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Can innovative entrepreneurs within firms overcome the valley of death?

By Sebastian Aparicio - January 2020

It’s well known that one of the main purposes of any firm is to make a profit. To this end, businesses define many strategies involving workers, machines and other infrastructures. Within these strategies there may also be a purpose for designing, creating and implementing new products or services, internal processes, new suppliers, etc., which include large amounts of investment. Nevertheless, in many cases it’s common for this money to go to waste as the results don’t meet planned expectations.

Once the investment is made, another issue is the ability to transfer innovations to the marketplace. Sometimes investments in new products or services can be quickly translated into higher profits, but there are other times where there may be an endless wait.

In negative scenarios, firms can lose massive amounts of money, which then leads to inefficiency problems, fewer profits, and, therefore, a reduction in growth. Even though a firms’ investment could come from their own source, there might be alternative sources which involves public budget aimed at improving the company’s growth. In this case, the valley of death might affect not only private decisions, but also public initiatives.

Both firm and public investments in technology and knowledge transfer are high risk and often end in a loss of money. Motivated by this, different scholars have commented and provided evidence on possible factors affecting research and development (R&D) investments, and also the consequences of R&D investments. Yet the understanding of this phenomenon might remain separated and isolated, that is why a debate on both experiences and consequences at the same time is needed, not only for academia but also for practitioners and policymakers. They may be interested in understanding whether those experiences of R&D are translated into outcomes such as higher profits, new jobs etc. In essence, this discussion may help to further recognise possible variables that lead to R&D activities, which in turn, create higher profits for a company.

Alongside David Urbano and Andreu Turro from Universitat Autònoma de Barcelona, we have immersed ourselves into discussions about the experiences and consequences of innovation through R&D in European firms. This enabled us to debate some implications useful for leaders, managers and policymakers.

Drawing on the significance of working with the right people and having the correct mind-set, we have realised the importance of human resource and labour regulations as key factors in the motivating of employees to undertake innovative projects within companies. We have also found that strict labour rules discourage people from leading initiatives involving R&D activities. Quite contrary, the existence of workers from overseas and external training are factors which motivate entrepreneurial activity and innovation within companies, which are ultimately related to firm growth.

Contrasting our evidence with current discussions, we have noticed that workers who come from abroad play an important role in providing and exchanging business and cultural knowledge, creating relevant complementarities between them and the intrapreneurs in charge of R&D projects. An intrapreneur is an entrepreneur within a large firm, who uses entrepreneurial skills.

For example, Ricardo Hausmann, a well-known economist from Harvard University, has suggested that a way to solve the economic growth puzzle consists of absorbing knowledge from all over the world. From the firm-level perspective, we have come across a similar idea, though complemented it by highlighting that (overseas) knowledge itself does not lead to growth. Instead, intrapreneurs and innovators are needed to lead and translate this new knowledge into new products and services that create higher profits and more jobs.

Policymakers may encounter a reduction in certain work permit requirements which are useful to let new knowledge flow into and within the economy, which could serve to enable the recognition of new entrepreneurial opportunities that firms, through entrepreneurs and innovators, may turn into the development of new products and services that could solve, initially, market problems; and ultimately, social issues.

This idea is in line with the knowledge spillover theory of entrepreneurship (KSTE). Internal knowledge spillover occurs if there is a positive impact of knowledge between individuals within an organisation that produces goods and/or services

Knowledge and skills are then identified as key elements to motivate intrapreneurship leading to successful innovative activity; in this sense, (external) training programmes are initiatives that managers and owners can use to improve innovation and firm growth. Based on our evidence, we have realised skilled workers bring more benefits not only to the company, but also to themselves. This could imply entrepreneurship education may equip people with certain abilities to face problems in an entrepreneurial way.

It’s possible undergraduate and postgraduate students (or even workers from particular companies) attending these entrepreneurship courses or modules have no interest in pursuing an entrepreneurial career, yet by doing so they will gain enough knowledge and skills to behave as entrepreneurs in the companies they are working for and help them to overcome the valley of death.

For more information on Dr Aparicio’s research click here