Comments for Create innovation ecosystems: lands of opportunities

Engels Doryann, Gérard Thibault, Izere David, Rian Elias and Srhir Karim

Molina‐Morales, F. X., & Martínez‐Fernández, M. T. (2009). Too much love in the neighborhood can hurt: How an excess of intensity and trust in relationships may produce negative effects on firms. Strategic Management Journal, 30(9), 1013-1023.

The authors aim to provide a better understanding of the effect of social networks on innovation through the analysis of territorial agglomerations of firms. They attempt to propose a particular shape of the relationships between representative variables of the social capital and innovation within the context of an industrial cluster. They have used social interactions and trust as indicators of social capital,…
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The authors aim to provide a better understanding of the effect of social networks on innovation through the analysis of territorial agglomerations of firms.
They attempt to propose a particular shape of the relationships between representative variables of the social capital and innovation within the context of an industrial cluster.
They have used social interactions and trust as indicators of social capital, and they have analyzed their impact on the innovation of firms that belong to a territorial cluster.
They argue that beyond a certain point, further increases in the intensity of social capital produce no additional benefits, or even decrease returns in terms of innovation and value creation for the firms involved.
In the literature, we find several articles that show the positive effect of social capital on the company’s performance and innovation. However, social capital can become a resource with paradoxical effects.
On one hand, people in a firm need to spend time cultivating relationships by frequent visits and meetings with other firms, and processing their incoming information from direct contacts.These costs can become high and reduce the number of interactions with others. Indeed, these costs may result in neglecting potentially interesting opportunities, in favor of maintaining old relationships. This can lead to too little diversity in economic relations.

Social interaction relations, often established for other purposes, constitute information channels that reduce the amount of time and investment required to gather information. It also facilitates the transfer of “difficult-to-transfer” information like tacit knowledge by intensive and repeated interactions.
In the case of trust, it has been found to be important to innovation since it lessens the need for rigid control systems. Enhancing creative thinking and allowing people to devote additional time to beneficial actions and endeavors are just a sample of the benefits of trust within and between organizations. It also facilitates the transfer of high quality information as well as the exchange of confidential information.

On the other hand, several studies show that strong links can lock in routines and reduce the innovative capabilities of businesses.
Excessive trust can be a factor that blocks access to various external sources of resources. Indeed, the comfort provided by the existence of privileged partners leads to neglecting or ignoring new opportunities.

Moreover, we can add that trust needs time to establish itself and it’s difficult to determine what the right balance is. Indeed, it is not easy to determine when we are in excess. The saturation stage is sometimes subtle to distinguish.

In conclusion, the purpose of the study is to better understand the effects of social networks on innovation within companies. The curvilinear relation may be the reason for the limitations of the use of social networks. This indicates the actions that companies must take. The clusters are traps in their own network. The success of before can be the threat of today. Thanks to the study, we have observed that some companies that invest more are less innovative.

Further reference
Suire R., Vicente J. “Théorie économique des clusters et management des réseaux d’entreprises innovantes” Revue française de gestion (2008), n°184, 119-136.
Birley S. “The role of networks in the entrepreneurial process” Journal of business venturing, volume 1, 2002,107-117.

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AVAUX Nicolas, GELDERS Alice & GELIN Rémy

[video] BusinessTown (2017). 10 Myths About Entrepreneurs. Retrieved from https://www.youtube.com/watch?v=6TJK-Ddx-xU.

Those myths are false. 1st myth :: “Entrepreneurs are high risk takers”. (i) They weigh the risk and the reward and they calculate things : they accept risk is part of the game. (ii) They try to throw things in their favor. To create business plans, strategies and think about their marketing. (iii) They think, but try also to find safe ways to experiment.…
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Those myths are false.
1st myth :: “Entrepreneurs are high risk takers”.
(i) They weigh the risk and the reward and they calculate things : they accept risk is part of the game.
(ii) They try to throw things in their favor. To create business plans, strategies and think about their marketing.
(iii) They think, but try also to find safe ways to experiment. They try things as in real situation and test them in small quantities.
The main implication is that there are two major ways to reduce risks. To make business models, and to focus on the core-questions you need to answer in advance to increase the chance to be a successful entrepreneur and prototyping : entrepreneurs should (test their idea on a small scale before the launch of the project)
Limitation : by prototyping, you need all the team to agree on the strategy. This may take a lot of time, and you may miss an opportunity
Second myth: “Entrepreneurs are born” ⇒ They are made.
Third myth: “Entrepreneurs are mainly motivated to get rich” ⇒ . They also have a need for archievement, proactivity, opportunity-oriented.
Fourth myth: “Entrepreneurs give little attention to their personal lives” ⇒ Entrepreneurs work hard, but still usually have a good personal life.
Fifth myth: “Entrepreneurs are often high tech wizards” → most of the people making successful businesses have not anything to do with technology.
6th myth: “Entrepreneurs are loners and introvert” ⇒ But there are also plenty of entrepreneurs which are outgoing and extrovert
Implication : There is no right profile to be an entrepreneurs.
Limitation : some characteristic nevertheless best fits to be entrepreneurs in specific areas.
7th myth: “Entrepreneurs are job hoppers” ⇒ most entrepreneurs have a steady job history
8th myth: “Entrepreneurs financed their business venture capital” → People usually use personal savings, you know friend and family.
9th myth : “Entrepreneurs are often ruthless and deceptive” → Ruthless and deceptive entrepreneurs will have difficulties to keep “talented” employees.
Implication for managers is that they should take into account the HR issues (and for example implement holacracy
Limitation is that it could be very difficult to implement such management style for companies which have already a significant size with change management issues.
10th myth :”Entrepreneurs have limited dedication” → you have to be really dedicated.When managers get bored, they tend to drift in directions that don’t make any sense.

APPENDIX : FURTHER REFERENCES
Marcati, A., Guido, G., & Peluso, A. M. (2008). The role of SME entrepreneurs’ innovativeness and personality in the adoption of innovations. Research Policy, 37(9), 1579-1590.
→ Theoretical analysis of personal traits influencing innovation, linked with the Five Factor Model
Carland, J. W., Hoy, F., Boulton, W. R., & Carland, J. A. C. (2007). Differentiating entrepreneurs from small business owners: A conceptualization. In Entrepreneurship (pp. 73-81). Springer, Berlin, Heidelberg.
→ Highlights the differences between entrepreneurs and small business owners, which is not clear in the video
Delmar, F., & Davidsson, P. (2000). Where do they come from? Prevalence and characteristics of nascent entrepreneurs. Entrepreneurship & regional development, 12(1), 1-23.
→ Results : good understanding of the characteristics associated with men, but limited ability to predict nascent entrepreneur status for women.

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Antoine Thomas

Shane, S.A. (2009) Why encouraging more people to become entrepreneurs is bad public policy? Small Bus Econ (2009) 33:141–149

Authorities often think that creating more start-up companies will transform depressed economic regions, generate innovation, and create jobs. This belief is limited because the average start-up is not innovative, creates few jobs, and generates little wealth. Indeed, the vast majority of people founding new businesses are founding businesses that have more in common with self- employment instead of people building…
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Authorities often think that creating more start-up companies will transform depressed economic regions, generate innovation, and create jobs. This belief is limited because the average start-up is not innovative, creates few jobs, and generates little wealth. Indeed, the vast majority of people founding new businesses are founding businesses that have more in common with self- employment instead of people building companies that grow, generating both jobs and wealth.

Currently, governments help entrepreneurs with loans, subsidies, regulatory exemptions, and other advantages if they start businesses. The issue is that they do it for any kind of business. Some people tell that it might seem illogical to go against massive entrepreneurship. After all, companies like Google in Internet search and Genentech in biotechnology, are examples of start-ups that had a huge success.

Looking at the relationship between firm productivity and firm age, we can show that firm productivity increases with firm age. But it’s not sure that the typical start-up makes up for its poor productivity when it gets older because typical U.S. start-up is dead in five years. If we look at the correlations between rates of new firm formation and economic growth over the medium-to-long term, we see that firm formation declines as economic growth increases. So as we see, there are some contradictions.

There is one big issue: When governments use their money to encourage the creation of new businesses, they stimulate more people to start new companies mainly in industries with lower barriers to entry and high competition and rates of failure. That’s because the typical entrepreneur has trouble picking the right industries and often chooses the ones that are the most accessible, not the ones that are best for start-up. (Johnson 2004) It is like this because unemployed people are more likely to start businesses than people who have jobs, as the latter have more to loose.

We also have to have in mind the job creation myth behind start-up creation: According to Acs and Armington (2004), companies with at least one employee that are less than two years old provide a total of 1 % of all employment in the US. And concerning the job quality: Wagner (1997) showed that jobs in new firms pay less, offer worse benefits and less job security than jobs in existing firms.

The solutions proposed by the article are the following: First stop subsidizing the formation of the typical start-up and focus on a reduced amount of businesses with growth potential and secondly, looking at the capital of the founder and his motivations, the industries in which companies are founded, their business ideas and strategies, and their legal forms and capital structure to predict if the start-up might have good chances to be successful.

The implications for policy makers could be the following: First, reduce the incentives that we give marginal entrepreneurs to start businesses by reducing the transfer payments, loans, subsidies, regulatory exemptions, and tax benefits that encourage more and more people to start businesses, and they should also reallocate resources to programs that support high growth companies. Moreover, governments should organise contests to be able to target start-ups that are promising, instead of funding start-ups in general. They should also give financial incentives for R&D in order to foster companies planning to grow. Another implication could be to hire former entrepreneurs to become business angels. Furthermore, as we seen during the course, it isn’t only about financial help, it can also be coaching or logistic help. And finally, firms that receive financial support from VC’s get better results, so policies should follow this trend in order to recognize in which type of sectors to subsidize.

Of course, some limitations have been found: For instance, reducing the number of start-ups that are funded could lead to many people staying unemployed. For some people, being self-employed is the only solution. Even if the start-up they launch won’t create many new jobs, at least those people are able to work in a setting that corresponds to them. Moreover, there is a weak evidence for the assumed link between technology-based firms or R&D intensity and high growth firms. We can also highlight the fact that most high growth firms are often part of another company (pre-incubation) and that politicians who would reduce subsidies to any firm creation will get a rather bad image, meaning not everyone can benefit from the fund and that not everyone is capable of building a successful start up. Thus, they may have no political incentive to do so.

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