different partnerships contributed significantly to improving the application’s performance. Those partnerships were established with firms throughout the value chain who could also display the full extent of the potential benefits (commercialization phase). The textile market offers more opportunities for the application because of the increasing amount of available not-reusable clothing, this also lead to EU support which increases the awareness and importance of the project. T4T and the sorting machine manufacture were able to fulfil most of the internal (organisation) requirements for the project and the partnerships with different stakeholders will significantly boost the market success chances for the application by “showing the whole value-adding process that can be obtained through the use of the application”.

Bluedec B.V.

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39 Table 7: Key findings, Bluedec B.V.

Synergy - is equipped to handle all aspects concerning marketing, sales, distribution and customer service.

- network and experience of the Bluedec’s owner contributed significantly to the establishment of contacts and contracts.

Exploration - the aerogel material (input) is bought by the company as a semi-finished product.

- feedback from clients led to the cooperation with two universities to improve the product.

Customer value - is a thin insulation material that still has high insulation values and needs less space. Suitable for more situations then the state of the art, it is also more sustainable and recyclable.

- the production process is expensive, which makes the product price higher in comparison to other insulation materials.

Adoption criteria - extra efforts were needed to increase product awareness and

potential because of scepticism in the market towards new insulation material.

- two distinct preference in the market (customised and bulk).

External stakeholders - support by the Chamber of Commerce, local administration and an innovation foundation organization increased awareness of the product by spreading information and research results (performance).

Infrastructure - none

Regulations - none

Bluedec B.V. is equipped (founded) to handle all aspects concerning marketing, sales, distribution and customer service. The product itself is bought by the company as a semi-finished product and is further manufactured into an insulation application. The network and experience of the Bluedec’s owner made it possible for the company to sell its first products in the market because “those clients therefore already trusted the company”. Feedback received from those clients led to the cooperation with two universities to improve the product.

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Discussion

In order to present the whole scope of factors influencing the commercialization process, the existing literature and understandings had to be contrasted to real life observations. The combination of theory and the case-findings allows for a discussion to determine factors relevant for answering the research question. The discussion concerning the sub-aspects will include an overview of the commonalities and differences in the key findings (Table 3-7, Findings) and end with a conclusion whether those case-findings are in line with existing literature. The discussion will follow the structure of the conceptual framework.

The innovating firm

Synergy

Kock et al. (2011) relates synergy to the internal changes induced by the new innovation. Those changes can be strategic, structural, procedural or labour-related. None of the case firms assigned any effect to those factors on the commercialization process. This reflects one of the core strengths of small businesses, who are flexible organizations that are able to shape the company according to its needs. Another reason can be found in personality of small firms which is entrepreneurial and motivational (Nooteboom, 1994). Also, horizontal leadership and internal commitment are responsible for limited problems regarding change aspects.

Table 8: Synergy of the case firms with their eco-project

Capability --- Company Product development Production / operations Marketing research Sales / distribution Promotion Customer service Financing

Ekonek Sufficient Partly Partly None Partly None Partly

ADASA More than More than Sufficient Partly Partly Partly Sufficient

Müller More than None Sufficient None None None Sufficient

Bluedec Partly Partly Sufficient Sufficient Sufficient Sufficient Sufficient

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42 Table 9: Cross-case analysis, Synergy

Commonalities Differences

None were able to incur the expenses associated with the making or buying of production / operations facilities

Cooperation is needed (with clients) to produce and demonstrate the application to further commercialize the project

Some firms could rely on existing contact to establish partnerships

Establishing of new partnerships is needed which cost extra efforts to acquire and increases the chance of difficulties during the negotiation and therefore setbacks (T4T and Müller)

None experienced internal problems due to organizational and change aspects

Small business are lesser inclined to such problems due to their horizontal

leadership and internal commitment

Most firms experienced some kind of credibility issues (all expect Müller)

Credibility and trust is needed to convince external stakeholders to participate in the project and clients to buy the application Obstructing financial issues did only occur with one case firm (Ekonek)

Investors are needed which forces the company to conform to their demands

The case-findings are all in line with the literature regarding the Synergy. All case firms lacked synergy regarding one or more capabilities and could not internally develop those. The small scale made it impossible for them to bare the financial and manpower burdens to do this. Acquiring synergy is necessary to progress in the commercialization process. Internal product development can only provide the project with limited feedback and can only be used to improve the commercial viable application. Interaction with users and support systems is however needed to further test and assess the performance of the application in order to meet market requirements. The same applies to the capabilities needed to produce, distribute and market the application. A firm constantly needs to assess its synergy with the project to keep progressing and overcome barriers. The absence of an specific capability can obstruct the project or slow it down because extra effort are needed to acquire it. The case-firms did use existing relationships to extend the projects capabilities or establish new cooperation for this purpose.

Exploration

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make use of the company’s existing network to facilitate the establishment of partnerships. All firms used existing contacts to supplement the project with production facilities (Müller and T4T), test facilities (ADASA SISTEMAS), marketing / sales capabilities (Ekonek) and product development (Bluedec). Especially a partnership that will enable the firm to (pilot) test their eco-application proved important. Besides Bluedec, all companies were depending on such a partnership. T4T and Müller were able to find a partner that was large enough to provide the project with multiple capabilities. A contract was formed that enabled the larger partner to buy license for the application and sell / promote it in its wide and extensive (customer) network.

Another fruitful cooperation is described by Leary, While and Howell (2012) which explain multiple benefits that can be obtained from working together with customers. This enabled ADASA SISTEMAS to test their system and incorporate client feedback to improve the application. Adjusting the application to customer preferences will increase customer value and lead to greater commercial success (Keller, 2004). The most far reaching example of this was seen by the T4T project. Although the project could deliver high quality fibres, they did not stop there and formed a partnership with clothing manufactures to demonstrate clothes made from those fibres. The project was able to involve companies from the entire supply chain to show the complete value adding contribution of the application and its output. T4T also involved a consortium with a broad and diverse experience to deliver a wide range of inputs, which benefited the project greatly.

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the Bluedec product. Bluedec B.V. addressed this problem immediately and solved it considerably easy by using external knowledge and manpower of the universities. Müller did enriched the company’s capabilities by hiring a worker with specialised skills and knowledge regarding a specific development aspect of the application.

Literature also mentions difficulties that may arise from forming and maintaining partnerships. Birkinshaw et al. (2007) study describes collaboration that are costly and time-consuming which may hamper the commercial success of the product. Ekonek negotiated for a year with a firm that would construct the machine. All the time and effort proved to be for nothing because the potential partner could not finance the project. Already established partnership can also provide the project with setbacks and problems. Negro et al. (2012) study found that both the creation and maintenance of relationships brings with it the possibility of friction which may lead to disappointment and broken agreements. Negotiations about the role and responsibilities for every participant are such a possibility that can cause friction. They argue that this can seriously harm the development or reputation of the new application (Negro et al., 2012). T4T had a large consortium which increased the change of miscommunication. The project pursued open communication from the beginning and management of expectations did improve the negotiations during the decision process about the participation degree in the newly form company. Although serious problems regarding this topic did not occur within the other projects both Müller and T4T experienced setbacks by partners that could not fulfil their part because of financial restrains. This reveals a part of collaboration on which the firm cannot fully control. The case-firms did encounter minor problems with regard to cooperation which relate to the difference in working and decision process between businesses and government / universities.

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45 Table 10: Cross-case analysis, Exploration

For the firms cooperation is a necessity Cooperation is needed to acquire

capabilities that the firm does not possess and to improve the application

Two firms could rely on one larger partner to provide the project multiple capabilities and advantages (T4T and Müller)

An agreement is needed to arrange responsibilities and financial security The firms experienced minor problems and

setbacks

Extra efforts (time and money) is needed to progress further. Minor problems were derived from negotiations (expectations), cultural and administrative differences. Setback did occur when partners left because of financial constrains

Some firms experienced some kind of credibility issues with establishing cooperation (Ekonek, ADASA and T4T)

Credibility and trust is needed to convince external stakeholders to participate in the project

The case-findings further support the literature regarding the Exploration. The section regarding synergy explained the importance to acquire the necessary capabilities and resources to progress in the commercialization process. All case-firms made use of exploration in the form of cooperation to accomplish this and encounter both its advantage and disadvantages. Although most problems were minor and did not influence the commercialization process, there were some greater setbacks (partners not participating because of financial restrains). Those setbacks could however only be controlled in a limited way and thus be prevented by the project. Preventing such setbacks, if possible, could be done in the selecting / orientation phase of a partnership. The advantages gained by cooperation made further progression of the project possible and significantly determines its speed and success. The different cases can be viewed in the light of the discussion regarding the role of small businesses in innovation. Two cases can be labelled as “idea factory” because the provide the knowledge and technology which is further commercialized (for the most part) by a larger company. One case-firm resembles the definition of a “spin out”. The other two case-firms progress with partnerships with other SMEs but are both still in the demonstration phase.

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The application in the market

Customer value

The applications of the case-firms did bring with it some kind of new method (quality) or functionality that was new to the market. Compared to the state of the art ADASA SISTEMAS, Müller and T4T developed new systems that are able to operate more efficient and effective. Bluedec B.V. introduced an entirely new material to use in the insulation market and Ekonek introduced a new method that could create valuable new recycled outputs. All the applications evidently complied with the in literature named most important attribute that of product uniqueness and may also be labelled as high level of newness (Kock et al., 2011; Heeley and Jacobsen 2008; Danneels and kleinschmidt, 2001), by delivering new benefits and functionalities to customers. Those customers however need to be convinced of those advantages which is a costly and time consuming objective of the firm. This is because customers face different kinds of adoption risks which influence the decision and timing to buy a product (Gatignon and Robertson, 1989), which will be addressed in the next section.

Adoption criteria

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effect which hamper the introduction of eco-innovation because of the favourable conditions of the existing order (Jacobsson and Johnson, 2000; Negro, Hekkert and Smits, 2007; Brown and Hendry, 2009). The declining economy, which hit the construction sector (Bluedec B.V.) especially hard, increased reticence by some potential clients to purchase the product or invest in the projects. Changing markets can also provide a project with new or more opportunities. The growth of not reusable clothing changed the textile market to be attractive to commence the T4T project (ones more). Table 11 gives an overview of the commonalities and differences in the key findings regarding customer value and adoption criteria and will be followed by a conclusion whether those case-findings are in line with existing literature.

Table 11: Cross-case analysis, Customer value and Adoption criteria

The firms introduced an (entirely) new application Extra efforts are needed to increase awareness of the application and to prove its performance to convince clients

Advantages that the application can deliver alone do not guarantee commercialization (Ekonek, ADASA and Müller)

Take into account different adoption criteria during the commercialization to meet economical, performance and market requirements which may differ significant in the market

Trailability is vital to convince customers Trail and test opportunity is needed to allow clients to experience the

performance (benefits) of the application in order for them to adopt it

Technical aspects determine the way client can experience the application

Some application can be test directly by clients (Ekonek, T4T and Bluedec), other have to be installed (ADASA and Müller) which determines the need for

partnerships (with clients)

The commercialization process of Eco-innovation Small businesses crossing the valley of death by